Freshworks delivered an outstanding Q2 2025, surpassing expectations across growth and profitability, with revenue up 18% year-over-year to $204.7 million (17% constant currency), a non-GAAP operating margin of 22%, and a 27% adjusted free cash flow margin. EX grew to over $450 million in ARR (24% as reported, 22% constant currency) while CX accelerated to over $380 million (11% as reported, 8% constant currency). AI gained traction with over 5,000 customers paying for Copilot and AI Agent and combined ARR from those two SKUs crossing $20 million, more than doubling year-over-year. Net dollar retention came in at 106% as reported and 104% constant currency, and the company launched several agentic AI innovations including Freddy AI Agent Studio for Freshdesk.
Thank you. Good afternoon and welcome to Freshworks second quarter 2025 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 second quarter 2025 performance and our financial estimates for our third quarter and full year 2025. 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, the timing.
Of future repurchases of our class A.
Common stock, and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand, and to control costs and improve operating efficiency. 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. 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, or to learn more about Freshworks. With that, let me turn it over to Dennis.
Thank you, Brian. Freshworks delivered an outstanding Q2, surpassing expectations across growth and profitability. We grew Q2 revenue 18% year-over-year to $204.7 million, expanded our non-GAAP operating margin to 22%, and delivered a strong adjusted free cash flow margin of 27%. Collectively, these results clearly illustrate our ability to balance strong growth with profitability. We ended the quarter with over 74,600 customers, including leading global storage provider Seagate, leading international law firm Covington & Burling LLP, leading recruitment experts Reed, and retail energy supplier AEP Energy. In Q2, we held our very successful Refresh Europe customer event where we introduced product innovations within the Freddy Agentic AI Platform and across our EX and CX portfolio, which I'll talk about throughout this call.
Our strategy has focused on three key growth areas: investing in Employee Experience or EX, delivering AI capabilities across our products and accelerating adoption, and driving continued expansion in Customer Experience or CX. On the first strategic imperative, Employee Experience (EX) continues to lead in growth, achieving over $450 million in ARR, which represents 24% year-over-year growth on an as-reported basis and 22% on a constant currency basis with over 19,000 customers. Our first lever in this area is growth in the mid-market and enterprise, together representing more than 3/4 of ARR. Our IT momentum underscores the value Freshworks brings to our customers. We continue to displace legacy competitors as organizations choose Freshservice because we reduce complexity, accelerate efficiency, and enable tangible growth through our AI-powered platform. As an example, Steel Dynamics, one of the largest and most diversified U.S. steel producers, replaced ServiceNow with Freshservice.
Another example is Kayak, a leading global travel search engine, who chose Freshservice to replace JIRA Service Management. Since implementation, Kayak has reported improved ticket volume, productivity, and visibility. Kayak has also been using Freddy AI features like Ticket Summary Generator and Ticket Field Suggestions to help agents work faster with greater accuracy. The second EX growth driver and expansion lever is our enterprise service management solutions. Our customers are increasingly using Freshservice in other areas of their businesses outside of IT. For example, Nexstar Media Group, one of the largest local broadcasting companies in the U.S., streamlined its employee support experience by migrating to Freshservice. Nexstar went live across three distinct workplaces, consolidating IT, digital, HR, payroll, and legal into a single unified platform. In weeks, Freshservice reduced complexity for the employees and over 200 support agents, and Nexstar achieved a 35% cost savings.
Another customer, Michaels Stores, the leading creative destination in North America with over 1,300 locations, chose Freshservice to modernize IT and business operations as part of a strategic initiative to streamline operations and drive scalable growth. Michaels onboarded 900 agents, migrated over three years of ticket history, and deployed Freshservice across IT, HR, and facilities to streamline incident management, asset tracking, employee journeys, and vendor risk. At the end of Q2, we released Freshservice Journeys, a powerful new tool designed to help HR teams automate and streamline the cumbersome process of managing employee transitions, including onboarding, offboarding, promotions, and relocations. Qualfon's VP of IT Operations said Freshservice has completely transformed their onboarding process. What used to take days can now be done in hours. He also said it has enabled him to reduce risk and deliver a more secure, compliant offboarding experience at scale.
