Q3 2021 Five9 Inc Earnings Call
At our investor deck and available in the Investor Relations section.
<unk> website at investors that five nine dot com.
And now I'd like to turn the call over to five nine CEO Rowan Trollope. Please go ahead.
Thanks, Lauren and thanks to all of you for joining our call. This afternoon I am very excited to be here today and I'm pleased to report strong results for the third quarter as you'll see our teams haven't skipped a beat on execution and following the decision to terminate the proposed acquisition by zoom, our leadership team and the <unk>.
Tire company are excited to continue the momentum we built in driving industry, leading growth and transforming customer engagement.
We were executing a great business strategy against a massive market opportunity when zoom approached us and we are excited to continue to execute on that strategy going forward.
Onto the numbers.
I'm pleased to report third quarter revenue grew 38% year over year to a record $154 3 million.
Revenue growth continues to be driven by our enterprise business as demonstrated by LTM enterprise subscription revenue, which grew 51% year over year now Dan is going to highlight the tremendous bookings success. We are enjoying both in new logos and expansion deals later in the call.
At the same time, our commercial business saw more than 30% growth this quarter benefiting from us targeting commercial buyers, who are more focused on enhancing their customer experience as well as leverage from our channel expansion.
Now as these results illustrate <unk> fundamentals remain strong and are driven by market momentum continued product innovation and our go to market machine. So I'm going to discuss each of these in turn starting with the momentum we're seeing in the market.
The contact center market continues to be driven by digital transformation enabled by the shift from on premises to cloud.
And by a growing demand for AI and automation.
We don't expect these immutable trend to abate for the foreseeable future.
And with the increasing shift towards digital and the increasing scale and customer interactions. The necessity for businesses to drive efficiency is paramount, we're helping customers do that with technologies like digital channels, which are easier to automate self service and most recently by deploying digital agents with our AI.
Powered intelligent virtual agents.
The strength of the <unk> market and demand for our solutions was on full display at our annual CX summit in September.
This year's CX summit was our largest to date with over 3000 customers partners and prospects.
And automation, where central themes. We also highlighted delivery of over 200, new features across our products, including WMO digital channels self service voice stream <unk> Hyperscale architecture, and most recently enhancements to our IV a platform with the launch of studio seven.
Which leads into the next growth driver our continued.
Focus on product innovation.
We've taken the lead in providing AI powered solutions across live and digital agents with our agent assist and Iga technologies fees, coupled with our focus on embedded automation with workflow automation are making it easier to drive efficiencies than ever before and ever.
<unk> of this is shown through the tremendous growth in adoption and usage of our intelligent virtual agents. As you are aware last November we acquired inference solutions a leader in the IV segment and since the acquisition usage of IV is amongst five nine customers has increased 180% and we've processed more than 82 mill.
<unk> calls on the $5 nine <unk> studio platform penetration and adoption of these solutions have exceeded expectations and our IV is now enable more than 750 customers to automate routine interactions over the phone webchat mobile messaging and SMS we.
We believe automation is the key to managing digital and human capital and this is even more amplified right now with the tight labor market that we're seeing around the world.
Now as mentioned earlier in July we announced $5 nine inference studio seven at the latest release of our low code IV, a development environment, we redesigned and re architected the platform to make it more powerful and optimize performance to better support enterprise grade deployments. The platform is tightly integrated.
With the $5 nine intelligent cloud contact center, allowing the seamless transfer of contracts between <unk> and live agents in Omnichannel use cases, thus supporting the practical AI use case that we've been talking about.
Five nine is a leader in IV, earning numerous industry and analyst awards, including best application of AI Award at the recent industry event enterprise connect.
We look forward to continuing to help businesses deploy an AI powered digital workforce that can provide a more efficient and engaging customer experience alongside live contact center agents.
And finally I'd like to highlight the ongoing success of our go to market machine.
We've continued to invest in our go to market strategy with additional focus upmarket into larger global rent global enterprises expansion of our channels driven business and acceleration of our international presence.
First we continue to see larger and larger enterprises, not only embracing the cloud as part of their digital transformation, but also adopting automation solutions at record pace now more than 80% of new strategic enterprise customers are purchasing ibs as part of their initial deployment.
Second our channel partners are leading with cloud solutions from $5 nine as well as taken on more implementation and services business and our channel bookings are starting to include some large million dollar plus ACB deals.
And third we continue to expand our global presence and our international momentum is increasing to help our customers grow internationally. We've made significant investments first we stepped up hiring, especially in EMEA, where our head count has more than quadrupled over the last two years next we set up a team headquartered in London.
To lead global Telco operations, we've also expanded and will continue to expand our international public cloud instances.
Next we invested in additional digital and outbound programs to increase awareness in key countries and grow our contact database. So that we're able to better connect with the right people within target accounts.
And finally, we have signed an additional regionally focused partners in our various local markets.
As a result of this focus on investment international revenue from company's headquarters outside the U S. In the third quarter grew 49% year over year and marked the fourth quarter out of the last five where the growth rate exceeded 40% clearly our decision to increase our international investment is paying dividends.
Now before I wrap up I'd like to crystallize, our views of the market opportunity and landscape.
We continue to see our growth led by enterprises and these larger enterprises are embracing digital transformation enabled by the transition from on premises to cloud.
And they can afford to invest in automation technology to efficiently scale of their contact centers in this higher end of the market. The purchasing decision is made by the line of business leader, who represent almost 90% of our buyers.
