Good day and thank you for standing by. Welcome to the Freshworks Fourth Quarter and Full Year 2023 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Joon Huh, VP of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Freshworks fourth quarter and full year 2023 earnings conference call. Joining me today are Girish Mathrubootham, Freshworks' Chief Executive Officer; Dennis Woodside, Freshworks' President; and Tyler Sloat, Freshworks' Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our fourth quarter and full year 2023 performance and our financial outlook for our first quarter and full year 2024. Some of our discussion and responses to your questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Freshworks' current expectations and estimates about its business and industry, including our financial outlook, macroeconomic uncertainties, management's beliefs, and certain other assumptions made by the company, all of which are subject to change. These statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Such risks include, but are not limited to, our ability to sustain our growth, to innovate, to reach our long-term revenue goals, to meet customer demand, and to control costs and improve operating efficiency. For a discussion of additional material risks and other important factors that could affect our results, please refer to today's earnings release, our Form 10-Q from the quarter ended March 31st, 2023, and our other periodic filings with the SEC. Freshworks assumes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this call, except as required by law. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures for historical periods are included in our earnings release, which is available on our Investor Relations website at ir.freshworks.com. I encourage you to visit our Investor Relations site to access our earnings release, supplemental earnings slides periodic SEC reports, a replay of today's call, or to learn more about Freshworks. And with that, let me turn it over to Girish.

Thank you, Joon and welcome everyone to Freshworks' earnings call covering our fourth quarter and full year of 2023. A year ago, we laid out our growth strategies to focus on product innovation, winning in enterprise, landing and expanding to drive revenue growth, and improving our operating efficiency. Over the course of 2023, we launched the Freshworks customer service suite and a range of AI capabilities like Freddy Self-service, Copilot, and Insights, all in pursuit of our mission to power businesses with AI-enabled software that helps customers optimize their work and boost productivity. We landed or expanded with big brands like Big Lots, S&P Global, Fila, Cineworld, Forbes, L.A. Dodgers, Nucor, Giant Eagle, and Johnsonville Sausage. We significantly improved our operating efficiency and inflected our financial model. We went from using cash for operations in 2022 to generating $78 million of free cash flow in 2023. Turning to the quarter, I would like to thank the entire Freshworks' team for delivering a strong Q4 as we outperformed across our key business metrics. Our revenue exceeded the high end of our financial estimates, coming in at $160.1 million for the quarter. We outperformed our non-GAAP operating margin and delivered a record amount of free cash flow, generating $28.6 million in Q4. For the full year 2023, we finished with revenue of $596.4 million and free cash flow margin of 13%. During today's call, I want to highlight three of our key differentiators and how they help finish out the year with a strong Q4. The first is the power of our Neo Platform, which underpins our product portfolio, giving us the ability to serve enterprise buyers and cross-sell into more departments with multiple products. Second is our AI innovations which are already helping customers achieve concrete productivity improvements. And third is…

Thank you, G and congratulations to the team for our strong finish to 2023. G talked about our enterprise-grade platform, AI capabilities, and the strategic advantage of our India teams. Now, let me spend some time talking about how these played out for us in our go-to-market success. Macroeconomic pressures and a greater emphasis on fast time-to-value our leading enterprise companies to choose a smaller number of platform solutions to build their businesses. We believe Freshworks is well-positioned to continue taking advantage of this trend. In 2023, we continued our progress in winning upmarket. In Q4, we closed the year by adding 229 more customers contributing more than $50,000 in ARR. This represents the highest number of quarterly adds for this customer cohort ever. We also closed a record number of new deals over $100,000 in both IT and CS segments contributing to our strong quarter. These include a US-based footwear and apparel company operating in over 120 countries and a leading wholesaler to millions of restaurants, hotels and catering firms. As G said, we win with large businesses because of the power of our Neo Platform underpinning our multiproduct offerings. This enables us to rapidly roll out new technologies like AI, all at a third the cost of larger competitors. Customers across a variety of industries are quickly realizing the benefits. In the CPG sector, Tata Consumer Products is a prime example of our enterprise customers, leveraging improved automation workflows. As one of India's leading food and beverage companies, they are the world's second largest tea manufacturer, and operate Starbucks in India. Their legacy ITSM solution provided no control over admin configuration, making it difficult to create automation workflows. At the same time, the company faced an overwhelming volume of e-mail and phone calls. Since adopting Freshservice, e-mail queries…

