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Freshworks Inc . (NASDAQ:FRSH) released its Q1 2025 earnings presentation on April 29, 2025, showcasing solid revenue growth and significant margin expansion, though the company projects a slower growth rate for the remainder of the year. The stock jumped 11.58% in after-hours trading, suggesting the results exceeded market expectations.
Quarterly Performance Highlights
Freshworks reported Q1 2025 revenue of $196.3 million, representing a 19% year-over-year increase, maintaining the growth trajectory established over the past several quarters. This performance marks the company’s fifth consecutive quarter of consistent revenue expansion.
As shown in the following chart of quarterly revenue growth:
The company’s geographic revenue distribution remained relatively stable, with North America accounting for 47% of total revenue in Q1 2025, up slightly from 45% in Q1 2024. Europe, Middle East, and Africa contributed 39% of revenue, while Asia-Pacific and Rest of World represented 12% and 3%, respectively.
The following chart illustrates Freshworks’ revenue by geography over the past five quarters:
Customer Base and Market Expansion
Freshworks continued to expand its customer base, reaching 73,300 total customers in Q1 2025, a 9% year-over-year increase. This represents an addition of approximately 1,100 customers since Q4 2024.
The company’s customer growth is illustrated in the following chart:
More importantly, Freshworks demonstrated strong growth in higher-value customer segments. The number of customers with Annual Recurring Revenue (ARR) exceeding $5,000 grew 13% year-over-year to 23,275, while customers with ARR exceeding $50,000 increased 24% to 3,217.
The following chart shows the growth in these key customer segments:
Freshworks maintained a healthy Net Dollar Retention rate of 105% in Q1 2025, indicating that existing customers are continuing to expand their usage of the company’s products.
The company’s customer base spans multiple industries, with over 60% of total ARR coming from Mid-Market and Enterprise customers. For Employee Experience products specifically, 79% of revenue comes from Mid-Market/Enterprise customers, while Customer Experience products derive 53% of revenue from SMB customers.
Profitability and Cash Flow Improvements
One of the most significant highlights from the presentation was Freshworks’ substantial improvement in profitability. Non-GAAP income from operations reached $46.4 million in Q1 2025, representing a 24% operating margin. This marks a significant improvement from the 13% operating margin in Q1 2024.
The following chart illustrates the company’s non-GAAP operating income progression:
GAAP operating margin also improved dramatically, narrowing from -19% in Q1 2024 to -5% in Q1 2025, suggesting the company is moving closer to GAAP profitability.
Free cash flow showed strong growth, reaching $55.4 million in Q1 2025, up from $38.7 million in Q1 2024, representing a 43% year-over-year increase.
Strategic Initiatives
Freshworks continues to position itself as a provider of "enterprise-grade service software without the complexity," focusing on delivering exceptional customer and employee experiences. The company’s product portfolio spans both Employee Experience solutions (like Freshservice) and Customer Experience solutions (including Freshdesk, Freshchat, and Freshsales).
A key strategic focus for Freshworks is the integration of AI capabilities across its product suite through its Freshworks Platform and Freddy AI. The company offers Freddy AI Agent, Freddy AI Copilot, and Freddy AI Insights to enhance its solutions.
The following slide illustrates Freshworks’ comprehensive solution portfolio:
Forward-Looking Guidance
Despite the strong Q1 performance, Freshworks provided a more conservative outlook for Q2 2025 and the full year. The company projects Q2 2025 revenue between $197.3 million and $200.3 million, representing 13-15% year-over-year growth, a deceleration from the 19% growth achieved in Q1.
For the full year 2025, Freshworks expects revenue between $815.3 million and $824.3 million, representing 13-14% year-over-year growth. Non-GAAP income from operations is projected to be between $139.5 million and $147.5 million for the full year.
The following slide details the company’s financial outlook:
While the projected growth rate is lower than current performance, Freshworks continues to demonstrate strong profitability improvements, with non-GAAP income from operations expected to remain robust in the coming quarters.
Conclusion
Freshworks’ Q1 2025 presentation reveals a company that has successfully balanced growth with improving profitability. The significant expansion in operating margins and free cash flow, coupled with continued growth in high-value customer segments, positions the company well despite the projected slowdown in revenue growth.
The market’s positive reaction to the results suggests investors are focusing more on the company’s profitability improvements than on the tempered growth outlook. As Freshworks continues to integrate AI capabilities across its product suite and expand its enterprise customer base, the company appears well-positioned to navigate the evolving competitive landscape in customer and employee experience software.
Full presentation:
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