Q2 2026 Freshworks Inc Earnings Call

August 4, 2026

Operator: Hello, everyone. Thank you for joining us, and welcome to the Freshworks Q2 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Kate Skolnick, VP of Investor Relations. Kate, please go ahead.

Speaker #1: Hello everyone. Thank you for joining us, and welcome to the Freshworks Q2 2026 earnings conference call. After today's prepared remarks, we will host a Q&A session.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Kate Skolnik, VP of Investor Relations.

Speaker #1: Kate? Please go ahead.

Speaker #2: Thank you. Good afternoon, and welcome to the Freshworks Q2 2026 earnings conference call. Joining me today are Dennis Woodside, Freshworks Chief Executive Officer and President, and Tyler Sloat, Freshworks Chief Operating Officer and Chief Financial Officer.

Kate Skolnick: Thank you. Good afternoon, and welcome to Freshworks Q2 2026 earnings conference call. Joining me today are Dennis Woodside, Freshworks Chief Executive Officer and President, and Tyler Sloat, Freshworks Chief Operating Officer and Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our Q2 2026 performance and our financial outlook for our Q3 and full year 2026. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate, and market volatility, and certain other assumptions made by the company, all of which are subject to change.

Speaker #2: The primary purpose of today's call is to provide you with information regarding our Q2 2026 performance and our financial outlook for our Q3 and full year 2026.

Speaker #2: 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.

Speaker #2: These forward-looking statements are based on our management's beliefs about our business and industry, including our financial expectations and estimates, uncertainties in the macroeconomic environment in which we operate, and market volatility.

Speaker #2: In certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements.

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

Speaker #2: Such risks include but are not limited to: our ability to sustain growth, to innovate, to reach our long-term revenue goals, to meet customer demand, and to control costs and improve operating efficiency.

Speaker #2: For our discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our most recently filed Form 10-K, and other periodic filings with the SEC.

Speaker #2: 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.

Speaker #2: 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 freshworks dot com.

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

Speaker #2: I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides, periodic SEC reports, and a replay of today's call to learn more about Freshworks.

Speaker #2: I will now turn the call over to Dennis. Please go ahead.

Speaker #3: Good afternoon, everyone, and thank you for joining us. Freshworks is the AI-powered, unified service operations platform for the modern, agile enterprise. In Q2, we delivered another quarter of strong growth and profitability.

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

Speaker #3: Revenue was $237.4 million, up 16% year over year. Our non-GAAP operating margin was 24%. We have now achieved rule of 40 for 8 straight quarters.

Speaker #3: We are growing our business with disciplined quarter after quarter. In Q2, we also achieved a meaningful financial milestone. We reported positive GAAP net income ahead of our previously given expectations.

Speaker #3: GAAP profitability is no longer just a goal; it is here and it is funding our investments in EX and AI. And we expect to sustain our GAAP profitability.

Speaker #3: At our investor event during Refresh in May, we laid out 5 key messages about the durability of our business. Before I get into the quarter, I want to remind everybody of those messages.

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

Speaker #3: First, we are an EX-first company. When Freshworks went public, 35% of our total ARR came from our employee experience business. By year-end 2026, we expect EX ARR will exceed 60%.

Speaker #3: Now, the market opportunity in EX is significant. The total addressable market we are pursuing spans ITSM, ITAM, ITOM, and ESM, and is roughly 45 billion growing 13% a year.

Speaker #3: We are focused on businesses with up to 20,000 employees, which represents about 60% of that overall total addressable market. It's large, fragmented, and no single player in this segment holds more than a 20% share.

Speaker #3: That leaves plenty of room for Freshworks to win. Second, we are a category leader with agile enterprises and, in the mid-market. Fresh Service has over 20,000 customers globally, with EX ARR up 5 times from where we started at the beginning of 2021, just 5 years ago.

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

Speaker #3: Fresh Service serves companies that carry the complexity of an enterprise, but require the speed and agility of a modern platform. Recently, Gartner named Freshworks a leader in the 2026 Magic Quadrant for IT Service Management Platforms.

Speaker #3: We feel our positioning as a leader by Gartner highlights a clear shift in the market. We're focused on giving agile enterprises the depth and scale they need, alongside domain-specific AI.

Speaker #3: So that they can move at the speed of their business while staying firmly in control. Third, AI is a tailwind enabling growth in our business.

Speaker #3: Over 7,000 customers are paying for an AI SKU. Our co-pilot attach rate on larger deals exceeds 70%. Our products allow customers to adapt to an agentic world quickly and achieve measurable IT efficiencies faster.

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

Speaker #3: Fourth, we are profitable and scaling. We're demonstrating operating leverage and purposefully concentrating our investment to expand our EX business. And our fifth key message: we are committed to capital efficiency and prudent capital management.

Speaker #3: Tyler will cover this in more detail, as we bring together how Q2 delivered on all 5 of these key objectives. Now, let's look at the results from the quarter, starting with EX.

Speaker #3: Our EX business demonstrated continued growth and large deal traction. EX ARR grew 24% on a constant currency basis, ending the quarter at $567 million, and representing approximately 59% of total ARR.

Speaker #3: Why are we able to consistently grow EX? Two reasons. First, large customers are actively choosing Freshworks to displace incumbents that no longer serve them.

Speaker #3: Take Seagate, a global leader in hard drives, with 30,000 employees. After 14 years with a legacy provider, they struggled to extract value from AI, were unable to adapt workflows, as the business evolved, and were paying for dedicated specialists just to manage the complex system.

Dennis Woodside: Take Seagate, a global leader in hard drives with 30,000 employees. After 14 years with a legacy provider, they struggled to extract value from AI, were unable to adapt workflows as the business evolved, and were paying for dedicated specialists just to manage the complex system. They evaluated the market, they chose Freshservice, and were live in 3 months. That speed to value is what Freshworks delivers. Another example is American Oncology Network, a nationwide cancer care network supporting over 140 clinic locations. They implemented Freshservice for IT, Freshservice for business teams, and Freddy AI Copilot in under 30 days. Today, their EX platform has expanded to seven business departments beyond IT, and it takes just one administrator less than 2 hours per week to manage the entire environment. That up-market momentum shows in our numbers.

Speaker #3: They evaluated the market, they chose Fresh Service, and were live in 3 months. That speed to value is what Freshworks delivers. Another example is American Oncology Network, a nationwide cancer care network supporting over 140 clinic locations.

Speaker #3: They implemented Fresh Service for IT, Fresh Service for Business Teams, and Freddie AI Copilot in under 30 days. Today, their EX platform has expanded to 7 business departments beyond IT.

Speaker #3: And it takes just one administrator, less than two hours per week, to manage the entire environment. That up-market momentum shows in our numbers. Customers contributing more than $100,000 in ARR grew 25% year over year, and now represent roughly 40% of total ARR.

Dennis Woodside: Customers contributing more than $100,000 in ARR grew 25% year-over-year and now represent roughly 40% of total ARR. We believe that's the clearest evidence our enterprise motion is working and it's accelerating, not slowing down. Second, we are expanding our right to win by broadening our EX platform. Freshservice ITAM makes infrastructure visible and actionable, giving IT teams the context they need for unified service operations. Our offering is powered by Device42, a company we acquired a little over 2 years ago, and today, we offer both on-prem and cloud-native Advanced ITAM products. About a third of large new EX lands now include ITAM, and in Q2, we had the strongest new logo quarter for this business yet. We are actively serving new Freshservice ITAM Cloud customers on our platform, such as DriveTime and Radio France.

Speaker #3: We believe that's the clearest evidence our enterprise motion is working, and it's accelerating, not slowing down. Second, we are expanding our right to win by broadening our EX platform.

Speaker #3: Fresh Service ITAM makes infrastructure visible and actionable, giving IT teams the context they need for unified service operations. Our offering is powered by device 42, a company we acquired a little over 2 years ago.

Speaker #3: And today, we offer both on-prem and cloud-native advanced ITAM products. About a third of large new EX lands now include ITAM, and in Q2, we have the strongest new logo quarter for this business yet.

Speaker #3: We are actively serving new Fresh Service ITAM cloud customers on our platform, such as DriveTime and RadioFriends. Our enterprise service management crossed 50 million in ARR this quarter, growing 67% year over year.

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

Speaker #3: ESM continues to be a major long-term growth factor for Freshworks, as one-fifth of new EX seats are coming from outside IT. Our investment in FireHydrant showed results this quarter.

Speaker #3: FireHydrant generated its first 6-figure expansion deal since joining Freshworks, and was one of our top 3 largest deals of the quarter. This customer is a global cybersecurity leader that chose to consolidate their alerting and incident management onto FireHydrant.

Speaker #3: Stepping back, Freshworks EX business is in the strongest position in the company's history. We are winning against incumbent and legacy providers, expanding our customer base with new platform offerings, growing deal sizes, and strengthening our market leadership.

Speaker #3: Now, let's talk about how we are innovating with AI. Freddie AI continues to be embedded throughout our platform, delivering real value for customers while building towards the long-term monetization opportunity.

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

Speaker #3: At Refresh, we launched 2 new AI products for Fresh Service. Freddie AI Agent Studio, a no-code environment for rapidly building domain-specific AI agents. And MCP Gateway, which connects Fresh Service Intelligence to AI tools customers already use, including Claude and Microsoft Copilot.

Speaker #3: Despite being available for a short time, we have hundreds of customers using both products in our early access program today. The productivity gains our customers are experiencing with AI are substantial and real.

Speaker #3: Agents using Freddie AI Copilot handle 50% more tickets. That means they are 50% more productive. That's huge for customers. Freddie AI Agent deflection rates average 50% and reach as high as 80% for mature deployments.

Speaker #3: With Freddie AI, customers are changing the economics of how they run service operations. And we are monetizing AI, Copilot attach rate for new deals above $30,000 exceeded 70%.

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

Speaker #3: Eligible EX customers paying for Copilot increased to 22% of our installed base in the quarter. And EX customers with AI continue to carry higher NDR, well above total company NDR.

Speaker #3: I-CORE demonstrates what Freddie AI can do at enterprise scale. A global BPO with more than 40,000 employees, I-CORE had a mandate to modernize and automate.

Speaker #3: They replaced a legacy on-premises system with Freshservice and Freddy AI. Now, they have an agentic AI solution that has fully automated 35% of their IT service delivery and cut monthly ticket volume by 39%.

Speaker #3: Turning to the results and highlights of our CX business in Q2. We're seeing steady ARR growth and significant progress on our platform migration. CX ARR grew 4% on a constant currency basis, ending the quarter at $400 million.

