Freshworks delivered an outstanding Q3 2025, the third consecutive quarter of surpassing estimates across growth and profitability, with revenue up 15% year-over-year to $215.1 million on both an as-reported and constant currency basis, approximately three points above the high end of estimates. Non-GAAP operating margin expanded to 21% (five points above estimate) and free cash flow margin was 27%, a fifth straight quarter of Rule of 40 Plus. EX accelerated to over $480 million in ARR (24% as reported, 23% constant currency) while CX reached over $390 million (8% as reported), and the company announced it would sell ESM (Freshservice for Business Teams) as a standalone product. Net dollar retention was 105% as reported and 104% constant currency, and Freshworks completed its inaugural $400 million share repurchase program.
Thank you. Good afternoon, and welcome to Freshworks Third 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 Third Quarter 2025 performance and our financial outlook for our Fourth 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, 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 Q3, marking the third consecutive quarter this year that we surpassed our estimates across growth and profitability metrics. We grew Q3 revenue 15% year-over-year to $215.1 million on both an as-reported and constant currency basis, approximately three points above the high end of our previously issued estimates. Non-GAAP operating margin expanded to 21%, five points above our estimate. Our free cash flow margin was 27%, and we added a fifth straight quarter of Rule of 40 Plus. We ended the quarter with nearly 75,000 customers, including new logos such as global auto manufacturer Stellantis, multinational bank Société Générale, the Pennsylvania Gaming Control Board, and Travis Perkins, the U.K.'s leading distributor of building materials. Our positive results also reflect significant expansion deals with existing customers like Wiley, The Access Group, and iRhythm Technologies.
In Q3, we saw a more than 40% year-over-year increase in the number of new and expansion deals with greater than $50,000 in ARR. Our strategy has focused on three key growth drivers: investing in employee experience, delivering AI capabilities across our products and accelerating adoption, and driving continued expansion in customer experience. At our Investor Day in September, we outlined our path to $1.3 billion in ARR in the next three years, and we continue to make progress towards our goal of ESM, AI, and ITAM, each generating over $100 million in ARR. Before we dive into the results, I want to speak to the transformative AI opportunity ahead for Freshworks. We have over 50 AI-driven applications in the hands of customers right now, and the direct monetization of these products demonstrates that we are driving incremental growth and that customers are realizing tangible outcomes from our AI.
The headline here is that businesses need the right foundation: workflow, data, and security that all work together, and that's what we provide. Companies will continue to rely on us because we have the operational context, data connections, and governance needed to manage full-service functions like customer support and IT service at scale. Security, privacy, and compliance are already built into our architecture. That's what makes our AI enterprise-ready compared to general-purpose AI. Employee experience continues to lead in durable growth, achieving over $480 million in ARR. That represents 24% year-over-year growth on an as-reported basis and 23% year-over-year growth on a constant currency basis, an acceleration from Q2. Three primary growth drivers that contributed to these results include expansion into departments outside of IT, continued growth up market, and deepening our foothold in IT asset management with Device42.
Enterprise service management continues to be an important expansion lever as customers increasingly use Freshservice in areas of their business outside of IT. Our ESM solution, Freshservice for Business Teams, has doubled its annual recurring revenue in the past year and exceeded $35 million in ARR in Q3. Customers like Databricks, RingCentral, and Qualcomm are using our ESM offering to automate workflows and deliver more personalized employee experiences at scale. As of Q3, one in every four eligible Freshservice customers are using Freshservice for Business Teams. To meet this surging customer demand today, we announced that we are expanding enterprise service management access by making Freshservice for Business Teams available as an independent product for non-IT functions.
With a standalone product, we are no longer limited to using IT as our entry point, and we can now sell directly to HR, finance, facilities, and legal, even if an organization is already locked into another ITSM tool. Second, we continue to move up market with mid-size and enterprise customers. In Q3, ARR from customers who spend more than $100,000 with us grew 25% year-over-year. The steady flow of new product innovations like Employee Journeys, our AI-powered onboarding and offboarding capability, and increased adoption of business teams contributed to the momentum of these larger customers. Freshworks is positioned as a clear alternative to legacy players, and we continue to displace incumbents. In Q3, we delivered our highest ITSM competitive win rates in two years as customers selected Freshservice for its ease of use, fast deployment, and lower total cost of ownership. Freshworks has an established track record in ITSM.
