Q4 2019 Earnings Call
Please standby.
Good day, and welcome to Fivenines fourth quarter and fiscal year 2019 earnings Conference call. Today's conference is being recorded.
This time I'd like turn the conference over to Miss Lisa Laukkanen. Please go ahead.
Thank you operator, and good afternoon, everyone and thank you for joining us on today's conference call. We just got Fivenine fourth quarter and 40 or 2019 result, today's call is being hosted by Rolling Trolls, CEO, Dan Bergman, President and Barry So I've seen CFO. During the course of this conference call five nice management team will make projections and other forward looking.
Statements regarding the future financial performance of the company industry trends company initiatives and other future events. You are cautioned that such statements are simply predictions that should not be unduly relied upon by investors an actual events or results may differ materially and the company undertakes no obligation to update the information in such statements.
These statements are subject to substantial risks and uncertainties that could adversely affect five nine teacher results in caused these forward looking statements could be an accurate a more detailed discussion of certain of the risk factors that could cause. These forward looking statements to be an accurate, but you should consider in evaluating five nine and its prospects is included under the caption risk factors.
And elsewhere in five nine filings with the Securities Exchange Commission.
In addition management will make reference to non-GAAP financial measures. During this call management believes that this non-GAAP information is useful because it can enhance an understanding of the company's ongoing performance and Fivenine. Therefore uses non-GAAP financial information internally to evaluate and manage the company's operation.
This non-GAAP financial information should be considered a long lived and not as a replacement for financial information reported under GAAP and could be different from the non-GAAP financial information provided by other companies in our industry.
The full reconciliation of GAAP to non-GAAP financial data can be found in the company's press release issued earlier. This afternoon and is also available on the Investor Relations section on Fivenines website, and now I'd like to turn the call over to five nine CEO role in travel.
Thank you Lisa and thanks to all of you for joining our call. This afternoon we.
We delivered very strong fourth quarter results, leading to a great close for the year.
Fourth quarter revenue was a record $92.3 million up 28% year over year. The same as we delivered in the third quarter sequentially. We were up 10% a strong performance considering that it comes on top of the 8% sequential growth we delivered in the third quarter.
We closed 2019 was $328 million in revenue up 27% from 2018, continuing a multi year pattern of mid to high Twentys growth.
Our revenue growth is driven by our success in the enterprise, we had 59 customers generating more than $1 million. In Q4, now are and enterprise now comprises 81% of our annual revenue.
Please note that going forward will provide this metric on annual basis in the fourth quarter.
Good success in the enterprise is also what drives our bottom line in the fourth quarter. Our adjusted EBITDA margin was 21.2% and we reported positive GAAP net income.
For 2019, we delivered an adjusted EBITDA margin of 18.5%.
Up 50 basis points from 2018, despite increased investments in our product and go to market strategy, which we expect to pay dividends in 2020 and beyond.
And today I am excited to announce our acquisition of virtual observer, but Debbie AFFO solution that we've been selling for sometime and which will allow us to natively expand our portfolio of offerings for our customers. While also expanding gross margins I'll share more on virtual observer in a few minutes now I'd like to turn the call.
Over to our president and Berglund to share some important wins in the fourth quarter and the progress you've made expanding our go to market engine Dan.
Thanks, Ron.
Our Q4 enterprise bookings grew strongly year over year and it was a record for fourth quarter also our pipeline reached another all time high we continue to see larger and larger deals coming on and more than 60% of those deals were influenced by our ecosystem of partners.
I'd like to share some key enterprise wins, which demonstrate our strong traction moving up market.
First as a leading global services and consulting firm specializing in insurance brokerage risk management and human resources. There was looking to modernize consolidate and moved from several posted legacy solutions to one global virtual contact center in the cloud.
Their insurance business requires unique intelligent routing to select individuals who are properly skilled and licensed for certain programs and certain products in specific states, which they could not achieve effectively with or older systems.
Regarding genius work flow and intelligent routing they found precisely what they were looking for they also opted for a finite premium support offer called hyper care, which gives them 24 by southern help desk assistance for their agents around the world.
We anticipate this initial order to result in over 1.5 million in a artifact nine.
Another one for the quarter with a large mutual bank with approximately 100 branches that takes inquiries from their banking and insurance customers.
Our legacy system have no ability to deliver a fully integrated seamless omni channel experience.
They worked with master agent Intelisys to manage an extensive RFP process. They chose fivenine for the superior chat email supervisor and I've been portals deep web based CRM integration Mpls interconnect with guaranteed voice quality and Fivenine Wu, our CFO powered by parent for WSM QM and.
Speech analytics, we anticipate this initial order to result in over $1 billion DNA Arda Fivenine.
We also entered a leading national health care company specializing in hospice care had been using premises space contact centers on W. EFO that could not integrate with their Microsoft dynamics CRM and other back office data systems.
Nine replaced their legacy contact center system. It has also providing fivenine w. AFFO powered by parent or WFM QM and speech analytics. We anticipate this initial order to result in approximately $1.7 million and they are to fivenine.
Now I'd like to share. An example of an existing customer who continues to expand with Fivenine, a prominent hundred euro brand delivering gourmet foods directly to consumers.
Having been a finite customer for nearly three years and helping them thrive during the busy giftgiving seasons, the customer decided to sign on for an additional three years as part of their renewal. They added over 600, BCC seats, along with adding Fivenine W. FFO powered by virtual observer, probably see aside now part of Fivenine as Ron mentioned.
