Q1 2024 Five9 Inc Earnings Call

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Unknown Executive: Thank you for joining us today. On the call are Mike Burkland, Chairman and CEO, Dan Burkland, President, and Barry Zwarenstein, CFO. Certain statements made during the course of this conference call that are not historical facts, including those regarding the future financial performance and cash position of the company, expected improvements in financial and related metrics, expected ARR from certain customers, certain expected revenue mix shifts, customer growth, anticipated customer benefits from our solution, including from AI, company growth, enhancements to and development of our solution, market size and trends, our expectations regarding macroeconomic conditions, company market position initiatives and expectations, technology and product initiatives, including investment in R&D and other future events or results, are forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995.

Thank you for joining us today on the call are Mike <unk>, Chairman and CEO, Dan Burkland President.

Unknown Executive: And Barry's Weinstein CFO certain statements made during the course of this conference call that are not historical facts, including those regarding future financial performance and cash position of the company expected improvements in financial related metrics expected ore from certain customers certain expected revenue mix shifts customer growth anticipated customer benefits.

Unknown Executive: From our solution, including for AI company growth enhancement and development of our solution market tightened trend our expectations regarding macroeconomic condition company market position initiatives and expectation technology and product initiatives, including investment in R&D and other future events or results are forward looking statements within the meaning of the private sick.

Unknown Executive: <unk> Litigation Reform Act of 1990 by such.

Unknown Executive: Such statements are simply predictions should not be unduly relied upon by investors and actual events or results may differ materially and the company undertakes no obligation to update the information in such statements.

Unknown Executive: These statements are subject to substantial risks and uncertainties that could adversely affect <unk> future results and cause. These forward looking statements to be inaccurate, including the impact of adverse economic condition, including macroeconomic deterioration in uncertainty, including continuing increased inflation increased interest rate supply chain disruption.

Unknown Executive: Decreased economic output and fluctuations in currency exchange rate lower growth rates within our installed base of customers and the other risks discussed under the caption risk factors and elsewhere in <unk> annual and quarterly reports filed with the Securities and Exchange Commission.

Unknown Executive: In addition management will make reference to non-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 and guidance is currently available in our press release issued earlier this afternoon as well as in the appendix of our investor deck that can be found.

Unknown Executive: In the Investor Relations section on <unk> website at investors got five nine Dot Com Lastly, a reminder, that unless otherwise indicated financial figures discussed are non-GAAP.

Unknown Executive: Such statements are simply predictions, should not be unduly relied upon by investors, actual events or results may differ materially, and the company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties that can adversely affect Five9's future results and cause these forward-looking statements to be inaccurate, including the impact of adverse economic conditions, including macroeconomic deterioration and uncertainty, including continuing increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates, lower growth rates within our installed base of customers, and the other risks discussed under the captioned risk factors and elsewhere in Five9's annual and quarterly reports filed with the Securities and Exchange Commission.

Unknown Executive: And now I'd like to turn the call over to <unk>, Chairman and CEO, Mike Burkland.

Unknown Executive: In addition, management will make reference to non-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 and guidance is currently available in our press release issued earlier this afternoon, as well as in the appendix of our investor deck, which can be found in the investor relations section on Five9's website at investors.five9.com. Lastly, a reminder that, unless otherwise indicated, financial figures discussed are non-GAAP. And now, I'd like to turn the call over to Five9's Chairman and CEO, Mike Burkland.

Speaker Change: Thanks, Emily and thanks, everyone for joining our call. This afternoon.

Michael Burkland: Pleased to report strong first quarter results with our subscription revenue growing 20% year over year and total revenue exceeding the midpoint of our guidance by three percentage points.

Michael Burkland: Thanks, Emily. And thanks, everyone, for joining our call this afternoon. I'm pleased to report strong first quarter results with our subscription revenue growing 20% year over year and total revenue exceeding the midpoint of our guidance by three percentage points. As a reminder, our subscription revenue, which others in the industry refer to as cloud revenue, accounts for nearly 80% of our total revenue. Also, this 20% growth in subscription revenue does not include any benefit whatsoever from customers converting from on-premise to the cloud since we do not have any on-premise business. And this growth is all organic, except for an immaterial amount.

