Good day, and thank you for standing by. Welcome to the Freshworks Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Brian Lan, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to Freshworks Third Quarter 2025 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 third quarter 2025 performance and our financial outlook for our fourth quarter and full year 2025. 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 our 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'd 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 or to learn more about Freshworks. And with that, let me turn it over to Dennis.

Thank you, Brian. Freshworks delivered an outstanding Q3, marking the third consecutive quarter this year that we surpassed our estimates across growth and profitability metrics. We grew Q3 revenue 15% year-over-year to $215.1 million on both an as-reported and constant currency basis, approximately 3 points above the high end of our previously issued estimates. Non-GAAP operating margin expanded to 21%, 5 points above our estimate. Our free cash flow margin was 27%, and we added a fifth straight quarter of Rule of 40 plus. We ended the quarter with nearly 75,000 customers, including new logos such as global auto manufacturer, Stellantis; multinational bank, Societe Generale; the Pennsylvania Gaming Control Board; and Travis Perkins plc, the U.K.'s leading distributor of building materials. Our positive results also reflect significant expansion deals with existing customers like Wiley, The Access Group and iRhythm Technologies. In Q3, we saw a more than 40% year-over-year increase in the number of new and expansion deals with greater than $50,000 in ARR. Our strategy has focused on 3 key growth drivers: investing in Employee Experience, delivering AI capabilities across our products and accelerating adoption and driving continued expansion in customer experience. At our Investor Day in September, we outlined our path to $1.3 billion in ARR in the next 3 years, and we continue to make progress towards our goal of ESM, AI and ITAM, each generating over $100 million in ARR. Before we dive into the results, I want to speak to the transformative AI opportunity ahead for Freshworks. We have over 50 AI-driven applications in the hands of customers right now, and the direct monetization of these products demonstrates that we are driving incremental growth and that customers are realizing tangible outcomes from our AI. The headline here is that businesses need the right foundation, workflow,…

Thanks, Dennis, and thanks, everyone, for joining on the call and via webcast today. We are very pleased that we continued our streak of outperforming across both growth and profitability during the third quarter. We once again exceeded our revenue, non-GAAP operating income and adjusted free cash flow expectations. This strong overperformance reflects the continued demand for our AI-powered and uncomplicated EX and CX solutions. Our consistent execution and financial discipline position us well to capture the significant long-term opportunities ahead. For our call today, I'll cover the Q3 2025 financial results, provide background on the key metrics and close with our forward-looking commentary and updated expectations for Q4 and full year 2025. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges and other adjustments. We will also talk about our adjusted free cash flow, which excludes the cash outlay related to restructuring costs. To provide greater transparency into our underlying business performance, we will also include constant currency comparisons throughout today's call. Starting with the income statement. Q3 total revenue increased to $215.1 million, growing 15% year-over-year on both an as-reported and constant currency basis. Revenue outperformance includes a onetime $1 million contribution coming from our on-premise Device42 business. Professional Services revenue modestly declined quarter-over-quarter to just over $2 million, consistent with our ongoing shift in leveraging our partner network as we scale our business. In 2025, we saw partner involvement expand significantly across our largest deals. Partners helped to lead implementations for over half of our ARR deals greater than $50,000, a notable increase from last year, underscoring the success of our robust and growing partner ecosystem. Our EX business accelerated in Q3, growing to over $480 million in ARR, representing growth of…

[Operator Instructions] Our first question will be coming from Scott Berg of Needham & Company.

Really nice results here in the quarter. Dennis, I wanted to talk about the announcement today, you're selling ESM as a stand-alone solution. That's certainly not news to us that we're paying attention at the Analyst Day. I just want to hear kind of, I guess, how you're thinking about that solution. Is this going to be sold with a, I guess, a separate sales force now as you're selling it stand-alone, it's going to be sold with the same sales folks that you're using? And any changes to, I don't know, pricing or I guess, whatever the marketing message looks like around that in the stand-alone environment?

