Q1 2024 Freshworks Inc Earnings Call

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Speaker Change: Good day and thank you for standing by welcome to the fresh works first quarter 2024 conference call.

Operator: Good day, and thank you for standing by. Welcome to the Freshworks first quarter 2024 conference call. At this time, all participants are in a listen-only mode.

Speaker Change: At this time all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Joon Huh, Head of Investor Relations. Please go ahead.

After the speaker's presentation, there will be a question and answer session.

Speaker Change: Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.

Speaker Change: To withdraw your question. Please press star one one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to turn the conference over to your Speaker today, John Hutton head of Investor Relations. Please go ahead.

John Hutton: Thank you good afternoon, and welcome to fresh works first quarter 2024 earnings Conference call. Joining me today are Girish module with them <unk>, Chief Executive Officer, Dennis Woodside Fresh works, President and Tyler Sloat Fresh works Chief Financial Officer. The primary purpose of todays call is to provide.

Joon Huh: Thank you. Good afternoon, and welcome to Freshworks' first quarter 2024 earnings conference call. Joining me today are Girish Mathrubootham, Freshworks Chief Executive Officer, Dennis Woodside, Freshworks President, and Tyler Sloat, Freshworks Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our first quarter 2024 performance and our financial outlook for our second quarter and full year 2024. 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.

John Hutton: Did you with information regarding our first quarter 2024 performance and our financial outlook for our second quarter and full year 2024.

Joon Huh: These forward-looking statements are based on Freshworks' current expectations and estimates about its business and industry, including our financial outlook, macroeconomic uncertainties, management's beliefs, and certain other assumptions made by the company, all of which are subject to change. These statements are also subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statement.

John Hutton: 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 1095.

Joon Huh: 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 our 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.

John Hutton: These forward looking statements are based on fresh works current expectations and estimates about its business and industry, including our financial outlook macroeconomic uncertainties managements beliefs 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.

John Hutton: 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.

John Hutton: 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 our other periodic filings with the SEC fresh.

John Hutton: <unk> 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.

John Hutton: 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 Doc fresh works dot com by them.

Joon Huh: 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 Best Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports, a replay of today's call, or to learn more about Freshworks.

John Hutton: Courage you to visit our Investor Relations site to access our earnings release supplemental earnings slides periodic SEC reports, a replay of today's call or to learn more about fresh works.

John Hutton: And with that let me turn it over to Girish.

Rathna Girish Mathrubootham: Thank you Joe and thank you all for joining us on this call today to color our first quarter of 2024.

Rathna Girish Mathrubootham: Thank you, June, and thank you all for joining us on this call today to cover our first quarter of 2024. We delivered solid profitable growth in Q1. As we reported revenue of $165.1 million, reflecting an increase of 20% year over year.

Rathna Girish Mathrubootham: We delivered solid profitable growth in Q1 asked.

Rathna Girish Mathrubootham: As we reported revenue of $165 1 million.

Rathna Girish Mathrubootham: Reflecting an increase of 20% year over year.

Rathna Girish Mathrubootham: We meaningfully surpassed our estimate for free cash flow with $38 7 million in Q1 for our strong free cash flow margin of 23%.

Rathna Girish Mathrubootham: We meaningfully surpassed our estimate for free cash flow with $38.7 million in Q1, for a strong free cash flow margin of 23%. Our results reflect aspects of our growth strategy that are working. Specifically, in AI innovation, IT business momentum, and CSS adoption with larger customers, as well as the current macro environment. Before talking about our product and growth initiatives for the business, let me start with the news we announced earlier today that we have signed a definitive agreement to acquire Device 42.

Rathna Girish Mathrubootham: Our results reflect aspects of our growth strategy that are working.

Rathna Girish Mathrubootham: Particularly in AI innovation.

Rathna Girish Mathrubootham: Business momentum and adoption with larger customers as well.

Rathna Girish Mathrubootham: The macro environment.

Rathna Girish Mathrubootham: With more than 800 customers around the world, Device 42 provides enterprise-grade IT asset management capabilities, which we believe can further strengthen our fresh service offer. This is our first acquisition since we became a public company in 2021, and I'm excited about how this will enhance our fresh service, which is currently our fastest growing business. With this acquisition, we will be able to provide advanced asset discovery and application dependency mapping across data center and cloud environments.

Rathna Girish Mathrubootham: Before talking about our product and growth initiatives for the business. Let me start with the news we announced earlier today that we have signed a definitive agreement to acquire <unk> 42.

Rathna Girish Mathrubootham: With more than 800 customers around the World debate 42 provides enterprise grade asset management capabilities, which we believe can further strengthen offer service offering.

Speaker Change: This is our first acquisition since we became a public company in 2021 and I am excited about how this will enhance our service which is currently our fastest growing business.

Speaker Change: With this acquisition, we will be able to provide advanced asset discovery and application dependency mapping across data center and cloud environments.

Rathna Girish Mathrubootham: Combined with our robust ITOM and ITSM capabilities, this will help IT infrastructure and operations teams track and understand the IT landscape to achieve greater efficiency in service delivery and reliability in IT operations. Through this combination, we'll be able to offer a more comprehensive solution for our customers. We have historically partnered with Device 42 on large enterprise opportunities in the field, and after the transaction closes, we look forward to serving customers as one integrated company. We expect the transaction to close later in Q2.

Speaker Change: With our robust common HSM capabilities. This will help IP infrastructure and ops teams.

Speaker Change: And understand that landscape to achieve greater efficiency in service delivery and the <unk> and <unk> operations.

Rathna Girish Mathrubootham: Through the combination will be able to offer a more comprehensive solution for our customers.

Rathna Girish Mathrubootham: We have historically partnered with debate 42 on large enterprise opportunities and the fee and after the transaction closes we look forward to serving customers as one integrated team.

Rathna Girish Mathrubootham: We expect the transaction to close later in Q2.

Rathna Girish Mathrubootham: Turning to the quarter I am pleased with our progress across the business in Q1.

Rathna Girish Mathrubootham: Turning to the quarter, I'm pleased with our progress across the business in Q1. First, we advanced AI innovations across our products and platform to improve agent productivity and customer satisfaction. The use of our bots with Freddie self-service continues to strengthen deflection capabilities across customers' preferred channels. Companies, including Porsche eBike, Lightrix, and Travelopia, can leverage self-service capabilities to improve personalization and provide AI-generated answers from their knowledge base. Over the past quarter, our customers have seen deflection rates of more than 40% resulting from these bots.

Rathna Girish Mathrubootham: First we advanced AI innovations across our products and platform to improve agent productivity and customer satisfaction.

Rathna Girish Mathrubootham: The use of our box with critical service.

Rathna Girish Mathrubootham: Can use to strengthen deflection capabilities across customers preferred tenants.

Rathna Girish Mathrubootham: Companies, including portal E bike latex and <unk> can leverage self service capabilities to improve personalization and provide aegean digit answers from that knowledge base.

Rathna Girish Mathrubootham: Over the past quarter, our customers have seen deflection rates of more than 40%, resulting from these blocks.

Rathna Girish Mathrubootham: During the quarter, we made pretty copilot generally available to customers and I'm excited about the initial traction.

Rathna Girish Mathrubootham: During the quarter, we made Freddy co-pilot generally available to customers, and I'm excited about the initial traction. We received early feedback that customer service agents are realizing more than a 30% improvement in their response. While it's still early to track copilot metrics, we are encouraged by the initial results. Mahindra and Mahindra is an Indian maker of cars and farm equipment with more than $16 billion in revenue. Their on-premise ITSM solution became complicated to manage, had a clunky UI, and poor self-service capability.

Rathna Girish Mathrubootham: We received early feedback that customer service agents are realizing more than a 30% improvement in <unk>.

Rathna Girish Mathrubootham: While it's still early to crack copilot metrics were increased by the initial results.

Rathna Girish Mathrubootham: Mahindra and Mahindra is an Indian maker of cars and farm equipment with more than $16 billion in.

Rathna Girish Mathrubootham: Revenue there.

Rathna Girish Mathrubootham: <unk> DSM solution became complicated to manage.

Rathna Girish Mathrubootham: <unk> and poor self service capabilities.

Rathna Girish Mathrubootham: The company says adopting Freddy co-pilot on top of its Fresh service has been a game-changer. The Solution Article Generator feature, in particular, is enabling more than 1,000 engineers to make knowledge management more efficient and enjoyable, and now the company plans to scale these products across other Customers are choosing us because our products are enterprise grade with a much lower total cost of ownership, including the latest AI capabilities. Global Leader in God, needed to find a way to solve for its 2,000 employees walking up to the IT service desk with simple or complex problems. After deploying FreshService, they later adopted our Freddy self-service capability.

Rathna Girish Mathrubootham: The company says adopting critical pilot on top off Chris.

Rathna Girish Mathrubootham: <unk> service has been a game changer for.

Rathna Girish Mathrubootham: The solution article generator feature in particular is enabling more than a thousand engineers to make knowledge management more efficient and enjoyable and now the company plans to scale these products across other peaks.

Rathna Girish Mathrubootham: We also saw continued momentum in our business with mid market and enterprise customers.

Rathna Girish Mathrubootham: Customers are choosing us because our products on enterprise grid with a much lower total cost of ownership, including the latest AI capabilities.

Rathna Girish Mathrubootham: Global leader in golf equipment needed to find a way to Salford 2000 employees walking up to the <unk> service desk that simple or complex products.

Rathna Girish Mathrubootham: After deploying per service. The later adopted our <unk> self service capabilities.

Rathna Girish Mathrubootham: With the help of our latest AI Bot. The company has been able to further automate request and significantly reduce resolution times.

Rathna Girish Mathrubootham: With the help of our latest AI bot, the company has been able to further automate requests and significantly reduce resolution time and eliminate the lines waiting for ideas. We continue to invest in helping organizations manage their IT infrastructure and operations. In Q1, we enabled IT teams to proactively communicate the status of critical services to their stakeholders using status pages. This has increased trust and led to reduced incident reports during service downtime. One such customer taking advantage of this capability is the Statue of Liberty Ellis Island Foundation.

Rathna Girish Mathrubootham: And eliminate the lines rating for I D.

Rathna Girish Mathrubootham: We continue to invest in helping organizations manage that aging infrastructure and operations.

Rathna Girish Mathrubootham: In Q1, we enabled 80 teams to proactively communicate the status of critical services to their stakeholders using status pages.

Rathna Girish Mathrubootham: This has increased trust and led to reduced incident reports during service downtime.

Rathna Girish Mathrubootham: One such customer taking advantage of this capability is the statue of Liberty Ellis Island Foundation.

Rathna Girish Mathrubootham: With more features and improvements we are winning more mind share with <unk> as we go after the large market opportunity in DSM DSM and beyond.

Rathna Girish Mathrubootham: With more features and improvements, we are winning more mindshare with CIOs as we go after the large market opportunity in ITSM, ESM, and beyond. Now, to the CS business. Adoption continues to grow for our Customer Service Week. Our multi-channel solution that combines conversational support with robot ticketing features and is powered by AI. Companies like Monica Vinader and Stitch Fix are choosing CS50. Stitch Fix employs more than 5,000 people and leverages stylists and AI to deliver personalized clothing and accessories to over 3 million customers.

Rathna Girish Mathrubootham: Turning to the <unk> business or.

Rathna Girish Mathrubootham: Adoption continues to grow for our customer service suite, our multichannel solution that combines <unk> support with robots ticketing features and powered with AI.

Rathna Girish Mathrubootham: Companies like Monica, the nadir and stitch fix our tubing CSS.

Rathna Girish Mathrubootham: Citrix employs more than 5000 people and leverages tightness, and AI to deliver personalized clothing and accessories to over 3 million customers.

Rathna Girish Mathrubootham: The previous customer service solution was expensive and complicated with outdated AI technology.

Rathna Girish Mathrubootham: The previous customer service solution was expensive and complicated, with outdated AI technology. A longstanding Fresh Service customer, Stitch Fix adopted the Customer Service Suite as their solution in Q1, largely because of our leading AI innovations, including our co-pilot capabilities. Freddie Co-Pilot is boosting productivity for agents as power users have seen a reduction in resolution and response times of more than 30%, and CSAT scores increased on average by more than 5%. As we continue to improve productivity for these agents, we believe this will lead to higher adoption within organizations and more expansion of operations. This quarter, we introduced sentiment analysis for real-time insights into the emotional tone of customer interactions. We also added generative AI-led quality management capabilities like article suggestions and auto-completion to help support teams deliver superior responses.

Rathna Girish Mathrubootham: Our long standing for service customer Citrix adopted customer service suite as their solution in Q1, largely because of our leading AI innovations, including our copilot capabilities.

Rathna Girish Mathrubootham: Critical pilot is boosting productivity for agents as power users have seen a reduction of resolution and response times of more than 30%.

Rathna Girish Mathrubootham: <unk> cost increased on average by more than 5%.

Rathna Girish Mathrubootham: As we continue to improve productivity for this agent. We believe this will lead to higher adoption within organizations and more expansion opportunities.

Rathna Girish Mathrubootham: This quarter, we introduced sentiment analysis for real time insights into the emotional toll of customer interactions.

Rathna Girish Mathrubootham: We also added generative AI lead quality management capabilities like articles physicians and auto completion to help support teams deliver superior responses.

Rathna Girish Mathrubootham: Within one quarter, these capabilities generated over 38 million interactions. Finally, I want to acknowledge today's news that I am transitioning into an executive chairman role at Freshworks, and Dennis Woodside, currently Freshworks President, will assume the Chief Executive Officer role. I'm incredibly proud of what we have accomplished at Freshworks since I founded the company 14 years ago. We are the first Indian SaaS company to be listed on NASDAQ. A true friend to more than 67,000 customers around the world and home to our 4,900-strong global kudumba.

Rathna Girish Mathrubootham: Within one quarter these capabilities generated over 38 million interactions.

Speaker Change: Finally, I want to acknowledge today's news that I'm transitioning into an executive chairman role at fresh Wharf and Dennis would say currently <unk> president.

Dennis M. Woodside: I assume the chief Executive officer role.

Speaker Change: I am incredibly proud of what we have accomplished at <unk> since I founded the company 14 years ago.

Dennis M. Woodside: We are the first Indian SaaS company to be listed on NASDAQ.

Dennis M. Woodside: Blueprint to more than 67000 customers around the world.

Dennis M. Woodside: Home to our 4900 strong global could move up.

Rathna Girish Mathrubootham: Our business is strong, and we have a fantastic platform to launch Freshworks into a sustainable and growing public company. Through these 14 years of building and scaling Freshworks. Our Hiring Philosophers takes inspiration from an ancient poem from Thirukkural written by a Tamil poet and philosopher Thiruvalluvar. 2000 years ago, Ithanai Ithanal Ivanmudikkum Enraindhu Athanai Avankan Vidathu, translated in English.

Dennis M. Woodside: Our business is strong and we have a fantastic platform to launch <unk> into a sustainable and growing public company.

Dennis M. Woodside: Through these 14 years of building and scaling fresh legs.

Dennis M. Woodside: Our hiring philosophy picks.

Dennis M. Woodside: <unk> takes inspiration from an ancient point from critical.

Dennis M. Woodside: And by a couple point in philosophy <unk> too.

Dennis M. Woodside: 2000 years ago.

Rathna Girish Mathrubootham: Even I E. The non even more to come in <unk> and <unk>.

Rathna Girish Mathrubootham: Translated in English.

Rathna Girish Mathrubootham: It means.

Rathna Girish Mathrubootham: It means, Find the right person with the skills and resources to finish the job and empower them to do it. After seeing this play out beautifully over the years, the time has come to apply this to the CEO role at Freshworks. And I'm fully confident that Dennis is the right leader to step into the CEO role, because of his deep understanding of the Freshworks business, Admiration, and Respect for our Indian Roots.

Rathna Girish Mathrubootham: Find the right person with the skills and resources to finish the job and empower them to do it.

Rathna Girish Mathrubootham: After seeing this play out beautifully over the years.

Rathna Girish Mathrubootham: Time has come to apply this to the CEO role at <unk> and.

Rathna Girish Mathrubootham: And I am fully confident that Dennis is the right leader to step into the CEO role.

Rathna Girish Mathrubootham: His deep understanding of the official business is.

Rathna Girish Mathrubootham: This admiration and respect for our Indian group.

Rathna Girish Mathrubootham: His ability to attract world-class talent and the operational excellence he has brought to Freshworks over the last 18 months gives me the confidence to pass over the baton to Dennis, and I look forward to being his trusted advisor in my new capacity, to help make Freshworks software available to the Fortune 500. Moving forward, I look forward to working with our product teams to drive our AI vision and long-term product strategy. I would like to thank the entire Freshworks team for all the support they have given me over the years.

Rathna Girish Mathrubootham: Ability to attract world class talent.

Rathna Girish Mathrubootham: The operational excellence he has brought to <unk> over the last 18 months gives.

Rathna Girish Mathrubootham: It gives me the confidence to pass over the baton to Dennis.

Speaker Change: And I look forward to being as trusted advisor in my new capacity.

Speaker Change: To help make flushwork software available to the final $5 million.

Speaker Change: Moving forward.

Speaker Change: Look forward to working with our product teams to drive our AI vision and long term product strategy.

Speaker Change: I would like to thank the entire fresh looks team for all the support they have given me over the years.

Rathna Girish Mathrubootham: And for delivering another solid quarter as we continue on our mission to deliver modern AI-powered customer and employee service solutions that increase efficiency and improve engagement for companies of all sizes. I would like to congratulate Dennis and now turn it over to him to share what we are seeing in the marketplace, how larger customers are driving our business growth, and how companies are expanding the use of our product. Thank you, G. I am honored to build on what GE started 14 years ago. What GE has created is truly special.

Speaker Change: And for delivering another solid quarter as we continue on our mission to deliver modern AI powered customer and employee service solutions that increase efficiency and improve engagement for companies of all sizes.

Speaker Change: I would like to congratulate Dennis and now turn it over to him to share what we are seeing in the marketplace. How larger customers that are driving our business growth and how companies are expanding the use of our products.

Dennis M. Woodside: Thank you Qi <unk>.

Dennis M. Woodside: I am honored to build on what <unk> started 14 years ago.

Dennis M. Woodside: What he has created is truly special.

Dennis M. Woodside: Our mission and strategy remain the same. We stand before extraordinary opportunities and have the right foundation to make them possible, a winning combination of our strong focus on delighting customers and our product innovation. I'm committed and excited to continue our journey of growth. As she mentioned, we efficiently scaled the business in Q1. With revenue growth of 20% and strong free cash flow margins of 23%, we exceeded the rule of 40 for the quarter.

Dennis M. Woodside: Our mission and strategy remain the same.

Dennis M. Woodside: We stand before extraordinary opportunities and have the right foundation to make it possible.

Dennis M. Woodside: A winning combination of our strong focus on delighting customers and our product innovation.

Dennis M. Woodside: I am committed and excited to continue our journey of growth.

Dennis M. Woodside: As Jim mentioned, we efficiently scaled the business in Q1.

Dennis M. Woodside: With revenue growth of 20% and strong free cash flow margins of 23%, we exceeded the rule of 40 for the quarter.

Dennis M. Woodside: We continue to see momentum with larger customers choosing our enterprise-grade solutions. In Q1, customers paying over $50,000 in ARR grew 29% to 2,593, representing 49%, or nearly half of our business. Our solutions provide enterprise-grade capabilities, combined with consumer-level usability, to address the needs of large, complex organizations. For example, Cineworld Group is the world's second largest cinema chain, with more than 700 movie theaters across the U.S., U.K., and other countries.

Dennis M. Woodside: We continue to see momentum with larger customers choosing our enterprise grade solutions.

Dennis M. Woodside: In Q1 customers paying over $50000 in IRR grew 29% to 2593.

Dennis M. Woodside: Representing 49% or nearly half of our business.

Dennis M. Woodside: Our solutions provide enterprise grade capabilities combined with consumer level usability to address the needs of large complex organizations.

Dennis M. Woodside: For example, Cineworld group is the worlds second largest cinema chain with more than 700 movie theaters across the U S UK and other countries.

Dennis M. Woodside: Their prior customer service solution wasn't allowing them to respond to queries fast enough and gain insights into their customers' experience. They adopted Freshdesk across their Centerworld, Picturehouse, and Regal customer service teams. Now the company is able to quickly identify and respond to customer queries, understand root causes, and develop better steps to resolve them using the power of Freshworks. I'm also very excited about entering into a definitive agreement to acquire Device 42. We believe this acquisition will help us win more mid-market and enterprise customers, as advanced ITAM capabilities for discovery and dependency mapping are becoming a critical part of the IT purchasing decision for large customers.

Dennis M. Woodside: Their prior customer service solution wasn't allowing them to respond to queries fast enough and gain insights into their customers' experience.

Dennis M. Woodside: They adopted fresh desk across their center world Picturehouse in Regal customer service team.

Dennis M. Woodside: Now the company is able to quickly identify and respond to customer queries.

Dennis M. Woodside: Understand root causes and develop better steps to resolve them using the power of fresh works.

Dennis M. Woodside: I'm also very excited about entering into a definitive agreement to acquire device 42.

Dennis M. Woodside: We believe this acquisition will help us win more mid market and enterprise customers.

Dennis M. Woodside: <unk> advanced <unk> capabilities for discovery and dependency mapping are becoming a critical part of the purchasing decision.

Dennis M. Woodside: For large customers.

Dennis M. Woodside: With this acquisition, we intend to build on the upmarket momentum and success that we're already seeing with forest service for customers.

Dennis M. Woodside: With this acquisition, we intend to build on the upmarket momentum and success that we're already seeing with our fresh service for IT customers. Turning to expansion, in Q1, net dollar retention was 106%, and customers using more than one product were 26%. We saw notable expansion and multiproduct activity from press service for business. We're also executing on the cross-sell of our two largest product areas in IT and customer service. An example of cross cell technology is dark matter technology.

Dennis M. Woodside: Turning to expansion in Q1, net dollar retention was 106% and customers using more than one product with 26%.

Dennis M. Woodside: We saw notable expansion in multi product activity from press service for business teams.

Dennis M. Woodside: We're also executing on the cross sell of our two largest product areas in it and customer service.

Dennis M. Woodside: An example of cross sell is dark matter technologies.

Dennis M. Woodside: Darkmatter employs more than a thousand people and makes software that enables retail banks, credit unions, and credit vendors to simplify lending. Already a new service customer for ITSM, they chose Customer Service Suite to replace their incumbent solution because it was easy to go live within their tight timeframes and simple to configure. We remain bullish on the AI opportunity and believe this will be a tailwind for our business. And this is a big part of our future growth strategy.