Thanks Dennis and thanks again to everyone for joining us. As I reflect on Q4 and 2023, I was really pleased with our ability to adapt to a changing macroeconomic environment to deliver durable revenue growth while also improving our operating efficiency throughout the year. Specifically, we continued our product innovation cycles, injecting generative AI capabilities into our offerings. We retooled our go-to-market approach to more efficiently serve our diverse customer base. We brought on new leaders and team members to help drive additional growth. At the same time, we significantly improved our full year non-GAAP operating and free cash flow margins by 12 percentage points and 16 percentage points, respectively, compared to the prior year. For our call today, I'll cover the Q4 and full year 2023 financial results, provide background on the key metrics, and close with our forward-looking commentary and expectations for Q1 and the full year 2024. I'll include constant currency comparisons for certain metrics to provide a better view of our business trends. As a reminder, most of our discussion will be focused on non-GAAP financial results, which exclude the impact of stock-based compensation expenses and other adjustments. Starting with the income statement. Q4 revenue grew 20% year-over-year to $160.1 million. Adjusting for constant currency, revenue growth was 19% as we saw the positive impacts from currency rates for the euro and pound against the US dollar over the past year. Similar to prior quarters, ITSM continued to drive the majority of our growth in Q4. In addition, we were encouraged to see an improvement in our CS expansion activity quarter-over-quarter. Looking at our margins. Non-GAAP gross margin remained flat compared to Q3 at 84% as we are efficiently scaling the business. Similarly, for the full year 2023, we achieved strong non-GAAP gross margins of…

Thank you. [Operator Instructions] The first question that we have today is coming from Scott Berg of Needham. Your line is open.

Hi everyone. Really nice quarter on the sales side and thanks for taking my questions here. I get a couple. G, I wanted to start with -- start with what you're seeing on some of the AI front with some of the functionality that you have in beta. I think one of the concerns amongst investors and enterprise software is the more prevalent these technologies become the more they have a chance to eat at seats and a seat-based model like what Freshworks is? And you had commented that in one of your beta customers made a 50% improvement in resolution timeframe. How do you think about the use or the impact of AI in terms of what your business looks like going forward? Is it just going to be a module that adds maybe some ARPU uplift for customers or is there some seat opportunity maybe on the positive or less positive side that might be impacted as well?

Yes. Thanks for the question, Scott. So, let me start off by saying right from the very early days, even before AI, one of the goals for -- like for Freshworks and in particular, for most technology vendors in customer service or employee service is how can we help businesses drive more automation? Think about IVR driving automation in the call centers and things like that, right? So, from 2018, we have been helping customers in the Freshdesk, Freshchat business to drive more automation and that's always a business driver. So, what we have with Gen AI and Freddy Self-service and bots is the opportunity to bring a natural language, conversational automation of customer service, and some of the largest B2C companies are using our Freddy AI today for customer service automation. So, we actually believe in this and it will actually help us -- help Freshworks be a beneficiary in driving better automation and with -- along with a seamless transfer to a live agent when the actual customer query goes beyond a simple automatable question. So, I think overall, you have to look at it as how do we use -- how do businesses use automation as the first line of defense and then seamlessly hand over to a human, and then handle all the complex workflows. We think we have the best omnichannel customer service product in the industry today and we will be a big beneficiary of that.

Got it, helpful. And then from a follow-up, Dennis, you mentioned you have a new field sales that are starting. You've obviously helped enact in a number of changes to the organization since you came. But with this individual, are there a lot of moving parts that are going to be occurring here in terms of what your go-to-market strategy looks like in 2024? Is this might be more of an opportunity to make some subtle adjustments? Thank you.

