“`html

Image source: The Motley Fool.

Freshworks (NASDAQ: FRSH)
Q4 2024 Earnings Call
Feb 11, 2025, 5:00 p.m. ET

Freshworks Posts Impressive Q4 Results: A Look Ahead

Call Agenda Overview

• Prepared Remarks
• Questions and Answers
• Call Participants

Opening Statements

Operator

Welcome to Freshworks’ fourth quarter and full year 2024 earnings conference call. All participants are currently in listen-only mode. After today’s presentation, there will be a question-and-answer session. Please note that this conference is being recorded.

I’ll now turn the call over to our first speaker, Joon Huh, head of investor relations. Joon, please proceed.

Joon Huh — Vice President, Investor Relations

Thank you. Good afternoon, and welcome. Today’s call will cover Freshworks’ performance for the fourth quarter and full year 2024, along with our financial forecast for the first quarter and full year 2025.

Our discussion today may include forward-looking statements based on current expectations about our business and industry. These expectations are subject to various risks and uncertainties that could lead to actual outcomes differing materially from what is projected.

Freshworks’ Growth Journey

For a comprehensive discussion of material risks and important factors influencing results, please review our earnings release and SEC filings. Freshworks will not update forward-looking statements post-call unless legally required. We will also refer to certain non-GAAP financial measures during this call. You can find reconciliations between GAAP and non-GAAP measures in our earnings release on our investor relations website.

Now, I will hand it over to Dennis.

Dennis Woodside — President and Chief Executive Officer

Thank you, Joon, and thank you all for joining us today. Q4 delivered strong results for Freshworks, with our key metrics surpassing expectations. We finished 2024 on a high note, proudly serving over 72,200 customers using our CX and EX software.

In a competitive market, traditional costly software solutions are pushing customers towards our straightforward offerings. Our revenue grew 22% year-over-year to $194.6 million, which surpassed our earlier estimates. We achieved a non-GAAP operating margin of 21% and generated adjusted free cash flow of $41.7 million, corresponding to an adjusted free cash flow margin of 21% for the quarter.

During Q4, we added over 2,600 net customers, marking our largest quarterly increase in four years. Notable clients like Mesa Airlines, New Balance, and Rawlings Sporting Goods joined us, coupled with increased activity from large existing customers such as Amex GBT and UCLA.

Strategic Focus on Employee Experience

Our strategy emphasizes sustainable growth. This includes significant investments in employee experience (EX). Our EX sector saw a 35% year-over-year growth, now exceeding $400 million in annual recurring revenue (ARR).

In total, we have 18,300 EX customers, with more enterprises recognizing Freshworks as a valuable alternative to traditional IT vendors. Our upmarket success is underpinned by current trends in customer demands, our expansion in ESM, and our leadership in targeted industries.

As we look forward, we remain committed to delivering AI capabilities across our products to further boost productivity for our customers. Freshworks is well-positioned to capitalize on the evolving landscape in software technology. Thank you.

“`

Freshworks Expands Market Penetration Amid SaaS Discontent

Big SaaS companies are facing criticism for high charges and inadequate service, particularly towards mid-market clients.

Freshworks Emerges as a Viable Alternative

Freshworks provides enterprise-level software without the additional complexities often seen with larger vendors. An impressive 75% of Annual Recurring Revenue (ARR) in our Employee Experience (EX) business comes from mid-market and enterprise organizations with over 250 employees. Numerous prominent entities, including significant city governments and manufacturers, are shifting from legacy SaaS providers to Freshworks. A notable example is a multibillion-dollar hard drive manufacturer that ended its 13-year partnership with ServiceNow to switch to Freshservice.

Broadening Acceptance Across Various Sectors

The city and county of San Francisco, as well as Mesa Airlines, have also opted for Freshservice over ServiceNow. Moreover, in the fourth quarter, universities and healthcare organizations are increasingly steering towards Freshservice. Denver Health, a hospital and community health provider, transitioned from its old IT service management tool to Freshservice to better protect patient data and streamline operations.