Mid-market and enterprise organizations want speed and simplicity, and Freshworks delivers. One example is HOLT CAT, the largest U.S. dealer of Caterpillar equipment, who saw significant improvement in efficiency and productivity as agents were able to handle nearly 10,000 tickets within six months and bring their average ticket resolution time to under five hours. The third growth lever in EX is our advanced IT asset management offering expansion with Device42. In Q3, we closed our biggest Device42 new deal to date with the largest U.S.-based sporting goods retailer. Device42's deep integration with Freshservice and its differentiated discovery engine made it the clear choice for enterprises that are seeking real-time visibility and control. The momentum is evident as half of our top 10 largest deals in the quarter included a Device42 component. In addition to these three growth drivers, we're deepening our presence across key verticals.
For example, in Q3, we doubled our law firm customer count, reaching over 1,000. In sports, we want to congratulate the Los Angeles Dodgers, one of several Major League Baseball teams that rely on Freshservice, on winning back-to-back World Series, and also the McLaren Formula team for winning back-to-back Constructors Championships. Finally, we continue to drive greater efficiency and focus on our go-to-market motion. On the leadership front, we welcomed Enrique Ortegon as Senior Vice President and General Manager of America Field Sales. Enrique's experience leading high-performing sales organizations will help sharpen our execution, accelerate growth, and strengthen our GTM discipline across North and South America. Now let's talk about our AI tailwind. Freddy AI continues to be a growth driver and expansion opportunity across EX and CX and is delivering exceptional results for thousands of customers who are seeing tangible business value and returns quickly after adoption.
As we stated before, we believe this can be a $100 million standalone revenue stream over the next three years. AI is becoming a core productivity engine for every team, not just for IT. Here is why Freshworks is winning. Our products sit where real work happens in customer support, IT, HR, and operations, helping businesses automate tasks, resolve issues faster, and deliver better experiences with less effort. Our AI is deeply embedded in how our customers work every day. It is writing replies, classifying tickets, generating insights, and increasingly taking action on behalf of employees and customers. The results speak for themselves. AI ARR has doubled year-over-year. Customers are now using Freddy AI to resolve millions of problems every week. Our new AI agents are performing real work across industries, from handling returns in e-commerce to managing employee requests in HR.
As a testament to our AI momentum, we have seen AI agent usage expand more than sixfold in the past seven months, while our existing AI Copilot solutions continue to double in usage year-over-year. Freddy Copilot ARR grew 160% year-over-year and was included in over 60% of our new customer deals over $30,000, a five-point increase from the prior quarter. We also saw double-digit attach rates again for new SMB customers in Q3. The number of customers using Copilot grew significantly too, by over 130% year-over-year. Travis Perkins upgraded from legacy complexity to service efficiency with Freshservice and Freddy AI Copilot. Travis Perkins is now able to provide best-in-class IT service management to 17,000 employees across 1,400 locations while improving operational execution, optimizing costs, and increasing productivity for HR and IT teams. These Freddy Copilot customers stick with us.
Their net retention rate is 112% in Q3 for both CX and EX, higher than our overall base, and a tangible sign that AI is driving deeper engagement and long-term value. We believe this tailwind will continue to strengthen our growth trajectory. The number of Freddy AI agent sessions grew over 70% in Q3, and we have seen 650,000 sessions per month since launch. Freddy AI agent deflected more than 50% of tickets for CX and EX customers. Those who had early access to agentic workflows that we launched in June are seeing their average deflection rate jump to 65%, with a handful of customers seeing 80% of service issues resolved by AI agent. We're seeing positive feedback from customers who have had early access in Q3 to several products we announced at our June refresh event.