Michael Burkland: As a reminder, our subscription revenue, which others in the industry referred to as cloud revenue accounts for nearly 80% of our total revenue.

Michael Burkland: So this 20% growth in subscription revenue does not include any benefit whatsoever from customers converting from on premise to cloud since we do not have any on premise business.

Michael Burkland: This growth is all organic except for an immaterial amount.

Michael Burkland: Adjusted EBITDA margin for the first quarter was 15% of revenue, helping drive strong LTM operating cash flow of $128 million, or 14% of revenue. As you all know, we take a balanced approach to delivering top line growth and bottom line profitability. I will begin today by discussing our broader market opportunity, which continues to be propelled by three ongoing trends. First, the migration to cloud contact center platforms continues to be a top priority for enterprises, particularly as many on-premise solutions are approaching end of life.

Michael Burkland: Adjusted EBITDA margin for the first quarter was 15% of revenue, helping drive strong LTM operating cash flow of $128 million or 14% revenue.

Michael Burkland: As you all know we take a balanced approach to delivering topline growth and bottom line profitability.

Michael Burkland: With current cloud penetration standing at approximately 25 to 30%, we believe there's a multi-year durable growth opportunity ahead. Second, enterprises are laser focused on improving the customer experience, which has become a strategic initiative aimed at driving better business. With our intelligent CX platform and our passionate experts, we're changing the game for some of the largest brands in the world and helping them reimagine their customer experience.

Michael Burkland: I will begin today by discussing a broader market opportunity, which continues to be propelled by three ongoing trends first the migration to cloud contact center platforms continues to be a top priority for enterprises, particularly as many on premise solutions are being end of life.

Michael Burkland: With current cloud penetration standing at approximately 25% to 30%. We believe there is a multiyear durable growth opportunity ahead.

Michael Burkland: Second enterprises are laser focused on improving customer experience, we're just become a strategic initiatives aimed at driving better business outcomes with our intelligent CX platform and our passionate experts we're changing the game for some of the largest brands in the world and helping them re imagine their customer experience.

Michael Burkland: And third AI is revolutionizing the way brands enhanced customer experience with our AI infused in data driven intelligence CX platform, we're helping enterprises deliver personalized connected and effortless experiences for their customers.

Michael Burkland: With our AI-infused and data-driven intelligent CX platform, we're helping enterprises deliver personalized, connected, and effortless experiences for their customers. These three trends are driving a massive market opportunity, and we are a clear market leader given our platform, our success in marching up the market, and our strong international expansion. Now, let me take each of those three growth drivers in order, starting with our platform.

Michael Burkland: These three trends are driving a massive market opportunity.

Michael Burkland: And we are a clear market leader, given our platform our success and marching upmarket and our strong international expansion.

Michael Burkland: And now let me take each of those three growth drivers in order starting with our platform.

Michael Burkland: Five9's AI leadership has been a key reason why customers choose Five9. Our AI strategy is simple. We combine the power of the industry's leading engines with contextual data unique to each of our customers. We have always believed it's optimal to leverage the best engines in the industry, and the arrival of generative AI has further validated that strategy. Because of this, we believe we have established a significant lead in this market. By embracing the best engines and expanding them with contextual data, we can easily produce basic industry models.

Michael Burkland: AI leadership has been a key reason why customers choose us our AI strategy is simple we combine the power of the industry's leading engines with contextual data and unique to each of our customers.

Michael Burkland: We have always believed at its optimal to leverage the best engines in the industry.

Michael Burkland: And the arrival of generative AI has further validated that strategy.

Michael Burkland: <unk>, we believe we have established a significantly in this market.

Michael Burkland: By embracing the best engines, and expanding them with contextual data, we can easily produce basic industry models, but more importantly, we can go beyond that to produce customer specific models that are setting new standards and providing exceptional customer experience and also doing it responsibly by protecting the privacy of their data.

