Q3 2020 Five9 Inc Earnings Call
Please standby.
Good day, everyone and welcome to five nights Kittery up why 20 <unk> earnings call today's call is being recorded.
Sounds like a turn the conference over to Lisa Mccartney. Please go ahead.
Okay.
Thank you for joining us today on the call are growing Charlotte CEO, Dan Burke, President and Barry always seems to be about.
Certain statements made during the course of this conference call.
Including those regarding future financial according to the company industry trends company initiatives and the proposed yaki eaten up in spring.
Timing and expected that gets you there.
And other future events are forward looking statements within the meaning of the party Securities Litigation Reform Act of 1995.
Such statements are simply predictions should not be I'm doing relied on buying back your actual events or results may differ materially and the company undertakes no obligations to update information in such statements. These statements are subject to substantial risks uncertainties that could adversely affect fivenines future. We saw in coffee forward looking.
It could be inaccurate, including the impact of the Coke at night came together that the closing of the employees acquisition is subject to certain closing conditions. The transaction may not close to an expected or at all and that's the total purchase price is subject to various purchase price adjustments as well as whether or not certain metrics. There. So.
Like any other risks discussed under the caption risk factors and elsewhere five nights annual and quarterly reports filed with the Securities and Exchange Commission.
In addition management will make reference to non-GAAP financial measures during the call a discussion of why you do well, yeah, well using messenger and you put your garden reconciliation of our GAAP to non-GAAP results.
Deal both in our press release issued earlier, just asking as well in the appendix of our Investor relations deck on our investor deck.
On the Investor Relations section on Fivenine was like five nine dot com.
And now I'd like to turn the call over to Fivenines CEO well controlled.
Thank you Lisa and thanks, everyone for joining our call.
I'm thrilled to report outstanding performance in the third quarter, driven by continued strong execution positive industry trends.
Austin product innovation.
We reported record third quarter revenue.
$12.1 billion accelerating to 34% year over year growth.
12% sequential growth.
Which are all time highs as a public company.
[noise] airports subscription revenue grew 35%.
Basis.
And on the bottom line.
Adjusted EBITDA margin was 21.5% also a Q3 record for fun.
We continued to experience strong bookings across the board.
Commercial and enterprise with our existing customers.
With new logos.
In addition to be excellent financial results were also very excited to announce the definitive agreement to acquire in French Oh, leading provider of intelligent virtual agents.
Sure we've been successfully going to market with.
Inference accelerates the Fivenine <unk> portfolio to provide effective digital labor driving a new level of efficiency for contact centers.
Please use conversational.
Enabling doctoral dialogue between computers you much under a major evolution from Touchtone voice activated the arch, which depended upon structured six grammar interactions.
He is more accurate and user friendly.
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That's a good savings through increased called deflection rates better informed agents or both.
But its proven technology in France acquisition will position Fivenine to take advantage of the trend towards increased automation of mundane contracts under Josh.
Having an idea is fast becoming a fundamental requirement and enterprise deals as demand continues to increase on contact centers, especially in this kobe driven environment.
It can no longer be addressed in service by simply hiring more agents.
What customers are requiring digital labor.
I was provided by solutions like I've, yet to meet the increased demand.
Yes their customer experience.
Great. Recent example is the logistics company deal that we talked about last quarter. The company. How state governments are managed health care organizations with transportation services.
Deal, which was one of our largest ever started out with an IDH focus driven from our partner at the time and mushrooms and do a full contact center solution.
With interest, they're able to trigger automatic booking confirmations SMS reminders status of rights as well as a follow up surveys.
And they added a few Bob to talk about it more examples when he talks about our third quarter deals.
[noise], which lots of different spread a number of reasons first they are a market leader in this emerging category, both from a technology and from a market share perspective per industry analyst firm DMG consulting.
Inference is deployed worldwide with customers in Asia Pacific Europe, and North America.
Second it's disruptive.
Most current I'd solutions are either professional services centric, which are available only to the member enterprises with huge implementation budgets or.
They're developer centric.
And then for installation on either should be deployed James with minimal people involved offering the best of both worlds.
Third and finally, we see very considerable go to market synergies a large number of tier one two or three telecom providers around the world, including H. here in North America, and Telstra in Australia Trust and friends and we see considerable opportunities to leverage the entrenched global presence and introduce them to our partners.
Putting systems integrators bars and other resellers.
We've been delighted by customer demand an acceptance of your solution and this is one of those moments, where new technology is reaching maturity at a time.
Kit demand is decreasing which creates a great opportunity for fivenine within France.
We expect to close the inference acquisition no later than January fab.
21, very well talk more about the financial impact in his section.
Having introduced in France, I'll now turn to discuss the underlying market drivers for our strong performance.
First the transition to the cloud continues unabated, including for larger enterprises, and we believe will continue for many years to come second it's become imperative to digitize customer experience as part of the Companys overall digital transformation.
Third you know these two mega trends the move to the cloud and digital transformation has been accelerated by Kobin 90.
We see this as a significant increase in the demand for agents in general and in particular, the demand for agents working from home.
With the mutual benefit to businesses and agents.
And finally fourth as I will elaborate upon in a moment the demand of AI driven automation is clearly increasing.