Well, I would say this is more of an opportunity to make subtle adjustments. We announced in Q4 that we made a change to separate our inbound business from our field business, that's to create more focus on both that SMB primarily inbound business from field. Field, we've done quite well over the last year. We have some opportunity in that SMB inbound business. And that's why we brought Mika in. I think today's announcement with Abe is really the next step and creating focus on those two businesses as distinct. It's very different going out, negotiating big deals with large industrial customers, and on the other hand, managing a funnel that's generating thousands of leads every single week. So we want to bring focus to both of those businesses, and that's why we made the change.

Very helpful. Thank you. And congrats again on the nice quarter.

Thank you.

Thank you. And our next question is coming from in Pinjalim Bora of JPMorgan. Your line is open.

Great. Thank you for the question. Good to hear about the improvement in the CX expansion side. I wanted to ask you if you can go a little bit deeper, are you seeing seats starts to grow and kind of accelerate there? Or is it -- is that expansion characteristic largely driven by the Customer Service Suite or maybe the pricing changes around bots?

Hey Pinjalim, this is Tyler. We actually -- in the quarter, we had strong expansion. We called out CX. It's a mix of all of the above, but we did have seat expansion specifically on that mid-market enterprise, which is driving a lot of it. Some of it was pull forward early renewals from Q1 with expansion, which I always see is a good sign, that they're coming -- a customer coming up in renewal and they're going to actually increase their ARR and renew early with us. And so that was encouraging. It's -- CX has seen pressure on Asia for a couple of years. We've been calling that out and so we thought it was a really good quarter of execution on that side.

Understood. Tyler, another one for you. The guidance, can you maybe unpack some of the some of the assumptions on guidance? What are you thinking from a net retention perspective for the whole year from a logo perspective? Are you thinking about macro to be kind of the same? What should we think about from a pricing leverage point of view in that guidance? Anything you can add will help.

Yes. So, I'll take that in a couple of different pieces. On guidance, you mentioned net dollar retention. We have been calling 105%, and we really didn't think it was going to hit 105% in Q4, and we had called that earlier in the year. And kind of coming into Q2, Q3, one of the reasons that we didn't get down to 105% because we're doing really, really well on churn. In hitting our number for Q4, it was really a combination of churn still getting better as well as expansion kicking in a little bit. And now we're saying, hey, we're going to be at 106% in Q1. And we do think that's going to be the number. But previously, we thought we'd stabilize at 105%, and now we think we're going to stabilize at 106% and it really is just a reflection of the health of the customer base. On the other areas of guidance on revenue, we are -- it's our best estimate based on what we see today and that kind of 18%, 19% growth. And then billings for the year, we expect to actually track that. We did call out that Q1 just the way that renewals are kind of falling, and also, I just mentioned that we had some early renewals into Q4 that pulled some billings from Q1 into Q4 that, that number is going to be a little bit -- calculated billings we expect to be a little bit lower in Q1, but it really is just around timing. And for the year, we actually expect it to track revenue for the full year 2018 to 2019.

Understood. Thank you so much.

Thank you. And our next question will be coming from Elizabeth Porter of Morgan Stanley. Your line is open.

Great. Thank you so much. First, I just wanted to ask on the AI monetization impacts. You have some of the usage-based revenue from bots coming in and the Copilot seat add-ons. I believe Freddy Insights, you mentioned is coming later this year. So, what kind of attach or penetration rate are you assuming? Or is this more of an upside driver to guidance? Thanks.

So -- and thanks for the question. So, first of all, I think in terms of adoption so far, we have thousands of customers that have opted into the beta programs for Freddy Self-serve for Insights and for Copilot. And not only have they opted in, but the usage rates amongst those customers is quite high. So, we track things like active usage and so forth. We recently put those programs into GA. So, you can purchase Insights -- or sorry, you can purchase Copilot and Self-serve today on our website. If you're a new customer and then we're moving all the beta customers into pay programs over the next month or so. So, we'll start to see the monetization flow through. But for now, we're very much focused on adoption. We're very much focused on the value that those products are providing to our customers. That's a good leading indicator for us. In terms of how we're thinking about it for the full year, we haven't baked in a meaningful upside to the year from AI because we wanted to see how things play out before putting anything into our number.