Dennis M. Woodside: Dark matter employs more than 1000 people and make software that enables retail banks credit unions and credit vendors to simplified lending.

Dennis M. Woodside: Already a fresh service customer for ITM, They chose customer service suite to replace their incumbent solution because it was easy to go live within their type timeframes and simple to configure.

Dennis M. Woodside: We remain bullish on the AI opportunity. We believe this will be a tailwind to our business and this is a big part of our future growth strategy.

Dennis M. Woodside: As Gee said, we saw promising signs of momentum from Freddie self-service and Freddie Copilot in Q1, with over 30% improvement in productivity metrics for our customers. This has led to early signs of monetization since the Freddie Copilot add-on became GA this past quarter. From a market demand perspective, we continue to see the impact of a challenging macroeconomic environment.

Dennis M. Woodside: As Jay said, we saw promising signs of momentum from Friday self service and Freddie co pilot in Q1.

Dennis M. Woodside: With over 30% improvement in productivity metrics for our customers.

Dennis M. Woodside: This has led to early signs of monetization since the Freddie Copilot add ons became gea this past quarter.

Dennis M. Woodside: From a market demand perspective, we continue to see the impact of a challenging macroeconomic environment.

Dennis M. Woodside: While Q4 saw an uptick in expansion activity, we saw pressure on overall expansion rates for Q1 across our customer base in terms of agent growth. For the SMB part of the market, where we attract customers through an inbound digital channel, there is still work to be done to improve this channel. We're seeing lower expansion rates and a lower number of net new customer ads as the macro economy is having a meaningful impact on this part of our customer base.

Dennis M. Woodside: While Q4 saw an uptick in expansion activity, we saw pressure on overall expansion rates for Q1.

Dennis M. Woodside: Across our customer base in terms of agent growth.

Dennis M. Woodside: For the SMB part of the market, where we attract customers through an inbound digital motion. There is still work to be done to improve this motion.

Dennis M. Woodside: We're seeing lower expansion rate and a lower number of net new customer adds as the macro economy is having a meaningful impact on this part of our customer base.

Dennis M. Woodside: This led to slower growth for the CS business as a majority of the business is from France. Given this current market environment, it's important for us to maintain a balanced approach to our investment. In Q1, we were able to create further efficiencies while investing in the business to drive future growth. I'll turn it over to Tyler to talk about this in more detail. Thanks, Dennis. And congratulations.

Dennis M. Woodside: This led to slower growth for the <unk> business as the majority of the business is from SMB.

Dennis M. Woodside: Okay.

Dennis M. Woodside: Given this current market environment, it's important for us to maintain a balanced approach to our investments.

Dennis M. Woodside: In Q1, we were able to create further efficiencies while investing in the business to drive future growth.

Dennis M. Woodside: I'll turn it over to Tyler to talk about this in more detail.

Tyler R. Sloat: And thanks to all of you joining us on the call and via web. I'm pleased with our ability to deliver another quarter of durable growth while improving our profitability. All the operational improvements that we implemented last year created positive business momentum that carried into this year to drive further efficiencies and strong margin expansion. For our call today, I'll cover the Q1 2024 financial results, provide background on the key metrics, and close with our forward-looking commentary and expectations for Q2 and the full year 2024.

Tyler R. Sloat: Thanks, Jonathan Congratulations and thanks to all of you joining on the call and via webcast.

Tyler R. Sloat: I am pleased with our ability to deliver another quarter of durable growth, while improving our profitability.

Tyler R. Sloat: All of the operational improvements that we implemented last year as credit positive business momentum that carried into this year to drive further efficiencies and strong margin expansion in Q1.

Tyler R. Sloat: For our call today I'll cover the Q1 2024 financial results provide background on the key metrics and close with our forward looking commentary on expectations for Q2, and the full year 2024.

Tyler R. Sloat: I'll include constant currency comparisons for certain metrics to provide a better view of our business trends. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses and other adjustments. Starting with the Income Statement.

Dennis M. Woodside: I'll include constant currency comparisons for certain metrics to provide a better view of our business trends.

Dennis M. Woodside: As a reminder.

Dennis M. Woodside: Most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock based compensation expenses and other adjustments.

Dennis M. Woodside: Starting with the income statement.

Tyler R. Sloat: Total revenue in Q1 grew 20% to $165.1 million on a reported basis and 19% adjusted for cost incurred. Professional services contributed approximately $2.6 million to total revenue, which is a lower contribution percentage than prior quarters. This is intentional as we are shifting more services revenue to our partner. We continue to see momentum in our IT business, specifically for new deals from mid market and enterprise customers. We're also seeing upmarket traction from the CS business, as our largest expansion deals in Q1 were for our customer service products.

Dennis M. Woodside: Total revenue in Q1 grew 20% to $165 1 million on a reported basis and 19% adjusted for constant currency.

Dennis M. Woodside: Professional services contributed approximately $2 6 million to total revenue.

Dennis M. Woodside: Which is a lower contribution percentage in prior quarters. This is intentional as we are shifting more services revenue to our partner network.

Dennis M. Woodside: We continue to see momentum in our it business specifically for new deals from mid market and enterprise customers.

Dennis M. Woodside: We're also seeing upmarket.

Dennis M. Woodside: <unk> from the <unk> business as our largest expansion deals in Q1 were from our customer service products.

Tyler R. Sloat: Moving to margins, non-gap gross margin increased to 85% as we continue to drive efficiencies in our infrastructure spend as we scale the business. Compared to the prior year, this represents an improvement of more than 200. We also improved our non-GAAP operating margin to 13% as non-GAAP operating income came in at $21.8 million, which included a one-time benefit of $3.7 million related to employee benefits. Adjusting for this one-time benefit, our non-GAAP operating margin would have been 11%.

Dennis M. Woodside: Moving to margins non-GAAP gross margin increased to 85% as we continue to drive efficiencies in our infrastructure spend as we scale the business.

Dennis M. Woodside: Compared to the prior year. This represents an improvement of more than 200 basis points.

Dennis M. Woodside: We also improved our non-GAAP operating margin to 13% as non-GAAP operating income came in at $21 8 million, which includes a onetime benefit of $3 $7 million related to employee benefits expenses.

Dennis M. Woodside: Adjusting for this onetime benefit non-GAAP operating margin would be 11% and still ahead of our prior expectations as we made ongoing operational improvements and shifted some marketing and legal spend into future quarters.

Tyler R. Sloat: Still ahead of our prior expectations as we made ongoing operational improvements and shifted some marketing and legal spend into future quarters. As we've talked about previously, our financial model is built for us to make investments in our many growth initiatives. At the same time, we have flexibility in the model to adjust our spend as we see demand change throughout the year to prudently manage our expense base and drive efficiency. Moving to operations, our two key business metrics are net dollar retention and customers contributing more than $5,000 in the ARR. Net dollar retention came in line with our expectations at 106% in the quarter, both as reported and on a constant currency basis.

Dennis M. Woodside: As we've talked about previously our financial model is built for us to make investments in our many growth initiatives.

Dennis M. Woodside: At the same time, we have flexibility in our model to adjust our spend as we see demand change throughout the year to prudently manage our expense base and drive efficiencies.

Dennis M. Woodside: Moving to operating metrics are two key business metrics, our net dollar retention in customers contributing more than $5000 in IRR.

Dennis M. Woodside: Net dollar retention came in line with our expectations at 1% to 6% in the quarter.

Dennis M. Woodside: Both as reported and on a constant currency basis, while our customers continue to grow their spend for our products. In Q1, we did not see the same elevated levels of large expansion deals that we saw at the end of last year.

Tyler R. Sloat: While our customers continue to grow their spend for our products in Q1, we did not see the same elevated levels of large expansion deals that we saw at the end of last year. Overall, turn modestly and continues to remain squarely in the middle. Looking forward, we're planning for a Q2 net dollar retention range of approximately $105 to $106. For our other key business metric, the number of customers contributing more than $5,000 in ARR, this metric grew 11% year over year to 20,549 customers in the quarter and now represents 89% of our ARR. On a constant currency basis, this customer metric grew 12% year over year.

Dennis M. Woodside: Overall turn modestly increased and continues to remain squarely in the mid teens.

Dennis M. Woodside: Looking forward, we're planning for Q2 net dollar retention range of approximately 105 to one 6%.

Dennis M. Woodside: For our other key business metric of number of customers contributing more than $5000 in the IRR. This metric grew 11% year over year to 20 549 customers in the quarter and now represents 89% of our era.

Dennis M. Woodside: On a constant currency basis, this customer metric grew 12% year over year.

Tyler R. Sloat: For a larger customer cohort contributing more than $50,000, this cohort grew 29% year-over-year to 2,593 customers and now represents 49% of our era. Content Currency Growth Rate for this quarter was also. For total customers, we added approximately 400 net customers and ended the quarter with over 67,500. The lower net ads over the past two quarters have largely been a result of a lower number of our new CS customers, especially in the S&P 500.

Dennis M. Woodside: For our larger customer cohort contributing more than $50000 in IRR. This cohort grew 29% year over year to 2593 customers and now.

Dennis M. Woodside: <unk>, 49% of our era.

Dennis M. Woodside: The constant currency growth rate for this quarter was also 29%.

Dennis M. Woodside: For total customers, we added approximately 400 net customers and ended the quarter with over 67500 customers.

Dennis M. Woodside: The lower net adds over the past two quarters has largely been a result of a lower number of our new <unk> customers, especially in the SMB.

Tyler R. Sloat: For the past few quarters, we have been focusing our efforts and go-to-market spend to target higher yielding customers, which is resulting in ongoing increases for our. Now let's turn to calculated billings, balance sheet, and cash items. Our normalized calculated billions growth was 17% in Q1, down one percentage point from the 18% normalized growth rate in Q4, as we've talked about before. Billing growth rates can fluctuate from quarter to quarter due to a number of factors.

Dennis M. Woodside: For the past few quarters, we have been focusing our efforts and go to market spend to target higher yielding customers, which is resulting in ongoing increases for ARPA.

Dennis M. Woodside: Now, let's turn to calculated billings balance sheet and cash items.

Dennis M. Woodside: Our normalized calculated billings growth was 17% in Q1 down one percentage point from the 18% normalized growth rate in Q4.

Dennis M. Woodside: As we've talked about before.

Dennis M. Woodside: Billings growth rates can fluctuate quarter to quarter due to a number of factors and.

Dennis M. Woodside: In Q1, we had a negative impact primarily from more early renewal activity compared to the prior quarter, resulting in an as reported calculated billings growth rate of 14% or $174 $7 million.

Tyler R. Sloat: In Q1, we had a negative impact primarily from lower early renewal activity compared to the prior quarter, resulting in an as reported calculated buildings growth rate of 14% or $174.7 million. Looking forward to Q2, 2024, our initial estimate for calculated buildings growth is 12%.

Dennis M. Woodside: Looking forward to Q2 2020 for our initial estimate for calculated billings growth is 12%.

Tyler R. Sloat: For the full year 2024, we expect calculated building growth to be approximately 16, for approximately one percentage point below our annual revenue. Moving to our cash item. We meanfully outperformed our free cash flow estimates coming in at $38.7 million for Q1. This is the result of strong collections activities and an ongoing focus to drive efficiencies on our spend around headcount and vendors. Given our strong cash flow performance in the quarter, we are increasing our full year 2024 estimates to $125 million, with approximately $28 million in Q2.

Dennis M. Woodside: For the full year 2024, we expect calculated billings growth to be approximately 16% approximately one percentage point below our annual revenue growth.

Dennis M. Woodside: Moving to our cash items, we meaningfully outperformed our free cash flow estimates coming in at $38 7 million for Q1.

Dennis M. Woodside: This was a result of strong collections activities and an ongoing focus to drive efficiencies on our spend around head count and vendor costs.

Dennis M. Woodside: Given our strong cash flow performance in the quarter.

Dennis M. Woodside: We are increasing our full year 2024 estimates to a $125 million with.

Dennis M. Woodside: Nearly $28 million in Q2.

Tyler R. Sloat: We ended Q1 maintaining a similar balance with prior quarters for cash, cash equivalents, and marketable securities of $1.2 billion. We continue to manage and offset some share count dilution by net settling vested equity and using $23 million during the quarter. As a reminder, this activity is reflected in our financing agreement, and it's excluded from free cash.

Dennis M. Woodside: We ended Q1, maintaining a similar balance with prior quarters for cash cash equivalents in marketable securities with $1 2 billion.

Dennis M. Woodside: We continue to manage and offset some share count dilution by net settling invested equity amounts and using $23 million during the quarter as.

Dennis M. Woodside: As a reminder, this activity is reflected in our financing activities and is excluded from free cash flow.

Tyler R. Sloat: We plan to continue net selling vested equity amounts going forward, resulting in Q2 cash usage of approximately $16 million at the current stock price level. For the year, we expect to use approximately $70 million to net selling vested equity. Turning to our share count for Q1, we had approximately 322 million shares outstanding on a fully diluted basis as of March 31st, 2024, representing a share reduction compared to the prior year and quarter. A fully diluted calculation consists of approximately 299 million shares outstanding.

Dennis M. Woodside: We plan to continue in that filing vested equity amounts going forward, resulting in Q2 cash usage of approximately $16 million at current stock price levels.

Dennis M. Woodside: For the year, we expect to use approximately $70 million to net settle vested equity amounts.

Dennis M. Woodside: Turning to our share count for Q1, we had approximately 322 million shares outstanding on a fully diluted basis as of March 31, 2024, representing a share reduction compared to the prior year and quarter.

Dennis M. Woodside: Our fully diluted calculation consist of approximately 299 million shares outstanding $21 million related to Unvested RF skews appears to us and 2 million shares related to outstanding options.

Tyler R. Sloat: 21 million related to unvested RRCs and peer RRCs, and 2 million shares related to outstanding. Let me now provide our forward-looking estimates. I'll go through the numbers first and then provide background commentary afterward. For the second quarter of 2024, we expect. Revenue to be in the range of $168 million to $170 million, growing 16% to 17% year-over-year. Non-GAAP income from operations to be in the range of $6.5 million to $8.5 million, and non-GAAP net income per share to be in the range of 5 cents to $0.06.

Speaker Change: Let me now provide our forward looking estimates I'll go through the numbers first and then provide background commentary afterwards.

Speaker Change: For the second quarter of 2024, we expect.

Dennis M. Woodside: Revenue to be in the range of $168 million to $170 million growing 16% to 17% year over year.

Dennis M. Woodside: non-GAAP income from operations to be in the range of $6 5 million to $8 5 million.

Dennis M. Woodside: And non-GAAP net income per share to be in the range of <unk> to <unk>.

Tyler R. Sloat: Sending a weighted average shares outstanding of approximately 305.6 million shares. For the full year 2024, we expect revenue to be in the range of $695 million to $705 million, growing 17 to 18% year over year. Non-GAAP income from operations to be in the range of $58 million to $64 million, and Non-GAAP Net Income Per Share to be in the range of $0.32 to $0.35.

Dennis M. Woodside: Weighted average shares outstanding of approximately $305 6 million shares.

Dennis M. Woodside: For the full year 2024, we expect revenue to be in the range of 695 million to $705 million growing 17% to 18% year over year.

Dennis M. Woodside: non-GAAP income from operations to be in the range of 58 million to $64 million.

Dennis M. Woodside: And non-GAAP net income per share to be in the range of 32 to 35.

Tyler R. Sloat: Assuming Weighted Average Shares Outstanding Approximately 307 million, our forward-looking estimates are based on FX rates as of April 26, 2024, so any future currency moves are not factored in. We want to provide our best view of the business today in a changing market environment. So here are a few items to call out. First, on the device 42-AQUA. Our forward-looking estimates do not include numbers from the device 42X

Dennis M. Woodside: Assuming weighted average shares outstanding of approximately $307 6 million.

Dennis M. Woodside: Our forward looking estimates are based on FX rates as of April 26, 2024, so any future currency moves are not factored in.

Dennis M. Woodside: We want to provide our best view of the business today in a changing.

Dennis M. Woodside: Market environment. So here are a few items to call out.

Dennis M. Woodside: First on the device 42 acquisition.

Dennis M. Woodside: Our forward looking estimates do not include numbers from the device 42 acquisition.

Tyler R. Sloat: We'll cover details of the financial impact from the acquisition after closing. That said, we expect the transaction to be accretive to our revenue growth for this year and have a minimal impact on our free cash flow estimates. Our Full Year 2024 Revenue Estimates. Compared to our prior estimate, the current estimate includes negative adjustments of approximately $2 million related to FX moves since last quarter and negative 1.3 million related to the intentional shifting of professional services revenue to partners.

Dennis M. Woodside: Will cover details of the financial impact from the acquisition after closing.

Dennis M. Woodside: That said, we expect the transaction to be accretive to our revenue growth for this year at.

Dennis M. Woodside: And have minimal impact to our free cash flow estimates.

Dennis M. Woodside: Second.

Dennis M. Woodside: Our full year 2024 revenue estimates.

Dennis M. Woodside: Compared to our prior estimate the current estimates.

Dennis M. Woodside: <unk> negative adjustments of approximately $2 million related to FX moves since last quarter.

Dennis M. Woodside: And negative $1 3 million related to the intentional shifting our professional services revenue to partners.

Operator: Third, our Q2 operating results. As a reminder, we have seasonality in our business as Q2 expenses normally step up as the annual merit increases take effect, leading to lower margins quarter over quarter. Let me close by saying we're very focused on growing the business while creating a durable, profitable company to deliver long-term value for our shareholders. We're innovating on our products, especially in the area of AI. We're building business momentum and getting traction with larger customers, and we're driving efficiencies.

Dennis M. Woodside: Third our Q2 operating income.

Dennis M. Woodside: As a reminder, we have seasonality in our business as Q2 expenses normally step up as the annual merit increases take effect, leading to lower margins quarter over quarter.

Speaker Change: Let me close by saying, we're very focused on growing the business, while creating a durable profitable company to deliver long term value for our stakeholders.

Dennis M. Woodside: We're innovating on our products, especially in the area of AI, we are building business momentum and gaining traction with larger customers and we're driving efficiencies in the business that's reflected in our financial results.

Operator: We were excited about the many opportunities. And with that, let's take your questions. Operator. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Dennis M. Woodside: We're excited about the many opportunities ahead.

Speaker Change: And with that let's take your questions operator.

Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Berg with Needham and Company. Hi, everyone.

Speaker Change: Please standby will be compile the Q&A roster.

Speaker Change: Our first question comes from the line of Scott Berg with Needham <unk> Company.

Scott Randolph Berg: Thanks for taking my questions here. Dennis, congrats on the move to the CEO role and gee, I still hope we get a chance to speak with you going forward here. I guess there are a couple things for me.

Scott Randolph Berg: Hi, everyone.

Scott Randolph Berg: Thanks for taking my questions here.

Scott Randolph Berg: Dennis Congrats on the move the CEO role in GI still we get a chance to speak with you going forward here.

Dennis M. Woodside: I believe Dennis called out the kind of softness in the CF market, especially down downstream in the SMB segment. There's a pretty popular narrative out there on the impact that, whether it's customers of yours or others in the space are trying to use different AI tools to automate some of the, you know, labor out of some of these customer service environments. Are you seeing that impact your business at all in the quarter?

Scott Randolph Berg: I guess a couple of things from me.

Scott Randolph Berg: I believe withstand this called out softness in the <unk> market, especially down.

Scott Randolph Berg: Downstream in the SMB segment.

Scott Randolph Berg: Pre popular narrative out there on the impact that whether its customers of yours or others in the space are trying to use different AI tools to automate some of the.

Scott Randolph Berg: Labor out of some of these customer service environments are you seeing that impact your business at all in the quarter and is there anything related to the.

Scott Randolph Berg: The slight reduction in full year revenues, maybe because of any changes there in terms of how your customers are using that using the technology.

Dennis M. Woodside: And is there anything related to the slight reduction in all your revenues, maybe because of any changes there in terms of how your customers are using that? Thanks, Scott. It's Dennis here. So we see Q1 for SMB really more as a continuation of some of the trends that we called out in Q4, where throughout last year, we had seen SMBs under pressure from the macro environment, for sure, rising interest rates that are limiting their ability to expand their business, and that directly impacts their investment and customer support. We put Freddy Copilot into GA about midway through the quarter.

Scott Randolph Berg: Thanks, Scott, it's Dennis here.

Dennis M. Woodside: So we see Q1 on SMB really more as a continuation of some of the trends that we called out in Q4 were throughout last year, we had seen.

Dennis M. Woodside: <unk> is under pressure from the macro environment for sure rising interest rates that are limiting their ability to expand their business and that directly impacts their investment and customer support.

Dennis M. Woodside: So that trend continue you saw that trend in terms of our net adds which has come down quite a bit over the last year or so.

Dennis M. Woodside: And that's been offset by strength in it and by strength in larger customers you see that on the continued growth of the 50000 up cohort.

Scott Randolph Berg: So.

Scott Randolph Berg: Do we expect AI to have an impact over time, yes.

Scott Randolph Berg: At the same time the adoption of our AI solutions has been has been quite strong.

Dennis M. Woodside: And although it's really early, we saw good adoption among that SMB segment as well as among larger customers. So, I think it's a bit early to say that the cause of SMB weakness was AI. That trend persisted prior to this quarter, but we certainly saw it this quarter. Helpful. Thank you, Dennis. And then, Gee, you moving into the executive chairman role. Some are going to see this as kind of a surprise and a little bit sudden, given the way the announcement was worded, at least without a formal transition. And I realize you're not going anywhere.

Scott Randolph Berg: Friday copilot into GAA about midway through the quarter.

Scott Randolph Berg: And although it is really early we saw good adoption among that SMB segment as well as among larger customers. So I think it's a bit early to say that the cause of SMB weakness was AI that trend persisted prior to this quarter, but we certainly saw it this quarter.

Speaker Change: Understood helpful. Thank you Dennis and then.

Speaker Change: GE you moving into the executive chairman role like some are going to see this as kind of a surprise and a little bit sudden given the way. The announcement was warranted at least without a formal transition and I realize youre not going anywhere, but why is the time right to date to make this change versus at the beginning of the fiscal year, three or four months ago or may.

Speaker Change: Later on this year.