Speaker #3: As of Q2, over 90% of Freshdesk customers have migrated to the new platform. Freshdesk Omni is delivering measurable value for our mid-market customers. They are reporting real efficiency gains, including up to 97% first-contact resolution, 60% higher agent productivity, and 95% CSAT.

Dennis Woodside: As of Q2, over 90% of Freshdesk customers have migrated to the new platform. Freshdesk Omni is delivering measurable value for our mid-market customers. They are reporting real efficiency gains, including up to 97% first contact resolution, 60% higher agent productivity, and 95% CSAT. These customers are benefiting from an AI-ready platform that provides the unified context needed to deliver better AI outcomes. In Q2, CX AI agent sessions and conversations on Freshdesk Omni were both up 60% quarter-over-quarter and more than five-fold year-over-year. Take Fleet Claims, a UK-based motor fleet accident management company. They have reported that they have been able to use our email AI to resolve about 10% of their tickets without any agent involvement and amplified the importance of being able to respond faster than ever, especially outside business hours.

Speaker #3: These customers are benefiting from an AI-ready platform that provides the unified context needed to deliver better AI outcomes. In Q2, CX AI Agent sessions and conversations on Freshdesk Omni were both up 60% quarter over quarter, and more than 5-fold year over year.

Speaker #3: Take Fleet Claims, a UK-based motor fleet accident management company. They have reported that they have been able to use our email AI to resolve about 10% of their tickets without any agent involvement, and emphasized the importance of being able to respond faster than ever, especially outside business hours.

Speaker #3: Our CX organization is now fully aligned to drive efficiency and customer value. As of July 1, we've consolidated our CX organization in India. Our GTM product and engineering teams are all co-located and driving that business.

Dennis Woodside: Our CX organization is now fully aligned to drive efficiency and customer value. As of 1 July, we have consolidated our CX organization in India. Our GTM product and engineering teams are all co-located and driving that business. Looking ahead, we are encouraged by our Q2 CX developments and have a positive outlook on our ongoing growth opportunities for this business. Taken together, our EX momentum and a more disciplined CX business confirm that Freshworks is delivering on our mission while investing in our future. As we announced last week, I am pleased to welcome Ryan Manning to Freshworks as Chief Product and Technology Officer. Ryan will bring deep product and engineering leadership, having built and scaled category-leading platforms across service management and CRM. He joins us from BMC Helix, where he served as chief product officer, with prior leadership roles at Coupa and ServiceNow. Our platform is stronger and broader than ever.

Speaker #3: Looking ahead, we're encouraged by our Q2 CX developments and have a positive outlook. On our ongoing growth opportunities for this business. Taken together, our EX momentum and a more disciplined CX business confirm that Freshworks is delivering on our mission while investing in our future.

Speaker #3: As we announced last week, I'm pleased to welcome Ryan Manning to Freshworks as Chief Product and Technology Officer. Ryan will bring deep product and engineering leadership, having built and scaled category-leading platforms across service management and CRM.

Speaker #3: He joins us from BMC Helix, where he served as Chief Product Officer with prior leadership roles at Coupa and ServiceNow. Our platform is stronger and broader than ever.

Speaker #3: AI monetization is taking shape, and our financial model is delivering solid results. We are the AI-powered unified service operations platform for the modern, agile enterprise, and Q2 delivered on that.

Dennis Woodside: AI monetization is taking shape. Our financial model is delivering solid results. We are the AI-powered unified service operations platform for the modern agile enterprise. Q2 delivered on that. I will now turn it over to Tyler to discuss our financials.

Speaker #3: I'll now turn it over to Tyler to discuss our financials.

Speaker #2: Thanks, Dennis, and thanks, everyone, for joining the call today. We had a strong second quarter—our seventh consecutive quarter exceeding revenue expectations—and we achieved positive GAAP net income ahead of plan.

Tyler Sloat: Thanks, Dennis, and thanks everyone for joining on the call today. We had a strong Q2, our 7th consecutive quarter exceeding revenue expectations, and we achieved positive GAAP net income ahead of plan. For our call today, I'll cover the Q2 2026 financial results, provide context on key metrics, and close with our updated outlook for Q3 and the full year 2026. As a reminder, most of my discussion will be focused on non-GAAP financial results. I will provide comparisons on both an as-reported and a constant currency basis where available. Starting with the income statement. Total revenue reached $237.4 million in Q2, up 16% year over year as reported and up 15% on a constant currency basis, above the high end of our estimates range. Professional services revenue was approximately $3 million, slightly higher than prior quarters. EX continues to be our primary growth engine.

Speaker #2: For our call today, I'll cover the Q2 2026 financial results, provide context on key metrics, and close with our updated outlook for Q3 and the full year 2026.

Speaker #2: As a reminder, most of my discussion will be focused on non-gap financial results. I will provide comparisons on both an as-reported and a constant-currency basis where available.

Speaker #2: Starting with the income statement, total revenue reached $237.4 million in Q2, up 16% year over year as reported and up 15% on a constant currency basis.

Speaker #2: Above the high end of our estimates range. Professional services revenue was approximately $3 million, slightly higher than prior quarters. EX continues to be our primary growth engine.

Speaker #2: EX ARR ended Q2 at $567 million, growing 23% year over year as reported and 24% on a constant currency basis. As Dennis covered, the growing breadth of our platform that covers ESM, ITAM, and ITOM is enabling us to win business well beyond core ITSM.

Tyler Sloat: EX ARR ended Q2 at $567 million, growing 23% year over year as reported and 24% on a constant currency basis. As Dennis covered, the growing breadth of our platform that covers ESM, ITAM, and ITOM is enabling us to win business well beyond core ITSM and is broadening the EX growth base. Looking ahead, we continue to expect EX ARR to grow in the mid-20s and to exceed $600 million exiting 2026. Turning to our CX business. CX ARR ended Q2 at $400 million, growing 3% year over year as reported and 4% on a constant currency basis. This performance reflects the deliberate operating plan we have in place to run CX with a focus on profitability and for steady state growth.

Speaker #2: And it's broadening the EX growth base. Looking ahead, we continue to expect EX ARR to grow in the mid-20s and to exceed $600 million exiting 2026.

Speaker #2: Turning to our CX business. CX ARR ended Q2 at $400 million, growing 3% year over year as reported and 4% on a constant currency basis.

Speaker #2: This performance reflects the deliberate operating plan we have in place to run CX with a focus on profitability, and for steady state growth. The actions we took in May have facilitated better efficiency and focus in our CX business, and the Freshdesk Omni platform is demonstrating strong market fit for our mid-market ITP.

Tyler Sloat: The actions we took in May have facilitated better efficiency and focus in our CX business, and the Freshdesk Omni platform is demonstrating strong market fit for our mid-market ICP. We continue to expect CX ARR to grow in the low single digits for the full year 2026. Moving to margins. Non-GAAP gross margin at 86% remains consistent with prior quarters. Non-GAAP operating income for Q2 reached $55.9 million, well above estimates. This performance reflects continued top-line leverage as well as the partial impact of restructuring savings. Most notably, we achieved positive GAAP net income this quarter. Q2 GAAP net income was $3.2 million, with GAAP EPS of $0.01 and non-GAAP EPS of $0.17.

Speaker #2: We continue to expect CX ARR to grow in the low single digits for the full year 2026. Moving to margins. Non-gap gross margin at 86% remains consistent with prior quarters.

Speaker #2: Non-GAAP operating income for Q2 reached $55.9 million, well above estimates. This performance reflects continued top-line leverage, as well as the partial impact of restructuring savings.

Speaker #2: Most notably, we achieved positive gap net income this quarter. Q2 gap net income was $3.2 million. With gap EPS of $0.01, and non-gap EPS of $0.17.

Speaker #2: We set a goal to reach gap profitability by the end of 2026, and we achieved this ahead of schedule. To be clear about how we're allocating the benefit of operating leverage in our model, as organic growth remains our top capital priority, our first use is continued investment in EX sales capacity and AI R&D.

Tyler Sloat: We set a goal to reach GAAP profitability by the end of 2026, and we achieved this ahead of schedule. To be clear about how we're allocating the benefit of operating leverage in our model, as organic growth remains our top capital priority, our first use is continued investment in EX sales capacity and AI R&D. We invested in both of these areas in H1 of the year, and we intend to continue to invest in H2 to support our accelerating growth opportunities in EX. Turning to operating metrics. Net dollar retention was 104%, as reported, and 105% on a constant currency basis in Q2. Excluding the legacy Device42 customers, net dollar retention was 106% constant currency, exceeding expectations. Within this, EX NDR, excluding legacy Device42 customers, was over 111% on a constant currency basis.

Speaker #2: We invested in both of these areas in the first half of the year. And we intend to continue to invest in the second half to support our accelerating growth opportunities in EX.

Speaker #2: Turning to operating metrics. Net dollar retention was $104% as reported and $105% on a constant currency basis in Q2. Excluding delegacy device 42 customers, net dollar retention was $106% constant currency, exceeding expectations.

Speaker #2: Within this, EX NDR excluding legacy device 42 customers was over $111% on a constant currency basis. Looking ahead, we expect NDR and EX NDR on a constant currency basis to be roughly the same for Q3.

Tyler Sloat: Looking ahead, we expect NDR and EX NDR on a constant currency basis to be roughly the same for Q3. Moving on to customer cohorts. Customers contributing more than $50,000 in ARR grew 18% year over year as reported. 19% on a constant currency basis. This cohort now represents over 55% of our total ARR. Customers contributing more than $100,000 in ARR grew 25% year over year as reported. 26% on a constant currency basis. This cohort represents approximately 40% of total ARR. The growth rate of this cohort and mix of total ARR reflects the sustained upmarket shift in our business and validates our strategy of concentrating our ICP in mid-market and agile enterprise customers. Driving an EX multi-product motion across core ITSM, ITAM, ITOM, and ESM.

Speaker #2: Moving on to customer cohorts. Customers contributing more than $50,000 in ARR grew 18% year over year as reported and 19% on a constant currency basis.

Speaker #2: This cohort now represents over 55% of our total ARR. Customers contributing more than $100,000 in ARR grew 25% year over year as reported, and 26% on a constant currency basis.

Speaker #2: This cohort represents approximately 40% of total ARR. The growth rate of this cohort and mix of total ARR reflects the sustained up-market shift in our business and validates our strategy of concentrating our ICP in mid-market and agile enterprise customers.

Speaker #2: And driving an EX multi-product motion across core ITSM, ITAM, ITOM, and ESM. Improving win rates and deal sizes in new business across the EX portfolio, and creating a flywheel for expansion opportunities gives us confidence in sustaining the mid-20s EX growth trajectory.