For all of their agents, including WFM, QM and their lights out capability, which provide speech and desktop analytics that automatically detects and redox sensitive credit card information from recordings for PCI compliance.
We anticipate this add on order to result in an additional 1.6 million and they are bringing their annual spend with fivenine to over 2.3 million.
These wins demonstrate that we're seeing increased demand from enterprise customers and we continue to execute very well up market at our analyst day recently in November we discussed our new sales motion of aligning our enterprise sales organization to cover all categories in the market, including Midmarket enterprise and large enterprise or strategic accounts we've made.
These changes to the teams and are beginning to see excellent results from having individuals focused on the market categories, which best match their skill sets and experience.
Before turning the call back over to Rowan I do want to spend a moment and highlight the success of our enterprise professional services team. This team has doubled in size in the last three years and along with our customer success and customer support teams as pivotal to our ongoing success.
They not only deliver thousands of projects annually, but with our unique high touch model. They also receive unparalleled NPS scores.
In Q4, this team's NPS score averaged 96, which as a result of increased automation added efficiency and the team's dedication to successful outcomes.
In addition for the first time in our history PS gross margins were positive.
Recall that when we went public we had triple digit negative PS gross margins.
Now inevitably given the nature of this business PS margins tend to fluctuate from quarter to quarter, but as you can see with this dramatic improvement we are directionally in a very good position.
We believe all of these indicators demonstrate that we differentiate on service and experience along with our market, leading highly reliable and innovative solution set.
With that I'll turn it back to your route.
Thanks, Dan.
I'd like to begin with a brief retrospective on 2018.
First we now have the key leadership in place that we believe can take us through a 10 year growth horizon.
We also significantly strengthened management deeper in the organization, especially in the go to market engineering and product management areas I'm extremely pleased and proud of what we've accomplished in this respect.
Second our strengthened and expanded product and engineering teams continue to scale our platform for the global enterprise and over the course of the year. We've added over 90 brand new features.
We've also deepened our CRM and partner integrations and made the platform increasingly open the enhanced Cpis NFC case.
Third we made strategic go to market International and channel partner investments that give us a forced multiplier that equates to thousands of agents selling and adore seeing the fivenine solution. At this momentum was clearly illustrated by our recent global CX summit in Las Vegas, which had more than double the number of attendees from the prior year.
Okay, and where are the upbeat reception to the presentations and workshops was clearly a parent.
Finally, I want to emphasize the importance of culture, we're attracting and building an incredible team that's a lines on the values that underpin our culture and our vision to drive durable growth.
The culture and the team are the key reasons why I believe that we have a sustainable competitive advantage.
Now for some more specifics beginning with updates on our recent acquisitions when do and virtual observer, starting with when do recall that we can now rapidly can that can more than 50 other systems I'm the box to Fivenine contact center. These integrations create real time streams of data, which we aggregate and visualize leading to the troops.
Power of the platform, which is enabling customers to build real time automatic and responsive workflows. Further when does know code workflows continually be created and deployed in hours or days instead of weeks or months and the response to our initial skews has been very positive.
In addition, we announced today the acquisition of virtual observer, and innovative native cloud SaaS provider of workforce optimization, W. AFFO solutions that transform contact center operational efficiency, while enabling superior customer experiences as customers move to the key.
How many big benefits of simpler administration, and streamline data, which come from tighter integration between Debbie FFO and contact center infrastructure.
In our experience working with virtual observer over 150 joint customers love, the comprehensive and user friendly aspects of the product as well as the seamless cloud to cloud integration with the five nine platform.
However, I'd like to point out that from a strategic point of view, we're continuing with our proven successful strategy of offering best of breed solutions, specifically for large complex enterprise deployments, we continue to work with Verizon and other that'd be AFFO providers.
For simpler more straightforward deployments, we will utilize virtual observer.
Financially this acquisition allows us to expand our gross margins, which will enable us to further invest in our R&D and go to market initiatives I'm very excited to welcome the virtual observer team into the Fivenine family.
And now for some more detailed updates on various ongoing initiatives.
First we made significant strides with respect to our AI initiatives in 2019, developing a roadmap locking down that strategy validating it with analysts and customers hiring a smaller specialized team and shipping our first alpha version of the product.
Our strategy emphasizes automating real time tasks through agent assessed which makes agents more efficient and improves the customer experience.
Given the positive reception of our agent assess solution during alpha trials, we're very excited for our planned initial launches as we targeted year to date in the second half of 2020.
Second we launched Fivenines app marketplace late last year to highlight an aggregate the scale and breadth of our partner integrations.
Since 2018, we more than doubled our IC community, enabling us to provide more choices to our customers.
Marketplace spent 10 plus categories, including artificial intelligence DRM unified communications workforce optimization and messaging.
The marketplace enables our IC partners to seamlessly integrate into Fivenine and provide valuable extensions to our platform.
Third in addition to adding our new sales motion, including the strategic accounts team that Dan spoke about earlier, we've been investing in multiple routes to market for instance, with systems integrators, we continue to strengthen our partnership with Deloitte and we're getting great traction with others like you why slalom Accenture and IBM.
As we've discussed these that size are often topped by enterprises to help with their digital transformation strategies of which contact center migration to the cloud is a critical part not only our our strategic account teams being pulled into larger enterprises with our ESI partners, but also for the first time these global ESI, they're investing and building business practice.