Great. And then just as a follow-up, I wanted to hit on margin. You had some really impressive expansion over the last year. Looking ahead, guidance implies more minimal expansion despite still some of that solid topline growth. So, first, just how should we think about the leverage in any incremental areas of investment in fiscal 2024? And then second, should we just be thinking more about some back-end linearity to hit your fiscal 2026 targets? Thanks.

Yes. So, thanks, Elizabeth, this is Tyler. We did make some huge improvements last year. Some of those improvements were kind of onetime. And I think we've been pretty consistent. You don't kind of expect the same kind of stair step improvement coming into fiscal 2024 here. The -- we are still very, very focused on efficiency, but we also think that there's some areas to invest. On the R&D side, it really is going to continue to invest in innovation, and we think that's a big advantage that we have. And on the sales and marketing side, we are going to continue to lean in where we see opportunities specifically in field -- in hiring there where we see appropriate. So we have built in some areas of investment, but while also focusing on driving margin, we're driving more dollars to the bottom-line and driving more cash.

Great. Thank you.

Thank you. And our next question will be coming from Brent Bracelin of Piper Sandler. Your line is open.

Hi guys. This is Hannah Rudolph on for Brent today. Thanks for taking my questions. It's really encouraging to see you that record 50,000 net adds this past quarter. I guess, what do you attribute that to? I imagine a lot of it is ITSM, but some of it was probably driven by that new CS Suite as well. So, wondering if you could just talk about the dynamics you witnessed in that cohort?

Yes. You're correct. A lot of it is driven by ITSM, but we're seeing some promising results for CSS. One of the companies that I talked about in the prepared remarks, Carlson One, that's a new CSS customer, they're a loyalty company up in Canada. Klöckner, one of the larger steel companies in Europe. That's a new ITSM customer. Tata also another customer we talked about earlier, that's another ITSM customer. I think it's not just something that we've done in the last quarter, but the investment that we've made in the product over the last couple of years, where we built out an enterprise-grade ITSM suite, added on ITOM, ITAM, and then more recently, ESM with Freshservice for business teams. That really has driven growth of that product. And then with CSS, our customers have a best-in-class, fully integrated product that covers both conversational and traditional ticketing enhanced by AI. And that's something that really is unique in the marketplace where if I'm an agent in a single pane of glass, I can ingest and see comments from my customer coming in through WhatsApp, coming in through SMS or e-mail or phone and respond. And that is -- has had a lot of positive acceptance in the market so far.

Great. Super helpful. And then Dennis, what do you feel still needs to be done to continue to execute on this upmarket motion that you're on right now? And is it just execution? Or is there more that you still need to do?

We're going to be making a meaningful investment in partners and partnerships. We announced a couple of weeks ago in a partnership with AWS, where they're bringing us into new deals. We're working with them on deals. One of our largest deals with a large apparel maker this year was assisted by AWS. We -- our customers are able to retire AWS commitments in terms of credits that they've committed to spend over multiple years by buying our software. So, that makes the buying process much easier for them and for us, it speeds the time to sale. So, that's an example of a large partner that we think can help us accelerate growth over time. I think just also getting better and better at execution. We had our best quarter ever in North America. Not surprisingly, about six months ago, we brought him Will [Indiscernible], who is leading our North America sales effort. So, we're seeing the benefit of some of the big hires that we've made in the last year as well. And we think that will continue with Abe coming in. Abe is a tried and true field general and I think he's going to up our game even more as we go-to-market.

Great to hear. Thank you so much.

Thank you. And our next question is going to be coming from Brian Peterson of Raymond James. Your line is open.

Hey guys. Thanks for [indiscernible] question. So, I wanted to follow-up on the seat dynamics [indiscernible] had improved. You also mentioned that the overall seat [indiscernible] CS has been under pressure for a little bit. Do you think we're through that and the broader [indiscernible] could expand going forward? [Indiscernible] your thoughts.

