Q4 2022 Five9 Inc Earnings Call
GAAP financial measures during this call a discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is currently available in our press release issued earlier this afternoon as well as in the appendix of our Investor deck and currently available in the Investor Relations section on.
<unk> website at investors up five nine dot com.
And now I'd like to turn the call over to <unk>, Chairman and CEO , Mike Burkland.
Thanks, Emily and thanks, everyone for joining our call. This afternoon.
Bruce to share that we closed out the year with strong results for the fourth quarter and 2022.
Fourth quarter revenue grew to 208 million up 20% year over year.
For the full year 2022 revenue grew to $779 million, an increase of 28% year over year.
Yes.
Our air products business, which accounts for 86% of full revenue continues to drive this acreage with LTM LTM subscription revenue growing by 32% year over year.
Fourth quarter adjusted EBITDA came in at 22% of revenue, helping drive another record quarter for free cash flow of $25 million or 12% of revenue.
These results clearly demonstrate that not only do we continue to be a leader in delivering on this massive underpenetrated opportunity, but we also believe our business model supports a very attractive combination of strong growth and profitability.
Let me illustrate what I mean, when I say massive and underpenetrated.
Based upon our trusted industry sources, there are over 16 million contact center agencies worldwide.
With approximately 20% or $3 million of those agencies, having already migrated to the cloud.
This leaves an opportunity of about 13 million seats.
To put this into context as one of the leaders in the industry.
We had approximately 440000 named seats at the end of 2022.
In spite of the current macroeconomic backdrop, we remain very optimistic about our long term opportunity in this market, especially at the upper end, which is the largest and least penetrated part of the market and the fastest growing category of our business.
Our confidence in this opportunity is based on three key trends first the.
The viability of desirability of cloud solutions are no longer question.
Legacy vendors are retrenching, forcing enterprises to develop concrete plans with an even greater sense of urgency to replace their on premise contact center solutions.
Second companies are enthusiastically pursuing digital transformation initiatives to enhance customer experience. According to multiple industry analysts CX technology budgets will increase in the next 12 months.
Enterprise is known at the sooner they move to the cloud the sooner. They can take advantage of the benefits that come from game changing technologies to differentiate their customer experience.
And third AI and automation have become front and center in the CX market.
Providing an attractive intangible ROI, thus, becoming a significant catalyst for enterprises to shift to the cloud.
This labor arbitrage opportunity is especially important and tough economic climates and tight labor markets.
Now I'd like to discuss what we view as the three main growth drivers for our business, namely our platform our March upmarket and our continuing international expansion.
Let's begin with platform.
As we talked about last quarter, we continue to make investments to enhance our platform with the objective of delivering ongoing reliability deployment at scale and continuous innovation.
Our recent enhancements fall into two categories each of which we believe quite as its central role in the future of the contact center and customer experience markets.
The first category is analytics, our recently launched five dine analytics product marks a turning point for reporting and analytics and the contact center industry.
To truly optimize CX performance contact center managers need the ability to define unique business metrics for success.
<unk> analytics allows customers to perform data discovery explore trends in their contact center create their own dashboards and fulfill their custom reporting requirements in a self service manner like never before.
Today, it is crucial for contact centers to unify and analyze customer interactions across self service and lot of channels to transform data into a winning customer experience strategy.
Five nine analytics integrate state of the art business intelligence with operational data to create a contact center intelligence platform.
Users can gain performance insights across all channels to identify where to workflows can be added or improved.
<unk> customers.
Customers gain value from this offering we provide a built in a library of over 250 metrics modern visualizations and a robust data analysis engine.
The second category is generative AI, such as chat GPT as.
As you know we have been leading the market with our AI and automation solutions and we are now further strengthening our portfolio with the inclusion of Gpt's III.
We are pleased to announce two new product offerings that leverage GPT three from open AI.
The first offering is AI insights.
Which uses real time transcription to automatically interpret interactions and cluster them into categories, which then allows customers to identify opportunities for automation and process improvement without the need for professional services or tuning.
Slide nine AI insights is the latest example of what we call practical AI.
The second offering is AI summaries, which is offered as part of our agent assist product line.
Summaries allows customers to auto summarized call transcripts and seconds and publish them in real time into their CRM.
Again, this new offering requires little to no professional services or tuning, meaning the time to value is much quicker.
These offerings come to market as we see <unk> continuing to gain momentum, especially in the enterprise.
For example, in the fourth quarter, 41% of Rfps that came into our strategic and enterprise sales organization cited as the main ore auxiliary reason for issuing an RFP.
Our industry, leading AI and automation portfolio of products now has eight distinct modules, including speech analytics workflow automation voice IBM digital IPA agent assist and now five nine analytics AI insights in summary, we believe that AI and on.
<unk> are at the core of the modern contact center and the generative AI based on large language models is game changing.
Overall, our portfolio of Omnichannel solutions, plus our AI and automation offerings.
Including these recent additions that I just spoke up creates a platform to deliver what we refer to as fluid CX.
Fluid CX enables consumers to move through the most efficient and personalized path across channels and between virtual and live agents, keeping context, and creating a frictionless customer journey and.
Enabling this is critical in a modern.
Enabling this is critical as the modern consumer continues to demand an integrated and seamless customer experience from the brands that serve them.
Now turning to the next growth driver our March upmarket.
