Q1 2021 Five9 Inc Earnings Call
Flow automation platform.
We have many customers adopting these technologies for example, a state government agency has recently gone line gone live with $5 nine IV to answer <unk> questions and are reducing their labor cost by automating, 31% of the thousands of calls they receive every single day.
Another example, this time using $5 nine agent assist is true connect which provides mobile and wireless services handling more than 62000 calls a month.
Across three contact centers globally now.
On our true connect users our AI powered agent assist solution to assist human agents with real time transcripts call summaries and coaching cards together. These technologies make their agents more efficient, resulting in savings of seven 5% of their labor costs in the first year.
20% in subsequent years.
So whether it's AI powered automation or digital channel innovation, it's clear that our customers are confident and expanding their business with us as demonstrated by our LTM retention rate, which accelerated once again to a record 121% up 10 points year over year.
And for points sequentially now I'll remind you that the 121% of the blend of enterprise and commercial so the enterprise retention is higher and within the enterprise the larger clients tend to have meaningfully higher retention rates.
Finally, the third reason I believe we are making such strong progress upmarket as our increased investments in our go to market machine.
Our strategic sales teams, which we created just over a year ago have been partnering with our channel team to deliver these recent landmark deals and we anticipate that the momentum will continue.
We're also investing aggressively internationally with our EMEA and Latam bookings increasing year over year by three <unk> and $2 five X respectively.
With our international momentum, increasing we're significantly increasing our international head count, which is now double what it was a year ago and we're stepping up our marketing initiatives by building thought leadership and driving localized campaigns in region.
We have also doubled our partner resources internationally and have added key partners in EMEA like can calm and connect.
And of course, all of our customers domestic or international big or small can count on five months PFS and customer success managers to treat them with our widely recognized white glove service. This is a key differentiator for us and as demonstrated by metrics such as our strong NPS scores.
<unk> in the Eighty's and occasionally even in the Ninety's and a big contributor to the strong and improving retention rates I mentioned earlier.
So with that.
I would now like to turn it over to our President Dan Burkland to share some specific customer wins, but before doing so I'd like to give a huge thanks to all our employees many of whom are new to the $5 nine.
You have all executed incredibly well and have demonstrated your unwavering dedication to our mission we.
We started this year off incredibly strong as a result of your contributions so from the bottom of my heart. Thank you.
Dan over to you.
Thank you Ron as Ron mentioned, we continue to execute upmarket with larger and more complex businesses globally. It.
It is clear that the largest enterprises in the world are now embracing sekos and five nine in particular.
Our Q1, new logo bookings on an all time record for any quarter in our installed base bookings on an all time record for any Q1.
Our pipeline continues to grow to an all time high and our ecosystem of partners. Once again influenced over two thirds of our deals.
And now I'd like to share a few key wins for the quarter for <unk>.
First example is one of the world's largest parcel delivery services companies.
They're moving their entire global contact center operations to the cloud with five nine and have contracted with us for a five year term.
This transition from Cisco Avaya Genesys all.
All premise based systems over to five nine is designed to allow them to greatly improve efficiency consolidate to one common platform and reimagine their customer experience through innovation and automation.
This includes <unk> <unk> and integrations to their service now sales force and their proprietary CRM solutions.
They also recognize the trust that five nine is built in the market to deliver high touch around the clock customer service.
Long with dedicated technical resources to support them 24 by seven throughout all corners of the world.
This global company is standardizing on our platform and has placed an initial order for an anticipated $14 million in IRR to five nine.
The second example is a large systems integrator, who recently spun off their it infrastructure services business with over 90000 employees to form a new company.
They chose five nine to replace their Cisco and Avaya solutions to provide them with the flexibility of the 509 platform. So they can accommodate the unique requirements of each of the enterprises may search.
This customer plans to use our IV area not only for self service, but also for more advanced dynamic call routing.
They will also be leveraging a complete omni channel solution, our comprehensive <unk> solution as well as integration to both service now and Salesforce CRM.
This will enable them to service clients from more than 20 contact center locations throughout the world.
We anticipate this initial order to result in over $6 million and $5 million.
Our third example from the quarter is a major commercial airline based here in the United States. They chose five nine in order to innovate and differentiate the customer experience and deliver self service options to their passengers crew and partner communities. They were using a hosted genesys solution, which did not give them the functionality.
The real time visibility.
Control over their contact center operations now.
Now with five nine they will have a full omni channel solution R. W. F O suite, including workforce management, QM performance management speech and text analytics and integration to their custom CRM.
Our advanced workflow automation solution will also provide them with SMS alerts to notify passengers of flight status upgrade notifications and other important changes.
We anticipate this initial order to result in approximately $2 4 million, an IRR to five nine.
And now as I normally do I'd like to share. An example of an existing customer who has expanded their use of 5 million.
This health care facility network with over 45 hospital campuses over 80000 employees and serving over 5 million patients annually has been a fine line customer for over three years.
During this time they had accumulated several other hospital networks and we're running on many disparate platforms five.
<unk> had already expanded to more than 50% of their contact center agents.
It was now time to consolidate to a single provider to help them deliver an innovative and consistent patient experience, while also improving efficiency by being on one system.
They recently added over 750 seats to complete this consolidation and are anticipated to increase their spend from nearly $2 million to over $3 million.
