Q4 2021 Five9 Inc Earnings Call
Partially up market driven by the transition to cloud and digital transformation as well as our differentiated AI and automation offerings.
There is no question our World class team has continued to execute like clockwork.
Now fourth quarter revenue grew to $174 million up 36% year over year against the prior year quarter that was raised by onetime COVID-19 benefits for the full year 2021 revenue grew to $610 million, an increase of 40% year over year, driven by the continuing strength of our <unk>.
Prize business, where LTM subscription revenue grew 51% year over year.
And continuing our commitment to balanced growth I am pleased to report that despite the increased investments in a number of areas, including professional services and public cloud our fourth quarter adjusted EBITDA came in strong at 21%. These.
These results clearly demonstrate that not only do we continue to be a leader in delivering on this massive and barely penetrated opportunity, but also that our business model supports a very attractive combination of high growth and strong margins.
Today I'm going to focus my comments on three of our key growth drivers AI and automation are March upmarket and our global expansion. So let me begin with AI and automation.
Our intelligent virtual agent or IV has captured the market's attention as illustrated by the following statistics in 2021, Ivy as accounted for approximately 10% of enterprise bookings to new logos.
At the same time, IV H usage tripled year over year now while it's still very early days. These are encouraging signs so let's step back for a minute and talk about the opportunity. It's estimated that the incremental Tam from automating contact center labor is $34 billion and we believe that there are two macro factors, which will ultimately.
But inevitably lead to widespread automation of labor first the increasing acceptance by customers that technology has reached maturation and works and its resulting intangible ROI for our customers by automating repeatable tasks and realizing labor cost savings.
And second contact center leaders face labor shortages and high turnover rates, making automation the necessity for operating a contact center efficiently, while continuing to improve customer experience.
We are laser focused on further increasing IV cross sell rates for our new customer bookings and into our installed base and we plan to achieve that along three vectors. The first is continuing to step up the rate of innovation. We recently launched studio seven which is our new conversational AI orchestration interface and this platform is helping.
Customers get started faster and allowing them to implement increasingly more complex automation as well as enabling entirely new technologies, such as virtual voiceover, which makes five nine Ivy as sound incredibly lifelike.
Second we're ramping up go to market spending to meaningfully accelerate our IV sales momentum most notably we will be increasing the size of our dedicated AI and automation sales team expanding professional services and customer support and stepping up our marketing campaigns.
Finally, third we will increase our focus on selling IV, a standalone into non contact center opportunities with unified Communications CRM and service providers. We had success with this motion last year with a $1 $7 million European IV, a booking from an internationally recognized hotel chain, where we didn't sell the five nine.
Virtual contact center at all.
And we believe this is a large untapped opportunity for US now also bear in mind that on occasion. These standalone IV opportunities morph into full rfps for the entire contact center.
While <unk> is our most scaled AI solution, we continue to invest in making our total offering the industry, leading AI engagement platform and here's a brief update on our other AI investments.
First we continue to see growing customer adoption of agent assist with deals in the double digits across various industry verticals and we expect continued strong adoption as customers realized improvements in kpis, such as customer satisfaction average handle time first call resolution and so on now we'll soon be launching new capabilities to continue to.
Prove our agent assist offering including agent script adherence to real time guided checklists that coach the agent on what to do next and then automatically verify that they do it.
To help us scale, our IV and agent assist to every customer globally, we're investing in a technology. We call conversation architect. This technology provides a central hub for building and managing AI applications, such as <unk> and agent assist in the contact center.
Conversation architect provides a no code solution that enables customers to train AI models off of their own data without needing machine learning or AI expertise.
<unk> business expertise now traditionally this training process has required machine learning experts that are hired as part of a lengthy and expensive contract consulting arrangement, but with conversation architects. These costs are dramatically reduced opening up a larger market opportunity for AI in the contact center.
Now finally in addition to investing in our own AI products. We're also investing in our AI platform with technologies like voice stream, which is a groundbreaking and developer friendly cloud to cloud real time streaming API partners are building products on this platform with use cases, ranging from customer on an authentication via biometrics.
Things like agent assistance agent coaching training real time speech analytics and sentiment analysis now when customers turn to $5 nine they can use our own products or choose from a range of third party products built on top of our platform.
So now.
Now, let me turn to our next growth driver, namely our March up market.
Enterprise accounted for 84% of fourth quarter LTM revenue.
We continue seeing especially strong growth in the high end of enterprise and in a moment Dan will elaborate upon the tremendous bookings success, but he and his team delivered in the fourth quarter, but in the meantime, let me simply mentioned that we ended 2021 with 134 customers generating more than $1 million.
Up from 91, a year ago.
These larger customers are the fastest growing part of our business with a CAGR of 93% since inception and have meaningfully higher retention rates. So while II in automation have emerged as the latest driver behind our success up market that builds upon our strengths that we have like reliability channel and <unk>.
<unk>.
Let's start with the reliability and the reliability is you know is simply non negotiable seek has provider can offer all the features in the world. But these features don't matter at all of the systems down and supporting customers is impossible.
