Freshworks Inc. (FRSH) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with a 24% free cash flow margin and an 8% increase in adjusted free cash flow per share. The EX business shows momentum, highlighted by significant deal wins and a strong pipeline. The company's focus on AI and restructuring for efficiency supports growth. Despite some legacy churn, NDR remains robust. Analysts' questions reveal confidence in the company's strategy and execution. Given the market cap of $3.79 billion, the positive sentiment is expected to result in a 2% to 8% stock price increase over the next two weeks.
Key Financial Performance
Q1 Revenue $228.6 million, up 16% year-over-year. Growth attributed to strong performance in EX ARR and professional services revenue.
Non-GAAP Operating Margin 18%, nearly 3 points above estimate. Improvement driven by strong top-line performance and efficiency gains.
Adjusted Free Cash Flow Margin 24%, slightly better than expectations. Reflects operational efficiency and disciplined growth conversion.
EX ARR Over $540 million, growing 27% year-over-year. Growth supported by strong expansion and new logo activity, including the 2 largest new business contracts in company history.
CX ARR Over $395 million, up 6% year-over-year. Growth driven by replatforming to Freshdesk Omni and AI adoption.
Net Dollar Retention 106% as reported, 105% constant currency. EX-specific retention at 111% as reported, 109% constant currency, showing strong expansion growth.
Customers with >$50,000 ARR Grew 22% year-over-year as reported, 20% constant currency. Represents over 55% of total ARR.
Customers with >$100,000 ARR Grew 29% year-over-year as reported, 26% constant currency. Represents approximately 39% of total ARR.
Calculated Billings $235 million, up 16% year-over-year as reported, 13.5% constant currency. Growth aligns with revenue performance.
Non-GAAP Gross Margin 86.3%, consistent with prior quarters, demonstrating business model durability.
Free Cash Flow $55.8 million, representing a 24% margin. Adjusted free cash flow per share was $0.20, an 8% increase over the prior year.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
Freddy AI Copilot: Freddy AI Copilot customer growth exceeded 80% year-over-year, with attach rate growth in new deals over $30,000 in ARR above 65%. Customer penetration for AI surpassed 20%, nearly doubling year-over-year.
Freshservice ITAM experience: Launched a new Freshservice ITAM experience, integrating Device42 capabilities natively into Freshservice for a unified cloud experience.
EX ARR Growth: EX ARR grew 27% year-over-year, driven by new and expansion business. EX ARR is expected to grow in the mid-20s and represent over 60% of total ARR by year-end.
CX ARR Growth: CX ARR grew 6% year-over-year, with over 80% of the CX customer base migrated to the new Freshdesk Omni platform. ARPA for new Freshdesk Omni customers is 2.5x higher compared to the prior platform.
Operational Efficiency: Non-GAAP operating margin reached 18%, nearly 3 points above estimates. Workforce changes in Q2 will reduce global headcount by 11% to consolidate efforts and streamline processes.
Free Cash Flow: Generated $55.8 million in free cash flow in Q1, representing a 24% margin. Adjusted free cash flow per share increased by 8% year-over-year.
Acquisition of FireHydrant: Completed the acquisition of FireHydrant to advance the vision for an AI-enabled service ops platform. Integration to be completed over 2026.
Share Repurchase Program: Authorized a $400 million share repurchase program, reducing shares outstanding by approximately 2% in Q1.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Macroeconomic Environment: Uncertainties in the macroeconomic environment and market volatility could adversely impact the company's financial expectations and estimates.
Sustaining Growth: Challenges in sustaining growth and reaching long-term revenue goals could impact the company's performance.
Innovation: The ability to innovate and meet customer demand is critical, and failure to do so could negatively affect operations.
Cost Control and Efficiency: Challenges in controlling costs and improving operating efficiency could impact profitability.
Workforce Restructuring: The announced 11% global headcount reduction may lead to short-term operational disruptions and restructuring charges of approximately $8 million.
Customer Retention: Maintaining a net dollar retention rate of approximately 105% is crucial, and any decline could affect revenue growth.