We believe that our ESM solutions could be a $100 million-plus opportunity for us and a meaningful long-term way to grow EX beyond IT. Our third growth driver in EX is our advanced ITAM offering with Device42. Two of the top five deals in the quarter included Device42. Customers like Seagate deployed Freshservice to modernize IT operations and later expanded to Device42, tapping into the seamless integrations between the two products to unify asset discovery and service management. Finally, we introduced Freshservice for MSPs, a new ITSM product for small managed service providers. This solution is built on the core Freshservice foundation and is designed to help growing MSPs seamlessly manage multiple clients without adding complexity or overhead.
In addition to these two product innovations, we released key features for Freshservice that are designed to improve productivity and reduce mean time to resolution, like the ability to make parallel approvals in a workflow. Now onto our second imperative, delivering AI capabilities and driving adoption of AI. Customers are no longer just experimenting with AI, they're moving beyond the pilot phase, finding practical applications that drive measurable transformative results. Over 5,000 customers are now paying for our Copilot and AI Agent products and ARR from these two SKUs crossed $20 million in Q2, more than doubling ARR from a year ago. In Q2, Freddy Copilot was included in more than 55% of our new large customer deals, over $30,000, and we saw double-digit attach rates for new SMB customers. We ended the quarter with over 3,300 customers, a sequential growth of 21% quarter-over-quarter.
One such customer, a global law firm with nearly 50 offices in 20 countries and thousands of employees, replaced ServiceNow with Freshworks and is using Freddy Copilot to drive efficiency and accelerate time to value. Freddy AI customers are realizing tangible business value. Our recent annual Freshservice Benchmark report revealed that organizations using Freddy Copilot reduced resolution time by 76% and first response time by 41%. With Freddy AI Agent, organizations saw a ticket deflection rate of 65% and over 400,000 hours of agent time saved across IT and ESM. In June, we launched several AgentIQ AI innovations. First, we introduced Freddy AI Agent Studio for Freshdesk, a powerful platform to build and manage AI agents that take autonomous actions like issuing refunds, checking order statuses, and updating customer records.
Organizations can build dozens of agentic workflows, define business rules, and connect to external systems, all using a visual no-code intuitive interface. Secondly, we launched Freddy AI Agent for email in Freshdesk, designed for organizations where email is the primary support channel. The agent reads the request, finds the right answer, responds, and closes the ticket entirely on its own. Third, we added Freddy AI Agent for unified search in Freshservice, designed to connect to systems like Microsoft, SharePoint, and Teams so that employees can receive faster and more accurate answers. Finally, Freddy AI Insights for Freshservice became generally available in Q2. It provides proactive, actionable intelligence to IT teams about the operational health of their IT service footprint. We're pleased with the early signals we're seeing from customers and look forward to providing updates on customer use cases in the coming months.
Our third strategic imperative, Customer Experience, saw meaningful improvements. CX grew to over $380 million in ARR, which represents 11% growth year-over-year on an as reported basis and 8% on a constant currency basis. We believe this acceleration in growth reflects customer sentiment that Freshdesk is easier to implement and use than the legacy competitors. While our small business customers continue to represent over half of our CX ARR, in Q2 we saw strong momentum with large organizations turning to Freshdesk for our powerful, uncomplicated customer experience software. We also secured a substantial cross-sell opportunity spanning both employee and customer experience with a leading science and engineering research center. Our AI products continue to be an expansion driver for CX. Honda Motor Europe selected Freshdesk to modernize its customer support operations across 36 countries, deploying 220 agents with Freddy AI Copilot.
The team needed a solution that could scale across the region and provide real-time auto translation to serve a multilingual dealer and technician network. By replacing its legacy Java-based system, Honda now delivers faster, more consistent support experiences through Freshdesk. With Freddy Copilot, agents can streamline communication, deflect tickets via multilingual self-service, and work more efficiently, all on a flexible, secure, and AI-powered platform. Built with a strong focus on supporting European operations, Freddy AI agents are driving measurable results for Freshdesk customers. One example is a healthcare provider who reduced response times by 35%, improved first contact resolution by 40%, and saw a 25% boost in CSAT, all while scaling support and containing costs with AI now handling 35% of queries autonomously. In addition to the new AI capabilities for Freshdesk that I mentioned earlier, we released significant product updates such as CSAT versioning and analytics.