We continue to see strong momentum upmarket and exited 2022 with 161 customers that are each generating over $1 million in <unk> up from 134 34 customers a year ago.
This cohort now makes up slightly more than 50% of our recurring revenue another key factor driving our success up market as the growth of our channels and partner ecosystem. The.
The channel long beholden to the legacy vendors has pivoted to the cloud and as a result of our focus and investments we are executing and gaining leverage with an expanding list of partners.
We have a balanced route to market strategy with direct sales being complemented by Vars distributors technology solution brokers global service providers, and importantly systems integrators.
These channel partners Love, how easy <unk> is to work with.
But our partners appreciate how they are enterprise customers can easily make the migration to <unk> nine with tools, we have developed to replicate and easily transfer their configuration data routing logic and reporting information from their legacy solutions to five nine.
Before turning to international I want to mentioned a factor that I believe is key to our overall success.
Not just up market, but across all customer categories and that is the trust we have built up over the years.
Due to significant and sustained investments in professional services and customer support we have consistently delivered exceptional experiences through strategic implementations that help customers accelerate time to value and ongoing worldwide support designed to optimize and improve efficiencies.
As a result, we continue to set the benchmark for the industry with NPS scores in the eighties and nineties.
Lastly, I'll briefly discuss our international expansion.
We have been making significant investments internationally, and we continue to enter new markets, including Germany, Spain and several other countries. These.
These investments are paying off as our 2022 international revenue grew 44%.
Additionally, our partner certifications for sales and implementation services are gaining significant momentum globally, but especially international regions, where the number of total certified partners more than triple in 2022.
As a result of our broadening global reach driven by both direct and channel expansions, our international bookings grew 87% year over year in Q4.
In closing, let me reiterate my enthusiasm and excitement about the opportunity ahead for Black Knight I believe we are extremely well positioned with our industry leading platform combined with the best team of people that will enable us to continue executing against this massive underpenetrated opportunity.
With that I will turn it over to our President and Chief revenue Officer, and Brooklyn, Dan Go ahead.
Thank you Mike I am pleased to report another strong bookings quarter in Q4, driven by our continued momentum and $1 million plus <unk>, new logo deals and unprecedented leverage from our channels, who are now participating in not only sales, but also implementation and ongoing services, particularly in the <unk>.
International markets as Mike mentioned.
Customers are clearly seeing the benefits of transitioning from on premise to the cloud and we believe they are more motivated than ever given what we're seeing from legacy providers as.
As a result, this is driving more opportunities growing our pipeline to another all time high.
While we are continuing to see macro headwinds in our installed base and in new logos in the mid market that softness is being offset by over achievement.
In our strategic accounts and strong growth in our international bookings.
And now as I normally do I would like to share. Some examples of key wins for the quarter.
The first example is a global business process Outsourcers PPO based in Spain, and Latin America, serving retail telecommunications and financial customers.
<unk> was chosen to replace many of their Avaya solutions, where they do not have the flexibility and full suite of applications that five nine can provide including Omnichannel Iga and automation solutions and our clients are demanding.
We anticipate this initial order to result in over $4 $3 million in <unk> to five nine.
The second example is a fortune 500 clinical laboratory, providing health care diagnostic testing and services throughout the U S. They.
They take inquiries into their contact centers from patients and health care providers to schedule tests check results and collect payments from patients and health insurers.
Hey, we are operating primarily in Avaya and cannot add the innovation automation, nor the analytics they required.
After evaluating several <unk> providers. They chose five nine for our complete and fluid Omnichannel solutions with analytics insights and deep integration to service now.
They will also use our digital Iga voice Ibs D and E mail as additional channels to offer self service for scheduling appointments finding locations and are requesting test results.
We anticipate this initial order to result in over $3 8 million two $5 million.
The third example is a global company focused on partnering with physician owned radiology facilities to build and equip them with state of the art high quality imaging systems and related technologies.
Were using both Cisco and Avaya as a result of prior acquisitions.
And lack the reporting integrations and Omnichannel solutions to effectively serve their customers.
Five nine was chosen due to our end to end technology suite, our innovation and AI Road map and our quality high touch implementation and ongoing managed services.
We also partnered very closely with Salesforce, while our key competitor aligned with a different CRM they were considering.
With QM interaction analytics, and Ws home, they can evaluate agent efficiency and recognize areas for improvement.
They are using our advanced IV to allow self service for appointment scheduling appointment confirmation outbound reminders of appointments and to process payments.
We anticipate this initial order to result in over $2 3 million to $5 million.
And now as I normally do I'll share. An example of an existing customer who expanded their use of $5 million.
This is a leading financial services company for consumers and they've been a customer of $5 million for over two years and are currently utilizing a full suite of solutions on our platform and had been piloting our IV H.
Due to the success they experienced with our initial idea use cases. They are now expanding to include a broader more advanced set of use cases.
Additional Iga order is expected to add an incremental $1 $8 million.
Bringing their total annual spend with 590 to over $6 $7 million.
As we demonstrated five nine along with our partners continue to bring comprehensive.
End to end <unk> solutions to our customers with the analytics and insights to improve their contact center operations.
While giving them the flexibility to deliver exceptional customer experiences to their end users.
And now I'll hand, it over to Barry to cover the financials Barry.
Thank you Dan before going into specifics a reminder, that unless otherwise indicated financial figures I will discuss some non-GAAP .
Reconciliations from GAAP to non-GAAP results are included in the appendix of our Investor presentation on our web site.