<unk>, we have made and are making in our cloud operations team have allowed us to successfully build out our public cloud operations and mature our operational disciplines through tooling and automation. These investments have also allowed us to achieve what may well be industry, leading uptime and velocity.
And we're doing that globally I couldnt be happier with the results that we're achieving in this very important area.
Next we continue to develop our channel, including systems integrators service providers technology solutions brokerage borrowers and ISP partners and I am extremely proud of how far we've come in this area and the potential that still remains our strong bookings growth continued with channel bookings, increasing 66% year over year in 2010.
One the.
The channel loves how easy <unk> is to work with and this continues to be a differentiator for us in the market.
One of our marquee partners AT&T is building momentum across a wide array of verticals. We now have over 50 customers sold and these wins range from large enterprises to small and include public sector successes as well.
Agents through the AT&T partnership our servicing customers in over 60 countries, indicating the full reach of this partnership.
Additionally, the recent launch of the AT&T Iga is based on the $5 nine Ivy we talked about earlier.
Our relationship with AT&T continues to grow from strength to strength and we're also pleased to support them in their latest campaign. The CX Revolution, which is focused on helping customers migrate from their legacy on premises contact centers to the AT&T cloud contact center powered by $5 nine take a look at CX SaaS Revolution Dot com.
Now finally, and perhaps most importantly is the trust we have built up over the years with our customers.
We've made sustained and significant investments in professional services and customer support, allowing us to commit to and deliver lightening fast implementations worldwide and the result of this is our industry, leading net promoter scores of 85 and higher for both professional services and customer support.
And we're seeing even stronger growth outside the U S where most agents are located.
Some statistics.
International revenue from companies headquartered outside the U S. In the fourth quarter grew 57% year over year and marks the fifth of six quarters, where the growth rate exceeded 40%.
The investments we've made in expanding our international business are clearly paying off and these results were focused on continuing this growth and achieving our objective of having the international business be a mid teens part of overall revenue by 2026 quite simply 2022 will be an exciting year with more international head count.
More channel partnerships more marketing more public cloud instances more languages and so on.
So in conclusion.
We've made significant progress and executed strongly on all fronts. This past year.
While solidifying <unk> nine as a market leader with an even greater opportunity ahead.
Before turning it over to our President Dan Burkland, I'd like to give a huge thanks to all of our employees across the world you've delivered consistently and exceptionally and despite the difficulties and the worst of Covid. None of this would have been possible without you. So thank you.
With that let me turn it over to Dan Dan go ahead.
Thank you Ron as mentioned our go to market machine continues to accelerate up market.
Can we not only shop records for bookings and pipeline, but also shattered the record for the number of new logo bookings over a $1 million.
And now I'd like to share four examples of these record wins, all of which are well north of $1 million in IRR.
The first example is a fortune 25 company and one of the largest retailers operating over 2500 stores dozens of retail brands, along with manufacturing and distribution.
They chose <unk> to provide the IV for self service and cost sharing as well as various WSI for speech and desktop analytics and they are also leveraging our connectivity solution for Citrix VDI for the remote workforce. We anticipate this initial order along with a follow on order, which booked in early January to result in over $4 <unk>.
<unk> million dollars. So they are 259.
The next example is a global health insurance company based in the U S with over 80 million members worldwide.
The contact centers, where based on Cisco and did not support their future vision for delivering customer experience.
It shows 592 enables our digital first strategy, including E Mail chat SMS visual IPR.
And our industry, leading iva is to replace nuance. In addition to all the traditional voice applications.
We're providing a deep integration with Salesforce are inherent WSI solution and five nine performance management and dashboards. We anticipate this initial order to result in over $3 $7 million and <unk> five times.
The third example is a traditional and peer to peer lending company.
And their contact centers service individual borrowers banking clients and collections efforts for past due loan payments.
They were using a combination of Cisco for inbound and live box for outbound in the collections Department.
They chose <unk> for our single blended platform for both inbound and outbound.
And we also are delivering a holistic experience for their agents by integrating with Oracle Zen desk, and a homegrown CRM system consolidating it all onto one single desktop.
For their inbound business. They will also be using our chat email SMS for a complete omnichannel experience, making it as easy as possible for borrowers to make payments.
They will also use our IV <unk> for processing and providing status updates on loan applications. We anticipate this initial order to also results in over $3 $7 million and they are our two five times.
The last example is a fast food chain with nearly 3000 restaurants across the U S.
Outsourcing their contact center operations, which wasn't giving them the visibility and control to deliver an exceptional customer experience.
Can the process to bring the entire operation in house and chose <unk> to help them deliver on their CX vision.
Now have the ability to leverage an omnichannel solution from $5 nine including chat email SMS.
Along with voice to give customer convenience and choice for all of their interactions.
They are using our IV <unk> for customers to place orders check status of deliveries check on rewards points and access standard Skus.
We are fully integrated with their Salesforce CRM and we will provide the full <unk> suite from Barrick. We anticipate this initial order to result in approximately $2 5 million to five nine.
So as you can see our move up market is significant and accelerating and we're seeing more enterprises embracing our AI and automation solutions to deliver a completely re imagined customer experience.
And now I hand, it over to Barry Barry.