In conclusion.
Our performance for the quarter underscores the strength of our platform and the value we deliver to customers seeking to modernize and transform their contact centers.
We've differentiated our platform by building, a leadership position and practical AI and automation driven customer experience.
The combination of market momentum.
Round digital transformation initiatives, our product innovation strategy and strong go to market execution gives us confidence in the durability of our growth and the ability to continue to grow LTM enterprise subscription revenue in the thirties.
We look forward to sharing additional information on our plans to deliver continued industry outperformance and profitable growth at our upcoming virtual financial analyst day on November 18.
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 of our employees and partners, our progress and where we stand today is the result of their hard work and dedication and I. Thank each and every one of them.
Then over to you.
Thank you Ron.
As mentioned, we continue our strong momentum executing successfully upmarket and larger and larger enterprises positioning our superior automation solutions and expanding our international presence.
While also leveraging our channels and partner ecosystem, who once again influenced over two thirds of our deals.
This is reflected since our last earnings call by having two consecutive record bookings quarters.
Q2, being the largest of any quarter in our history, and then backed up with Q3 setting that record even higher.
Our pipeline continues to grow to record levels, both in size of deals and in quantity of opportunities.
And now I'd like to share some key wins from new logos as well as some significant expansions from existing <unk> customers.
The first new logo is from a health insurance provider in the southeast who was using avaya with no self service offerings.
We partnered with a reseller who had previously maintained their robotic systems and helped position five nine to modernize and automate the customer experience.
They now have our full.
For self service, a full omnichannel solution, along with a complete <unk> suite powered by parents and they opted for our 24 by seven hyper care solutions, bringing helpdesk type services to all of their users.
We anticipate this initial order to result in over $3 8 million in <unk> to five months.
The second New logo example, I'd like to share is a medical logistics and transportation company. They were using an on premises genesys system, which lacked the innovation and automation requirements that they wanted to offer to the more than 5 million Medicaid enrolled recipients within the state.
They chose five nine and avoided nearly our entire portfolio of solutions.
This includes platinum Iberia to deliver self service intelligent call steering and voice biometrics to authenticate callers I D.
They also have the full omnichannel solution, including chat email SMS visual ABR and the full suite of five nine WSI.
As well as agent assist to help their agents getting valuable and timely information to reduce call handle times.
As well as our workflow automation from windows to trigger appointment reminders schedule changes and provide status updates we.
We anticipate this initial order to result in over $2 2 million.
To five nine.
The third new logo win I'd like to share is a great example of a company re imagining the customer experience.
This global brand manufacturers and distributes automobiles through over 800 dealerships nationwide.
They were using an older premises based Cisco and Avaya systems with.
With five nine there'll be using the multi lingual IV as a.
Hi to transcribe conversations and insert them into their CRM.
Reducing the call handle time and ramp up times significantly.
Performance Dashboards voice.
Voice biometrics and the full Omnichannel suite of applications as well as our WSI solutions, including workforce management, QM and speech analytics.
We anticipate this initial order to result in over $1 4 million to 5 million.
And now as we normally do I'd like to share. Some recent examples of existing customers that significantly expanded their business with five nine.
Youll recall, the global parcel delivery service company, who placed an initial order of over $14 million in <unk> 259 in Q1 of this year.
They have now placed subsequent orders with us to bring their anticipated total IRR, so far with five nine to over $23 million.
Also youll recall, the large si who spun off their outsourcing helped us function and placed an initial order with us of over $6 million.
In Q1 of this year, who have now placed additional expansion orders with five nine which are anticipated to bring their total <unk> with five nine to over $12 million.
We also have a medical device manufacturer, who became a customer two years ago.
Generating approximately $2 million in <unk> and now has expanded.
For all of their other divisions globally and added IV, which will bring their anticipated total IRR with 590 to over $8 2 million.
So as you can see these three customers combined now represent over $43 million.
Anticipated <unk> to $5 nine.
So as you can see we continue to develop execute and deliver solutions, which are at the forefront of businesses schools to provide a re imagined and innovative experience to their customers and we're seeing the adoption of these technologies continued to gather momentum.
And with that I'll hand, it over to Barry Barry.
Thank you Dan before going into specifics a reminder, that unless otherwise indicated financial figures I will discuss our non-GAAP reconciliation from GAAP to non-GAAP results are included in the appendix of our investor presentation on our website.
As Robin mentioned earlier, we had a strong quarter with revenue growing 38% year over year.
Driven primarily by our enterprise business.
Our LTM.
<unk> revenue increased 51% year over year.
I'm also pleased to report, 7% sequential revenue growth.
Reflecting the ongoing revenue durability of the underlying business.
Let me amplify on this a bit.
Now that we have multiple quarters of kind of data we.
Estimate that the previously disclosed mid single digit onetime COVID-19 benefit that we experienced in the second half of 2020 actually extended through Q1 'twenty one.
However.
Before we thought we would only retain low single digits of the onetime COVID-19 benefit it turns out.
That we have been able to retain virtually all of the pandemic benefit.
This is evidenced by our strong sequential growth rates of 4% in the second quarter.
And the just mentioned, 7% in the third quarter.
Both of which came in at the high end a pre pandemic levels.
Given that we do not have another onetime benefit like COVID-19 year over year growth rates will naturally be lower through Q1 of next year due to the tough comparisons.
However, the true health of our business will continue to be reflected.