Michael Burkland: But more importantly, we can go beyond that to produce customer-specific models that are setting new standards in providing exceptional customer experiences and also doing it responsibly by protecting the privacy of their data. Additionally, empowering customers with this is not just a matter of technology; it's also a matter of people. Five9's experts work hand-in-hand with our customers to gather the right data from the right sources to deliver these customer-specific models, resulting in what really matters, personalized CX and better business outcomes.

Michael Burkland: Additionally, empowering customers with test is not just a matter of technology. It's also a matter of people finalize experts worked hand in hand, with our customers to gather the right data from the right sources to deliver these customer specific malls, resulting in what really matters personalized CX and better business outcomes.

Michael Burkland: We believe this strategy has allowed us to be more nimble than our competitors in adopting generative AI and using it across our platform. This has been demonstrated through our recent announcement of GenAI Studio, the industry's first tool that easily allows enterprises to combine best-in-class engines with their unique contextual data and to customize the models on an interaction-by-interaction basis, allowing for new levels of personalization. Gen AI Studio can be customized by integrating any piece of data that our platform accesses during the processing of an interaction.

Michael Burkland: We believe this strategy has allowed us to be more nimble than our competitors and adopting generative AI and using it across our platform.

Michael Burkland: This has been demonstrated through our recent announcement of Gen. AI studio the industry's first tool that easily allows enterprises to combine best in class agents with their unique contextual data and to customize the models on an interaction by interaction basis, allowing for new levels of personalization.

Michael Burkland: Generally our studio can be customized by integrating any piece of data that our platform accesses during the processing of an interaction this'll.

Michael Burkland: This allows customers to leverage investments they've already made in integrations on our platform, which is one of the more complex and time-consuming aspects of implementation. This enables us to supercharge their results when they connect to our AI product. Feedback from customers has been overwhelmingly positive as they will begin to gain these benefits in just a few days, given the ease of use of Gen AI Studio.

Michael Burkland: This allows customers to leverage investments they've already made and integrations on our platform, which is one of the more complex and time consuming aspects of implementation.

Michael Burkland: This enables us to supercharge that results when they attach our AI products.

Michael Burkland: Feedback from customers has been overwhelmingly positive as they will begin to gain these benefits in just a few days given the ease of use of <unk> studio.

Michael Burkland: And it's not just customers saying we're ahead. We continue to earn awards and industry recognition from marquee analysts. And, of course, nothing speaks to the success of our strategy more than numbers.

Michael Burkland: And it's not just customers, saying we're ahead, we continue to earn awards and industry recognition for marquee analysts.

Michael Burkland: And of course, nothing speaks to the success of our strategy more than numbers for example, our AI and automation and <unk> bookings grew 15 X year over year in the first quarter.

Michael Burkland: For example, our AI and automation ARR bookings grew 15x year-over-year in the first quarter. And now I'd like to focus on our march into the market and international expansion. We're very excited to share that we signed our largest deal ever, a Fortune 50 financial services company, which is a testament to our continuing success in marching up markets. Dan will share more details in a moment, but I just want to say we're thrilled to add this win to our previously announced mega deals, such as the Parcel Delivery Company, the Healthcare Conglomerate, and the Global Healthcare Insurance Company.

Michael Burkland: And now I'd like to focus on our March up market and international expansion. We're very excited to share that we signed our largest deal ever a fortune 50 financial services company, which is a testament to our continuing success in marching upmarket.

Michael Burkland: Dan will share more details in a moment, but I just want to say, we're thrilled to add this win to our previously announced mega deals such as the parcel delivery company, the health care conglomerate and the global Health care insurance company.

Michael Burkland: Additionally, as a result of this win, enterprises in the financial services industry are taking notice, and they're already pulling us into large financial services opportunities. As a reminder, our success in the market is not just due to our award-winning platform, but also because of our people and our partners. Our customer success model remains a key differentiator.

Michael Burkland: Additionally, as a result of this when enterprises the financial services industry are taking notice and they are already pulling us into large financial services opportunities.