Yes. Thanks, Scott. So first of all, we launched Freshservice for Business Teams in 2022. We had a lot of demand outside of core IT departments for a service desk solution. And that, as you know, has been a huge driver for us. We crossed $35 million in ARR. That business has doubled year-over-year. About 1/4 of our customers now for -- Freshservice customers now are using Freshservice for business teams in some way, shape or form. So it's a really strong value proposition. And what we've seen is some prospects where they might be locked into a contract for their Core ITSM with a larger incumbent, they don't necessarily want to increase their vendor dependency on that incumbent. They want to preserve optionality to potentially move to us at a later date. But they need a solution now for the teams outside of IT, and that's why we launched this. In those cases, we can sell to them now. We can preserve that optionality, get to know them a little bit. So when that contract does come up for renewal for Core ITSM, we were there, and they've had a positive experience with us. There's no new sales force around this. We already have a pretty well-worn try-to-buy way of getting a lot of customers started. So all of our typical outbound and inbound marketing methodologies apply here. It's going to be the same sales force we have. So we think we'll get a lot of scale out of that. And this is on top of the Core ESM business that we have, the product that is attached to Freshservice. We think that alone -- when we talked about this at Analyst Day, that alone has a path to $100 million. This is additive to that. So we're launching it today. We'll have more next quarter in terms of early traction, but we're pretty positive about where this is going to go just given the success of the products that we've had in the market already.

Excellent. And then from a follow-up perspective, maybe this is for Tyler, is it's around your buyback program expired in the quarter. You've certainly been buying back some shares at higher levels. I didn't see that repeated here, which I kind of almost expected, I guess, in the quarter or at least an expansion of those efforts. Should we take that as maybe an indication or a shift in your capital allocation strategy? Or maybe there's something more just on a timing basis there? Any details there would be great.

Yes. Thanks, Scott. Yes, so we finished the inaugural buyback in Q2 [Technical Difficulty]. So we just finished it 1.5 months ago. That was authorized a year ago for $400 million, and we completed that and we were happy to get that done. I think the weighted average price is just over $14. We are committed to working with the Board on a continued capital allocation strategy. We've always said we've been open to M&A., if that come forward. We're obviously going to invest in the business where that's needed, but we're producing a lot of cash flow now. And we'll continue to talk about the Board -- about other uses of capital, including other buybacks. We are still doing our net settles, and we provide the data there. And so we're still spending money every single quarter on net settlements, and that's been outside of the buyback. So that will be a continual discussion that we will have with the Board.

And our next question will be coming from Alex Zukin of Wolfe Research.

This is Mark Heatzig, on for Alex Zukin at Wolfe. Congrats on great results. Can you just give us a little bit more color on how you're balancing the monetization versus adoption play with the Freddy AI suite of tools? Any way we should think about how that might change with the new agent capabilities?

Yes. So just to recap our strategy, we have Freddy AI agent, which is a consumption-based model for CX, where our customers pay us on a per session basis. We have Freddy Copilot, which is a per seat license adder. And then we have our Freddy Insights, which is only available in the enterprise plan. So different products have different monetization levers and paths. For AI agents, we've historically priced those based on sessions with our Agentic AI agents coming out in a matter of weeks. We have revisited pricing. We're not revealing that now, but we are going to be more in line with industry pricing, which is considerably higher than where our pricing historically has been. We think that the market will support that based on what we've seen in early access with some customers seeing up to 80% deflection rates based on their use of AI agents. What's coming in a couple of weeks are agents that are focused on very specific verticals like fintech, like travel, logistics, e-commerce that take action on behalf of the end customer, and we know that those interactions are quite valuable. We're not quite at the point to move to full resolution-based pricing and frankly, neither are our customers. So the session-based pricing makes a lot of sense for where we are now, but we're always open to evolving that as our customers ask us to and as customer demand warrants, but you will see a meaningful price change with that -- the launch of those products, which will allow us to monetize it quite well.

And our next question will be coming from Patrick Walravens of Citizens Bank.

Congratulations on the third quarter in a row this year. So the big question I still get, Dennis, believe it or not, is for investors who are just looking at Freshworks, they still want to know, is it an AI winner or an AI loser. And I see lots of evidence that it should be in the winner's camp, including your $100 million target and what you just talked about actually is really interesting about the specific verticals for agents. But just to make it easier for people, if you're going to boil it down to 2 or 3 key points that you would make on that topic, why Freshworks is an AI winner? What are they? What would you lay out?

So first of all, look, we are the system of record for our customers in IT and in customer support. We have the native workflows that they're running their business off of. And that is super important for all of what we're focused on. The products that we ship have ready-made skills, guardrails, governance, things that our customers all need in order to run their support and IT departments, and that's what they demand. So there's a meme that, "Oh, everybody is going to go directly to OpenAI or to Anthropic to build their solutions." That's just not going to happen in such complex environments as Seagate's IT department or some of these others. The customers need the AI to be integrated into their workflow. They need the security. And we can tap into the best-of-breed models as the LLMs evolve by tapping into Anthropic for coding or Gemini for image and so forth. So we think that we're actually really well positioned as the market evolves and as customers continue to adopt AI to succeed there.