This is for cloud contact centers certifying and train their personal and Fivenine.
This is resulting in more enterprise business and growing pipeline, both domestically and internationally.
Speaking of international we've made meaningful progress in 2019 under new leadership, increasing our international go to market head count by nearly 50% and deepening our international channel partnerships. Our international revenue grew 45% year over year in 2019, but theres still a lot of runway given that more than half of.
Tech Center agents are located outside of North America, and we have barely scratched the surface.
Okay, we plan to expand our dedicated customer support team cut the ribbon on additional offices and continue to increase our headcount.
Lastly, it's worth noting that our international expansion has prompted us to evaluate our strategy around datacenters today, our software and voice traffic are deployed in our own cloud datacenter is here in the U.S. and in Europe.
Additionally, in some international markets, our voice traffic is deployed on either of us.
As we further expand internationally, we plan to take advantage of significant recent advances in public cloud to automate the creation of new Fivenine International Datacenters, rather than manually racking and stacking hardware. So that we can quickly provide services in new markets.
Our architecture is leveraging our two significant advantages first we have extensive experience in our core services that were born in the cloud.
And second a pass platform that allows for rapid development of new applications architectural strategy is to combine these strengths. So that we have both depth and agility, which we believe few other vendors will be able to match financially there will be initial onetime development costs and somewhat higher operating costs, but we're convinced that this.
Has the right approach.
So 2018 with a strong foundational year and in 2020, we'll continue to execute well.
Our market is strong and the expansion is driven by true durable trends first there is the migration of premise to the cloud cloud penetration is under 15% and we believe the pace of migrations as likely to accelerate and second as millennials and Gensix entered the workforce in demand better customer service companies are.
Placing increasing importance on digital transformation and the overall customer experience.
We also have the team and importantly, the culture in place, which is essential for our long term success and thirtys level growth and LTM enterprise subscription revenue with that ill turn it over to Barry.
Thank you Roland.
Before going into specifics reminded that otherwise indicated all financial figures I will discuss our non-GAAP.
Reconciliations from GAAP to non-GAAP results are included in the appendix divested presentation currently on our website.
We had another excellent quarter with both top and bottom line results exceeding our expectations.
As Ron mentioned revenue grew 28% year on year.
And 10% quarter over quarter on top of the 8% sequential growth in Q3.
This was driven primarily by our enterprise business, we had subscription revenue continued its growth into two cities increasing 34% your earlier.
On an LTM basis.
And just broaden that makes up 81% of LTM revenue and commercial business, which represents the remaining 19% grew again in the single digits as expected.
Recurring revenue accounted for 91% about revenue.
The other night this end of our revenue comprised of professional services.
One additional point I would like to make on revenue.
We have been very successful in winning larger and larger enterprise deals as demonstrated by our 59 customers with more than $1 billion annual recurring revenue.
These clients come onto the platform at different times and ramp at different rates.
This lumpiness can cause fluctuations.
Which was the primary driver of LTM enterprise subscription revenue growth rate coming in at 34%.
56% last quarter and I LTM dollar based retention rate coming in at 105%.
It is 107% last quarter.
Please note that we expect to see additional fluctuations both up and down in the upcoming quoted as we continue to win logic and logic customers.
Fourth quarter adjusted gross margins were 64.4% an increase of approximately 40 basis points sequentially, but a decrease of approximately 60 basis points year over year.
Mainly due to the increasing revenue mix from professional services.
Professional services, while profitability in the fourth quarter for the first time.
Has meaningfully lower gross margins than the rest of the business.
Hi, good adjusted EBITDA was $19.6 million, representing a 21.2% margin.
Well. This is a decrease of approximately 150 basis points year over year from a record 22.7% in Q4 18.
Exceeded 20% guidance for the quarter, even as we continue to ramp I'll go to market and R&D investments.
Fourth quarter non-GAAP net income was $17 million.
A year over year increase of $2.5 million and we recorded positive GAAP net income of zero point $8 million.
Before turning to our full year performance.
I can report that average concurrent seat count for the fourth quarter grew to 131954 up 25% year over year.
This is below last year's record seat growth of 28% because we did not have the same commercial tailwind.
Further integrate teeth continued their strong growth in mid thirties.
Note that we estimate that concurrent feeds to be equivalent to nearly 200000 feet on the names seat basis.
Unit Omega that some others in the industry site.
As a reminder, we provide the seat count metric on an annual basis.
And now focused to look at key full year 2019 income statement metrics.
For the year ended December 31st 2019 revenue at $328 million up 27% year over year.
Adjusted EBITDA was $60.8 million.
Presenting a margin of 18.5%, which expanded approximately 50 basis point year over year. Despite the meaningful investments, we had been making and go to market and R&D initiatives.
Finally, before turning to guidance and balance sheet and cash flow highlights.
DSO was 52 days in Q4.
Fourth quarter operating cash flow was $15.6 million and a record $51.2 million for the full year.
We remain optimistic, but all potential for continuing cash flow generation, giving our long term model.
I suspect Hello.
Hello Dsos.
I'd like to finish today's prepared remarks with a brief discussion of our expectations for the full year and the first quote out 2020.
Oh 2020, we expect revenue to be in the range of 380.5 and feel an $80.5 million.
GAAP net loss is expect to be in the range of $30.9 million to $27.9 million of 48 to 43 cents per basic share.