In short as we all know full well the new front door for many types of businesses from yoga gear to E learning Tele medicine to electronics and so on is a contact center and we believe that this front door well open wider in the future.
I'd now like to discuss our go to market approach and highlight our key achievements.
Over the last few years, our GTM approach has become more balanced with our extremely successful director Crouch being complemented with master agents with bars and distributors with systems integrators, and finally with service providers.
Our investments in these complimentary areas are clearly can't dividends as you can see from the following examples first our aside momentum continues once again this quarter our site bookings more than doubled compared to last year and we anticipate our outside bookings to finished 2020 and more than triple what they were at 2019.
We're also now significantly more diversified by ESI partner that we were last year.
Second we're very pleased with the performance of our agency partnership.
Following H he's rapid on boarding and the successful launch of HKG cloud contact center, we're now jointly delivering additional customer deployments and quickly growing our global pipeline together.
And finally start we continue to enjoy significant international traction.
Our products localized for multiple languages is there.
Living country connectivity to a host of local carriers and is supported by enriching support personnel and partners.
Moreover, we successfully migrated our platform to run on Google Cloud platform and deployed to new instances in Canada. In addition to our data centers to London Amsterdam.
Experiencing momentum from our international marketing strategy, which includes thought leadership programs regional programs around awareness and demand generation as well as partner enablement and amplification.
Our growing international presence was also evident in our results yet summit, where we saw strong international participation with 54 countries represented and finally some metrics. Although the numbers are still admittedly somewhat small our international momentum continues with record bookings in math and Latin America.
The demand drives three acts and Latin America growing for next year over year in Q3.
I'll now turn to focus on our product execution and leadership here.
This year, our emphasis is on portfolio expansion to increase our average revenue per user which complements our growth via logo addition.
So of course takes some time to manifest in our financial results, but we're very encouraged by the strong positive feedback from our customers and partners and the capabilities, we're delivering switch.
To achieve this ARPU growth, we're focusing both on product evolution and innovation and I'm, making.
Great progress on both fronts. So with respect to evolution here are three recent highlights first our most recent release included over 135, new features with significant focus on digital channels second.
Our recently acquired business is doing extremely well posting record bookings in Q3. The first version of integration into the Fivenine platform has been completed and further enhancements are underway.
Finally, third we broadened and deepened our CRM and use the integrations, we're especially pleased with our recently GE, a zune phone and Microsoft teams adapters.
We're also seeing excellent early traction on the innovation front.
So here are some examples first voice stream.
We stream as a media streaming epi, enabling the building of apps that access real time call audio. These apps will enable businesses to do things such as authenticating, a callers identity to voice biometrics effectively coaching agents, while they're on a call utilizing speech and sentiment analysis and much more.
Sure.
This will help contact centers improve agent performance, while also delivering a better customer experience and with voice stream Fivenine is taking a unique approach implementing it in our own products. While also creating a platform capability that makes it easier for our partners to build AI apps for the contact center.
Second we announced the release of agent assessed which captures in real time call transcripts and generates accurate timesaving called summaries, which automatically sync with the CRM platform and greatly improve agent efficiency.
Did you assessed using innovative natural language processing technology developed by five nine and has already had remarkable reception for such a pioneering products.
Third as I mentioned earlier, we now also have in France.
Which will help us take a meaningful step in meeting industry demands, while increasing ARPU given a virtual agent is priced at up to $400 per virtual see per month, roughly double our current ARPU per human seat.
So stay tuned for much more to come.
In conclusion, we.
We believe we are very well positioned for continued strong growth with clockwork like execution by our team continues to focus on go to market initiatives and capitalize on the significant tailwinds in market.
We have a tremendous market opportunity with only 15% penetration of the $24 billion contact center software market.
Moreover, we see the opportunity to potentially more than double our current town.
With the labor arbitrage through the deployment of automation technologies.
Our acquisition of inference is the first step to realizing the arbitrage opportunity.
And given these favorable market trends and the proven ability to execute we continue to believe that we can maintain thirtys level enterprise subscription growth for quite some time.
With that.
I'd now like to turn it over to our President Dan Bourbons.
Dan.
Thank you Ron.
We continue to set records in bookings and contribution from our channel partners and systems integrators.
Our enterprise net new team booked a record for any Q3, nearly eclipsing Q2, which you will recall was an all time record.
Over 60% of our deals continue to be influenced by partners and our pipeline continues to grow to an all time high once again, reaching more than double what it was just a year ago.
As Roland mentioned, our go to market machine, along with our key investments and channels in international are providing us accelerated momentum as you can see from our results.
Now I'd like to share some key wins from the quarter.
The first as a technology company, which provides software to financial and health care organizations for ICICI HR and accounting.
They had been using Amazon connect for about six months when they determine the path to delivering their c. exhibition would require extensive investment.
Additional resources and an elongated timeframe. So they decided to abandon the project and start fresh look complete cloud solution.
They selected Fivenine due to our end to end Cfts offerings include.
Including first our deep integration to their service now CRM.
Second our IP a colored by inference to replace an outdated speech enabled IDR what colors can receive intelligent self service.
Third if opting out speak to an agent all the Ivy a journey data is passed to the agents that personalization never requiring the color to repeat information.
Fourth we are providing real time speech analytics for their virtual observer acquisition to alert supervisors of calls in flight, which are in need assistance to immediately improves the customer experience.