Tyler Sloat: Improving win rates and deal sizes in new business across the EX portfolio. Creating a flywheel for expansion opportunities gives us confidence in sustaining the mid-20s EX growth trajectory. Now on to billings, balance sheet, and cash. Calculated billings reached $245.8 million in Q2, growing 15% year over year as reported. 16% on a constant currency basis. For Q3, we estimate billings growth of approximately 13% as reported. 14% on a constant currency basis. Looking ahead, we expect billings growth to be in line with revenue growth for 2026. Adjusted free cash flow was $57.7 million in Q2, which was above our previously given estimates. Q2 adjusted free cash flow margin was approximately 24%, and adjusted free cash flow per share was $0.21. We remain on track to meet or exceed our full-year adjusted free cash flow per share target of $0.94.

Speaker #2: Now, onto billings, balance sheet, and cash. Calculated billings reached $245.8 million in Q2, growing 15% year over year as reported, and 16% on a constant currency basis.

Speaker #2: For Q3, we estimate billings growth of approximately 13% as reported and 14% on a constant currency basis. Looking ahead, we expect billings growth to be in line with revenue growth for 2026.

Speaker #2: Adjusted free cash flow was $57.7 million in Q2, which was above our previously given estimates. Q2 adjusted free cash flow margin was approximately 24%, and adjusted free cash flow per share was $0.21.

Speaker #2: We remain on track to meet or exceed our full-year adjusted free cash flow per share target of $94. On capital allocation, our framework is to invest in high-return, ex-growth first.

Tyler Sloat: On capital allocation, our framework is to invest in high return EX growth first and return excess capital to shareholders second. Year to date, we have deployed over $200 million toward our stock repurchase program. Reduced shares outstanding by 7%. In Q2, we repurchased approximately 18.3 million shares for $159 million, while utilizing an additional $10 million to offset dilution through our net cash settlement of equity. We ended Q2 with approximately 296 million fully diluted shares. Approximately 263 million basic shares outstanding. At the time of our IPO in 2021, we had approximately 323 million fully diluted shares outstanding. We've reduced our fully diluted share count by 8.3% over the past five years. We ended the quarter with $665 million in cash. Investments with no debt, providing ample financial capacity to continue our repurchase program while still prioritizing investments in future growth.

Speaker #2: And return excess capital to shareholders second. Year to date, we have deployed over $200 million toward our stock repurchase program and reduced shares outstanding by 7%.

Speaker #2: In Q2, we repurchased approximately $18.3 million shares for $159 million. While utilizing an additional $10 million to offset dilution through our net cash settlement of equity.

Speaker #2: We ended Q2 with approximately $296 million fully diluted shares and approximately $263 million basic shares outstanding. At the time of our IPO in 2021, we had approximately $323 million fully diluted shares outstanding.

Speaker #2: We've reduced our fully diluted share count by 8.3% over the past five years. We ended the quarter with $665 million in cash and investments, with no debt, providing ample financial capacity to continue our repurchase program while still prioritizing investments in future growth.

Speaker #2: Now onto our forward-looking estimates. Our non-gap net income projections for 2026 assume a tax rate of 24%. For the third quarter of 2026, we expect: revenue in the range of $244.5 million to $245.5 million.

Tyler Sloat: Now on to our forward-looking estimates. Our non-GAAP net income projections for 2026 assume a tax rate of 24%. For Q3 2026, we expect revenue in the range of $244.5 million to $245.5 million, growing approximately 14% year over year on an as-reported basis. Approximately 14% to 15% on a constant currency basis. Within this, we are including a half a million dollar headwind from FX compared to our initial estimates at the beginning of the year. Non-GAAP income from operations in the range of $59 million to $61 million. Non-GAAP net income per share of approximately $0.18, assuming weighted average shares outstanding of approximately 266 million shares. For the full year 2026, we expect revenue in the range of $963.5 million to $966.5 million, growing approximately 15% year over year. 14% to 15% on a constant currency basis.

Speaker #2: Growing approximately 14% year over year on an as-reported basis and approximately 14 to 15 percent on a constant currency basis. Within this, we are including a half million dollar headwind from FX.

Speaker #2: Compared to our initial estimates at the beginning of the year. Non-gap income from operations in the range of $59 million to $61 million. And non-gap net income per share of approximately $0.18, assuming weighted average shares outstanding of approximately $266 million shares.

Speaker #2: For the full year 2026, we expect: revenue in the range of $963.5 million, to $966.5 million. Growing approximately 15% year over year, or 14 to 15 percent on a constant currency basis.

Speaker #2: Within this, we are including a $2 million FX headwind compared to our initial estimates at the beginning of the year. Non-GAAP income from operations is in the range of $222 million to $228 million.

Tyler Sloat: Within this, we are including a $2 million FX headwind compared to our initial estimates at the beginning of the year. non-GAAP income from operations in the range of $222 million to $228 million, and non-GAAP income per share to be in the range of $0.66 to $0.68, assuming the weighted average shares outstanding of approximately 273 million shares. We expect to generate approximately $265 million in adjusted free cash flow. This results in an adjusted free cash flow margin target of 27.5% for the full year of 2026. We remain on track to meet or exceed our full-year adjusted free cash flow per share target of $0.94, up 24% from fiscal 2025. As a reminder, cash used for stock repurchases is reflected in our financing activities and is excluded from our adjusted free cash flow calculations.

Speaker #2: And non-GAAP income per share to be in the range of $0.66 to $0.68, assuming weighted average shares outstanding of approximately 273 million shares. We expect to generate approximately $265 million in adjusted free cash flow.

Speaker #2: This results in an adjusted free cash flow margin target of $27.5% for the full year of 2026. We remain on track to meet or exceed our full year adjusted free cash flow per share target of $94.

Speaker #2: Up 24% from fiscal 2025. As a reminder, cash used for stock repurchases is reflected in our financing activities and is excluded from our adjusted free cash flow calculations.

Speaker #2: Our forward-looking estimates are based on FX rates as of August 1, 2026, and do not take into account any impact from currency moves. Our full-year 2026 revenue estimates included a $2 million FX headwind.

Tyler Sloat: Our forward-looking estimates are based on FX rates as of 1 August 2026, and do not take into account any impact from currency moves. Our full-year 2026 revenue estimates include a $2 million FX headwind. In closing, we delivered strong top-line and bottom-line performance in Q2, and we remain confident in our ability to achieve our 2026 financial and operational plans. EX remains our primary and largest growth opportunity. Our AI monetization strategy is on track, and our CX business is now best positioned for steady state growth. We are profitable and have the operating leverage to fund our EX platform growth and AI expansion to meet the demand momentum driving us into the H2 of the year. Operator, let's open it up to Q&A.

Speaker #2: In closing, we delivered strong top-line and bottom-line performance in Q2, and we remain confident in our ability to achieve our 2026 financial and operational plans.

Speaker #2: EX remains our primary and largest growth opportunity. Our AI monetization strategy is on track, and our CX business is now best positioned for steady-state growth.

Speaker #2: We are profitable and have the operating leverage to fund our EX platform growth and AI expansion to meet the demand momentum driving us into the second half of the year.

Speaker #2: Operator, let's open it up to Q&A.

Speaker #1: We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star 1 to raise your hand.

Operator: We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Hynes with Canaccord Genuity. Your line is open, David. Please go ahead.

Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Hines with Canaccord Genuity.

Speaker #1: Your line is open, David. Please go ahead.

Speaker #3: Hey, great. This is Luke on for DJ. Thanks for taking the question here. So I'm curious, you guys have always won on being enterprise-grade without the cost, without the complexity of the bigger guys in the space.

[Analyst] (Canaccord Genuity): Hey, great. This is Luke on for DJ. Thanks for taking the question here. I am curious, you guys have always won on being enterprise grade without the cost, without the complexity of the bigger guys in the space. I am curious, as you think about layering in, you have layered in Device42, you have FireHydrant now, maybe you have some security ops down the road. How do you think about keeping the product and the implementation experience of that product from getting too complex and potentially weakening that differentiation over time?

Speaker #3: I'm curious, as you think about layering in you've layered in device 42, you have fire hydrant now, maybe you have some security ops down the road.

Speaker #3: How do you think about keeping the product in the implementation experience of that product from getting too complex? And potentially weakening that differentiation over time?

Speaker #2: Yeah, thanks for the question. It's Dennis. That's one of the key areas that our engineering and product teams really, really focus on, is how to how do we maintain that usability, ease of use, fast time to value, intuitiveness of the product that got us to where we are as we continue to expand the capability of the platform, the enterprise readiness of the platform, and so forth.

Dennis Woodside: Yeah. Thanks for the question. It's Dennis. That's one of the key areas that our engineering and product teams really focus on is how do we maintain that usability, ease of use, fast time to value, intuitiveness of the product that got us to where we are as we continue to expand the capability of the platform, the enterprise readiness of the platform, and so forth. We work really hard at making that work. We pride ourselves in the focus that we have on design and UX. We've made a lot of strides in unifying our overall design language across all of our products. For Device42, for example, that product today is now fully available in the cloud. If you go into Freshservice and you're an admin, it appears as a tab as any other product would.

Speaker #2: And we work really hard at making that work. We pride ourselves in the focus that we have on design and UX. We've made a lot of strides in unifying our overall design language across all of our products.

Speaker #2: For device 42, for example, that product today is now fully available in the cloud. If you go into Fresh Service and you're an admin, it appears as a tab as any other product would.

Speaker #2: The design language is the same as what Freshservice is all about. The way you navigate through the product is the same. Data is pulled seamlessly from the asset management capabilities and the CMDB into the Freshservice module.

Dennis Woodside: The design language is the same as what Freshservice is all about. The way you navigate through the product is the same. Data is pulled seamlessly from the asset management capabilities and the CMDB into the Freshservice module. The admin can see all that in one place. That's really important, and that's the approach that we're going to take to FireHydrant as well later this year. I think it's something that is critical for us. It's going to remain critical for us to continue to focus on that usability as we broaden the platform.

Speaker #2: And so the admin can see all that in one place, so that's really important. And that's the approach that we're going to take to FireHydrant as well later this year.

Speaker #2: So I think it's something that is critical for us. It's going to remain critical for us to continue to focus on that usability as we broaden the platform.

Speaker #3: Yeah, yeah, super helpful. And maybe just to follow up, one thing that our team has been hearing more of with this new native or at least potential new wave of AI native service management vendors their positioning as an intelligence layer that maybe sits on top of whatever ITSM vendor a customer has already.

[Analyst] (Canaccord Genuity): Yeah. Super helpful. Maybe just to follow up, one thing that our team has been hearing more of with this new wave of AI native, or at least potential new wave of AI native service management vendors, they're positioning as an intelligence layer that maybe sits on top of whatever ITSM vendor a customer has already. The pitch there is basically you can modernize the employee experience without ripping out something like, say, a ServiceNow, for example. I'm curious, are you starting to hear discussions around that, how do you think about competing against that approach?