Thank you Dan.
Before going into specifics reminded that unless otherwise indicated financial figures I want to discuss our non-GAAP .
Reconciliations from GAAP to non-GAAP results are included in the appendix of our Investor presentation on our website.
As Ron mentioned earlier we.
We had another excellent quarter with revenue growing 36% year over year.
Broadly fourth quarters sequential revenue growth was 12%.
Highest pre pandemic sequential growth rate ever.
It gives us even more confidence that as we have been saying we have retained most of the benefits we saw from Covid.
In terms of revenue composition enterprise made up 84% of LTM revenue and our commercial business represented the remaining 16%.
Our commercial business grew in the twenties on an LTM basis.
We expect our commercial business to grow in the teens for the next several years as we continue to focus the majority of our investments on moving upmarket.
Recurring revenue accounted for 93% of our total revenue in the fourth quarter.
And the other 7% was comprised of professional services.
Our LTM dollar based retention rate was 122%.
Despite inevitable quarterly fluctuations, we expect the retention rate to trend towards the high 120 by 2026.
Due to the higher mix of enterprise customers, especially larger ones, which have demonstrated will be higher retention rates.
And higher output from our automation and other offerings.
Fourth quarter adjusted gross margin was 62, 8%.
A decrease of approximately 360 basis points year over year.
As we have been communicating we continue to invest aggressively in two key areas.
<unk> professional services and.
To a lesser but still appreciable extent public cloud.
The increased investment to Ram.
Professional services has been significant.
Let me illustrate by discussing the pattern of our professional services head count growth.
We accelerated year over year head count growth of 60% and the SEC.
Half of 2021, and we plan to continue at the 60% plus rate in the first half of 2022.
Before starting to normalize in the second half.
We have been increasing professional services to support the growing number of significantly larger customer deployments.
Including an entirely new territories, and enhancing training and other certification programs to help our partners ramp more quickly.
With regard to public clouds, we are investing to build out new instances globally, including in Western Europe , Latin America, and India over the next year.
Adjusted EBITDA was $36 9 million.
Representing a 21, 3% margin approximately 150 basis points below the cobot assisted Q4, 'twenty margin and in line with the Q4 2019 margin.
Fourth quarter non-GAAP EPS of <unk> 42 cents per diluted share a year over year increase of <unk> <unk> per diluted share.
Before turning to our full year performance I would like to report that our average concurrent seat count for the fourth quarter grew to 246700, <unk> seats up 34% year over year.
Note that we estimate a concurrent seats to be equivalent to approximately 370000 seats on a named seat basis.
Unit of measure that some others in the industry site as a reminder, we.
We provide the seat count metric only on an annual basis.
And now for a closer look at key full year 2021 income statement metrics.
2021 revenue was $610 million up a record 40% year over year.
2021 gross margin was 63, 5% a decrease of approximately 200 basis points year over year, driven by the same factors that impacted the fourth quarter gross margin, namely our ongoing investments in professional services and public policy.
2021, adjusted EBITDA margin was 18, 1%.
A decrease of 160 basis points year over year also driven by the professional services and public cloud investments, partially offset by continuing operating leverage.
2021, non-GAAP EPS was $1 16 per diluted share a year over year increase of 17 cents per diluted share.
Finally, before turning to guidance, some balance sheet and cash flow highlights.
I would like to begin my comments on cash flow are pointing out that during the fourth quarter, we implemented a new billing system to allow us to scale as we continue to move up market and expand internationally.
As a result invoices.
All of which were individually checked and validated when that days and in some cases, even weeks later than normal driving idea so it could be higher than normal.
36 days.
Operating cash flow was $8 1 million.
This is a high teens operating cash flow, we would normally generate if our DSO had been in the low thirties as they have been for the past three years.
The normal cadence of invoicing is resuming this quarter and we expect DSO to normalize back to those studies in the next two to three months.
With respect to LTM operating cash flow margin currently at 5% to increase meaningfully in the longer term given our demonstrated ability to.
<unk> EBITDA margins.
Our substantial Nols.
And I typically low dsos.
I'd like to finish today's prepared remarks, with a discussion of our guidance for the full year 2022.
And for the first quarter.
For the full year 2022, we are guiding revenue at the midpoint to grow at 24% year over year to $756 million.
For those of you had been following <unk> for some time.
You know that we start each year with prudent revenue guidance.
For six consecutive years, we started the year with.
With guidance of 16% year over year growth.
Last year, we raised it to 20% and now we are raising it to 24%.
This step up in guidance reflects the strength of our business as we continue to win the larger and larger customers that drove that and talked about.
And as we realized gains from AI and automation initiatives.
Before providing 2022 EPS guidance I would like to make high level comments on margins.
We expect both 2022 adjusted gross margin and adjusted EBITDA margin did decrease year over year by approximately two to three percentage points as we capitalize on a massive market opportunity by accelerating investments to continue I'll move up market.
To drive automation initiatives.
To expand globally.
It would be irresponsible for us not to do so given our differentiated offering.
Such a favorable market conditions.
But we are fully committed to maintaining a balanced growth approach and gaining leverage longer term.