As Mike mentioned, we had a strong quarter, despite ongoing macro headwinds with our first quarter revenue growing 20% year over year.
And LTM enterprise subscription revenue growing 32% year over year.
In terms of the revenue composition for the fourth quarter enterprise made up 86% of LTM revenue and our commercial business represented the remaining 14%.
The commercial business grew in the teens on an LTM basis.
And we expect this to continue.
Also recurring revenue accounted for 92% of our total revenue in the fourth quarter and the 8% was comprised of professional services.
I will now give more color on revenue in the Haynesville I will again provide more details and we customarily do.
Please bear in mind that we do not intend to routinely and continue making these more detailed disclosures.
Let's start with the install base.
The changes in demand show up promptly and revenue.
Q4 is typically our strongest seasonal quarter with non pandemic sequential growth rates ranging between eight and 12% historically.
This year, we reported sequential growth of 5% in the fourth quarter.
This solid growth is primarily due to our installed base continuing to face headwinds, particularly in healthcare and consumer.
We've got typically strongest seasonal vehicles in the fourth quarter.
The instance in the fourth quarter of 2021. These two industry verticals in aggregate increased 24% sequentially, while in the fourth quarter of 2022, they grew at slightly less than half this rate.
If in the fourth quarter 2000 to 2022.
These two vehicles had matched last year's growth rate.
The sequential growth in total revenue would have been within the historical range of 8% to 12%.
Turning now to other source of revenue growth, namely from new logos.
New logos joining us in the fourth quarter continued to be strong and slightly exceeded our expectations.
With respect to the deployment profile of the two new logo Mega deals and we've discussed in recent calls.
We continue to expect that the international operations of the parcel delivery company will be substantially deployed by the end of 2023.
And the health care environment to continue ramping throughout 2023 with further funding and entity 2024.
To summarize on the new logo side of the business. We have good visibility into 2020 fee revenue due to our continued success and going up market and international expansion as well as from a substantial backlog of booked seats that are not yet generating revenue.
<unk> dollar based retention rate was 115% a decline of three percentage points sequentially.
Mainly due to macroeconomic headwinds, causing our customers to add fewer seats than normal.
Longer term, we continue to expect our retention rate to trend towards the high 120 by 2027.
Due to a higher mix of enterprise customers, especially larger lines, which have demonstrated I believe higher retention rates and high output from the automation and other offerings.
Fourth quarter adjusted gross margins were 62, 3% a decrease of approximately 50 basis points year over year.
But our quarter over quarter improvement of approximately 90 basis points.
We have as we have been communicating the sequential improvement is driven by the migration of our previously accelerated investments in professional services and target zone.
First quarter adjusted EBITDA was four.
$6 2 million.
Representing a 22, 2% margin an increase of approximately 90 basis points year over year.
Fourth quarter non-GAAP EPS was <unk> 54 per diluted share.
Year over year increase of 12 cents 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 293450 seats up 19% year over year.
Note that we estimate a concurrent seats to be equivalent to approximately 440000 seats on a named seat basis.
<unk> measure by some others in the agency side.
As a reminder, we provide the seat count metric only on an annual basis.
And now for a closer look at key full year 2022 income statement metrics.
2022 revenue was $779 million up 28% year over year.
2022 gross margin was 61, 3% a decrease of approximately 220 basis points year over year, but above the 61% also we had provided driven by the sequential improvement in the last three quarters due to the moderation of accelerated investments in professional services.
<unk>.
<unk> top.
2022, adjusted EBITDA margin was 18%.
A decrease of approximately 10 basis points year over year.
2022, non-GAAP EPS was $1 50 per diluted share a year over year increase of 34 cents per diluted share.
Finally, before turning to guidance, some balance sheet and cash flow highlights I.
I am pleased to report that in the fourth quarter, we achieved another set of record highs for both operating and free cash flows of $32 7 million and $25 million.
Respectively.
And in part by continued strength in DSO performance, which came in at 35 days and moderated capital spending.
We have now delivered 26 consecutive quarters of positive LTM operating cash flow and we expect it to increase meaningfully in the longer term given our ability to expand adjusted EBITDA margins.
Our substantial Nols and our low dsos.
And I can finish today's prepared remarks with a discussion on our full year 2023, and first quarter of 2020 phase III guidance.
As a reminder.
For six years through 2020, we started each new year with prudent revenue guidance of 16% year over year growth at the midpoint, mainly due to the uncertainty around the magnitude of the seasonal impact of our business now.
Now post pandemic for 2023 we are returning to provide full year guidance at the midpoint of 16% year over year growth on $901 5 million in revenues in line with a high level, we provided last quarter.
Please note that our guidance takes into account the prudent view of the uncertainty around the magnitude of the second half seasonal uptick along with Sunshine and macroeconomic headwinds will persist throughout the year.
Ultimately the 16% year over year growth is a starting point and we will update our outlook and the EBITDA progresses.
A reminder, that as I stated last quarter, given that installed base typically contributes approximately half of the annual revenue growth.
We may see a drop in the LTM enterprise subscription revenue growth rate.
Into the high <unk>.
Two the macroeconomic challenges.
We believe that this will be temporary.
And will improve as macroeconomic conditions improve note that the enterprise subscription revenue currently makes up over 60% of our total revenue.
With regards to the bottom line, we are guiding 2023, non-GAAP EPS to a midpoint of $1 69 per diluted share well.