Michael Burkland: As a reminder, our success up market is not just due to our award winning platform, but also because of our people and our partners.

Michael Burkland: Our customer success model remains a key differentiator.

Michael Burkland: As we have hundreds of CX experts globally at Five9 who execute a repeatable large enterprise playbook that focuses on transformation, migration, implementation, and ongoing optimization. Additionally, our collaboration with premier CX partners around the world is driving our upmarket success and international expansion, as demonstrated by the following three examples. First, we are seeing increased momentum from large SIs.

Michael Burkland: As we have hundreds of CX experts globally at 590, <unk> execute a repeatable large enterprise playbook that focuses on transformation migration implementation and ongoing optimization.

Michael Burkland: Additionally, our collaboration with Premier CX partners around the World is driving our up market success and international expansion as demonstrated by the following three examples first we are seeing increased momentum from large size. We have an ongoing initiative called project pull through which enables and certifies a select group of partners to take on.

Michael Burkland: We have an ongoing initiative called Project Pull Through, which enables and certifies a select group of partners to take on implementation and support services, and it's incentivizing these SIs to lead with Five9 on some of the largest global opportunities. Second, our Salesforce partnership continues to gain momentum; we have become the first and only CTAS partner of Salesforce to reach Summit status. This is a major step forward for our partnership, and it gives us early access to releases and APIs so that we can stay at the forefront of sales.

Michael Burkland: Implementation and support services and it's incentivizing these size to lead with five nine instead of a largest global opportunities.

Michael Burkland: Our Salesforce partnership continues to gain momentum, where we have become the first and only <unk> partner of Salesforce to reach summit status.

Michael Burkland: This is a major step forward for our partnership and it gives us early access to releases and API. So that we can stay at the forefront with salesforce or advance B Y L. T integration for service Cloud voice is a great Testament to this partnership.

Michael Burkland: Our advanced BYOT integration for Service Cloud Voice is a great testament to this partner. And third, our BT partnership is taking hold. As a reminder, we have a go-to-market reciprocal arrangement where they resell our Five9 solutions, and we also resell BT connectivity.

Michael Burkland: And third our BT partnership is taking hold as a reminder, we havent go to market reciprocal arrangement, whereas they resell our five nine solutions and we also resell BT connectivity.

Michael Burkland: This is not only proving itself in the UK and Ireland markets, but also in other parts of the world, where they've been instrumental in helping introduce and secured 509 business.

Michael Burkland: These are just a few examples of our partners, helping pulp online up market and also helping expand our global footprint before I turn it over to Dan I'd like to make a few comments on our journey as a public company.

Michael Burkland: This is not only proving itself in the UK and Ireland markets but also in other parts of the world, where they've been instrumental in helping introduce and secure Five9 business. These are just a few examples of our partners helping pull Five9 upmarket and also helping expand our global footprint. Before I turn it over to Dan, I'd like to make a few comments on our journey as a public company. As many of you may have seen, a few weeks ago, on April 4th, we celebrated the 10-year anniversary of Five9's initial public offering by ringing the opening bell at NASDAQ.

Michael Burkland: As many of you may have seen a few weeks ago on April 4th we celebrated the 10 year anniversary of <unk> IPO by ringing the opening bell at NASDAQ It.

Michael Burkland: It was a perfect opportunity to reflect on our journey as a public company. Over these last 10 years, we've made significant progress on multiple factors, including the following five examples. We grew revenue by 10x in that 10 year period, virtually all organic. We increased EBITDA margins by 43%.

Michael Burkland: It was a perfect opportunity to reflect on our journey as a public company over these last 10 years, we've made significant progress on multiple vectors, including the following five examples.

Michael Burkland: We grew revenue by 10 X in that 10 year period virtually all organically.

Michael Burkland: We increased EBITDA margins by 43 percentage points.

Michael Burkland: We increased the number of $1 million plus ARR customers from 3 to 180. We were one of the early pioneers of Cloud Contact Center and have become a clear market leader and the largest pure play cloud provider in our industry. And more recently, we have been leading the AI revolution in Contact Center and CX. Today, we're changing the game for many of the largest brands in the world as we help them reimagine CX with our AI-infused data-centric platform combined with our passionate. In addition to reflecting on our progress, I'd like to take a moment to thank our team of five diners.