Rathna Girish Mathrubootham: But why is the time right now to make this change versus at the beginning of the fiscal year, three, four months ago, or maybe, you know, later on? Yeah, hi, thanks, Scott. So, I think the first thing is this is not, this was something planned as part of my succession, even when we hired Dennis 18 months ago. Our expectation was that he would eventually be my successor.

GE: Yeah, Hi, Thanks, Scott So I think the.

GE: First thing is this is not this was something planned as part of my succession, even when we hire Dennis 18 months ago.

Scott Randolph Berg: Our expectation was that he would eventually.

Scott Randolph Berg: Be my successor, and so we have been working.

Rathna Girish Mathrubootham: And so we have been working in a similar fashion where Dennis was helping Freshworks get the operational rigor, put in place a world-class team and focus on board market excellence, while I was actually focusing on all the AI stuff that you are seeing right now with Freddy and the product strategy. I think the short answer is playing to our strengths. I think I've always been a believer in playing to our strengths.

Scott Randolph Berg: In a similar fashion, where Dennis was helping fresh looks.

Scott Randolph Berg: Get the operational rigor put in place a world class team and focus on go to market excellence, while I was actually.

Scott Randolph Berg: Focusing on all the AI stuff that you are seeing right now with Freddie and the product strategy I think the short answer is playing to our strengths I think I have always been a believer in playing to strengthen.

Rathna Girish Mathrubootham: And we feel that what's right for Freshworks is for me to focus on long-term product strategy and AI. And Dennis is a fantastic operator coming with world-class experience, looking at his experience at Dropbox, where he has scaled the company from 200 million to north of a billion in like four years or so. And so he brings the right expertise. And this was the plan. And I feel comfortable that this is the right time to do it.

Scott Randolph Berg: We feel that our slate for fresh looks.

Scott Randolph Berg: For me to focus on long term product strategy NII and.

Scott Randolph Berg: Dennis just a fantastic operators coming with classic.

Scott Randolph Berg: Class experience looking at this it's been a dropbox is scaled the company from 200 million to north of $1 billion in like four years or so.

Scott Randolph Berg: So he brings the right expertise. So this was the plan.

Scott Randolph Berg: I feel comfortable that this is the right.

Speaker Change: Time to do it yes, just Scott just a little more on that I think first of all the hardest thing in business and in technologies to build a company out of nothing.

Dennis M. Woodside: Yeah, just got just a little more on that. I think, first of all, the hardest thing in business and in technology is to build a company out of nothing and scale up to a point where, you know, you have a line of sight to a billion in revenue, and you're serving tens of thousands of customers around the world. And G did that.

Scott Randolph Berg: And scale up to a point where.

Scott Randolph Berg: Your.

Scott Randolph Berg: Your line of sight to $1 billion in revenue Youre, serving tens of thousands of customers around the world and GE did that and the advantage. We really have been operating in many respects in a way where <unk> focused very much on technology very much on the AI initial.

Dennis M. Woodside: And the advantage we really have been operating in many respects in a way where G's been focused very much on technology, very much on the AI initiatives and what's coming, and I've been focused on the near term and what we need to do to scale the business. So, to some degree, you know, we've been operating in a way that's consistent with where we're headed for some time. Obviously, this formalizes it in a meaningful way. But I think internally, it wouldn't necessarily be viewed as a sudden change.

Scott Randolph Berg: Initiatives on whats coming and I have been focused on the near term and what we need to do to scale the business.

Scott Randolph Berg: So to some degree we've been operating in.

Scott Randolph Berg: In a way that's consistent with where were headed for some time, obviously this formalized in a meaningful way, but I think internally it wouldn't be viewed as a sudden change necessarily.

Dennis M. Woodside: And we're excited about taking it forward. Excellent. Thank you for taking my questions.

Scott Randolph Berg: And we're excited about taking it forward from here.

Speaker Change: Excellent thanks for taking my questions.

Scott Randolph Berg: Thanks, Scott. Our next question comes from a line from Pinjalim Bora with J.P. Morgan. Hey, thank you for taking the questions.

Speaker Change: Thanks Scott.

Scott Randolph Berg: Our next question comes from the line of pendulum Bora with J P. Morgan.

Pinjalim Bora: One question on the performance on the low end of the market. Is it possible to delineate how much of the underperformance there was because of the worsening macro environment versus some of the changes in the go-to market side that you put into place earlier in the year? And did I hear you correctly?

Pinjalim Bora: Hey, Thank you for taking the questions.

Pinjalim Bora: One question on the performance on the low end of the market.

Pinjalim Bora: Is it possible the ability between how much of the.

Pinjalim Bora: The performance there was because is because of the worsening macro environment versus some of the changes in the go to market side that you put into place earlier.

Pinjalim Bora: Earlier in the year end and did I hear you correctly is it mainly on the CX side versus that gives them.

Dennis M. Woodside: Is it mainly on the CX side versus IPSM? Yeah, thank you. This is Dennis for the question there. So the changes that we've made on go to market over the last year were primarily, not exclusively, but primarily in the field. So that didn't really affect the SMB performance.

Pinjalim Bora: Yes. Thank you this is Dennis for the question there.

Scott Randolph Berg: <unk>.

Dennis M. Woodside: The changes that we've made on go to market over the last year were primarily not exclusively but primarily in the field.

Speaker Change: So that didn't really affect the SMB performance, we called this out before where.

Dennis M. Woodside: Are we.

Dennis M. Woodside: We called this out before where we have an effort underway to try to drive increased conversion of leads in SMB by taking a different approach to how we service those leads and sell those leads. We've made strides there, and we expect that that will bear fruit over time, but that is also fighting against a bit of a headwind that the macro is causing in that segment. So it's a little hard to distinguish between what is macro and what is not.

Dennis M. Woodside: Have an effort underway to try to drive increased conversion of bleeds in SMB.

Dennis M. Woodside: By taking a different approach to how we service those leads and sell those leads we've made strides there and we expect that that will bear fruit over time, but that is also fighting against a bit of a headwind that the macro is causing in that segment. So it's a little hard to distinguish what is macro and what is not.

Scott Randolph Berg: But certainly when we talk to customers. We do hear that they are under pressure and that is resulting in prolonged decisions and in some cases no decision I think with respect to whether it's C CX or at <unk>.

Scott Randolph Berg: SMB for US is primarily a <unk> business and so the <unk> when we say F&B that means primarily CFS, that's where we're seeing that weakness in SMB NCS.

Dennis M. Woodside: But certainly, when we talk to customers, we do hear that they are under pressure, and that is resulting in prolonged decisions and, in some cases, no decisions. I think, with respect to whether it's CX or IT, SMB, for us, is primarily a CS business. And so when we say SMB, that means primarily CS. That's where we're seeing things, understood. One high-level question, it's a little bit long-winded, but if I think about the bot-based products in the market today that might handle, say, L1 queries, and the copilot kind of products, which sits besides an agent, how important is that context switch between these two layers for the success of the efficacy of the AI?

Scott Randolph Berg: Understood.

Scott Randolph Berg: One high level question, so a little bit long winded, but if I think about the broad based products in the market today that might handle.

Scott Randolph Berg: Inquiries and the copilot kind of products at the site and agent how important is that on Dec switch between these two news for kind of the success of the efficacy of the AI trying to understand if a company uses L. One from one vendor and LTE for another vendor does that actually increase increases.

Scott Randolph Berg: The work for the company to create the Colombia between the two mirrors that maybe has an effect on the overall as you can see our success rates.

Dennis M. Woodside: Trying to understand if a company uses L1 for one vendor and L2 for another vendor, does that actually increase the work for the company to create the plumbing between the two layers, and maybe has an effect on the overall AI efficacy or success rates? Yeah, I'll take that, Pinjalim. This is Ji.

Speaker Change: Yes, I think the pendulum to ESG.

Speaker Change: So.

Rathna Girish Mathrubootham: So... First of all, when you look at it from a customer experience standpoint, we all know that customers hate to repeat themselves when they call the call center, and they are passed around. So it's the same customer experience that's at the core here. So when the customer is actually being helped by a bot, and let's say for some reason the bots are not able to help, handing off the customer gracefully to an agent who has full context is really important.

Speaker Change: First of all.

Speaker Change: When you look at it from a customer experience standpoint, we all know that customers.

Speaker Change: Repeat themselves when they call the content than their past due loan right. So at the same customer experience that the core here. So when the customer is actually being helped by a bot and let's say for some reason.

Speaker Change: The box are not able to help handing off the customer gracefully to an agent who has full context is really important and that is something there.

Rathna Girish Mathrubootham: And that is something where, at Freshworks, with our new customer service suite, we have a complete omni-channel product that combines bots with human experience and ticketing for longer-standing use cases. So if a company is using a different technology for bots and a different technology for human agents, they can still integrate and transfer that context, but they would have to do that. But it's always important for the human agent to actually have the context of what transpired before the customer came in contact with them.

Speaker Change: I'd fresh look with our new customer service suite, we have a complete omni channel product.

Speaker Change: <unk> bought with human experience and ticketing for longer standing use cases, so if a company is using a different technology for box on a different technology.

Speaker Change: Human agents, they can still integrate and transfer the context, but they would have to do that extra work.

Speaker Change: But as long as it's important for the human agent to actually have that context of what transpired before the customer came in contact with them.

Speaker Change: Got it thank you.

Rathna Girish Mathrubootham: Our next question comes from the line of Aleks Zukin with Wolf Research. Hey guys, this is Ethan Bruck on behalf of Aleksandr Zukin. I just wanted to ask, I appreciate the color on the CFSAT.

Speaker Change: Our next question comes from the line of Alex Zukin with Wolfe Research.

Speaker Change: Yes.

Speaker Change: Okay.

Aleksandr J. Zukin: This was equal to <unk>.

Ethan Bruck: I'm just curious, did ITSM outperform or also underperform against your internal expectations? And I appreciate the color on the moving pieces on the updated 2024 guidance. Just curious if you can describe if you feel it's now de-risked and maybe any other tips and tricks on how to think about it.

Aleksandr J. Zukin: Hey, this is Ross on for Alex here again, I just wanted to ask I appreciate the color on that I'm just curious.

Ross: Did it.

Ross: Outperformer also underperform against your internal expectations.

Ross: Appreciate the color on the moving pieces on the updated 2020 for guidance just curious if you can describe.

Ross: Now BJ and maybe any other puts and takes and how to think about it. Thank you.

Tyler R. Sloat: Thank you. I'll take the guidance part, and then I can have the guidance for the ITSM piece. But I think I think you're asking for clarification, but what we did call out is like guidance for the year. Obviously, it's based on what we see today and how we expect to perform.

Speaker Change: I'll take the guidance part and then it can have the guidance for the <unk> piece, but I think.

Speaker Change: I think you are asking for the clarification, when we did call out <unk> guidance.

Speaker Change: Guidance for the year, obviously, it's based on what we see today.

Dennis M. Woodside: Nothing from the device 42 acquisition is in there, but there are about, you know, just under three and a half million impacted for the year. Two million on FX and almost 1.5 million on professional services. We commented that this is a very prescriptive shift to partners, and we're actually pretty excited about that. It's just that we had an expectation of services revenue. A lot of that we were taking the paper and then giving it to partners.

Speaker Change: And how we expect to perform nothing from the device 42 acquisition is in there.

Speaker Change: But there is about.

Speaker Change: Just under $3 5 million.

Speaker Change: Impacted for the year $2 million in FX, and almost $1 5 million on professional services. The professional services. We commented on this is a very prescriptive shifts to partners and we're actually pretty excited about that.

Dennis M. Woodside: And so, you know, we saw both sides on the margin and on the top line revenue, which has actually come down because now we have partners having the capability to go deliver it themselves. I'll let Dennis answer the other piece.

Speaker Change: We had expectation of services revenue a lot of that we were taking the paper in there given that the partners.

Speaker Change: And so we saw both sides on the margin then on.

Speaker Change: On the top line revenue, which has actually come down because now we have partners jurors, having the capability to go deliver it themselves I'll, let Dennis answer the other piece, yes. So our ITM business continues to perform very well in particular in the field and in larger customers. So the sweet spot for our ITM business is <unk>.

Tyler R. Sloat: Yeah. So our ITSM business continues to perform very well, in particular in the field and with larger customers. So, the sweet spot for our ITSM business is a company with 500 to 20000 employees. They have complex IT needs.

Dennis M. Woodside: They typically will have a hundred plus agents in their IT department. They have tens of systems that our products need to integrate with, and they're looking for a scalable solution that serves all those needs across I. T. S. M. I, Tom, I, Pam, and then for departments outside of.

Dennis M. Woodside: Company from 500 to 20000 employees they have complex needs. They typically will have.

Dennis M. Woodside: <unk> plus agents and their it department they have tens of systems that our products need to integrate with and they are looking for a scalable solution.

Dennis M. Woodside: That serves all of those needs across <unk> <unk> and then for departments outside of SM.

Dennis M. Woodside: I. T. E. S. M., and so we've carved out a great spot in that market as the most credible alternative to service. Now we're cloud. 1st.

Speaker Change: And so we've carved out a great spot in that market as the most credible alternative to service now.

Speaker Change: Our cloud first where.

Speaker Change: At enterprise scale at this point, we have many customers that are supporting businesses of 10 to 20000 people based on our product. An example that was called out this quarter was Mahindra Mahindra, which is a $16 billion company in India industrial.

Dennis M. Woodside: We're at enterprise scale at this point. We have many customers that are supporting businesses of ten, twenty thousand people based on our product. You know, an example that was called out this quarter was Mahindra Mahindra, which is a sixteen billion dollar company in India's industrial sector that was attracted to the fresh service for its copilot capabilities and the ability to apply in the I. T. department. So that I. T. business is actually doing quite well for us.

Speaker Change: That is was attractive for our service for its co pilot capabilities and the ability to apply AI and the it department.

Dennis M. Woodside: We called this out at the investor day back in September, where the growth rates of that business were quite strong at the time. We called it the high thirties, and we continue to invest in that business. That's a reason why device 42, for us, was quite attractive.

Speaker Change: So that business is doing actually quite well for us we called this out at the Investor day back in September where the growth rates of that business are quite strong.

Speaker Change: At the time, we called out <unk>.

Speaker Change: And we continue to invest in that business.

Speaker Change: A reason that device 42 for us was quite attractive and talking to customers, we see more and more customers looking for advanced capability and in asset management and they are making purchase decisions around.

Dennis M. Woodside: In talking to customers, we see more and more customers looking for advanced capability in asset management, and they're making purchase decisions around their ITSM alongside their decisions about how they're gonna manage the assets in the IT estate. So IT is really performing quite well for us overall, and we're leaning into that business for sure. Great, thank you.

Speaker Change: Their ITM alongside their decision about how theyre going to manage the assets in the state. So it is really actually performing quite well for us overall.

Speaker Change: And we're leaning into that business for sure.

Speaker Change: Great. Thank you yes.

Brent John Thill: Our next question will come from the line of Brent Thill with Jefferies. Dennis, congrats on your new role. I was just curious to get your thoughts and the one or two things that you want to focus on in your new role. And, you know, just a quick follow-up. I know a number of vendors, comedy, and an S&B concern. But I think...

Speaker Change: Our next question will come from the line of Brent Thill with Jefferies.

Brent John Thill: Dennis Congrats on your new role I was just curious to get your thoughts on the one or two things that you want to focus on in your new role and.

Brent John Thill: Just a quick follow up I know a number of vendors that are in Tommy and in SMB concerns.

Brent John Thill: But I think historically there has been some separation between macro and internal execution and I'm curious do you feel the internal executions, where you'd like it to be or do you feel this is all macro and there's nothing you can really do right now.

Dennis M. Woodside: Historically, there's been some separation between macro and internal execution. And I'm curious, do you feel the internal execution is where you'd like it to be? Or do you feel this is all macro, and there's nothing you can really do right now?

Brent John Thill: Yes.

Dennis M. Woodside: So I think that the first question, you know, the area that I'm very much focused on is driving execution of the business that we have now. And that relates to your point about SMB. Can we do more? And do we need to do things differently in that space?

Speaker Change: Thanks for the question so I think that on the first question.

Speaker Change: The area that I am very much focused on is driving execution of the business that we have now and that relates to your point around SMB can we do more and do we need to do things differently in that space, Yes, we do.

Dennis M. Woodside: Yes, we do. And I've talked about this before, at Investor Day, and then throughout Q4. We are in the process of modernizing our inbound motion, our digital-led motion. There's more we can do there to act in a way that our customers expect us to act. Right now, we have a process that's a bit too manual.

Speaker Change: And I've talked about this before at the Investor Day, and then throughout Q4.

Speaker Change: We are in the process of modernizing our inbound motion our digital led motion there is more we can do there.

Speaker Change: Two.

Speaker Change: Act in a way that our customers expect us to act right now we have a process, it's a bit too manual.

Dennis M. Woodside: We need to do things like apply AI to that process. We need to make it easier for the customer to see value in our products than they currently can. So that's a big focus, execution, not just in SMB but in the field as well. A lot of the changes that we've made over the last year are to build a foundation to drive that execution, bringing in people that can help us scale.

Speaker Change: We need to do things like apply AI to that process, we need to make it easier for the customers see value in our products than than they currently can.

Speaker Change: So thats the big focus is execution not just in F&B, but in the field as well a lot of the changes that we've made over the last year or to build a base to drive that execution, bringing in the people that can help us scale.

Dennis M. Woodside: And then the second area really is driving that, continuing that move up into the mid-market and into the lower end of enterprise. And that requires different approaches to how you sell, how you support, how you service, professional services, all those things, while bringing real innovation around AI into that space. So, I think those are really a continuation of what, you know, G&I has been focused on over the course of the last year or so, but sharpening that up and making sure we drive that through. I think on the last question, well, I guess I answered it in some respects.

Speaker Change: And then the second area really is driving that continuing that that move up into the mid market and into the lower end of enterprise and that requires different approaches to how you sell how you support how you service professional services all of those things, while bringing real innovation around AI into that space. So I think those are.

Speaker Change: Really continuation of what <unk> been focused on over the course of the last year or so.

Speaker Change: But sharpening that up and making sure we drive that through I think on the last question.

Speaker Change: I guess I answered it in some respect, yes, I think macro absolutely as a part of it and yes. We can we can absolutely do more there.

Dennis M. Woodside: Yes, I think macro absolutely is a part of it, and yes, we can, we absolutely can do more there. And just a quick follow-up, Dennis, when you think about that... Modernization of Digital Motion.

Speaker Change: And just a quick follow up Dennis when you think about that.

Brent John Thill: I mean, how long does that take to complete? Is that a 2024 event? We are going to be completing the front half; how do you think about the actual timing? It's a 20 it's a 24 event, and you know the expectation is that we start seeing impact later this year. Great, thank you. Our next question comes from the line of Rob Oliver with Baird. Good. Thanks. I'll add my congratulations, Dennis, to you and to you as well.

Speaker Change: Modernization of a digital motion I mean, how long does that take to complete is that a 2024 event is it.

Dennis M. Woodside: Is it going to be complete in the front half how do you how do you think about the actual timing of it.

Dennis M. Woodside: It's a 24 event and the expectation is that we start seeing impact later this year.

Speaker Change: Yes.

Speaker Change: Great. Thank you.

Speaker Change: Our next question comes from the line of Rob Oliver with Baird.

Robert Cooney Oliver: Great. Thanks, I'll add my congratulations Dennis to you and GE to you as well.

Robert Cooney Oliver: Dennis, my question is for you. And I know you commented that it's too early to say that generative AI is the reason for the agent weakness in Q1, but maybe to harken back to Scott's question at the outset, you also said that you're seeing early signs of Freddie monetization. So I'd be curious to hear what sort of impact that is having within your accounts in terms of, I guess, Seat and Agent Activity, as well as, and this came up in conjunction with Klarna, sort of that distinction between level one and level two deflections. I mean, we would expect that line to shift.

Robert Cooney Oliver: My question is for you and I know you commented that it's too early to say that.

Robert Cooney Oliver: AI is the reason for the agent of weakness in Q1, but maybe talking back to Scott's question at the outset.

Speaker Change: You also said that you are seeing early signs of Friday monetization, so I'd be curious to hear.

Robert Cooney Oliver: What sort of impact that is having within your accounts in terms of.

Robert Cooney Oliver: Yes.

Robert Cooney Oliver: Seat and agent activity as well as in.

Robert Cooney Oliver: This came up in conjunction with sort of that.

Speaker Change: Thanks, Jim between level, one and level two deflection. So I mean, we would expect that line to shift so curious to hear your view on that and then I had a follow up for Tyler.

Dennis M. Woodside: I was curious to hear your view on that, and then I had a follow-up question for Tyler. Yeah, so on AI, every sale and renewal that we're involved in with AI is at the center. Every customer wants to talk to us about our AI capabilities, our AI roadmap, how that can help them. They want to see examples.

Speaker Change: Yeah, so on on AI every sale.

Speaker Change: And renewal that we're involved with AI is at the center.

Speaker Change: Not every customer wants to talk to us about our AI capabilities, our AI roadmap, how that can help them they want to see examples and.

Dennis M. Woodside: And, you know, we have two paths to monetize today. We have Freddie self-serve, which is L1. And then we have the co-pilot, which assists the agent. Different pricing models, one's consumption, one's price per seat.

Speaker Change: We have two paths to monetize today, we have Fred self serve which is all one.

Speaker Change: And then we have the copilot, which which assists the agent different pricing models once consumption once.

Speaker Change: Price per seat.

Dennis M. Woodside: Both are getting tremendous interest, and both are involved in sales in different ways. In some cases, we're monetizing directly. People are paying us right off the bat.

Speaker Change: Both are getting tremendous interest and both are involved in sales in different ways. In some cases, we're monetizing directly people are paying us right up that in other cases, we are using our AI capabilities as.

Dennis M. Woodside: In other cases, we're using our AI capabilities as an inducement to close the deal. An example there is Stitch Fix, which bought not just the core, in that case, customer support platform, but it was on the back of co-pilot and the AI roadmap. And then in other cases, we're using AI and thinking of it really as an adoption play, where we want to get a customer wall-to-wall using AI across all their agents, get them to see value for it, give it to them for a period of time for free on a limited basis or at a very low cost, and then monetize down the road. So it's very early.

Speaker Change: An inducement to close the deal and an example, theyre really a stitch fix which bought not just on the <unk>.

Speaker Change: Core in that case customer support platform, but it was on the back of co pilot in the AI roadmap and then in other cases, we're using AI as a and thinking of it really as a.