Our GAAP net loss guidance include $6.5 million in one time integration cost and expenses for the actual observer and when do.
Non-GAAP net income is expected to be in the range of $55.5 billion to $58.5 billion or 83 to 87 cents per diluted share.
Note that this bottom line guidance reflects initial increased costs on leveraging the public cloud as well as further investments in go to market and R&D.
For the first quarter, we expect revenue to be in the range of $89 million to $90 million. This reflects a typical impact of the expected falloff from the strong seasonal tailwind in the fourth quarter.
GAAP net loss that you expected to be in the range of 9.92 $8.9 billion or 16 to 14 cents per basic share.
GAAP net loss guidance includes $1.1 million, a onetime integration costs and expenses physician offices and when do.
Non-GAAP net income is expected to be in the range of $9.5 billion to $10.5 billion.
15 to 16 cents per diluted share.
The guidance for the current quote includes the impact of ongoing investments, resulting in a similar quarter over quarter decline, we guided to last year in Q1 19.
With respect to expected revenue trend by quota for tomato 2020, consistent with the guidance in past years.
We do not expect sequential growth in revenue in the second quarter.
However, following seasonal business patterns, we expect revenue to increase sequentially in the third and particularly the fourth quarters.
Given the shape of this revenue code and they're ramping of expenses investors should expect a bottom line to be weakened sequentially in the second quarter.
And stronger in the second half.
In short.
Our bottom line will not increase literally during the year with most of the year over year improvement coming in the fourth quarter.
For modeling purposes, we would like to provide the following additional information.
For calculating earnings per share.
We expect diluted shares to be 65.2 million.
And our basic tends to be 62.5 million, where the first quarter 2020.
And 67.1, and 64.4 million respectively for the full year Twentytwenty.
We expect that Texas, which relate mainly to foreign subsidiaries to be approximately $95000 for the first quarter of 2020 and $410000.
For the full year Twentytwenty.
Capital expenditures for the first queued up 22, any I expect it to total approximately $67 million.
For the full year 2020, we expect capital expenditures to be between 30 and $33 million.
At the midpoint. This represents approximately 8% at the midpoint of the revenue guidance about two percentage points above what we have reported in the past.
It's higher than our typical that will expand on a percentage of revenue basis is primarily due to facilities related initiatives.
In summary, we're very pleased with our fourth quarter and full year performance.
We continue to execute consistently against this massive opportunity and the ongoing investments position that is very well as we look forward to the decade ahead.
Operator, Please go ahead.
Thank you as a courtesy please limit yourself to one question at a time you can go back into the queue. If you would like to signal. Please press star one you touched on telephone for questions. If you're joining US today, you say speakerphone. Please make sure you function is turned off to why your signal to reach our quick.
Mitch.
Again, if you would like to enter into Q. Please press star one for questions.
Our first question will come from Sterling Auty with JP Morgan.
Yeah, Hi, guys. So from my one question I'll focus on virtual observer much different segments of the market.
Focus on the solution and I'm, just curious that just based on where that fit and in other words, there and that's a logical either lack of certain feature functionality or lack of certain types of technological scale that would prevent it from actually use mark.
Good.
Hey, Sterling Thanks to the question is Rowan.
It's really a it's about positioning the right product for the customer as Weve.
Articulated before our strategy is best of breed. This is a product that has been position more in the sort of simpler environments. It's not so and the question that you asked specifically about does it have a lack of capability or any other reason why couldn't sell it up market. The answer is no. We do actually sell it up market to some customers, where they where they where.
The feature set as a good match for those customers, but typically tends to be in the sub 200 250 seat range, that's where typically tends to be again, we already have 150 customers with them.
We'll continue to position Barents.
For the larger and more complex environments, and we'll keep selling any more aggressively selling virtual observer to the to where it's more suited.
Understood. Thank you.
Yes.
And our next question comes from Rodman and Renshaw with Barclays.
Hey, Thanks for taking my question could actually steel on that subject.
So.
In other parts of sulfur you can see that kind of in the.
Lower parts aftermarket parts of the problems or market people, one like an integrated offering well if you go higher up in the market people were kind of happy to take on more complexity and hence its more best up or you think is this kind of the right we'd think about it for virtual observers rolling how you position that.
I think well I think every customer wants to get the vast and what's the best for them really depends it what we've found that is that in the this up to 50 space. It's really a virtual observer is the best fit for them, where where a product like variant tends to be overkill. In fact variant themselves have have it a different product that they.
Tend to sell in the smaller to the market, but we've found surprisingly with virtual observer that even larger customers are quite happy very happy with it.
If their needs match up with the feature set.
So it's a complete w. AFFO offering.
But you know doesn't have necessarily all the bells and whistles that you'd see with a with a variant.
And then be then can you talk to to Youre the.
Changing strategy, a little bit around cloud and how you want to kind of do cloud that going forward. But then also kind of linked at up to you to increase Capex every fee for this year like.
Totally unrelated because it doesn't seem to doesn't seem to be kind of adding up there can you just talked about little bit. Thank you I'll talk about the strategy and my Barry comment on the Capex question. The strategy here is really being driven by our international expansion, where we needed to expand very rapidly, particularly in.
No, Canada, and Europe, and so we're taking our.
We're taking our cloud native software and deploying an energy space not that's difficult for us to do that.