Well above $1 58 outlook, we provided for 2023 during our last earnings call. Additionally, the data 69, non-GAAP EPS implies a non-GAAP net income margin of 14% at the midpoint.
In line with our 2022 and margin.
For the first quarter, we are guiding revenue to a midpoint of $207 5 million, which represents a slight sequential decline is better than the one to focus in quarter over quarter decrease we have been guiding for Q1 in the past five years.
Despite the macro headwinds.
We are guiding to a small sequential decline in prior Q1s due to the lower than normal seasonal uptick in Q4, which we expect to result in this seasonal downtick in Q1.
As for the remainder of the year, we expect a very small sequential growth in the second quarter.
The largest sequential increases in the second half primarily driven by the ramp up of our large customers and seasonal patterns.
As a result, we anticipate slightly more than 30% of annual revenue being generated in the second half of 2023.
We expect first quarter non-GAAP EPS to come in at 24 cents per diluted share at the midpoint is a decline of 30 cents per diluted share sequentially.
I'd like to point out that the first quarter non-GAAP EPS is always the weakest of the year and Thats a 30 cents per diluted share sequential decline is relatively in line with the 29 per diluted share decreased we guided to in Q1 of last year.
For the remainder of the year, we expect non-GAAP EPS to increase to approximately <unk> <unk> per diluted share in Q2.
And further improve in the second half.
Please refer to the presentation posted on our Investor Relations website for additional estimates, including non ship into share count taxes and capital expenditures.
In summary, we are pleased with our fourth quarter performance will.
We will continue our disciplined approach of driving balanced growth as they navigate through the macro activities and.
And invest in key strategic areas to reach at 22007 financial targets of $2 4 billion in revenue.
And 23% adjusted EBITDA margin.
Operator, Please go ahead.
Thank you before we take our first question I'd like to remind everyone to please limit yourself to one question in the interest of time. Thank.
So very much we will take our first question from DJ Hynes of Canaccord.
Hey, guys.
Good to see everyone. Thanks for taking the questions nice quarter.
Dan I want to ask you a competitive question, but not the one that I think you get often I'd love to hear about the Hiseq, Microsoft position and the sea gas space over the last several years I think traditionally we've kind of position. This market is a three horse race.
Totally makes sense today.
Microsoft addition of nuance there alignment with open AI the growth teams like do you see that being a viable player in this space longer term or.
Any thoughts would be helpful. Yes, thanks, PJM its great question.
And want to underestimate.
Microsoft and while they've done those acquisitions and made a move to enter this space as we've talked about over the years. It takes many years to to really pursue.
<unk>, our solution and be able to deliver the reliability scalability and the voice portion.
Is so complex to be able to deliver that in real time across the world.
And a very highly.
Quality way.
For instance, if you are running data applications and software gets scaled across the world regularly packet loss for the data is overcome very easily by the individual user you hit your key twice you wait a couple of seconds on Hugo If you have that same packet loss with a voice conversation, it's disaster and its disaster across hundreds of thousands of age.
Conversations so it's very hard to get that right and there are very few companies like we've mentioned us and to others that have really mastered that and it does create natural barriers to entry a lot of folks believes they can enter the space very quickly and it takes them a lot longer than we anticipate but we're always going to keep our eye on micro.
Soft in some of the other large hyperscale or sort of mentioned their interest to enter this space and we'll see where at least some of them enter and realize how difficult. It is an exit and other stick with it.
Yep Yep appreciate the call it sounds like we're doing one questions I'll hop back in the queue. Thanks.
We'll take our next question from Ryan Macwilliams with Barclays.
Hey, guys love to hear about the AI summaries typing account recaps was the least favorite part of my topic centered up so my 19 year old self definitely thanks, Joe.
Separately, just the challenges you mentioned in the health care and consumer verticals is that simply a product of the macro and would you expect the seasonal ramps to normalize if the macro improves and have you seen broader company layoffs impact contact center agents at this point thanks.
Yes, so Ryan great great questions and again in terms of.
Those impacts on a couple of verticals, we believe it was macro.
And again thats used to hurt various comments about kind of.
What we expect in Q1 relative to the seasonality of Q4 typically versus that macro impact on that seasonality and that just occurred so.
Again were.
Pretty certain of that again, when we get a lot of insight into our customers and what's impacting their businesses again, we always talk about the long term opportunity that we have in this market and how attractive it is.
In spite of those those macro headwinds.
And it's not ridiculous that add in terms of the layoffs.
I have a list of the company that grew less than we would've expected both at <unk> and in <unk>.
Silver.
And none of the usual suspects in terms of lay off any of those names at all we just not overly dependent on that thought so.
In our view acuity is transitory on the installed base.
Are they adding seats that just adding them at a lower pace.
And one day that the economy is going to come back.
It will be.
A case without it it helps us.
Hopefully sooner rather later, but guys I appreciate the color. Thanks.
Thanks Ryan.
Moving on now to a question from Scott Berg at Needham.
Hi, everyone congrats on the quarter and thanks for taking my questions.
Dan I wanted to follow up on your commentary on the sales environment. It sounds like the million dollar deal traction was again pretty positive for you all but can you help us understand but your bookings in the quarter.
Stacked up relative to maybe your expectations going into the quarter and maybe relative to your third quarter comments, where I believe third quarter had the most record number of new million dollar Aristides.