As a result, this customer expects to save over 70 seconds and handle time per call on the more than 30000 calls they process each day.
We anticipate this initial order will result in approximately 2.7 million in annual recurring revenue to Fivenine.
The second key win it's an automobile insurance company for specialty uncollectible vehicles.
They had been using an on premises Genesis system, which lacks the deep integration to their salesforce CRM and had no integration to their Sim phone you see solution.
This is also an excellent example of a customer is looking for an end to end solution to truly transform their CX vision.
This customer is implementing the following key features first.
First our Fivenine AI product agent assessed the transcription and summarization of calls to be inserted into their various CRM systems, including Salesforce servicenow ensure sauce and the home grown solutions.
Second our IP a solution powered by inference for intelligent self service.
Third our secure pay for PCI compliance.
Of course, our engagement work flow and routing of Salesforce chat and email.
Fifth visualize a yard for customers to interact from any mobile device.
Fixed the Fivenine virtual observer, QM and speech analytics.
Last our zoom phone integration, where agents can have shared directory she status of zoom users and perform seamless consultation transfers.
We anticipate this initial order will result in over 1.9 billion in annual recurring revenue to Fivenine.
The third example is one of the nation's leading providers of credit and lending programs for consumers.
They two found that adding legacy point solutions over the years have created islands of technology and silos of data with little or no integration between them. So they embarked on a process to find a complete CEOC solution.
[noise] Fivenine was selected from all the typical competitors for the completeness of our offerings along with our modern SaaS micro services architecture, which gives them hundreds of H.T.I.s to ensure integration and the ability to share data across many disparate systems.
This customer is leveraging performance dashboards Q.
QM speech analytics and.
And WFM from a virtual observer W. So sweet.
They also found Fivenine was the only provider who could truly blends inbound and outbound, calling allowing system to dynamically pace their outbound campaigns based on observing the rate of inbound call traffic.
This is designed to maximize the utilization of their agents, while also minimizing wait times for inbound callers.
Anticipate this initial order will result in approximately $2.8 billion in annual recurring revenue to Fivenine.
And now as I normally do I'd like to share. An example of an existing customer who is expanding their use of fivenine.
Just health care company, providing patient journey and decision, making data to pharmaceutical biotech and medical device companies became a fivenine customer in 2019, and we serve a single departments contact center needs.
Not only did they recognize the benefits of moving to a single technology platform.
They also found a significant difference in the support they received from side by.
They are now moving the rest of their departments and agents from competing solutions over to Fivenines, where they will also get the benefit of a technical account manager responsible for continuous optimization of the solution across all of their departments.
This customer will go from just under $500000 in annual step to over $1 million in annual recurring revenue and join our growing list of million dollar a our customers.
As you can see more than ever Fivenine is delivering a comprehensive next generation CX platform that is helping enterprises transform how they in turn deliver a more intelligent personalized and agile experience to their customers.
And now I'd like to hand, it over to Barry to share our financials Barry.
Thank you Dan.
Before going into specifics reminded that unless otherwise indicated.
All financial figures I will discuss our non-GAAP.
Reconciliation from GAAP to non-GAAP results are included in the appendix although.
I will now get the presentation on our website.
We are very pleased with the top and bottom line results, which far exceeded our expectations.
As Ron mentioned earlier.
Revenue grew 34% year over year.
12% sequentially.
Both both on high for any quarter as a public company.
That's very clear growth was driven primarily by our enterprise business.
Subscription revenue increased 35% year over year on an LTM basis.
Any thought to make sub 82% of LTM revenue.
In our commercial business represented the remaining 18%.
Note that our medical business continues to be very resilient.
Year over year in the teens.
Recurring revenue accounted for 93% of our revenue.
Yeah, the 7%, although our revenue was comprised of professional services.
Okay and debate the Canyon right.
Increased to 187%.
On the 105% last quarter.
As a reminder, our continued success in winning larger and larger enterprise customers.
Is expected to continue causing fluctuations and our dollar based you, Pennsylvania ending.
Any not any thoughts and fifth and growth rates as they come onto the platform at different times and ramp at different rates.
Third quarter adjusted gross margin was 65.4%.
An increase of approximately 140 basis points year over year.
Third quarter, adjusted EBITDA was $24.1 million.
Representing a 21.5% margin.
Which was a Q3 record.
This is an increase of approximately 350 basis points year over year.
Third quarter non-GAAP net income was $18.5 million, an increase of $5.7 million year over year.
Non-GAAP EPS for the third quarter was 27 cents diluted share.
Seven cents you out of it yet.
With regard to balance sheet and cash flow highlights.
He is though what 31 date in with a quota.
Third quarter operating cash flow was an all time record of $22.8 million, maintaining eye LTM operating cash flow margin in the team the last 10 consecutive quarters.
We remain optimistic about the tangible continuing cash flow generation.
Given a long term model at.
So essentially I know.
No dsos.
And now the fact that doesn't get Dod infant acquisition.
Slide nine was agreed to acquire endpoints well have.
$3.8 million in cash subject to certain places by suggesting.
With additional cash payments about $224 million upon upon setting up a vision thing.
I'd like to finish today's prepared remarks, with a beat discussion of expectation.