Speaker #3: The pitch there is basically you can modernize the employee experience without ripping out something like say a ServiceNow, for example, I'm curious, are you starting to hear discussions around that?

Speaker #3: And how do you think about competing against that approach?

Speaker #2: Yeah, we're cognizant of the startups out there. We have not seen them competitively. That much, if at all. And our what we're seeing customers want is a system of record that has the kind of control and security that they need that has AI integrated into it in a way that's usable, that's easy for them to get up and running, that's easy for them to configure.

Dennis Woodside: Yeah. We're cognizant of the startups out there. We have not seen them competitively, that much of at all. What we're seeing customers want is a system of record that has the kind of control and security that they need, that has AI integrated into it in a way that's usable, that's easy for them to get up and running, that's easier for them to configure. That's consistent with what we've been building all along in the core Freshservice product. Our AI Agent Studio, which we launched in May for EX, already has over 1,000 customers on it. You might remember we launched that product into EA. We have not priced it yet. The intention is to price that in the fall. That will be a session-based pricing model.

Speaker #2: And that's consistent with what we've been building all along in the core Fresh Service product. So our AI agent studio, which we launched in May for EX, already has over 1,000 customers on it.

Speaker #2: You might remember we launched that product into EA, and we have not priced it yet. The intention is to price that in the fall.

Speaker #2: That will be a session-based pricing model. But that is an example of customers getting value out of our product immediately. And really looking to us to provide that experience layer.

Dennis Woodside: That is an example of customers getting value out of our product immediately and really looking to us to provide that experience layer. I understand, of course, we're very well aware of the startups coming into the space, but as of yet, we have not seen them make a lot of traction. I think it's going to be hard because to do AI well, you need to understand the operating environment. You need to understand the workflows that already exist, the controls that already exist in the operating environment, and that's what we've spent over a decade building.

Speaker #2: So I understand of course we're very well aware of the startups coming into the space. But as of yet, we have not seen them make a lot of traction.

Speaker #2: I think it's going to be hard because to do AI well, you need to understand the operating environment. You need to understand the workflows that already exist, the controls that already exist in the operating environment.

Speaker #2: And that's what we've spent over a decade building.

Speaker #1: Your next question comes from the line of Patrick Walravens with Citizens. Your line is open, Patrick. Please go ahead.

Operator: Your next question comes from the line of Patrick Walravens with Citizens. Your line is open, Patrick. Please go ahead.

Speaker #4: Oh, great. Thank you. And congratulations, you guys, on the results. Hey, Dennis, so I saw that Gartner came out with their new magic quadrant I mean, just like a week ago, and it was nice to see Freshworks in the leaders quadrant.

Patrick Walravens: Great. Thank you, and congratulations you guys on the results. Hey, Dennis. I saw that Gartner came out with their new Magic Quadrant just a week ago, and it was nice to see Freshworks in the leaders quadrant. I think it's been a long time since they've had one of these for ITSM. How much does that help? Does that help with lead generation? I saw Ian posted it. I'm just wondering what that actually ends up doing for you guys.

Speaker #4: I think it's been a long time since they've had one of these for ITSM. How much does that help? Does that help with lead generation?

Speaker #4: Does the — and I saw Ian posted it — I'm just wondering what that actually ends up doing for you guys.

Speaker #2: So look, we think it helps a lot. Now, in part, the reason we're in the Magic Quadrant is because Gartner has gone out and talked to a lot of customers and understands the value that we've been able to provide for those customers, the capabilities of the product, and how that's evolved over time.

Dennis Woodside: Look, we think it helps a lot. Now, in part, the reason we're in the Magic Quadrant is because Gartner's gone out and talked to a lot of customers and understands the value that we've been able to provide for those customers, the capabilities of the product, and how that's evolved over time. We're quite happy with that result. Look, I think we've got a lot of ways of driving interest in the business. We've seen a lot more large accounts come in the door that are referred by analysts, referred by other customers. We've got a large cohort now of bigger customers that are on our side and helping us recruit the next generation of customers. You see that in the numbers. You see that in the number of $100,000 accounts growing 26% year over year.

Speaker #2: But we're quite happy with that result. Look, I think we've got a lot of ways of driving interest in the business. We've seen a lot more large accounts come in the door that are referred by analysts, referred by other customers.

Speaker #2: We've got a large cohort now of bigger customers that are on our side and helping us recruit the next generation of customers. You see that in the numbers.

Speaker #2: You see that in the number of 100,000 dollar accounts growing 26% year over year, 40% of our business is now coming from those customers spending over 100,000.

Dennis Woodside: 40% of our business is now coming from those customers spending over $100,000. We closed our first million-dollar deal back in Q1. We continue to see a lot of momentum among much larger deals. That's the kind of evidence I think that shows that the work that we've put into building this complete platform that can handle service operations from frontline employee questions to solving problems when they arise through FireHydrant and our advanced asset management. All those things are what IT departments want, in particular in the segment that we're focused on, which is those agile enterprises up to 20,000 employees. They don't have the resources necessarily, or want to be spending the time and money on managing a more complicated system. They want something that's going to work for them, that they're going to be able to modify, that's modern, and that's what we provide.

Speaker #2: We closed our first million dollar deal back in Q1. We continue to see a lot of momentum among much larger deals. And those are the kind of that's the kind of evidence, I think, that shows that the work that we've put into building this complete platform that can handle service operations from frontline employee questions to solving problems when they arise through fire hydrant and our advanced asset management.

Speaker #2: So all those things are what IT departments want in particular in the segment that we're focused on, which is those agile enterprises up to 20,000 employees.

Speaker #2: They don't necessarily have the resources, or want to be spending the time and money on managing a more complicated system. They want something that's going to work for them, that they'll be able to modify, that's modern.

Speaker #2: And that's what we provide. So I think Gartner validates all of that, and we're very happy about that—very proud of that. But we have a lot of work ahead of us, too.

Dennis Woodside: I think Gartner validates all of that, and we're very happy about that, very proud of that. We got a lot of work ahead of us, too.

Speaker #4: Awesome. All right. Thank you.

Patrick Walravens: Awesome. All right. Thank you.

Speaker #1: Your next question comes from the line of Kenji Chowdhury with Guggenheim Securities. Your line is open, Kenji. Please go ahead.

Operator: Your next question comes from the line of Temjeet Choudhary with Guggenheim Securities. Your line is open, Temjeet. Please go ahead.

Speaker #5: Hi. Thanks for taking my one it seems like there's a strong momentum in EX from ITAM and ESM cross-sell. That's good to see. Can you talk about how much runway remains for those products within your existing EX customer base?

Temjeet Choudhary: Hi. Thanks for taking my questions. I guess the first one, it seems like there is strong momentum in EX from ITAM and ESM cross-sell. That is good to see. Can you talk about how much runway remains for those products within your existing EX customer base, and what penetration looks like today versus where you think it can go?

Tamjid Chowdhury: Hi. Thanks for taking my questions. I guess the first one, it seems like there is strong momentum in EX from ITAM and ESM cross-sell. That is good to see. Can you talk about how much runway remains for those products within your existing EX customer base, and what penetration looks like today versus where you think it can go?

Speaker #5: And what penetration looks like today versus where you think it can go?

Speaker #2: Yeah. So we outlined at our investor event almost a year ago we believe both of those businesses will be 100 million dollar businesses in the course of the next two years.

Dennis Woodside: Yeah. We outlined at our investor event almost a year ago, we believe both of those businesses will be $100 million businesses in the course of the next 2 years. We got every single quarter proof points that we are gaining momentum there. ESM grew 67% in the quarter. Our ITAM products that were attached in over a third of our larger deals. Often ITAM is a quick follow-on after an ITSM land, it is a good upsell once you have got the customer in the door. Really with where we are going with our IT operations, that intersection between ITAM and ops is really important because to respond to incidents as well, you need to understand the asset base. We think that those are actually self-reinforcing, and as we get more momentum with FireHydrant, we integrate that product. We put more and more focus behind that as well.

Speaker #2: We've got every single quarter proof points that we're gaining momentum there. ESM grew 67% in the quarter. Our ITAM products that were attached in over a third of our larger deals often ITAM is a quick follow-on after an ITSM land.

Speaker #2: So it's a good upsell once you've got the customer in the door. And really, with where we're going with our IT operations, that intersection between ITAM and ops is really important because, to respond to incidents well, you need to understand the asset base.

Speaker #2: So we think that those are actually self-reinforcing. And as we get more momentum with FireHydrant, we integrate that product. We put more and more focus behind that as well.

Speaker #2: That's going to help even more with that ITAM business. ITAM actually accelerated this past quarter. I think we had our best quarter ever for asset management.

Dennis Woodside: That is going to help even more that ITAM business. ITAM actually accelerated this past quarter. I think we had our best quarter ever for asset management. We launched the cloud-based version of asset management last quarter. We already are tapping into a whole slew of customers that otherwise would not have bought an on-prem product. The hypothesis there was that there were lots of customers, some of which were smaller than the typical Device42 customer, that would be interested in the product. That turned out to be true. We beat our internal goals by a wide margin. We think there is a long way to go, and if we look at the penetration of the existing base for ESM in particular, we are really, really early in driving that business overall. We are going to continue to stay focused there.

Speaker #2: We launched the new cloud-based version of asset management last quarter, and we already are tapping into a whole slew of customers that otherwise would not have bought an on-prem product.

Speaker #2: So the hypothesis there was that there were lots of customers, some of which were smaller than the typical device 42 customer that would be interested in the product that turned out to be true.

Speaker #2: We beat our internal goals by a wide margin, so we think there's a long way to go. And if we look at the penetration of the existing base for ESM in particular, we're really, really early in driving that business overall.

Speaker #2: So we're going to continue to stay focused there. We're going to continue to invest in capability for teams outside of IT. A lot of our focus has been in HR capabilities, things like onboarding and offboarding workflows out of the box.

Dennis Woodside: We are going to continue to invest in capability for teams outside of IT. A lot of our focus has been in HR capabilities, things like onboarding and off-boarding workflows out of the box. We are focusing more on teams like facilities, teams like finance. Those teams also have lots of internal employee service needs, we can build capabilities out of the box that are agentic, that expand and allow us to tap into another team. Those are huge areas for us. We are very excited about both.

Speaker #2: We're focusing more on teams like facilities, teams like finance, those teams also have lots of internal employee service needs and we can build capabilities out of the box that are agentic that expand and allow us to tap into another team.

Speaker #2: So those are huge areas for us. We're very excited about both.