Michael Burkland: We increased the number of $1 million plus a our customers from three to 183.

Michael Burkland: We were one of the early pioneers of cloud contact center and has become a clear market leader and the largest pure play cloud provider in our industry.

Michael Burkland: And more recently, we have been leading the AI Revolution, and contact center and CX.

Michael Burkland: Today, we're changing the game for many of the largest brands in the world as we help them re imagined CX with our AI infused data centric platform combined with our passionate and experts.

Michael Burkland: In addition to reflecting on our progress I'd like to take a moment to thank our team of five diners.

Michael Burkland: Our success over the last decade has been driven by their teamwork, commitment, and passion, and I want to personally thank every FiveNiner for all you do. We are still in the early stages of a massive transformation in CX, and I'm super excited about what we can achieve over the next 10 years. And with that, I will turn it over to our President and CRO, Dan Burkland. Dan, please go ahead. Thank you, Mike. And good afternoon, everyone.

Michael Burkland: Our success over the last decade has been driven by their team work commitment and passion and I want to personally. Thank every five neither for all you do.

Michael Burkland: We are still in the early stages of a massive transformation in CX and I'm Super excited about what we can achieve over the next 10 years and with that I'll turn it over to our President and CFO, Dan Burkland, Dan. Please go ahead.

Daniel P. Burkland: I'm pleased to report that we had a record booking season, and our partner and channel momentum has never been better. Our market-leading platform, the expertise of our people, and our relentless focus on helping customers achieve their CX business goals continue to propel us forward in this tremendous market opportunity. Now, I'd like to share some examples of key wins for the quarter.

Daniel P. Burkland: Thank you, Mike and good afternoon, everyone I'm pleased to report that we had a record bookings quarter and our partner channel momentum has never been better.

Daniel P. Burkland: Our market leading platform the expertise of our people and our relentless focus on helping customers achieve their CX business schools continue to propel us forward in this tremendous market opportunity.

Daniel P. Burkland: And now I'd like to share some examples of key wins for the quarter.

Daniel P. Burkland: As Mike mentioned, we're very excited to announce that we have contracted with one of the largest US banks serving nearly 70 million customers worldwide. The bank has been using a variety of legacy systems acquired directly as well as through M&A. They spent several years looking for a strategic partner who could help them transform and consolidate CX across their global footprint with a modern, innovative, secure, and scalable CCAS solution. A key part of this migration to Five9 will include our recently acquired ACS, allowing them to centralize and normalize all of their data from many different disparate systems. They chose Five9 arguably for one reason: trust.

Daniel P. Burkland: As Mike mentioned, we're very excited to announce that we have contracted with one of the largest U S banks, serving nearly 70 million customers worldwide.

Daniel P. Burkland: The bank has been using a variety of legacy systems and acquired directly as well as through M&A.

Daniel P. Burkland: I spent several years looking for a strategic partner, who can help them transform and consolidate CX across their global footprint with a modern innovative secure and scalable <unk> solution.

Daniel P. Burkland: Key part of this migration to five nine will include our recently acquired Acs solution, allowing them to centralize and normalize all of their data from many different disparate systems.

Daniel P. Burkland: <unk> nine arguably for one reason trust they trusted <unk> nine has the platform the people and the partners to deliver an unparalleled CX solutions.

Daniel P. Burkland: They trust that Five9 has the platform, the people, and the partners to deliver an unparalleled CX solution. They purchased our full omni-channel solution, our IDAs, our WEM suite powered by Varen, and integration to over two dozen CRM systems, including Salesforce and Service. We anticipate this initial order will roll out and ramp over several years and will ultimately result in over $50 million in subscription ARR for Five9. The second one I'd like to highlight is a company that specializes in higher education, helping universities with recruitment, enrollment services, guidance counseling, and alumni fundraising activities.