Speaker Change: And adoption play, where we want to get a customer wall-to-wall using AI across all their agents.

Speaker Change: Get them seeing value for it and give it to them for a period of time for.

Speaker Change: <unk> for free on a limited basis or very low cost and then monetize down the road.

Speaker Change: It's very early our copilot was went into GAA just in the middle of Q1, but.

Dennis M. Woodside: Our co-pilot went into GA just in the middle of Q1. The interest is there, the usage is there when customers are, you know, up and running, and the promise is there because the value is ultimately there for the customer. Great, very helpful. Thanks. And then, Tyler, I was just wondering if you could give us a little bit more color just on the sort of billings, expectations, and linearity throughout the year. Obviously, you know, solid quarter this quarter, it's going to drop off fairly meaningfully, and just wanted to get your sense for, you know, the linearity there and what gives you the confidence in the better billings outlook sort of later in the year. Thanks.

Speaker Change: The interest is there the usages there when customers are.

Speaker Change: Up and running and the promise is there because the value is ultimately therefore customer.

Speaker Change: Great very helpful. Thanks, and then Tyler I was just wondering if you could give us a little bit more color just on the sort of billings expectations in linearity throughout the year obviously.

Tyler R. Sloat: Solid quarter this quarter, it's going to drop off fairly meaningfully and just wanted to get your sense for.

Tyler R. Sloat: The linearity there and what gives you the competence.

Tyler R. Sloat: It's a better billings outlook sort of later in the year.

Tyler R. Sloat: Sure. Yeah, of course. We said normalized billings for Q1, 17%, 14% as reported, and we said 12% for Q2. That's an as reported number.

Tyler R. Sloat: Yes of course.

Speaker Change: You said normalized billings.

Speaker Change: For Q1, 17% by 14% as reported and we said 12% for Q2, that's an as reported number and our expectation is that would normalize up what happens Q2 of last year, we actually had a pretty decent amount of pull ins from Q3, we always have Paul ends like early renewals with expansion.

Tyler R. Sloat: And our expectation is that it would normalize. What happened is that, you know, in Q2 of last year, we actually had a pretty decent amount of pull-ins from Q3. We always have pull-ins like early renewals with expansion, and we kind of have an expectation about that, but it's a little bit unpredictable. And so, right now, you know, 12% un-normalized, and we do expect a little bit of pull-in, but that one, again, we'll have a much better view at the end of the quarter.

Speaker Change: And we kind of have an expectation about that but it's a little bit unpredictable and so right now.

Tyler R. Sloat: For the year, 16%, yeah, the numbers fall out, and we can see the billing schedules going out. That's what we expect for the year in line with, you know, the guidance that we gave, which does assume there's going to be a little bit of acceleration, but we can already see some of that in the numbers. Okay, it was helpful. Thanks, guys. I appreciate it. Our next question comes from the line of Ryan MacWilliams with Barclays. Hey guys, this is Eamon Coblin on behalf of Ryan MacWilliams.

Speaker Change: 12%.

Speaker Change: On a normalized and we do expect a little bit of pull them, but that one again, we will have much better view at the end of the quarter for the year, 16%, yes, the numbers fallout and we can see the billing schedules going out that's what we expect for the year in line with the guidance that we gave which does assume theres going to be a little bit of acceleration, but we can already see some of that in the numbers.

Speaker Change: Okay helpful. Thanks, guys appreciate it.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Ryan Macwilliams with Barclays.

Speaker Change: Hey, guys. This is damian caused by not Ryan macwilliams, Thanks for taking the question.

Unknown Executive: Thanks for taking the question. Great to hear about the 30% improvement in productivity for your customers leveraging Freddie AI. I'm curious if there were any other key takeaways post the Freddie Copilot becoming GA. Like how has the process been converting those beta customers, which I think totaled around 2500 customers in 3Q, to paying customers. Thanks for the question. It's Dennis.

Damian: Great to hear about the 30% improvement in productivity from your customers leveraging AI.

Damian: I'm curious if there are any other key takeaways posted Friday co pilot.

Ryan Patrick MacWilliams: Becoming gea like how has the process been converting those beta customers, which I think totaled around 25, 2500 customers and <unk> to paying customers.

Ryan Patrick MacWilliams: Yes, thanks for the question it's Dennis.

Dennis M. Woodside: What's been interesting to see is that the conversion and the interest are across all customer segments, both small and large. So we're seeing a surprising number of SMBs who are new to Freshworks coming in and signing up directly for AI from day one. So they'll try the product, you know, for a limited period of time, they'll see the value, and they'll pay for it.

Dennis M. Woodside: What's been interesting to see is that the the.

Dennis M. Woodside: The conversion and the interest is across all customer segments.

Speaker Change: Both small and large so we're seeing a surprising number of Smbs, who are new to fresh works coming in and signing up directly for AI from day, one so they'll try the product for.

Ryan Patrick MacWilliams: For a limited period of time, they will see the value and they will pay for it and the pricing actually is holding up quite well. So the SMB side I think has been surprisingly strong I think when you get into larger customers different customers are at different points in their adoption phase some are leaning in and going all in from day one others.

Dennis M. Woodside: And the pricing is actually holding up quite well. So the SMB side, I think, has been surprisingly strong. I think when you get into larger customers, different customers are at different points in their adoption phase; some are leaning in and going all in from day one; others, you know, want to really understand the data implications, security implications, there's a long review process that takes a bit longer. But every single customer wants to talk about it, which I think is the exciting part. And that gives us a lot to talk about at renewal with existing customers, and certainly every new prospect that we talk to AI is at the center centerpiece of the pit. All right, understood.

Ryan Patrick MacWilliams: Want to really understand the data implication security implications. There is a long review process. It takes a bit longer but every single customer wants to talk about it which I think is the exciting part and that gives us a lot to talk about at renewal.

Ryan Patrick MacWilliams: Listing customers and certainly every new prospect that we talked to AI at the center centerpiece of the pitch.

Dennis M. Woodside: And how did the trajectory for rent retention look from here? Anything to call out from upsells, churn, or seats that's worth noting? Maybe what's implied for the 105-106% guide for 2Q? Nothing's implied there.

Speaker Change: Alright understood.

Ryan Patrick MacWilliams: How does the trajectory for retention look like from share anything to call out from Upsells churn or seats, that's worth, noting maybe what's implied for the 105% to 106% guide for <unk>.

Tyler R. Sloat: I think, you know, what we're seeing there is, you know, very similar to what we saw in Q1. So, kind of, you know, we said 106 and it came in at 106. Turn, we said, ticked up slightly, but not materially enough to round to anything.

Speaker Change: Nothing supply there I think what we're seeing there is very similar to what we saw in Q1. So kind of we said one six that came in at 106 churn, we said ticked up slightly but not materially enough to to round to anything and we've already done a really really good job at bringing down our gross churn.

Ryan Patrick MacWilliams: Over the past couple of years the expansion motion as we've talked about in the past we're very very focused on how are we're expanding with our customers outside of agent addition agent additions still the number one expansion motion for us and a lot of that is organic but as we've talked about that that rate has decreased over the last couple of years. What we are seeing is that.

Tyler R. Sloat: And we've already done, you know, a really, really good job at bringing down kind of our gross turn over the past couple of years. The expansion, as we've talked about in the past, we're very, very focused on how we're expanding with our customers outside of agent edition. Agent edition is still the number one expansion for us, and a lot of that is organic.

Tyler R. Sloat: But as we've talked about that, that rate has decreased over the last couple of years. What we are seeing is that, you know, good pickup of some of our newer products and then, you know, Freddie, Copilot, in particular, there are actually some good add-on business there. But nothing that is going to move the needle higher than 105 or 106 for Q2. For the year, we expect it to be roughly the same, in that 106 range.

Ryan Patrick MacWilliams: Good pick up of some of our newer products and then Freddie our co pilot in particular, there are actually some good add on business there but.

Ryan Patrick MacWilliams: But nothing that is going to move the needle higher than the $105 six for Q2.

Speaker Change: Got it thank you guys.

Ryan Patrick MacWilliams: Yes for the year, we expect it to be roughly the same.

Ryan Patrick MacWilliams: And that 106 range.

Unknown Executive: Perfect. Thank you. Thanks, Tyler.

Ryan Patrick MacWilliams: Perfect.

Speaker Change: Thanks, Tom I appreciate it.

Tyler R. Sloat: I appreciate it. Our next question comes from the line of Dan Reagan with Canaccord Genuity. Hey guys, this is Dan Reagan for DJ.

Speaker Change: Our next question comes from the line of Dan Reagan with Canaccord Genuity.

Dan Reagan: First, I just wanted to ask if you could elaborate on the expected synergies from the device 42 acquisition. So you've historically partnered with device 42 on large enterprise opportunities, so I'm just wondering how you think about the go-to-market synergies from here, beyond what you've been seeing, and then sort of how it positions Freshworks with your up-market ambitions. Maybe some nice cross-sell opportunities with its 800-customer base; any color there would be awesome. Thanks for the question.

Dan Reagan: Hey, guys. This is Dan Regan on print D J.

Dan Reagan: Firstly I just wanted to ask if you can elaborate on the expected synergies from the device to acquisition. So you have historically partnered with device 42 on large enterprise opportunities.

Dan Reagan: Just wondering how you think how youre thinking about the go to market synergies from here beyond what you've been seeing and then sort of how it positions fresh works when you are up up market ambitions.

Dan Reagan: Maybe any nice cross sell opportunities with its 800 customer.

Speaker Change: Base any color there would be awesome.

Speaker Change: Thanks for the question.

Speaker Change: So.

Dennis M. Woodside: So, we see Device 42 in a couple ways. First of all, we've been partnering with them for the last 18 months. So we have a product integration that allows an ITSM customer to easily flip into the Device 42 environment. And we've been co-selling with them to large customers. We called out one of our customers last quarter with a large apparel retailer. Device 42 was integral to that sale. I was in Europe earlier last week and one of our larger customers, we are now upselling Device 42 to.

Speaker Change: We see device 42, and a couple in a couple ways first of all we've been partnering with them for the last 18 months. So.

Speaker Change: We have a product integration that allows a TSM customer to easily flip into the device 42 environment, we've been co selling with them two large customers, we called out one of the customers last quarter was a large apparel retailer device 42 was integral to that that that sale I was in Europe earlier.

Speaker Change: Last week and one of our larger customers we are now upselling.

Speaker Change: <unk> 42 in.

Dennis M. Woodside: And so we know that the product works. We know that our customers, especially these larger customers, they wanna buy ITSM alongside a sophisticated ITM solution. And we've seen the product in action. So we feel like we've de-risked product market fit. They have 800 customers worldwide.

Speaker Change: And and so we know that the product works, we know that our customers, especially these larger customers. They want to buy TSM alongside a sophisticated ITM solution and we've seen the product in action. So we feel like we've we've derisked product market fit they have 800 customers worldwide.

Dennis M. Woodside: Like most of those customers, they do not use fresh service as their ITSM. So we see synergies in a couple of different ways. As those ITSMs come up for renewal, we will know that they're up for renewal. We'll be able to get in front of those decision makers and make a pitch and win some business there.

Speaker Change: Like most of those customers do not use fresh service as their ITM. So we see synergies in a couple of different ways as as those <unk> come up for renewal. We will know that they are up for renewal, we will be able to get in front of those decision makers and make a pitch and win some business there and then.

Dennis M. Woodside: Amongst our thousands of customers, most of them don't use an advanced ITAM solution from Device 42. So we will have a programmatic approach to selling advanced ITAM into our existing base. So I think those are two areas and we definitely see a need for more advanced capability than we currently have among larger customers. For us, it eases this move up market. It puts us in a better position vis-a-vis ServiceNow and Atlassian, in particular, which have more in-depth ITAN solutions than we do natively, which is why we pursued the app. Excellent, super helpful And then just one follow-up with the transition of Grish to EC and Dennis assuming the CEO position. Congratulations there.

Speaker Change: Amongst our thousands of customers most of them don't use.

Speaker Change: And advanced high cancellation from device 42, so we will have a programmatic approach to selling.

Speaker Change: Advanced <unk> into our existing base so.

Speaker Change: So I think those are two areas and we definitely see a need for more advanced capability than we currently have.

Speaker Change: Larger customers so.

Speaker Change: For us it.

Speaker Change: Eases this move upmarket.

Speaker Change: It puts us in a better position vis vis service now and last year and in particular, which have more in depth <unk> solutions than we did natively, which is why we pursued the acquisition.

Speaker Change: Excellent Super helpful.

Speaker Change: And then just one follow up with the transition of.

Speaker Change: Chris you see.

Speaker Change: Dennis assuming the CEO position congrats.

Speaker Change: Congrats there.

Speaker Change: You have already provided a bit of color on this but could you dive a little bit deeper into any changes and strategic initiatives and operational focus.

Dan Reagan: You've already provided a bit of color on this, but could you dive a little bit deeper into any changes in strategic initiatives and operational focus? You know, you're focused on the low end, improving SMB conversion. That's been discussed. At the high end, you have momentum.

Speaker Change: We are focused on the low end improving SMB conversion.

Speaker Change: It's been discussed at the high end you have momentum.

Dennis M. Woodside: But now a newer focus with opportunities around device 42. Any color there on initiatives, and any changes would be awesome. Thank you.

Speaker Change: But now a newer focus with opportunities around device 42.

Speaker Change: Any color there on initiatives and any changes would be awesome.

Dennis M. Woodside: Yeah, so no changes from what we said before, really focused on that S&B opportunity and getting that business back to healthy growth, focused on continuing to drive upmarket, which is primarily IT, and focused on the AI opportunity, which is across all of our products. Those are the things that are really driving our business now. And then lastly, just focus on continuing our expansion motion, expansion cross-sell, and up-sell as we have more products. Now we have Device 42. That's another product that we can cross-sell into our existing base. Excellent, thank you.

Speaker Change: Yes, so no changes from what we said before really focused on that that that SMB opportunity in getting that business back to healthy growth focused on continuing to drive upmarket.

Speaker Change: Which is primarily <unk>.

Speaker Change: Focused on the AI opportunity, which is across all of our products.

Speaker Change: Those are the things that are really driving our business now and and then lastly, just focus on continuing our expansion motion.

Speaker Change: Spansion cross sell up sell as we have more products now we have device 42, that's another product that we can cross sell into our existing base.

Speaker Change: Excellent. Thank you.

Patrick D. Walravens: Our next question comes from the line of Pat Walravens with Citizens JMP. Oh, great. Thank you. Dennis, it's actually, it's Pat Walravens.

Speaker Change: Our next question comes from the line of Pat Walraven with citizens JMP.

Speaker Change: Oh, great. Thank you Dennis it's actually it's Pat Walraven.

Patrick D. Walravens: So I would love to go back to the agent replacement conversation and let me share a quick anecdote with you, and then I would love to hear how things might be different or similar for Freshworks. So I spoke to a large company and another vendor that has a couple thousand agents. They're adding the AI option from this other vendor. And, you know, they'll reduce the number of agents by a lot, maybe even half. And so I said, okay, great. So your contract value is going to go down, right?

Patrick D. Walravens: So I would love to go back to the agent replacement conversation and let me share a quick anecdote with you and then I would love to hear how things might be different or similar for fresh works.

Patrick D. Walravens: So I spoke to a large company another vendor that has a couple of thousand agents, they're adding the AI option from this other vendor and.

Patrick D. Walravens: Reduce the number of agents by a lot maybe in half.

Patrick D. Walravens: And so I said, okay. Great. So you are cautioned that he is going to go down right and the answer was no but the.

Speaker Change: The total contract value is going up this other vendors already moving to consumption pricing.

Speaker Change: And they bake that in.

Speaker Change: And we really don't mind that much because we are saving so much on the labor.

Speaker Change: The marginal increase in the software cost.

Speaker Change: Okay.

Speaker Change: It's just a much smaller amount than the labor savings.

Patrick D. Walravens: And the answer was, oh, no, the total contract value is going up. This other vendor is already moving to consumption pricing, and they bake that in. And we really don't mind that much because we're saving so much on labor that the, you know, the marginal increase in software cost is just a much smaller amount than the labor savings. So does that dynamic work for Freshworks, or is there something different? Hey, Pat. This is Girish.

Speaker Change: Does that dynamic work for fresh works or is there something different.

Speaker Change: Hey, Brad this is <unk>.

Speaker Change: Okay.

Speaker Change: Yes.

Rathna Girish Mathrubootham: Okay. Yeah, so this is exactly the same dynamic, and we had already explained it earlier. So see, we all know that customer service automation is something that businesses want, and it's not just today after Gen-AI. It's been something that businesses want right from the day they started putting in IVRs and call centers, right? So this has been a journey for us, and of course, Gen-AI is accelerating that, and our Freddy's self-service is also built to capture and leverage that. And as you clearly stated, for the customer, it's a win-win because by investing in technology, they're saving a lot more in terms of overall not having to hire so many people, and that translates into a better revenue realization potential for Freshworks also.

Brad: Yeah. So.

Brad: So this is exactly the same dynamic.

Brad: We had already also explained it earlier so Cvs.

Rathna Girish Mathrubootham: And so are you able to increase the size of the contracts overall on the renewals? Yes. Yeah, so again, it's early days, but what you're describing is exactly what we're pursuing. And that's what you're talking about with respect to reduced agent count where that happens, that we're basically replacing human costs with software costs. So our customers are on that exact same wavelength. Not all of them are looking to reduce staff, but for those who are, there's absolutely a business case to be made for spending more on software. And remember, we have a consumption product. That's what Freddie self-serve is. You pay by session, which is basically the equivalent of a ticket.

Brad: <unk> all know that customer service automation is something that businesses want and it is not today. After January it's been something that businesses want to date from the day, they started putting in Ibs and call centers.

Rathna Girish Mathrubootham: And they understand that language. They understand how to monetize the ticket or what the ticket costs them. So they're willing to pay on a consumption basis for avoiding that human interaction. All right, great. Thank you both. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Great, thank you so much.

Elizabeth Mary Elliott Porter: I wanted to ask a bit on a more of a macro question: macro headwinds deal hesitancy has been an impact really across software. So I wanted to get your view on how customer conversations are trending with customers, as it relates to just how long deals can be pushed off. And how does that balance with this rush to invest in AI and not wanting to be left behind? Kind of any sort of view on when that pendulum will swing back to customers being more willing to engage in deals? I would be super helpful for your view.

Brad: <unk>.

Brad: This has been a journey for us and of course Gen. AI is accelerating that and already self service is also built to capture and leverage that and as you clearly stated floor.

Brad: <unk> the customer it's a win win because.

Brad: By investing in technology, they are saving a lot more in terms of.

Brad: Overall, not having to hire so many people and that.

Brad: Translates into better revenue realization potential for fresh folks also that's exactly true.

Speaker Change: And so are you able to increase the size of the contracts overall on the renewals.

Speaker Change: Yes, yes.

Speaker Change: Yes, so okay. So again.

Speaker Change: It's early days, but.

Brad: What you're describing is exactly what we're pursuing and thats, what youre, what youre talking about with respect to reduced agent count where that happens.

Brad: We're basically replacing human cost with software costs and so our customers are on that exact same wavelength not all of them are looking to reduce staff.

Brad: But for those who are there is absolutely a business case to be made for spending more on the software and remember we have a consumption product that's what Freddie self serve is.

Brad: Pay by session, which is basically the equivalent of a ticket and they understand that language they understand how to monetize.

Brad: The ticket or what the ticket cost them. So they are willing to pay on a consumption basis for avoiding that human interaction.

Speaker Change: Alright, great. Thank you Bob.

Speaker Change: Our next question comes from the line of Elizabeth corner with Morgan Stanley.

Speaker Change: Yeah.

Elizabeth Mary Elliott Porter: Great. Thank you so much I wanted to ask a bit more of a macro question is that macro headwinds deal hesitancy has been an impact really across software.

Elizabeth Mary Elliott Porter: So I wanted to get your view on how customer conversations are trending with customers as it relates to just how long deals can be pushed off and how does that balance with this rush to invest in AI and not wanting to be left behind and of any sort of view on kind of when that pendulum and shift back to customers being.

Speaker Change: More willing to engage in deals I wouldnt be super helpful for you.

Dennis M. Woodside: Well, as I said earlier, in the larger account space, which for us is in that 500 and up cohort, you know, we're seeing good momentum, we're seeing a lot of interest, we're seeing a lot of deals, and you see that in our numbers overall. As our customer base continues to shift into larger relationships with us, higher ARPA, that tends to be on the IT side of the house, but not exclusively, because some of the deals that we talked about this quarter, like Stitch Fix, are customer support deals.

Speaker Change: Well as I said earlier that we're seeing two different trends.

Speaker Change: In the larger account space.

Brad: Which for US is is in that 500 and up cohort.

Brad: Cohort, we're seeing good momentum, we're seeing a lot of interests, we're seeing a lot of deals and youre seeing that in our numbers overall as our customer base.

Brad: <unk> to shift into larger relationships with us higher ARPA that tends to be on the it side of the house.

Brad: Not exclusively but I guess some of the deals that we talked about this quarter like stitch fix or our customer support deals.

Dennis M. Woodside: It's SMB where, at least for us, we're seeing the kind of headwinds that you're talking about, the prolonged decision-making, the no decision. Got it, thanks. And then for the device 42 acquisition, kind of wondering if you'd give us any sort of additional color on, you know, how the deal sizes might compare relative to your current ITSM deals, any sort of revenue or growth that we could think about as it relates to the asset that you're willing to share.

Brad: It's SNB, where at least for US we're seeing the kind of headwinds that you are talking about the prolonged decision, making the no decision et cetera.

Brad: Okay.

Speaker Change: Got it thanks and then.

Speaker Change: For the device 42 acquisition kind of wondering if you could give us any sort of additional color on how the deal sizes might compare relative to your current Ikea some gals.

Speaker Change: Any sort of revenue, where our growth that we could think about that as it relates to the asset that you're willing to share.

Speaker Change: I'll take the back back part of that.

Tyler R. Sloat: So, as we mentioned, we've been a partner with Device 42 for a while. We've actually been reselling their product, but it's really, you know, more on a limited basis, but we do know that it works with our customers and it's integrated. You know, we've got, we said on investor day, we've got over eighty six hundred, you know, fresh service customers paying us greater than five thousand dollars a year, and Device 42 has about eight hundred customers. And of those eighty six hundred, very few of them actually are using Device 42.

Speaker Change: So as we mentioned we've been a partner with device 42 for a while we've actually and reselling their product, but it's really more on a limited basis, but we do know that it works with our customers.