This feature is designed to give supervisors deeper insights into customer satisfaction drivers by connecting CSAT scores to specific operational behaviors and performance indicators. They can then make data-driven coaching decisions and identify which agent actions and ticket handling patterns correlate with higher customer satisfaction scores. Another expansion path in CX is customers adopting EX products after having a positive experience with Freshdesk. A recent example of a customer using Freshworks products to drive efficiency across both customer and employee experiences is Momentive Software, a cloud-based provider serving nonprofits and mission-driven organizations. After successfully deploying Freshdesk for customer support, Momentive expanded to Freshservice, replacing ServiceNow. Within weeks of launch, Momentive reported measurable efficiency gains, including fewer ticket reassignments and stronger SLA performance, early validation of improved efficiency and user satisfaction. We're pleased with the results in our CX business, underscored by the improved growth rate during the second quarter.
Now, across both EX and CX, our momentum in specific industry verticals continues. We are privileged to serve 2025 sports champions, including NBA champions Oklahoma City Thunder, European football champions Paris Saint-Germain, and Scottish football champions Celtic Football Club. I'm also excited about the partnership we announced earlier this month with the McLaren Formula 1 team. The 2024 constructors champions, Freshworks branding appeared on both McLaren cars last weekend at the Belgian Grand Prix, where the McLaren team finished one-two on top of the podium. We anticipate that this multi-year partnership with McLaren will build further brand awareness and engagement with CIOs. These sports organizations trust us to power their world-class operations behind the scenes so that they can power greatness on the track, court, and field. We're honored that Freshworks plays a part in their historic runs.
Thanks Dennis and thanks everyone for joining on the call and via webcast. Today we are pleased to report another quarter of strong results at Freshworks. Our Q2 performance reflects continued momentum across the business with solid revenue growth, margin expansion, and disciplined execution of our strategy. We're seeing healthy demand for our easy-to-use, innovative solutions that help businesses of all sizes improve productivity and deliver exceptional customer experiences. We exceeded our top-line growth estimates and improved our non-GAAP operating margin to 22%, an increase of over 14% points compared to a year ago. We grew our adjusted free cash flow 65% year-over-year to $54.3 million, which resulted in an adjusted free cash flow margin of 27%, also ahead of our previously provided estimates for our call.
Today I'll cover the Q2 2025 financial results, provide background on the key metrics, and close with our forward-looking commentary and updated expectations for Q3 and full year 2025. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses, restructuring charges, and other adjustments. We will also talk about adjusted free cash flow, which excludes the cash outlay related to the restructuring costs. We continue to benefit from foreign exchange tailwinds this quarter, providing a modest uplift to our Q2 revenue while contributing over 2% points of ARR growth, translating to a nearly $18 million increase to ARR. To provide greater transparency into our underlying business performance, we will include constant currency comparisons throughout today's call.
Starting with the income statement, Q2 total revenue increased to $204.7 million, growing 18% year-over-year on an as reported basis and 17% year-over-year on a constant currency basis. Professional services revenue contributed $2.7 million in the quarter, driven by strong bookings as well as several early project kickoffs and completions that led to one-time increases. Our EX business grew to over $450 million in ARR, representing growth of 24% year-over-year on an as reported basis and 22% year-over-year on a constant currency basis. As expected, growth moderated this quarter as we lapped the anniversary of the Device42 acquisition from last June. Adjusting for this, we're encouraged by the strong underlying performance across our EX portfolio, which continues to deliver our highest area of growth.
Our CX business increased to over $380 million in ARR, reflecting growth of 11% on an as reported basis and 8% year-over-year on a constant currency basis. The growth acceleration versus recent quarters was driven by healthy momentum in our Freshdesk business and stronger execution across the board. Moving to margins, we maintained a strong non-GAAP gross margin in Q2 of 86%, reflecting our continued progress in scaling our business efficiently. This represents an improvement of approximately 100 basis points compared to the prior year. Our non-GAAP operating income for Q2 came in at $44.8 million, representing a non-GAAP operating margin of 22%, which was ahead of prior expectations. This reflects strong revenue outperformance and disciplined expense management, including lower than anticipated personnel-related costs, some of which will be shifted into future quarters.
Moving to operating metrics, our two key business metrics are net dollar retention and customers contributing more than $5,000 in ARR. While gross expansion trends remain pressured, we're encouraged by the steady improvements in our overall churn rate. Net dollar retention came in stronger than expected at 106% on an as reported basis and was in line with our expectations on a constant currency basis at 104%. Retention was modestly affected by Device42, primarily due to churn in its partner business that we had anticipated following our acquisition last year. As expected, this represented a headwind to net dollar retention of just over 0.67% point. We expect Device42 retention to improve gradually as we continue to integrate the Device42 products with our ITSM offering.