$5 million.
So as you can see global enterprises of all sizes and complexities of recognizing that fine line delivers the reliability scale innovation and global support required for their contact center operations.
It gives us great pride to be able to help our customers re imagine the experience they deliver to their clients and the mission critical role that $5 nine plays in this effort.
With that I'll hand, it over to Barry to share our financials Gary.
Thank you Dan.
First a reminder, that unless otherwise indicated all financial figures I will discuss on non-GAAP.
Reconciliations to GAAP are posted in the Investor Relations section on our web site.
We had another very strong quarter with both top and bottom line results 580 on expectations.
Our enterprise business continues to be the key driver of total revenue accelerating into the <unk> for the first time as a public company.
On an LTM basis.
Enterprise customers accounted for 83% of revenue.
And our success in enterprise growth.
Complemented by continued strong execution on the commercial side of our business.
Which accounted for the other 17% on revenue and which grew more than 20% year over year.
The split of our total revenue between recurring revenue and.
And one time professional services was 92%.
And 8% respectively.
Turning now to the rest of our financials for.
First quarter adjusted gross margin for 64%.
<unk> flat year over year, despite increased investments in public cloud.
First quarter adjusted EBITDA margin was 16, 1% up 120 basis points year over year.
First quarter non-GAAP net income was $16 1 million, an increase of $5 million year over year.
Non-GAAP EPS for the first quarter.
<unk> 23 per diluted share of <unk> <unk> year over year.
First quarter DSO was 32 days and operating cash flow was $13 8 million.
We have now maintained our LTM operating cash flow margin in the teens for 12 consecutive quarters, and we remain optimistic about our potential for continuing cash flow generation.
I'd like to finish today's prepared remarks with a brief discussion on our expectations for the second quarter and full year 2021.
In terms of top line, we are guiding Q2 revenue to a midpoint of $132 million.
Which represents a 4% sequential deep line.
Closely following the guidance pattern that we have established over the last several years heading into Q2.
However, I would like to point out that the implied year over year growth at the midpoint is 32%, which is the highest growth rate we've ever guided to in any quarter.
For the full year, we are raising the midpoint of our revenue guidance from $520 million to $550 million.
Which represents an increase from the year over year growth rate from 20%.
The 26%.
As for the bottom line, we are guiding Q2, non-GAAP net income to a midpoint of $9 6 million, which represents a $6 $5 million quarter over quarter decrease driven by increased investments in R&D.
Market and public cloud despite.
Despite these investments we are raising the midpoint of our full year guidance from $60 6 million to $66 $7 million.
Additionally, I would like to provide more color on the Colgate profile of both the top and the bottom line for the second half of 2021.
For revenue consistent with guidance in past years, we expect it to increase sequentially in the third quarter and more strongly in the fourth quarter.
Given the shape of this revenue curve, we expect third quarter non-GAAP net income to improve to approximately $14 million and more significantly in the fourth quarter.
Please refer to the presentation posted in our Investor Relations website for additional estimates including share counts.
Texas.
And capital expenditures.
In conclusion, we are extremely pleased with our first quarter performance.
And by the evidence strength of our business.
Our demonstrated ability to execute like Clockwork continues to drive further momentum upmarket.
And we believe our increased investments in key strategic areas.
<unk> well for the future we look forward to updating you on our progress as the year unfolds. Operator. Please go ahead.
We have our first question from meta Marshall with Morgan Stanley.
Great Thanks, and congratulations on the corner.
Obviously, you guys are seeing a lot of traction in the market just trying to get a sense of what you're seeing around.
On sales cycles, shrinking or or sales cycles kind of staying the same I guess I'm just trying to get on stands out from some other large deals that you've executed on last quarter and this quarter.
Did any of those really kick off after COVID-19 started thanks, yeah. Thank you Mitra this is Dan.
The sales cycles in these large enterprises.
Main what they've really all based on what we saw with COVID-19 was perhaps some acceleration.
<unk> into them.
Getting to our process and starting a process sooner than they may have otherwise, but the process itself still requires them to go through the for due diligence and really vetting all the different options that they have had with these types of deals are in the large high end of the enterprises. These are typically global with raws.
Other complex not only infrastructure changes and requirements for staffing on their part as well as on our part so the sales cycles haven't changed.
But I think there's been more of them that have come to the to the surface.
Got it thanks, and just in terms of not the.
The same question, but just does and initial interest and AI capabilities elongate the sales cycle or you know what does that due to the sales side.
I think a lot of folks.
Not only five nine but really as an industry, we're all stressing and really positioning automation and how customers can innovate and really re imagine their customer experience.
That they deliver and I think that there's immediate interest in that.
I don't think it necessarily linked them I think you just spend more time focusing on those innovations.
Some other more traditional applications, but.
They kind of take as table Stakes and we spend more time certainly on the innovative <unk>.
<unk> that they have.
Great. Thanks Congrats.
Our next question is from DJ Hynes with Canaccord.
Hey, guys, Congrats really incredible momentum at the at the high end here so two questions.
Related to that so number one can you just like address services capacity I mean, you alluded to white glove service being a differentiator like do you have what you need to get these big customers over the hump, but that number too.