Momentum in Enterprise Service Management (ESM)

Another factor driving growth in our EX sector is the rising interest in ESM, particularly with Freshservice for Business Teams. In Q4, the attach rate for new deals rose to 25%. ESM ARR has increased 2.5 times in 2024, with 20% of eligible clients now using Freshservice across various departments. Major organizations such as Alterra Mountain Company, TeamViewer, and Wake Forest University utilize Freshservice beyond IT for exceptional service experiences.

Expanding Utility Across Departments

Alterra Mountain Company, known for its Ikon Ski Pass, operates numerous resorts and sought a unified tech solution for improved collaboration. After positive results in IT, they expanded Freshservice to HR, finance, sales, and marketing. Similarly, Coherent, a global manufacturer, migrated its 500 internal agents to Freshservice from ServiceNow and broadened its use to HR for supporting 25,000 employees, with further expansion planned.

Enhanced IT Asset Management with Device42

Our advanced IT Asset Management (ITAM) offering with Device42 is another significant growth area. In Q4, we introduced a new integration that streamlines the experience for Freshservice users. Companies can now achieve better operations through infrastructure auto-discovery and dependency mapping, offering more actionable insights. Notably, Q4 saw the highest net new ARR for the Device42 division, driven by integrations that facilitate seamless internal support operations.

AI Capabilities Position Freshworks for Future Growth

Looking ahead, artificial intelligence (AI) is poised to positively impact our business. Following the launch of Freddy Copilot in February, we concluded the year with over 2,200 customers—a growth of 30% quarter over quarter. Projects utilizing Freddy Copilot, like that of the Kansas City Chiefs, demonstrate its efficacy in boosting productivity in IT and finance.

Building Momentum in Customer Experience (CX)

In the realm of Customer Experience (CX), Freshworks continues to thrive, especially among small- to medium-sized businesses (SMBs). We finished Q4 with over 58,200 customers and generated over $360 million in ARR, marking a steady 7% year-over-year growth on a constant currency basis. The ongoing conversion of free customers to paid plans significantly contributed to this success, leading to an additional two thousand customers this quarter alone.

Major corporations, including Airbus and AMC Networks, are opting for Freshdesk for enhanced ticket resolution processes, highlighting our rising influence in the software service industry. As Freshworks grows, we remain committed to offering enterprise-grade solutions without the complexities that typically accompany them.

Freshworks Excels in Q4 with Strong Financial Performance and Strategic Partnerships

Freshworks continues to strengthen its customer support and IT operations offerings, achieving notable stability in retention rates during Q4.

Innovative Product Updates Drive Customer Retention

In the fourth quarter, Freshworks introduced important enhancements to Freshdesk’s support admin features and supervisor experience, providing customers with advanced analytics. The company also launched integrations with PlayBox Workforce Management, a significant addition for users like Stitch Fix. These developments have resulted in solid retention rates, which remained consistent from Q3. Freshworks’ customer experience (CX) products are seeing growth, especially in AI adoption. The number of agents across the business has increased compared to the previous quarter, and there is mutual purchasing between CX and employee experience (EX) customers.

Dune London, a growing footwear and accessory retailer, is a prime example. Initially, they successfully implemented Freshdesk and Freddy AI, which deflected 40% of their customer inquiries. Recently, they added Freshservice with Freddy AI Copilot to streamline their IT team processes. Similarly, iPostal1, a leading provider of digital mailbox services, has utilized Freshdesk to manage its expanding customer base of over 1 million. Their adoption of Freddy AI and Freshservice has further optimized their internal operations.

Leadership Changes Set the Stage for Future Innovation

During Q4, Freshworks welcomed new executives, including Chief Product Officer Srini Raghavan, who brings significant experience from RingCentral, Five9, and Cisco. His leadership will be crucial as Freshworks innovates in CX and EX products. Additionally, Venki Subramanian joined as SVP of product management, bringing expertise from SAP and ServiceNow, which bodes well for strengthening their customer-centric solutions.