Fourth quarter and the full year tiny tiny.
Which do not include any impact from infant if the transaction would close in the fourth quarter rather than in the first days of January.
I will also provide some initial comments on 2021.
In particular.
About the financial impact of acquiring and friends.
And essentially.
The quarterly profile of the bottom line.
Good luck.
In 2020, we.
We are guiding fourth quarter revenue midpoint of $115 million.
Which represents a 3% sequential increase over that keep the strong third quarter and 25% year over year.
Oh 2020.
Raising the midpoint of the I know revenue guidance.
$400 million, you, probably think $18 million, which represents an increase in the year over year growth rate of 22% to 29%.
As for the bottom line we.
We are guiding fourth quarter non-GAAP net income.
Point of $16.5 million.
Which represent a $2 million a quota of according deeply that is within the range of sequential decline.
We have guided to in prior fourth quarters.
Yes, it's actually declined.
It was primarily driven by a substantial ongoing investments in key strategic areas, particularly in go to market and R&D.
It's five do you think that we.
We are raising the midpoint of annual non-GAAP net income guidance.
From $52.7 million.
It's $60.2 million.
Taking into account these investments.
Another item that detailed GAAP to non-GAAP reconciliation.
GAAP net loss to midpoint of $14 million in Q4 and $48.9 million in 2020.
I'd now like to provide insight into our current thinking put 2021.
While we are not providing formal guidance at this stage, we kept provide some high level comments on it.
For those of you following fivenine for some time.
You know that we have in the past always part of the new year with prudent revenue guidance of 16% year over year growth at the midpoint name.
Mainly due to the uncertainties around the magnitude of that seasonal impact on other than.
Well 2021 would probably make a higher than typical you ought to be a growth rate of 18% from the midpoint about 2020 revenue guidance.
Mainly due to the additional revenue contribution.
We are estimating from in place.
Driving total revenue outlook for the year to reach approximately $500 million.
We'll take big revenue to continue following our typical pattern.
With slightly more than 50% of I know they generated in the seasonally stronger second half or 2021.
With respect to Tony Tony while non-GAAP net income.
Please note.
Input will be dilutive to our bottom line.
In addition, we plan to continue investing in go to market and R&D initiatives maintained the momentum of our coal business in the covered current environment.
As a result, we expect non-GAAP net income in tiny tiny one could be approximately the same as the midpoint of our 2020 guidance at $60.2 million.
In addition, we would like to provide a more explicit outlook on the quoted club Paul about bottom line.
We currently expect non-GAAP net income to be approximately $8 million in Q1.
Flat in Q2.
'cause relatively better in Q3.
And especially strong in Q4, which is always our strongest quota.
We would like to remind you that we remain committed to achieving our long term EBITDA margin target of 27% approximately four years.
But I mean.
Here are the customary estimates for modeling purposes.
But do they didn't get yet we've.
We expect diluted shares to be 72.2 million and baby kids to be $67.8 million or the full quota 2020.
And 58.6.
64.6, respectively for the full year 20, Tony.
We expect our taxes, which relate mainly to park city to be approximately $120000 for the fourth quarter trade Tony at.
At $570000 for the full year 2020.
Capital expenditures for the full quota tiny tiny.
Expected to total approximately $10 million to $11 million.
For the full year 20 training expect capital expenditures to be between 31.5 and $32.5 million.
At the midpoint. This represents approximately 7.5% that was I think there's a need for the year.
Which is higher than our historical average of 6%.
Primarily driven by international expansion and the Buildout of our new headquarters.
In summary, we are very pleased about the quarter performance, achieving all time record a multiple metrics.
We always say excited to expand our ready method time by acquiring and fun to capitalize on the opportunity of automating the Monday past the context.
We remain laser focused on making strategic investments to drive further momentum in that business.
Operator, Please go ahead.
Thank you if you'd like to ask a question. Please press the star key followed by the <unk> one on your Capex come down and also make sure. Your mute button is turned off to layer sick Dockery Carquest equipment airway do also ask that you. Please limit yourself to one question.
We'll take the first question today from Sterling Auty with JP Morgan. Please go ahead.
Yeah. Thanks, Hi, guys. So really are you seeing room as Barry.
No we're not we're at our house because of the.
Good thing you need to reach over nature. The U.S, okay, because every quarter since the IPO I I'm pretty sure anyway, the guidance for the next quarter at most up like $600000. So you see a 3 million dollar roughly increase sequentially in the guidance.
And it's not including the acquisition yeah. It definitely seems like something must have changed [laughter], it and with that.
Obviously, we're seeing the tailwinds from coated in the rest of it but.
Am I reading it right is there actually a sea change in terms of the momentum in the business and given all the parameters that given what really has changed the most since we talked in 90 days ago on the June quarter call.
I'll, let barry defend themselves on that one Barry.
So fitting me affiliate serving.
Feeling very well, but thank you for your concern so.
So nothing considering it.
We've seen very.
Strong momentum.
Enterprise business on all fronts, not just the new logos that we typically in the past the talks about.
But also in the Sobeys and on the commercial side, which then can talk about more do one.
He came to us with a record during the quarter a PS organization performed flawlessly.
And Tim.
Decline a postcode.
And things just went extremely well pretty much across the board.
Got it thanks.