ROE and I remember in the past you, saying like Hey, we're going to avoid this mega Mega business. Because these large customers can influence product roadmap on demand customization on all sorts of stoppage so that they're not only to deal with how do you avoid kind of falling into that trap.
The short answer on services is yes, we do have what we need on that front and we continue to enable our partners.
In the past there very much is to enable those partners to deliver services, but as we told you before we're taken a crawl walk run we think that that's the right approach here.
On the larger and larger deals that we have been signing and sharing with you all.
Really about making sure that we have a great fit with those customers and with the capabilities that we've got in the portfolio and not trying to sell stuff that we don't have and so forth and that that's I think what we've been finding is that with the expanded portfolio. We've created a much better fit for some of these larger enterprises.
And clearly the AI AI technologies that we both organically built and acquired are very strong.
Polls for some of those larger enterprises, they are really looking for that efficiency story.
And and so yes, I think I think it's a matter of making sure we have the right fit but we don't really have a hard limit per se. It's just looking at the market and making sure that that we can serve the customers and where we're finding essentially just more and more of these very large customers be a better fit with our portfolio. So we'll keep doing that as long as the opportunities there.
Hey, congrats on that decision.
The next question is then Raimo <unk> with Barclays.
For me as well.
Quick question I wanted to change over to the commercial side of the business you talked about 20% plus growth.
Dan.
More for you know at this time Thats a crazy good number can you just talk a little bit about that SLR ratio, we've seen here because I cant remember the last time that a number with that.
Because it's almost like in addition to what's going on on the enterprise. Thank you yeah, Yeah, Raimo I'm glad you brought that up because that's really going on.
Over the last several quarters and couple of years, it's returned to a growth of attention for us it's still not growing at the rate of enterprise by any means but.
But the fact that it's gone to double digits for now.
Okay.
I think danza Internet connections, maybe I can do you can still hear me guys.
Yeah.
Yeah, because it has a I'll just pick up or down left off we can finish each other senators at this point, the fact that incentive accelerated above 20% and oriented the double digit range now is really reflective of the strong market demand, but I think more importantly, because I think that demand has been there I think it's actually about the team's execution, we Havent Inc.
Accretable commercial team.
And since we made that shift or is it very like two years ago I think.
Yeah about six years ago on they have just taken off like a rocket ship and its a different sales motion.
We have new.
Actually the leaders have grown but we've actually hired quite a few new head count on that team day. They proved that we should go invest more on that in that category. So yeah, just across the board that team has been doing fantastically well, so hats off to our commercial sales team led by David Kelly on it.
Excellent and then Barry one for you just on the gross margins, obviously, we have the investments into the public cloud for the moment can you just remind us like.
What's the impact there on what's the timing there a little bit too.
Because I keep asking you about gross margins going higher so at some point on Egypt or neutral to profit yes. Thank you Raimo and we would like to be held to task on those gross margins. We are as confident as one can be about things in business that we'll get to that 70% over the upcoming years, but in the meantime, we're making this mary.
Valued investments in the public cloud as you referred to.
We were basically flat year over year, despite the increased investments.
And that's partly because of a higher proportion of subscription is something that we've talked about for a long time, a new well. So one of the three key drivers that will take us to that 70% margin.
On a.
And yes.
For the full year.
When we gave out Q4 results Raimo, we said it would have about a 2% impact and we still are guiding to that very strongly.
And I'll leave it at that.
Thank you for Congress. Thanks Raimo.
Next question is from Julie <unk> with J P. Morgan.
Hey, this is drew on for Sterling Congrats on the corner I was wondering if you could provide some color on the flow of customers coming from partners at this stage specifically from Microsoft.
Yeah, that's right on yeah.
Yeah, so seeing tremendous traction if.
If you think about our complementary solutions to two Microsoft zoom and the whole UC environment. It's a it's great to build deep integration. So that customers can seamlessly move traffic between front office back office contact center, and so forth and so.
That's been a great great channel partners for us and particularly where we talked about.
Acceleration in doing deals both with teams as well as with zoom and those partnerships continue and we look forward to working with them for you.
For a long time to come.
Great. Thank you.
Our next question is from Scott Berg with Needham.
Okay.
Hi, everyone and welcome back Dan glad Youre Internet backup for granted.
Thank you.
I wanted to focus on the international side.
Last three or four quarters in particular have been super impressive there along with the overall results for the company, but I guess, it's kind of a two part question. One is you are getting deeper and deeper, especially maybe in EMEA on those customers, they're buying any modules differently and then the second part of that which is an extension is are those customers ready for some of the.
AI and automation based solutions with customers, who are starting to buy or are they in their typical behind maybe the U S trends by a couple of three years. Thank you.
I'll take that one.
Yes, and yes they are.
Buying the AI solutions, that's clearly top of mind and and the other thing that I guess different and we I think we commented on this somewhere maybe in the script, but maybe not.
That our international customers are also I would say bigger adopters of digital channels than we had seen in the U S that.
That's definitely been a theme.
And so the investment that we made in our sort of digital first approach and other stuff that weighted on that last year really really has been paying off and there are parts with our insurance acquisition, who had customers.
Customers in various parts of the world one other things that we have seen there was some parts of the world, where I think South Africa. As an example, where phone is sort of just not really even a viable option because of the cost of their almost entirely whatsapp based support lines for their customers. So yes, I think that that's one of the differences that's emerging in Europe.