Speaker #5: Thank you. And then one quick follow-up. The content currency NDR has been stable sequentially at about 105. While it seems like a Freddy AI copilot attach rate is strong—I think you mentioned over 71% of new enterprise deals.

Temjeet Choudhary: Thank you. One quick follow-up. The constant currency NDR has been stable sequentially at about 105. While it seems like Freddy AI Copilot attach rate is strong, I think you mentioned over 71% of new enterprise deals. While we understand that the attach rate doesn't directly flow to NDR, it likely reflects broader product demand that should also drive Freddy expansion into your existing base. Are you seeing that translate into upsell activity yet? When should we expect it to show up in NDR?

Tamjid Chowdhury: Thank you. One quick follow-up. The constant currency NDR has been stable sequentially at about 105. While it seems like Freddy AI Copilot attach rate is strong, I think you mentioned over 71% of new enterprise deals. While we understand that the attach rate doesn't directly flow to NDR, it likely reflects broader product demand that should also drive Freddy expansion into your existing base. Are you seeing that translate into upsell activity yet? When should we expect it to show up in NDR?

Speaker #5: While we understand that it doesn't directly the attach rate doesn't directly flow to NDR, it likely reflects broader product demand that should also drive Freddie expansion into your existing base.

Speaker #5: Are you seeing that translate into upsell activity yet? And when should we expect it to show up in NDR?

Speaker #2: Yeah. So you're right. The NDR has been pretty consistent from a content currency basis. And slightly improving in some cases. The Freddie attach rates for new deals, as you indicated, but absolutely it is one of our strong expansion motions now.

Tyler Sloat: Yeah. You're right. The NDR has been pretty consistent from a constant currency basis, slightly improving in some cases. The Freddy attach rates for new deals, as you indicated, absolutely it is one of our strong expansion motions now. It is harder to get existing customers to adopt Copilot because they have existing ways they work. We have prescriptive sales plays around it, we do expect that to continue to be one of our larger expansion motions. going forward. I can't say when the impact to NDR is there, as a percentage of expansion, it is actually increasing.

Speaker #2: It is harder to get existing customers to adopt Copilot because they have existing ways they work. But we have kind of prescriptive sales plays around it.

Speaker #2: And we do expect that to continue to be one of our larger expansion motions. Going forward. I can't say when the impact to NDR is there, but as a percentage of expansion, it is actually increasing.

Speaker #1: Your next question comes from the line of Taylor McGuinness with UBS. Your line is open, Taylor. Please go ahead.

Operator: Your next question comes from the line of Taylor McGinnis with UBS. Your line is open, Taylor. Please go ahead.

Speaker #6: Yeah. Hi. Thanks so much for taking my questions. I'd love to ask on the EX business. So a slight decel into Q to 24% constant currency so Tyler, could you just maybe talk about as we look into the back half and the comfort in sustaining mid-20s growth, what some of the drivers are there?

Taylor McGinnis: Yeah. Hi. Thanks so much for taking my questions. I'd love to ask on the EX business. A slight decel in Q2 to 24% constant currency. Tyler, could you just maybe talk about as we look into the back half and the comfort in sustaining mid-20s growth, what some of the drivers are there? Are there any incremental growth opportunities that could potentially lead to an acceleration in that business? Maybe you could just help us unpack the confidence there.

Speaker #6: Are there any incremental growth opportunities that could potentially lead to an acceleration in that business? Maybe you could just help us unpack the confidence there.

Speaker #2: Yeah. Hey, Taylor. So, 25% in Q1, 24% constant currency. This is up from 22% at the end of the year. We had a really good quarter, and EX continues to be the driver of growth.

Tyler Sloat: Hey, Taylor. 25% in Q1, 24% constant currency. This is up from 22% at the end of the year. We had a really good quarter, and EX continues to be the driver of growth. I just think that the 25% to 24%, there's a little bit of noise there, but it's nothing outside of what we expected, and we're very confident still on mid-20s growth. As Dennis had mentioned, we're seeing larger and larger deals, and the pipeline is reflecting that. That's on the new business side. On the expansion side, we just talked about the attach rates on kind of ITAM and ESM, where about 20% of seats are, excuse me, ESM, and about a third of the lands include ITAM. That means still two-thirds still have Device42 as the potential to sell.

Speaker #2: And so, I just think that the 25 to 24, there's a little bit of noise there, but it's nothing outside of what we expected.

Speaker #2: And we're still very confident in mid-20s growth. As Dennis mentioned, we're seeing larger and larger deals, and the pipeline is reflecting that. That's on the new business side.

Speaker #2: On the expansion side, we just talked about the attach rates on kind of ITAM and ESM. We're about 20% of seats are excuse me, ESM and about a third of the lands include ITAM.

Speaker #2: But that means still two-thirds still have Device42 as a potential to sell. We just kind of went live last quarter with what we call Advanced ITAM Cloud, which is Device42 on the cloud, and that really opens up the potential for our entire existing base that wasn't using asset management previously.

Tyler Sloat: We just kind of went live last quarter with what we call Advanced ITAM Cloud, which is Device42 on the cloud, which really opens up the potential for our entire existing base that wasn't using asset management previously. FireHydrant is a brand-new product for us. We haven't talked about when the full integration is going to be done, but we have been selling it, and one of our biggest lands in Q2 is a FireHydrant standalone. That's just going to open up opportunities to kind of cross-sell ITSM, ESM, and others into that account, but also, as that muscle builds, just another way that we can go land with another EX product with kind of a different buying segment. Yes, we're confident on the mid-20s growth, and EX continues to be a driver of that growth for the whole company.

Speaker #2: FireHydrant is a brand new product for us. We haven't talked about when the full integration is going to be done, but we have been selling it.

Speaker #2: And one of our biggest lands in Q2 was a fire hydrant standalone. And that's just going to open up opportunities to kind of cross-sell ITSM, ESM, and others.

Speaker #2: And to that account, but also as that muscle builds, it's just another way that we can go land with another EX product with kind of a different buying segment.

Speaker #2: So yes, we're confident in the mid-20s growth, and EX continues to be a driver of that growth for the whole company.

Speaker #4: And just to add something to that, look, the market itself, the market that we're focused on, that mid-market lower-end of enterprise, that's about 60% of the overall market.

Dennis Woodside: Just to add something to that. Look, the market itself, the market that we're focused on, that mid-market, lower end of enterprise, that's about 60% of the overall market, and it's still fairly fragmented. No single competitor has more than 20% share, so that's a big opportunity for us. We're seeing the momentum. Obviously, Gartner validates. We've got the product. We've got the customers saying good things about us. All that's good. Now we have this platform where there's multiple ways to win, right? We can land with ITSM, expand into ITAM, into ops, into ESM, into AI. All those things are really building momentum. You're seeing a lot of that come together, and I think all that gives a lot of optimism to the team here about the H2.

Speaker #4: And it's still fairly fragmented. No single competitor has more than 20% share. So that's a big opportunity for us. We're seeing the momentum. Obviously, Gartner validates.

Speaker #4: We got the product. We got the customers saying good things about us, all that's good. And now we have this platform where there's multiple ways to win, right?

Speaker #4: So we can land with ITSM, expand with into ITAM, into ops, into ESM, into AI. All those things are really building momentum. So you're seeing a lot of that come together.

Speaker #4: And I think all that gives a lot of optimism to the team here about the second half.

Speaker #6: Perfect. And then my next question is just if I look at the performance in the quarter, there was nice one point acceleration on a constant currency basis for revenue.

Taylor McGinnis: Perfect. My next question is, just as I look at the performance in the quarter, there was nice 1-point acceleration on a constant currency basis for revenue. Maybe you could just unpack what drove to the upside there. Secondly, as we look into the back half, the guide is really strong on a revenue basis. Any bigger drivers of that in the H2 compared to what you guys saw in the H1?

Speaker #6: So maybe you could just unpack what drove to the upside there. And then secondly, as we look into the back half, the guide is really strong on a revenue basis.

Speaker #6: So, any bigger drivers of that in the second half compared to what you guys saw in the first half?

Speaker #2: Yeah. Let me start and then Tyler jump in. I would just echo what I said, which is we just see a lot of momentum on the EX side given that the product strategy, the go-to-market strategy, all kind of coming together.

Dennis Woodside: Yeah. Let me start and then Tyler will jump in. I would just echo what I said, which is we just see a lot of momentum on the EX side given that the product strategy, the go-to-market strategy, all kind of coming together. We also have confidence in that. We've cracked the code on pipeline. I mean, a year ago, we were a little bit more challenged, I would say, around pipeline. We entered the year, and right out of the gate, Q1, Q2 did really well in generating new pipeline. That pipeline is maturing and is kind of coming due, so to speak, in the H2 of the year. That gives us confidence. This was the Q2, actually, in a row that we accelerated revenue slightly. I think we went from 13 to 14 to 15. Yeah.

Speaker #2: We also have confidence in that we’ve cracked the code on pipeline. I mean, a year ago, we were a little bit more challenged, I would say, around pipeline.

Speaker #2: But we entered the year and right out of the gate, first quarter, second quarter did really well in generating new pipelines. So that pipeline is maturing and is kind of coming due, so to speak, in the second half of the year.

Speaker #2: So that gives us confidence. And this was the second quarter actually in a row that we accelerated revenue slightly. I think we were went from 13 to 14, 14 to 15.

Speaker #2: So yeah, so far so good. This year we're optimistic about back half and Tyler maybe talk about the guide.

Dennis Woodside: Far so good this year, and we're optimistic about back H2. Tyler, maybe talk about the guide.

Tyler Sloat: Yeah, I think just about everything that Dennis just said, Taylor. We talked about in the beginning of the year that kind of record pipe building, it's really, again, a lot of the momentum we're seeing on the EX side in that kind of what we call agile enterprise and the high mid-market. We're quickly becoming the product of choice for those companies, and it's just starting to build on itself.

Speaker #3: Yeah, I think it's just about everything that Dennis just said, Taylor. We talked about in the beginning of the year that kind of record pipe building, but it's really, again, a lot of the momentum we're seeing on the EX side in that kind of what we call agile enterprise and the high mid-market.

Speaker #3: And we're quickly becoming the product of choice for those companies. And it's just starting to build on itself.

Speaker #1: Your next question comes from the line of Patrick Schultz with Baird. Your line is open, Patrick. Please go ahead.

Operator: Your next question comes from the line of Patrick Schulz with Baird. Your line is open, Patrick. Please go ahead.

Speaker #4: Hey, yeah. Appreciate your time this afternoon. Maybe could you just touch on the linearity of demand throughout the quarter? How did the demand environments and pipeline build compare versus last quarter?