The company is also expanding its global partnerships, with over 500 active partners. This includes a significant agreement with Unisys, which has selected Freshservice as its modern IT solution to serve large and mid-market clients. Unisys will start as a reseller with plans to integrate Freshworks solutions into its managed service offerings, underscoring Freshworks’ momentum in the mid-market and enterprise spaces.

Strong Financial Results Highlight Business Growth

Tyler Sloat, Chief Financial Officer, highlighted the company’s impressive financial performance, emphasizing the non-GAAP operating margin, which increased by 800 basis points to 21%. Freshworks reported revenue of $194.6 million in Q4, reflecting a 22% increase year-over-year. This growth was driven by strategic initiatives and a focus on improving cost structures.

Device42 also contributed with approximately $10.3 million in revenue, and half of the new annual recurring revenue (ARR) for the quarter originated from the Freshworks field team. The EX segment has surpassed $400 million in ARR, showing year-over-year growth of 33%, while the CX segment has also held its ground at over $360 million in ARR.

Looking Ahead: Promising Future with Strategic Vision

Freshworks’ gross margin improved to over 86%, a 200 basis point increase from the previous year. The company expects to maintain a strong net dollar retention rate, estimating about 103% for Q1 moving forward. With these encouraging trends and continued execution of its strategic initiatives, Freshworks is positioned for further success in 2025 and beyond.

In closing, Tyler Sloat expressed gratitude to customers, partners, and employees for their support, further solidifying Freshworks’ commitment to delivering exceptional service.

Freshworks Sees Steady Growth in Key Customer Metrics as Q4 Results Are Released

Freshworks has reported strong momentum in its customer metrics and financial outcomes for Q4, highlighting its ongoing success in growing its annual recurring revenue (ARR).

Customer Count and Revenue Metrics Boost

Freshworks recorded an 11% year-over-year increase in the number of customers contributing over $5,000 in ARR, reaching a total of 22,558 customers by the end of Q4. Adjusted for constant currency changes, this growth rate climbed to 13%. This customer segment is crucial, accounting for 90% of the company’s ARR.

The more extensive cohort contributing over $50,000 in ARR saw a significant upturn, too, growing 22% year over year by reported figures, and 24% when factoring in constant currency, resulting in 3,053 customers. This group makes up 50% of the overall ARR. Overall, Freshworks expanded its total customer base by over 2,600 new customers this quarter, bringing the total to more than 72,200.

About 2,000 of these new customers stem from recent initiatives aimed at improving free-to-paid conversions. The company anticipates that these conversions will continue to yield slight benefits in Q1, following the momentum generated in Q4.

Strong Calculated Billings Indicate Robust Financial Health

Calculated billings in Q4 surged by approximately 23% year over year, totaling $222.5 million, a growth that held steady regardless of currency fluctuations. When excluding the impact of Device42, the increase was 17%. For Q1 2025, Freshworks is initially projecting calculated billings growth between 13% and 14% on a constant-currency basis.

Looking ahead to 2025, Freshworks forecasts similar growth in calculated billings, with estimates for 13% growth by reported figures and 14% on a constant-currency basis. Specific factors influencing this growth include early renewals and foreign exchange effects, as the company navigates quarterly comparisons.

Impressive Cash Flow and Share Repurchase Plans

In Q4, Freshworks generated $41.7 million in adjusted free cash flow, surpassing expectations due to effective collection activities and operational efficiencies. The adjusted free cash flow margin reached 21%, reflecting an 800-basis-point improvement from the previous year. Notably, these results exclude a one-time cash usage of $7.3 million for restructuring costs.

For the full year 2025, the company expects to generate approximately $210 million in free cash flow. In Q4, they repurchased $15.5 million of their shares at an average price of $15.77 per share as part of an ongoing program approved by the board to repurchase up to $400 million of common stock.

To manage share dilution, Freshworks net-settled approximately $11 million this quarter and $60 million for the entirety of 2024, totaling nearly $300 million since the company’s IPO.