Speaker Change: It's integrated.

Speaker Change: We've got we said at our Investor Day, we've got over 8600.

Speaker Change: Fresh service customers paying us greater than five K a year end device 42 is about 800 customers.

Speaker Change: Of the 8600 very few of them actually are using device 42. So we think there's going to be great synergies there and that's the purpose of this deal. We really think this is an investment.

Tyler R. Sloat: So, we think there's gonna be great synergies there and that's the purpose of this deal. We really think this is an investment in fresh service, which that product has been doing really, really well and is positioned really well. But we also know that not having the capabilities of like the Voice 42 has made us less competitive in the upper enterprise.

Speaker Change: And fresh service, which that product has been doing really really well positioned really well, but we also know that this is not.

Speaker Change: Not having the capabilities of <unk> 42 has made us less competitive in the upper enterprise and so our expectation is that this is going to fill that gap that we know that.

Tyler R. Sloat: And so, you know, our expectation is that this is gonna fill that gap that we know that, you know, there's deals that we've lost because of because we haven't had that. And so our expectation is that this is gonna be revenue-creative. We don't have the numbers yet to share. We'll do that after we close the deal.

Speaker Change: There is deals that we've lost because of because we haven't had that.

Tyler R. Sloat: But we did say in the script that, you know, revenue creative for the year. And also, we think it's gonna be cash flow neutral. (inaudible) Thank you.

Speaker Change: And so our expectation is that this is going to be.

Speaker Change: Revenue accretive we don't have the numbers yet to share we'll do that after we close the deal.

Speaker Change: But we did say.

Speaker Change: In the.

Speaker Change: In the script that revenue accretive for the year.

Speaker Change: And also we think it's going to be cash flow neutral.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Speaker Change: This concludes today's conference. Thank you for participating you may now disconnect.

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Operator: This concludes today's conference. Thank you for participating. You may now disconnect. [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and thank you for standing by.

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Speaker Change: Good day and thank you for standing by welcome to the fresh works first quarter 2024 conference call.

Operator: Welcome to the Freshworks First Quarter 2020 Forward Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.

Joon Huh: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Joon Huh, Head of Investor Relations. Please go ahead.

Speaker Change: Withdraw your question. Please press star one one again please.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I would now like to turn the conference over to your Speaker today, John Hutton head of Investor Relations. Please go ahead.

Joon Huh: Thank you. Good afternoon, and welcome to Freshworks' first quarter 2024 earnings conference call. Joining me today are Girish Mathrubootham, Freshworks Chief Executive Officer, Dennis Woodside, Freshworks President, and Tyler Sloat, Freshworks Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our first quarter 2024 performance and our financial outlook for our second quarter and full year 2024. 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.

John Hutton: Thank you good afternoon, and welcome to fresh works first quarter 2024 earnings Conference call. Joining me today are Girish module with them Fresh works Chief Executive Officer, Dennis Woodside Fresh works, President and Tyler Sloat Fresh works Chief Financial Officer. The primary purpose of todays call is to provide.

Speaker Change: Did you with information regarding our first quarter 2024 performance and our financial outlook for our second quarter and full year 2024.

Joon Huh: These forward-looking statements are based on Freshworks' current expectations and estimates about its business and industry, including our financial outlook, macroeconomic uncertainties, management's beliefs, and certain other assumptions made by the company, all of which are subject to change. These statements are also subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statement.

Speaker Change: 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 1095.

Joon Huh: 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 our 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.

Speaker Change: These forward looking statements are based on fresh works current expectations and estimates about its business and industry, including our financial outlook macroeconomic uncertainties managements beliefs and certain other assumptions made by the company all of which are subject to change.

Speaker 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.

Speaker Change: 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.

Speaker Change: 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 our.

Speaker Change: Our other periodic filings with SEC.

Speaker Change: <unk> 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.

Speaker Change: 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 Dot fresh works Dot com.

Joon Huh: 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 Best Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports, a replay of today's call, or to learn more about Freshworks.

Speaker Change: I encourage you to visit our Investor Relations site to access our earnings release supplemental earnings slides periodic SEC reports, a replay of today's call or to learn more about fresh works and with that let me turn it over to Girish.

Rathna Girish Mathrubootham: Thank you, June, and thank you all for joining us on this call today to cover our first quarter of 2024. We delivered solid profitable growth in Q1. As we reported revenue of $165.1 million, reflecting an increase of 20% year over year.

Rathna Girish Mathrubootham: Thank you Joe and thank you all for joining us on this call today.

Rathna Girish Mathrubootham: Color, our first quarter of 2024.

Rathna Girish Mathrubootham: We delivered solid profitable growth in Q1.

Rathna Girish Mathrubootham: As we reported revenue of $165 1 million.

Rathna Girish Mathrubootham: Reflecting an increase of 20% year over year.

Rathna Girish Mathrubootham: We meaningfully surpassed our estimate for free cash flow with $38.7 million in Q1, for a strong free cash flow margin of 23%. Our results reflect aspects of our growth strategy that are working. Specifically, in AI innovation, IT business momentum, and CSS adoption with larger customers, as well as the current macro environment. Before talking about our product and growth initiatives for the business, let me start with the news we announced earlier today that we have signed a definitive agreement to acquire Device 42.

Rathna Girish Mathrubootham: We meaningfully surpassed our estimate for free cash flow with $38 7 million in Q1 for a strong free cash flow margin of 23%.

Rathna Girish Mathrubootham: Our results reflect aspects of our growth strategy that are working.

Rathna Girish Mathrubootham: Basically in AI innovation.

Rathna Girish Mathrubootham: Business momentum and CSF adoption with larger customers as well.

Rathna Girish Mathrubootham: ROE environment.

Rathna Girish Mathrubootham: With more than 800 customers around the world, Device 42 provides enterprise-grade IT asset management capabilities, which we believe can further strengthen our fresh service offering. This is our first acquisition since we became a public company in 2021, and I'm excited about how this will enhance our fresh service, which is currently our fastest growing business. With this acquisition, we will be able to provide advanced asset discovery and application dependency mapping across data center and cloud environments.

Rathna Girish Mathrubootham: Before talking about our product and growth initiatives for the business. Let me start with the news we announced earlier today that we have signed a definitive agreement to acquire <unk> 42.

Rathna Girish Mathrubootham: With more than 800 customers around the world.

Rathna Girish Mathrubootham: <unk> 42 provides enterprise grade asset management capabilities, which we believe can further strengthen offer service offering.

Speaker Change: This is our first acquisition since we became a public company in 2021 and I am excited about how this will enhance our service which is currently our fastest growing business.

Rathna Girish Mathrubootham: With this acquisition, we will be able to provide advanced asset discovery and application dependency mapping.

Rathna Girish Mathrubootham: Data center and cloud environments.

Rathna Girish Mathrubootham: Combined with our robust ITOM and ITSM capabilities, this will help IT infrastructure and operations teams track and understand the IT landscape to achieve greater efficiency in service delivery and reliability in IT operations. Through this combination, we'll be able to offer a more comprehensive solution for our customers. We have historically partnered with Device 42 on large enterprise opportunities in the field, and after the transaction closes, we look forward to serving customers as one integrated company. We expect the transaction to close later in Q2.

Rathna Girish Mathrubootham: Combined with our robust item and HSM capabilities. This will help IP infrastructure and ops teams.

Rathna Girish Mathrubootham: I understand that landscape to achieve greater efficiency in service delivery and the <unk> and <unk> operations.

Rathna Girish Mathrubootham: Through the combination will be able to offer a more comprehensive solution for our customers.

Rathna Girish Mathrubootham: We have historically partnered with debate 42 on large enterprise opportunities and the fee and after the transaction closes we look forward to serving customers as one integrated team.

Rathna Girish Mathrubootham: We expect the transaction to close later in Q2.

Rathna Girish Mathrubootham: Turning to the quarter, I'm pleased with our progress across the business in Q1. First, we advanced AI innovations across our products and platforms to improve agent productivity and customer satisfaction. The use of our bots with Freddie self-service continues to strengthen deflection capabilities across customers' preferred channels. Companies, including Porsche eBike, Lightrix, and Travelopia, can leverage self-service capabilities to improve personalization and provide AI-generated answers from their knowledge. Over the past quarter, our customers have seen deflection rates of more than 40% resulting from these bots.

Rathna Girish Mathrubootham: Turning to the quarter I am pleased with our progress across the business in Q1.

Rathna Girish Mathrubootham: First we advanced AI innovations across our products and platform to improve agent productivity and customer satisfaction.

Rathna Girish Mathrubootham: The use of our box with critical service continues to strengthen deflection capabilities across customers preferred tenants.

Rathna Girish Mathrubootham: Companies, including portal E bike lakes and travel OPO can leverage self service capabilities to improve personalization and provide aegean digit answers from that knowledge base.

Rathna Girish Mathrubootham: Over the past quarter, our customers have seen deflection rates of more than 40%, resulting from these blocks.

Rathna Girish Mathrubootham: During the quarter, we made Freddy co-pilot generally available to customers, and I'm excited about the initial traction. We received early feedback that customer service agents are realizing more than a 30% improvement in their response. While it's still early to track co-pilot metrics, we are encouraged by the initial results. Mahindra and Mahindra is an Indian maker of cars and farm equipment with more than $16 billion in revenue. Their on-premise ITSM solution became complicated to manage, had a clunky UI, and poor self-service capability.

Rathna Girish Mathrubootham: During the quarter, we made critical pilot generally available to customers.

Speaker Change: I'm excited about the initial traction.

Speaker Change: We received early feedback that customer service agents are realizing more than a 30% improvement in Dennis pumps tanks.

Speaker Change: While it's still early to track copilot metrics were increased by the initial results.

Speaker Change: Mahindra and Mahindra is an Indian maker of cars and farm equipment with more than $16 billion.

Speaker Change: Yes.

Speaker Change: <unk> <unk> solution became complicated to manage.

Speaker Change: <unk> and tour self service capabilities.

Rathna Girish Mathrubootham: The company says adopting Freddy co-pilot on top of Fresh Service has been a game-changer. The Solution Article Generator feature, in particular, is enabling more than 1,000 engineers to make knowledge management more efficient and enjoyable, and now the company plans to scale these products across other Customers are choosing us because our products are enterprise-grade with a much lower total cost of ownership, including the latest AI capabilities.

Speaker Change: The company said it or.

Speaker Change: Adopting critical pilot on top off.

Speaker Change: Chris Service has been a game changer.

Speaker Change: The solution article Jim Baiter feature in particular is enabling more than a thousand engineers to make knowledge management more efficient and enjoyable and now the company plans to scale these products across other peaks.

Speaker Change: We also saw continued momentum in our business with mid market and enterprise customers.

Speaker Change: Customers are choosing us because our products are enterprise grade with a much lower total cost of ownership, including the latest AI capabilities.

Rathna Girish Mathrubootham: Global Leader in Golf Equipment, needed to find a way to solve for its 2,000 employees walking up to the IT service desk with simple or complex problems. After deploying FreshService, they later adopted our Freddy Seltzer's capability.

Speaker Change: A global leader in golf equipment needed to find a way to solve for its 2000 employees walking up to the ICT service desk that simple or complex products.

Speaker Change: After deploying per service.

Speaker Change: <unk> adopted are pretty self service capabilities.

Rathna Girish Mathrubootham: With the help of our latest AI bot, the company has been able to further automate requests and significantly reduce resolution time and eliminate the lines waiting for IT. We continue to invest in helping organizations manage their IT infrastructure and operations. In Q1, we enabled IT teams to proactively communicate the status of critical services to their stakeholders using status pages. This has increased trust and led to reduced incident reports during service downtime. One such customer taking advantage of this capability is the Statue of Liberty Ellis Island Foundation.

Speaker Change: With the help of our latest AI Bot. The company has been able to further automate request and significantly reduce resolution times.

Speaker Change: And eliminate the lines leading for I D.

Speaker Change: We continue to invest in helping organizations manage their infrastructure and operations.

Speaker Change: In Q1.

Speaker Change: Enabled 80 teams to proactively communicate the status of critical services to their stakeholders using status pages.

Speaker Change: This has increased trust and led to reduced incident reports during service downtime.

Speaker Change: One such customer taking advantage of this capability is the statue of Liberty Ellis Island Foundation.

Rathna Girish Mathrubootham: With more features and improvements, we are winning more mindshare with CIOs as we go after the large market opportunity in ITSM, ESM, and beyond. Now, to the CS business. Adoption continues to grow for our customer service suite. Our multi-channel solution that combines conversational support with robust ticketing features and is powered by AI. Companies like Monica Vinader and Stitch Fix are choosing CS50. Stitch Fix employs more than 5,000 people and leverages stylists and AI to deliver personalized clothing and accessories to over 3 million customers.

Speaker Change: With more features and improvements we are winning more mind share with <unk> as we go after the large market opportunity in <unk>.

Speaker Change: <unk> and beyond.

Speaker Change: Turning to the Ts business adoption.

Speaker Change: Adoption continues to grow for our customer service suite are multi tenant solution that combines an additional support with robots ticketing features and followed with AI.

Speaker Change: Companies like Monica, the nadir and stitch fix our tubing CSS.

Speaker Change: Citrix employs more than 5000 people and limited just tightness and AI to deliver personalized clothing and accessories to over 3 million customers.

Rathna Girish Mathrubootham: The previous customer service solution was expensive and complicated with outdated AI technology. A longstanding Fresh Service customer, Stitch Fix adopted Customer Service Suite as their solution in Q1, largely because of our leading AI innovations, including our co-pilot capabilities. Pradeep Kopilot is boosting productivity for agents as power users have seen a reduction in resolution and response times of more than 30%, and CSAT scores increased on average by more than 5%.

Speaker Change: The previous customer service solution was expensive and complicated with outdated AI technology.

Speaker Change: Our long standing for service customer stitch fix and updated customer service suite as their solution in Q1, largely because of our leading <unk>.

Speaker Change: <unk>, including our copilot capabilities.

Speaker Change: Critical pilot is boosting productivity for agents as power users have seen a reduction of resolution and response times.

Speaker Change: More than 30%.

Speaker Change: <unk> cost increased on average by more than 5%.

Rathna Girish Mathrubootham: As we continue to improve productivity for these agents, we believe this will lead to higher adoption within organizations and more expansion opportunities. This quarter, we introduced sentiment analysis for real-time insights into the emotional tone of customer interactions. We also added generative AI-led quality management capabilities like article suggestions and auto-completion to help support teams deliver superior responses.

Speaker Change: As we continue to improve productivity for this agent. We believe this will lead to higher adoption within organizations and more expansion opportunities.

Speaker Change: This quarter, we introduced sentiment analysis for real time insights into the emotional toll of customer interactions.

Speaker Change: We also added generative AI lead quality management capabilities like articles physicians and auto completion to help support teams deliver superior responses.

Rathna Girish Mathrubootham: Within one quarter, these capabilities generated over 38 million interactions. Finally, I want to acknowledge today's news that I am transitioning into an executive chairman role at Freshworks, and Dennis Woodside, currently Freshworks President, will assume the Chief Executive Officer role. I'm incredibly proud of what we have accomplished at Freshworks since I founded the company 14 years ago. We are the first Indian SaaS company to be listed on NASDAQ. A true friend to more than 67,000 customers around the world and home to our 4,900-strong global kudumba.

Speaker Change: Within one quarter these capabilities generated over 38 million interactions.

Speaker Change: Finally, I want to acknowledge today's news that I'm too.

Speaker Change: Transitioning into an executive chairman role at <unk>, and Dennis would say currently <unk> president.

Speaker Change: Assume the Chief Executive Officer.

Speaker Change: I'm incredibly proud of what we have accomplished at <unk> since I founded the company 14 years ago.

Speaker Change: We are the foot Indian SaaS company to be listed on NASDAQ.

Speaker Change: <unk> to more than 67000 customers around the world.

Speaker Change: And hope to our 4900 global could move up.

Rathna Girish Mathrubootham: Our business is strong, and we have a fantastic platform to launch Freshworks into a sustainable and growing public company. Through these 14 years of building and scaling Freshworks. Our Hiring Philosopher takes inspiration from an ancient poem from Thirukkural written by a Tamil poet and philosopher Thiruvalluvar. 2000 years ago, Ithanai Ithanal Ivanmunikkum Enraindhu Athanai Avankan Bidham, translated in English, it means

Speaker Change: Our business is strong and we have a fantastic platform to launch <unk> into a sustainable and growing public company.

Speaker Change: Through these 14 years of building and scaling fresh Felix our hiring philosophy.

Speaker Change: Takes inspiration from an ancient point from critical.

Speaker Change: By coming point and philosopher goodwill over two.

Speaker Change: 2000 years ago.

Speaker Change: Evenly even on even more to come in grinded underneath <unk>.

Speaker Change: Translated in English it means.

Rathna Girish Mathrubootham: Find the right person with the skills and resources to finish the job and empower them to do it. After seeing this play out beautifully over the years, the time has come to apply this to the CEO role at Freshworks. And I'm fully confident that Dennis is the right leader to step into the CEO role, because of his deep understanding of the Freshworks business. Admiration and Respect for our Indian Roots

Speaker Change: Find the right person with the skills and resources to finish the job and empower them to do it.

Speaker Change: After seeing this play out beautifully over the years.

Speaker Change: <unk> time has come to apply this to the CEO role at <unk> and.

Speaker Change: I am fully confident that Dennis is the right leader to step into the CEO role.

Speaker Change: His deep understanding of the official business.

Speaker Change: This admiration and respect for our Indian group.

Rathna Girish Mathrubootham: His ability to attract world-class talent and the operational excellence he has brought to Freshworks over the last 18 months gives me the confidence to pass over the baton to Dennis, and I look forward to being his trusted advisor in my new capacity to help make Freshworks software available to the Fortune 500. Moving forward, I look forward to working with our product teams to drive our AI vision and long-term product strategy. I would like to thank the entire Freshworks team for all the support they have given me over the years.

Speaker Change: Ability to attract world class talent.

Speaker Change: And the operational excellence he has brought to fresh looks over the last 18 months.

Speaker Change: With me the confidence to pass over the Baton to Dennis.

Speaker Change: And I look forward to being as trusted advisor in my new capacity.

Speaker Change: To help make fishwick software available to the <unk> 5 million.

Speaker Change: Moving forward.

Speaker Change: Look forward to working with our product teams to drive an AI vision and long term product strategy.

Dennis M. Woodside: I would like to thank the entire fresh looks team for all the support they have given me over the years.

Dennis M. Woodside: And for delivering another solid quarter as we continue on our mission to deliver modern AI-powered customer and employee service solutions that increase efficiency and improve engagement for companies of all sizes. I would like to congratulate Dennis and now turn it over to him to share what we are seeing in the marketplace, how larger customers are driving our business growth, and how companies are expanding the use of our product. Thank you, G. I am honored to build on what GE started 14 years ago. What GE has created is truly special.

Dennis M. Woodside: And for delivering another solid quarter as we continue on our mission to deliver modern AI powered customer or employee service solutions that increase efficiency and improve engagement for companies of all sizes.

Dennis M. Woodside: I would like to congratulate Dennis and now turn it over to him to share what we are seeing in the marketplace. How larger customers are driving our business growth and how companies are expanding the use of our products.

Dennis M. Woodside: Thank you D <unk>.

Dennis M. Woodside: I am honored to build on what <unk> started 14 years ago.

Dennis M. Woodside: What he has created is truly special.

Dennis M. Woodside: Our mission and strategy remain the same. We stand before extraordinary opportunities and have the right foundation to make them possible, a winning combination of our strong focus on delighting customers and our product innovation. I'm committed and excited to continue our journey of growth. As she mentioned, we efficiently scaled the business in Q1. With revenue growth of 20% and strong free cash flow margins of 23%, we exceeded the rule of 40 for the quarter.

Dennis M. Woodside: Our mission and strategy remain the same.

Dennis M. Woodside: We stand before extraordinary opportunities and have the right foundation to make it possible a.

Dennis M. Woodside: A winning combination of our strong focus on delighting customers and our product innovation.

Dennis M. Woodside: I am committed and excited to continue our journey of growth.

Dennis M. Woodside: As Jim mentioned, we efficiently scale the business in Q1.

Speaker Change: With revenue growth of 20% and strong free cash flow margins of 23%, we exceeded the rule of 40 for the quarter.

Dennis M. Woodside: We continue to see momentum with larger customers choosing our enterprise-grade solution. In Q1, customers paying over $50,000 in ARR grew 29% to 2,593, representing 49% or nearly half of our business. Our solutions provide enterprise-grade capabilities, combined with consumer-level usability, to address the needs of large, complex organizations. For example, Cineworld Group is the world's second largest cinema chain, with more than 700 movie theaters across the U.S., U.K., and other countries.

Speaker Change: We continue to see momentum with larger customers choosing our enterprise grade solutions.

Speaker Change: In Q1 customers paying over $50000 in AOR grew 29% to 2593, representing.

Speaker Change: 49% or nearly half of our business.

Speaker Change: Our solutions provide enterprise grade capabilities combined with consumer level usability to address the needs of large complex organizations.

Speaker Change: For example, Cineworld group is the worlds second largest cinema chain with more than 700 movie theaters across the U S UK and other countries.

Dennis M. Woodside: Their prior customer service solution wasn't allowing them to respond to queries fast enough and gain insights into their customers' experience. They adopted Freshdesk across their Cineworld, Picturehouse, and Regal customer service teams. Now the company is able to quickly identify and respond to customer queries, understand root causes, and develop better steps to resolve them using the power of Freshworks.

Speaker Change: Their prior customer service solution wasn't allowing them to respond to queries fast enough and gain insights into their customers' experience.

Speaker Change: They adopted fresh desk across their center world Picturehouse in Regal customer service team.

Speaker Change: Now the company is able to quickly identify and respond to customer queries.

Speaker Change: Understand root causes and develop better steps to resolve them using the power of fresh works.

Speaker Change: I'm also very excited about entering into a definitive agreement to acquire device 42.

Dennis M. Woodside: We believe this acquisition will help us win more mid-market and enterprise customers, as advanced ITAM capabilities for discovery and dependency mapping are becoming a critical part of the IT purchasing decision for Large Cup. With this acquisition, we intend to build on the upmarket momentum and success that we're already seeing with our new service for IT customers. Turning to expansion, in Q1, net dollar retention was 106%, and customers using more than one product were 26%.

Speaker Change: We believe this acquisition will help us win more mid market and enterprise customers.