To reach 23% plus adjusted EBITDA margin target by 2026.
So for 2022 and non-GAAP EPS.
We are guiding to a midpoint of $1 14 per diluted share.
Above the $1 90 per diluted share outlook, we provided during our last earnings call underscoring our complete confidence.
In our operating plan.
For the first quarter, we are guiding revenue to a midpoint of $170 5 million.
Which represents a 2% sequential decline better than the 3% to 4% quarter over quarter decreases we've been guiding to in the first quarter in the past three years or so the first quarter year over year growth at the midpoint is 24%, which.
Which is the highest growth rate, we've ever guided to when compared to pre pandemic first quarters.
We expect first quarter non-GAAP EPS to come in at <unk> 13 per diluted share at the midpoint a decline of 29 per diluted share sequentially.
I would like to point out that the first quarter non-GAAP EPS is always the weakest of the year because of the seasonal revenue headwinds and the FICA reset.
For the first quarter of this year however.
We are guiding to a somewhat larger than normal sequential decline.
Entirely due to the decision to accelerate hiring, especially in professional services as I detailed earlier.
Additionally, I would like to provide more color on the quoting profile of both the top and bottom lines for the remainder of 2022.
For revenue consistent with guidance in past years, we did not expect sequential growth in the second quarter.
However.
Following seasonal business patterns, we do expect revenue to again increase sequentially in the third quarter.
And more strongly in the fourth quarter.
As typical in our business.
Given the shape of this revenue curve.
And the transitory first half gross margin headwinds from the two factors I mentioned earlier professional services and public time.
We expect our second quarter non-GAAP EPS to be in line with our first quarter guidance of 13 cents per diluted share.
This should improve modestly in the third quarter.
And more significantly in the fourth quarter.
One final guidance comments this one concerning operating cash flow in the current quarter.
The success, we have had with IV has resulted in the infant shareholders being entitled to therefore earn out.
We will be making the payment this quarter.
<unk> will be $24 million.
Of which approximately $6 million will be reflected in operating cash flow.
And another $18 million will be reflected in financing cash flow.
Let me just add that we could sell them be happier to make such a well deserved not payment.
Please refer to the presentation posted on our Investor Relations website for additional estimates, including share count taxes and capital expenditures and summary.
We are very pleased with our fourth quarter performance as we continue to execute like clockwork.
We remain laser focused on investing in key strategic initiatives.
Continued driving LTM enterprise subscription growth in the cities.
To achieve our long term targets.
Operator, Please go ahead.
Thank you before we begin our Q&A session and we will ask our analysts to please limit yourselves to one question to allow time for as many questions as time permits. So thank you very much for that.
Our first question will come from Ryan Macwilliams at Barclays. Please go ahead.
Okay I was just trying to get the video on Iraq.
Iraq Communications analyst, we can figure it out.
Okay, guys. So Barry I know you did a really good job at the Investor day kind of outlining how to think about your go forward guidance.
And let me be concrete on that.
We gave you each year in the fourth quarter the seat count.
We give you obviously each year in the fourth quarter our revenue.
And you can do a calculation and youll see that depending upon exactly what the percentage is that we up again.
This year by over two percentage points year over year and by the way a fair amount of that we can go into a separate discussions due to AI and automation.
So and before I leave the subject of pricing.
Bear in mind that.
The increase was bigger than we've had in the past, but would have been even bigger materially bigger had it not been for some usage headwind because in the second half of 2020, we had more than normal usage on the platform for telephony.
Now where are we investing we are investing into areas. We said on the call professional services.
In public cloud.
Professional services. This is such a smart approach we've got these mega customers.
That.
On the platform are starting to ramp there is more going to be coming in the pipeline and they require more initial work they require.
Geographic expansions are going into areas that we were not in before.
For.
The partner qualifications and a lot of that.
Investment is transitory.
Once you've established yourself in Brazil, you don't need to reestablish yourself in Brazil on a professional services basis.
And.
Currently because of this we have quite significant negative margins in professional services.
Selling and.
You'll know that we've been a break even in the past we can get to breakeven and just like many other <unk> SaaS company get into the high single digits and the reason that we're so confident about that is that what the leadership that Rowan has brought in and the team that team is.
We are trying to do is just quite world class.
The other area is public cloud.
We again geographically we need to have the data center players across the world.
We have already done a fair amount in 'twenty, one more coming in 'twenty, two and 'twenty three and we are also investing in a hybrid architecture, where it's.
It's a matter of debate, but certainly there's going to be.
Probably in the teens type savings in growth in cost of revenue.
Once that is architecture is completed.
<unk>.
We think we're doing the right thing for the long term.
And.
I'll leave it at that sorry for the long answer.
I really appreciate it thank you.
Thanks Sterling.
Moving on now to a question from DJ Hynes at Canaccord.
Hey, guys I'm going to give them barrier break.
One for you. So you saw a lot of time talking about <unk> in the prepared remarks for the customers that have adopted your IV as the data suggests that the number of requests that could be handled by the box just continues to increase as the algorithms to get better or.
Are there signals that like at some point Iga productivity, just kind of starts to plateau I'm trying to think about how that might impact that.