Patrick Schulz: Hey, yeah. Appreciate your time this afternoon. Maybe could you just touch on the linearity of demand throughout the quarter? Maybe just how did the demand environments and pipeline build compare versus last quarter? Are you seeing any impact on sales cycles as customers maybe step back and reassess where their AI investments are going?

Speaker #4: Are you seeing any impact on sales cycles as customers maybe cut back and reassess where their AI investments are going?

Speaker #2: No. We're not seeing any impact on sales cycles or decisions or anything like that in terms of AI. I know you're referring to some things that happened, I guess, with some other vendors, but we're not seeing that at all.

Dennis Woodside: No, we're not seeing any impact on sales cycles or decisions or anything like that in terms of AI. I know you're referring to some things that happened, I guess, with some other vendors, we're not seeing that at all. I would say the linearity is pretty similar to what we've been seeing in prior quarters, where as we go up market, more of the deals are coming in at the back half of the quarter. Nothing unusual, and I wouldn't say that the buying cycles are unusual considering that, again, we're moving up market. AI actually is more of a motivator for people to think about their vendor. Most of our business is coming from another vendor. It could be a small player, but often it's a very large player.

Speaker #2: I would say the linearity is pretty similar to what we've been seeing in prior quarters, where as we go upmarket, more of the deals are coming in at the back half of the quarter.

Speaker #2: But nothing unusual. And I wouldn't say that the buying cycles are unusual, considering that, again, we're moving up market. AI actually is more of a motivator for people to think about their vendor, and most of our business is coming from another vendor.

Speaker #2: It could be a small player, but often it's a very large player. So they're faced with a decision often as to, okay, what are we going to do about AI?

Dennis Woodside: They're faced with a decision often as to, okay, what are we going to do about AI? Are we going to migrate to the incumbent vendor's platform? Sometimes that requires an upgrade in plan. It certainly requires cost. It often provokes a discussion as to, well, maybe we should go to market and see what else is out there. Again, a lot of times, you talk about that Seagate 14-year customer of a competitor, 14 years ago, we didn't exist. They're going out to market now, and they're calling Gartner, they're calling their peers, and they're hearing about us, and we're getting in the mix. I think that that's driving more of our business than anything else, is that customers are saying, We need to do something on AI. That's leading to a discussion, do we stick with the incumbent?

Speaker #2: Are we going to migrate to the incumbent vendor's platform? Sometimes that requires an upgrade in plan, certainly requires cost. So it often provokes a discussion as to, well, maybe we should go to market and see what else is out there and again, a lot of times you talk about that Seagate 14-year customer of a competitor.

Speaker #2: 14 years ago, we didn't exist. So they're going out to market now and they're seeing they're calling Gartner, they're calling their peers and they're hearing about us and we're getting in the mix.

Speaker #2: So I think that that's driving more of our business than anything else is that customers are saying we need to do something on AI.

Speaker #2: That's leading to a discussion. Do we stick with the incumbent? And that's leading us to get a shot at winning. So all that's been pretty good for us.

Dennis Woodside: That's leading to us to get a shot at winning. All that's been pretty good for us.

Speaker #4: Okay. Yeah, yeah. That's very helpful. And appreciate the commentary you guys provide around ITAM this quarter. Wanted to dive a little bit deeper there.

Patrick Schulz: Okay. Yeah, that's very helpful. Appreciate the commentary you guys provided around ITAM this quarter. Wanted to dive a little bit deeper there and maybe better understand how important it is to have an enterprise-grade ITAM solution as you move further up market. Do you expect that ITAM and Device42 will become a leading driver of new logos, or is it still more of a cross-sell opportunity? Just as we think about Device42, maybe just give an update on the cloud transition and how much of that business is still on-prem license. Thanks, guys.

Speaker #4: And maybe better understand how important it is to have an enterprise-grade ITAM solution as you move further upmarket. Do you expect that ITAM and Device42 will become a leading driver of new logos, or is it still more of a cross-sell opportunity?

Speaker #4: And then, just as we think about Device42, maybe just give an update on the cloud transition and how much that business is still on-prem license.

Speaker #4: Thanks, guys.

Speaker #3: Well, you want to take the second part, Tyler? I'll take the first.

Dennis Woodside: You want to take the second part, Tyler? I'll take the first.

Speaker #2: Yeah. So I think for the on-prem business, and it's part of the reason we're still calling out some of that legacy churn, the migration of those customers, there is no actual purpose for migration.

Tyler Sloat: Yeah. I think for the on-prem business, it's part of the reason we're still calling out some of that legacy churn, the migration of those customers, there is no actual purposeful migration. We're not forcing customers to migrate over to the cloud. In fact, there's a lot of customers who want an on-prem version, we're going to continue to sell that for the foreseeable future. The new ITAM cloud version, which is Advanced ITAM, is essentially at parity with the on-prem version. That was the whole goal and point. That's now available to the existing install base and any new customer who doesn't want the on-prem. We kind of can offer both now.

Speaker #2: We're not forcing customers to migrate over to the cloud. In fact, there's a lot of customers who want an on-prem version and we're going to continue to sell that for the foreseeable future.

Speaker #2: The new ITAM cloud version, which is Advanced ITAM, is essentially at parity with the on-prem version. That was the whole goal and point. And that's now available to the existing install base, and any new customer who doesn't want the on-prem.

Speaker #2: So, we kind of can offer both now.

Speaker #4: So on the first part of the question, customers aren't buying just an ITSM. They're buying the full capability to power their IT department, especially upmarket.

Dennis Woodside: On the first part of the question, customers aren't buying just an ITSM. They're buying the full capability to power their IT department, especially up market. Asset management, ESM, and ops, those are table stakes. You have to have that. If you look at our larger deals, typically it's multiple components right out of the box. I think it's less about, is it something that you land with and helps you compete? It's absolutely essential for us to continue to move up market. Customers are coming off products that have those capabilities, they expect that's why we've invested in those areas to build a complete solution, a complete platform. Again, you see the numbers, it's working.

Speaker #4: And asset management, ESM, ops—all those are table stakes. You have to have that. And if you look at our larger deals, typically it's multiple components right out of the box.

Speaker #4: So I think it's less about whether it's something that you land with and helps you compete. It's absolutely essential for us to continue to move upmarket.

Speaker #4: Customers are coming off products that have those capabilities, and they expect that. And that's why we've invested in those areas—to build a complete offering. Again, you see it in the numbers.

Speaker #4: It's working.

Speaker #1: Your next question comes from the line of Scott Berg with Needham and Company. Your line is open, Scott. Please go ahead.

Operator: Your next question comes from the line of Scott Berg with Needham & Company. Your line is open, Scott. Please go ahead.

Speaker #4: I have one next quarter. Thanks for taking my questions. Apologies—I did jump on late. I hope this wasn't asked, at least, but I attended the Refresh event in May, and one of the things I thought was interesting was some of the commentary around partners and those individuals that are involved in your partner program, and how it's maturing and really evolving into more of a long-term account ownership kind of strategy, instead of just something that was more transactional in nature. I guess as that structure continues to evolve, do you see that driving, I guess, better retention or better expansion opportunities with your customers if those partners do maintain that ownership more, or should we see some other benefit come from that program?

Scott Berg: Hi, everyone. Nice quarter. Thanks for taking my questions. Apologies, I did jump on late. I hope this wasn't asked, at least. I attended the Refresh event in May, one of the things I thought was interesting is some of the commentary around partners and those individuals that are involved in your partner program and how it's maturing and really evolving into more of a long-term account ownership kind of strategy instead of just something that was more transactional in nature. I guess as that structure continues to evolve, do you see that driving, I guess, better retention, better expansion opportunities with your customers if those partners do maintain that ownership more, or should we see some other benefit come from that program?

Speaker #5: So, I would say it's both new business retention and expansion. All of those things benefit when we have a partner. We know when we have partners involved, our retention rates are higher, for sure.

Dennis Woodside: I would say it's both new business retention and expansion. All of those things benefit when we have a partner. We know when we have partners involved, our retention rates are higher, for sure. We know when we have partners involved, the expansion happens faster. We know when in the sales cycle we have a partner involved, the close rates are higher. All those things are really important for us. We've been purposeful about cultivating a select group of partners that can help us and have the expertise to actually manage our business, which is a little different than some of our competitors in terms of what's required on an ongoing basis, what's required for migration. A lot of our focus has been fewer but higher leverage partners, especially on that EX side.

Speaker #5: We know when we have partners involved, expansion happens faster. And we know in the sales cycle, when we have a partner involved, the close rates are higher.

Speaker #5: So all those things are really important for us. We've been purposeful about cultivating a select group of partners that can help us and have the expertise to actually manage our business, which is a little different than some of our competitors in terms of what's required on an ongoing basis, and what's required for migration.

Speaker #5: And a lot of our focus has been fewer but higher-leverage partners, especially on that EX side. Partners like Unisys, which we've talked about in the past, CGI, which we've talked about in the past.

Dennis Woodside: Partners like a Unisys, which we've talked about in the past, CGI, which we've talked about in the past. That's where we're really focused, in making sure that those partners that are really investing in the capabilities to serve our customers well are continuously kept up to speed on our products, and that we're collaborating in those customer situations, both to help them grow their business and they can help us grow our business.

Speaker #5: So that's where we're really focused—in making sure that those partners who are really investing in the capabilities to serve our customers well are continuously kept up to speed on our products, and that we're collaborating in those customer situations both to help them grow their business and so they can help us grow our business.

Speaker #4: That's helpful, Dennis. And then from a follow-up perspective, the partners that we had a chance to speak with seem to be very positive. I don't know what you guys are doing product-wise and win rate-wise.

Scott Berg: That's helpful, Dennis. Then from a follow-up perspective, the partners that we had a chance to speak with seem to be very positive on what you guys are doing product-wise and win rate-wise. You certainly are making an impact out there. I guess, how do you think about that partner impact on that business today, and where should that be if you look out maybe 12 or 24 months as you lean into this more? Is this more than 50% of your business, 75% of maybe some of your leads and interactions, or is it maybe having a more muted impact longer term?

Speaker #4: You certainly are making an impact out there. I guess, how do you think about that partner impact on the business today, and where should that be if you look out maybe 12 or 24 months as you lean into this more?

Speaker #4: Is this more than 50% of your business, 75% of maybe some of your leads and interactions or is it maybe having it more muted impact longer term?

Dennis Woodside: I think it will continue to grow as we continue to grow up market because you get into these larger companies where they're coming off of a deployment that's been around for a while. Often their partner understands that deployment quite well, if they have an existing partner, or they need somebody to help them move off and configure the new system in the way that they want it. That does take work, and that does take expertise. Then they want that system to continue to grow with them over time. I think that does create a greater opportunity for partners. It's hard to say whether that's 50%, 60% down the road. I think right now about 40% of our business is partner-influenced in some way, shape, or form. We're investing there.