Looking ahead, we estimate net dollar retention of approximately 105% on an as reported basis and 104% on a constant currency basis for Q3. For our second key business metric, the number of customers contributing more than $5,000 in ARR as of the end of Q2 grew 10% year-over-year on an as reported basis and 9% year-over-year on a constant currency basis to 23,975 customers. This customer cohort continues to represent 90% of our ARR. For our larger customer cohort contributing more than $50,000 in ARR as of the end of Q2, we saw growth of 22% year-over-year on an as reported basis and 19% on a constant currency basis to 3,460 customers. This cohort represents over 50% of our ARR for total customers.
We added over 1,300 net new customers in the quarter, which also includes contributions from our ongoing free to paid initiatives. We ended the quarter with over 74,600 customers. Now let's turn to calculated billings, balance sheet, and cash items. Our calculated billings grew to $213.1 million in Q2, representing growth of 15% year-over-year on an as reported basis and 13% growth on a constant currency basis, driven primarily by stronger than expected booking performance in the quarter. Looking ahead to Q3 2025, our initial estimate for calculated billings growth is 14% year-over-year on an as reported basis and 13% on a constant currency basis.
For the full year 2025, we expect calculated billings growth to be approximately 16% year-over-year on an as reported basis and 14% on a constant currency basis, the latter of which is in line with our expectations from last quarter. Moving to our cash items, we generated $54.3 million in adjusted free cash flow in Q2 with outperformance driven by strong collections and continued operational discipline. This resulted in an adjusted free cash flow margin of 27%, which represents over 7% point improvement year-over-year. As a reminder, these results do not include a one-time use of cash of $700,000 related to restructuring costs. For the full year 2025, we are expecting to generate approximately $215 million of adjusted free cash flow with approximately $55 million in Q3 and $50 million in Q4.
In Q2, we repurchased an additional $8.2 million shares at an average price of $13.89 per share. We have now repurchased nearly $15.9 million shares using over $240 million through Q2. In addition to the repurchase program, we continue to manage and offset share count dilution by net settling vested equity amounts. We used approximately $14 million during the quarter for that purpose. This activity is reflected in our financing activities and is excluded from our free cash flow calculations. Looking ahead, we will continue to net settle vested equity amounts and expect Q3 cash usage of approximately $17 million at current stock price levels. For the full year, we expect to use approximately $64 million to net settle vested equity amounts. We ended the quarter with cash, cash equivalents, and marketable securities of approximately $926 million.
Turning to our share count, as of June 30th, 2025, we had approximately $320 million fully diluted shares, which represents a decline of 2% year-over-year. The fully diluted calculation includes $292 million basic shares outstanding, which represents a reduction compared to both the prior year and quarter. It also includes $25 million shares related to unvested RRCs and PRSUs, and 2 million shares related to outstanding options. We expect to thoughtfully manage share count dilution with net settlement activities and share repurchases into the future. Now onto our forward-looking estimates for the third quarter of 2025. We expect revenue to be in the range of $207 million-$210 million, growing 11%-12% year-over-year on an as reported and constant currency basis.
Non-GAAP income from operations to be in the range of $31.2 million-$33.2 million, and non-GAAP net income per share to be in the range of $0.12-$0.14. Assuming weighted average shares outstanding of approximately $294.2 million shares for the full year 2025, we expect revenue to be in the range of $822.9 million-$828.9 million, growing 14%-15% year-over-year. Adjusting for constant currency using FX rates from Q3 of last year, this reflects growth of 14%-16% year-over-year. Non-GAAP income from operations to be in the range of $153 million-$157 million. Non-GAAP net income per share to be in the range of $0.56-$0.58, assuming weighted average shares outstanding of approximately $296.9 million. Our financial outlook is based on a few assumptions that we would like to call out.
First, our forward-looking estimates are based on FX rates as of July 25th, 2025, and do not take into account any benefit from currency moves, which we estimate could be $1.5 million-$2.5 million increase to our full year 2025 revenue. In addition, we expect spending to increase in the second half of the year, driven by the timing of certain personnel and brand-related expenses, along with incremental investments in sales and marketing to capture the growth opportunities ahead, all while remaining focused on driving operational efficiencies in the business. This increase is reflected in our financial outlook. In closing, we are pleased with our strong Q2 execution, which reflects the strength of our business, the growing demand for our products, and the incredible dedication of our global team. We are excited about the opportunities ahead as we continue to innovate, delight our customers, and deliver sustainable, profitable growth.