Thanks, Scott and when you look at us as we move up market the sales naturally the bookings become rather lumpy, especially as we have those mega deals enter into the bookings equation. So we've got some tough compares.
We're coming past and getting through right now, but we continue to see great momentum in the million dollar plus.
There are deals remember that market is very much at its infancy has just opened up over the last couple of years and we continue to see that as our highest growth segment of the business.
Both of that in our international bookings, which grew 78% year.
Year over year in Q4, so the momentum there is very strong and as we said the activities of the legacy providers and what they've mentioned to their marketplace it to their own customers.
Sets up very well for us.
The migration from on premise to cloud as well as the AI and automation solutions, where we can get a truly tangible rois to those customers. So we're seeing absolutely no.
No slowdown in the million dollar plus market at just the ebb and flow of those large deals in the happenstance of when they when they close.
As what happened in Q4.
Just a small follow up on that because it's really a continuation of the question did you see any deals kind of move in or out of the quarter more than a normal fourth quarter seasonal trend.
Now there were still a flurry at the end as there always is and there's always when you do lots of transactions Youre always going to have a handful that for whatever reason can't get across the line, but we also have others that we pull forward. So it was.
No different than any other quarter and no different than any other Q4, if you look at that.
Awesome. Thanks for taking my question.
We will continue with the question from meta Marshall at Morgan Stanley .
Great. Thanks.
Dan I think it was you kind of gave the 41% of RFP as having kind of AI.
Part of that RFP.
And clearly like the revenue versus seat count adds kind of shows the attach rate that you're seeing there I guess, just where are you on installed base and kind of going into the installed base and do anything like that AI upsell and just does the introduction of some of these new whether it be GPT three or open AI integrations kind of slow that.
Sales process.
Thanks, Peter and if you look at.
What you mentioned about the installed base and penetrating that with the new products to AI insights.
Our new web.
Admin and other applications that we can sell into that patient just getting rolled out so those arent entering the equation yet so we don't have those in the bookings totals and the and in the revenue line.
Im for sure, but but look for those to be additive.
In the latter half of 'twenty three.
Yes, but we're seeing we're making a concerted effort our customers are very interested in adding those and we are seeing quite a lot of growth in attaching.
The.
Previously announced AI and automation solutions agent assist our IPA solutions as always are very appealing to the installed base and that's just great.
Great. Thanks.
Now, we'll go to UBS and tailor my guess.
Hi, Thanks, so much for taking my question.
We're well into the quarter and <unk> was a little bit softer, but thank you got on a sequential basis is stronger than I think what you've done in the past <unk> and <unk>.
The full year guidance range on a dollar basis was a little bit softer than what we've seen in the past. So two parts here. The first would be can you bridge.
Some of that and then when you talk about the softer verticals like healthcare and consumer what does the guide assume in terms of feed ads versus trend and then the second part is you reiterated the high Twenty's enterprise subscription revenue guide for this year, but on a trailing 12 month basis only grew at 32.
<unk>. So can you just talk about what gives you comfort in that outlook.
And our first issuance to fill that void.
To be sure that I understand the question crisply.
The first question is regarding seat adds in health care and consumer is that correct.
What we are selling.
Yeah. So.
For the rest of the are we assuming that the macro remains similar to what it was in the second half of 2022.
And for those two vehicles in particular.
The first three quarters of the year.
Pretty normal, but they both cycles in.
In the past quite dramatically in the fourth quarter.
We've assumed a more modern it a much more moderate.
Take off in the fourth quarter and to some extent in the third quarter as well.
If the consumers are less challenged than it was.
This past year, if inflation, maybe is a little bit less than the interest rate is a little bit lower.
<unk> pinched overall.
That could be upside to that but that's the position that we've taken the.
The second quarter and the second question was with respect to the LTM enterprise subscription growth rate is that correct yes.
Yeah. So we were crystal clear on that.
We in the last quarter, we said because <unk>.
Half of our business comes from the installed base basically.
That's facing.
Headwinds.
The macro environment in general not just in those two vehicles, you're going to see moderation in that growth rate at <unk>.
Caution that it may dip into.
Hi, Juan.
Most of this year.
And that remains our position and you may wonder well if that does happen.
Went in that.
It might happen it could happen in the first quarter, obviously, we are not.
We're doing our best not to have that happen, but it's certainly possible.
And when it will recover it depends entirely upon the macro one thing we do feel very comfortable about is that this is in.
Inherently in those businesses, the degree to which they expand and not expanding that they want to sit in the past and that's what's showing up in that metric.
Alright, thank you so much.
Thank you.
Moving on now to Matt Stotler at William Blair.
Hey, gentlemen, thanks for taking the question.
Just one on W. A bow on that specifically virtual observer will just get an update on the contribution there. What you guys are stand and then in terms of expanding that product are you seeing that move up market at all versus the typical focus on SMB or mid market or any color there would be helpful.
We continue to CW ethanol, especially our <unk> product.
B attached to it and it's not just SMB, it's absolutely in that mid market and even enterprise.
We have the variant relationship which is excellent for those customers that have a history.
Typically up market in this very large strategic accounts in the million plus accounts, we still sell into several million dollars plus accounts.
It's just there's oftentimes a history that somewhat hasnt been collected years and years of data on their existing.
Our platform and they want to be able to transfer that data over and continue using the interfaces are comfortable and used to so so it's important for us to have both and.