CX Business Growth: The CX business is expected to grow in low single digits, indicating potential challenges in achieving higher growth rates.
Integration of Acquisitions: The integration of FireHydrant and other acquisitions may pose challenges and risks to seamless operations.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Revenue Growth: For Q2 2026, revenue is expected to be in the range of $232 million to $235 million, representing a year-over-year growth of approximately 13% to 15%. For the full year 2026, revenue is projected to be between $958 million and $964 million, growing approximately 14% to 15% year-over-year.
Non-GAAP Operating Income: For Q2 2026, non-GAAP income from operations is expected to range between $41 million and $43 million. For the full year 2026, non-GAAP income from operations is projected to be between $207 million and $215 million.
Adjusted Free Cash Flow: For Q2 2026, adjusted free cash flow is expected to be approximately $57 million, with a margin of 24%. For the full year 2026, adjusted free cash flow is projected to be $265 million, with a margin of 27.5%.
Adjusted Free Cash Flow Per Share: For the full year 2026, adjusted free cash flow per share is expected to be $0.94, representing a 24% increase compared to fiscal 2025.
EX ARR Growth: EX ARR is anticipated to grow in the mid-20% range for 2026, with EX ARR expected to constitute over 60% of total ARR by year-end.
CX ARR Growth: CX ARR is expected to grow in the low single digits for 2026.
Net Dollar Retention: Net dollar retention is expected to sustain at approximately 105% on a constant currency basis for Q2 2026.
Workforce Restructuring: The company plans to reduce global headcount by approximately 11% in Q2 2026 to consolidate overlapping efforts, streamline product development, and leverage AI and automation. This will result in a one-time restructuring charge of approximately $8 million, mostly in Q2.
Capital Allocation: The company has authorized a $400 million share repurchase program and reduced shares outstanding by approximately 2% in Q1 2026.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Share Repurchase Program: In February, the Board authorized a new $400 million share repurchase program. In Q1, the company repurchased 5.7 million shares for $45.4 million and utilized an additional $7 million to offset dilution through the net settlement of vested equity. This resulted in a 2% reduction in shares outstanding year-over-year.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:What drove the variance to the high end of implied year-over-year constant currency revenue growth in the first quarter for the employee experience (EX) side?
A:The EX business continues to see momentum, particularly with the move upmarket. Growth in accounts spending more than $100,000 increased by 29% year-over-year. The company secured its largest and second-largest deals ever, with a large nutrition company and a healthcare provider, respectively. The platform's enterprise-grade scale, faster time to value, AI capabilities, and ease of management are key drivers. The mid-market segment (5,000 to 20,000 employees) is a significant focus.
Q:What is the impact of pricing changes on the full-year guidance?
A:Pricing changes are not material to the guidance. The company is going through a normal renewal process with customers, involving CPI-type increases. The positive impact on guidance is primarily due to strong new business performance on the EX side.
Q:How is the pipeline building for Freshservice, and are there longer sales cycles?
A:The pipeline looks strong, with continued momentum in larger deals and a steady flow of mid-sized deals. The company has been building its field motion, including sales reps and customer success managers, to engage with larger customers. The pipeline for EX is particularly strong.
Q:What drove the quarter-over-quarter increase in net revenue retention (NRR) on a constant currency basis?
A:The increase in NRR was driven by strong new business wins, seat expansion, and the broadening product portfolio. Growth areas include ESM, Advanced ITAM, and consumption-based offerings like Freddy AI Agent. The company is taking market share from larger competitors, and seat growth remains a meaningful driver.
Q:What allowed the company to win its largest deal ever, and how does AI factor into the upmarket motion?
A:The largest deal was won due to the platform's enterprise-grade capabilities, fast time to value, proven ability to transition large customers, and AI functionality. Customers value the choice in how they consume AI. Upcoming product enhancements, such as AI Agent Studio and MCP Gateway, will further support the upmarket motion.
Q:Why did the company decide to restructure now, and where will the optimizations be focused?
