Yes, I think macro absolutely is a part of it and yes, we can absolutely do more there.
Brent Thill: And just a quick follow up, Dennis, when you think about that modernization of a digital motion, how long does that take to complete? Is that a 2024 event? Is it going to be complete in the front half? How do you think about the actual timing of it?
Dennis Woodside: It’s a ’24 event, and the expectation is that we start seeing impact later this year.
Operator: Our next question comes from the line of Rob Oliver with Baird.
Rob Oliver: Great, thanks. I’ll add my congratulations, Dennis, to you and Gi to you as well. Dennis, my question is for you, and I know you commented that it’s too early to say that generative AI is the reason for the agent weakness in Q1, but maybe to harken back to Scott’s question at the outset, you also said that you’re seeing early signs of Freddie monetization. So I’d be curious to hear what sort of impact that is having within your accounts, in terms of, I guess, seat and agent activity as well as and this came up in conjunction with Klarna, sort of that distinction between level one and level two deflections. We would expect that line to shift. So curious to hear your view on that and then I had a follow up for Tyler.
Girish Mathrubootham: Yeah. So on AI, every sale or M [ph] renewal that we’re involved with, AI is at the center. Every customer wants to talk to us about our AI capabilities, our AI roadmap, how that can help them. They want to see examples. And we have two paths to monetize today. We have Freddy Self-serve, which is one, and then we have the copilot, which assists the agent. Different pricing models, one’s consumption, one’s price per seat. Both are getting tremendous interest, and both are involved in sales in different ways. In some cases, we’re monetizing directly. People are paying us right off the bat. In other cases, we’re using our AI capabilities as an inducement to close the deal. An example, there really is Stitch Fix, which bought not just on the core, in that case customer support platform, but it was on the back of Copilot and the AI roadmap.
And then in other cases, we’re using AI and thinking of it really as an adoption play where we want to get a customer wall-to-wall using AI across all their agents, get them seeing value for it, give it to them for a period of time for free on a limited basis or a very low cost, and then monetized down the road. So it’s very early. Our copilot was, went into GA just in the middle of Q1, but the interest is there, the usage is there when customers are up and running and the promise is there because the value is ultimately there for the customer.
Rob Oliver: Great. Very helpful. Thanks. And then, Tyler, I was just wondering if you could give us a little bit more color just on the sort of billings expectations and linearity throughout the year. Obviously, solid quarter this quarter. It’s going to drop off fairly meaningfully. I just wanted to get your sense for the linearity there and what gives you the confidence in the better billings outlook sort of later in the year. Thanks.
Tyler Sloat: Sure. Yeah, of course, we said normalized billings for Q1 17%, 14% as reported, and we said 12% for Q2. That’s an as-reported number and our expectation is that would normalize up. What happens is that, Q2 of last year, we actually had a pretty decent amount of poll-ins from Q3. We always have poll-ins, like early renewals with expansion and we kind of have an expectation about that, but it’s a little bit unpredictable and so right now, 12% unnormalized and we do expect a little bit of poll-ins, but that one again will have much better view at the end of the quarter. For the year 16%. Yeah, the numbers fall out and we can see the billing schedules going out. That’s what we expect for the year in line with the guidance that we gave, which does assume there’s going to be a little bit of acceleration, but we can already see some of that in the numbers.
Operator: Our next question comes from the line of Ryan MacWilliams with Barclays.
Ayman Akhnoukh: Hey guys, this is Ayman Akhnoukh on for Ryan MacWilliams. Thanks for taking the question. Great to hear about the 30% improvement in productivity from your customers leveraging Freddy AI. Curious if there were any other key takeaways post to Freddie Copilot becoming GA like, how has the process been converting those beta customers, which I think totalled around 2500 customers in 3Q to paying customers.
Dennis Woodside: Thanks for the question. It’s Dennis. What’s been interesting to see is that the conversion and the interest is across all customer segments, both small and large. So we’re seeing a surprising number of SMBs who are new to Freshworks coming in and signing up directly for AI from day one. So they’ll try the product for a limited period of time. They’ll see the value and they’ll pay for it and the pricing actually is holding up quite well. So the SMB side, I think has been surprisingly strong. I think when you get into larger customers, different customers are at different points in their adoption phase. Some are leaning in and going all in from day one. Others want to really understand the data implications, security implications.
There’s a long review process that takes a bit longer, but every single customer wants to talk about it, which I think is the exciting part and that gives us a lot to talk about at renewal with existing customers and certainly every new prospect that we talk to, AI is at the centerpiece of the pitch.
Ayman Akhnoukh: Understood. And how does the trajectory for rent retention look like from here? Anything to call out from upsells, churn or seats that’s worth noting and maybe what’s implied for the 105%, 106% guide for 2Q.
Tyler Sloat: Nothing’s implied there. I think what we’re seeing there is very similar to what we saw in Q1. So kind of, we said 106. It came in at 106 churn. We said picked up slightly but not materially enough, to round to anything and we’ve already done a really, really good job at bringing down kind of our gross churn over the past couple of years. The expansion motion, as we’ve talked about in the past, we’re very, very focused on how we’re expanding with our customers outside of agent edition. Agent edition is still the number one expansion motion for us, and a lot of that is organic. But as we’ve talked about that, that rate has decreased over the last couple of years. What we are seeing is that good pickup of some of our newer products and then Freddie Copilot in particular, there is actually some good add on business there, but nothing that is going to move the needle higher than 105%, 106% for Q2.
Yeah, for the year we expect it to be roughly the same in that 106% range.
Operator: Our next question comes from the line of Dan Reagan with Canaccord Genuity.
Daniel Reagan: Hey guys, this is Dan Reagan on for DJ. First, I just wanted to ask if you could elaborate on the expected synergies from the Device42 acquisition. So you’ve historically partnered with Device42 on large enterprise opportunities. So I’m just wondering how you think, how you’re thinking about the go-to-market synergies from here beyond what you’ve been seeing and then sort of how it positions Freshworks with your upmarket ambitions. Maybe any nice cross sell opportunities with its 800 customer base, any color there would be awesome.
Girish Mathrubootham: Thanks for the question. We see Device42 in a couple ways. First of all, we’ve been partnering with them for the last 18 months. So we have a product integration that allows a ITSM customer to easily flip into the Device42 environment. We’ve been co selling with them to large customers. We called out one of the customers last quarter was a large apparel retailer. Device42 is integral to that sale. I was in Europe earlier last week and one of our larger customers, we are now upselling Device42 in and so we know that the product works. We know that our customers, especially these larger customers, they want to buy ITSM alongside a sophisticated ITAM solution and we’ve seen the product in action. So we feel like we derisk product market fit.
They have 800 customers worldwide. Like most of those customers do not use Freshservice as their ITSM. So we see synergies in a couple different ways. As those ITSMs come up for renewal, we will know that they’re up for renewal. We’ll be able to get in front of those decision makers and make a pitch and win some business there. And then amongst our thousands of customers, most of them don’t use an advanced ITAM solution from Device42. So we will have a programmatic approach to selling advanced ITAM into our existing base. So I think those are two areas and we definitely see a need for more advanced capability than we currently have among larger customers. So for us, it eases this move up market. It puts us in a better position vis à vis ServiceNow and Atlassian in particular, which have more in depth ITAM solutions than we did natively, which is why we pursued the acquisition.