And so that's just an expansion strategy.
Were continuing to leverage the network and infrastructure that we have for our voice. So it's going to be an interesting sort of hybrid of a public cloud and our own resources is how we're sort of pursuing that but it's primarily driven by the need to be more agile and to expand to quickly.
Finally.
And right now with respect to the Capex.
Hi entirely due to the increase above what we know many would have.
Two facilities.
The facility that we have here at our headquarters inside of them on is expiring approximately a from now.
We need to get ahead of that.
And when I'm looking here at the list of Capex projects will 2020 days facilities is.
The number one position, which has never been normally the case.
How many in direct link with the move to the public parties that we are working with an onsite and some of those costs are relatively minor part.
Capitalizable undergo.
Okay.
Thank you.
Well done.
And moving onto Terry Tillman with Suntrust Robinson Humphrey.
Oh, hi, everyone I'm going to be discipline here and that's one question, but I want to so many so actually I'm going to focus on Dan.
No in terms of some of the evolution of your go to market activities. The motions in 2000, Nike maybe some observations on what you're seeing how do you manage around potential disruption in particular with maybe the new strategic accounts for.
Yeah. So.
Thanks, Terry and regarding strategic accounts, we've taken our sales teams as I mentioned in the opening comments and really put them into three the enterprise folks into three segments. If you will.
Where they can focus on the skill sets an experience that they've been successful within the past and we're finding great benefit from that and finding that they're they're able to focus on opportunities that they can win and opportunities that the that they have the highest win rates and so that's really helped us and they go to market sense I'm not sure if that was the direct.
Question I missed the first part of your question.
Well there was just one way actually quite good bye.
Yes.
No I was just going to say it was related to how do you mitigate potential when there's changes, though how do you have to minimize.
So I don't minimize as much as you can't disruption or just like what have you seen so far and I know you managing around the potential to strikes or disruption.
Structure within the customers.
No the cells the changes in your sales team took place yeah, there really isn't any disruption to it because the.
People tend to gravitate towards what they're comfortable with and where they where they fit right. It's to prevent people from getting.
Hey, guys and going out over their skis and trying to attempt to sell opportunities that they don't have the experience working with this can happen in large strategic accounts you get a multi thousand seat opportunity that you know sterci in the face it's tough to walk away from that or give it to someone else, they're going to chase after that even if they're not skilled and have the expert.
We have set to be able to do so and so this allows us to really allocate and distribute the leads more effectively to the right people. So that we have our highest confidence and highest probability of success.
Thank you.
Yes, that's the same people, it's just putting them in their swim lanes.
And our next question come from meta Marshall with Morgan Stanley.
Great. Thanks, guys I'm just on the partnership side, you know I know that the like has been kind of an attractive channel for you guys are partnership kind of over the past couple of years and just wanted to know whether you could speak to some of the other partnerships that you think could kind of grow in blossom over the course of the year and then just maybe.
Digging into the gross margin uplift comment that was kind of noted due to the acquisition is that something we should be kind of modeling.
Or just how to think of that there. Thanks, yeah very ill start with the diligently ASI question, and then I'll hand, it to Barry for the margin.
Impacts, but looking at what we had done over the last four plus years with Deloitte. They were really the first large global ESI to lean in and build business practice around cloud contact center, they chose us and Salesforce to do.
They are experienced centers and really.
Position with ER with some of the large customers around digital transformation, we've taken that same model and the timing couldn't be better in working with slalom and the why I'd be and Accenture as they are all now recognizing that customers and the partnerships that they work with are seeking.
Same solutions. These cloud solutions, so they're actually for the first time leaning in investing their resources getting trained and certified on fivenine to be able to be intelligent about positioning us in the market and it's just a great opportunity for us to get expanded reach and to get global with some very large accounts.
And with respect to the gross margin, we don't give formal guidance is actually with 64.2.
And there's some puts and takes.
The the point is clearly a because we get from virtual observers some tailwind, but remember, it's a tiny sliver of or total business.
And we will be making some investments to ongoing investments to bring.
The company a into the fold.
And then of course, we have our standard factors that have driven on gross margin expansion.
Oh in many years.
Most notably the fact that our subscription business is.
Big apart as a total of mix at the highest gross margin.
On the other side, though the moved to the public Todd will involve.
Quite meaningful.
So those onetime and ongoing costs.
Some of those because gross margins of putting a bowl around all of that meta.
You should not expect any dramatic movements up or down in the gross margins from what we experienced in 2019.
Alright, great. Thanks, guys.
And our next question will come from Nandan Amladi with Guggenheim partners.
Hi, good afternoon enough. Thanks for taking my question. So Rowan yeah in the second part of this to you, but that that perspective on 2019. As you look ahead, you've got multiple vectors of growth to focus on on the go to market side on the size of the geographic expansion and also pulled the plug.
How are you planning to prioritize molten investments and the management attention.
On on these different factors.
Yes, so it's all really behind driving up into the large enterprise is sort of the overall theme.
And.
That.
Comes part and parcel with their size so expanding as does meet a mentioned are asked what sort of expanding beyond Deloitte something that we've seen a lot of we're leaning into that because we're getting pole and a lot of interest from the other I size as well as front from a geo perspective.
Never one there's lot of opportunity outside the U.S., but number two were being pulled their by the larger U.S. based multinationals. So that's helping us lay the tracks in advance of those go to marketing investments and what was underpinning the obviate the leverage of public cloud to to get acceleration in that so those are the.