Is a stronger adoption of digital channels, and then clear interest in and adoption of our AI technology.
And we are just getting started internationally to be clear.
And gone well, but we got a lot more to do.
Okay.
Great helpful I will stick to the one questions.
Congrats again, great quarter. Thanks, Scott Thanks, Scott.
Our next question is from some on some on a with Jefferies.
Alright, Thanks for taking my questions and I hope the airline that you switched out users as the airlines five for works out, but maybe you answered my question. When we when we think about EMEA on the strength. There did you call out which countries maybe youre doing the best and were five nine has the best partner cover.
And maybe where that focus areas are within the region to rent partner capacity, yes. So great question. This is Dan.
We established our European headquarters in London, So the U K is certainly the biggest market and so that's where we started and then we've expanded beyond that into really throughout the rest of western Europe.
Part of the the.
The challenge there is making sure that we have the right not only infrastructure, but then the languages on the platform. So over the last several years, we've added the languages, where we've got personnel throughout western here, We got Germany.
Now France.
Other than other ones and the Nordics and so sticking with some of the western.
Countries is key.
But we're finding our customers are taking us to and our partners are taking us into many new areas. So.
If you look at the map itself as Robin mentioned in the in the earlier remarks, we've doubled the size of our team.
Out Europe, and a big part of that is expanding well outside of the U K in our initial pod was in the UK, but then we've had to really look at having local personnel not only to sell that to support those customers throughout Europe. So it's it's something that we're seeing great momentum from and we'll continue to add as the demand is there and as we.
Talked about there there are certainly in the early innings simple cloud adoption and Mike.
Our timing couldn't have been better.
Great I'm going to break the rules on squeeze one in for Berry.
And as you do bigger and bigger deals and you don't report <unk> just maybe how does are we will look as you get into larger customers are you seeing them attach more in for instance, virtual observer, maybe mouthing high or units that better pricing dynamics, just how should we think about that arguments you saw as you get into is really mega deals that you talked about.
Great question from other than the.
The pattern is pretty clear.
These bigger customers can afford to buy more so than Mike well get a keener price on the base core virtual contact center of ECC, they've got those deep pockets to buy all the things that go with it not just <unk>, but enhance reporting enhanced connectivity the AI features.
Et cetera. So.
That's one other reasons that we expect the awkward to increase and help US also by the way with our dollar based retention rates going forward.
Great Congrats on a tremendous start to the year. Thank you.
Our next question is from Terry Tillman with truest.
Yeah, good afternoon, and I'll echo the congrats on a tremendous quarter I I won't break the world they'll have a two part single question. So the first part of my two part question is just related to it ended up proving a pretty smart to make the strategic sales team investments Oh awhile back how is that doing in terms of the part.
Activity do you still have some dry powder there in terms of productivity and then the second part I'll go out and throw it out there for you Barry keep your work on here is you know, we're talking 14 million dollar deal.
Or big deals those can really affect the revenue or are those ramp deals or do those roll out within call. It. The first 12 months or so how those shake out. Thank you.
Yes, I'll take the first part of that.
Really you're exactly right, we looked at our sales organization and as we started seeing the range of opportunities in our field organization from whether its 50 seats or several thousand seats. Those sales motions are extremely different and we didn't want to just randomly based on geography.
Somebody working the deal that's a thousand seats that doesn't have the skill set they take very different approaches. So we actually not only added our strategic sales teams, which are just thriving right now in these opportunities, but also we took the enterprise team and we look down market you said, let's create a mid market team also.
So our field organization is now segmented with mid market enterprise and strategic.
We always have the highest odds of success and therefore and what it is translating into us for.
Activity levels like you said, because we've always got the right person with the right skill set.
Approaching those trends on.
The mid market is much more transactional the high end strategics or year, plus long sales cycles and require a whole team of folks.
So that's been the dynamic there and yes it results in more productivity.
And yes, there's a long runway ahead of us when we talk about early innings, and we talk about the percentage of the Tam that's been penetrated and move to the cloud if you take the high end enterprise, it's far less where in the first inning you.
You can say top of the first maybe maybe middle of the first inning.
When it comes to large enterprise, so there's tremendous opportunity and upside coming there.
The second part of your question as far as ramping naturally these larger companies take longer to.
Plan and implement.
And then rollout to scale. So those large the main two large deals the 6 million dollar or are in the $14 million day are those will be rolling out throughout the rest of this year and well into next year before we realize that for revenue.
New stream that would hit us Barry anything to add to that no I think Daniel handle it very well I would say that the $12 million deal isn't shabby, either just three months earlier.
And you know, we've just noticed Terry the other way congratulations on your excellent single, but bifurcated question.
So we.
We increased our guidance.
From traditionally before COVID-19, we would go up 19% non <unk> 26, and that's part of the driver, but as Dan said and I really want to emphasize.
That is very much towards the end of the year and much much more in 2022.
Thank you.
Okay.
Our next question is from Jim Fish with Piper Sandler Hey, guys. Congrats on the quarter again, I'm very I don't know if I'm a senior smiles as much though you know congrats on that I'm just.
Keep getting larger and larger deals on a lot of the time, we're hearing from from your Damned, if not just move to the cloud it's consolidation as well of the contact center. So I guess can you kind of frame. It for me in terms of the large customers left out there that $5 nine doesn't have yet at this point you know how.