And the strength of our sequential growth rates compared to pre pandemic levels.
In terms of revenue composition enterprise made up 84% of LTM revenue and our commercial business represented the remaining 16%.
Recurring revenue accounted for 92% of our revenue in the third quarter.
And the other 8% was comprised of professional services.
Our LTM dollar based retention rate remained at 123% as a reminder, our continued success in winning larger and larger enterprise customers is.
Is it expected to cause fluctuations in our dollar based retention rate.
As they come onto the platform at different times and ramp at different rates.
With time, despite the evident inevitable quarterly fluctuations, we expect D var to trend upwards due to a higher mix of enterprise customers, especially larger ones and higher <unk> from our automation and other offerings.
Third quarter adjusted gross margins were 64, 1% a decrease of approximately 130 basis points year over year.
Primarily driven by ongoing investments in professional services to support the momentum of our enterprise business and investments in public cloud to more efficiently expand our global footprint.
Third quarter, adjusted EBITDA was $27 4 million.
Presenting a 17, 8% margin.
A decrease of approximately 370 basis points year over year.
Driven by both the somewhat lower gross margins and the increase investments in go to market.
And R&D strategic initiatives.
Third quarter non-GAAP net income was $20 million or <unk> 28 per diluted share a year over year increase of $1 $5 million.
Or a penny per diluted share.
Our DSO performance continued strong coming in at 30 days.
Q3, operating cash outflow was $4 $8 million driven in part by $6 1 million of transaction related cash payments during the quarter.
We expect that LTM operating cash flow margin.
Currently at 7% to increase meaningfully in the longer term.
Given our ability to expand gross margins.
Increased operating leverage.
Our substantial Nols.
And our low dsos.
Before I share our outlook for the remainder of the year and provide initial comments on 2022.
I would like to highlight a few points about the financial model in the merger proxy.
First of all I would like to affirm.
That we are setting a new long term targets in line with the 2026 bottle in the proxy at $2 4 billion in revenue and.
And 23% EBITDA margin.
During our financial Analyst day on November 18th.
We will provide additional details regarding the considerable market opportunities we see.
Our investment strategy.
And our demonstrated ability to execute.
All of which will drive us towards these new codes.
Also with respect to the proxy numbers. Please keep in mind that there were based on an extrapolated long term top down model with consistent linearity, whereas in reality.
Inevitably the quarterly and annual fluctuations, including in the near term.
Lastly, before sharing our guidance I would like to make it clear distinction between our view on the attain ability of the new long term model versus the attain ability of our quarterly and annual guidance.
The extrapolated long term model, where the down the fairway model for ease of communication consider the proxy model as a 50 50 model.
Meaning that we have a 50% chance of making it.
But also a 30% chance of failing to do so.
On the other hand.
The prudent annual and quarterly guidance philosophy.
We have successfully followed for many years.
It was definitely not change.
With that I'd like to finish today's prepared remarks, with a discussion of our guidance for the fourth quarter.
In the full year 2021, as well as providing high level commentary on 2022.
For the fourth quarter.
We are guiding revenue to a midpoint of $165 million.
Which represents the highest quarter over quarter and year over year growth rates, we have guided to in any Q4 at 7% and 29% respectively. For 2021, we are guiding annual revenue to a midpoint of $601 million.
Which represents a record year over year growth rate of 38%.
As for the bottom line.
We are guiding fourth quarter non-GAAP net income per share.
To a midpoint of 36.
Representing an eight.
Quarter over quarter increase which is the highest sequential increase we've ever guided to in any quarter, resulting in a midpoint annual non-GAAP net income per share guidance.
One dollar and.
<unk>.
I would now like to provide some preliminary high level commentary on our current thinking for 2022.
Before doing so however.
I would like to share with you how we have been looking at our overall investment stance for the upcoming year.
As Ron and Dan have amply demonstrated.
We are operating in a market, which we believe is set to enjoy many years of sustained high growth.
This massive market opportunity warrants a temporary acceleration in our investments in a number of areas include.
Including in automation initiatives.
Continuing March up market.
And further global expansion.
We believe now is the time to capitalize on both our leading position and these opportunities to drive growth and enhance our future returns.
We emphasize however that this does not mean, we are becoming a growth at all cost company. This is a responsible decision born of market conditions and growth.
With this in mind for 2022 revenue, we are comfortable with the currency consensus of 24% year over year growth.
Revenue will once again part of our typical pattern with slightly more than 50% of our revenue in the seasonally stronger second half.
We expect 2022 of non-GAAP net income per share to come in at approximately $1 nine.
At the same level at the midpoint about 2021 guidance.
Despite the accelerated investments we have embarked upon.
In addition, we'd like to provide an outlook on the quarterly profile of our bottom line.
If you look at our historical financials non-GAAP net income per share is always amongst the weakest of the year in the first quarter.
And we expect this to be especially the case this coming year.
We expect earnings to improve slightly in the second quarter and to improve meaningfully in the second half, especially in the fourth quarter.
Please refer to the presentation posted on our Investor Relations website, Additionally, estimates including share count taxes.
Taxes and capital expenditures.
In summary, we are very pleased with our third quarter performance, we remain laser focused on executing like chocolate to deliver sustained durable growth.
Operator, Please go ahead.
Yeah.
Okay.
Okay.
And at this time I'd like to ask all of the analysts to go ahead and turn on their cameras.
Yeah.
Okay.
Yeah.
Yeah.