Those are really the big priorities I'd say beyond the size. We're also looking at some of the more traditional var partners, who have they been transitioning their premises base do you see the ucas and I think they're all starting to realize that they need to have a cloud contact center. So we're going to see increased traction from vars as well as service providers the surface rights.
As or roughly in the same position as the vars and so.
Yeah, just we're getting a lot of inbound from a channel partner perspective, Weve, Dan has built out that organization with.
I would say the industry's top talent, frankly, and ER and we're expecting that to deliver to pay dividends in 2020, So really really exciting set up for the year.
Thank you.
Thanks, Dennis and busy moving onto Richard Baldry with Roth capital.
Thanks.
Seems like there's been a small acceleration to your acquisitions I'm sort of pace.
Could you talk about whether that's than just opportunistic because there are some things that were randomly brought in front of you or how should we think about growth the acquisitions here cash balances, obviously still actually been growing even as you've done. These tuck ins is there an appetite for things that are larger or do you think really focusing on small technology Poland.
So the right strategy. Thanks.
Thanks, Rich I'll take that this is growing.
It's you know these were very strategic for us as we thought about the last two acquisitions. The first one with when do was about how do we accelerate large enterprise adoption and.
There we were seeing.
Traction with this company call when do and they were already selling into our base, helping land larger and larger customers, who had more complex business processes that had to be moved over so that was.
At least strategically driven to help us accelerate that large enterprise and then on the on the virtual Observer side. You know this is something we've been looking out for a very long time, we've been looking at the space.
We've been partner, we've been partnered with with virtual Observer, and Merit and former and also with Calabria. So we've been able to see how they perform in the market and.
This was a bite size acquisition, a relatively small for us.
But brought US we think the best technology for the for that customer base and so.
These were opportunistic strategic acquisitions, all with the intent to sort of continue to grow our.
Portfolio to be able to sell more and expand our Tam as well as accelerating our enterprise business and strategic acquisitions and in terms of whether we'll have appetite to do more or or not I think we haven't changed our under buying strategy and sort of principle that we prefer to build organically. So we're.
We're leveraging that on the K I front you know, there's there's plenty of there's plenty of exciting AI companies out there too to go acquire but we're not making those moves were building that organically and we're also as you saw US do last year investing very you know we're investing in our R&D function to do even more organic development so that.
That's going to start to pay off this year last year, we shipped over 90 brand new capabilities to our to our customers in this you're going to see that accelerate because we've we've actually built out that engineering capacity over doubling the number of developers at the company in the last 18 months. So I think that's that's I mean, we're going to be looking to pay dividends, both an AI and in the core.
Features that over the balance of 2020.
Thank you rich.
And next will be Scott Berg with Needham.
Hi, everyone. Congrats on a great quarter and thanks for taking my questions. No I guess I don't know if this is for our borrowing or for Gaiam, but as you start looking at the investments are the sale side. This next year.
Where do you think you put a disproportional number Bose has certainly talked a lot about large enterprise and some of the international opportunities you kind of sprinkle all the different areas equally or zero really.
Emphasis we should be looking at for 2020.
Yeah, So hey, Scott, it's Dan I'll take this initial in them so from now to it but I'm looking at those resources, we've already put most of those resources in place as we came into the start of 2020.
It was imperative for us to go ahead, and really staff up the latter half of 2019.
To prepare here and weve message to that as well.
If I had to say the disproportionate amount, it's really the channel and the channel is really where.
When we look at where we're going over the next decade and the type of.
Forced multiplier that we're going to get from having thousands of people out there representing five nine and providing our product both domestically here in North America as well as internationally, it's key that that channel B b as effective as possible and that includes this round was mentioned earlier.
Bars and it includes carriers. It includes service providers and it also really includes if you look you know the carriers and service providers are one element, but then the size that we talked about earlier considering those as part of the channel really provides us enough market.
Workforce that really is hired to be inside those companies and helps them with vendor selection and really.
Putting putting the best foot forward there to make sure that the digital transformation, they're going to go through is done.
Very thorough method and a very well thought out method and we're quite a big part of that so that's I take channels more than anything but that includes the international piece because many times as we go up market, we're dealing with more and more multinational companies that have local presence is around the globe. So those are size helped pull us into those markets and we're also in.
Vesting in our own own offices as was mentioned in the opening remarks.
Turning to ribbon on several new offices around the world. So I think it's to answer your question, it's kind of hitting on all those cylinders. That's why we mentioned those is kind of or three areas of investment.
Yes.
Yeah. The next question comes from Alex Kurtz with Keybanc capital markets.
Well, thanks, guys for taking the question.
Very you're talking about the linearity of the year and larger deal flow I get back to the strategy of the size.
Are they had immaturity point, where you can you can see the second half and they're in their pipeline.
Engagement and have some comfort and kind of what they can deliver through the year or is it still still in the earlier parts of those partnerships.
[noise] [noise], okay sorry.
Can I thought you were talking about that but my apologies if with the pipeline you were going to take it down.
Okay. So.
In terms of the their size.
The other beside the Lloyd.
To act as a development and.
Hi, frankly would need to defer to Dan in terms of how much in the pipeline Hayes for those.
Yeah, that's accelerating rapidly I mean, the size play in the largest of organizations and they get pulled in to assist.