Optimistic Financial Outlook for 2025

Freshworks sets optimistic projections for Q1 2025, anticipating revenue to fall between $190 million and $193 million, reflecting a year-over-year growth of 15% to 17%. When considering constant currency rates from the previous year’s Q1, this represents an adjusted growth of 16% to 18%. Expected non-GAAP income from operations for Q1 is projected to be in the range of $32.5 million to $34.5 million.

For the entire 2025 fiscal year, revenue estimates range from $809 million to $821 million, representing a year-over-year increase of 12% to 14%. The company’s financial outlook relies heavily on current foreign exchange rates and recognizes the potential for ongoing fluctuations affecting final results.

As Freshworks approaches each quarter, it anticipates varied growth rates, with expectations of stronger performance in the first half of the year compared to the latter, largely due to the impacts of the Device42 acquisition.

Q&A Session with Analysts

Operator

Thank you. [Operator instructions] One moment for our first question. It comes from Brent Bracelin with Piper Sandler. Please proceed.

Brent Bracelin — Analyst

Thanks for taking my question. I want to delve deeper into the EX segment, now a $400 million ARR business with a growth rate above 20%. What are your thoughts on maintaining this growth rate as you anniversary the Device42 acquisition? Can you provide insight into the growth opportunities within EX?

Thanks.

Dennis Woodside — President

“`html

Company Targets Mid-Market Growth: Insights from Q4 Financial Performance

By Dennis Woodside, President and Chief Executive Officer

Thank you, Brent. It’s Dennis. We see a significant opportunity as our EX business targets the mid-market and lower enterprise segments. Our ideal customer profile (ICP) includes companies with employee counts ranging from 250 to 20,000.

This part of the market faces sophisticated IT needs. Typically, these businesses are global, requiring IT Asset Management (ITAM) and IT Operations (ITOps). We offer solutions tailored to these requirements.

ServiceNow stands out as our primary competitor. Their solution is known for its complexity, making it challenging for customers to implement and derive value. Many in our target market seek enterprise-grade solutions that avoid such complexities while delivering faster value and reduced costs. This is reflected in our 40-plus $100,000 contracts won last quarter, signaling strong mid-market demand.

We are witnessing a trend of customers transitioning from legacy providers like Ivanti and Cherwell to our offerings over ServiceNow. The mid-market alone in the U.S. contributes an estimated $10 trillion in economic activity, representing a substantial growth avenue for us.

Regarding our product strategy, we’ve recently intensified our sales efforts for Device42. Last quarter focused on pipeline development and overcoming post-merger challenges. As we enter Q1, our sales pipeline has roughly doubled compared to Q4.

Companies increasingly seek better asset management tools, particularly for security purposes. We believe that both the demand for Device42 and advancements in AI will be significant growth accelerators for our IT business moving forward.

Entering 2025, we have various strategic leverage points, and I’m proud of our solid Q4 performance, which positions us well for this year.

Brent Bracelin — Analyst

Thank you. Tyler, a quick follow-up to you: it’s impressive to see over 20% operating margin this quarter, even post-acquisition. How are you balancing investment strategies? Your guidance suggests a conservative 16% operating margin for next year.

With over $1 billion in cash, are you considering further mergers and acquisitions to complement your product roadmap while maintaining a robust growth model? Please elaborate on your cash strategy and future investments after achieving that 20% margin.

Tyler Sloat — Chief Financial Officer

Thanks, Brent. Our efficiency has been strong. This past year has seen positive free cash flow along with robust operating margins. We intend to maintain that focus on efficiency.

We are also clear about our openness to explore inorganic growth opportunities. Device42 was our first significant acquisition in six years, and we plan to optimize this integration. Alongside, we’re continuing our share buyback program while actively exploring net sales this year.

During our Q4 restructuring, we outlined plans to reinvest significantly into the business, ensuring we have the right teams in place to drive growth. I believe we can balance prudent investments with improved bottom-line performance.

Operator

Thank you. One moment for our next question, please, from David Hynes with Canaccord Genuity. Please proceed.

