This article first appeared on GuruFocus .
Release Date: August 04, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
-
Revenue grew 16% year-over-year to $237.4 million, exceeding expectations and marking the seventh consecutive quarter of revenue beats.
-
Achieved positive GAAP net income of $3.2 million ahead of schedule, demonstrating strong profitability and financial discipline.
-
EX ARR grew 24% on a constant currency basis to $567 million, with strong momentum in large deals and upmarket traction.
-
AI monetization is gaining traction with over 7,000 customers paying for AI SKUs and Copilot attach rates exceeding 70% on larger deals.
-
Enterprise service management (ESM) crossed $50 million in ARR, growing 67% year-over-year, and ITAM is expanding with strong new logo wins.
Negative Points
-
CX ARR growth remains sluggish at 4% on a constant currency basis, reflecting ongoing challenges in the business.
-
Net dollar retention (NDR) is relatively low at 104-105%, indicating limited expansion from existing customers.
-
The company faces a $2 million FX headwind for the full year, which could pressure revenue growth.
-
Stock-based compensation, while declining, still represents a significant cost, and the company is working to manage it more prudently.
-
The CX business is undergoing restructuring and consolidation, which may cause near-term disruption and uncertainty.
Q & A Highlights
Q: Can you unpack the drivers behind the EX business's slight deceleration to 24% constant currency growth in Q2 and the confidence in sustaining mid-20s growth in the back half of the year? A: Tyler Sloat, COO and CFO: The slight dip from 25% in Q1 to 24% in Q2 is just noise and within expectations. We remain highly confident in mid-20s growth for EX. This confidence is driven by larger deal sizes and a strong pipeline on the new business side. On the expansion side, we have significant runway: only about a third of new lands include ITAM, leaving two-thirds of the base to upsell. The new Advanced ITAM Cloud product opens up the entire existing base that previously didn't use asset management. Fire Hydrant is also a new land-and-expand opportunity, as evidenced by it being one of our top three largest deals in Q2. Dennis Woodside, CEO, added that the market is still fragmented with no competitor holding more than 20% share, and the platform provides multiple ways to win (ITSM, ITAM, ITOM, ESM, AI), which builds momentum for the second half.
Q: How are you thinking about competing against new AI-native service management vendors that position themselves as an intelligence layer on top of existing ITSM systems like ServiceNow? A: Dennis Woodside, CEO: We are aware of these startups but have not seen them make significant competitive traction. Customers want a system of record with the control, security, and integrated AI that is easy to configure and use. Our Freddy AI Agent Studio, launched in May, already has over 1,000 customers in early access, demonstrating demand for our experience layer. We believe it's hard for these startups to succeed because doing AI well requires a deep understanding of the operating environment, existing workflows, and controlssomething we've spent over a decade building.
Q: How much does being named a Leader in the 2026 Gartner Magic Quadrant for ITSM help with lead generation and the overall business? A: Dennis Woodside, CEO: It helps a lot. The recognition validates the value we provide and the evolution of our product. It drives interest from larger accounts, often referred by analysts and other customers. This is reflected in our numbers, with customers contributing over $100,000 in ARR growing 26% year-over-year and now representing 40% of total ARR. The recognition confirms that our complete platform, which handles service operations from frontline questions to incident resolution, is what agile enterprises up to 20,000 employees want, as they prefer a modern, manageable system over a more complicated one.
Q: What is the runway for growth in the ITAM and ESM cross-sell products within your existing EX customer base, and what is the current penetration? A: Dennis Woodside, CEO: We believe both businesses will reach $100 million in ARR within the next two years. ESM grew 67% in the quarter, and ITAM was attached in over a third of our larger deals. ITAM is often a quick follow-on upsell after an ITSM land, and it's self-reinforcing with our ITOM efforts. We had our best quarter ever for Asset Management, driven by the new cloud-based version, which has attracted many customers who wouldn't have bought an on-prem product. Penetration in the existing base is still early, especially for ESM, and we are investing in out-of-the-box capabilities for HR, facilities, and finance teams to expand into new departments.
Q: The constant currency NDR has been stable at about 105%. With strong Freddy AI Copilot attach rates on new deals, are you seeing this translate into upsell activity in the existing base, and when should we expect it to show up in NDR? A: Tyler Sloat, COO and CFO: The NDR has been consistent and slightly improving. While it's harder to get existing customers to adopt Copilot because they have established workflows, we have prescriptive sales plays around it. It is one of our larger expansion motions, and as a percentage of expansion, it is increasing. We can't specify when it will impact NDR, but the trend is positive.
Q: Can you discuss the linearity of demand and whether you are seeing any impact on sales cycles as customers reassess their AI investments? A: Dennis Woodside, CEO: We are not seeing any impact on sales cycles or decisions related to AI. Linearity is similar to prior quarters, with more deals closing in the back half of the quarter as we move upmarket. AI is actually a motivator for customers to re-evaluate their vendors. Many of our wins come from customers with legacy providers who are now prompted to consider alternatives because of AI. This dynamic is driving more business for us, as customers like Seagate, a 14-year incumbent customer, go to market and hear about Freshworks.
Q: How important is an enterprise-grade ITAM solution as you move upmarket, and will Device42 become a leading driver of new logos or remain a cross-sell opportunity? A: Dennis Woodside, CEO: Customers are not just buying ITSM; they are buying the full capability to power their IT department. Asset management, ESM, and ops are table stakes, especially upmarket. Our larger deals typically include multiple components out-of-the-box. It's essential for us to compete and move upmarket. Tyler Sloat, COO and CFO, added that we are not forcing on-prem customers to migrate to the cloud. The new Advanced ITAM Cloud is at parity with the on-prem version, and we can now offer both to new and existing customers.
Q: How is the maturing partner program driving retention and expansion, and what is the long-term impact on the business? A: Dennis Woodside, CEO: When partners are involved, our retention rates are higher, expansion happens faster, and close rates are higher. We are purposefully cultivating a select group of high-leverage partners like Unisys and CGI, especially on the EX side. As we move upmarket, partners become more critical for migrations and ongoing configuration. Currently, about 40% of our business is partner-influenced, and we expect this to grow as we continue to move upmarket.
Q: With Freddy AI attached, what is the magnitude of deal size growth, and what should we expect over the next couple of years from adding these capabilities? A: Dennis Woodside, CEO: ARPA growth has been double-digit for some time. We
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
