Freshworks Hits GAAP Profitability Early in Q2 2026 as AI and EX Momentum Accelerates
Freshworks (NASDAQ:FRSH) reached GAAP profitability in the second quarter of 2026, ahead of the timeline management had set for the company. Revenue rose to $237.4 million, up 16% year over year as reported and 15% in constant currency, with employee experience (EX) software and AI adoption leading the way.
The company recorded GAAP net income of $3.2 million, or $0.01 per share, while non-GAAP EPS came in at $0.17. Freshworks also posted a 24% non-GAAP operating margin and generated $57.7 million in adjusted free cash flow, a 24% margin.
"GAAP profitability is no longer just a goal. It is here," CEO Dennis Woodside said, adding that the company expects to sustain profitability while continuing to invest in EX and artificial intelligence.
Freshworks has now met the "rule of 40" for eight consecutive quarters, a sign that its balance of growth and profitability is holding up as it competes with larger service-management providers.
EX stays in the driver's seat
EX annual recurring revenue reached $567 million at the end of the quarter, up 23% as reported and 24% in constant currency. The business now accounts for about 59% of total ARR. Freshworks expects EX ARR to grow in the mid-20% range and exceed $600 million by the end of 2026.
The company said it is winning more large customers looking to move away from legacy service-management systems. Customers generating more than $100,000 in ARR grew 25% year over year as reported, or 26% in constant currency, and represent roughly 40% of total ARR. New wins cited by management included Seagate, which chose Freshservice after 14 years with a legacy provider, and American Oncology Network, which deployed Freshservice with Freddy AI Copilot.
"We are seeing demand from agile enterprises with up to 20,000 employees that want enterprise capabilities without the complexity of larger platforms," Woodside said.
AI attach rates and Agent Studio
AI is becoming a more defined part of Freshworks' expansion story. More than 7,000 customers are paying for an AI SKU, and Freddy AI Copilot attached to more than 70% of new deals above $30,000 in the quarter. Among eligible EX customers, 22% were paying for Copilot.
According to Woodside, agents using Freddy AI Copilot handle 50% more tickets, while Freddy AI Agent deflection rates average 50% and can reach 80% in mature deployments. Freshworks launched Freddy AI Agent Studio and MCP Gateway for Freshservice at its Refresh event in May. Hundreds of customers initially signed up for early access, and Woodside later said Agent Studio had more than 1,000 customers using it. The company plans to introduce session-based pricing for Agent Studio in the fall.
CFO Tyler Sloat, who also serves as chief operating officer, said AI is becoming a larger source of expansion activity, though adoption from existing customers can take time because they have established workflows. EX customers using AI continue to have net dollar retention above the companywide rate, Freshworks said.
Enterprise service management and FireHydrant add scale
Freshworks also highlighted momentum in adjacent EX products. Enterprise service management crossed $50 million in ARR, up 67% year over year, and about one-fifth of new EX seats came from outside IT. Roughly one-third of larger new EX wins included IT asset management products, and the company called the quarter its strongest new-logo period to date for that business.
FireHydrant, the incident-management unit Freshworks acquired, generated its first six-figure expansion deal in the quarter and was among the company's three largest deals of the quarter, according to Woodside.
CX remains steady
Customer experience ARR totaled $400 million, up 3% as reported and 4% in constant currency. Freshworks continues to expect low-single-digit CX growth for the full year as it manages that business with a focus on profitability.
More than 90% of Freshdesk customers had migrated to the Freshdesk Omni platform by the end of the quarter. CX AI agent sessions and conversations on Freshdesk Omni rose 60% sequentially and more than fivefold from a year earlier. Freshworks consolidated its CX organization in India as of July 1, combining go-to-market, product and engineering teams. Management said it is concentrating new customer acquisition on the higher end of the small-business market and the mid-market, rather than chasing smaller customers with historically higher churn.
Margins, retention and balance sheet
Non-GAAP gross margin was 86%, and non-GAAP operating income reached $55.9 million. Net dollar retention was 104% as reported and 105% in constant currency. Excluding legacy Device42 customers, constant-currency NDR was 106%, and EX NDR excluding those customers was above 111%.
Freshworks repurchased about 18.3 million shares for $159 million during the quarter and spent another $10 million to offset equity dilution through net cash settlement. The company ended June with $665 million in cash and investments and no debt.
Sloat said the full-year revenue outlook includes a $2 million foreign-exchange headwind compared with initial expectations. He reiterated that Freshworks will keep investing first in EX sales capacity and AI research and development, while directing excess capital to shareholder returns.
Company profile
Freshworks is a global provider of cloud-based customer engagement software. Its platform helps businesses manage customer support, sales, marketing and IT service operations, with products including Freshdesk and Freshservice.