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01/11 16:03
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call indicates positive financial performance with strong revenue growth, improved margins, and increased cash flow. The share repurchase program also supports shareholder value. Although there are concerns about competition and economic factors, the company shows strong growth in AI and operational efficiencies. The Q&A suggests positive sentiment towards AI-driven growth and cost management. Despite some management hesitancy on external impacts, overall sentiment remains positive, particularly for a mid-cap stock like Freshworks, likely leading to a stock price increase of 2% to 8%.
Revenue $196,300,000, growing 19% year over year. This growth is attributed to the strong performance of both the EX and CX business segments.
Non GAAP Operating Margin 24%, an increase of more than 10 percentage points year over year, driven by top line outperformance and lower personnel-related expenses.
Adjusted Free Cash Flow $55,400,000, reflecting a 43% year-over-year increase, resulting in an adjusted free cash flow margin of 28%, attributed to strong collection activities and operational efficiencies.
EX Business ARR Over $420,000,000, growing 33% year over year, driven by upmarket success and expansion in employee service management.
CX Business ARR Over $370,000,000, reflecting 7% year-over-year growth, attributed to steady execution and positive momentum from SMB customers.
Net Dollar Retention 105% on a constant currency basis, consistent with the previous two quarters.
Calculated Billings $203,300,000, representing a 16% year-over-year growth, with higher bookings performance contributing to this increase.
Total Customers Over 73,300 customers, with an addition of over 1,000 net new customers in the quarter.
Customers Contributing Over $5,000 in ARR 23,275 customers, growing 13% year over year.
Customers Contributing Over $50,000 in ARR 3,217 customers, growing 24% year over year.
Non GAAP Gross Margin 86%, an improvement of approximately 100 basis points compared to the prior year.
AI Solutions: Freshworks is seeing strong adoption of its AI-powered solutions, with Freddie Copilot included in three of the top 10 new deals in Q1. Nearly half of all new large deals over $30,000 ARR had Copilot attached.
Freddie AI Agent: The Freddie AI Agent became generally available for CX customers in Q1, with over 1,600 customers using it, significantly improving customer service operations.
Freddie AI Insights: Launched into public beta at the end of Q1, Freddie AI Insights is designed to deliver actionable insights for leaders, enhancing decision-making.
Customer Growth: Freshworks added over 1,000 net customers in Q1, ending with over 73,300 customers, including large clients like Freudenberg Group and All3Media.
Market Positioning: Freshworks is gaining market share from legacy software providers, with a notable increase in customer wins against competitors like ServiceNow and Zendesk.
Revenue Growth: Q1 revenue grew 19% year over year to $196.3 million, with a non-GAAP operating margin of 24%.
Customer Retention: Net dollar retention remained strong at 105% on a constant currency basis, consistent with the previous two quarters.
Strategic Imperatives: Freshworks focuses on three strategic imperatives: investing in employee experience (EX), delivering AI capabilities across products, and accelerating growth for customer experience (CX) solutions.
Partner Program Enhancement: Freshworks has enhanced its global partner program to provide more predictability for partners, allowing them to build services around Freshworks products.
Macroeconomic Environment: Uncertainties in the macroeconomic environment could impact business operations and market volatility.
Growth Sustainability: Risks related to sustaining growth rates and achieving long-term revenue goals.
Customer Demand: Challenges in meeting customer demand could affect revenue and retention.
Cost Control: The need to control costs and improve operating efficiency is critical for maintaining profitability.
Regulatory Issues: Potential regulatory challenges that could affect business operations.
Competitive Pressures: Increased competition from legacy software vendors and the need to differentiate through AI capabilities.
Supply Chain Challenges: Potential supply chain disruptions that could impact service delivery and operational efficiency.
Economic Factors: Economic uncertainty may affect customer spending and investment in software solutions.
Strategic Imperatives: 1. Investing in employee experience (EX), which is the largest and fastest growing business in ITSM, ITAM, ITOM, and ESM. 2. Delivering AI capabilities across products to drive productivity improvements. 3. Accelerating growth for customer experience (CX) solutions.
Customer Growth: Added over 1,000 net customers in Q1, including large customers like Freudenberg Group and All3Media.
AI Adoption: Freddie AI and AI agents are being adopted rapidly, with significant improvements in customer service efficiency.
Partnerships: Expanded global partner program to enhance reseller and service offerings.
Q2 Revenue Guidance: Expected revenue in the range of $197,300,000 to $200,300,000, growing 13% to 15% year over year.
Full Year 2025 Revenue Guidance: Raised revenue expectations to a range of $815,300,000 to $824,300,000, growing 13% to 14% year over year.
Adjusted Free Cash Flow: Expecting approximately $210,000,000 of adjusted free cash flow for the full year 2025.
Operating Margin Guidance: Expect non GAAP income from operations to be in the range of $139,500,000 to $147,500,000 for the full year.
Net Dollar Retention: Estimated at approximately 105% for Q2.
Share Repurchase Program: In Q1, Freshworks repurchased an additional $111,800,000 of its shares at an average price of $16.6 per share. Since the beginning of the program, the company has repurchased more than 7,700,000 shares using $127,300,000 through Q1.
Future Share Repurchase Plans: Freshworks remains committed to executing an appropriate capital allocation strategy and delivering long-term value for shareholders. They plan to manage share count dilution through net settling vested equity amounts and share repurchases.
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.
The earnings call summary and Q&A indicate positive financial performance with strong customer growth, AI adoption, and increased revenue guidance. The company is expanding partnerships and has raised its full-year revenue expectations. Despite some uncertainties in product-specific revenue impacts and pricing models, the overall sentiment is positive due to strong growth metrics and optimistic guidance. Given the market cap, this is likely to result in a stock price increase in the 2% to 8% range over the next two weeks.
The earnings call highlights strong financial performance with a 19% YoY revenue growth, improved operating margin, and significant free cash flow increase. The share repurchase program and customer growth are positive indicators. Although there are concerns about competitive pressures and regulatory issues, the Q&A shows confidence in AI-driven efficiencies and a strong pipeline. The market cap suggests a moderate reaction, leading to a positive outlook for the stock price over the next two weeks.
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