Freshworks is cutting approximately 500 roles or around 11% of its workforce, which it attributes to the efficiency gains unlocked by AI. The layoffs were announced alongside the company's first-quarter 2026 earnings results, which yielded another strong quarter for its EX business, again outperforming its CX arm. It came as no surprise then that the company’s CEO, Dennis Woodside, revealed the savings would be reinvested into its employee experience business.
AI Strikes Again
In an internal message to staff, as reported by Times Now, Woodside framed the decision as a strategic necessity: "Today, I have some difficult news to share. To accelerate our biggest growth drivers and move faster in the AI era, we are realigning our global workforce". He added that the company had "not made this decision lightly", acknowledging that the restructuring meant parting with "many talented colleagues and friends".
Woodside told Reuters that AI-driven efficiencies were the core driver of the cuts. He explained that "over half of [the] code is written by AI", coupled with automation which had reduced routine work across the business. The restructuring will incur one-time charges of around $8 million and spans departments globally.
Although Freshworks has not identified the precise breakdown of where these cuts are being made, we can infer that with AI doing so much of the heavy-lifting there will be significant reductions to product and engineering teams. Woodside also cited capital would be unlocked from merging sales divisions and reducing management teams, making these are further areas likely to fall under the axe. CX AI News has reached out for clarification on this matter.
Latest Figures: EX vs CX
The Q1 2026 earnings results show a clear divergence between the two business lines. EX annual recurring revenue reached approximately $540 million, up 27% year-on-year, and the quarter produced what Freshworks described as the two largest deals in the company's history, including its first seven-figure EX ARR contract. CX ARR, by contrast, grew just 6% year-on-year, with management guiding for low single-digit growth across the full year. Overall revenue rose 16.5% year-on-year to $228.6 million, beating analyst expectations, while AI-driven adoption continued to accelerate with Freddy AI Copilot customer numbers growing more than 80% year-on-year.
A Pattern that was Already Emerging
The gap between EX and CX performance was already visible in Freshworks' Q4 2025 results. Tyler Renwick Sloat, chief operating officer and chief financial officer of Freshworks, told analysts on the earnings call in February: "We're being relatively conservative in what we expect in terms of CX growth. A lot of the confidence, or all of the confidence, is coming from EX and our expectations there."
Despite the shifting weight of investment, Woodside was careful to position the restructuring as a refinement of strategy rather than a retreat from CX. His note to employees clarified this: "While our structure is changing, our mission and strategy remain the same. We are uniquely positioned to continue growing across EX, AI and CX and have an even greater impact on our customers and industry."
Freshworks is not alone in taking this path. Salesforce laid off nearly 1,000 staff earlier in the year, which it also put down to AI efficiency improvements. AI tools from companies including Anthropic have placed significant pressure on traditional software makers, with Freshworks' stock down around 26% in 2026 prior to the announcement.
These layoffs point to a broader tension playing out across the enterprise software sector in which AI is simultaneously enabling leaner operations, while also pushing vendors to decide how to innovate alongside this powerful but still relatively unknown and untested technology. With investors polarised about the prospects AI brings, it is not an easy balance to strike.