How much would you say is both of these kinds of dynamics versus one or the other one that is essentially more favorable in your view.
And then to cheat here, a little bit like everybody else.
On the competitive side, what are you seeing from other cloud based solutions out there with some of these larger deals and as you move larger how do you view the competitive nature, specifically more from on Amazon connect or Twilio flex.
So great questions I think when you look at both of those factors are true right. When you look at these large large enterprises a lot of them have gone through their own M.
M&A activity and acquired other companies that may have a hodgepodge of different systems that are kind of working as independent silos and very inefficient for companies that want to create a global consistent customer experience. It does make sense to consolidate so certainly theres a theres a whole group of those and they need to get off of the day.
Old premises based solutions anyway that would be kind of a third element of that so you've got premises based solutions you've got.
Many cases, where their spirit and operating in silos of technology, and then you've got the requirement to innovate and really deliver a customer experience, that's new and unique so that they can stay ahead on their competitors.
That phenomenon is just getting started up mark so when you look at large enterprises.
This is.
There is a tremendous upside to what's what's out there.
That's the first.
Portion is absolutely.
On the market is very large on the customers. We're just getting started when you say what's left.
It's the vast majority on themselves so on.
Keep that in line and the second part of your question.
Competitive nature for all the competitive cloud.
Cloud and specifically what Youre seeing as you move ups upscale from yeah, Yeah, I think one thing.
Not only do the customers recognize and trust five nine and appreciate our focus.
Well this is what we do this is our.
100%.
Energies are placed into how we help enterprises deliver and re imagine the customer experience they deliver to their customers and if you think about who else is serving those large enterprises.
Most of the organizations that attempt to have many other focus as to their to their businesses right and if you look at our key competitors. If you just look at us versus Genesis is getting their cloud platform.
Coming up market, a little better than it had at its new to the market, but they've got a huge installed base of their on premises based solutions. So.
We continue to see if somebody wants a true.
No.
Mature an innovative platform for.
<unk> is a very logical choice and again, they know that we can service and support them.
Unlike most of our competitors. The other is if you look you mentioned.
Twilio and some others if you truly on Amazon if you look they tend to play in a much more narrow niche.
Meaning that Twilio is in and around the contact center extensively with lots of customers that also have twilio, but they don't really look to twilio to be this full end to end replacement of there.
Legacy Avaya, Genesys, Cisco aspect type environment, but but they tend to do more point to point solutions that are highly custom and more to developers, whereas we come on to replace the entire end to end.
And then Amazon does well for.
Up market, where you want to put a platform in and then really either higher affirm or have an extensive.
R&D, our it organization that wants to take and build their own.
Actually I have mentioned on previous calls that we've seen several of those that get six or eight months into their process and realize they're not going to get to the division. They had for at least a couple of years and they can kind of hit the ground running with us. So so that's been beneficial as well.
Helpful. Thanks, Scott Thanks, Tim.
Yes.
Our next question is from Dan Bartus with Bank of America.
Hey, guys, Hi, Dan again, good to see and thanks for taking the question.
So definitely a lot of good trends to ask about essentially here.
Maybe I'll ask you on something that you didn't mention or maybe I missed it which is also a positive low twos, that's AT&T opportunity.
Just how meaningful was the AT&T relationship in the numbers in this quarter I'm wondering if that's really moving the needle yet and then how could that ramp look throughout the year.
Just kind of a bigger picture related to that just how important our service provider relationships for you in general.
These are the kind of partnerships that you can do a lot more of in the future and you see becoming a bigger piece of your yeah.
I'll take that one.
But there really isn't at least.
Yeah.
Yeah, At&t's is beating our internal expectations is doing well.
And in terms of materiality for the business and now we're not breaking that out specifically, but it is doing better than our plans and so on track and ramping I would say that the most important message there is it's ramping.
And really great support from from the AT&T team, they're terrific to partner with and they're very very excited about five nine. So I think we should continue to see that expand and be more be more impactful to our revenue number in terms of the SP market in general.
Absolutely. The answer is yes, I do think there are more and more opportunities, particularly internationally and in the international.
World out everywhere outside the U S. The ftes and in various countries, there are more or less important, but they're pretty much important everywhere and.
One of the nice things about the <unk> acquisition as they did bring us some incremental <unk> opportunities.
And those assays are looking now to move towards the public for towards public cloud software companies like ours like ours.
And that wasn't always the case in the in years passed they have been looking to the the legacy vendors to take their sort of premise software and reconfigure. It for US is I think with AT&T being one of those are examples of one is it a throw on the tail on that that was not the right path for US we are going on with the cloud vendor.
I think we're going to see that with more and more service providers and so that is going to be I believe an important channel for us low over the long run.
Very helpful. Thanks, Thanks, Dan.
Next question is from Mike Latimore with Northland.
Great.
M awesome quarter.
I mean, obviously the sort of the CX theme is pretty impactful nowadays I guess.
Are you seeing any opportunities sort of outside of the traditional contact center I think last quarter, you talked a little bit about on health care use case, but.
Hang on just the need for speed access broadening a little bit here.
It we're definitely hearing that from customers and.