Hey Brian, this is Tyler. You're breaking up a little bit, but I think you're asking about kind of seat degradation or just expansion pressure and is whether it's over or not. Now, -- we actually -- we saw really good expansion in Q4. And we -- you're right, we've been talking about kind of agent addition having kind of lower amounts over the last, call it, year and a half. That has not recovered from what it was several years ago, and we don't expect it to actually recover right away. There was good signs in Q4, but we're not planning on that just coming back. Because at the same time, also SMB did see some pressure and continue to see pressure, and that's one of the reasons for the lower net adds is at a very long tail of SMB specifically, CX, we saw some little bit churn there. In general, what we've been talking about is focused on figuring out how to expand with our customer base outside of seat addition. In seat edition, an agent addition comes back, to the levels it was a couple of years ago, that would be fantastic. But we are very focused on introducing new products, introducing new feature functionality, moving customers up the addition stack and things like that as well as getting them to use more across other divisions. And so that's what our focus is right now. It's not all the way back, but we did have a good expansion quarter.

[indiscernible] And maybe a follow-up to this, just on the [Indiscernible] teams. Any update on how you're thinking about the pace of [indiscernible]. Any comments if you could make on [indiscernible]. Thanks guys.

I think you're asking about the pace of hiring in field is what I heard. We have been hiring in the field and specifically in areas that we think there's opportunity, and we think there's areas to definitely lean in. We're going to continue to do that. Our regional leaders are in place and have been for a while, so Abe is coming in and he's taking that over, and he's going to work through. And part of the plan is to continue to hire and build out quota capacity because we think there's a big opportunity there.

Thank you. And our next question is coming from Alex Zukin of Wolfe Research. Your line is open.

Hey guys. Thanks for taking the question and congrats on a solid quarter. Maybe just the first one, Dennis or Tyler, can you maybe just talk about the macro exiting Q4, like entering the year? Has it changed? Has it gotten better? Is it different by geography in terms of what you're seeing? And to what extent do you feel like this was you guys executing meaningfully better versus the macro changing to the positive? And then I got a quick follow-up.

Sure. So, I think the trends we saw in Q4 were consistent with trends we saw earlier in the year. And that is that in enterprise and mid-market, we continue to see really solid traction. You see it in the 50,000 ad number. And part of that is because vendors are consolidating spend. They're looking for platforms they can do much more for them. They're looking to bring AI into their operations, their workflows, their help desks, and we can do that. And they're excited about the AI road map and what we already have out there in beta and now in GA. So all those things help there. I think on SMB, SMB overall is a bit more challenged. I think the -- what we're hearing from our customers is the market is under a little bit more pressure if you're a smaller business. There are also things we can do better. And that's, again, going back to driving product-led growth to the next level, aligning marketing more tightly with our SMB efforts, all those things we think will pay off for us. So, we think SMB is potentially a source of upside for us going forward. But what we saw in Q4 was consistent with prior quarters where that was the part of the business that was not growing quite as quickly as what we saw in the larger customer cohort.

Perfect. And then maybe just a follow-up for G. You've gotten the AI question a couple of times, but maybe just what are you seeing in terms of early adoption or learnings from either. Are you seeing more in SMB versus in mid-market enterprise or vice versa, faster versus slower? And what monetization motions because you have a number of different ones that you're doing in the field, which one of those are working the best early on and that you see potentially kind of getting escape velocity later in the year?

Yes. So, I would answer it in two parts. When you look at Freddy Self-service, that is seeing -- like we are seeing success with larger B2C companies because B2C companies have like fewer use cases that are scaling across millions of customers, so it's ripe for automation. But if you look at our Copilot, that is seeing traction -- because it's helping agents get more productive, that we are seeing like excitement and adoption across thousands of customers, across customer sizes or segments, SMB this mid-market. So, again, where will we get escape velocity? I'm hopeful we'll get it in both, but we'll wait to see it's still early days. And so we will continue to put our heads down and execute and deliver more value for our customers and get escape velocity through both.

Perfect. Thank you guys.

Thank you.

Thank you. Our next question will be coming from Ryan MacWilliams of Barclays. Your line is open.

Hey thanks for taking the question. I guess I want to note your focus on upmarket customers. So it makes sense that much smaller customers below 5,000 are turning in the customer service segment. But any reason why those customers are leaving now? Are they just looking for cheaper alternatives or is it some change in the competitive landscape?