Speaker Change: As advanced ITM capabilities for discovery and dependency mapping are becoming a critical part of the purchasing decision.

Speaker Change: For large customers.

Speaker Change: With this acquisition, we intend to build on the upmarket momentum and success that we're already seeing with forest service for customers.

Speaker Change: Turning to expansion in Q1, net dollar retention was 106% and customers using more than one product with 26%.

Dennis M. Woodside: We saw notable expansion and multiproduct activity from press service for business. We're also executing on the cross sell of our two largest product areas in IT and customer service. An example of cross-cell technology is dark matter technology.

Speaker Change: We saw notable expansion and multi product activity from press service for business teams.

Speaker Change: We're also executing on the cross sell of our two largest product areas in it and customer service.

Speaker Change: An example of cross sell is dark matter technologies.

Dennis M. Woodside: Darkmatter employs more than a thousand people and makes software that enables retail banks, credit unions, and credit vendors to simplify lending. Already a new service customer for ITSM, they chose Customer Service Suite to replace their incumbent solution because it was easy to go live within their tight timeframes and simple to configure. We remain bullish on the AI opportunity. We believe this will be a tailwind for our business, and this is a big part of our future growth strategy.

Speaker Change: Dark matter employs more than 1000 people and make software that enables retail banks credit unions and credit vendors to simplified lending.

Speaker Change: Already a fresh service customer for ITM, They chose customer service suite to replace their incumbent solution because it was easy to go live within their type timeframes and simple to configure.

Speaker Change: We remain bullish on the AI opportunity. We believe this will be a tailwind to our business and this is a big part of our future growth strategy.

Dennis M. Woodside: As Gee said, we saw promising signs of momentum from Freddie self-service and Freddie Copilot in Q1, with over 30% improvement in productivity metrics for our customers. This has led to early signs of monetization since the Freddie Copilot add-on became GA this past quarter. From a market demand perspective, we continue to see the impact of a challenging macroeconomic environment.

Speaker Change: As Jay said, we saw promising signs of momentum from Freddie self service and Freddie co pilot in Q1.

Speaker Change: With over 30% improvement in productivity metrics for our customers.

Speaker Change: This has led to early signs of monetization since the Freddie Copilot add ons became gea this past quarter.

Speaker Change: From a market demand perspective, we continue to see the impact of a challenging macroeconomic environment.

Dennis M. Woodside: While Q4 saw an uptick in expansion activity, we saw pressure on overall expansion rates for Q1 across our customer base in terms of agent growth. For the SMB part of the market, where we attract customers through an inbound digital channel, there is still work to be done to improve this channel. We're seeing lower expansion rates and a lower number of net new customer ads as the macro economy is having a meaningful impact on this part of our customer base. This has led to slower growth for the CS business as a majority of the business is from FN.

Speaker Change: While Q4 saw an uptick in expansion activity, we saw pressure on overall expansion rates for Q1.

Speaker Change: Across our customer base in terms of agent growth.

Speaker Change: For the SMB part of the market, where we attract customers through an inbound digital motion. There is still work to be done to improve this motion.

Speaker Change: We're seeing lower expansion rate and a lower number of net new customer adds as the macro economy is having a meaningful impact on this part of our customer base.

Speaker Change: This led to slower growth for the <unk> business as the majority of the business is from SNB.

Dennis M. Woodside: Given this current market environment, it's important for us to maintain a balanced approach to our investment. In Q1, we were able to create further efficiencies while investing in the business to drive future growth. I'll turn it over to Tyler to talk about this in more detail. Thanks, Dennis, and congratulations.

Speaker Change: Okay.

Speaker Change: Given this current market environment, it's important for us to maintain a balanced approach to our investments.

Speaker Change: In Q1, we were able to create further efficiencies while investing in the business to drive future growth.

Speaker Change: Yeah.

Speaker Change: I will turn it over to Tyler to talk about this in more detail.

Tyler R. Sloat: And thanks to all of you joining us on the call and via webcast. I'm pleased with our ability to deliver another quarter of durable growth while improving our profitability. All the operational improvements that we implemented last year created positive business momentum that carried into this year to drive further efficiencies and strong margin expansion. For our call today, I'll cover the Q1 2024 financial results, provide background on the key metrics, and close with our forward-looking commentary and expectations for Q2 and the full year 2024.

Tyler R. Sloat: Thanks, Dennis and congratulations and thanks to all of you joining on the call and via webcast.

Tyler R. Sloat: I am pleased with our ability to deliver another quarter of durable growth, while improving our profitability.

Tyler R. Sloat: All the operational improvements that we implemented last year has created positive business momentum that carried into this year to drive further efficiencies and strong margin expansion in Q1.

Tyler R. Sloat: For our call today I will cover the Q1 2024 financial results provide background on the key metrics and close with our forward looking commentary on expectations for Q2, and the full year 2024.

Tyler R. Sloat: I'll include constant currency comparisons for certain metrics to provide a better view of our business trends. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses and other adjustments. Starting with the Income Statement.

Tyler R. Sloat: I'll include constant currency comparisons for certain metrics to provide a better view of our business trends.

Tyler R. Sloat: As a reminder, most.

Tyler R. Sloat: Most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock based compensation expenses and other adjustments.

Tyler R. Sloat: Total revenue in Q1 grew 20% to $165.1 million on a reported basis and 19% adjusted for constant current. Professional services contributed approximately $2.6 million to total revenue, which is a lower contribution percentage than prior quarters. This is intentional as we are shifting more services revenue to our partner. We continue to see momentum in our IT business, specifically for new deals from mid-market and enterprise customers. We're also seeing upmarket traction from the CF business, as our largest expansion deals in Q1 were for our customer service products.

Speaker Change: Starting with the income statement total revenue in Q1 grew 20% to $165 1 million on a reported basis and 19% adjusted for constant currency.

Speaker Change: Professional services contributed approximately $2 6 million to total revenue.

Speaker Change: Which is a lower contribution percentage than prior quarters. This is intentional as we are shifting more services revenue to our partner network.

Speaker Change: We continue to see momentum in our it business specifically for new deals for mid market and enterprise customers.

Speaker Change: We're also seeing upmarket.

Speaker Change: Traction from the CFS business as our largest expansion deals in Q1 were from our customer service products.

Tyler R. Sloat: Moving to margins, non-GAAP gross margin increased to 85% as we continue to drive efficiencies in our infrastructure spend as we scale the business. Compared to the prior year, this represents an improvement of more than 200. We also improved our non-GAAP operating margin to 13% as non-GAAP operating income came in at $21.8 million, which included a one-time benefit of $3.7 million related to employee benefits. Adjusting for this one-time benefit, our non-GAAP operating margin would have been 11%.

Speaker Change: Moving to margins non-GAAP gross margin increased to 85% as we continue to drive efficiencies in our infrastructure spend as we scale the business.

Speaker Change: Compared to the prior year. This represents an improvement of more than 200 basis points.

Speaker Change: We also improved our non-GAAP operating margin to 13% as non-GAAP operating income came in at $21 8 million, which includes a onetime benefit of $3 7 million related to employee benefits expenses.

Speaker Change: Adjusting for this onetime benefit non-GAAP operating margin would be 11% and still ahead of our prior expectations as we made ongoing operational improvements and shifted some marketing and legal spend into future quarters.

Tyler R. Sloat: Still ahead of our prior expectations as we made ongoing operational improvements and shifted some marketing and legal spend into future quarters. As we've talked about previously, our financial model is built for us to make investments in our many growth initiatives. At the same time, we have flexibility in the model to adjust our spend as we see demand change throughout the year to prudently manage our expense base and drive efficiency. Moving to operations, our two key business metrics are net dollar retention and customers contributing more than $5,000 in ARR. Net dollar retention came in line with our expectations at 106% in the quarter, both as reported and on a constant currency basis.

Speaker Change: As we've talked about previously our financial model is built for us to make investments in our many growth initiatives.

Speaker Change: Same time, we have flexibility in our model to adjust our spend as we see demand changed throughout the year to prudently manage our expense base and drive efficiencies.

Speaker Change: Moving to operating metrics.

Speaker Change: Our two key business metrics, our net dollar retention in customers contributing more than $5000 in IRR.

Speaker Change: Net dollar retention came in line with our expectations at 1% to 6% in the quarter.

Speaker Change: Both as reported and on a constant currency basis, while our customers continue to grow their spend for our products. In Q1, we did not see the same elevated levels of large expansion deals that we saw at the end of last year.

Tyler R. Sloat: While our customers continue to grow their spend for our products in Q1, we did not see the same elevated levels of large expansion deals that we saw at the end of last year, overall terms modestly. Looking forward, we're planning for a Q2 net dollar retention range of approximately $105 to $106. For our other key business metric, the number of customers contributing more than $5,000 in ARR, this metric grew 11% year over year to 20,549 customers in the quarter and now represents 89% of our ARR. On a constant currency basis, this customer metric grew 12% year over year for a larger customer cohort contributing more than $50,000.

Speaker Change: Overall turn modestly increased and continues to remain squarely in the mid teens.

Speaker Change: Looking forward, we're planning for a Q2 net dollar retention range of approximately 105 to one 6%.

Speaker Change: For our other key business metric of number of customers contributing more than $5000. In IRR. This metric grew 11% year over year to 20 549 customers in the quarter and now represents 89% of our era.

Speaker Change: On a constant currency basis, this customer metric grew 12% year over year.

Speaker Change: For our larger customer cohort contributing more than $50000 in IRR. This cohort grew 29% year over year to 2593 customers and now represents 49% of our era.

Tyler R. Sloat: This cohort grew 29% year-over-year to 2,593 customers and now represents 49% of our ARR. The Content Currency Growth Rate for this core was also 25%. For total customers, we added approximately 400 net customers and ended the quarter with over $67,500.

Speaker Change: The constant currency growth rate for this quarter was also 29%.

Speaker Change: For total customers, we added approximately 400 net customers and ended the quarter with over 67500 customers.

Tyler R. Sloat: The lower net ads over the past two quarters have largely been a result of a lower number of our new CS customers, especially in the S&P. For the past few quarters, we have been focusing our efforts and go-to-market spend to target higher yielding customers, which is resulting in ongoing increases for our. Now, let's turn to calculated billings, balance sheet, and cash items. Our normalized calculated building growth was 17% in Q1, down one percentage point from the 18% normalized growth rate in Q4, as we've talked about before.

Speaker Change: The lower net adds over the past two quarters has largely been a result of a lower number of our new CX customers, especially in the SMB.

Speaker Change: For the past few quarters, we have been focusing our efforts and go to market spend target higher yielding customers, which is resulting in ongoing increases for ARPA.

Speaker Change: Now, let's turn to calculated billings balance sheet and cash items.

Speaker Change: Our normalized calculated billings growth was 17% in Q1 down one percentage point from the 18% normalized growth rate in Q4.

Tyler R. Sloat: Billing growth rates can fluctuate quarter to quarter due to a number of factors. In Q1, we had a negative impact primarily from lower early renewal activity compared to the prior quarter, resulting in an as reported calculating buildings growth rate of 14% or $174.7 million. Looking forward to Q2, 2024, our initial estimate for calculating buildings growth is 12%.

Speaker Change: As we've talked about before.

Speaker Change: Billings growth rates can fluctuate quarter to quarter due to a number of factors and.

Speaker Change: In Q1, we had a negative impact primarily from lower early renewal activity compared to the prior quarter, resulting in an as reported calculated billings growth rate of 14% or $174 $7 million.

Speaker Change: Looking forward to Q2 2020 for our initial estimate for calculated billings growth is 12%.

Tyler R. Sloat: For the full year 2024, we expect calculated building growth to be approximately 16%, approximately one percentage point below our annual revenue. Moving to our cash item. We meaningfully outperformed our free cash flow estimates, coming in at $38.7 million for Q1. This was the result of strong collections activities and an ongoing focus to drive efficiencies on our spend around headcount and vendors. Given our strong cash flow performance in the quarter, we are increasing our full year 2024 estimates to $125 million, with approximately $28 million in Q2. We ended Q1 maintaining a similar balance with prior quarters for cash, cash equivalents, and marketable securities at $1.2 billion.

Speaker Change: For the full year 2024, we expect calculated billings growth to be approximately 16% or approximately one percentage point below our annual revenue growth.

Speaker Change: Moving to our cash items, we meaningfully outperformed our free cash flow estimates coming in at $38 7 million for Q1.

Speaker Change: This was the result of strong collections activities and an ongoing focus to drive efficiencies on our spend around head count and vendor costs.

Speaker Change: Given our strong cash flow performance in the quarter.

Speaker Change: We are increasing our full year 2024 estimates to $125 million with approximately $28 million in Q2.

Speaker Change: We ended Q1, maintaining a similar balance with prior quarters for cash cash equivalents in marketable securities with $1 2 billion.

Tyler R. Sloat: We continue to manage and offset some share count dilution by net settling vested equity and using $23 million during the quarter. As a reminder, this activity is reflected in our financing agreement, and it's excluded from free cash. We plan to continue net selling vested equity amounts going forward, resulting in Q2 cash usage of approximately $16 million at the current stock price level. For the year, we expect to use approximately $70 million to net selling vested equity.

Speaker Change: We continue to manage and offset some share count dilution by net settling invested equity amounts and using $23 million during the quarter.

Speaker Change: As a reminder, this activity is reflected in our financing activities and is excluded from free cash flow.

Speaker Change: We plan to continue in that filing vested equity amounts going forward, resulting in Q2 cash usage of approximately $16 million at current stock price levels for the year, we expect to use approximately $70 million to net settle vested equity amounts.

Tyler R. Sloat: Turning to our share count for Q1, we had approximately 322 million shares outstanding on a fully diluted basis as of March 31st, 2024, representing a share reduction compared to the prior year and quarter. Our fully diluted calculation consists of approximately 299 million shares outstanding.

Speaker Change: Turning to our share count for Q1, we had approximately 322 million shares outstanding on a fully diluted basis as of March 31, 2024, representing a share reduction compared to the prior year and quarter.

Speaker Change: Our fully diluted calculation consists of approximately 299 million shares outstanding $21 million related to Unvested Rs use appears to us and 2 million shares related to outstanding options.

Tyler R. Sloat: 21 million related to unvested RRCs and peer RRCs, and 2 million shares related to outstanding. Let me now provide our forward-looking estimates. I'll go through the numbers first and then provide background commentary afterward. For the second quarter of 2024, we expect. Revenue is expected to be in the range of $168 million to $170 million, growing 16% to 17% year-over-year. Non-GAAP income from operations is expected to be in the range of $6.5 million to $8.5 million, and non-GAAP net income per share is expected to be in the range of five cents to six.

Speaker Change: Let me now provide our forward looking estimates I will go through the numbers first and then provide background commentary afterwards.

Speaker Change: For the second quarter of 2024, we expect.

Speaker Change: Revenue to be in the range of $168 million to $170 million growing 16% to 17% year over year.

Speaker Change: non-GAAP income from operations to be in the range of $6 5 million to $8 5 million and non-GAAP net income per share to be in the range of <unk> to <unk> <unk>.

Speaker Change: Weighted average shares outstanding of approximately $305 6 million shares.

Tyler R. Sloat: Assuming weighted average shares outstanding of approximately 305.6 million shares, for the full year 2024, we expect revenue to be in the range of $695 million to $705 million, growing 17 to 18% year-over-year, non-GAAP income from operations to be in the range of $58 million to $64 million, and non-GAAP net income per share to be in the range of $0.32 to $0.35. Assuming Weighted Average Shares Outstanding of Approximately 307 million, our forward-looking estimates are based on FX rates as of April 26, 2024, so any future currency moves are not factored in.

Speaker Change: For the full year 2024, we expect revenue to be in the range of 695 million to $705 million.

Speaker Change: 17% to 18% year over year.

Speaker Change: non-GAAP income from operations to be in the range of 58 million to $64 million.

Speaker Change: And non-GAAP net income per share to be in the range of 32 to 35.

Speaker Change: Assuming weighted average shares outstanding of approximately $307 6 million.

Speaker Change: Our forward looking estimates are based on FX rates as of April 26, 2024, so any future currency moves are not factored in.

Tyler R. Sloat: We want to provide our best view of the business today in a changing market environment, so here are a few items to call out. First, on the device 42. Our forward-looking estimates do not include numbers from the device 42X, and will cover details of the financial impact from the acquisition after closing.

Speaker Change: We want to provide our best view of the business today and are changing.

Speaker Change: Market environment. So here are a few items to call out.

Speaker Change: First on the device 42 acquisition.

Speaker Change: Our forward looking estimates do not include numbers from the device 42 acquisition.

Speaker Change: He will cover details of the financial impact from the acquisition after closing.

Tyler R. Sloat: That said, we expect the transaction to be accretive to our revenue growth for this year and have minimal impact on our free cash flow estimates. Our Full Year 2024 Revenue Estimates. Compared to our prior estimate, the current estimate includes negative adjustments of approximately $2 million related to FX moves since last quarter, and negative 1.3 million related to the intentional shifting of professional services revenue to partners.

Speaker Change: That said, we expect the transaction to be accretive to our revenue growth for this year at.

Speaker Change: And have minimal impact to our free cash flow estimates.

Speaker Change: Second.

Speaker Change: Our full year 2024 revenue estimates.

Speaker Change: Compared to our prior estimate the current estimates.

Speaker Change: <unk> negative adjustments of approximately $2 million related to FX moves since last quarter.

Speaker Change: And negative $1 3 million related to the intentional shifting our professional services revenue to partners.

Tyler R. Sloat: Third, our Q2 operating results. As a reminder, we have seasonality in our business as Q2 expenses normally step up as the annual merit increases take effect, leading to lower margins quarter over quarter. Let me close by saying we're very focused on growing the business while creating a durable, profitable company to deliver long-term value for our shareholders. We're innovating on our products, especially in the area of AI. We're building business momentum and getting traction with larger, Agri-Driving Efficiencies. Fuck, didn't ask for that.

Speaker Change: Third our Q2 operating income.

Speaker Change: As a reminder, we have seasonality in our business as Q2 expenses normally step up as the annual merit increases take effect, leading to lower margins quarter over quarter.

Speaker Change: Let me close by saying, we're very focused on growing the business, while creating a durable profitable company to deliver long term value for our stakeholders.

Speaker Change: We're innovating on our products, especially in the area of AI, we are building business momentum and gaining traction with larger customers and are driving efficiencies in the business that's reflected in our financial results.

Operator: We were excited about the many opportunities. And with that, let's take your questions. Operator. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 once again.

Speaker Change: We're excited about the many opportunities ahead.

Speaker Change: And with that let's take your questions operator.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Berg with Needham and Company. Hi, everyone.

Speaker Change: Please standby will be compile the Q&A roster.

Speaker Change: Our first question comes from the line of Scott Berg with Needham <unk> Company.

Thanks for taking my questions here. Dennis, congrats on the move to the CEO role and gee, I still hope we get a chance to speak with you going forward. I guess a couple things for me.

Speaker Change: Yes.

Scott Randolph Berg: Hi, everyone.

Scott Randolph Berg: Thanks for taking my questions here.

Scott Randolph Berg: Dennis Congrats on the move the CEO role in Gis still we get a chance to.

I believe what Dennis called out the kind of softness in the CF market, especially downstream in the SMB segment. There's a pretty popular narrative out there on the impact that, whether it's customers of yours or others in the space, are trying to use different AI tools to automate some of the, you know, labor out of some of these customer service environments. Are you seeing that impact your business at all in the quarter, and is there anything related to the slight reduction in all your revenues maybe because of any changes there in terms of how your customers are using them?

Scott Randolph Berg: Speak with you going forward here.

Speaker Change: I guess a couple of things from me.

Speaker Change: I believe withstand this called out the kind of stuff.

Speaker Change: <unk> in the CF market, especially down.

Speaker Change: Downstream in the SMB segment.

Speaker Change: Pretty popular narrative out there on the impact that whether its customers of yours or others in the space are trying to use different AI tools to automate some of the.

Speaker Change: Labor out of some of these customer service environments are you seeing that impact your business at all in the quarter and is there anything related to the.

Speaker Change: Slight reduction in full year revenues, maybe because of any changes there in terms of how your customers are using that using the technologies.

Thanks, Scott. It's Dennis here. So we see Q1 on SMB really more as a continuation of some of the trends that we called out in Q4, where throughout last year, we had seen SMBs under pressure from the macro environment, for sure, rising interest rates that are limiting their ability to expand their business, and that directly impacts their investment and customer support. We put Freddy Copilot into GA about midway through the quarter.

Speaker Change: Thanks, Scott, it's Dennis here.

Dennis M. Woodside: So we see Q1 on SMB really more as a continuation of some of the trends that we called out in Q4 were throughout last year, we had seen.

Dennis M. Woodside: <unk> is under pressure from the macro environment for sure rising interest rates that are limiting their ability to expand their business and that directly impacts their investment and customer support.

Dennis M. Woodside: So that trend continue you saw that trend in terms of our net adds which have come down quite a bit over the last year or so.

Dennis M. Woodside: That's been offset by strength in <unk> and by strength in larger customers you see that on the continued growth of the 50000 up cohort.

Dennis M. Woodside: No.

Dennis M. Woodside: Do we expect AI to have an impact over time, yes at the same time the adoption of our AI solutions has been has been quite strong.

And although it's really early, we saw good adoption among that SMB segment as well as among larger customers. So I think it's a bit early to say that the cause of SMB weakness was AI. That trend persisted prior to this quarter, but we certainly saw it this quarter. Helpful. Thank you, Dennis. And then, G, you moving into the executive chairman role, like some are going to see this as kind of a surprise and a little bit sudden, given the way the announcement was worded, at least without a kind of formal transition. And I realize you're not going anywhere.

Dennis M. Woodside: Freddie copilot into GAA about midway through the quarter.

Dennis M. Woodside: And although it's really early we saw good adoption among that SMB segment as well as among larger customers. So I think it's a bit early to say that the cause.

Dennis M. Woodside: F&B weakness was AI that trend persisted prior to this quarter, but we certainly saw it this quarter.

Speaker Change: Understood helpful. Thank you Dennis and then.

Speaker Change: GE you moving into the executive chairman role like some are going to see this as kind of a surprise and a little bit sudden given the way. The announcement was warranted at least without a formal transition and I realize you're not going anywhere, but why is the time right to date to make this change versus at the beginning of the fiscal year at three four months ago.

Speaker Change: Maybe later on this year.