Economics that you can demand from customers long term.
No really we're at the beginning here. So I'll give you. One example of a company.
That implemented this is in the health care space and they were able to drive a 185 cash savings per month.
Labor in their labor costs.
Based on the idea and that was just really scratching the surface of their labor costs and so they implemented the high volume low value kind of work that we had talked about but it's a.
I think thats going to be the gift that keeps on giving for them because as we get more data and more learning there'll be able to drive more automation and so now it's too early yet to be able to say that to see that for example in a DVR because we're just getting these implementation started across these various industry verticals, but I believe we're going to see an initial tranche of.
Patients and then a set of growth metrics as we get more data and as the companies sort of learn the tools and as our own PS teams learn those businesses to be able to help those customers and that's by the way again not a voyage of discovery. This is very much a replay of what we had seen in the past just with more of the legacy technology approaches. So it tends to start small.
And then grow to big but we're already and when I say small that's relative with scare quotes because these are already quite significant savings of 185 K per month as just one example, I think I had previously mentioned our largest customer.
By agent Count had actually done the math and said that they would save.
Many many millions of dollars double digit millions of dollars over a long period of time by implementing that so the numbers, especially in the larger accounts, which is where you're seeing the most traction are very very material and we think that theyre going to go up overtime.
Got it Super helpful. If.
Maybe just sneak one very quick one on breaking the rules here I know, but just given how the stocks reacting maybe it's some of the guidance stuff, but Barry just.
Laid out how you typically guide conservatively I think we all get that.
When was the last time, you actually reported a sequentially down Q1 revenue period, when I look back at my model I can't find one.
Yeah.
D J.
With that direct a question.
Way I can answer is that you'd have to go back very far to find one.
Perfect.
Okay. Thanks.
Moving on now to a question from meta Marshall at Morgan Stanley .
Great. Thanks, guys.
One is maybe a question for you Dan just what Youre seeing with the pacing of some of these seven and eight figure deals that you've got brought on over the past couple of quarters and just.
Maybe building upon that for Barry if there's just any financial impact, we should see kind of quarter on quarter Lumpiness of some of those customers come on.
Thanks, Peter to address the question we've been Onboarding.
Those mega customers, if you will beginning in Q4.
And they'll continue to ramp through 2022 and into 2023.
In addition to.
A significant number that we booked just in Q4 alone.
<unk> talked in the prepared remarks about shattering our record for $1 million.
Our customers and.
We did just that we brought in.
Around double the most we have ever brought in in the previous quarter.
And if I could just build on that because you made reference to DVR.
As Dan just said it those are ramping.
We'll see.
Quite theyre not yet seasoned in terms of the DVR calculation, because they need to be there the year before so when they start ramping in the second half, especially ending.
2023, you'll see the impact improvement as they see into the DVR calculation.
More more generally though and this is really key.
One of the.
Important arrows and equivalent to that $2 4 billion. In 2026 is the expansion of the D var into the high $1 <unk> and one of the key drivers is those bigger customers.
Those bigger customers.
Our growing.
I had mentioned at a CAGR of 93%.
And therefore since inception and therefore.
Will inevitably have.
A big positive impact on the DVR calculation. It makes intuitive sense the bigger the customer the more that they can expand.
And also they are the ones that can best afford and had the imperative to be able to invest in.
In AI and automation.
While there are very few things in business you can be sure. Bob We believe is an article faced within the company.
The DVR will expand with all of the beneficial impacts on the top and bottom line.
We also want to stress and I'll repeat this really clearly that they will be.
Fluctuations as it had been in the past in the future on DVR, including in the near term.
Great. Thank you guys.
Yes.
Next up from Needham Scott Berg.
No.
Yeah.
Hey, guys. This is John on for Scott I. Appreciate you taking my question. Just curious if you could provide a little bit of additional color on the partner channel how is that continuing to ramp up and what type of impact our partners, having on selling some of the AI and automation capabilities.
Yeah sure I'll take that one thanks John .
Regarding the channels.
We are hitting on all cylinders and as you may recall, if you flash back four or five years ago. We were just getting started with partners almost meaning into them trying to get them to carry the products. They had alternatives in the premises based solutions, but they really didn't have the appetite to carry cloud until the market opened up customers started demanding.
And they came running and they believe in.
We brought in several function, Andy Dignan, Jake Butterbaugh, who really head up that effort and we have seen a wrap.
<unk> expansion in fact, as Robin mentioned in the prepared remarks.
I think it was 61% year over year for 2021 over 2020.
Cross the channels, but keep in mind not in that equation.
Are the channels referred business to us like the <unk> and when I say refer theyre actually managing those large scale digital transformation migration to the cloud projects for big Big clients and so we see a great deal of.
Traction there and success with them.
We're also seeing internationally our channels play a much bigger role internationally because in many markets.
Companies want to buy from a local known entity and so we signed up more and more.
Service providers as well as the AT&T is of the world.
The partnerships that we've established our.
Across all five categories. When you look at it from the technology solution brokers as Robin mentioned to the local vars to the referral partners to the size and then the big Global Asa the Big Global service providers, so hitting on all cylinders, they make a great entre into many accounts.