Whichever ones the right fit is what we're going to move forward with.
Got it thank you very much.
Okay.
We'll take our next question from Sterling Auty at Moffitt.
Yeah. Thanks, Hi, guys. So given the commentary about the installed base. It would seem like the new logo wins are going to be even more important to the revenue targets for for 'twenty three so with that as the context have you guys done anything different in terms of the way that you've scrubbed the pipeline.
Or maybe increased coverage ratios or something else to do.
Give you an improved <unk>, so being able to deliver that new logo close yeah Sterling. Thanks for the question I'll start and let them finish because I want to make one point really clear.
<unk> revenue was joined to be impacted by our installed base and quite frankly, mostly from our backlog of net new business, we've already booked.
Gives us extreme visibility into whats going on revenue in 2023.
Especially in the large enterprise part of our business right, where again those bookings take quite a while to turn into revenue. So again as we go through the year, our bookings, especially in the second half of 'twenty three on a net new enterprise side are going to impact <unk> revenue just to be clear, but Andrew I'll take it offline.
And what Mike just mentioned the visibility.
Of that backlog and the schedules rollout gives us predictability to that revenue growth.
And that half of the growth portion and then the other half of the growth as Barry mentioned comes from net new logos and that's all the way up and down the scale from the very smallest which tend to turn to revenue very quickly 30 to 60 days to when they start generating full revenue to some of the larger ones that can take three to six months or even longer.
So.
Yes, we have very close insights.
We're approaching it on the sales side is absolutely, placing more scrutiny on the sales organization and how we go through and qualify opportunities.
Sure people have true budget to make decisions and really working more closely with all the partners that are now, bringing us more and more deals.
Our expansion of our partner ecosystem is so important to the long term not only that our long term growth, but really making sure that we're in the pole position for those partners to turn to slide nine first.
There has been recent studies out channel checks to make sure how we're doing compared to our competitors, which we love to see from third parties to validate that we are doing the right things and that they love working with us and that's working very well we've got a couple of projects that were very focused on.
The higher end of the market with some very select partners to really certify and enable them to deliver not only sales leverage but as I mentioned in the prepared remarks services and implementation.
And managed services work for us so.
We've been careful over the years not to sacrifice the quality because we are delivering in the 80% to 90% from an NPS score.
But there are certain certain partners, who are willing to make the investment on their side.
To keep that level very high and we're investing in them to be able to do that for us.
Understood. Thank you yep. Thanks Sterling.
Next from Jefferies somewhat simona.
Hi, Greg it's great to see you guys maybe just.
First question, Barry and I, just think about the EPS guidance.
Slightly slower than the overall revenue Gretchen, maybe how should we think about.
Margins and maybe what the margin framework for 2023 will look like based on I'm kind of different growth outcomes and to that end opex actually it looks like it was down quarter over quarter.
<unk> and opex growth slowed quite considerably.
Hi training, maybe Opex and then Sam.
Question on margins just for 'twenty three.
Yeah, it's going to be classic five nine.
We are guiding to increased Opex in line with what we see the revenue to be.
You mentioned in the bottom line guide and mentioned that it was I believe you said it was slightly down and Thats a function of the two 5% increase in outstanding shares but for that we would have been completely flat.
The.
So we will continue to increase the opex side with respect to the direct part of your question, namely why do we expect the EBITDA and gross margins to be we are not at this stage given guidance on that.
Just to remind you though are the following.
We've given 2027 guidance to get to EBITDA or 23%, which is one percentage point more than we got in the fourth quarter was at $22 two.
And to get to gross margins of 70% and we feel.
For reasons, we can go and separately very comfortable in getting to those numbers.
Now, obviously, it's easier to get to those numbers when your revenue trajectory is at the high end.
To get to that $2 4 billion in 2017, even at 25% CAGR of the 2022 revenue number.
And.
In this particular environment is not particularly of the vessels in terms of about.
But they need to grow revenue given the macro.
Got you and then Dan maybe one for you just on.
Think about some of the newer offerings, you've talked about that leverage.
Is that GBT and then distinct generally as you get more AI and automation into the product how should we think about maybe the evolution of the revenue model there and the pricing model and are you seeing that yield gains and if you think about how do you David that value that you're adding in monetizing that versus just kind of that for you.
So on fee based model, yeah, Thanks Ahmad and.
We've talked about the headwinds that the installed base of spacing from a seat add perspective.
That caused us to really get I think we've referred to in a couple of quarters ago about getting scrapping going into the base and selling more applications and it's great. Because now we have a whole suite of applications that are new to those installed based customers. So we're seeing an increase in the percentage of bookings that comes from those new applications.
That's continuing to gain momentum and as we come out with the <unk> and other capabilities for insights and analytics.
Those are products that can appeal to a vast majority of our installed base I mean, yes. Some of the very small customers tell me that but once you get up into the mid market and above.
It's hard to say that they won't have they won't benefit from those applications. So it's too early to tell what the traction rate will be across the board, but sales side I've got great optimism that the basis is going to really take to a lot of those and like we said like I said earlier question, you probably won't find its way into the into the numbers until the <unk>.
Second half of this year.
Great. Thanks, again for taking my questions.
We'll take our next question from Fred Lee at Credit Suisse.
Gentlemen, thank you for taking my question.
Them all of them.