But why is the time right now to make this change versus at the beginning of the fiscal year, three, four months ago, or maybe, you know, later on? Yeah, hi, thanks, Scott. So, I think the first thing is this is not, this was something planned as part of my succession, even when we hired Dennis 18 months ago, our expectation was that he would eventually be my successor. And so we have been working in a similar fashion where Dennis was helping Freshworks get operational rigor, put in place a world-class team, and focus on board market excellence. While I was actually focusing on all the AI stuff that you are seeing right now with Freddie and the product strategy, I think the short answer is playing to our strengths.

Dennis M. Woodside: Yes.

GE: Yes, hi, Thanks, Scott So I think.

GE: First thing is this is not this was something planned as part of my succession, even when we hired Denys 18 months ago.

Speaker Change: Like our expectation was that he would eventually.

Dennis M. Woodside: Be my successor, and so we have been working.

Dennis M. Woodside: In a similar fashion, where Dennis was helping fresh legs.

Dennis M. Woodside: Get the operational rigor put in place a world class team and focus on go to market excellence, while I was actually.

Dennis M. Woodside: Focusing on all the AI stuff that you are seeing right now with <unk> and the product strategy I think the short answer is playing to our strengths I think I've always been a believer in playing to strength.

I think I've always been a believer in playing to my strengths, and we feel that what's right for Freshworks is for me to focus on long-term product strategy and AI. Dennis is a fantastic operator coming with world-class experience looking at this experience at Dropbox, and he has scaled the company from 200 million to north of a billion in like four years or so. And so he brings the right expertise. So this was the plan, and I feel comfortable that this is the right time to do it.

Dennis M. Woodside: We feel that our slate for fresh rugs.

Dennis M. Woodside: For me to focus on long term product strategy Nai and.

Dennis M. Woodside: Dennis just a fantastic operators coming with <unk>.

Dennis M. Woodside: Less experience looking at the speed of Dropbox is scaled the company from 200 million to north of $1 billion in like four years or so.

Dennis M. Woodside: So he brings the right expertise. So this was the plan.

Yeah, Scott, just a little more on that. I think, first of all, the hardest thing in business and in technology is to build a company out of nothing and scale it to a point where, you know, you have a line of sight to a billion in revenue, you're serving tens of thousands of customers around the world, and GE did that. And the advantage is that, in many respects, GE's been focused very much on technology, very much on the AI initiatives and what's coming, and I've been focused on the near term and what we need to do to scale the business. So to some degree, you know, we've been operating in a way that's consistent with where we're headed for some time. Obviously, this formalizes it in a meaningful way.

Dennis M. Woodside: I feel comfortable that this is the right.

Speaker Change: Time to do it yes, just Scott just a little more on that I think first of all the hardest thing in business and in technologies to build a company out of nothing and scale up to a point where.

Dennis M. Woodside: Your.

Dennis M. Woodside: Line of sight to $1 billion in revenue Youre, serving tens of thousands of customers around the world and did that and the.

Dennis M. Woodside: The advantage, we really have been operating in many respects in a way where <unk> focused very much on technology very much on the AI initiatives.

Dennis M. Woodside: Initiatives on whats coming and I have been focused on the near term and what we need to do to scale the business.

But I think internally, it wouldn't necessarily be viewed as a sudden change necessarily, and we're excited about taking it forward. Excellent. Thank you for taking my questions.

Dennis M. Woodside: So to some degree we've been operating in.

Dennis M. Woodside: In a way that's consistent with where were headed for some time, obviously this formalized in a meaningful way, but I think internally it wouldn't be viewed as a sudden change necessarily.

Dennis M. Woodside: And we're excited about taking that forward from here.

Speaker Change: Excellent thanks for taking my questions.

Thanks, Scott. Our next question comes from the line of Pinjalim Bora with J.P. Morgan. Hey, thank you for taking the questions. One question on performance on the low end of the market. Is it possible to delineate how much of the underperformance there was because of the worsening macro environment versus some of the changes in the go-to-market side that you put into place earlier in the year? And did I hear you correctly?

Speaker Change: Thanks Scott.

Speaker Change: Our next question comes from the line of pendulum Bora with J P. Morgan.

Pinjalim Bora: Hey, Thank you for taking the questions.

Pinjalim Bora: One question on the performance on the low end of the market.

Pinjalim Bora: Is it possible the ability between how much of the underperformance. There was because is because of the worsening macro environment versus some of the changes in the go to market side that you put into place.

Pinjalim Bora: The year end and did I hear you correctly is it is it mainly on the CX side versus that gives them.

Is it mainly on the CX side versus ITSM? Yeah, thank you. This is Dennis for the question there. So the changes that we've made on go-to-market over the last year were primarily, not exclusively, but primarily in the field. So that didn't really affect SMB performance.

Pinjalim Bora: Yes. Thank you. This is Dennis for the question there so.

Dennis M. Woodside: The changes that we've made on go to market over the last year.

Dennis M. Woodside: We're primarily not exclusively but primarily in the field so that didn't really affect the SMB performance, we called this out before where.

We called this out before where we have an effort underway to try to drive increased conversion of leads in SMB by taking a different approach to how we service those leads and sell those leads. We've made strides there, and we expect that that will bear fruit over time, but that is also fighting against a bit of a headwind that the macro is causing in that segment. So it's a little hard to distinguish what is macro and what is not, but certainly, when we talk to customers, we do hear that they are under pressure, and that is resulting in prolonged decisions and, in some cases, no decisions.

Dennis M. Woodside: We.

Dennis M. Woodside: Have an effort underway to try to drive increased conversion of bleeds in SMB.

Dennis M. Woodside: By taking a different approach to how we service those leads and sell those leads we've made strides there and we expect that that will bear fruit over time, but that is also fighting against a bit of a headwind that the macro is causing in that segment. So it's a little hard to distinguish what is macro and what is not.

Dennis M. Woodside: But certainly when we talk to customers. We do hear that they are under pressure and that is resulting in prolonged decisions and in some cases no decision I think with respect to whether it's C CX or at <unk>.

I think with respect to whether it's CX or IT, SMB, for us, is primarily a CS business. And so when we say SMB, that means primarily CS, and that's where we're seeing that weakness in SMB. Okay. One high-level question, it's a little bit long winded, but if I think about the bot-based products in the market today, that might handle, say, L1 queries, and the copilot kind of products, which sits besides an agent, how important is that context switch between these two layers for the success of the efficacy of the AI?

Dennis M. Woodside: S&P for US is primarily our CFS business and so the <unk> when we say SMB that means primarily CFS, that's where we're seeing that weakness in F&B NCS.

Trying to understand if a company uses L1 from one vendor and L2 for another vendor, does that actually increase the work for the company to create the plumbing between the two layers and maybe has an effect on the overall efficacy or success rate? Yeah, I'll take that, Pinjalim. This is Ji.

Speaker Change: Yes understood.

Dennis M. Woodside: One high level question, so a little bit long winded, but if I think about the broad based products in the market today that might handle alwan queries and the copilots kind of products. It's besides 10 agent how important is that context switch between these two layers for kind of the success of traffic.

Dennis M. Woodside: C of the AI trying to understand if a company uses L. One from one vendor and LTE for another vendor does that actually increase increases the work for the company to create the Colombia between the two layers that maybe has an effect on the overall as you can see our success rates.

Speaker Change: Yes, I'll take that pendulum DSG.

So... First of all, when you look at it from a customer experience standpoint, we all know that customers hate to repeat themselves when they call the call center and are passed around, right? So it's the same customer experience that's at the core here. So when the customer is actually being helped by a bot, and let's say, for some reason, if the bots are not able to help, handing off the customer gracefully to an agent who has full context is really important.

Dennis M. Woodside: So.

Speaker Change: First of all.

Speaker Change: When you look at it from a customer experience standpoint, we all know that customers.

Speaker Change: Repeat themselves when they call the content than in the past around right. So at the same customer experience that the core here. So when the customer is actually being helped by a bot and let's say for some reason.

Dennis M. Woodside: The box are not able to help handing off the customer gracefully to an agent who has full context is really important.

And that is something where, at Freshworks, with our new customer service suite, we have a complete omni-channel product that combines bots with human experience and ticketing for longer-standing use cases. So if a company is using a different technology for bots and a different technology for human agents, they can still integrate and transfer that context, but they would have to do that. But it's always important for the human agent to actually have the context of what transpired before the customer came in contact with them.

Dennis M. Woodside: That is something there.

Dennis M. Woodside: <unk> worked with our new customer service suite, we have a complete omni channel product that combines box with human experience and ticketing for longer standing use cases, so if a company is using a different technology for box on a different technology.

Dennis M. Woodside: Human agents, they can still integrate and transfer the context, but they would have to do that extra work.

Dennis M. Woodside: But it's always important human agent to actually have that context of what transpired before the customer came in contact with them.

Speaker Change: Got it thank you.

Our next question comes from the line of Aleks Zukin with Wolf Research. Hey guys, this is Ethan Bruck on behalf of Aleksandr Zukin. I just wanted to ask, I appreciate the color on the CFSAT.

Dennis M. Woodside: Our next question comes from the line of Alex Zukin with Wolfe Research.

Dennis M. Woodside: Okay.

Aleksandr J. Zukin: This was equal growth.

I'm just curious, did ITSM outperform or also underperform against your internal expectations? And I appreciate the color on the moving pieces on the updated 2024 guidance. Just curious if you can describe how you feel it's now de-risked and maybe any other tips and tricks on how to think about it.

Aleksandr J. Zukin: Hey, this is on for Alex here again, I just wanted to ask I appreciate the color on that I'm just curious.

Aleksandr J. Zukin: Some outperformer also underperform against your internal expectations about.

Aleksandr J. Zukin: Appreciate the color on the moving pieces on the updated 2020 for guidance just curious if you can describe.

Aleksandr J. Zukin: And maybe any other puts and takes and how to think about it. Thank you.

Thank you. I'll take the guidance part and then I can hand it to Dennis for the ITSM piece. But I think you're asking for clarification, but what we did call out is like guidance for the year. Obviously, it's based on what we see today and how we expect to perform. Nothing from the device 42 acquisition is in there.

Speaker Change: I'll take the guidance part and then I can add to Dennis for the ACSF piece, but I think.

Speaker Change: You are asking for the clarification, we did call out <unk> guidance for the year, obviously, it's based on what we see today.

Dennis M. Woodside: And how we expect to perform nothing from the device 42 acquisition is in there but.

Dennis M. Woodside: But there is about.

Speaker Change: Just under $3 5 million.

But there are about, you know, just under three and a half million impacted for the year. Two million on FX and almost one point five million on professional services. We commented on this as a very prescriptive shift to partners, and we're actually pretty excited about that. It's just that we had expectations of services revenue. A lot of that we were taking the paper and then giving it to partners.

Speaker Change: Impacted for the year $2 million in FX, and almost $1 5 million on professional services. The professional services. We commented on this is a very prescriptive shifts to partners and we're actually pretty excited about that.

And so, you know, we saw both sides on the margin and on the top line revenue, which has actually come down because now we have partners having the capability to go deliver it themselves. I'll let Dennis answer the other piece.

Dennis M. Woodside: We had expectation of services revenue a lot of that we were taking the paper in there given that the partners.

Dennis M. Woodside: And so we saw both sides on the margin.

Dennis M. Woodside: On the top line revenue, which has actually come down because now we have partners or having the capability to go deliver it themselves I'll.

Yeah, so our ITSM business continues to perform very well, in particular in the field and with larger customers. So, the sweet spot for our ITSM business is a company with five hundred to twenty thousand employees. They have complex IT needs.

Speaker Change: I'll, let Dennis answer the other piece, yes, so our ITM business continues to perform very well in particular in the field and in larger customers. So the sweet spot for our ITM business as a company from 500 to 20000 employees they have complex.

Dennis M. Woodside: Need they typically will have 100, plus agents and their it department they have tens of systems that our products need to integrate with and they are looking for a scalable solution.

They typically will have a hundred plus agents in their IT department. They have tens of systems that our products need to integrate with, and they're looking for a scalable solution that serves all those needs across I. T. S. M. I, Tom, I, Pam, and then for departments outside of.

Dennis M. Woodside: That serves all of those needs across TSM.

Dennis M. Woodside: And then for departments outside of ESN.

I. T. E. S. M., and so we've carved out a great spot in that market as the most credible alternative to service. Now we're cloud first. We're at enterprise scale at this point. We have many customers that are supporting businesses of ten, twenty thousand people based on our product. You know, an example that was called out this quarter was Mahindra Mahindra, which is a sixteen billion dollar company in India's industrial sector.

Dennis M. Woodside: And so we've carved out a great spot in that market as the most credible alternative to service now.

Dennis M. Woodside: Our cloud first where.

Dennis M. Woodside: At enterprise scale at this point, we have many customers that are supporting businesses of 10 to 20000 people based on our product. An example that was called out this quarter with Mahindra <unk>, Mahindra, which is a $16 billion company in India industrial.

That it was attracted to the new service for its copilot capabilities and the ability to apply in the I. T. department. So that I. T. business is doing quite well for us. We called this out at investor day back in September, when the growth rates of that business were quite strong at the time. We called it the high thirties, and we continue to invest in that business. That's a reason that Device 42, for us, was quite attractive.

Dennis M. Woodside: That is was attractive for our service for its co pilot capabilities and the ability to apply AI and the it department.

Dennis M. Woodside: That business is doing actually quite well for us we called this out at the Investor day back in September where the growth rates of that business are quite strong.

Dennis M. Woodside: At the time, we called out <unk>.

Dennis M. Woodside: And we continue to invest in that business.

Dennis M. Woodside: The reason that device 42 for us was quite attractive and talking to customers, we see more and more customers looking for advanced capability and in asset management and they are making purchase decisions around.

In talking to customers, we see more and more customers looking for advanced capability in asset management, and they're making purchase decisions around their ITSM alongside their decisions about how they're gonna manage the assets in the IT estate. So IT is really performing quite well for us overall, and we're leaning into that business for sure. Great, thank you guys. Our next question will come from the line of Brent Thill with Jeffreys. Dennis, congratulations on your new role. I was just curious to get your thoughts and the one or two things that you want to focus on in your new role.

Dennis M. Woodside: Their ITM alongside their decision about how theyre going to manage the assets in the state. So it is really actually performing quite well for us overall.

Dennis M. Woodside: And we're leaning into that business for sure.

Speaker Change: Great. Thank you yes.

Speaker Change: Our next question will come from the line of Brent Thill with Jefferies.

And, you know, just a quick follow-up, you know. I know a number of vendors, comedy, and an S&B concern. But I think... act in a way that our customers expect us to act. Right now, we have a process that's a bit too manual.

Brent John Thill: Dennis Congrats on your new role I was just curious to get your thoughts on the one or two things that you want to focus on in your new role.

Speaker Change: <unk>.

Brent John Thill: Just a quick follow up I know a number of vendors that isn't commonly in SMB concerns.

Brent John Thill: But I think historically there has been some separation between macro and internal execution and I'm curious do you feel the internal executions, where you'd like it to be or do you feel this is all macro and there's nothing you can really do right now.

Dennis M. Woodside: Yes.

Speaker Change: Thanks for the question so I think that on the first question.

Speaker Change: The area that I am very much focused on is driving execution of the business that we have now and that relates to your point around F&B can we do more and do we need to do things differently in that space, Yes, we do.

Speaker Change: And I've talked about this before at the Investor Day, and then throughout Q4.

Dennis M. Woodside: We are in the process of modernizing our inbound motion our digital led motion there is more we can do there.

Dennis M. Woodside: Two.

Dennis M. Woodside: Act in a way that our customers expect us to act right now we have a process, it's a bit too manual.

We need to do things like apply AI to that process. We need to make it easier for the customer to see value in our products than they currently can. So that's a big focus, execution, not just in SMB but in the field as well. A lot of the changes that we've made over the last year are to build a foundation to drive that execution, bringing in people that can help us scale.

Dennis M. Woodside: We need to do things like apply AI to that process, we need to make it easier for the customers see value in our products than than they currently can.

Dennis M. Woodside: So that's the big focus is execution not just in F&B, but in the field as well a lot of the changes that we've made over the last year or to build a base to drive that execution, bringing in the people that can help us scale and.

And then the second area really is driving that, continuing that move up into the mid-market and into the lower end of enterprise. And that requires different approaches to how you sell, how you support, how you service, professional services, all of those things, while bringing real innovation around AI into that space. So I think those are really a continuation of what GNI has been focused on over the course of the last year or so, but sharpening that up and making sure we drive that through. I think on the last question, well, I guess I answered it in some respects.

Dennis M. Woodside: And then the second area really is driving that continuing that that move up into the mid market and into the lower end of enterprise and that requires different approaches to how you sell how you support how you service professional services all of those things, while bringing real innovation around AI into that space. So I think those are.

Dennis M. Woodside: Continuation of what <unk> been focused on over the course of the last year or so.

Dennis M. Woodside: But sharpening that up and making sure we drive that through I think on the last question.

Dennis M. Woodside: I answered it in some respects, yes, I think macro absolutely as a part of it and yes. We can we can absolutely do more there.

Yes, I think macro absolutely is a part of it, and yes, we can absolutely do more. And just a quick follow-up, Dennis, when you think about that... Modernization of Digital Motion.

Speaker Change: And just a quick follow up Dennis when you think about that.

I mean, how long does that take to complete? Is that a 2024 event? We are going to be completing the front half; how do you think about the actual timing? It's a 20 it's a 24 event, and you know the expectation is that we start seeing impact later this year. Great, thank you. Our next question comes from the line of Rob Oliver with Baird. Good. Thanks. I'll add my congratulations, Dennis, to you and to you as well.

Speaker Change: Modernization of a digital motion.

Speaker Change: How long does that take to complete is that a 2024 event is it.

Dennis M. Woodside: Is it going to be complete in the front half how do you how do you think about the actual timing of it.

Dennis M. Woodside: It's a 24 event and the expectation is that we start seeing impact later this year.

Speaker Change: Great. Thank you.

Speaker Change: Our next question comes from the line of Rob Oliver with Baird.

Dennis, my question is for you. And I know you commented that it's too early to say that generative AI is the reason for the agent weakness in Q1, but maybe to harken back to Scott's question at the outset, you also said that you're seeing early signs of Friday monetization. So I'd be curious to hear what sort of impact that is having within your accounts in terms of, I guess, Seat and Agent Activity, as well as, and this came up in conjunction with Klarna, sort of that distinction between Level 1 and Level 2 deflections. I mean, we would expect that line to shift. So, curious to hear your view on that, and then I had a follow-up for Tyler.

Speaker Change: Yes.

Robert Cooney Oliver: Great. Thanks, I'll add my congratulations Dennis to you and to you as well.

Robert Cooney Oliver: My question is for you and I know you commented that it's too early to say that.

Robert Cooney Oliver: That is the reason for the age of the weakness in Q1, but maybe to harken back to Scott's question at the outset.

Speaker Change: You also said that you are seeing early signs of Friday monetization, so I'd be curious to hear what.

Robert Cooney Oliver: What sort of impact that is having within your accounts in terms of I guess.

Robert Cooney Oliver: Seat and agent activity as well as in this.

Robert Cooney Oliver: <unk> came up in conjunction with sort of that.

Robert Cooney Oliver: Distinction between level, one and level two deflection. So I mean, we would expect that line to shift so curious to hear your view on that and then I had a follow up for Tyler.

Yeah, so on AI, every sale and renewal that we're involved in, AI is at the center. Every customer wants to talk to us about our AI capabilities, our AI roadmap, and how that can help them. They want to see examples.

Speaker Change: Yeah, so on on AI.

Speaker Change: Every sale or renewal that we're involved with AI is at the center.

Robert Cooney Oliver: Every customer wants to talk to us about our AI capabilities, our AI roadmap, how that can help them they want to see examples and.

And we have two paths to monetize today. We have Freddie Self-Serve, which is L1, and then we have the Copilot, which assists the agent. Different pricing models, one's consumption, one's price per seat.

Robert Cooney Oliver: We have two paths to monetize today, we have Fred self serve which is one.

Robert Cooney Oliver: And then we have the copilot, which assists the agent different pricing models once consumption one price.

Robert Cooney Oliver: Price per seat.

Both are getting tremendous interest, and both are involved in sales in different ways. In some cases, we're monetizing directly. People are paying us right off the bat. In other cases, we're using our AI capabilities as an inducement to close the deal. An example there is Stitch Fix, which bought not just the core, in that case, customer support platform, but it was on the back of Copilot and the AI roadmap.

Robert Cooney Oliver: Both are getting tremendous interest and both are involved in sales in different ways. In some cases, we're monetizing directly people are paying us right up that in other cases, we are using our AI capabilities as.

Robert Cooney Oliver: An inducement to close the deal and an example, theyre really a stitch fix which bought not just on the <unk>.

Robert Cooney Oliver: Core in that case customer support platform, but it was on.

Robert Cooney Oliver: The back of co pilot in the AI roadmap and then in other cases, we're using AI as a and thinking of it really as a and.

And then in other cases, we're using AI and thinking of it really as an adoption play, where we want to get a customer wall-to-wall using AI across all their agents, get them to see value for it, give it to them for a period of time for free on a limited basis or at a very low cost, and then monetize down the road. It's very early.

Robert Cooney Oliver: And adoption play, where we want to get a customer wall-to-wall using AI across all of their agents.

Robert Cooney Oliver: What I'm seeing value for it and give it to them for a period of time for.

Robert Cooney Oliver: <unk> for free on a limited basis are very low cost and then monetize down the road.

Robert Cooney Oliver: It's very early our copilot was went into GAA just in the middle of Q1, but.

Our Copilot went into GA just in the middle of Q1. The interest is there, and the usage is there when customers are, you know, up and running. And the promise is there because the value is ultimately there for the customer. Great, very helpful. Thanks. And then, Tyler, I was just wondering if you could give us a little bit more color just on the sort of billings, expectations, and linearity throughout the year. Obviously, you know, solid quarter this quarter, it's going to drop off fairly meaningfully, and just wanted to get your sense for, you know, the linearity there and what gives you the competence in the better billings outlook sort of later in the year. Thanks.

Robert Cooney Oliver: The interest is there the usages there when customers are.

Robert Cooney Oliver: Up and running and the promise is there because the value is ultimately therefore customer.

Speaker Change: Great very helpful. Thanks, and then Tyler I was just wondering if you could give us a little bit more color just on the sort of billings expectations in linearity throughout the year obviously.