With us, but their strategies and like I said several years ago, they were leading with.
The traditional premises pay solutions, that's what they were comfortable with that's what they can make services on and that pendulum swung over to the cloud rather rapidly.
Scrambling to get their businesses in order and build a practice around being able to position cloud and so.
Stay tuned I don't have anything material yet to deliver to you as far as to the details, but the pipeline is growing rapidly and we're getting into accounts that we otherwise wouldn't have had access to.
Thank you.
Yeah.
And our next question will come from Jeff Van Rhee with Craig Hallum.
Great. Thanks for taking my question, that's so I guess from our one question, let's hope some agencies for too.
Maybe just probably for you will and if you can talk about.
No as you'd kind of gone through the awful process with the learnings on what kinda yields returns you know results, you've driven and what what's the bridge from from current stage Slash all sold it to GA. So essentially what did you learn and what do you need to accomplish it between here and a a fully ready problems.
Yeah, we've learned a lot we are we're on track to release in the second half or mid point of this year as our current target we want to we've we've been focused on a handful of alpha accounts, where we can drive.
White papers and success stories, there we've been finding in terms of the in a few other I guess, if you were interesting learnings one is that someone unexpectedly the accuracy of asrs not simply important to that and intent detection. So in other words, the computer doesn't have to really hear everything that.
Doesn't have to hear accurately everything that the color is saying in order to very accurately predict.
The best possible next action for that call and that's important because you know the.
The real World performance of asks are on customer service calls.
He is not 95% like it has been as you speak to say for an example at Alexa or Google home assistant or series. So that's a that's been interesting learning in other words that the technology that we have is effective accurately detecting intense and then doing infections.
And ER and I think we're also learning about pricing you know as we engage with these customers they can now.
Our alpha customers able to look at potential savings from deploying this technology and so we're able to start now engaging in pricing discussions.
Thats early days still but that's very helpful. As we head into a product launch later this year.
It's going really well.
Thanks, Jeff Thank you.
And moving onto Catharine Trebnick with Doherty.
Oh, Thank you and I. Thank for taking my question and that was it really good quarter. So could you give us more context around the bookings. It seems like that was very strong there a larger percentage coming from your expansion sales are not new logos and then geographically how would you say that into disperse. Thank you.
Yeah. Thanks, Catherine this is Dan.
Regarding bookings as you know, we don't disclose the bookings numbers per se, but when you look at the momentum when we talk about the bookings quarter, we're referring to overall net new bookings for new logos and so those continue to accelerate and give us a as I mentioned a record Q4.
And with the pipeline growing it's not restricted to any geography in fact, as we talked earlier about our international expansion.
That's helping bring additional opportunities to the into the fold and so bookings are growing I think Rowan mentioned, our international bookings growing 45% year over year, which was very exciting to see and we're getting more people on the street in various markets.
Expanding our product portfolio to be able to have the localization and language necessary to cater into those markets. So that's coming and kind of hitting on all cylinders, there and I'm like we've talked about the market's ripe that's.
Under 15% penetrated or move to the cloud and so the opportunity is still.
Very very large and in front of those for the most part.
Thank you.
Yeah.
Yeah. Our next question come from will power with Baird.
Great. Thanks.
Yeah question, probably for either going or Dan just like competition.
The kind of Ucas focus providers, who have reported of called out contact center as a source of strength and I Wonder if you comment on anything new you're seeing competitively or it was one of that just a function of what's still big market opportunity and I guess, along those lines and install hoopla around central they C O product coming out here a little over.
A lot to wonder.
Any perspective, you could share in terms of <unk> total opportunities that could create as as and yes more folks move that PBX to the club. Thanks.
Yeah, well I think the ucas vendors that sort of as a class have definitely validated the interesting market opportunity with contact center and frankly, they all need they'll need to have an offer you know the big dog in that space, Obviously is ringcentral, who resell and don't on their own contact center solution reselling in contact and so I think that just reinforces the duato.
Fleet that we have in the market with US and then contact you know we've been really focused on our you see relationships, we integrate with all the you see vendors that are out there we've been making really good traction with zoom. So we're excited about.
Already and that partnership assumed there I would say the the logical sort of Maine threat potentially to Ringcentral in terms of you see traction or just given their scale of their business and the acceleration that they're seeing so exciting on that front.
With regards to hoopla.
As to use your word around a CEO, we haven't actually seen a delivery of a C cast products. So you know the the story there is delivering of icloud office from Ringcentral to the by a customers.
And that following that at some point later EVIA would deliver a cloud based seek has offer that has not launched yet we haven't seen it and so we don't know where that really staff at this point, but we're watching that carefully we do view this as an opportunity to drive awareness as a customer thinks about switching from their existing premise is based upon.
Yeah, you see in contact center.
We're already closing lots of those deals I mean, they're contributing a huge amount to two our revenue acceleration and I think thats going to continue and frankly, given that a bias now essentially admitting oh, he actually cloud doesn't make sense and we're going to have around product at some point, it's a great opportunity for us because we don't have to wait for a product we already have one and it works really.
Well and a lot of EVIA customers love. It so I think thats, an opportunity to accelerate our penetration into the by installed base.
Excellent.
And our next question come for Mike Latimore with Northland capital markets.
Yeah, Thanks, a lot great quarter there.
So just curious about some of the technology partnerships you haven't looked kind of influence it might have in 2020 and in particular you.