For example, Gales Bakery, a mid-sized U.K. café chain with over 170 locations, used Freddy AI Agent Studio for Freshdesk to build AI agents. These Freddy AI agents now handle 1,000 inquiries per month to deflect more than one-third of total volume. Employees are freed from repetitive work and can dedicate more time to more complex customer cases like allergies, ingredients, or complaints that require personal care. Next week, we'll share new product announcements across our entire portfolio at Refresh North America on November 13 in San Francisco and at our virtual summit on November 18th. This includes new vertical agentic AI agents that bring our growth strategy to life, demonstrating how we're executing through AI innovation that expands our addressable market and deepens customer value.
Our third imperative, customer experience, grew to over $390 million in ARR, representing 8% growth year-over-year on an as-reported basis and 7% on a constant currency basis. Q3 growth was driven by deeper product adoption and customer sentiment that Freshdesk is easier to implement and use than the legacy alternatives. To build momentum, we refocused our CX products and will be announcing a new unified experience at Refresh next week, a single workspace that consolidates Freshdesk, Freshchat, and all of our Freddy AI products for customer support teams. This hub centralizes all conversations, context, and tools to help agents resolve inquiries and get work done more efficiently. This will be a force multiplier for frontline support teams, helping them improve the speed and quality of customer service. Freddy AI continues to be an expansion driver for CX with measurable impact for customers using Freddy AI agents in Freshdesk.
Thanks, Dennis, and thanks everyone for joining on the call and via webcast today.
We are very pleased that we continued our streak of outperforming across both growth and profitability during the third quarter. We once again exceeded our revenue, non-GAAP operating income, and adjusted free cash flow expectations. This strong overperformance reflects the continued demand for our AI-powered and uncomplicated EX and CX solutions. Our consistent execution and financial discipline position us well to capture the significant long-term opportunities ahead. For our call today, I'll cover the Q3 2025 financial results, provide background on the key metrics, and close with our forward-looking commentary and updated expectations for Q4 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 our adjusted free cash flow, which excludes the cash outlay related to restructuring costs.
To provide greater transparency into our underlying business performance, we will also include constant currency comparisons throughout today's call. Starting with the income statement, Q3 total revenue increased to $215.1 million, growing 15% year-over-year on both an as-reported and constant currency basis. Revenue outperformance includes a one-time $1 million contribution coming from our on-premise Device 42 business. Professional services revenue modestly declined quarter to quarter to just over $2 million, consistent with our ongoing shift in leveraging our partner network as we scale our business. In 2025, we saw partner involvement expand significantly across our largest deals. Partners helped to lead implementations for over 1/2 of our ARR deals greater than $50,000, a notable increase from last year, underscoring the success of our robust and growing partner ecosystem.
Our EX business accelerated in Q3, growing to over $480 million in ARR, representing growth of 24% year-over-year on an as-reported basis and 23% year-over-year on a constant currency basis. Our faster growth was driven by strength across our entire EX portfolio, as we saw positive momentum in not only ITSM, but also meaningful progress in ESM, advanced ITAM, and AI, each of which we believe can eventually be $100 million ARR businesses. Our CX business increased to over $390 million in ARR, reflecting growth of 8% on an as-reported basis and 7% year-over-year on a constant currency basis. We continue to see healthy and predictable demand for our Freshdesk products. Moving to margins, we maintained a non-GAAP gross margin of 86% in Q3 as we continue to scale our business efficiently.
Our non-GAAP operating income for Q3 came in at $45.2 million, representing a non-GAAP operating margin of 21% and ahead of our prior expectations, reflecting our continued top-line momentum and effective cost management. Moving to operating metrics, our net dollar retention came in at 105% on an as-reported basis and 104% on a constant currency basis, both in line with our expectations. Just like last quarter, Device42 represented a small drag of 60 basis points to net dollar retention. We expect Device42 retention to improve gradually as we continue to scale the business 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 Q4.
As of the end of Q3, the number of customers contributing more than $5,000 in ARR grew 9% year-over-year on both an as-reported and constant currency basis to 24,377 customers. This customer cohort continues to represent over 90% of our ARR. For our larger customer cohort, as of the end of Q3, the number of customers contributing more than $50,000 in ARR grew 20% year-over-year on an as-reported basis and 19% on a constant currency basis to 3,612 customers. This cohort represents over 50% of our ARR if we have continued to move up market successfully. For total customers, we added over 260 net new customers in the quarter and have nearly 75,000 customers as of the end of September 30th.
