Freshworks (NASDAQ:FRSH) executives said the company reached a “historic inflection point” in fiscal 2025, delivering full-year profitability for the first time and record free cash flow, while maintaining what management described as strong momentum in its employee experience (EX) business and continued progress stabilizing customer experience (CX).
Q4 and full-year results: profitability milestone and cash generation
For the fourth quarter, Freshworks reported revenue of $222.7 million, up 14% year over year as reported (13% in constant currency). The company said Q4 results came in above its expectations, marking the fifth consecutive quarter it outperformed internal estimates across growth and profitability metrics. Professional services revenue was $2.5 million, which management attributed to strong bookings and earlier-than-expected project kickoffs and milestone achievement.
Freshworks reported GAAP net income of $191.4 million for Q4. The company emphasized that GAAP net income benefited from two one-time items: a $41.1 million favorable impact from a reduction in fiscal 2025 stock-based compensation related to its executive chairman’s departure, and a $151.7 million one-time income tax benefit from releasing a valuation allowance on U.S. deferred tax assets due to improved profitability. Management said there was no cash impact from these one-time benefits and that they were excluded from non-GAAP results.
Free cash flow in Q4 was $56.2 million, ahead of expectations due to strong cash collections and “disciplined execution,” resulting in a 25% free cash flow margin. For the full year, Freshworks said free cash flow was over $223 million (27% margin), improving from negative free cash flow in 2022.
ARR mix: EX crosses $500 million while CX focuses on platform unification
Freshworks ended 2025 with $907 million in annual recurring revenue (ARR), which management said was up 18% year over year as reported (over 14% in constant currency). EX reached $510 million in ARR, growing 26% as reported (22% constant currency), surpassing the $500 million milestone. CX ended the year at $395 million in ARR, growing 9% as reported (5% constant currency).
CEO Dennis Woodside said Freshworks is evolving Freshservice into a unified service platform, highlighting the combination of IT service management (ITSM), IT operations management (ITOM), IT asset management (ITAM), and enterprise service management (ESM). Woodside pointed to examples of larger deals and competitive displacements, including a “global semiconductor company” that moved off a long-standing ServiceNow environment and projected cost savings and faster resolution times using Freddy AI.
On CX, management said it has been working to “bring stabilization” by simplifying the core Freshdesk product experience and improving time-to-value and retention. In the Q&A, executives said they launched a unified CX platform in Q4 that combines conversational and ticketing capabilities, and are now upgrading customers to that platform to enable a single code base for faster innovation. They also noted Q4 CX growth lapped a prior-year “Free to Paid” initiative, which affected year-over-year comparisons.
Device42, ESM, and FireHydrant: expanding the EX platform
Device42 ended 2025 with over $40 million in ARR, which management said reflected new deals and expansion, including cross-sell from the Freshservice base. In Q4, the company recorded a 30% attach rate of Device42 within its top 50 new EX deals, including its three largest deals of the quarter. Management also said it expects to launch an initial cloud offering for Device42 at the beginning of Q2 2026, noting that sales to date have primarily been on-prem.
ESM, branded as Freshservice for Business Teams, exceeded $40 million in ARR in Q4 and “nearly doubled” year over year, according to management. Woodside said one in four eligible Freshservice customers now uses the product for non-IT needs and reiterated a target for both ITAM and ESM to exceed $100 million in ARR.
The company also highlighted its acquisition of FireHydrant, which closed Jan. 1, 2026. Freshworks described FireHydrant as an AI-powered IT incident management and response platform that adds ITOM capabilities and “sets the groundwork” for expansion into AIOps. CFO Tyler Sloat said FireHydrant is expected to have an immaterial impact on revenue growth in Q1 and full-year 2026, but to create roughly a one-point headwind to non-GAAP operating margin in those periods.
Freddy AI: growing paid adoption and usage-based monetization
Freshworks said more than 8,000 customers are now using Freddy AI. Management reported that Freddy AI ended 2025 with over $25 million in ARR and is targeting $100 million in AI-driven ARR by 2028. Woodside said Freddy AI is “not just a feature” but a standalone revenue line, citing customer examples and operational outcomes discussed on the call.
Key AI metrics shared by management included:
- Freddy AI Agent conversations: up more than 80% to 3.5 million in Q4 within CX.
- Ticket deflection: Freddy AI Agent deflected more than 50% of tickets for CX and EX customers.
- Freddy Insights adoption: since general availability to EX customers in June 2025, 1,000 customers have adopted and are active.
- Attach and retention: in customers with more than $30,000 ARR, Freddy AI Copilot attach rates were over 50%, and net dollar retention for Copilot customers improved to 116% in Q4 from 112% the prior quarter.
Woodside also discussed pricing changes for agentic AI, stating the company increased pricing to $0.50 per interaction from $0.10 per interaction and expects the change to begin flowing through ARR as adoption scales. Executives said AI attach is now core to the sales motion, particularly in larger deals.
Guidance: 2026 outlook and operating model assumptions
For Q1 2026, Freshworks guided revenue of $222 million to $225 million (13% to 15% year-over-year growth), non-GAAP operating income of $33 million to $35 million, and non-GAAP EPS of $0.10 to $0.12, assuming about 287.4 million weighted average shares outstanding.
For full-year 2026, guidance called for revenue of $952 million to $960 million (about 13.5% to 14.5% growth), non-GAAP operating income of $181 million to $189 million, and non-GAAP EPS of $0.55 to $0.57, assuming about 291.5 million weighted average shares outstanding. Sloat said the company is adopting a long-term projected tax rate of 24% for non-GAAP modeling.
Management said it increased fiscal 2026 revenue growth expectations from its Investor Day outlook, citing strength “particularly in EX,” and expects revenue growth to accelerate in the second half of 2026. Freshworks also forecast free cash flow of about $55 million for Q1 2026 and approximately $250 million for full-year 2026.
Net dollar retention was 108% as reported (104% constant currency) in Q4, including a roughly 70-basis-point headwind from Device42. The company said it expects constant-currency net dollar retention to improve to approximately 105% in Q1 2026, driven by EX momentum and mix shift.
About Freshworks (NASDAQ:FRSH)
Freshworks, Inc is a global provider of cloud-based customer engagement software designed to help businesses streamline customer support, sales, marketing, and IT service operations. The company’s integrated suite of solutions enables organizations of all sizes to deliver seamless experiences across multiple channels, including email, chat, phone, and social media. Freshworks’ platform is built on modern, user-friendly interfaces and offers native automation, AI-powered insights, and analytics to improve efficiency and customer satisfaction.
The company’s flagship product, Freshdesk, serves as a helpdesk solution for customer support teams, while Freshservice addresses IT service management needs.