We see that as an opportunity over the long run it's not something that's particularly joining driving the business today, but it is it's a topic of conversation amongst the industry analyst community. It's a topic of conversation amongst the UC crowd, who obviously have that footprint.
And just the contact center.
We've been working with one of our great partners zoom to try to stitch those together in new and interesting ways. So for example.
On the call comes into the contact center, and let's say, we pull up the customer record from the CRM system.
On the contact center reps is hey look you need to talk to.
Mary over there on accounting or in some other.
On the organization, who is not in the contact center technically transferring that call through the UC system, but keeping the CRM data with it so that when Mary gets that call. It sort of like a contact center experienced light where it presents the CRM data in our case information or the ticketing information and so on so we do think there are interesting opportunities although.
There is still nascent.
With the last thing I'll say is you know the pandemic I think opened everyone's eyes, too and frankly may have even sort of.
Accelerated a shift into this question on which is like what exactly is a contact center.
I drove through a drive through the other day, where the the agent wasn't personally talking to it wasn't wearing a big headset sitting in the restaurant, but they were actually a video agent sitting at home at the contact center. So I think youre going to continue to see these shifts across many industries as we have now come out of the pandemic as they rethink.
What is the contact center really what does it look like and can we especially on a remote first world where more and more companies want to do that remotely engagement I think we can actually see a shift away from these.
A shift towards the sort of new and interesting.
Expansions of what the contact center is it could be.
Thank you.
Yeah. Thanks, Mike.
The next question is from Peter Levine with Evercore ISI.
Great. Thanks for taking my questions on non congrats on a great quarter. So maybe one on the <unk> acquisition.
When thinking about automation and virtual agents right.
Important or how much for priority today is deploying virtual agents and then maybe to piggyback off of the prior question on pricing dynamics, how should we view the <unk> or pricing for for digital agents going forward.
Yeah, it's increasingly important with our customers. So as we've mentioned now many of these large deals are including <unk> and what's new what what is essentially really difficult IV as had been around for some time. They were just extremely expensive and complex to set up and maintain what's new now as we're making it available to many more many more customers and.
We're seeing that demand so it's a shift away from.
The traditional IV iron moving towards towards the IV a from a from a pricing perspective, you know the way that we've taken.
<unk> taken that Mark and it's a range. We're looking in this somewhere four to $500 average ARPA for digital agents and so if we replace one human agent, which we would normally charge couple of hundred bucks for for humans.
We're going to monetize that at roughly <unk> the rate by selling the IV product.
And it is playing out the way we had discussed with you all around the way customers are thinking about this is how can I, how can I sort of capture and resolve these incidents whatever without ever letting them hit my human beings.
So that I can add less agents and so theres a direct ROI tradeoff math, what they can do which is why it sort of emerge. So strongly is in many of our larger deal to who they have where these savings can be very very significant.
Alright, thank you.
Thanks Peter.
Our next question is from Steve Enders with Keybanc.
Hi, great. Thanks for taking my question today, I, just want to follow up a little bit on the new friends acquisition.
Last quarter I guess.
And just kind of wondering what you're seeing and how that's ramping versus your expectations on your ability to us to go sell that into the base and then secondarily what some of the other accurately acquisitions you made like virtual observer in one day on how those are ramping.
And on a call it a few dumping flow opportunities based on on how those are scaling on there yes. So inference startup for your question. It's been in I think two quarters now and.
On the theory was that there was going to be really strong interest.
In our larger customers and we've seen that but we've actually seen it across the board. So we're seeing a tremendous pipe on that front and we're ahead of our plan and we're ahead of plan essentially on all three acquisitions virtual observer has been we've now have that in the portfolio for five six quarters on there.
Doing phenomenally well and this is not just virtual observer by the way. We also as I think most folks know we resell Barron. So we've just seen on increased adoption rate of <unk> overall, our workforce engagement management, what everyone call. It that category has grown for us overall, but virtual observer.
Absolutely led the growth we finished the first.
The major set of integrations that we wanted to make so when you buy virtual on when you buy five nine now has a complete integrated suite. The user experiences is sort of tied in natively. So that was something that I think our customers were looking for and so yes, we've been really really thrilled with that and then the last one was the workforce automation on window acquisition volume.
Really well, but coming from a much smaller base and probably also.
And much much smaller base and they essentially didn't have a run rate in terms of revenue. So that's not material to the business yet but.
We do see it as being increasingly critical on some of these larger deals where you always have this corner case or.
Something that our product doesn't necessarily do out of the boxes for the fact that we have this low code no code workflow product helps us close these larger deals and so there's a factor also of enablement that comes from the work force automate a workflow automation product, where we're able to land more of these large deals.
As a result of that technology, so across the board.
I am very pleased on the power acquisitions I've been doing.
Great credit here. Thank you.
The next question is from will power with Baird.
Thank you for license Adulation zone.
Another strong quarter wanted to come back either for Rowan or Dan whoever wants to take it to the large deals in the quarter on I'm really just trying to understand what's really differentiating you versus some of the other large cloud vendors, who invariably you're competing with now I know it sounds like Iga as part of that agent assistance, there well other sitting incorporated but.
It's a big focus for line your competitors as well so that's really helping us stand out in the field and the second part of that is.