You know what are you seeing in terms of just the opportunities around Microsoft and sales Force and then you know with Microsoft kind of split up between you see instrument.
Yeah, maybe I'll take the second part and then you can comment on tech type partnerships and influence you want to add anything to my answer.
We are excited about the Microsoft teams partnership that we announced earlier more access because it was in 2019.
Soft has been making pretty good traction with teams easy the headlines on that front and following it closely behind that is there you see ambitions and I think I suppose you see ambitions really start to tick to bite, they're recognizing the need for a contact center strategy and so that's where we've been engaged with them and we've had solid partnership with had solid progress with.
Our channel partner Channel partners, who they've entered as the introduced us to and ER and go into their events and stuff. So yeah. We are excited about the Microsoft, especially longer term the Microsoft opportunity, we see them entity.
The huge disruptor potentially to the Ucas space.
And potential long term winter frankly in that space from a Salesforce perspective, you know we continue to have great traction with and executive alignment with Salesforce and I think we're going to continue to see that moving forward. Their customers are really happy with five nine and they've continued to pull us into two two deals and we continue to close deals with.
Salesforce. So so good progress on that front with regard to technology partnerships.
And influence in 2020, I guess any other comments to make on that that yeah. So Mike just is also talked Microsoft.
Dynamics CRM very much partner in fact, you heard me mentioned it on one of the opening a examples that I gave a win last quarter. So we continue to engage into more and more with them Salesforce, obviously being the market share leader there, we do a ton with them and we'll continue to deepen those integrations and make sure that the customers are getting the value, but if you step back from.
CRM is certainly one very strategic integrated element that we deliver to our customers together.
But then you look around at the other adjacent seems like you see we just spoke of critical to have those.
Partnerships, but then you look at all the other ancillary applications that live in and around the contact center and it's very important in one one key element is the when do acquisition gives us a lot of those integrations.
Already pre built out of the box.
Which is key but also more than ever because we're fivenine is in the marketplace. We have a ton of folks that are joining our I SP program and that really is technology partners that want to come on integrate car platform and then be recommended or endorsed by us to go ahead and fill out some.
Those are those.
Immediate adjacent sees that they can bring value for and we not only have expanded our I asked me program, but we've not listed them on the marketplace on our web sites. So it's very easy for customers and prospects to go find who we work with well we've already endorsed the integration with so getting great traction from that.
Great. Thank you.
Yeah.
And we'll take a follow up question from Sterling Auty with JP Morgan.
Yeah. Thanks.
Sure.
Central or salaries.
Oh, you talked about 200000 means.
If you look across entire industry what would you.
Total lumber Oh <unk>.
Contact centers that we.
Well.
Well.
Hmm.
Oh.
I Yeah. This is Rowan Sterling. Thanks, you were breaking up a little bit, but I would say either because they were part of the question I heard was.
Estimating the total penetration.
I would say look the number is less than 10% of the total seats total seats globally 16 million call. It so 1.6 million and of that I would you know I wouldn't be surprised if real cloud is over a million seats, but it's probably somewhere between a million to 1.5 million is my guess told.
Well seats.
Thank you.
And you have to exclude by the way the reports from some of the other vendors who include hosted they essentially take their premises based offers and give it to partners and say please put this in your datacenter and then deliberate as a service to your customer and that's not.
Customers have wised up to that false cloud sort of proposition and are really pushing back on those under saying I don't know I'm expecting a true multitenant cloud I don't want to be more than one person, we actually hear that some customers. All time, you know our we more than 1% of the volume on your cloud and they don't want to the that's a big safety factor for a huge company.
You know.
Do you have with that we may be running one of the largest if not the largest multitenant cloud.
Intact centers with leverage with the 200000 named agents and so that is a huge safety point for large enterprises as they look to multi tenant not just essentially taking what I already have and putting it in somebody else's data center.
So that those numbers tend to be included in the broader quote unquote cloud seat counts that some of the vendors.
Report on.
Make sense.
Yeah [noise].
And our final question will come from Terry Tillman with Suntrust Robinson Humphrey.
Hey, Thanks for including me again, Yeah, just maybe Barry I don't know if I missed the but when we looked at the combination of went to what's in there was more of a technology acquisition.
Then aquatic acquisition from virtual Observer production fell acquisition could you give us any sense on how that looks from an impact in 2020 revenue. That's all had thanks.
Yeah. So.
Straightforward in terms of when do.
Very minimal we got the skews out there they doing well at full excuse in one platforms here too its going to take awhile before that starts working to the left to the day small.
In the case of the existing hundred 50, plus customers that we have with venture observer, that's a tiny sliver of a carton business.
And we obviously plan to.
Accelerate that and make some investments to help achieve that but it's it's not going to be that meaningful in terms of comparison of where we are currently with they slugs of in Twentytwenty. So in other words the growth from 19, 2900, 2020 will not be material.
[noise] and myself thanks.
And that does conclude the question answer session I now turn the conference back over to management for any additional or closing remarks.
Thank you operator, well in closing I am pleased with our strong fourth quarter and annual performance as we started at new decade now here in 2020, I believe that we've got the best team that best technology and the best Division to continue heating the cloud contact center market and there is tremendous.
Opportunity for five nine and we look forward to sharing our ongoing progress as this year unfolds. Thank you all very very much.
Well, thank you and that does conclude today's conference. We do thank you for your participation have a wonderful day.
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