Speaker #5: I think it will continue to grow as we continue to grow upmarket, because you get into these larger companies where they do have—they're coming off of a deployment that's been around for a while.

Speaker #5: Often their partner understands that deployment quite well. If they have an existing partner or they need somebody to help them move off and configure the new system in the way that they want it.

Speaker #5: That does take work, and that does take expertise. And then they want that system to continue to grow with them over time. So, I think that does create a greater opportunity for partners.

Speaker #5: It's hard to say whether that's 50% or 60% down the road. I think right now, about 40% of our business is partner-influenced in some way, shape, or form.

Speaker #5: But we're investing there. We have a new relatively newer head of our partner team who's done a great job of building that, starting to kind of build out that, I would say, next level of partner program.

Dennis Woodside: We have a relatively newer head of our partner team who's done a great job of building that, starting to build out that, I would say, next level of partner program. We're going to continue to invest there.

Speaker #5: And we're going to continue to invest there.

Speaker #1: Your next question comes from the line of Matt Vensley with Cantor. Your line is open, Matt. Please go ahead.

Operator: Your next question comes from the line of Matt Venzley with Cantor. Your line is open, Matt. Please go ahead.

Speaker #6: Hey, good afternoon. Thanks for taking the questions. I guess, first, if we think about the magnitude of either expansion or just deal size growth when Freddie is attached, where do those sit today? And now, with a couple more products and more along the way?

Matt VanVliet: Good afternoon. Thanks for taking the questions. I guess first, if we think about the magnitude of either expansion or just deal size growth when Freddy is attached, where do those sit today? Now with a couple more products and more along the way, what should we expect over the next couple of years in terms of deal size growth just from adding those extra capabilities through Freddy?

Speaker #6: What should we expect over the next couple of years in terms of deal size growth, just from adding those extra capabilities through Freddie?

Speaker #4: Yeah, that's a great question. I think in terms of the one metric you can look at that we look at is ARPA. ARPA growth—that's been double-digit for some time now.

Dennis Woodside: Yeah, that's a great question. I think in terms of one metric we look at is ARPA growth. That's been double digit for some time now. We look at the attach rate on new deals. Internally, we look at attach rate overall. We have over 7,000 accounts paying for SKU for AI today. As AI infuses itself across the platform, the pricing model is going to continue to evolve. Today, there are elements of our AI capabilities that are embedded into our higher-priced plans, like Insights is available for our enterprise plans. There are elements that are add-ons. Copilot today is an add-on. There are elements that are consumption-based. AI Agent is a consumption-based product. There are elements that we've introduced that we haven't yet monetized.

Speaker #4: We look at the attach rate on new deals internally. We look at attach rate overall. We have over 7,000 accounts paying for a SKU for AI today.

Speaker #4: As AI infuses itself across the platform, the pricing model is going to continue to evolve. So today, there are elements of our AI capabilities that are embedded into our higher-priced plans, like Insights, which is available for our enterprise plans.

Speaker #4: There are elements that are add-ons. So Copilot today is an add-on. And then there are elements that are consumption-based, AI agent is a consumption-based product.

Speaker #4: There are elements that we've introduced that we haven't yet monetized. So for EX, we introduced AI agent studio in May and we've chosen not to monetize it because we want to get a lot of customers on it using it.

Dennis Woodside: For EX, we introduced AI Agent Studio in May, and we've chosen not to monetize it because we want to get a lot of customers on it using it. We want to keep building the capabilities, and then at some point in the fall, we will monetize it on a usage basis. I think the models are going to continue to evolve. What's most important for us is it helping us win? That's what we really look at. In every competitive situation, whether it's an upsell, just retaining the customers that you have or expanding, AI is central to the RFP. It's not the only thing that you need in order to win. You need a lot more than that. You absolutely need to have the AI game, and that's why we've been investing so much in AI.

Speaker #4: We want to keep building the capabilities, and at some point in the fall, we will monetize it on a usage basis. And so, I think the models are going to continue to evolve.

Speaker #4: What's most important for us is it helping us win. That's what we really look at. And in every competitive situation, whether it's an upsell, just retaining the customers that you have or expanding, AI is central to the RFP.

Speaker #4: It's not the only thing that you need in order to win. You need a lot more than that. But you absolutely need to have the AI game.

Speaker #4: And that's why we've been investing so much in AI. And these bigger customers would never come to us if they didn't both believe in what we delivered today and believe in where the roadmap is going.

Dennis Woodside: These bigger customers would never come to us if they didn't both believe in what we delivered today and believe in where the roadmap is going. That's super important for them. Yeah, I think it's hard to say, like, Okay, how much is going to be AI-driven? We have a lot of confidence in the overall business. We put the number out there, $1.4 billion ARR in the next couple of years. That's up from where we thought we would be a year ago. We wouldn't have done that if we didn't think we had confidence. We see it in the pipeline numbers. We see it in these large customers who are super happy with us.

Speaker #4: That's super important for them. So yeah, I think it's hard to say like, "Okay, how much is going to be AI driven?" We have a lot of confidence in the overall business.

Speaker #4: We have a lot—we put the number out there: $1.4 billion ARR in the next couple of years. That's up from where we thought we would be a year ago.

Speaker #4: We wouldn't have done that if we didn't think we had confidence. We see it in the pipeline numbers. We see it in these large customers who are super happy with us.

Speaker #4: So all that gives us confidence that the plan is working. And AI is an important part of it, but there's a lot more than just AI.

Dennis Woodside: All of that gives us confidence that the plan is working, and AI is an important part of it, but there's a lot more than just AI.

Speaker #6: Very helpful. And then I guess, as you look at maybe the CX business, you talked about a lot more efficiencies there and consolidating some of the organization around India.

Matt VanVliet: Very helpful. I guess as you look at maybe the CX business, you talked about a lot more efficiencies there and consolidating some of the organization around India. Curious how much internal usage of AI is driving that efficiency and how much more can be unlocked as that becomes maybe a little bit more of on cruise control of running that business and having a little bit more customer-led growth.

Speaker #6: Curious how much internal usage of AI is driving that efficiency, and how much more can be unlocked as that becomes maybe a little bit more on cruise control—of running our business and having a little bit more customer-led growth?

Speaker #4: Yeah, so it sounds like two questions, really. It's kind of our internal use, but also the CX business. For the CX business, the big change we made this quarter—at the end of last quarter—is we consolidated the teams that are driving CX into India.

Dennis Woodside: Yeah. It sounds like two questions, really. It's our internal use, but also the CX business. CX business, the big change we made this quarter, or at the end of last quarter, is we consolidated the teams that are driving CX into India. Most of that business is SMB. Most of that business was inbound, so most of the team was already there. Now there's a single go-to-market team that is driving that business, and that's going to create a lot more focus around retention, in particular around ensuring that we're focused on the right customers. In the past, any customer was a good enough customer, and that resulted in us acquiring a lot of smaller customers that churned. We're not doing that anymore.

Speaker #4: Most of that business is SMB. Most of that business was inbound, so most of the team was already there. But now there's a single go-to-market team that is driving that business.

Speaker #4: And that's going to create a lot more focus around retention in particular, around ensuring that we're focused on the right customers as in the past.

Speaker #4: Any customer was a good enough customer, and that resulted in us acquiring a lot of smaller customers that churned. We're not doing that anymore.

Speaker #4: So the new business acquisition motion is focused very much on, call it, the higher end of SMB and mid-market. And we would expect, over time, that will help our retention rates.

Dennis Woodside: The new business acquisition motion is focused very much on, call it the higher end of SMB and mid-market, and we would expect over time that will help our retention rates. We've made a big investment in the CX product in moving to our new Freshdesk Omni. We had multiple products in the past. Now a customer can get onto one product and seamlessly migrate or, sorry, seamlessly upgrade from an email-based ticketing experience to one involving chat and conversational and voice and one involving AI. That's important for upsell and for retention as well. We're optimistic about the fact that we've got 90% of our customers now on that new platform. We've got the go-to-market motion much more focused, that we're going to be able to get some goodness out of that CX business.

Speaker #4: We've made a big investment in the CX product by moving to our new Freshdesk Omni. We had multiple products in the past. Now, a customer can get onto one product and seamlessly upgrade from an email-based ticketing experience to one involving chat, conversational, and voice capabilities, as well as one involving AI.

Speaker #4: That's important for upsell and for retention as well. So we're optimistic about the fact that we've got 90% of our customers now on that new platform.

Speaker #4: We've got the go-to-market motion much more focused, and we're going to be able to get some goodness out of that CX business. And then, from an internal standpoint, AI has been suffused across every part of our business.

Dennis Woodside: From an internal standpoint, AI has been suffused across every part of our business. Our entire product development life cycle has changed. We now have designers who can work in Figma, create a product in Figma, push it directly to code. We built the hooks between our production environment and Figma, so the code comes out and it's compliant with our internal coding requirements. The process for doing QA is highly automated with AI now.

Speaker #4: Our entire product development lifecycle has changed. We now have designers who can work in Figma to create a product, and with Figma, push it directly to code.

Speaker #4: We've built the hooks between our production environment and Figma, so the code comes out and it's compliant with our internal coding requirements. The process for doing QA is highly automated with AI now.

Speaker #4: And so that's resulted in meaningfully shorter cycle times—about 30% faster. We're shipping on basically a two-week cycle now, which we were not doing before.

Tyler Sloat: That's resulted in a meaningfully shorter cycle times, about 30% faster. We're shipping on basically a two-week cycle now, which we were not doing before, for our AI products in particular. It's changed our support business as well. We've implemented our AI email agent internally to handle questions that we get from our own customers about billing, and we saw about 30% of those questions were completely handled through AI when we turned it on. I think it's transforming many businesses. It's certainly transforming us. It's helped us drive our overall profitability of the business. GAAP profitable this quarter, that's ahead of where we thought we would be. Cash flow looks good.

Dennis Woodside: That's resulted in a meaningfully shorter cycle times, about 30% faster. We're shipping on basically a two-week cycle now, which we were not doing before, for our AI products in particular. It's changed our support business as well. We've implemented our AI email agent internally to handle questions that we get from our own customers about billing, and we saw about 30% of those questions were completely handled through AI when we turned it on. I think it's transforming many businesses. It's certainly transforming us. It's helped us drive our overall profitability of the business. GAAP profitable this quarter, that's ahead of where we thought we would be. Cash flow looks good.

Speaker #4: For our AI products in particular, it's changed our support business as well. We've implemented our AI email agent internally—they handle questions that we get from our own customers about billing.