And we'll take our next question from Mecca Marshall with Morgan Stanley. Please go ahead.
Hi. This is current drove a car on for meta. Thank you for the question just a quick question on inference or are there any particular verticals that this solution is best before today, and who will be responsible for creating those vertical specific solutions would it be you guys or there. Thank you.
Yes, So I think the first thing to point out about in France is that it's really built for a mass deployment.
Unlike you really anything else out there.
I can see in that space.
Acquires professional services.
And this is a tool that finally allows just about any company to get the power of of IDH I'll, let Dan comment on we've actually been belem is part of it had a partnership with them a preexisting. So we've already got some experience with it.
And we shared on the earnings call. It other logistics. A example, their mothers, but Dan any comments on the industry verticals, where you think that might be more or less.
Yeah, I think and thank you all the typical verticals that we see for contact center, which is really a very horizontal application that goes into just about any type of business. You know one that one that receives calls from its customers right and so when you look at consumer products, you know, whether it's health care financial service.
This is retail technology, but what I'd be a is accomplishing what their therefore, it's really to handle.
Customers that don't need to speak to a human that wants to get cell surface that still have an open ended number of questions. They may be asking so they're going to have it and think of it as a conversation not with the human but with the system and the system people such the answer and come back and provide the answer.
And what's what's unique here is if you think about historically, where I'd be ours place placed there were placed across all industries right and I'd be ours started out with touchtone choices than they evolved into some very limited speech recognition were you listening for.
Very succinct list of Oh.
Grammars are questions and now its very conversational ultimate so think of it as the next generation of Ivy. Our if you will and that can be applied in so many different places to the examples I shared earlier.
Earlier, we're are using it for us and and so yeah. It's it can be applied just about as widespread as we apply our other contact center solutions.
That's one of the reasons, we're so enthusiastic about this acquisition.
Thank you that makes sense I appreciate the answer.
They will not go to David Hynes with Canaccord.
Hey, Thanks, guys.
Congrats on the strong results I don't know, if there's a better parts or Roanoke or Dan, but I'm curious what.
A fully loaded ARPU looks like these days I I may have my numbers off so correct me, but I think we've talked about in the past like the typical sales.
202, 50 seat without a Max it goes all the way up to 400, you guys have added a ton of products. So I'm curious.
How we should think about that now and I realize it probably gets a little bit messy with that labor arbitrage opportunity that you talked about but any any kind of framework would be helpful.
Yeah, I'll take that one is pretty clean here and the numbers haven't changed much as you from what we shared last time, but in that 200 and I think were currently our averages and the 200 and change number two a four to five.
And and and a fully loaded ARPU, which is a very good question you bought everything in our portfolio you know you're talking around 400 per month per agent and just to put things into context to deploy an on premise solution with the same level of redundancy and availability in scale and capability that we can deliver in our.
Folio.
His cost more than $400 a.
4567, even $100.
To get there and I'm sorry, the second part of that so so where we are on that is as you pointed out we've been expanding our portfolio, bringing in virtual observer and so on.
Those are really owned by Fivenine, but but we have we were already selling those products on fivenine paper and so you're not seeing a drift up in the ARPU number.
From us at this point the rents in France is a different story.
In France.
Is actually very simple it doesn't make them any more complicated in fellas instead of selling perfume and see we sell per digital C and sort of concurrent digital scene and those will sell for 400 bucks or up to $400 per Boe per.
Our digital Aegion per month and so.
So you know it's roughly double what we can what we are expecting to get from our traditional software that we sell for the human agents and what from a customer's perspective. The benefit. There is of course, you know, they're not paying the labor costs and salary or labor cost for for the employee.
So to actually see some pretty significant savings by moving to digital sees.
Yeah, Yeah, Okay that makes perfect sense helpful. Thanks, Ron.
Well now go to carry coming with troops securities.
Yeah.
Hi, Sterling.
No I think it probably.
Right, where the guy.
Great but.
<unk>.
Yeah, Hey, Terry.
Yeah. Jerry this is Dan I'm sure you're cutting out if you wouldn't mind either starting over we can come back to you.
Oh, how how the dark.
Much better thank you.
Well I've got to have a great kind of preamble there going to be hopefully ready about the barrier into guidance for 2021, but all just have my question, but in terms of the international business I'd say you know what Barry was talking about the guidance and strategic investments into 21, I'd love to learn a little bit more about maybe is there a greater leading into the winter.
National side and the second part of that one question is just you know maybe Rowan are down just consumption and what you're seeing with the international business do they buy more strategic or piece Bill. So just would like to hear hear more about the international opportunity. Thank you.
Sure Yes.
A key part of our growth strategy, we have been investing.
Take really in Latin America, Canada, and Western Europe, and we're starting to see that may offer as we shared the pipelines.
Reinforce mines.
In Western Europe, and Latin America, respectively. So we're seeing tremendous interest. We have also signed some really exciting new partners that are there in the market leaders.
And had been hiring opening offices as.
You know, we've been primarily U.S., but a couple of years ago. We did begin to make those expansions and investments and they have taken some signs of really kick in but I think we're starting to see it not to be the overall on topline and you'll see that that continue in terms of the differences.
In Europe and elsewhere, you know, we do see a very similar we do see very similar situations in western Europe to to the U.S., there's slightly more complexity from a backend perspective, because of local country telco regulation and.