Okay. We have our first question from DJ Hynes with Canaccord.
Hey, guys, great to see everyone and congrats on the results.
Dan maybe I could start with one for you on the on the go to market I mean, it's great to see the massive expansion on these mega deals that you guys have a clue.
In Q4, and Q1 can you just talk about the pipeline for the Mega deals going forward or are there more of them out there and has the narrative that your competitors are using to sell against you changed at all in light of kind of what's happened over the last four months.
Great. Thanks P. J I appreciate it and not the Mega deals from a pipeline perspective, absolutely continue to grow we continue to go up market part of it is the market opening up right now.
<unk> now seen that the cloud can deliver on a global basis. The most complex.
There are requirements that they want to re imagine the customer experience. So the pipeline generally we shoot for a five <unk> multiple meaning the five X coverage over over the anticipated quota.
In our strategic teams, which handles the high end of the enterprise accounts that number closer to 10 X. So we feel very fortunate about the future and more and more mega deals so to speak.
Yeah great.
And then maybe I could follow up with one for Barry.
Barry if I'm being honest I didn't expect you to come out.
Confirm the 'twenty to 'twenty six long term target.
I understand you said, it's kind of a 50 50 target can you just talk about kind of what needs to go right in your view to get there.
Yeah. Thanks T K.
Yes, just a little bit too we did say it's down the fairway 50 50.
A target that we will strive towards and distinguishing it clearly.
From a typical prudent guidance.
Quarterly and annual guidance that we provide which will remain conservative.
So what is our confidence.
<unk> comes from the fact that this management team.
As repeatedly demonstrated in the past that we would hit every year.
Every goal that we have committed to and our level of commitment on this particular, one is exactly the same.
Inevitably be fluctuations.
And then in the near term as we.
And accelerate some of our investment but that that march towards that $2 4 billion.
We will continue there's no certainties PJM business, obviously, but we do take considerable comfort from the fact that this is a massive market.
It's coming towards us that new front door is opened and is driven by mutual trends that Ron talked about what we do is truly mission critical it's a sharp point of the spear.
With customer engagement.
We have over 2000 employees across the world expert in all aspects of the contact center from design sales implementation support and who love working at five nine as witnessed low attrition rates.
<unk> rankings and.
As I said before we have related to leadership team underlying that.
As repeatedly you're in neurology demonstrated ability to execute.
Great well. Thank you guys for the color and I'm glad we're still doing that.
Okay.
Next question is from meta Marshall with Morgan Stanley.
Great. Thanks, a couple questions for me.
First on you know some of the eight figure deals that you had won earlier in the year you were noting you know it might take till year end or kind of beginning of the year for some of those to rollout, but yet you're already kind of seen expansion of some of those deals and so just wondering you know is that implementation going.
Faster or.
Kind of what's causing the upside so early.
And then just second question for me just conversations with customers, maybe post dissolution of the dealer or kind of conversations with customers during that deal and just kind of you know what the circle up the processes that Mike.
Most of the dislocation of the market.
Yeah, So I'll take the first part of that.
Yeah go ahead. Please take the first part on the on the larger deals.
You're absolutely right on track I mean as anticipated they have much more complexity, many more groups that want to be involved.
If you imagine in certain cases. These are large companies trying to revamp how they support their customers and they want to create a consistent yet new and innovative way of serving their customers and there's lots of internal discussions it's almost like hurting the caps within the customer is most of the delay.
People ask us well why is there such a long lead time before revenue and it's if we can get the customer to decide exactly how to implement I think it would be a lot faster, but but that's primarily the reason is pulling all of their groups together and making sure that they're properly designed what they want.
Launched at the outset Ron.
I think that sums it up real well I think look some of actually fairly quick and some take a while and so they're kind of all over the map on that front, but.
On the second part of your question meta.
Aw fairly balanced response, maybe there were some customers who were wanting to slow down and understand some of the security implications related to <unk>.
Relating to the zoom acquisition. So there was some of that especially with the large enterprise side.
And so obviously when we.
When we move beyond that deal those questions kind of got taken off the table.
And then nothing really negative from customers, particularly.
On the either either in either way either on the transaction itself or on the disk solution. So it's been relatively balanced I would say and not not noticeable in one way or another.
Got it I mean, just a follow up with Dan real quick I mean on.
The 14 million deal that was outside the 23 million. So is that kind of what Brian was referring to as a customer like that customer had moved faster and so it was already starting to up yes. Okay part of it was decision making across different theaters regions of the world somewhere ready and prepared to process them.
Groceries are contracts in place their orders and some of the other geographies weren't quite ready.
I wouldn't tie that to implementation timing, it's just a matter of they independently make their final decisions in final contract negotiations.
We will put us in the script I mentioned that it was so far so we're not done.
Thank you.
Next question is from Jackson Ader with JP Morgan.
Oh, great. Thanks, guys I'm on for Sterling Auty Tonight.
First question from our side and did the the engine.
Merger or can that that period of time, but its impact.
Any deals that people put things on hold while wildlife discussions are being had and.
If so we closed those since since that deal has kind of gone by the wayside, Yeah I'll start Cai.
Nothing was really put on hold we had several accounts, where they wanted to Rowan alluded to earlier, where they wanted to have more meetings in multiple discussions around whether it was security on changes, how we would support them, but all along we had intended to operate as a separate entity and we explained that very clearly.
These were very different swim lanes that are two companies. We're in it would have been incremental business for us to be with zoom, but we were we needed to maintain them.