What is it that gives them comfort on what the product roadmap, where you've hedged with those products that until Theyre, probably drive you toward for the particular things that are looking for that theyre going to five.
Five down the road here, yeah, Thanks, well I'll take that if you look at those large deals like you said, it's a combination it really is the technology.
And it's our approach to those technologies, everyone is talking about AI and everybody is talking about how to help the customers automate, but when they dig deep and understand our architecture.
And where we've taken it and where it's going they feel much more comfortable that we're on the path that will fit what they want to do over the next several years.
And that combined with our approach in ROE on alluded to it earlier, a big differentiator that you alluded to the white glove approach of how we take care of our customers don't underestimate the power of technology as part of the equation.
But what you can do to consult with the organization and bring that and extract the value from that technology is equally as important it may be in some cases, even more important because I can have the greatest technology in the world, but if I can if I can't really utilize it effectively it doesn't help my business, it's not it's not good and in fact, we were.
A place a lot of systems out there that we look and go cash that could have done this with their existing system, but they didn't have the organization and the focus when I talk about focus since day, two and beyond it's our.
There's a reason we have the highest scores in our surveys on implementation. It's not professional services team that goes on and consults designs in conjunction with the customer configured integrates and does all the customization to meet their needs. There is a reason we come out of that with the highest scores in the industry by far Theres a reason our NPS scores are.
The highest in the industry as well and there is a reason.
When we look on an ongoing basis.
The retention rates that we have that are unparalleled that'll stems from our ability to help our customers for the long haul really be able to recognize that <unk> not only got a technology, but I've got a partner here, that's going to allow us to extract the most value from it and that's getting recognized not only when we go into new sales, but theyre talking to.
Our other customers and that's the that's what our other customers as references are explaining hey, it's part of it's the technology a big Big part of it is also on that five nine is going to help me and and get me to where I want to go and add well that our strategy is really simple we do.
Dan and his team felt like.
It was the moment.
For IV, a to crossover and sort of hit that mainstream adoption.
And in a shift like that the strategy is simple go by the best technology and by the best team and that's what we have we think we bought the best technology on the best team and frankly since they've come on board to five Nymex been knocking it out of park.
<unk>. Thank you.
Our next question is from Michael <unk> with Wells Fargo.
Hey, there thanks for making time nice start to the year for everyone here on.
On the expansion rate I recognized very this is a little bit of a different metric than the prior but regardless you broke through 120%.
And Ron It sounds like Youre also commenting that's maybe better on enterprise or with larger customers. So I'm. Just wondering how you think about the potential range, there and what's sustainable, especially as youre, adding things like IV a on automation to the platform.
And I think it definitely has value.
Yeah. So we're very excited about this.
For.
For points sequentially 10 points year over year.
And as confident as people can be about things in business on the time, that's kind of continued to go up for three reasons now theres going to be fluctuations. These big customers come on at different times at different rates for three reasons ours on talked about.
We have.
The million dollar plus customers are growing at a faster rate than the rest.
And when he said they have a meaningfully higher rate you should take that meaningfully put it into white fund for the Doc is green you could find that the highlight color increase the fund size for 18.
And that's that's really helping and then finally also as a tailwind.
The mix shift from commercial to enterprise because commercial is much lower and then finally.
The increased product portfolio that we've talked Mike talked about earlier on is going to increase the alcoa overtime, but don't expect anything dramatic will just be a slow and steady increase.
Wealth clearer and fluctuating increase that's clear we'll try to put the highlight on our note, we'll see how that growth.
[laughter].
Our next question is from Ryan Macwilliams with Stephens.
Thanks for squeezing me in Rowan Bank win last quarter and an airline win this quarter impressive since these are seemingly quite nicely slower movers to.
For cloud contact center. So what do you think has changed for these industries that they are now adopting cloud solutions and do you think we'll see a further pipeline of these customers moving to cloud.
Yeah, maybe I'll throw that to Dan.
Yeah, I think youre exactly right we are.
Going to see and we are seeing an increased pipeline from these large enterprises. There's a few things we had to get across as an industry.
Crossover in order for enterprises to trust the cloud right. We had to prove scale. We had approved reliability we have to prove.
Security and protecting their data and their customers data.
And then we had to make sure they weren't going to sacrifice any capability. So we had to basically emulate the feature functionality of all of the.
On premises based systems, and then we have to give them on innovative platform and that's really in the last year or so what we've been able to show them is hey, you've got innovations here with with IV as with AI with workflow and so forth that you just can't achieve.
At the premises wireless.
Especially when you are building when you have silos of these small efficiency centers.
So it's a combination of all those things now that we've proven all those <unk>.
And they are able to see in the large enterprises many of them have the mindset that they don't want to go first.
See that others will now we've kind of check that box and we can show them that hey, we've got customers now with many thousands of seats all over the world being supported very effectively and theyre able to innovate like never before and and.
And that makes other sei wealth.
Five nine can accomplish for them what theyre doing them I know they can do that for me and that's always comforting to not have to go first and so we should see more.
Hey, guys. Thanks, Ryan Thank you.
Our next question is from Andrew King with Colliers.
Hey, guys. Thanks for taking my question.
So during the quarter, we saw on Microsoft actually acquired new on could you talk a little bit about the impact.
On the competitive nature, and then also among it buyers they've always talked about this push into the EU and talked about how they've been.