Yes, I wouldn't say that they're necessarily looking for cheaper alternatives. I think we have a natural -- there's natural churn as businesses, frankly, fail or shrink, and in SMB, you see quite a bit of that. I think we also have had customers who come in and try the product line, it doesn't fit for whatever reason, what they're looking for, maybe they're too small. So, I wouldn't say there's any one competitor that we find those customers migrating to, if that's your question.

Excellent. And then just for Tyler, pleased to see net retention come in better than expected. What are some of the things you would need to see with it like call it troughs? And do you think for Fresh to get back to 110% NRR, we would need to just see a step up in macro? That's like what we're waiting for here?

Hey Ryan, so I think in terms of a trough, right now, we called 106% for Q1. We were previously calling 105%. We do think 106% is kind of from what we can see today is a low point now where I think we'll hit it and then possibly stabilize from there. In getting it back up to 110%, I think it's a combination of a couple of things. We're still going to make progress on churn that -- we had said, hey, we went public, we're kind of low 20s -- total kind of gross churn and now we're mid-teens. And I think we can continue to make subtle progress there, but it's going to be kind of like maybe 100 basis points, 200 basis points over a longer period of time. So, it really is going to be up to the expansion motion. And we've got a lot of initiatives there that are in play. We kind of called out what some of those are. In our Investor Day, we actually called out six things that we're working on. The sixth one was kind of, hey, if macro comes back. And that would be a no-brainer. I think we would just get to ride that wave organically. We're not counting on that and we don't expect that to happen overnight. And so we are very, very focused on other ways to grow the customer base outside of that. And we do think that eventually we can bring it back up to 110% based on that, but it's going to take a little bit of time.

That’s great. Appreciate the color. Thanks guys.

Thank you. And our next question will come from Pat Walravens of JMP Securities. Your line is open.

Hi, this is Austin Cole on for Pat. Appreciate you guys taking the question. So, I just wanted to kind of piggyback on the answer given to the incremental kind of operating efficiency guidance implied. And looking at the flip side of that on the topline, with all the kind of unlocks that you guys are discussing and the better than expected expansion, improving churn. Why might it not be at this point, prudent to say that this business could grow 20% next year? thank you.

Well, our guide is to a little bit below that. We do build up that guide based on what we see right now. And what we've said is we have a lot of initiatives in play. And those specifically six things that we called out in our Investor Day that we said, hey, these are going to be upside to what is close to a 20% growth rate. But they have to play out, right? And these aren't things that are going to happen overnight -- kind of like the AI monetization that we talk about that we said, in Q4 is like hopefully, we can come out in the middle of the year and give an update on what the early signs of monetization there are. I just we're very, very excited about the initiatives and what the longer-term results could be from those, but they're just going to take some time to play out. And thus, we can't build them in yet.

All right. Thanks a lot.

Thank you. Our next question will be coming from Brent Thill of Jefferies. Your line is open.

Tyler, I want to appreciates the margin you guys gave us last year, but a 50 basis point increase this year, I think many are scratching their heads. So, just to push back a little bit. At your run rate $600 million. I think everyone's questioning where all these investments are going? Is this 80% of the field, 20% of the product, 50% field, 50% product, how would you characterize that because the natural margin trajectory should be, in my view, a lot better? And again, respect what you gave us last year. So, maybe it's just -- that's it, you just gave us a big margin bump in -- but just trying to think I was trying to--

Totally get it, Brent. If you look at last year, we do -- we did get some one-time benefits, right? And so if you look at R&D stayed flat for the whole year, year-over-year compare. And then sales and marketing, slightly higher, but really only $10 million higher when you look at kind of 2023 to 2022. And we had said, hey, don't expect that same type of efficiencies driving into next year. Especially as we kind of -- last year going into sales and marketing, we really reshuffled a lot of stuff at the beginning of the year and let things settle. And now we feel like they are subtle it's going to be time to lean in a little bit and make some investments. We don't want the impression that we're moving away from thinking about efficiency. We are very focused on getting to the Rule of 40 by 2025, which we called out and specifically free cash flow margin and growth. If you look at what we're guiding to, we're just under 16% on free cash flow margin for the year and about 18%, 19% on revenue. And so I feel like that's a pretty good path or trajectory to get us to what we said we're going to be doing and we're not going to lose sight of that, and we're going to obviously be as efficient as possible while we're growing. But we do think that if we have the opportunity to grow a little bit faster, we're going to take that opportunity and we have to invest first to be able to do that.