Our focus on the line of business buyer and implementation and support the way we've always done and so I think they took great comfort in the fact that we were going to remain.
Largely intact the way, we have been and so nothing really got pushed or or.
Taken off the table. It was just a matter of extra meetings lager discussions in just a few extra items there, but everything remains on track we didn't Miss a beat.
We as I mentioned in the prepared remarks, we had our two largest bookings quarters ever.
Both in Q2 and Q3 so.
Onward and upward.
Gotcha, and then quick follow up for you Barry the commentary on.
The pandemic tailwind.
That kind of flipping in the first quarter, maybe to add then could we just get it.
Verification of that are you just talking about coming up against difficult comps or is there any reason why.
Reopening might Mike.
Impact the number of users or seats that you guys actually have live on the platform. Thanks.
Yeah. So.
For us the Covid tailwind at one time tailwind.
Jacksonville is you should consider.
Basically.
Q3 of 'twenty, Q4, 'twenty and Q1 of 'twenty one.
And.
As I said in the prepared remarks.
The incremental revenue that we picked up 4% to five percentage points sequentially two quarters three quarters.
Has.
And as it started to abate starting in the started to abate starting in the second quarter.
But the residual quarter over quarter increases in Q2, and now in Q3 of 4% and 7% respectively.
At the high end of the pre pandemic level. So we are keeping all of that but.
But the way to look at our business.
Through Q1 of next year is to look at the sequential growth rate.
Because that really is a true comparison until we lap those tough comparisons.
Okay, Alright, great. Thanks, guys can see again.
Thank you next we have Ryan macwilliams with Barclays.
Hey, good to see you guys. So please to hear that youre seeing more deals and larger deals in the pipeline now what the frequent addition of influence to your enterprise bookings are you also seeing improved seed pricing for new enterprise wins.
We're starting to see an uptick in the <unk> if you will.
That's primarily from the <unk>.
A lot of applications that we have in our portfolio right, where it's not just <unk>. That's the most prevalent the enterprise buyers are opting in for <unk>.
Some of them no opt in for a very small number so they can test and see what use cases are going to be most effective and deliver the best ROI.
But when you add in workforce optimization and we're in the workflow automation and the other applications that kind of go across all the seats.
You get some more uplift so we're starting to see an uptick.
We can talk more about our financial analyst day, when we dig into more detail.
Uh huh.
Great and then just two quick ones for Rowan Barry Rowan are we starting to see contact centers return to in person and then Barry.
Through our booking seasonality as you move more and more enterprise you think youll see more bookings now these shifts at the four quarter. Thanks guys.
Thanks ran an in person I know Dan has more color I only have anecdotal we're.
We're seeing something similar to what we're seeing with office work, which is it varies by country.
The Philippines, they just ordered 10% of their employees back into the office I think for example, like.
A government mandate. So I think it's kind of all over the map and it's hard to say.
To generalize right now.
And.
I'm flattered that you would ask me the question, but I'm going to actually on bookings I'm actually going to defer Ryan to Dan to talk about whether or not.
The fourth quarter would be typically now with enterprises are more stronger seasonal quarter.
Yeah, typically year end theres budgets to be spent there's folks that want to get projects completed.
You can't really talk too much about the future but.
Yeah, Q4 started off very nicely.
We see a great optimism and reaching our numbers that we fund that.
We've put in place for you all.
It goes to you guys again, congrats on the results.
Thanks, Brian.
Okay.
Next question is from Scott Berg with Needham.
Hi, everyone. Congrats on a good quarter and thanks for taking my questions.
I wanted to go back to something that.
Ron you had said in your pre scripted remarks, you made a couple of different comments around partner traction in particular both.
Kind of down market, a little bit, but specifically after the on the higher end you'd mentioned channel partners are starting to contribute some deals greater than $1 million of ECB.
As you asked as you look at it those partners that are helping on the high end of the market is there any reason to think that those customers can help drive some of the same maybe high single million dollars ACB deals that you have or or a figure deals in your pipeline.
Maybe Dan you could take that one yeah well. They are Scott are you, referring to our resellers and partners, bringing us $1 billion plus opportunities in DFS, Yeah, that's happening already I think as Robin mentioned.
We've seen several of those that are coming through the channel now.
Channel business is growing just resellers and referral partners alone make up over 40% of our bookings. So it's a it's giving US great reach if you think about it we've got thousands of people now out in the market globally.
Representing an endorsing finite and it just brings more opportunities to bear and so we're seeing that regularly and as I mentioned earlier about the very high end of the market.
We talk about this underpenetrated Tam at the high end of the market. We're just getting started as an industry. I mean this is there is a last folks to go and so when we talk about some of these mega deals. They really are the early adopters of the large large enterprise. So we've got a whole when we talk about our pipeline growing in our strategic accounts is clearly.
Our largest area of investment in our largest and most accelerating area of growth.
So all positive.
Great and then.
Our Barry on your comments my guess is youre not going to take US one you'll defer this one as well, but you've talked about reiterating your at 26.
<unk> targets that was in the merger proxy, but how should we think about that.
And what's driving that growth rate over the next 345 years.
Because it is certainly a step up function from what the company has seen in general over the last four or five years is it more of a function of just more deals in the space because we've hit that inflection point, where we think its going to cloud is that a change of win rate assumptions in there or maybe just this large fuel environment. That's driving some of that Canada. Thank you yeah, I'm happy to take a stab at that Scott.