And your point about automation, they are bringing us in because they have a customer that has a pinpoint or need.
The beauty is right now we're at the early stages of the AI and automation game, where we're grabbing very low hanging fruit I mean, when you think about it the easy.
Business cases, those he is highly repetitive mundane questions agents don't want to answer them, either so they're dealing with that dilemma.
Labor and trying to keep their keep their function point and this is a way to offload those mundane repetitive questions with automation and lift our agents' focus on the customer and the empathy and the ones there where they really need human interaction.
So the channel is helping us participate in actually capitalize on that opportunity.
Thanks, guys.
Moving onto some odd Simona at Jefferies.
No.
Hi, good afternoon. Thanks for taking my question. So I wanted to ask a follow up on the debt.
The standalone selling of that but maybe just how we should think about the ramp of that sales team.
What have you seen already in terms of success out of the what sounds like an existing small unit and then just.
Yes, Barry is that embedded into guidance that that will be contributing on a standalone basis in 2022 or is that something we should think about it more on the forward years, that's a multipart question, but but all on the same subject. Thanks, a lot I'll, let Barry take the second part, but let me start out with the IV <unk> standalone selling.
They're excited about that but that team we put.
Actually the leader of that team is the same gentleman, who helped us with the commercial business back in the day. If you remember that kind of is doing this and kind of did this and continues to be a nice contributor to our growth.
So we've got really incredible leadership, there that's reporting into into Andy Dignan organization, we're seeing.
We're seeing the results already.
Obviously shared that but as we look to 2022 that ramp I mean, we're looking for them to do.
To double or possibly quadruple the sales from the previous year. So theres very very big expectations on that team I think they haven't they haven't agreed to quadruple by the way but.
We certainly have some big numbers and it's not by the way I would add that that team is not just focused on IV standalone selling day. There. They are focused on helping customers adopt AI and bring AI into the sort of into the fold for each of these companies and that's not just <unk>. It's also agent assist Thats also the rest of our technologies that help our customers.
So to optimize that labor so its more about kind of value selling and helping customers look at their labor spend and figure out how to be much more efficient with that and at the same time improve customer experience and so they're bringing in specialists, who have done that for other for other kinds of companies before.
And so far so good Barry maybe you can comment on the second part of the question.
So much. So obviously the early signs as Robin has just described are very encouraging and a 10% attach rate in enterprise bookings.
Around it and the popularity with the sales team et cetera at the same time these early innings.
And we.
We know that the curve is up but we just didn't know what the great in season, when they really start inflicting and so we've taken a conservative approach.
Great. Thank you both for that.
We'll take a question from Taylor Mcginnis at UBS now.
Yeah, Hi, thanks, so much for taking my question. So if I look at sequential growth for <unk>.
<unk> revenue I believe it was around 12, 5%.
If you go back pre pandemic growth was sequentially normally like in the 10% to 11% range. So can you just let me talk about what youre seeing in the demand environment that led to some of that performance and as we look ahead, how durable are some of those trends.
As we think about the potential for sequential growth in each of our quarters.
Great.
Yes, that's exactly right. So we grew more than 12% to 12 point X percent is higher than we've ever had pre pandemic. It was higher in the pandemic itself.
Now a couple of things contextually, the fourth quarter is always our seasonally strongest quarter.
And we just see it as Arie.
Stronger than others.
This was a good season obviously.
We also had some benefit in the quarter from the fact that one of those major customers started.
In started ramping and helped the quarter as well with respect to the future quarters, and it's really important to look at the sequential growth rates as we are.
Put COVID-19 further further in the rearview mirror, but.
Get pass through a very difficult compares but.
What we are encouraged by the fact that we have been growing.
Not just in the fourth quarter, but in the prior two quarters as well.
By rates that were very similar to the pre pandemic.
Rates of growth, 4% to 7%.
And.
And you should expect those sorts of things at a high level going forward as well.
At the end of the day.
The big driver here is.
Our enterprise business.
Rowan for number of years now is committed to durable many years of LTM enterprise subscription growth in the cities.
It's now over 60% of our slightly over 60% of our revenues and excluding peers.
So it gives us confidence in our exact sequential months.
Taylor will depend on that particularly.
Great. Thank you so much.
Thanks Tara.
Moving on now to Piper Sandler as Jim Fish Alright.
It's great to hear congrats on a quarter.
Maybe working off a very actually your last comment we're hearing a large amount of seats are up for grabs in the next few years in the financial services vertical specifically that's not historically.
Vertical where you get your heard kind of called out and you even heard one of your competitors talk about an initial 20000 seat win going to 40000 now well underneath it sounds like you guys have some very exciting deals to Mexican quarters, I don't think Dan can stop smiling.
Market ones.
Is there anything host these investments youre, making that really will prevent us from competing for those size deals given the infrastructure sits on public cloud now that provides really a mid scale in theory.
I know you guys historically have participated well south of 10000 seats, but what prevents us from now going after these big tightening kind of opportune, yes I'll.
I'll take that one thanks Jim.
Nothing.
