Freshworks recently announced its impressive second-quarter results for 2026, showcasing substantial growth and achieving GAAP profitability earlier than anticipated. This success was largely driven by the robust expansion of its Employee Experience (EX) division and the increasing integration and adoption of artificial intelligence tools throughout its product suite. The company's strategic focus on the mid-market and agile enterprise segments, coupled with prudent capital management and share repurchases, has positioned it for continued strong performance and an optimistic outlook for the fiscal year.
The company's EX business segment emerged as a primary growth engine, witnessing a 24% increase in Annual Recurring Revenue (ARR) on a constant currency basis, reaching $567 million. This momentum was significantly bolstered by new customer acquisitions, particularly those displacing established, legacy providers. A notable example is Seagate, a global leader in hard drives, which transitioned to Freshservice after 14 years with a competitor, seeking enhanced AI capabilities and workflow adaptability. Similarly, American Oncology Network successfully implemented Freshservice and Freddy AI Copilot across multiple departments, demonstrating rapid value realization and broad applicability beyond traditional IT. This trend is evident in the 26% growth of customers with over $100,000 in ARR, now constituting 40% of the total ARR, affirming the effectiveness of Freshworks' enterprise market strategy.
Freshworks has also broadened its EX platform through strategic expansions into IT Asset Management (ITAM) and Enterprise Service Management (ESM). The ITAM offering, enhanced by the integration of Device42 and the launch of a cloud-based version, has become a crucial component in one-third of new large EX deals. This expansion provides a comprehensive solution for IT departments requiring unified service operations and efficient asset tracking. ESM also recorded substantial growth, with a 67% year-over-year increase, contributing $50 million to ARR, indicating a growing demand for extending IT service management principles to other business functions like HR and legal. Furthermore, the successful integration of FireHydrant, a recent acquisition, led to its first six-figure expansion deal, highlighting the potential for cross-selling and diversified revenue streams.
Artificial intelligence continues to be a pivotal factor in Freshworks' success, embedded across its platform to deliver tangible customer value and open new monetization avenues. The Freddy AI suite, including Freddy AI Agent Studio and MCP Gateway, has seen rapid adoption, with thousands of customers utilizing AI-related products. Customers leveraging Freddy AI Copilot have reported a 50% increase in productivity for support agents, while AI agent deflection rates average 50% and can reach up to 80% for mature deployments. This demonstrates how AI is fundamentally transforming service operations economics. The high Copilot attach rate of over 70% for new enterprise deals exceeding $30,000 underscores the strong demand for these AI capabilities, significantly contributing to higher Net Dollar Retention (NDR) among EX customers with AI.
In contrast, the Customer Experience (CX) business, while not growing as rapidly as EX, maintained steady performance with a 4% ARR growth on a constant currency basis, reaching $400 million. The company's strategic decision to consolidate CX operations in India and transition over 90% of Freshdesk customers to a unified omnichannel platform has yielded measurable efficiency gains, including high first contact resolution rates and increased agent productivity. These efforts ensure the CX business remains robust and poised for sustained growth. Additionally, Freshworks appointed Ryan Manning as Chief Product and Technology Officer, bringing extensive experience in service management and CRM platforms to further drive product innovation.
Financially, Freshworks exceeded expectations, reporting total revenue of $237.4 million, a 16% year-over-year increase. The company achieved GAAP net income of $3.2 million, translating to $0.01 GAAP EPS, ahead of its 2026 goal. Non-GAAP operating income stood at $55.9 million, reflecting a 24% operating margin and marking the eighth consecutive quarter of achieving the Rule of 40. The company's net dollar retention was 104% (106% excluding Device42 legacy customers), demonstrating strong customer loyalty and expansion. Furthermore, Freshworks has repurchased $200 million in shares year-to-date, reducing outstanding shares by 7% since its IPO, showcasing its commitment to capital efficiency. With $665.3 million in cash and investments and no debt, the company is well-positioned for future investments in growth and innovation.
Freshworks' second-quarter achievements underscore its leadership in the AI-powered unified service operations platform market. The consistent growth in its EX business, fueled by innovative AI tools and expanded platform offerings, demonstrates the company's ability to meet the evolving needs of agile enterprises. Coupled with strong financial performance, including early GAAP profitability and strategic capital management, Freshworks is confidently executing its vision and is well-prepared for continued success in the dynamic technology landscape.