Behind the U S and on adoption can you talk about the adoption rate for over there currently versus the U S.
Sure I'll take the first part.
The nuance acquisition.
Nuances powering a lot of the many of the IV as but as a technology supplier to companies like ours. So we actually partner with nuance and saw that technology to some of our customers or use that technology.
Other than to our platform for example.
We made a bet three years ago on.
On the next generation of voice.
Technologies based on sort of what we were seeing around machine learning advanced is coming out of Amazon and Google. So that's very much the direction for the company. However, as we made the inference acquisition one other things Thats shifted in terms of the strategy is we've really become a platform that ride on top of those underlying technologies.
<unk>.
Whatever underlying technology, you want to use from a speech to tax store text to speech or natural language processing, we can plug those in together. So we can probably support Amazon. We can support total risk for IBM. We can support nuance, we have our own technologists about them and I think that's an important statement is that where we're playing at the value stock is actually.
Sort of one notch up from the underlying sort of speech vendors now I think we don't know a lot about Microsoft's strategy beyond what they've said publicly so anything would be pure speculation, but they're they're they're note or what we had read about there.
REIT rationale for buying nuance was making progress on the health care space and so we're not 100% share exactly where they're going with that.
But.
Again, we're playing at a different layer of the stack then on nuance for example players.
I don't know Dan.
Internationally and then from in relation to your question on <unk>.
It's interesting because we talked about a quarter ago. The large insurance company based on the UK, but operations throughout the EU.
Very much interested in the innovation and really a behavior in a buying cycle that was very similar to what we see here in the U S.
But for the most part.
When companies are going to change out their contact center infrastructure and theyre going to make a move.
They're not going to they're not going to purchase a premises based solution theyre going to look to the cloud first and so the opportunity is definitely there do they tend to lag a little bit behind the U S and decisions. Yeah. There are deals tend to be except for that one exception they tend to be a little bit smaller in nature, but they certainly are on the way from catching this.
The same the same drivers that are occurring here in the U S are certainly occurring throughout Europe and industry analysts that looks at the European market recently shared with us that they thought that post COVID-19 cloud acceleration was going to accelerate.
In the contact center space and there are a number that has gone from 27% to 32, but fundamentally I think.
I think those numbers are high but nevertheless, I think that the general trend is an acceleration to adopting cloud.
Yeah.
Great. Thanks for taking my questions and congrats on a good quarter.
Thank you.
And our last question is from Matt Van Vliet with BT I E.
Hey, guys. Thanks for taking my question and great job on the quarter.
I guess kind of a two part question thinking about different areas of the market but.
Ron you mentioned, some emerging markets tend to be very messaging based in Italy.
Kind of what the rationale is why they would buy five nine something that is very robust very future Richard for us isn't a huge portion of it or can they get away with her competitors trying to get in there on a cheaper price point and then maybe Conversely on the other end of the market.
You mentioned the case with video being integrated but are you seeing more customers wanting to at least offer video comp as part of an operating great. Great couple of questions. So kind of hitting the book ends here on the on the digital channels one of our core value adds here is that we make it really seamless to switch between.
On your digital channels, and you're you're and you're live Sir on let's say analog kind of voice that's really important for a lot of these tough for us in fact, what you see in many of them as they traditionally had bifurcated workforces that are some people are doing messaging and some are doing phone in some new E mail or what have you and the trend is toward what we.
Can call on the multimodal contact Center work force, which is are using all of those technologies and they're using them all the time and so this legacy in our space our vendors that kind of just went after digital that's pretty much volume by the way side you can't do that anymore, you need to have one platform that ties them altogether.
And I think that extends all the way into.
Eventually into video right, you're not going to want to say well. We've got one answer for video on one for voice and one for Whatsapp and this other thing for our web you want one platform that can handle all of that and that very much is $5. Nine we have been selling video with new partner base partner based solutions and integrations with our platform, it's not a huge driver to be added by.
Any stretch the imagination of the contact center today.
But if my fast food experience.
As telling in any way I think it's going to be an increasing part of the market going forward I think we will see more and more video use cases emerge, especially in things like telemedicine.
Where today, they're kind of like they've gone to products like zoom or Microsoft teams.
Really those are our contact center use cases, and you need to be able to have that for contact center infrastructure underneath the covers so I think the future very much as an integrated end to end platform from video all the way to the lightest weight digital channels. That's what that's what your larger larger companies and more mature companies are going to be interested in acquiring for their <unk>.
Environments it keeps the complexity down.
Alright, thank you.
Yeah.
And I'll turn it back to ruin for final comments. Thank you so much well thanks for joining our call today and for all the great questions really terrific, we couldnt be happier with our exceptionally strong results across all of the metrics, which reflects the strong and strengthening market and our clear progress, especially as we mentioned in the.
The prepared remarks with larger enterprises. So we're investing strongly as we pursue this mission that we have been on to help our customers re imagine customer service and we feel extremely good about our prospects and.
And reiterate what I said at the beginning of the prepared remarks, our progress is the result of the dedication and the hard customer focused work of our incredible employees and they deserve all the credit for the performance that you've seen from 509. So thank you very much to all of the 5000 employees and thanks for all of you for joining today, we'll see you next quarter. Thank you.
Yeah.