It is related to a new growing and Dan will course, correct I'd appreciate it but.
But basically it is more of the same boring story and five nine has been talking about we've been public at 22% you know plenty of growth.
The March up market in a strengthening environment, there's taken that not to 238 against the tough compare year over year I mean.
And.
And it all evidenced by the fact, Scott that enterprise LTM subscription revenue growing has been saying now for.
I think the three years plus or minus.
We'll go with a three handle consistently at least.
And and the confidence that comes around it is that.
And we business in America, and the World Aside from an occasional mining company or a fishing company needs a contact center.
And the contact centers become even more important post pandemic.
The new front door think of.
Basically a contact center agents, becoming an excuse me retail sales growth, becoming contact center agents.
And we happen to be one of the leaders in this area and a pig.
Areas to focus on that can really help and we've got all this international runway ahead of us.
Or the automation, increasing Tam ahead of us.
And isn't.
It's not about it if I can be.
And we've got two.
Very well respected and responsible competitors when it comes to taking away business from.
Avaya and Cisco.
But those are win rates against those two.
Very very high well over 70% of each case, so it's not an increase in win rates that we are feeling.
Great. Thanks, everyone again.
Scott Griffith.
Next question is from Samad Samana with Jefferies.
Hi, good evening.
Echo the congrats on executing and with a lot of noise in the background, which is what we all appreciate a lot about <unk>.
Ron I want to start off for you just we talked about customers, maybe we could talk about how partners how that conversation has been with your other ucas partners now that you.
We're back on course to go it alone just maybe.
How do your partners reacted and what has the conversations been like that.
Yeah, we.
We continued the dialogue we continue to stay connected to all of our partners through the conversations with them really never backed off on that.
That's a good thing right and we've frankly seen further leaning and buy some partners post the breakup announcements.
And so that's been positive to see and of course, that's our that was our strategy before was to kind of be Switzerland, and support all of the vendors out there.
So I think Thats really does help us on that front continue to see the momentum from the other UC Ucas partners, who need great Zeke has offers.
So it's been great acquisitions.
You can clearly see that in the numbers and then just from a from a company and recruiting perspective. It was great to hear about low attrition I'm just curious.
As far as the company's head count if that was.
Hi, recruiting wise in terms of are you ahead of plan a plan for that.
The shape of the quarter ago for your own head count that that would be helpful to you.
Yeah. So we're at over 2000 employees now and we've been as Barry mentioned, we really haven't been having a challenge with hiring I think that's the culture of the company is fairly renowned at least in our little corner of the world people want to come work for $5 nine and we've also seen record.
Low attrition I think at a time when.
The headlines are filled with the great resignation and that's not our employees have really stuck with the company believe in the vision and the mission.
And have been.
Really the ones behind that the results that you saw today. So that's just a reflection of the team's commitment and the deep gratitude I have for arcade.
That's great you Barry if I could just slip a quick one in for you.
On the quarterly seasonality that you talked about is that more comfort around the cadence of subscription revenue coming online from implementations are more around the usage trends now that you have enough evidence over the last several quarters.
They typically moving tandem not always but sometimes the usage.
Dennis Schooley precedes the seats because you don't hire.
And agents and get them in the seats until you have a cold there, but then we were pretty much intangible recall, that's why we call it the recurring revenue.
Great as always really appreciate it and great quarter guys. Thank you so much.
Our next question is from Caitlin Mcguinness with UBS.
Yeah, Hi, congrats on the corner and thanks, so much for taking my question. So you talked a lot about the drivers I guess to get to the Q.
4 billion, but I guess on the flip side of that maybe can you talk about what some of the rest of our and achieving that guide I guess, what's causing you know some of that split comfort and how does that compare to what you guys are seeing in the pipeline today.
Barry you want to grab that place.
Sure.
So there's basically three ingredients and I'm oversimplifying for ease of communication tailor.
The market the competition and execution.
And so it's self evident that the market is there and we.
We haven't really submit that we want to go attack execution. So it's really around potential competitors in that regard. This is not a little up in a phone. This is something that it takes four or five years too.
Two develop as witness what it has done for example at interactive intelligence at the time before they were both by Genesis.
And.
And in a lot of money to do that and you've got to have.
The software.
Telephony DNA combination to be able to do that.
So if you look back and if you consider the part of the line of business buyer who is buying.
Replacing Avaya Cisco.
Switch.
There is.
Really the three companies.
And.
Especially I'm talking about at the enterprise level.
<unk>.
That being that way aw for more than a decade.
And so there's been no new entrants in other words the scale into the industry and you're so they may well be competition will be arrogant to assume that it wouldn't be but it's also I'm going to conclude with this it's also not just the product to them.
You've got to match that with the.
All of the complete services from the partners from ourselves.
Across the world and for the implementation and support and that takes a long time to build so competition may well come but we think we feel pretty well positioned to be able to do it over the next five years.
Got it that's really helpful. And then my last question is can you maybe talk about what you guys are seeing today in terms of sales cycles and pace of migration activity growth. Obviously, it's been very strong. These last several quarters, but maybe you could talk about something somebody assumption embedded in the first half of this year, maybe maybe being lower growth.
The low twenty's.
2022 guide and how to kind of bridge that with that $2 4 billion out your guide.
Is there any.
Part up here, where the pandemic could've caused a bump in activity, but as you look forward, you know growth might be more lower but more durable and and high into the future.