David Hynes — Analyst

Good evening. Dennis, can you explain the recent drop in the 50K-plus customer additions? It raises questions about the ITSM business’s performance. Yet, I understand this metric doesn’t reflect upselling to existing customers. Could you clarify that data point in relation to overall bookings in IT?

Dennis Woodside — President and Chief Executive Officer

Thanks for the question. First, keep in mind that we experienced a significant foreign exchange (FX) impact in Q4. Approximately 40% of our revenue comes from Europe, and 15% from other regions, making us more susceptible to FX fluctuations.

Additionally, we are comparing against a strong Q4 from the previous year, which also influenced these metrics. While we’re landing fewer large deals, the average deal size is increasing. In Q4, we achieved record numbers with contracts over $200K, as well as many renewals and expansions over the $100K mark.

All these factors have led to a lower overall number of customers exceeding the $50K threshold. However, our Average Revenue Per User (ARPU) for this cohort is on the rise, a metric we track closely. Overall, we remain optimistic about our momentum in the upmarket segment.

Leading global customers, such as New Balance, are now part of our portfolio, and we are confident in our upmarket expansion opportunities.

David Hynes — Analyst

That makes sense. As a follow-up, tell me more about the Unisys partnership. How significant is the potential for transforming it into a Managed Service Provider (MSP) opportunity? Are we equipped from a product standpoint to cater to those customers now?

Dennis Woodside — President and Chief Executive Officer

We are indeed excited about the Unisys partnership. I met with their CEO in Q4, and they demonstrate strong alignment with our target market of mid-sized enterprises. Unisys’s extensive market evaluation confirmed our platform as their chosen IT service product.

We are actively developing a co-selling strategy. Early results show promise, as we have closed a few deals with Unisys, who will also build an MSP around our Freshservice product. We have been enhancing our product’s functionality for MSPs, with planned releases in May aimed at adding multi-account management and other features.

Currently, over 1,000 MSPs utilize our product, and despite previous limitations in specific MSP functionalities, we believe this sector holds significant growth potential, and I am quite optimistic about it.

David Hynes — Analyst

Thank you very much.

Operator

Thank you…

“““html

Examining Recent Trends in AI and SMB Growth at Freshworks

Elizabeth Porter — Analyst

Thank you for the question. Regarding net revenue retention (NRR), the outlook appears somewhat pressured due to expansion challenges. Considering this has persisted for a few years, I’d like to understand when customers will feel comfortable to expand again. Moreover, how can the current innovation cycle in AI drive this expansion, particularly as we see a shift towards monetization?

Dennis Woodside — President and Chief Executive Officer

I’ll address the second part first. The innovation cycle is just starting to unfold. We’re witnessing significant double-digit attachment rates for our Freddy AI products within the small and medium-sized business (SMB) segment. This quarter marks our best growth in total net additions in four years, much of which can be attributed to AI discussions. We’re actively engaging with our customer base of 70,000 to promote AI solutions like Freddy AI Agent and Freddy Copilot. We believe there’s substantial potential for growth in this area, and we’re still in the early adoption phase of AI. This year is expected to see continued acceleration in this sector. Now, Tyler can address net dollar retention.

Tyler Sloat — Chief Financial Officer

Hi, Elizabeth. We reported a net dollar retention rate of 105% in constant currency, which slightly exceeded our expectations. We’ve made consistent progress with customer churn, which is currently in the solid mid-teens range. However, we’ve faced challenges with our main expansion strategy, which hinges on agent additions. The decline in our expansion rates has shown signs of stabilizing in the latter half of the year, but we still see a year-over-year decline, which leads us to maintain our estimate of 104% for Q1.

As Dennis mentioned, our Freddy products are performing well. From a monetization perspective, we have work to do on integrating them with our existing customer base. However, new business attach rates are very promising. We believe Device42 has significant potential within our Freshservice client base. Our ESM offerings for Freshservice are key add-ons we are prioritizing as we approach 2025, complementing agent additions.

