FRSH

Freshworks Inc. 10-Q Summary: Q2 2025

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2025. Freshworks Inc. provides AI-driven customer and employee experience software solutions. The company operates as a single segment and is classified as a large accelerated filer. As of July 24, 2025, there were 237,933,261 shares of Class A common stock and 53,495,414 shares of Class B common stock outstanding.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 18% year-over-year (YoY) for both the quarter and the six-month period, driven by new customer acquisition and expansion within the existing base.
• Profitability Improvement: Operating loss narrowed significantly from $43.8 million in Q2 2024 to $8.7 million in Q2 2025. Net loss improved from $20.2 million to $1.7 million for the quarter.
• Expense Management: Total operating expenses decreased 4% YoY in Q2 2025 ($182.2 million vs. $189.7 million). This was primarily due to lower headcount following a restructuring plan initiated in late 2024, which reduced stock-based compensation and personnel costs.
• Share Repurchases: The company repurchased 14.9 million shares for $225.4 million during the first six months of 2025 under a $400 million program approved in November 2024. Approximately $159.1 million remains available.
• Acquisition Impact: The June 2024 acquisition of D42 Parent, Inc. contributed to higher amortization of acquired intangibles ($3.5 million in Q2 2025 vs. $1.0 million in Q2 2024) and increased revenue from software licenses.

Guidance, Outlook, and Risks

• Key Metrics: Net Dollar Retention Rate (NDRR) remained flat at 106% as of June 30, 2025. Management noted that lower expansion within existing customers due to macroeconomic pressures was offset by favorable foreign currency impacts and improved churn rates.
• Macroeconomic Risks: The company cites inflation, geopolitical tensions, and foreign exchange volatility (specifically Euro, British Pound, and Indian Rupee) as ongoing risks. Approximately 27% of revenue exposure is tied to the Euro and British Pound.
• Tax Legislation: The "One Big Beautiful Bill Act" signed on July 4, 2025, introduces changes to the U.S. tax code, including immediate expensing of R&D costs. Management expects the impact on 2025 tax expense to be immaterial due to net operating loss carryforwards.
• Legal Proceedings: A securities class action lawsuit regarding the IPO was granted summary judgment in the company's favor in April 2025; the plaintiff has until July 31, 2025, to appeal.
• Non-GAAP Performance: Non-GAAP Net Income was $52.5 million for Q2 2025, compared to $23.0 million in Q2 2024, excluding stock-based compensation, amortization of intangibles, and restructuring charges.

Investor Verification Checklist

• Verify the sustainability of the 106% Net Dollar Retention Rate given management's disclosure of lower expansion driven by macroeconomic headwinds.
• Monitor the status of the pending appeal in the IPO securities class action lawsuit.
• Assess the impact of the new U.S. tax legislation ("One Big Beautiful Bill Act") on future effective tax rates once 2026 provisions take effect.
• Review the remaining $159.1 million share repurchase authorization and the company's commitment to capital return versus reinvestment.
• Confirm the integration progress and revenue contribution of the D42 Parent, Inc. acquisition, particularly regarding the amortization of acquired intangibles.