And data residency.
We've chosen GCP as I think we said in the script.
The earnings script earlier that we've selected GCP and deploy that are now in Canada, and then we move into next Amsterdam.
And so that's an important part of this strategy as well, but the dynamics in Western Europe are very similar.
Latin America, I'm very very similar as well, we've seen very very strong growth there.
And and so you know our playbook. If you will is working or sort of our growth playbook is working equally well in both of those regions.
That's it.
Yeah. Okay. The next question from Raimo Lenschow with Barclays.
Hey, Congrats from me as well I I actually check back I think it was like Q2 2013, when you lost crew.
34, 35%, so well done congratulations on me on that in the <unk> do you can I go back to the partner side, you mentioned on the European side to partners, but it can also see internally as you add partners like it seems to me because the partnerships are not bad.
That oh that we should actually only be at the beginning of a journey Robert Unlike in the middle of it can you just talk to me a little bit like you know like how that's a you know a whole lot more partner relationships are evolving at the moment. Thank you.
G. Please go ahead.
Hi, Thanks for taking the question and congrats on another solid quarter here I.
I guess looking at the partnership and.
Got that viewpoint, a little bit differently, you highlighted a lot of early success on the 18 T. front maybe.
Maybe just help us think about kind of what those what those typical opportunities are looking like in.
That partnership and how maybe additional conversations are going with with some of their rivals as they've seen this gain momentum so quickly.
Yes, that's great. Thanks, Matt. This is Dan 18, she partnership is going extremely well not only building up pipeline, but as we talked about at the beginning of the year. We started onboarding their staff training them getting the pipeline built and we're starting to see the fruits of that labor come through from a revenue perspective.
Talked it's going to move the needle significantly more in 2021, then it will here in 2020, and but we're seeing significant growth there and the pipeline is exceeding our expectations and we look at the deals themselves. It runs the gamut they don't.
Emanate from very large enterprises that hey, look listen have control of the two smaller commercial size businesses. So we're seeing contribution into our not only pipeline put into our bookings pretty much across the board, including our commercial business.
Great. Thanks.
Yeah.
And we'll go to Alex correct Keybanc.
Hi, This is Mike on for Alex and congrats on the deal now considering the deal will increase your competitive positioning on ask about the opportunity with Cisco our checks tell us they are introducing a new pricing framework for collaboration early next year called like three point now.
And then to move over time and compared to subscription you see this as an opportunity for Fivenine Inc. can you create programs around with the that as customers must tell solutions. Thanks.
Yes. This is.
John Thanks for the question I was just has been doing a great job of evolving that flat.
Pricing strategy and sort of making it easy to switch customers to the subscription.
Based on offer but the reality is that they still don't have a sicad offer and that's what customers really want is and where we've been.
Steadily health and helping those customers move on to our platform and.
And they have been very happy to do that and I think thats going to continue but I wouldn't I would never count has gone on for the contracts up their sleeve down the road.
And our next question will come from Michael occurring with Wells Fargo Securities.
Hey, there thanks good afternoon.
I want to talk more about the move up market given we're finding more proof points around your success. There I know its probably tough to quantify but can you maybe share thoughts around how much of that is driven by the shift towards cloud and some of the partner relationships you established versus some of the capabilities you've been adding things like workforce optimization.
Soon to be in France, which can help explain that but any further color on the server market is useful. Thank you.
Yep and pretty good so.
Well go ahead.
That's okay [laughter].
I'll say, it's been pretty consistent move up market as you've seen.
And part of that.
Com companies getting more comfortable with cloud.
And sort of seeing there appears go first.
Their colleagues prove out the cloud can work where larger and larger customers.
Yes, you know being sorted one of the leaders, there and helping bigger and bigger customers move into it to to the cloud second I think you know work from home is here to stay with Covance, which has really turbo charging that the cloud transition.
There's been a lot to sticky tape and bubble gum to get your on Prem solution working in a work from home mode. So this has been enough that are factor that's driven the awareness to all time highs amongst enterprise buyers that and cloud is the future of course, it's not just our industry that recognition is coming from.
Virtually every other sort of technology segment sort of moving to cloud and we're still less than 15% penetrated.
And I think you can see this quarter our our.
Enterprise subscriptions, 35% now LTM growth on enterprise subscriptions as it's growing.
Very very nicely and we think that's going to continue we continue to see larger and larger deals in our pipe and bigger and bigger customers.
Sort of throwing in the towel on Prem and and moving to cloud.
Thanks, nice job on the results.
Thank you.
Our next question comes from Ryan that quality M. Stephens, Inc.
Thanks for taking the question, Brian just on the up market deals have you seen a sense of urgency this year to get the deal done you have been killed it and then just since the start of cobot anything any changes to the customer journey to adopting cloud contact Center solutions.
What I'm trying to get out are you seeing more demand coming from collaboration platforms like do more Microsoft teams than before thanks.
Yes, Ryan this is Dan.
I'll take that one, but a great question and what I'll say is peak.
Partly because of coated and Rollins talked about you know the contact center really brings a new front door to the business right and if that's the only can do and the only way to communicate with your customers more and more companies are recognizing that they've got to be able to deliver a customer experience across whatever medium.