We are absolutely moving in on every opportunity that comes up we know confidently we can serve the largest companies in the world. We're already doing that and that's a new opportunity for US now good thing is that the market is opening up at the time that our investments have really paid off all of those investments we've made over the last three years around public cloud around scale around.
Our professional services organization around our coverage and go to market model are all really paying off at a time when the market demand as you said.
Whether it's fin serve frankly or or many other industries, but definitely finished or who will be one of them and we are seeing those already and that's what's got Dan smiling ear to ear. So stay tuned on that front, but there is nothing stopping us.
All currently open skies.
Moving on to a question from Terry Tillman Truest.
Yes.
Yes, Thanks for taking my question and I will be discipline to keep it to one question a lot of my questions have been answered, but maybe I'll focus on AT&T I think you'd talked Rowan about 50 deals now in a variety of verticals and having good progress there and I think you mentioned public sector.
I'm curious if you could just add a little bit more color about how that relationship is continuing to ramp into 'twenty two.
Anything that stands out from that just as you all have more seasoning with that relationship and how impactful that could be at 22 versus maybe 23. Thank you.
Yes, so and then feel free to add to this.
They are on the ground with this one but we're still we're still very positive on that we had a really solid.
QBR, our most recent QBR, where we met with met with their leadership team at our sales kickoff that we held in person.
In Las Vegas, actually I shouldn't call it it could be or it was a shorter meeting that but but nevertheless, the executive level commitment from that from that meeting was very clear. We have I think I shared just in my in my prepared remarks earlier, CX Revolution Dot com, which is a marketing.
Campaign that is being driven by AT&T, but its really backed by the $5 nine cloud contact center. They also have now adopted <unk> for their they've taken that IV Anda theyre going to be using the 509 Ivy there. So AT&T have really gone all in with $5 nine and.
Where we're seeing deals again across the spectrum from large to small so its not that they are there.
Just getting started but as you know these service providers are very large organizations and they take a while to get ramped up and to get the attention, especially.
For something Thats, new like like this public cloud offer so we're seeing it we mentioned the 50 deals. We also mentioned it's happening across many many many countries. So we're actually seeing agent locations all around the world as part of those 50 deals and we definitely see more upside there and we continue to do more work in the background to be even more integrated.
With various AT&T partners as well, including ring central.
Because they want to make sure that it's as clean out of the box they can get it.
And so all these things are solid investments here and we anticipate they'll continue to pay off and you will see that growth continue Dan do you want add anything sure Terry you can imagine.
A large service provider like AT&T who's OEM ing the product, there's a ton of work behind the scenes. They wanted to get an integrated into their billing system they've got to get.
And everything done and they take time to get going but once that momentum starts, especially in the field.
Once they get educated and understand what they can do with these products and how they can sell them.
It just it does catch on and spread like wildfire and give validation that same holds true for Jim's last question too.
Reason, we were able to do more million dollar deals double roughly and we have in any past quarter is because those mega deals are going in successfully everyone wants to see that we can successfully implement and in fact, we're working on more mega deals as Robin just mentioned.
And the best validation, we have is they know each other they talk to each other and so having them referenced in turn to someone who does well north of 10000 seats.
Theyre doing 10000 seats highly successfully the best vendor relationships <unk> had in years, if not ever and that validation is says more than we could ever say as a sales team and so we're seeing nobody wants to go first we spent years and years kind of knocking at the door of larger enterprises and now.
The flood gates have opened.
And they've really opens due to the incremental value. They can achieve from AI and automation that was the real difference the real linchpin to say Aha enterprises should disrupt the whole enterprise and make this massive change, whereas before they were like well, what's really the incremental value I'm going to get and.
And it really wasn't hard it was hard to put their finger on it other than cloud and yes, it's easier and more convenient and they pay us a subscription and they don't have to maintain service, but until we came out with the AI and automation, that's what really opened things up in the large enterprise and they're now turning to each other to say is this true is it working and we're getting a resounding yes.
Great insight thank you.
Thank you Tom Wells Fargo, Michael Turin.
Hey, there. Thanks for taking the question Barry mentioned the price per seat is moving up in the model very clearly earlier on Dan can you talk about the in the field view towards bundling.
Where you are with any efforts there and how that impacts maybe both price per seat in some of the product adoption patterns you are driving towards with some of the supplementary areas. He piloted as well yeah Awesome question, Michael and we came out with our bundling at the beginning of 2021.
And built for bundles and they were designed around making it simpler and easier primarily for the channel, but also for our internal our sellers because as you can imagine with a laundry list of all the different skus of capabilities that can become cumbersome.
We were looking at that and there is always the risk factors does that.
<unk>.
Proceed and bring people into a lower bundle. It actually did did the opposite because it's like Oh, if you want that one thing you got to jump to the next level of the bundle you'll get some things that you may not need or want or used but guess what that one things that aren't so it gets people to hike up into the next highest bundle area. So it's actually helped us from a cost per seat.
And it's also made it very very simple from a from a billing perspective and from our channels training perspective, So all goodness on the bundle side.
Thank you.
Yes, Thanks, Michael.
I have a question now from Matt Van Vliet BTG.
Yeah. Thanks for taking the question guys.
So Barry.
