10-Q: Freshworks Reports 16% Revenue Growth in Q2 2026

Freshworks Inc. announced its second-quarter 2026 financial results, showcasing a 16% year-over-year increase in total revenue to $237.4 million, alongside a return to operating income.

Summary

• Freshworks Inc. reported total revenue of $237.4 million for the three months ended June 30, 2026, a 16% increase compared to $204.7 million in the same period of 2025.
• For the six months ended June 30, 2026, revenue grew 16% year-over-year to $466.0 million from $401.0 million.
• The company achieved income from operations of $6.1 million for the second quarter of 2026, a significant improvement from a loss of $8.7 million in the prior year's quarter.
• Net income for the second quarter of 2026 was $3.2 million, compared to a net loss of $1.7 million in the second quarter of 2025.
• The net dollar retention rate decreased slightly to 104% as of June 30, 2026, from 106% as of June 30, 2025, attributed to unfavorable foreign exchange rates.
• The company repurchased approximately $159.0 million of its Class A common stock during the second quarter of 2026 under its $400 million repurchase program.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this filing as cautiously optimistic. While revenue growth is steady and the company has achieved positive operating income, the decrease in net dollar retention and ongoing macroeconomic uncertainties present headwinds.

Positives

• Revenue increased by 16% year-over-year for both the three-month and six-month periods ended June 30, 2026.
• Achieved positive income from operations of $6.1 million in Q2 2026, a significant improvement from a loss in Q2 2025.
• Net income turned positive at $3.2 million in Q2 2026, compared to a net loss in Q2 2025.
• Gross margin remained strong at 85% for both periods.
• The acquisition of FireHydrant, Inc. in January 2026 is expected to expand the IT service and operations portfolio.
• The company has $195.5 million remaining under its current share repurchase program as of June 30, 2026.

Negatives

• Net dollar retention rate decreased to 104% from 106%, primarily due to unfavorable foreign exchange rates.
• Operating expenses increased by 11% for the six-month period, driven by R&D, sales & marketing, and restructuring charges.
• Significant restructuring charges of $7.0 million were incurred in Q2 2026.
• Interest income decreased by 39% for the quarter and 38% for the six-month period due to reduced marketable securities balances for share repurchases.
• Unrealized foreign exchange losses impacted 'Other income (expense), net' significantly in both periods.

Risks

• Macroeconomic uncertainties, including inflationary pressures, global market volatility, and geopolitical developments, could adversely affect business spending and demand for products and services.
• Foreign currency exchange rate fluctuations have negatively impacted revenue growth and may continue to do so.
• The company relies on a third-party cloud infrastructure partner, Amazon Web Services, and any disruption could impact operations.
• The company faces competition from existing competitors and new market entrants.
• The company's ability to innovate, launch new products, and increase usage of existing products is critical for future growth.
• The company's ability to achieve or sustain profitability is subject to various factors, including managing growth and expenses.

Future Outlook

The company expects continued revenue growth driven by its subscription-based model. However, it anticipates that macroeconomic conditions and foreign exchange rate volatility may continue to impact results and make future predictions more challenging. Investments in R&D and sales/marketing are expected to continue, with a long-term goal of declining as a percentage of revenue.

Management Comments

• Our total revenue was $237.4 million and $204.7 million in the three months ended June 30, 2026 and 2025, respectively, representing year-over-year growth of 16%; and $466.0 million and $401.0 million in the six months ended June 30, 2026 and 2025, respectively, representing year-over-year growth of 16%.
• Our income (loss) from operations was $6.1 million and $(8.7) million for three months ended June 30, 2026 and 2025, respectively; and $(2.0) million and $(19.1) million for the six months ended June 30, 2026 and 2025, respectively.
• Current macroeconomic uncertainties, including inflationary pressures, significant volatility in global markets, and geopolitical developments have impacted and may continue to impact business spending and the overall economy, and in turn our business.
• Our net dollar retention rate was 104% as of June 30, 2026, compared to 106% as of June 30, 2025. This decrease was primarily due to unfavorable fluctuations in foreign exchange rates.
• We believe our existing sources of liquidity will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months.

Industry Context

StockSavvy.ai notes that Freshworks' performance aligns with the broader SaaS industry trend of sustained revenue growth, albeit with increasing pressure on profitability and retention metrics due to macroeconomic factors. The company's focus on AI-powered enhancements for both employee and customer experience is a key differentiator in a competitive market.

Comparison to Industry Standards

• Revenue growth of 16% is solid and generally in line with or slightly above the mid-to-high single-digit growth expected for mature SaaS companies, but below the hyper-growth rates of earlier-stage SaaS firms.
• A net dollar retention rate of 104% is considered healthy, indicating that expansion revenue from existing customers outpaces churn and contraction. However, a slight decline from 106% warrants monitoring, as industry benchmarks often aim for 110% or higher for strong growth.
• Achieving positive operating income after a period of losses is a positive sign, reflecting improved operational efficiency. Many SaaS companies are focusing on profitability alongside growth.
• The company's investment in R&D (20% of revenue) is consistent with industry norms for software companies aiming for innovation and competitive advantage.
• Sales and marketing expenses (47% of revenue) are typical for a growth-oriented SaaS company, though the stated goal is to reduce this as a percentage of revenue over time.

Legal Proceedings

• A securities class action complaint filed in November 2022, alleging material misstatements in IPO offering documents, is ongoing with the plaintiff appealing a court's summary judgment in favor of the defendants.
• A purported stockholder derivative complaint filed in March 2023, asserting state and federal claims based on alleged misstatements, is stayed pending the outcome of the securities class action.

Stakeholder Impact

• Shareholders: The company's return to profitability and continued revenue growth are positive indicators. However, the slight decrease in net dollar retention and ongoing macroeconomic risks may temper investor sentiment. Share repurchases could provide some support to the stock price.
• Employees: Restructuring charges indicate potential workforce adjustments, which could impact morale. Investments in R&D suggest continued focus on product development and innovation.
• Customers: The acquisition of FireHydrant and continued investment in AI suggest an ongoing commitment to enhancing product offerings, which should benefit customers.
• Creditors: The company's liquidity position appears strong, with substantial cash and marketable securities, suggesting an ability to meet its financial obligations.

Next Steps

• Continue to monitor macroeconomic conditions and foreign exchange rate volatility.
• Focus on increasing revenue from new customers and expanding existing customer relationships.
• Continue to invest in AI offerings and product development.
• Manage operating expenses to improve profitability.
• Utilize remaining capacity under the 2026 Share Repurchase Program.

Key Dates

Recommendation

Freshworks demonstrates steady revenue growth and a return to profitability, which are positive. However, the slight dip in net dollar retention, the impact of foreign exchange rates, and the ongoing macroeconomic uncertainties suggest a cautious approach. The company is executing well on its core business but faces external headwinds that warrant a 'hold' recommendation until these factors stabilize or show clear signs of improvement.

Keywords

SaaS, Customer Experience, Employee Experience, AI Software, Cloud Computing, IT Service Management, Subscription Revenue, Business Software