Our next question will be coming from Elizabeth Porter of Morgan Stanley.

This is Oscar, on for Elizabeth. Congrats on the great quarter. I wanted to ask in terms of government exposure for Freshworks tends to be more state and local. But I just wanted to check if you have seen any impact from the government shutdown, either in the form of longer sales cycles or smaller deals and either directly or indirectly, if it has pressured any small businesses within CX?

Yes, it's Dennis. So we've seen no impact whatsoever. We do not have large federal government exposure. Our government business comes from state and local entities, municipalities, universities, none of which we've seen at least any kind of change. We actually landed quite a few governments and universities this last quarter, and we've seen quite a bit of expansion there. So we really just have not seen any impact at all from the shutdown or any of the federal issues.

Our next question will be coming from Brent Thill of Jefferies.

Tyler, I apologize if you covered this, but this onetime investment you're talking about in Q4, can you articulate a little in more detail what that is?

Yes. This is really -- Brent, this is kind of reflecting on the fact that we've now strung together 4 really, really good quarters and really see a very strong demand environment for our EX products in the field specifically. And so because we've also done really, really well on our efficiencies this year, where we beat our operating kind of margin goals and consistently every quarter said, hey, part of it is timing, we're going to reinvest. But just keep beating, we actually, at the beginning of this quarter, did release spend specific to building pipe for EX in the field because the market opportunity is there. And we're still beating our goals, but we actually decided to release that spend for the year. It's more onetime just for Q4, not repeated. That's why we also kind of give the linearity for operating margins for next year as well.

And I'm sorry, where does that go into reps, marketing? Like what's the...

Yes. It -- majority of it is marketing, and it's really pipe and demand gen efforts.

Okay. I got some good ideas. We can talk later about the campaign. It has to do with Rogers. Freddy Fresh. The -- and just for Dennis, when you talk about that 25% growth above $100,000, it seems like the referenceability is building really well. Like what do you -- what are kind of the next milestones? It's been going well. It seems like it's headed in the right direction. But what are the next kind of hurdle that you'd like to see cross where you're like, okay, we're clearly on a continued trajectory and -- not that you aren't. It's just like what's the next stop, if you will?

Yes. Look, I think we've got a really good sweet spot in customers ranging from 5,000 to 20,000 employees. That's where there's a ton of business out there that's looking for a solution, that is enterprise grade, that is faster time to value, that's got AI built in, and we're going to continue focusing there. I think in terms of where we're headed, we talked in the Analyst Day about continuing to drive our EX business in the low to mid-20s in terms of growth. You saw a slight tick up in growth on a constant currency basis this quarter. We're going to keep pressing these larger and larger deals every single quarter. For us, the attach rate for D42, that's an important metric that we look at, how many of our larger deals are including Device42. We have a big milestone coming up in Q1, where we expect to release Device42 on cloud. Once we do that, we'll be able to tap into another segment of the market that doesn't want to go on-prem with any solution. They want everything to be in cloud. It will also make it easier for us to upsell our existing customers into Device42 as a product. That's going to be another accelerant to growth. So we've got a lot of positive, I would say, momentum and positive accelerants to that business. And Tyler was just talking about the demand gen investment we're making in Q4. That's all going into the EX business and into AI, but that really is a huge driver for us as well. So I think EX has a lot of kind of positive momentum behind it, and we're just going to keep leaning into it every single quarter.

[Operator Instructions] Our next question will be coming from Brian Peterson of Raymond James.

This is Johnathan McCary, on for Brian. So I wanted to ask on some of the AI deployments in your customer base. Can you talk about the appetite for that and how that may differ between the SMB and then the more mid-market enterprise customers? I'm curious specifically if you're seeing that it's more important piece of the conversation in certain parts of the customer base or SMBs versus enterprises are moving from pilots to kind of forward deployments quickly. Just I'd be curious how that differs across the different customer sizes?