<unk> key wins that you highlighted the role of buy of displacements and I was just wondering if you could talk about the opportunity in 2023 versus 22 as it relates to legacy seats and whether a buyer's restructuring has accelerated customers' decision to leave perhaps resulting in some pull forward and the opportunity.
I'm glad you mentioned that because on the surface you'd think that.
We've had a buyer.
And Cisco is one and two as far as the.
Systems, we most commonly displacement and replace.
It's just a coincidence that the three happened to be all Avaya. This quarter. If you go back over the previous quarter. So it was pretty much a mix.
It was one and two Avaya Cisco.
Because of Genesis announcements.
A lot of their customer base are issuing rfps and so we're seeing more.
Genesis become part of that.
It's now two and was too it's now three that we simply replace it was one one and tubing Avaya Cisco Genesys was a distant third.
Those are becoming not getting that now between all three.
Yes.
Great. That's helpful. Thank you.
And just to answer your Avaya question about their recent.
Recent announcements.
Everyone saw that coming for a long time, they've been having their financial struggles on and off for the better part of a decade and so I don't think it has seen a dramatic all of a sudden everyone is jumping into the fray and putting out rfps.
<unk> saw that coming for several years.
Okay. Thank you.
Moving on now to Matthew <unk> Deutsche Bank.
Hey, guys. Thanks for taking my question and congrats on the quarter mine is on new logo growth I'm, just wondering if youre seeing any.
Sort of lengthening sales cycles or smaller initial deal sizes for new logos and more broadly is that something that maybe you could slow the pace of new logo growth in upcoming quarters.
Yes, a small.
Lengthening of sales cycles has occurred part of that is a function of moving up market.
Because the larger and more complex deals and when you add things like AI automation Ipas, you tend to get some new audiences that need to approve those or get them.
Vince on the ROI.
There are like all software business, we hear about now there's oftentimes a few more people don't want to put eyes on a contract to get approval. So we've seen days to close increased slightly but not enough to make a significant impact to say Oh, new logo growth is going to suddenly slowdown.
Not in.
So like we've talked about Theres drivers that make this this purchase it's mission critical it's bringing a tangible ROI and customers know that they need to move to the cloud to take advantage of that.
And automation and the larger customers realize that that may be a two two plus year process to go through an evaluation issued an RFP.
Make a decision and then get fully implemented.
We're seeing an urgency to want them want to enter that process.
Quickly.
No.
Thank you.
Yes.
Matt Van Vliet from BTG has our next question.
Hey, good afternoon, guys. Thanks for taking my question I.
Wanted to dig in a little bit on the international side. Obviously, you said is pretty much the best bookings quarter ever there very strong revenue growth as well anything you'd particularly point to.
That's really driving that and how much sort of expanding the R&D team and.
Having a few more kind of boots on the ground is helping you in that environment.
Yes, a few things on the international front and I'll, let Mike continue.
We took some very strong leadership that really managed our largest enterprise sales here in the U S relocated them over to Europe .
<unk> built out the teams a big function of it is people. Thank you got it.
The scale of just people in the right places and the right countries and.
And have the infrastructure prior to that it's not about just dropping some salespeople and then watching productivity occur you've got to build the infrastructure you've got to get all the approvals make sure you've got the compliance requirements and data sovereignty requirements in certain countries. We've done all of that hard work to set ourselves up now it's just it's more execution of drop salespeople.
Let him let him go execute.
And our multinational customers that we've sold here in the U S. Oftentimes have operations in many of these countries and so we have references we can point to that are local that may have been in place for years.
Even though we didn't have a presence in that local country. So.
And Dan I would just add to that.
The additional channels that we've established internationally are a big big part of our footprint internationally. It's not it's not just direct sellers, it's folks to support the channel and it's.
Basically signing up the right channel partners to drive the business.
In region.
Alright, great. Thank you thanks Pat.
Next from Truest Terry Tillman.
Yes. Thanks.
Mike Dan and Barry sorry for the extreme background noise I have here, so I'm going to ask my multi part single question and then go on to mute.
But what I'm curious about is and congrats with more of the innovation on the AI and automation side. It sounds like it's eight solutions now do you have to start thinking about the pricing and packaging whereby instead of the solid card I liked all of these things, but while it's a sticker shock with six solutions is there potentially like almost like an L a or a platform sale.
Automation.
And then secondly is it are catching more and more traction and strategic or enterprise. Thank you yes.
Yes, absolutely. Thank you Terry and I'll answer the last part first we absolutely see more and more and more traction and strategic or enterprise. Thank you yeah.
Sorry, there was a little timing issue on the <unk> side, we're absolutely seeing a greater level of interest in the larger and larger accounts.
They have the ability to really pilot. These solutions have professional services in place, where they're needed and be able to recognize the rois.
The greater the span of that applications are greater the ROI in most cases.
But not to your first question about bundling, we absolutely bundle several of these in fact, if you look when you look at our agent assist solution agent.
<unk> agent assist historically has been where it will listen into a conversation such data deliver back next best action or suggested answers to the agent.
To get to the customer now we're including if you go to that level you get transcriptions.
Step one if you just want Pearce transcriptions of the call and ensures those into your CRM you get summaries as kind of a step two you can bundle that in with transcriptions and then certainly you can bundle in the agent assist with what I. Just described with those first two so we're doing some very creative bundling in ways that our customers and our channel partners can more easily.
<unk>.
Propose those and have them.
Consumed by the customers so it's not entirely Ala carte.
Thank you.