Tyler R. Sloat: Solid quarter this quarter, it's going to drop off fairly meaningfully and just wanted to get your sense for.

Tyler R. Sloat: The linearity there and what gives you the competence.

Tyler R. Sloat: It's a better billings outlook sort of later in the year. Thanks sure Yes of course.

Sure. Yeah, of course. We said normalized billings for Q1, 17%, 14% as reported, and we said 12% for Q2. That's an as reported number.

Tyler R. Sloat: Normalized billings for Q1, 17% by 14% as reported and we said 12% for Q2, that's an as reported number and our expectation is that would normalize up what happens Q2 of last year, we actually had a pretty decent amount of pull ins from Q3, we always have Paul lands like early renewals with expansion.

And our expectation is that it would normalize. What happened is that, you know, in Q2 of last year, we actually had a pretty decent amount of pull-ins from Q3. We always have pull-ins like early renewals with expansion, and we kind of have an expectation about that, but it's a little bit unpredictable. And so, right now, you know, 12% un-normalized, and we do expect a little bit of pull-in, but that one, again, we'll have a much better view at the end of the quarter.

Robert Cooney Oliver: And we kind of have an expectation about that but it's a little bit unpredictable and so right now 12%.

For the year, 16%, yeah, the numbers fall out, and we can see the billing schedules going out. That's what we expect for the year in line with, you know, the guidance that we gave, which does assume there's going to be a little bit of acceleration, but we can already see some of that in the numbers. Okay, it was helpful. Thanks, guys. I appreciate it. Our next question comes from the line of Ryan MacWilliams with Barclays. Hey guys, this is Eamon Coghlan on for Ryan MacWilliams.

Robert Cooney Oliver: Normalized and we do expect a little bit of pull them, but that one again, we will have much better view at the end of the quarter for the year, 16%, yes, the numbers fallout and we can see the billing schedules going out that's what we expect for the year in line with the guidance that we gave which does.

Robert Cooney Oliver: Assume theres going to be a little bit acceleration, but we can already see some of that in the numbers.

Speaker Change: Okay helpful. Thanks, guys I appreciate it.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Ryan Macwilliams with Barclays.

Thanks for taking the question. Great to hear about the 30% improvement in productivity for your customers leveraging Freddie AI. Curious if there were any other key takeaways post the Freddie co-pilot becoming GA? Like how has the process been converting those beta customers, which I think totaled around 2500 customers in 3Q, to paying customers. Thanks for the question. It's Dennis.

Speaker Change: Hey, guys. This is damian caused by not Ryan Macwilliams. Thanks for taking the question great to hear about the 30% improvement in productivity from your customers leveraging AI.

Damian: Curious if there are any other key takeaways posted Friday co pilot.

Damian: Becoming gea like how is the process been converting those beta customers, which I think totaled around 25, 2500 customers and <unk> to paying customers.

Damian: Yes, thanks for the question it's Dennis.

What's been interesting to see is that the conversion and the interest are across all customer segments, both small and large. So we're seeing a surprising number of SMBs who are new to Freshworks coming in and signing up directly for AI from day one. So they'll try the product, you know, for a limited period of time, they'll see the value, and they'll pay for it.

Dennis M. Woodside: What's been interesting to see is that.

Dennis M. Woodside: The conversion and the interest is across all customer segments.

Dennis M. Woodside: Both small and large so we're seeing a surprising number of Smbs, who are new to fresh works coming in and signing up directly for AI from day, one so they will try the product for.

Dennis M. Woodside: For a limited period of time, they will see the value and they will pay for it and the pricing actually is holding up quite well. So the F&B side I think has been surprisingly strong I think when you get into larger customers different customers are at different points in their adoption phase some are leaning in and going all in from day one others.

And the pricing is actually holding up quite well. So the SMB side, I think, has been surprisingly strong. I think when you get into larger customers, different customers are at different points in their adoption phase; some are leaning in and going all in from day one; others, you know, want to really understand the data implications, security implications, there's a long review process that takes a bit longer. But every single customer wants to talk about it, which I think is the exciting part.

Dennis M. Woodside: One to really understand the data implication security implications. There is a long review process. It takes a bit longer but every single customer wants to talk about it which I think is the exciting part and that gives us a lot to talk about a renewal with existing customers and certainly every new prospect that we talked to AI at the center centerpiece of the pitch.

And that gives us a lot to talk about at renewal with existing customers. And certainly, every new prospect that we talked to AI about is at the center centerpiece of the pit. Understandable. And how does the trajectory for rent retention look from here? Anything to call out from upsells, churn, or seek that's worth noting? Maybe what's implied for the 105-106% guide for 2Q? Nothing's implied there.

Speaker Change: Alright, understood and how does that trajectory for rent retention look like from share anything to call out from Upsells churn or seats, that's worth, noting maybe what's implied for the 105% to 106% guide for <unk>.

I think, you know, what we're seeing there is, you know, very similar to what we saw in Q1. So, kind of, you know, we said 106; it came in at 106. Churn, we said, ticked up slightly, but not materially enough to round to anything. And we've already done a really, really good job at bringing down kind of our gross churn over the past couple of years. The expansion motion, as we've talked about in the past, we're very, very focused on how we're expanding with our customers outside of Agent Edition. Agent Edition is still the number one expansion for us, and a lot of that is organic.

Dennis M. Woodside: Nothing supply there I think what we're seeing there is very similar to what we saw in Q1. So kind of we said one six that came in at 106 churn, we said ticked up slightly but not materially enough to to round to anything and we've already done a really really good job at bringing down kind of our our gross churn.

Speaker Change: Over the past couple of years the expansion motion.

Speaker Change: We've talked about in the past, we're very very focused on how are we're expanding with our customers outside of agent addition agent additions still the number one expansion motion for us and a lot of that is organic but as we've talked about that that rate has decreased over the last couple of years. What we are seeing is that good pick up of some of our newer products and then Freddie.

But as we've talked about that, that rate has decreased over the last couple of years. What we are seeing is that, you know, good pickup of some of our newer products and then, you know, Freddie, Copilot, in particular, there is actually some good add-on business there, but nothing that is going to move the needle higher than 105 or 106 for Q2. For the year, we expect it to be roughly the same, in that 106 range.

Perfect. Thank you. Thanks, Tyler.

Speaker Change: Our co pilot in particular, there are actually some good add on business there.

Speaker Change: Nothing that is going to move.

Speaker Change: The needle higher than $105 six for Q2.

Speaker Change: Got it thank you guys.

Speaker Change: Yes for the year, we expect it to be roughly the same.

Speaker Change: And that 106 range.

Speaker Change: Perfect.

Speaker Change: Thanks, Tom I appreciate it.

I appreciate it. Our next question comes from the line of Dan Reagan with Canaccord Genuity. Hey guys, this is Dan Reagan for DJ.

Speaker Change: Our next question comes from the line of Dan Reagan with Canaccord Genuity.

First, I just wanted to ask if you could elaborate on the expected synergies from the device 42 acquisition. So you've historically partnered with device 42 on large enterprise opportunities, so I'm just wondering how you think about the go-to-market synergies from here, beyond what you've been seeing, and then sort of how it positions Freshworks with your upmarket ambitions. Maybe some nice cross-sell opportunities with its 800-customer base; any color there would be awesome. Thanks for the question.

Dan Reagan: Hey, guys. This is Dan Regan on print D J.

Dan Reagan: Firstly I just wanted to ask if you could elaborate on the expected synergies from the device to acquisition. So you have historically partnered with device 42 on large enterprise opportunities.

Dan Reagan: So I'm just wondering how you think how youre thinking about the go to market synergies from here beyond what you've been seeing and then sort of how it positions fresh works linear up up market ambitions.

Dan Reagan: Maybe any nice cross sell opportunities, so thats 800 customer base.

Speaker Change: Base any color there would be awesome.

Speaker Change: Thanks for the question.

So, we see Device 42 in a couple ways. First of all, we've been partnering with them for the last 18 months. So we have a product integration that allows an ITSM customer to easily flip into the Device 42 environment. And we've been co-selling with them to large customers. We called out one of our customers last quarter with a large apparel retailer. Device 42 was integral to that sale. I was in Europe earlier last week and one of our larger customers, we are now upselling Device 42 to.

Speaker Change: So.

Speaker Change: We see device 42, and a couple in a couple ways first of all we've been partnering with them for the last 18 months. So we.

Dan Reagan: We have a product integration that allows a TSM customer too.

Dan Reagan: Equally flip into the device 42 environment, we've been co selling with them two large customers, we called out one of the customers last quarter was a large apparel retailer device 42 was integral to that that that sale I was in Europe earlier or last week and one of our larger customers. We are now upselling.

And so we know that the product works. We know that our customers, especially these larger customers, they wanna buy ITSM alongside a sophisticated ITAM solution. And we've seen the product in action. So we feel like we've de-risked product market fit. They have 800 customers worldwide.

Dan Reagan: <unk> 42 in <unk>.

Dan Reagan: And so we know that the product works, we know that our customers, especially these larger customers. They want to buy TSM alongside a sophisticated ITM solution and we've seen the product in action. So we feel like we've we've derisked product market fit they have 800 customers worldwide.

Like most of those customers, they do not use fresh service as their ITSM. So we see synergies in a couple of different ways. As those ITSMs come up for renewal, we will know that they're up for renewal. We'll be able to get in front of those decision makers and make a pitch and win some business there.

Dan Reagan: Like most of those customers do not use fresh service as their ITM. So we see synergies in a couple of different ways as as those <unk> come up for renewal. We will know that they are up for renewal will be able to get in front of those decision makers and make a pension and win some business there and then.

Amongst our thousands of customers, most of them don't use an advanced ITAM solution from Device 42, so we will have a programmatic approach to selling advanced ITAM into our existing base. So I think those are two areas.

Dan Reagan: Our thousands of customers most of them don't use.

Dan Reagan: And advanced high cancellation from device 42, so we will have a programmatic approach to selling.

Dan Reagan: Advanced item into our existing base.

And we definitely see a need for more advanced capability than we currently have among larger customers. For us, it eases this move up market. It puts us in a better position vis-a-vis ServiceNow and Atlassian, in particular, which have more in-depth ITAN solutions than we did natively, which is why we pursued the acquisition. Excellent, super helpful. And then just one follow-up with the transition of Grish to EC and Dennis assuming the CEO position. Congratulations! There!

Dan Reagan: So I think those are two areas and we definitely see a need for more advanced capability than we currently have.

Dan Reagan: Larger customers so.

Dan Reagan: For us it is.

Dan Reagan: Eases this move upmarket.

Dan Reagan: It puts us in a better position vis vis service now and last thing in particular, which have more in depth <unk> solutions than we did natively, which is why we pursued the acquisition.

Speaker Change: Excellent Super helpful.

Speaker Change: And then just one follow up with the transition.

Speaker Change: Of course, you see.

Speaker Change: And Dennis assuming the CEO position.

Speaker Change: Congrats there.

You've already provided a bit of color on this, but could you dive a little bit deeper into any changes in strategic initiatives and operational focus? You know, you're focused on the low end improving SMB conversion that's been discussed. At the high end, you have momentum. But now a newer focus with opportunities around device 42. Any color there on initiatives and any changes would be awesome.

Speaker Change: You have already provided a bit of color on this but could you dive a little bit deeper into any changes and strategic initiatives and operational focus.

Speaker Change: We are focused on the low end improving SMB conversion.

Speaker Change: It's been discussed at the high end you have momentum.

Speaker Change: But now a newer focus.

Speaker Change: Opportunities around device 42.

Speaker Change: Any color there on initiatives and any changes would be awesome.

Yeah, so, so, no changes from what we said before, really focused on that S&B opportunity and getting that business back to healthy growth, focused on continuing to drive upmarket, which is primarily IT, focused on the AI opportunity, which is across all of our products. Those are the things that are really driving our business now. And, and then lastly, just focus on continuing our expansion, expansion, cross-sell, and upsell as we have more products. Now, we have device 42.

Speaker Change: Thank you yeah. So soon so note no changes from what we said before really focused on that that that SMB opportunity in getting that business back to healthy growth focused on continuing to drive upmarket.

Speaker Change: Which is primarily <unk>.

Speaker Change: Focused on the AI opportunity, which is across all of our products.

Speaker Change: Those are the things that are really driving our business now and and then lastly, just focused on continuing our expansion motion.

Speaker Change: Expansion cross sell upsell as we have more products now we have device 42, that's another product that we can cross sell into our existing base.

Speaker Change: Excellent. Thank you.

That's another product that we can cross-sell into our existing base. Excellent, thank you. Our next question comes from the line of Pat Walravens with Citizens JMP. Oh, great. Thank you. Dennis, it's actually, it's Pat Walravens.

Speaker Change: Our next question comes from the line of Pat Walraven with citizens JMP.

Speaker Change: Oh, great. Thank you Dennis it's actually it's Pat Walraven.

So I would love to go back to the agent replacement conversation and let me share a quick anecdote with you, and then I would love to hear how things might be different or similar for Freshworks. So I spoke to a large company and another vendor that has a couple thousand agents. They're adding the AI option from this other vendor, and they'll reduce the number of agents by a lot, maybe even half. And so I said, okay, great.

Patrick D. Walravens: So I would love to go back to the agent replacement conversation and let me share a quick anecdote with you and then I would love to hear how things might be different or similar for fresh works.

Patrick D. Walravens: So I spoke to a large company another vendor that has a couple of thousand agents, they're adding the AI option from this other vendor and.

Patrick D. Walravens: Reduce the number of agents by a lot maybe in half.

Patrick D. Walravens: And so I said, okay. Great. So you are cautioned that he is going to go down right and the answer was the.

Speaker Change: The total contract value is going up this other vendors already moving to consumption pricing.

Speaker Change: And they bake that in.

Speaker Change: And we really don't mind that much because we are saving so much on the labor.

Speaker Change: The marginal increase in the software cost.

Speaker Change: Okay.

Speaker Change: It's just a much smaller amount than the labor savings.

So your contract value is going to go down, right? And the answer was, oh, no; the total contract value is going up. This other vendor is already moving to consumption pricing, and they baked that in. And we really don't mind that much because we're saving so much on labor that the, you know, marginal increase in the software cost is just a much smaller amount than the labor savings. So, does that dynamic work for Freshworks, or is there something different? Hey Brett, this is Girish.

Speaker Change: Does that dynamic work for fresh works or is there something different.

Okay, this is exciting. Yeah, so this is exactly the same dynamic, and we had already explained it earlier. So, see, we all know that customer service automation is something that businesses want, and it's not just today after Gen-AI. It's been something that businesses want right from the day they started putting in IVRs in call centers, right? So this has been a journey for us, and of course, Gen-AI is accelerating that, and our Freddy's self-service is also built to capture and leverage that. And as you clearly stated, for the customer, it's a win-win because by investing in technology, they're saving a lot more in terms of overall not having to hire so many people, and that translates into a better revenue realization potential for Freshworks also.

Speaker Change: Hey, Brad this is Gary.

Speaker Change: Okay.

Speaker Change: Yes.

Brad: Yes so.

Brad: So this is exactly the same dynamic and we had already also explained it.

Brad: Earlier, so CVR.

Speaker Change: CVR know that customer service automation is something that businesses want and it's not today. After January it's been something that businesses want to date from the day, they started putting in Ibs and call centers.

Speaker Change: <unk>.

Speaker Change: This has been a journey for us and of course Gen. AI is accelerating that and already self serve is also built to capture and leverage that and as you.

Speaker Change: You clearly stated floor.

Speaker Change: <unk> the customer it's a win win because.

Speaker Change: By investing in technology, they are saving a lot more in terms of <unk>.

Speaker Change: Not having to hire so many people.

Speaker Change: That.

Speaker Change: Translates into a better revenue realization potential for fresh fruits also that's exactly.

And so are you able to increase the size of the contracts overall on the renewals? Yes. Yeah, so again, it's early days, but what you're describing is exactly what we're pursuing. And that's what you're talking about with respect to reduced agent count where that happens, that we're basically replacing human costs with software costs. And so our customers are on that exact same wavelength. Not all of them are looking to reduce staff.

Speaker Change: And so are you able to increase the size of the contracts overall on the renewals.

Speaker Change: Yes, yes.

Speaker Change: Yes, so okay. So again.

Speaker Change: It's early days, but.

Speaker Change: What you're describing is exactly what we're pursuing and thats, what youre, what youre talking about with respect to reduced agent count where that happens.

Speaker Change: We're basically replacing human costs with software cost and so our customers are on that exact same wavelength not all of them are looking to reduce staff.

But for those who are, there's absolutely a business case to be made for spending more on the software. And remember, we have a consumption product. That's what Freddie self-serve is.

Speaker Change: But for those who are there is absolutely a business case to be made for spending more on the software and remember we have a consumption product that's what Freddie self serve is.

You pay by session, which is basically the equivalent of a ticket. And they understand that language, they understand how to monetize the ticket or what the ticket costs them. And so they're willing to pay on a consumption basis for avoiding that human interaction. All right, great. Thank you both. Our next question comes from the line of Elizabeth Porter with Morgan Stanley.

Speaker Change: Pay by session, which is basically the equivalent of a ticket and they understand that language I understand how to monetize.

Speaker Change: The ticket or what the ticket cost them. So they are willing to pay on a consumption basis for avoiding that human interaction.

Speaker Change: Alright, great. Thank you Bob.

Speaker Change: Our next question comes from the line of Elizabeth quarter with Morgan Stanley.

I wanted to ask a bit on a more of a macro question, is that macro headwinds, deal hesitancy, has had an impact really across software? So I wanted to get your view on how customers, and conversations are trending with customers, as it relates to just how long deals can be pushed off. And how does that balance with this rush to invest in AI and not wanting to be left behind? Kind of any sort of view on when that pendulum will swing back to customers being more willing to engage in deals? I would be super helpful for your view.

Speaker Change: Yes.

Elizabeth Mary Elliott Porter: Great. Thank you so much I wanted to ask a bit more of a macro question Matt.

Elizabeth Mary Elliott Porter: Macro headwinds deal hesitancy has been an impact really across software side.

Elizabeth Mary Elliott Porter: So I wanted to get your view on how customer conversations are trending with customers as it relates to just how long deals can be pushed off and how does that balance with this rush to invest in AI and not wanting to be left behind and of any sort of view on kind of when that pendulum and shift back to customers being.

Elizabeth Mary Elliott Porter: More willing to engage in deals that would be super helpful for your view.

Well, as I said earlier, in the larger account space, which for us is in that 500 and up cohort, you know, we're seeing good momentum, we're seeing a lot of interest, we're seeing a lot of deals, and you see that in our numbers overall. As our customer base continues to shift into larger relationships with us, higher ARPA, that tends to be on the IT side of the house, but not exclusively, because some of the deals that we talked about this quarter, like Stitch Fix, are our customer support deals. It's SMB where, at least for us, we're seeing the kind of headwinds that you're talking about, the prolonged decision-making, the no decision. I got it.

Elizabeth Mary Elliott Porter: Well as I said earlier that we're seeing two different trends.

Elizabeth Mary Elliott Porter: In the larger account space.

Elizabeth Mary Elliott Porter: For US is is in that 500 and up.

Elizabeth Mary Elliott Porter: Cohort, we're seeing good momentum, we're seeing a lot of interest we're seeing a lot of deals and youre seeing that in our numbers overall as our customer base.

Elizabeth Mary Elliott Porter: <unk> to shift into larger relationships with us higher ARPA that tends to be on the it side of the house.

Elizabeth Mary Elliott Porter: Not exclusively because some of the deals that we talked about this quarter like stitch fix or our customer support deals.

Speaker Change: It's SMB, where at least for US we're seeing the kind of headwinds that youre talking about the prolonged decision, making the no decision et cetera.

Speaker Change: Okay.

Thanks. And then for the device 42 acquisition, kind of wondering if you'd give us any sort of additional color on, you know, how the deal sizes might compare relative to your current ITSM deals, any sort of revenue or growth that we could think about as it relates to the asset that you're willing to share. I'll take the back part of that.

Speaker Change: Got it thanks and then.

Speaker Change: For the device <unk> acquisition kind of wondering if you could give us any sort of additional color on how the deal sizes might compare relative to your current Ikea some gals.

Speaker Change: Any sort of revenue, where our growth that we could think about that as it relates to the asset that you're willing to share.

Speaker Change: I'll take the back back part of that.

So, as we mentioned, we've been a partner with Device 42 for a while. We've actually been reselling their product, but it's really, you know, more on a limited basis. But we do know that it works with our customers and it's integrated. You know, we've got, as we said on investor day, we've got over 8600, you know, fresh service customers paying us greater than 5K a year, and Device 42 has about 800 customers. And of, you know, the 8600, very few of them are actually using Device 42.

Speaker Change: So as we mentioned we've been a partner with device 42 for a while we've actually been reselling their product, but it's really more on a limited basis, but we do know that it works with our customers.

Speaker Change: It's integrated.

Speaker Change: We've got we said at our Investor Day, we've got over 8600.

Speaker Change: Fresh service customers peanuts, greater than five K, a year and device 42 is about 800 customers.

So, we think there's going to be great synergies there, and that's the purpose of this deal. We really think this is an investment in fresh service, which that product has been doing really, really well and is positioned really well. But we also know that not having the capabilities of, like, Device 42 has made us less competitive in the upper enterprise. And so, you know, our expectation is that this is going to fill that gap that we know that there are deals that we lost because of because we haven't had that.

Speaker Change: Of the 8600 very few of them actually are using device 42. So we think there's going to be great synergies there and that's the purpose of this deal. We really think this is an investment.

Speaker Change: And press service, which that product has been doing really really well positioned really well, but we also know that this is not.

Speaker Change: Not having the capabilities of <unk> 42 has made us less competitive in the upper enterprise and so our expectation is that this is going to fill that gap that we know that.

Speaker Change: There is deals that we've lost because of because we haven't had that.

And so our expectation is that this is going to be revenue-creative. We don't have the numbers yet to share. We'll do that after we close the deal. But we did say in the script that, you know, revenue-creative for the year, and also we think it's going to be cash flow neutral.

Speaker Change: And so our expectation is that this is going to be revenue accretive we don't have the numbers yet to share we'll do that after we close the deal.

Speaker Change: But we did say.

Speaker Change: In the script that revenue accretive for the year.

Speaker Change: And also we think it's going to be cash flow neutral.

Speaker Change: Okay. Thank you.

Great, thank you. Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.

Speaker Change: Thank you this.

Speaker Change: This concludes today's conference. Thank you for participating you may now disconnect.