Elizabeth Porter — Analyst

As a follow-up on the SMB front, it looks like the increase in net additions stemmed from better execution in converting free users to paid customers. Can you provide an update on the overall demand environment for SMBs? Are improvements from last quarter persisting, and what’s your outlook for 2025?

Dennis Woodside — President and Chief Executive Officer

The demand among SMBs is stable to gradually improving. You can see this reflected in our ARR figures for customer experience, which have shown around 7% growth year-over-year in constant currency for the past two quarters. While SMBs are still feeling the effects of high interest rates, they are beginning to recognize AI’s potential to enhance efficiency. This realization is especially strong among SMBs with 100 to 200 employees that have established IT and customer support teams. Overall, I’m optimistic about our prospects for 2025.

While I cannot provide absolute clarity just yet, we are pleased with our progress in Q4.

Elizabeth Porter — Analyst

Thank you.

Operator

Thank you. To respect the time of other analysts, please limit questions to one each. The next question comes from Pinjalim Bora with J.P. Morgan. Please proceed.

Unknown speaker — J.P. Morgan — Analyst

Hello, this is Noah on behalf of Pinjalim. Could you elaborate on the 2025 guidance specifically for the CX and Freshservice segments? Thank you.

Tyler Sloat — Chief Financial Officer

Sure, Noah. We haven’t broken down guidance between the two products. However, we continue to see strong growth in the EX segment. We previously noted that this segment could sustain around 20% growth, while CX has stabilized at about 7% growth as indicated in Q4. We’re focused on improving our Ideal Customer Profile (ICP) strategy.

Regarding our yearly revenue guidance, this marks our first outlook for 2025. We have a better understanding of Q1 than the full year, and we will provide updates as the year progresses. One point worth noting is the annualization of the Device42 acquisition, which will complicate year-over-year revenue comparisons in the latter half of the year. Additionally, our operating margins will be influenced by our merit cycle in Q2, but we anticipate continued efficiency improvements in the back half of the year. We’ll provide updates on guidance as the year unfolds.

Operator

Please hold for our next question from Patrick Walravens with Citizens JMP. Please proceed.

Patrick Walravens — Analyst

Thank you, and congratulations on your success. Dennis, with the recent strides in AI through developments like DeepSeek and Mistral’s rise on the App Store, have you had a chance to assess what this means for your customer offerings and the costs associated with delivering AI solutions?

Dennis Woodside — President and Chief Executive Officer

Absolutely, Pat. Competition is beneficial, particularly in the realm of large language models (LLMs), as it has driven prices down and will likely continue to do so. We’ve structured our technology stack to allow us to explore various LLMs as the field advances.

“`

Freshworks Evaluates AI Collaboration to Improve Customer Experience

Exploring the Best AI Models for Enhanced Security and Performance

Freshworks is analyzing various AI models from industry leaders like Microsoft, Anthropic, and Google to boost their services. By evaluating cost, performance, and data security, they aim to offer better products to customers while fostering competition that can lead to greater efficiency and lower costs.

Investment Strategy Shifts Focus to Momentum in CX and ITSM

Dennis Woodside — President and Chief Executive Officer

In a continuation of their growth strategy, Freshworks is strategically allocating resources. Approximately two-thirds of their investments will target Customer Experience (CX) initiatives, particularly in the small to medium-sized business (SMB) sector. Current efforts revolve around marketing outreach aimed at increasing demand within this community. Conversely, Enterprise Experience (EX) investments will focus on mid-market and lower enterprise levels, allowing adjustments based on ongoing performance evaluations throughout the year. Over time, there has been a notable improvement in operational efficiency, demonstrated by a decline in sales and marketing costs relative to revenue.

Strong Demand for Freddy Copilot and Future Monetization Plans

Rob Morelli — Analyst

As interest in their Freddy AI products grows, particularly the Freddy Copilot, Freshworks has not yet disclosed detailed financial figures regarding its attach rate and Average Contract Value (ACV). However, the current attach rate stands at an impressive 50%. Continued advancements in their monetization strategies for Freddy products are expected, with a further breakdown anticipated during their upcoming Investor Day meeting. The existing cost of the Freddy Copilot add-on is $29 per agent, while the Freddy AI Agent operates using a consumption-based model, rewarding Freshworks for customer engagement.