Speaker #4: And we saw about 30% of those questions were completely handled through AI when we turned it on. So I think it's transforming many businesses.

Speaker #4: It's certainly transforming us. It's helped us drive the overall profitability of the business—GAAP profitable this quarter. That's ahead of where we thought we would be.

Speaker #4: Cash flow looks good. And so, all of that, I think, is good for us. I make sure that my team is using AI in everything we do, whether it's preparing for this call or doing a presentation to the company.

Tyler Sloat: All of that I think is good for us, and I make sure that my team is using AI in everything we do, whether it's preparing for this call or doing a presentation to the company, AI's front and center. I think it's just a part of how we're doing business now. It's maybe a little less dramatic than it was a year ago because it now is how people are used to working.

Dennis Woodside: All of that I think is good for us, and I make sure that my team is using AI in everything we do, whether it's preparing for this call or doing a presentation to the company, AI's front and center. I think it's just a part of how we're doing business now. It's maybe a little less dramatic than it was a year ago because it now is how people are used to working.

Speaker #4: AI is front and center, so I think it's just a part of how we're doing business now. It's maybe a little less dramatic than it was a year ago, because it now is how people are used to working.

Speaker #1: Your next question comes from the line of Alex Zukin with Wolf Research LLC. Your line is open, Alex. Please go ahead.

Operator: Your next question comes from the line of Alex Zukin with Wolfe Research, LLC. Your line is open, Alex. Please go ahead.

Speaker #3: Hey guys, thanks for taking the questions. Most of mine have been asked, but I want to double down on Taylor's question because I actually think it's really important.

Alex Zukin: Hey, guys. Thanks for taking the questions. Most of mine have been asked, but I want to double down on Taylor's question because I actually think it's really important. If you look at the net new ARR growth for the EX business in H1, it looks like it's about 14%. I think the guide for H2 implies 16, or sorry, 18. If I think about, Tyler, you mentioned some noise on why net new ARR for that business was down year-over-year, but I just want to better understand that a little bit and what are you seeing in the pipeline to give you the confidence to guide for acceleration of net new ARR on that business for H2?

Speaker #3: If you look at the net new ARR growth for the EX business in the first half, it looks like it's about 14%. And I think the guide for the second half implies 16%, or, sorry, 18%.

Speaker #3: So, if I think about it—you mentioned some noise on why net new ARR for that business was down year-over-year—but I just want to better understand that a little bit. What are you seeing in the pipeline that gives you the confidence to guide for acceleration of net new ARR in that business for the second half?

Speaker #4: So, Alex, thanks for the question. So, back to what I said to Taylor, right? She was asking about, "Hey, 25% versus 24%." And I said, "Hey, we're really confident on mid-20s growth for EX." And we just talked about that at our refresh in April.

Tyler Sloat: Alex, thanks for the question. Back to what I said to Taylor, right? She was asking about, hey, 2025 versus 2024, I said, hey, we're really confident on mid '20s growth for EX. We just talked about that at our Refresh in April. There's a little bit of nuance in terms of quarter-to-quarter. The EX business is doing really well, we wouldn't keep repeating that if we didn't think we had that strength. I think there's a whole bunch of avenues to grow outside of new logo, which we talked about the pipe that we're already growing that coming to Q1, we said the strongest pipe kind of ever. Really, the expansion products that we're bringing to fruition. Again, FireHydrant is brand new on the ITOM side, Device42 advanced cloud version now being available.

Speaker #4: There's a little bit of nuance in terms of quarter to quarter, but the EX business is doing really, really well. We wouldn’t keep repeating that if we didn’t think we had that strength.

Speaker #4: I think there's a whole bunch of avenues to grow outside of new logo, which we talked about—the pipe that we're already growing that we come into Q1.

Speaker #4: We said the strongest pipeline ever. But really, the expansion products that we're bringing to fruition—again, FireHydrant is brand new on the ITOM side.

Speaker #4: And Device42 Advanced Cloud version is now available, so we're very confident. What we've seen in the first half of the year, we expect to continue to see through the back half of the year.

Tyler Sloat: We're very confident what we've seen in H1 of the year, we expect to continue to see that through H2 of the year. As a whole, we had already talked about what we're seeing for the backside. We just rolled through our $4 million beat, that already encompassed a $2 million FX headwind. It would've been a $6 million beat for H2 of the year if we didn't see that FX. Again, we're super confident. EX is still the driver of growth. CX is stable at 4% right now.

Speaker #4: We, as a whole, had already talked about what we're seeing for the back side. We just rolled through our $4 million beat, and that already encompassed a $2 million FX headwind.

Speaker #4: So it would have been a $6 million beat for the back half of the year if we didn't see that FX. So again, we're super confident.

Speaker #4: EX is still the driver of growth. CX is stable at 4% right now.

Speaker #2: Yeah, just to emphasize, this is a beat-and-raise quarter. I know we didn't emphasize that, but you count that FX headwind, and we rolled that beat in and we raised by an additional $2 million, so.

Dennis Woodside: Yeah, just to emphasize, this is a beat and raise quarter. I know we didn't emphasize that, but you count that FX headwind, we rolled that beat in, we raised by an additional $2 million.

Speaker #3: Got it. Helpful. Then the other thing that we noticed is, and again, I think you talked about this, but stock-based comp. 16% of revenue is down from 19 in Q1.

Tyler Sloat: Got it. Helpful. Again, I think you talked about this, stock-based comp. 16% of revenue is down from 19% in Q1. What's driving that strong decline, and how do we think about the outlook for the rest of the year and really beyond? Any changes that you're making there would be good to unpack.

Alex Zukin: Got it. Helpful. Again, I think you talked about this, stock-based comp. 16% of revenue is down from 19% in Q1. What's driving that strong decline, and how do we think about the outlook for the rest of the year and really beyond? Any changes that you're making there would be good to unpack.

Speaker #3: What's driving that strong decline, and how should we think about the outlook for the rest of the year and beyond? Also, any changes that you're making there would be good to unpack.

Alex Zukin: Well-

Alex Zukin: You-

Tyler Sloat: You-

Speaker #2: Yeah, go ahead.

Tyler Sloat: Go ahead.

Alex Zukin: Go ahead.

Speaker #4: I'll start, and Dennis can add to it. I think this is not something new for us, right? We've been talking for a couple of years now about how we were going to be looking at our total P&L from a GAAP perspective, and the biggest component of that.

Tyler Sloat: Okay, I'll start with, Dennis can add to it. I think this is not something new for us, right? We've been talking for a couple of years now about how we were going to be looking at our total P&L from a GAAP perspective, the biggest component of that, the hurdle we had to get to get to GAAP profitability, which we hit this quarter, which is a couple quarters earlier than what we expected, was going to be SBC. Some of the bigger drops in SBC is that we've gone through all of the IPO grants now, we've taken off that tail. Really what we're flowing through on the SBC is our ongoing kind of new grants and focal. That's the place that we've added a lot of the discipline under Dennis' leadership, we're going to continue to do that.

Speaker #4: The hurdle we had to get to—to get to GAAP profitability, which we hit this quarter, which is a couple of quarters earlier than what we expected—was going to be SBC.

Speaker #4: Some of the bigger drops in SBC is that we've kind of gone through all of the IPO grants now, and we've taken off that tail.

Speaker #4: And so, really, what we're flowing through on the SBC is our ongoing kind of new grants and focal. And that's the place that we've added a lot of the discipline under Dennis's leadership.

Speaker #4: And we're going to continue to do that. We're constantly working with our Total Benefits folks, making sure that, number one, we are really competitive so we can bring on the best, but number two, using the equity really prudently as we go forward.

Tyler Sloat: We're constantly working with our total benefits folks, making sure that we are being, number 1, really competitive so we can bring on the best. Number 2, using equity really prudently as we go forward. At the same time, we're just looking at total equity, we want everybody focused on free cash flow per share. That's kind of the North Star metric that we talked about, in the call, we talked about how we've reduced that considerably in terms of fully diluted shares since we've gone public. Dennis, if you want.

Speaker #4: At the same time, we're just looking at total equity, and we want everybody focused on free cash flow per share. That's kind of the North Star metric that we talk about.

Speaker #4: And in the call, we talked about how we've reduced that considerably in terms of fully diluted shares since we've gone public. But Dennis, if you want to.

Dennis Woodside: Yeah. Look, I pay attention to it. I think it's important. I think it's important internally that we reward performance with equity. At the same time, in the past we've been, I would say, a little bit broad in how we've thought about it, and we've put in place basically performance management processes to make sure that we're using that, we're thinking of that equity as a really scarce resource, and we're making sure that the people who have the biggest impact see the biggest grants. That, by definition, is going to create, I would say, a more prudent approach to how we're managing things. Tyler shared where we think we'll be in the next couple of years, and we take that very seriously, and that's what we're going to do.

Speaker #2: Yeah, look, I'd pay attention to it. I think it's important. I think it's important internally that we reward performance with equity. But, at the same time, in the past, we've been, I would say, a little bit broad in how we thought about it.

Speaker #2: And we've put in place, basically, a performance management process to make sure that we're using—that we're thinking about equity as a really scarce resource, and we're making sure that the people have the biggest impact.

Speaker #2: See the biggest grants. And that, by definition, is going to create a more—I would say—a more prudent approach to how we're managing things.

Speaker #2: And Tyler shared where we think we'll be in the next couple of years. We take that very seriously, and that's what we're going to do.

Speaker #2: So, I think it's a continuation of a trend that we've put in place for a while now.

Dennis Woodside: I think it's a continuation of a trend that we've put in place for a while now.

Speaker #1: We have reached the end of the Q&A session. I will now turn the call back to Dennis Woodside, CEO, for closing remarks.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Dennis Woodside, CEO, for closing remarks.

Speaker #4: All right. I just want to thank everybody for joining the call today and just emphasize, Q2 overall for us reinforced every one of the five priorities that we laid out in the refresh.

Dennis Woodside: All right. I just want to thank everybody for joining the call today and just emphasize, Q2 overall for us reinforced every one of the five priorities that we laid out at Refresh. We demonstrated that EX first momentum, that category leadership for the mid-market and the agile enterprise. I think we showed that AI is an expanding tailwind to our growth, and that we've been disciplined around profitability and how we're managing capital. Thanks to everybody. Look forward to speaking to everybody next quarter. Bye.

Speaker #4: We demonstrated that EX first momentum, that category leadership for the mid-market and the agile enterprise. I think we showed that AI is an expanding tailwind to our growth.

Speaker #4: And that we've been disciplined around profitability and how we're managing capital. So, thanks, everybody. I look forward to speaking to everyone next quarter. Bye.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 Freshworks Inc Earnings Call

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