Okay. Thank you.

Thank you. And our next question will be coming from Taylor McGinnis of UBS. Your line is open.

Yes, hi. Thanks for taking my question. So, if I look at the high end of the FY 2024 revenue guide, it's only a point below the 4Q exit rev growth rate. So, it implies some stability in topline growth. So ,can you talk about what gives you comfort that this outlook still embeds a level of conservatism? Or any change in the guidance framework. I think even despite the pull forward you're expecting billings growth to remain more stable too. So, maybe you can just comment on what you're seeing in the macro, what your assumptions are for ITSM versus TS growth that's supporting that outlook? Thanks.

Hey Taylor, this is Tyler. We -- on the guidance, I think we've tried to get to a cadence that you guys will recognize, we are guiding to what we see. And it's not like we're trying to be overly conservative we are trying to call it as we see it, and then we will obviously update that every single quarter. For the year, we do think in terms of the growth rate stabilization, we do think we're at a point right now where, okay, expansion, things like that. We don't expect those rates to get worse. We just talked about net dollar retention that we thought it was going to be 105%. We're actually calling 106% is kind of the bottom now. And we think we have a pretty good view of the business as it is in front of us. We -- again, I'm going to point to some of the initiatives we're working on and how we're going to grow faster. We just need to let these things play out, and we'll actually build those in, as we start to see returns on them. It's just too early to be able to do that. But in general, we feel really good about the business and we're coming off a really good quarter, and we're pretty positive.

Great. Thanks so much.

Thank you. And the final question for today will be coming from David Hynes of Canaccord Genuity. Your line is open.

Hey guys. Thanks for taking the question. I'm going to pile on with another AI question, I don't know if it's for Dennis or G. But look, the value prop -- customer examples are giving us early adoption seems very apparent. For the folks that aren't moving forward, yes, is it a matter of organizational readiness? Are there price sensitivities in the market? I guess I'm particularly curious on the latter, just given some of the more advanced AI features are yet to come to market, how sensitive are buyers to price at this point? Any color there would be helpful.

Yes. So, this is Dennis. So, so far, as I said earlier, there's like thousands of customers have opted into the beta. So, I think to one degree or another, all of our customers have some level of interest. Now, some of those customers are going to be a little more cautious if they have become reliant on a human-driven interaction or let's say, they have a very high value customer on the other end and they prefer to have a human involved, then they're going to be less likely to adopt Freddy Self-serve, but they may adopt our Copilot product. So, I think it's just a matter of time before all of these opt into some trial of sort. And then it's a question of whether or not they see value in the product. And if they do, that's when we get into a nice discussion about, well, what is the investment that they're going to be making in AI. They're going to provision all their agents or some of their agents and how does that work. So, that's a huge opportunity for us this year. And we're seeing with some of the resolution rates, the improvement in call quality and customer interaction, customer resolution, we're seeing a lot of value come from these AI products. and customers are recognizing that value. So, we're going to have to see how it all plays out, but I'm pretty optimistic that this is a huge opportunity for us that's going to really materialize over the course of the year.

Yes. Okay, that's helpful color. And then, Tyler, maybe a follow-up for you. I think it's been asked a couple of different ways, but you have this $1 billion target out there for 2026. It implies some future acceleration in growth. Do we need to see the macro improve to hit that? Or do you think you can get there with the go-to-market enhancements, the enterprise push, AI, new products, all the stuff that you're doing today? Can you get there in the current environment?

Yes. Our plan is to be able to get there in the current environment. That's not based on macro coming back.

Perfect. All right guys. Thank you.

Thank you.

Thanks everybody.

This concludes today's conference call. Everyone may disconnect.