Or do you want to take the latter part of that.
Yeah. So.
The Covid bumps.
Install based bookings, which are the most evidence of that.
Show that that ended basically in the first quarter of this year.
It's still reasonably strong but.
Not as strong as the other three coated quarters.
In terms of.
The.
Pattern for 2022.
We have a pretty consistent pattern.
If you exclude the pandemic benefit.
His day to NSA and any benefit it sounds cool.
If you exclude that.
The second half is clearly stronger.
Especially in the second quarter, but also the first quarter and the fourth quarter is always a stronger.
And then with going up to as you also asked about 2026.
As I say it kind of be fluctuations that we will continue on our way to that number.
And with respect if I could just add.
I was always there talking about the top line.
With respect to the bottom line as I mentioned.
Interest on the <unk> on.
On an open call. The first quarter is always one of our weakest quarters and that'll be prominently the cases coming quarter.
Got it thanks.
Okay.
Next question is from Joe mirrors with truest.
Hey, guys. This is Joe Meares on for Terry Thanks for taking the question.
Obviously, you guys have had really strong growth in international markets I'm, just wondering if that's mostly being caused by customers landing larger are they expanding more quickly.
Give us some details on what are the underlying trends are there.
Yeah, I'll take that Joe.
As far as the international markets, we've staffed up.
Not only are.
Pre sales.
Sales folks in Ftes, but also our channels team and.
And signing up local entities that those companies are used to buying from us have brand awareness in the local market estimate is a difference as well, but it's clearly from landing new logos and bringing on new customers. Some expansions like always but it's primarily just landing new accounts and that's been primarily in the EMEA region.
We've set up our hub kind of in the U K just outside London.
We have.
Operations throughout in the surrounding mostly western Europe countries and then we have.
Prominence in Latin America as well so those are our two main international markets.
<unk> North America, we obviously have Canada, it's a big market as well.
Awesome that's it for me thanks, guys I appreciate it.
Okay.
The next question is from Jim Fish with Piper Sandler Hey, guys know enjoy keeping keeping it going here with five nine.
Just actually wanted to touch upon some news recently with Microsoft dynamics, 365 voice getting announcements and the speed test solution. While you guys also about a month ago announced integration with teams.
How does this relationship really shake out and how will that change the landscape from your view, especially for kind of that low to mid <unk> and where you are starting to see a desire for gas and you guys got it.
Yeah, I'll take that one first.
It's pretty straightforward what they announced is very similar to what at least the way I read it was very similar to what I think Zen desk had done some time ago is on desktop.
His in depth voice I'm not sure what they call. It and also frankly, what salesforce kind of deal with their partnership with Amazon, but much more similar to zander. So they added the voice channels. So dynamics already had the digital channels, but they didn't have any kind of capability for voice of added that they added that in there that basically said, they're using the Azure voice services API sales.
I think it's you know.
In keeping with that kind of activity and it's interesting that it wasn't the teams Microsoft teams group that diverse but it was the dynamics group that is so dynamics are really the ones, but we've had a partnership with for a long time. They I think they also said in the second in the same sentence says there are announcements, but we're going to continue our relationships with five 9%.
Saturday and I think the recognition there is look you need some sort of.
They need some sort of lightweight built in torque capability, but for a full contact center solution. There is still going to be leveraging partners at least that's the way I read it.
Makes sense and maybe I know we talked upon IV.
Having a really strong quarter with enterprise, maybe can we talk a little bit about the attach of AI assist this quarter and how that momentum is really been not just in the last quarter, but the last six months.
We posted enterprise connect works you guys were talking about as the best AD products. Thanks, guys. Yeah. Thanks. So we've won a couple of words on that front and frankly, we're seeing most of the traction is around IV, a but agent assist has seen quite strong interest I think in terms of.
We're especially in large enterprises, they want to see that you're playing in these various parts because I think nobody sees a one size fits all in any one technically there's no silver bullet here like one of the technologies can solve all the problems. So what they're really looking for is a complete solution that they can buy and we're seeing much more traction on.
Just because it's a little easier to see direct line of sight to that.
<unk>.
Sort of the return from the return on the investment from from a customer perspective. So.
So that's why we're saying agent assist with we've had very very strong bookings.
Continue to work on that and we're actually going to share more on details on this in our financial analyst day, So stay tuned on that front.
Thanks, guys.
Thanks.
Next question is from Peter Levine with Evercore ISI.
Thanks for taking my questions. Congrats on a good quarter. So its just the first one is can we get an update on the mitel relationship just trying to gauge if there are any hiccups or delays that came up during the June transaction and what are you baking in our expectations for the Mitel Youll go into 'twenty, two perhaps inventories right now we really don't have any expectations baked in from that.
There is upside there we've signed so I would say about early progress has been good we signed up a few of their bigger partners.
And.
And so we've already seen some transactions on that front.
But still very early days and candidly during the zoom conversations I think that that conversation took a bit of a backseat, but yeah.
Yes, we'll give you more actually at financial Analyst day on this one and others.
And then maybe one more for you rode is just I guess.
Longer term, it's just the durability of maintaining your current pricing per seat. If you obviously have a lot to go back to your customers on today drive higher ups calls, but I hope it's as soon as you move further up market evidenced with deals you have today you want today, there's some discounting so how do we kind of balanced right like there's yeah. There's just rounding on the core.