Given the continued success of our up-market strategy and our focus on mid-market and enterprise customers, we believe total customer count is no longer a meaningful indicator of our performance. Starting with the release of Q1 results next year, we would discontinue reporting this metric on a quarterly basis and shift our focus to larger customer measures that better reflect how we manage the business and its trajectory. Now let's turn to calculated billings, balance sheet, and cash items. Our calculated billings grew to $224 million in Q3, representing growth of 14% year-over-year on both an as-reported and constant currency basis, matching our prior expectation on an as-reported basis and coming in ahead of our constant currency forecast of 13%. Looking ahead to Q4 2025, our initial estimate for calculated billings growth is 17.5% year-over-year on an as-reported basis and 14% 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, both of which are in line with our expectations from last quarter. Moving to our cash items, we generated $57.2 million in adjusted free cash flow in Q3, driven by continued operational discipline and strong collections. This resulted in an adjusted free cash flow margin of 27%, which represents an over 5 percentage point improvement year-over-year. For the full year 2025, we now expect to generate approximately $222 million of adjusted free cash flow, with approximately $55 million in Q4. As a reminder, we successfully completed our inaugural $400 million share repurchase program after buying back an additional 12 million shares in Q3 at an average price of $13.28 per share. In total, we repurchased approximately 27.9 million shares at an average price of $14.35.
We continue to manage and offset share count dilution by net settling vested equity amounts. During Q3, we used approximately $15 million for that purpose. This activity is reflected in our financing activities and is excluded from our adjusted free cash flow calculations. Looking ahead, we will continue to net settle vested equity amounts and expect Q4 cash usage of approximately $12 million at current stock price levels. For the full year, we expect to use approximately $58 million to net settle vested equity amounts. We ended the quarter with cash, cash equivalents, and marketable securities of approximately $813 million. Turning to our share count as of September 30, 2025, we had approximately 309 million fully diluted shares, which represents a decrease of 7% year-over-year. The fully diluted calculation includes 282 million basic shares outstanding, which represents a decrease compared to both the prior year and quarter.
It also includes 24.5 million shares related to unvested RSUs and PRSUs and over 2 million shares related to outstanding options. We remain committed to thoughtfully managing our share count dilution over time. Now onto our forward-looking estimates. For the fourth quarter of 2025, we expect revenue to be in the range of $217 million-$220 million, growing 12%-13% year-over-year. Adjusting for constant currency using FX rates from Q4 of last year, this reflects growth of 11%-13% year-over-year. Non-GAAP income from operations to be in the range of $30.6 million-$32.6 million, and non-GAAP net income per share to be in the range of $0.10-$0.12, assuming weighted average shares outstanding of approximately 284.5 million shares. For the full year 2025, we expect.
Revenue to be in the range of $833.1 million-$836.1 million, growing approximately 16% year-over-year on both an as-reported and constant currency basis. Non-GAAP income from operations to be in the range of $167 million-$169 million, and non-GAAP net income per share to be in the range of $0.62-$0.64, assuming weighted average shares outstanding of approximately 293.9 million shares. 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 October 31, 2025, and do not take into account any impact from currency moves. As a reminder, we had a $1 million revenue benefit in Q3 related to a large Device42 deal that we would not expect to repeat in Q4.
Secondly, given our strong operating and go-to-market execution this year, we are strategically reinvesting a portion of our earnings outperformance to further build on that momentum. As such, we anticipate a one-time increase in spending during Q4 to expand our pipeline and drive customer acquisition, with a modest corresponding impact on operating margins. These planned investments are reflected in our financial outlook and position us well for continued growth. Looking beyond Q4, we are reaffirming the long-term model we outlined at our investor day in September. Based on our current forecasts, we continue to expect full year 2026 revenue growth of 13%-14%, and we remain on track to achieve GAAP profitability by end of year. As a reminder, the fourth quarter has historically been our largest bookings quarter and a good indicator for us.