Yes.
A question now from Jim fish at Piper.
Hey, guys. This is <unk> on for Jim fish, I apologize for not being on video that was their tiers really impacted strength, so I apologize.
For Iga adoption it seems like in this environment, if a cloud customer hasnt adopted or fully rolled out kind of AI automation that at this point they might hold off until macro maybe improved slightly is that what you're hearing from customers or is the pace of adoption can catch sustaining in the hopes that the ROI can save you.
Tougher labor market.
A quick follow up for Barry is just is it fair to assume health care and commercial are the largest verticals for five nine or any other pieces that we should be watching thank you.
Yes, so the first part Joe I'll take that this is Dan.
The AI and automation I have not heard that whatsoever about folks waiting until macro improves to put those solutions in place in fact more just the opposite where customers are realizing hey, we've got to do labor arbitrage, we've got to get some solutions in here that can save us money and.
We've got the boat anchor legacy on premise system that really isn't delivering the efficiencies nor the northern compelling rois. So the issue is more of a.
What we talked about before which is if you make that decision to move to the cloud in the larger accounts that oftentimes can be two years before you actually have the system fully in place and reaping those benefits. So customers are moving to start the process I think.
More than ever right now because they recognize and they've seen other customers that have experienced that value. Instead of just a promise. It's now we have reference ability to customers that are achieving those rois.
Yes, I would just add that.
<unk>.
Popularity in the Preston chat GPT in Jupiter, three you're getting from open AI or AI and automation solutions quite frankly are becoming a bit of a catalyst for.
Those rfps, which I mentioned, but also there is a catalyst for making the move to the cloud quite frankly because the.
The cloud is the only place that <unk>.
Enterprises are going to be able to reap the benefits of that AI and automation opportunity and the labor arbitrage opportunities.
You are talking about right the ordinal ranking.
Five verticals based upon Q4 revenue is number one update to financials three consumer for technology five investments.
Super helpful. Thank you.
Next up we'll go to Michael <unk> at Wells Fargo.
Okay, Great I appreciate you squeezing me in.
No. There is some seasonality there, but the Q4 EBITDA margin or very close to the longer term targets that you have out there. We're hearing lots of focus across software on efficiency can you just walk through how you're evaluating the growth margin tradeoffs, there or any change in your approach to head. Count addition, entering this year versus prior and then.
And just on the other side of it how do you make sure you're positioned for growth given the assumed growth rebound, we're talking about macro headwinds, but obviously the bigger picture in feed cost is still much cleaner. So can you just walk through your evaluation in the current environment on both of those sides. Thank you Michael if I could start and Barry Please chime in.
We are fortunate in that we have a business model we have been.
Approaching this with balanced growth for a long long time right in terms of investing I always say investing on in occur. We're not ahead of the curve in terms of the revenue curve, we're not behind the revenue curve, we're very instrumented, we understand where our business is coming in and.
And we intend to hire.
Right on top of that curve, so we're able to manage the <unk>.
Bottom line based on what we see from a visibility standpoint on the top line. We will continue to take a very balanced approach I think the balanced approach that we've taken is always put us at a pretty good situation relative to other tech companies in general.
That said.
We're always investing in this opportunity and setting the.
The track so to speak for the long term growth opportunity that we see in US again, we reiterated we always talk about the $2 $4 billion revenue target in 2007 and again.
As soon as this macroeconomic backdrop clears.
Do we do have.
It just so much optimism around the future growth opportunities, but at the same time, we're going to be we're going to be cautious and thoughtful in the near run relative to the economic backdrop.
Yeah, I would say, what we did say what Mike said in different words.
<unk>.
So I.
Thanks, Mike.
Sorry.
And with that we'll take our last question from Michael Funk at Bofa.
Yeah, Hey, Doug How're, you doing Tonight.
Yeah.
Yes.
If I could so lumpy here thoughts about elasticity of demand and if you are seeing a more competitive price environment.
Then I guess related to that in terms of demand weakness you called out <unk>, we expect more seasonality you had seen more seasonality from health care consumer.
How much of that is macro that you mentioned versus maybe a post pandemic pullback or re sizing of both the customer base.
Yeah, So on price no we're not.
There's always some discounting but.
It's nothing at all different than what we've had in it that.
Prices of held up very suddenly.
And are likely to go up Jetblue has to have in the past 21.
In terms of elasticity.
People arent buying these systems based on the products. This is all about mission criticality and the sharp point of the spear in terms of customer experience.
In terms of seasonality.
No we call them, the 100% that it's all macro.
Sometimes that customers value and know it would be arrogant to say we know exactly however, we.
We do get a lot of data in terms of the utilization of the seats. The number of seats. The past patterns, how are they different et cetera, et cetera, and we come away convinced Michael.
Particularly on those two light vehicles that is healthcare and consumer that is mainly macro related.
Great. Thank you for the question.
Yes.
And with that I'll hand, things back over to Mike Brookman for any additional or closing remarks, yeah. In summary, I'll, just say I am so proud of the entire $5 19 for the commitment the dedication the execution.
That drove our record results in 2022.
We are making tremendous progress on our March upmarket, our expansion internationally and innovating on our platform I think all of the $5 nine team.
We look forward to keeping you all up to date as the year unfolds and thanks again for joining us today.
Yeah.
Thank you.
With that we will conclude today's meeting again, thanks for joining so everyone have a good evening.
Yeah.