This is fundamentally right. This discounting on the core offer but what you find in these enterprises is that they buy the full portfolio, so those especially the strategics.
They have a real need to drive efficiency in their labor spend and so that's where you see the IV add ons and the rest of the additional portfolio add ons that we've added are actually sort of maintaining that 200, $205 ASR Arco and frankly, there is an upward bias there we're starting to go up but it's actually being driven by the larger customers. So.
It's a.
Theres a lot more that we can do for these companies Digitization is not driven. These this spend is not a cost savings activity primarily for businesses. When we talk to customers. It's not about grinding us on price because they are just looking to get a lower sort of perceived price. It's actually the conversation is all about how can you help us improve our cut.
Our service and our outbound sales efficiency in all the different things that we do for customers and so the price pressure hasnt really been exceeding effort are evident in our in our base even across even up into larger enterprise.
Thank you.
Next question is from Steve Enders with Keybanc.
Okay, great. Thanks for thanks for taking my question here.
I guess I just want to touch.
Well tomorrow on the investments you're making into the next year that are keeping EPS flat I think versus the Guy had just kind of wondering wondering what the biggest areas are incremental investments.
That you're making in it and where those dollars are going to be primarily focused on.
Barry you want to take that one yeah. So.
So Steve it is.
At a macro level is three things and the.
The automation international and.
The March upmarket, so taking them in turn.
The store in terms of automation.
A fair amount of both in terms of the.
Uh huh.
Incremental R&D no product because they have a completely finished but on top of that.
Expanding the capacity given the explosive volume that we've seen that grow inside the disease remarks, we need to keep ahead of that and it takes people and.
Hardware maintenance.
The second one then is the March up market.
That's actually more of the same but we need extra channels and extra.
Features and capabilities to satisfy some of that especially the global requirements.
And lastly, and importantly, and by the way also in terms of March up market is building out the professional services team.
It is.
A different kettle of fish Henry a company the size of.
Some of the ones that we've recently been talking about this is at the moment.
Smaller companies.
And then lastly international going into a new country.
There's a host of startup expenses recruiting legal admin and then you've got to sort of.
To find the right people. It takes time I don't always get the right people, who first time round.
All of those things across the world with a so called Mega deals it takes money.
Yes.
Okay perfect. Thank you appreciate the I appreciate the questions.
Okay.
We only have time for one more question. Our next and last question is from will power with Baird.
Right good afternoon, Greg.
On her again.
So I guess, probably rowan or Dan one of the reasons you all.
Sued or accretive zoom transaction I guess wasn't part because you were seeing there is some increased interest in bundled UC and cc offers and so.
I wondered if you could comment just kind of qualitatively. If you look at the pipeline, which seems like it's at record levels now how much of that now is still line of business I assume that's still the bulk of it what are you seeing in terms of UCC see interest in UC cc interest.
And how do you make sure you still capture that piece, but solidify those relationships and I guess.
Kind of a third kind of pizza NEA present, some sort of <unk> the longer term is something that by myself.
Sure I'll take that one.
And I'll Cherry pick one of the things you said about the <unk> buyers in our base. So L O b buyers in our in our base and in our in our pipe are really almost 90% of the buyers. So they're very much yeah. There are some I T.
But the vast majority 90, almost 90% are <unk> based and the opportunity with zoom was really an offensive opportunity to grab a new buyer and that was the right buyer and it was mainly if you look at the zoom presentation on the rationale for why they were interested in five nine it was all about the fact that they were selling UC.
And they can bundle a contact center solution to the to their buyers and their IV. The buyer of the UC solution is typically it starts.
A different swim lane than ours.
And so it is not.
We're not seeing those buyers drive our business and they don't see line of business buyers drive their business in fact, that's pretty well reflected when you see the way that we talked about the content of the.
The integration the conversations that I had with with Eric We're really about we had to keep five nine separate because it was a very very different go to market and so that is a real benefit for us as we walked away from that because nothing really happened to our go to market, but we're going to keep a completely separate anyway.
And as as we move forward here.
We still got an incredible opportunity frankly, I think there's we're seeing more we're seeing growth in that line of business in tech savvy kind of business leader who's deriving standalone or a digitization effort to upgrade your your CX, Joe to your customer experience and that.
Results in <unk>.
A CRM upgrade often and then a contact center upgrade and Ucas is kind of not any part of that conversation.
So good for us and we're going to continue to drive incredible momentum here as we shared in the confidence in the long term model I think reflects that.
And there is no stepping into the UC market by the way baked into that long term model at all.
Okay.
Now that market as a headline is going down right I mean at the UC space as a total market is declining voice over IP telephones or not be.
And I'll be all it's not the next generation thing, it's a replacement cycle for our legacy platform.
Great. Thank you thanks a lot.
Before we close the call I'd like to pass it back to <unk> for closing remarks, great.
Great well, thanks to everybody for joining our call. This afternoon and supporting five nine we really appreciate it.
And we have an upcoming financial analyst day as we as we reiterated numerous times. Please join us for that that is going to be on November 18th Barry Correct me if I'm wrong.
And very excited to be able to share more about the long term prospects of the company the market and where <unk> is heading and with that I'd just like to close by thanking all of our employees and partners.
The real the real heroes of all of our sort of execution and the crisp delivery that we have been.
So well known for on Wall Street is as a result of our employee base.
And so I just wanted to close it out by saying thanks to all of our employees and partners. So thank you all very much.
On financial Analyst day, Bye Bye now.
Yeah.