Consumer choose right. So you want to be able to deliver Ivy A's and chat bots I. He why we look to infants and brought them on board. If you look at that they want to help they want to self serve for many things. They also want to perhaps interact digitally right. They want to use chat or email to communicate she's got to deliver a consistent experience.
And there are cases, where people want to talk to him to be there.
I want to have a detailed conversation into that conversation with that empathy on that the human experience. So you've got to be able to build and cater your solutions to all of them. So when you say has it accelerated the decision process I think in some cases. It has it's certainly brought more decisions to the table I think we're seeing that in our pipeline generation.
The fact that our pipeline is accelerated but you're also seeing and if you look back at those examples that I shared in the open beginning remarks.
Find that the the list of applications that they purchased from US goes across the board in all those different areas. It's not just in a CD or just an IB are or you know just voice, it's really saying hey, we've got to have ideas and Chad plots and workforce optimization.
Agent assist with the AI, so they're looking at the broader portfolio.
More so than they had in the past part of that's due to the technology now being available and part of it is due to the consumer requiring the company still more flexible solutions.
Okay.
Our next question will come from Scott Berg with Needham.
Hi, everyone. Thanks for taking my questions and congrats on continued strong momentum.
I think the one question I'll, probably get most tomorrow, that's probably on everyone's mind is how do you accelerate revenue growth roughly five points quarter over quarter on a year over year basis. Thank you.
Look at all the drivers in the business was there one area enterprise commercial International partners I know maybe usage grew it actually helps to make extra red need that caused such a sudden spike in the business or was it just a well balanced execution deal from out from all the different areas. Thank you.
Maryann will ferrell, yeah. Thanks, Scott.
Thanks, Ron It's Scott It was very broad based.
When you look at it first.
Enterprise commercial.
Both did very very strong.
Give enough data there for you to the AAA, but those spot growth rate.
And you'll see that.
Both is very well and then if you look at it through the lens of subscription usage and he is he has was actually.
Quite lower than normal this particular quarter, but I wouldn't read anything into that because its huge lumpiness there to look over the last three years.
The ratio between the highest quarter in the lowest quarter ranges between two x. and three point fivex. So it.
It was up and down.
But when you look then at subscription.
And the related usage, because the usage tracks the subscription.
Since we're seeing very strong across the company I want to share with you that.
Our growth rate on subscription.
In the quarter this spot growth rate was an all time record.
And with that the usage that capex, it, especially as more enterprises that is more efficiently also directly.
And it is a reflection of the of a very strong market overall.
That that was the comment from rolling about the new front door is real we see at all in our personal lines only not.
During the brick and mortar anywhere near as much as they used to.
And for that.
At the center of gravity shifts.
Online need context.
Well said Mary.
All right helpful. Thank you congrats again.
Hey, guys. This is Josh your high enough.
Well now take our next question from James sketch with Piper exam car.
Hey, guys congrats on the quarter.
Low and we've talked about this at the analyst day, a little bit, but you highlighted the demand for AI is increasing and in your prepared remarks, but any update on the penetration of just one HR solution across your installed base at this point and then Dan or role and I guess, how are you thinking about the large contact centers.
5000 seats or more in the pipeline.
After this quarter.
Sure so.
So we have.
I've had two launches essentially.
First was the IB product that was a OEM in partnership with inference. So.
We've been selling that and that's been a key component.
A handful of very very large strategic deals as we shared previously so so that is really ready for take off I would say, we havent got hit our stride on selling that into our customer base yet.
And now that they are part of Biod nine.
Buckle up.
Second is our.
Organically developed agent assessed which we did launch last quarter and is getting very good traction. We're initially focused on driving efficiencies through call summarization.
Which typically takes you know several minutes per agent, but when you've got thousands of agents is significant savings there and we're seeing tremendous interest. So the pipe is growing but just just launch so early days on that one.
And.
Those are the two that were bang on right now and again the both of these are really ready for a ready for takeout.
Despite the greater than 5000 seats part of your question, it's an increasing part of our pipe.
We've we've been been executing successfully with our largest customers who have over 5000 seats and.
Getting good references from them and demonstrating the success. So so we were seeing more and more interest in that sort of five to 10000 seat segment and that's going to continue to be a driver and you will see that you know you see the 35% LTM growth rate on our enterprise subscriptions I think that greater than.
The segment will continue to be a bigger portion of that as we go along here.
So thank you.
Thank you.
Well go to Catharine Trebnick with Colliers Securities.
Oh, great quarter. Thanks for taking my question I could you parse become competitive landscape.
[laughter] created that with all your new products and pretty much where you see how you stack up against like an eight by eight and midnight on it and then obviously in contact and where you think you're getting the most share from thank you.
Yeah, we don't see a buy and manage to my screen, what do we do see it as nice being harassed and nice and contact first and foremost Genesis is has begun to get more attention to our cloud part of their portfolio. So.
So we haven't seen Genesis more.
And there are.
A handful of other ankle buyers start ups and other companies that are making noise, but nobody who is getting traction in these important segments of the market, which is where the growth is this sort of mid market in enterprise business in the.
Thousands of seats, which is where you're seeing a lot of our growth there.
And on that and you see front.
Hey, I mentioned, you mentioned day bye, but ringcentral is clearly there with theyre in contact partnership.
