Freshworks Inc. Class A Common Stock 2026 Q2 Earnings Call

Good afternoon and welcome to Freshworks second quarter 2026 earnings conference call. Joining me today are Dennis Woodside, Freshworks Chief Executive Officer and President, and Tyler Sloat, Freshworks Chief Operating Officer and Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our second quarter 2026 performance and our financial outlook for our third quarter and full year 2026. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate and market volatility, and certain other assumptions made by the company, all of which are subject to change.

These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain growth, to innovate, to reach our long-term revenue goals, to meet customer demand, and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K, and other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures.

Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our investor relations website at ir.freshworks.com. I encourage you to visit our investor relations site to access our earnings release, supplemental earnings slides, periodic SEC reports, and a replay of today's call to learn more about Freshworks. I will now turn the call over to Dennis.

Please go ahead. Good afternoon, everyone, and thank you for joining us.

Freshworks is the AI-powered unified service operations platform for the modern agile enterprise. In Q2, we delivered another quarter of strong growth and profitability. Revenue was $237.4 million, up 16% year-over-year. Our non-GAAP operating margin was 24%. We have now achieved rule of 40 for eight straight quarters. We are growing our business with discipline quarter after quarter. In Q2, we also achieved a meaningful financial milestone. We reported positive GAAP net income ahead of our previously given expectations. GAAP profitability is no longer just a goal. It is here, and it is funding our investments in EX and AI, and we expect to sustain our GAAP profitability. At our investor event during Refresh in May, we laid out five key messages about the durability of our business.

Before I get into the quarter, I want to remind everybody of those messages. First, we are an EX-first company. When Freshworks went public, 35% of our total ARR came from our employee experience business. By year-end 2026, we expect EX ARR will exceed 60%. The market opportunity in EX is significant. The total addressable market we are pursuing spans ITSM, ITAM, ITOM, and ESM and is roughly $45 billion, growing 13% a year. We are focused on businesses with up to 20,000 employees, which represents about 60% of that overall total addressable market. It's large, fragmented, and no single player in this segment holds more than a 20% share. That leaves plenty of room for Freshworks to win. Second, we are a category leader with agile enterprises and in the mid-market.

Freshservice has over 20,000 customers globally, with EX ARR up five times from where we started at the beginning of 2021 just five years ago. Freshservice serves companies that carry the complexity of an enterprise but require the speed and agility of a modern platform. Recently, Gartner named Freshworks a leader in the 2026 Magic Quadrant for IT Service Management Platforms. We feel our positioning as a leader by Gartner highlights a clear shift in the market. We're focused on giving agile enterprises the depth and scale they need alongside domain-specific AI so that they can move at the speed of their business while staying firmly in control. Third, AI is a tailwind enabling growth in our business. Over 7,000 customers are paying for an AI SKU. Our Copilot attach rate on larger deals exceeds 70%.

Our products allow customers to adapt to an agentic world quickly and achieve measurable IT efficiencies faster. Fourth, we are profitable and scaling. We're demonstrating operating leverage and purposefully concentrating our investment to expand our EX business. Our fifth key message, we are committed to capital efficiency and prudent capital management. Tyler will cover this in more detail as we bring together how Q2 delivered on all five of these key objectives. Let's look at the results from the quarter, starting with EX. Our EX business demonstrated continued growth and large deal traction. EX ARR grew 24% on a constant currency basis, ending the quarter at $567 million and representing approximately 59% of total ARR. Why are we able to consistently grow EX? Two reasons. First, large customers are actively choosing Freshworks to displace incumbents that no longer serve them.

Take Seagate, a global leader in hard drives with 30,000 employees. After 14 years with a legacy provider, they struggled to extract value from AI, were unable to adapt workflows as the business evolves, and were paying for dedicated specialists just to manage the complex system. They evaluated the market. They chose Freshservice and were live in 3 months. That speed to value is what Freshworks delivers. Another example is American Oncology Network, a nationwide cancer care network supporting over 140 clinic locations. They implemented Freshservice for IT, Freshservice for business teams, and Freddy AI Copilot in under 30 days. Today, their EX platform has expanded to seven business departments beyond IT, and it takes just one administrator less than two hours per week to manage the entire environment. That up-market momentum shows in our numbers.

Customers contributing more than $100,000 in ARR grew 25% year-over-year and now represent roughly 40% of total ARR. We believe that's the clearest evidence our enterprise motion is working and it's accelerating, not slowing down. Second, we are expanding our right to win by broadening our EX platform. Freshservice ITAM makes infrastructure visible and actionable, giving IT teams the context they need for unified service operations. Our offering is powered by Device42, a company we acquired a little over two years ago, and today we offer both on-prem and cloud-native Advanced ITAM products. About a third of large new EX lands now include ITAM, and in Q2, we have the strongest new logo quarter for this business yet. We are actively serving new Freshservice ITAM cloud customers on our platform, such as DriveTime and Radio France.

Our enterprise service management crossed $50 million in ARR this quarter, growing 67% year-over-year. ESM continues to be a major long-term growth vector for Freshworks as one-fifth of new EX seats are coming from outside IT. Our investment in FireHydrant showed results this quarter. FireHydrant generated its first six-figure expansion deal since joining Freshworks and was one of our top three largest deals of the quarter. This customer is a global cybersecurity leader that chose to consolidate their alerting and incident management onto FireHydrant. Stepping back, Freshworks EX business is in the strongest position in the company's history. We are winning against incumbent and legacy providers, expanding our customer base with new platform offerings, growing deal sizes, and strengthening our market leadership. Let's talk about how we are innovating with AI.

Freddy AI continues to be embedded throughout our platform, delivering real value for customers while building towards the long-term monetization opportunity. At Refresh, we launched two new AI products for Freshservice. Freddy AI Agent Studio, a no-code environment for rapidly building domain-specific AI agents. MCP Gateway, which connects Freshservice intelligence to AI tools customers already use, including Claude and Microsoft Copilot. Despite being available for a short time, we have hundreds of customers using both products in our early access program today. The productivity gains our customers are experiencing with AI are substantial and real. Agents using Freddy AI Copilot handle 50% more tickets. That means they are 50% more productive. That's huge for customers. Freddy AI Agent deflection rates average 50% and reach as high as 80% for mature deployments. With Freddy AI, customers are changing the economics of how they run service operations.

We are monetizing AI. Copilot attach rate for new deals above $30,000 exceeded 70%. Eligible EX customers paying for Copilot increased to 22% of our installed base in the quarter, and EX customers with AI continued to carry higher NDR well above total company NDR. iQor demonstrates what Freddy AI can do at enterprise scale. A global BPO with more than 40,000 employees, iQor had a mandate to modernize and automate. They replaced a legacy on-premises system with Freshservice and Freddy AI. Now, they have an agentic AI solution that has fully automated 35% of their IT service delivery and cut monthly ticket volume by 39%. Turning to the results and highlights of our CX business in Q2. We are seeing steady ARR growth and significant progress on our platform migration. CX ARR grew 4% on a constant currency basis, ending the quarter at $400 million.