Competitive Advantages through Device42 Integration

Brent Thill — Analyst

Freshworks is witnessing an increase in deal win rates thanks to the incorporation of Device42, an IT asset management solution. This integration has been essential in securing large contracts, particularly in the SMB and lower enterprise markets. Historical partnerships, including one with New Balance, have showcased the value of integrating Device42 to meet comprehensive IT needs. As Freshworks continues to capitalize on technical milestones, including recent enhancements to data synchronization between Freshservice and Device42, the potential for growth remains strong.

Looking Ahead: Key Milestones and Growth Potential for Device42

Dennis Woodside — President and Chief Executive Officer

With significant milestones reached, including the improved integration between Freshservice and Device42, Freshworks anticipates further advancements. The company is on track to release a cloud version of Device42 by late 2023 or early 2024. The integration is not just about functionality; it’s proving vital for competing in the market against established players. Several recent sales with leading customers include Device42 in their packages, indicating a growing trend for Freshworks in upmarket expansions.

Final Thoughts on Company Momentum

The sales team at Freshworks is optimistic about the prospects of Device42, as they aim to leverage its capabilities to enhance their competitive edge. With a substantial increase in the pipeline compared to previous quarters, expectations for continuous growth remain high.

Insights from Freshworks: Revenue Growth and Net Retention Expectations

Freshworks’ CFO Comments on Retention Rates and Device42 Contributions

Operator

Thank you for joining us. The last question will be from Ryan MacWilliams with Barclays. Please go ahead.

Ryan MacWilliams — Analyst

Hi, everyone. Thanks for the opportunity to ask a question. Tyler, could you explain how we should understand the expected net retention for this year based on your forecast? Additionally, what can you share about the revenue contribution from Device42 for 2025? Thank you.

Tyler Sloat — Chief Financial Officer

Sure. For Q1, we reported a net dollar retention rate of 104%. We didn’t specifically provide a full-year forecast, but we expect it to remain consistent. As we gather more data each quarter regarding expansion rates and churn, we will refine this estimate. For the Device42 integration, we are not planning to separate those numbers at this time. In our previous remarks, we noted that three of our top ten deals in Q4 included Device42, and half of the new Device42 deals were sold by Freshworks teams, indicating strong cross-selling efforts with Freshservice.

It’s encouraging that the rationale behind the acquisition is beginning to manifest, as we treat these offerings as one cohesive product. This makes it challenging to isolate revenues between the two moving forward. If we encounter any significant discrepancies, we will address those specifically. However, in general, we don’t intend to separate the revenue streams.

Ryan MacWilliams — Analyst

That makes sense. Thank you, Chris.

Tyler Sloat — Chief Financial Officer

Thanks, Ryan.

Operator

Thank you. This concludes our Q&A session. [Operator signoff]

Duration: 0 minutes

Participants in the Call:

Joon Huh — Vice President, Investor Relations

Dennis Woodside — President and Chief Executive Officer

Tyler Sloat — Chief Financial Officer

Brent Bracelin — Analyst

David Hynes — Analyst

Elizabeth Porter — Analyst

Unknown speaker — J.P. Morgan — Analyst

Patrick Walravens — Analyst

Rob Morelli — Analyst

Brent Thill — Analyst

Robert Oliver — Analyst

Rob Oliver — Analyst

Ryan MacWilliams — Analyst

More FRSH analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for accuracy, there may be errors or omissions. The Motley Fool does not assume responsibility for your use of this content and encourages thorough research, including listening to the call and reviewing SEC filings. Please refer to our Terms and Conditions for further details.

The Motley Fool has no position in any stocks mentioned. See our disclosure policy.

The views expressed in this text are those of the author and do not necessarily represent the views of Nasdaq, Inc.