A:The restructuring aims to build an agile company that delivers strong free cash flow while fueling EX growth. Reasons include a consolidated go-to-market strategy focusing on EX, efficiency gains from embedding AI into product development, and automation investments. The focus is on reallocating resources towards EX and running the CX business for profitability.
Q:What is the dollar-based net retention rate (NDR) for the EX business?
A:The NDR for the EX business is over 110%, around 111% and 109% at constant currency. This includes some headwinds from legacy churn in Device42 contracts. The weighted average NDR is improving as EX grows faster.
Q:Were there any one-time events impacting revenue or billings growth in the quarter?
A:There were no significant one-time events. The growth was driven by strong execution, particularly in the EX business. Device42 churn has been a slight headwind, but there were no onetime positive impacts.
Q:What are the competitive dynamics in the market, and is AI impacting sales cycles?
A:Competitive dynamics remain stable. On the EX side, competitors include ServiceNow, Atlassian, and others. On the CX side, Zendesk and smaller players dominate. AI is not causing deal anxiety; instead, it is a core component of larger deals. Customers value the full platform capabilities alongside AI.
Q:What is the status of the company's channel efforts, and how do they align with the broader EX suite?
A:Channel efforts are focused on regional service providers and some GSIs like Unisys. The company is investing in expanding GSI partnerships. Regional partners are driving meaningful business, and there is growing interest in the EX suite among channel partners.
Q:What is the potential for monetizing third-party AI agents within the platform?
A:The company plans to monetize third-party AI agents through its MCP Gateway, which allows customers to integrate external AI agents with the platform. This provides flexibility for customers to use their own AI while enabling the company to participate in external AI-driven activities. Details will be revealed at the upcoming Refresh EX event.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing why the company was in line with its constant currency revenue guidance rather than exceeding it. The response focused on general execution and prudence in CX estimates without providing specific reasons for not exceeding guidance.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI EX
AI automation
AI capability
AI place
AI progress
AI service
ARPA new
ARR EX
ARR progress
ARR success
Amerisure insurance
CX business
Copilot Amerisure
Device capability
EX Copilot
EX competitiveness
EX customer
EX offering
EX opportunity
FireHydrant
Refresh event
capital allocation
comment
competitor
customer attach
deal ARR
deal history
event week
flow share
grade scale
implementation
margin point
momentum EX
new platform
outcome
point estimate
return
vision
win
FRSH Transcript
Freshworks Inc. (FRSH) Q1 2026 Earnings Call Transcript
Positive5-6
The earnings call indicates strong financial performance with a 24% free cash flow margin and an 8% increase in adjusted free cash flow per share. The EX business shows momentum, highlighted by significant deal wins and a strong pipeline. The company's focus on AI and restructuring for efficiency supports growth. Despite some legacy churn, NDR remains robust. Analysts' questions reveal confidence in the company's strategy and execution. Given the market cap of $3.79 billion, the positive sentiment is expected to result in a 2% to 8% stock price increase over the next two weeks.
Freshworks Inc. (FRSH) Presents at Morgan Stanley Technology, Media & Telecom Conference 2026 Transcript
Neutral3-4
Freshworks Inc. (FRSH) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call reflects strong financial performance, with 12-14% revenue growth and optimistic guidance for 2026, including GAAP profitability. Freddy AI's growth and strategic investments indicate positive business momentum. However, the lack of specific guidance on certain elements and conservative expectations slightly dampen the sentiment. Overall, the market is likely to react positively, with a potential stock price increase of 2% to 8%.
Freshworks Inc. (FRSH) Q3 2025 Earnings Call Transcript
Positive11-6
The earnings call highlights solid financial metrics, including 14% YoY revenue growth and a 27% free cash flow margin, indicating operational discipline. The Q&A reveals positive sentiment towards AI and EX product growth, with strategic investments for future expansion. Despite no buyback expansion, the focus on M&A and reinvestment is seen positively. While management was vague on some specifics, the overall tone and strategic direction suggest a positive market reaction, especially given the company's market cap.
FRSH Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