And it gives us lots of details around the professional services investments and what you are scaling.
Hearing you here.
A lot more projects that are going to have the high touch services component five nine.
I guess on the flip side. We've also been building out a lot of these global Si partnerships.
And so maybe Dan can help us.
Think about where the demand for the $5 nine employees on the services side is coming from why do you feel the need to increase head count 60 plus percent.
Versus you were trying to get more of those partners in the door.
Create that flywheel.
Recommendations for new projects, perhaps that's a great question. Thank you Mac formation it because one of the things keep in mind, when we sell those mega deals those large multimillion dollar than half, sometimes a rollout schedule from the time of placing the order for a year or even more and what we have had to apply there.
There is the consulting resources the design resources.
A lot of <unk>.
Internal meetings on their side on the customer side that we need to participate in a coach them through what's capable and what's possible. So there is a ton of work that's done with no revenue coming in the door. So that's when you look at the margin hit it's because we're putting in the cost and we don't yet see the revenue to offset it. So when you look.
The backlog of projects. We saw we're moving ahead of schedule and we're moving as fast as the customers can move and so it's not a it's not a.
Restriction on our side, it's on the customer side and so we're progressing along those lines. If you look at the partnerships that we've established and built it takes time for them to learn and get the skill set to be on par with what.
What we deliver from the World Class Best professional services organization.
Bar, none in our industry by far our NPS scores are off the charts compared to others and if you.
Look at that we're not going to sacrifice quality in order to just push that push that cost out to the channel. So we're helping them onboard and enable their resources to get skilled to be able to keep the level of quality, where we want it and that is happening we have several several customers or several partners that are picking up the services.
Component, but it does take time.
It's something that we've taken great pride in protecting over the years.
Over the over the next several quarters and years Youll see us be able to augment our PFS with external sources.
Just to reiterate the strategy on every one of these deals we have partners buyer side, but they are learning and coming up to speed. So we have to help with that process and that's the investment we're making in them.
But once you see that happen that begins that flywheel effect of the next deal they've been trained and they can train themselves going forward.
To be very clear on the strategy. It absolutely is to leverage partners on the services front, but as Dan said in these early stages, especially with these larger and larger customers that we're landing we want to make sure we get it right out of the gate and that we invest in it and don't leave it to chance at this point, we want to make sure those are wildly successful because of the impact of <unk>.
And all of the additional stuff that they will add as we make them successful.
So that's fundamentally just want to reiterate that.
Reflection as I mentioned earlier of the success of those projects gets communicated to other prospective customers and so it's very important that we maintain that high level of quality and it's it's.
Critical in that in those stages, so I've seen and we've seen firsthand.
Others in our space that have pushed it out too early to the partner and the partners want Randy.
It created a negative impact, but we don't want to experience.
Alright, great. Thanks.
And now we will take our last question from Matt Stotler at William Blair.
Hey, John it's good to see you guys. Thanks for taking the question.
Maybe one in terms of the.
The buyer that you are addressing obviously historically you've been a line of business buyer, but as you move up market you see this digital transformation spending turning into.
Kind of enterprise wide rationalization or broader.
In terms of rationalizing contact center implementations are full communication stacks are you still seeing that if your point being the line of business buyer or is that.
I guess drifting more towards centralized procurement decisions and if so how do you get visibility into.
Internal advocates is that we're like five quarters come in but love to get some more color. There, yes, I think theres been a consistent trend towards the increasing influence of the L. O b.
Executives within these companies, whether or not they're the buyers and what we have seen as we move especially into the largest enterprise and where you see larger to digitization initiatives going on that those do tend to come back together with it.
But what happens from ours, our go to market motion is really landing that internal LRB champion and we built our entire sales motion around that but at the same time, we know that.
Gives us more friends in the room when they're ultimately is in conversation. So we do sit involved in and look there's always of course centralized procurement and other things.
They are not LRB folks generally writing checks themselves, especially in these larger enterprise right. So you have.
And we are incredible.
At managing these large enterprises on the complex buying processes that they have.
And Frank in dense team is just an absolutely the best in the business at that.
And we do see more and more in the larger enterprises, but it's always with a let's call. It a greatly empowered line of business influence are at the table.
And this is one of the reasons why by the way we've spent quite a lot of time building up our Microsoft relationship.
Where are you seeing teams is getting an amazing traction.
To make sure that if thats the product that they're looking to deploy we fit hand in glove with teams. So that the customer gets that single experience that they want they get the presence they get the ability to transfer back and forth between teams back ends whatever PBX they happen to be using and so that's an important reason why we've been investing in Microsoft in particular.
Are those strategic enterprise buyers, where we just think Microsoft absolutely dominates the market.
That's very helpful. Thank you.
Okay.
Yes.
Okay that was our last question I'd like to thank everybody for joining our call today and for all of your terrific questions.
We look forward to an amazing 2022, our business did great in 2021 and in Q4, we've got an incredible 2022 lined up our employees are fired up our customers are happy Dan is grinning ear to ear. So stay tuned for a lot more from $5 nine.
With that I'd like to thank you all for joining and we'll see you on the follow up calls thank you very much.
Okay.