We are seeing lots of introduction, Andrew I presume trip and through our recently launched Microsoft teams connector. So there are lot of there is a lot of competition in the space and the fact that we are how to Switzerland play here, we can integrate with any of them equally well actually sets us up really well.
Able to serve the market and so customers ultimately have a choice they can choose their phone system and they can choose their contact center independently and we guarantee we'll make those work together and Thats something thats gone very very well in the marketplace.
All right. Thank you.
Thanks, guys.
Well power with Baird snack.
Hey, this is Charlie really comfortable thanks for taking the question great to see the pipeline continuing to be strong wondering if you can talk a little bit about the makeup of the prospects in the pipeline are they perhaps a little bit larger than your average customer size or they may be more inclined to take some of your AI products or not.
You can talk a little bit about maybe your confidence in closing the deals in the pipeline as well.
Yes, Thanks Charlie.
This is Dan we absolutely are seeing an increase in the pipeline and it and it really runs the gamut as far as you know the number of applications and the types of applications as I talked to earlier.
More or less patients are looking to provide a unique experience to their customers and they need to do that in a variety of ways, whether its self service digital channels.
Work flow to do follow up and outreach proactively via SMS and so the more we can deliver the different applications stronger.
The adoption rate to this whole industry.
And so if you look at our pipeline in general.
We're seeing it across the board, but the significant growth as you mentioned is at the higher end of the market right because they had to show they had to be condensed and.
Be able to look to others to say you know who else has done. This this is my size and complexity and undergone this transformation and move to the cloud five nine and so we have to prove ourselves as we continue to move up market every step of the way.
We see a lot of volume in the in the small and midsize enterprises and we see a.
Great gross rate in the high end of the enterprises.
And you mentioned the 5000 policies are starting to come to the forefront because they recognize that this is the future and this is absolutely what the market's moving too so.
So we feel very good about the pipeline in general and it's hitting on all cylinders, if we get that pipeline now from more sources than ever.
It used to be generated if I look back three to five years that was generated primarily by us through our digital marketing efforts by our brand and word of mouth and now it's being generated by thousands of sellers and large companies that are out touting fivenine.
When you look at the number of systems integrators that we request globally now when you look at the number of distribution organizations of the thousands of sales personnel that weve trained and on boarded to understand fivenine and at least the.
Knowledgeable enough to recognize the opportunities speak to it intelligently and then bring us in.
To apply our sales expertise.
More than ever we are getting more at bats, we're getting more opportunities and those are occurring across the board in all sizes.
That doesn't think that.
And our last question will come from Peter Levine with Evercore ISI.
Hi, This is rob that calling on behalf of Peter Levine, a many congratulations on a great quarter and I. Appreciate you fitting me in.
How do you see messaging and friends around conversational commerce evolving over the next 12 to 24 months.
Clearly with the inference acquisition the messaging landscape is changing so could you maybe talk a bit about what your customers are asking for in terms of messaging and how hard they could potentially leverage inference moving forward.
Sure.
Yeah, Great question messaging and I've.
Im calling sort of like.
Near real time channels, so SMS in any sort of text based nations clearly on the rise in our customer base and what in France brings US is two things one is the way to automate those conversations using AI and.
So thats very exciting has a chalkboard capability essentially that we can bring to our customers natively as part of the product.
But more importantly, I think is the voice based.
I'd hate to replace the IDR and that's something that a lot of customers have tried to implement in the past.
We met with them with the older technologies, and frankly gotten stymied spread.
Struggled with and what.
Changed now is that it's not possible to do that we're even even the smallest companies in the world can implement an effective IDN. So there that you know nobody likes Ivy ours out there.
They are generally bus ratings junior into your end customer and so this is an opportunity to see the whole industry move towards the new technology drive more automation more self service and all of that.
Can be done either by a voice.
Customer, what we really want to do is make it.
Maybe experienced great no matter, what channel, you're connecting and you connect and on voice you get a great experience with automation and a conversational voice based.
Embedded.
So delightful and then the same kind of quality experience that you're texting or messaging on the west side.
Sending in asset management or what have you. So we can apply that technology across multiple channels and I think it's ready for take off in the industry. It's a good time for us to make business. Thank you.
Thank you.
I will now turn the call back management for any additional remarks.
Yes, well I'd, just like to close out by saying. Thank you all for your questions and joining our call today. Thanks, My leadership team and the and the Finance group and all the support folks who helped us to create this.
Our earnings call really appreciate it Fivenine is is clearly on enroll we have.
Been executing like Clockwork now for many many many quarters and doing so in the face of odds are unprecedented disruption with covance. So my hats off and I have to really thank from the bottom of my heart, our employees, who have been at the front lines of making everything that you heard today happens. So thank you to the fine nine employees is.
Definitely thank you to our partners, who have any huge part of our growth story here, we couldn't have done it without them and then finally of course, thanks to all of our customers. It's been an incredible nine months I guess, you can say since coven head or perhaps a little less than that.
And I know you've given us your business and your trust and we're honored to be able to serve you. So thank you very very much and I. Appreciate your time today. Thanks, everyone.
And thank you very much that does conclude our conference for today I'd like to thank everyone for your participation and you may now disconnect.
Hmm.
[music].
Mm.