Yes. So as we look at our AI paid footprint, it's actually pretty even across SMB, mid-market and enterprise. We've seen traction across all 3. And different companies are in different stages of understanding AI and adopting. In terms of products, the product that clearly is leading for us has been Copilot. That's the product that for us is both most mature functionally. And if you think from a customer standpoint, that's the first port of call where you still have a human in the loop, they still have some control, so they feel more comfortable going there first. But what we've seen in the last couple of months is really an uptick in AI agent. And we think with the launch of our Agentic capabilities in CX in particular, that's really going to take off, and we're going to lean into it heavily. That plus the fact that we're going to monetize at a much higher rate than we have before. We've been, I would say, quite underpriced relative to the market when it comes to our AI agent capabilities. That we think is going to create a big opportunity for us going into next year. So I think overall, the customers, there's not one vertical. There's not -- it's not an SMB or mid-market enterprise issue. It's relatively even across CX and EX in terms of the monetization opportunities today. And we just think every one of our customers over time is going to need the AI that we offer. We're a little over 5,000 customers that are paying for AI now. That's just going to continue to grow. It's a core part of how we're selling now.

Very helpful. And then maybe one for Tyler here. It's good to see the continued strength in EX, the slight acceleration there. Just hoping, can you unpack the growth a little bit in terms of what's trending, how NRR is trending there versus net new and kind of where you think that should head longer term as you look to continue the low 20s growth profile?

Yes. I mean we're growing across all segments of the business, right? We talked about how ITSM core is strong, but also ESM that we gave out the number of over $35 million now. Device42, we've talked about as well and then the Copilot components within there. If you look at how that's going to trend, you asked about NRR. Our EX products have always had strong NRR. Device42 is a little bit of a drag because of the stuff we inherited when we made that acquisition. But we also said, "Hey, we expect that to actually start coming up." And we've also said that EX has kind of always had enterprise-grade net dollar retention numbers -- I'm sorry, churn numbers, which is single -- high single digits, and that continues, and it's just a very, very strong product.

And our next question will be coming from Rob Oliver of Baird.

Dennis, I wanted to go back to the ITSM win rates that you called out, I think the best in 2 years, and that's also coming, I think, as you've really pivoted the business up towards that mid-market or upper end of mid-market. And just wanted to get a sense from you for kind of what the biggest key differentiators have been there in terms of repositioning for that opportunity? And then as you look at kind of your pipeline today, how you feel about the pipeline as it sets up relative to the competition and kind of what's winning when you go head-to-head with some potentially bigger players at the low end of their stack? And then I had a quick follow-up question.

Yes, sure. So look, what we've built over the last couple of years is a complete enterprise-grade solution for -- that helps an IT department drive their operations, power their operations and deliver great employee service, and that's what we're selling. That's what's working in the marketplace. So enterprise-grade product that has the kind of security and extensibility that you'd expect and that can work in a large account. The kind of extensibility outside of Core ITSM. That's why Device42 is super important for us. Typically, buyers are looking for their ITSM and their asset management solution all in one. That's what we provide now. The functionality outside of IT, that's also something that everybody looks for when they're making these decisions. And 2 years ago, 2.5 years ago, the product wasn't there. So a lot of this momentum has happened relatively recently. A lot of customers are looking for choice in that market. There hasn't been a lot of choice. The largest provider is very focused on the biggest customers in the market or the biggest companies in the market. And that leaves a lot of room for us to compete in that kind of lower end of enterprise, upper end of mid-market. Think of New Balance with 5,000 or 6,000 employees or Seagate with 20,000 employees or we had a customer this time through Flowserve with about 20,000 employees. These are sophisticated customers. They've got sophisticated IT departments, but they're looking for something that's more modern, more flexible, enterprise-grade AI built in, and that's what we have. So I think we're just going to continue to invest in our capabilities and functionality there. We've got our Customer Advisory Board next week. We've got 40 customers coming in, and we're going to hear from them on what -- share…

Great. That's really helpful. And then, Tyler, I apologize if you touched on this at all, but that net revenue retention number is kind of really stabilized in that kind of 104% to 105% range on a constant currency basis for the last 3 quarters, and you guys are getting some market momentum. I realize a trailing indicator, but how you think about that kind of leveling off and potentially starting to improve and what kind of visibility you have into that?

Yes. We're pleased with the progress we've made there, both on the expansion products we've introduced, and we think ESM is going to be a new land, but then have a much bigger expansion opportunity once we start landing with that if we can bring in Freshservice, but obviously, with Device42 and others and on what we've been doing on churn. We've been talking about churn for a year now, how we've just been getting a little bit better incrementally, and that's not something that moves really quickly. We guided to essentially the same amount for Q4, which is stable. And obviously, at the end of the year, based on what we learned this quarter in terms of expansion in the pipe, we'll guide for next year. But yes, I feel like it's heading in the right direction. And then we've been talking about this. As the mix shift of our business continues to move more towards EX, and that is the majority of our business now, the attributes of that business are much better, and we will get a tailwind from that at some point.

This concludes today's conference call. You may disconnect.