Daniel P. Burkland: They purchased our full omnichannel solution.

Daniel P. Burkland: Our IV as our WAM suite powered by Varian and integration to over two dozen CRM systems, including Salesforce and service now.

Daniel P. Burkland: We anticipate this initial order will rollout and ramp over several years and will ultimately result in over $50 million in subscription <unk>.

Daniel P. Burkland: To five nine.

Daniel P. Burkland: The second one I would like to highlight is a company that specializes in higher education, helping universities with recruitment enrollment services guidance counselling and alumni fundraising activities.

Daniel P. Burkland: They had been using another cloud vendor which was not meeting their needs. They will be using Five9 for a full omni-channel solution for both inbound engagements and proactive outreach. Our full WAM suite powered by Varon, our agent assist solution for call transcripts and summaries, and our performance dashboards, along with Microsoft Dynamics integration. We anticipate this initial order to result in over $3.8 million in ARR. The third example is an American radiology firm specializing in outpatient diagnostic imaging centers throughout the US.

Daniel P. Burkland: They had been using another cloud vendor, which was not meeting their needs. They will be using slide nine for a full omnichannel solution for both inbound engagements and proactive outreach our full WAM suite powered by Baron our agent assist solution for call transcripts and summaries and our performance dashboards along with <unk>.

Daniel P. Burkland: The croissant dynamics integration.

Daniel P. Burkland: We anticipate this initial order to result in over $3 8 million and <unk> to find that the.

Daniel P. Burkland: The third example is an American radiology firm specializing in outpatient diagnostic imaging centers throughout the U S.

Daniel P. Burkland: They had been using Cisco, which lacks deep integration and functionality with Salesforce, which they had just rolled out last year. They chose Five9 for our end-to-end functionality, our deep integration and partnership with sales, and our industry-leading AI and automation. They will start with our IDA and chat box to intelligently route inbound inquiries to the best resource, while also using transcription call center and Five9 Insights and Analytics to identify where best to introduce even more automation and self-service. We anticipate this initial order to result in over $2.8 million in ARR funding.

Daniel P. Burkland: They have been using Cisco, which lacks the deep integration and functionality with Salesforce, which they have just rolled out last year.

Daniel P. Burkland: They chose <unk> 90 for our end to end functionality, our deep integration and partnership with Salesforce, and our industry, leading AI and automation suite.

Daniel P. Burkland: They will start with our IV and chat box to intelligently route inbound inquiries to the best resources, while also using transcription call salaries fibre and insights and analytics to identify where best to introduce even more automation and self service applications.

Daniel P. Burkland: We anticipate this initial order to result in over $2 8 million.

Daniel P. Burkland: Slide nine.

Daniel P. Burkland: And now, as I normally do, I'd like to share an example of an existing customer who expanded. This customer is in the healthcare industry, where they provide non-emergency transportation services to and from many hospital networks throughout the US. They have been our customer for nearly three years, and we spend approximately $2.3 million in ARR. In Q1, they expanded their operation both in the number of human seats, as well as adding several hundred IVA ports with additional use cases and languages. With this Q1 expansion, we anticipate that ARR will increase from approximately $2.3 million to over $6 million.

Daniel P. Burkland: And now as I normally do I would like to share. An example of an existing customer who expanded with this customer is in the health care industry, where they provide nonemergency transportation services to and from many hospital networks throughout the U S.

Daniel P. Burkland: They have been our customer for nearly three years, and we're spending approximately $2 $3 million.

Daniel P. Burkland: In Q1, they expanded their operation both in number of human seats as well as adding several hundred Iga ports.

Daniel P. Burkland: With additional use cases and languages.

Daniel P. Burkland: With this Q1 expansion, we anticipate that <unk> will increase from approximately $2 $3 million to over $6 million.

Daniel P. Burkland: So, as you can see, we continue to execute very successfully on our go-to-market initiatives, including our march into the mainstream market, our international expansion, and our growth of our partner ecosystem. And with that, I'll hand it over to Barry to cover the financials.

Daniel P. Burkland: So as you can see we continue to execute very successfully on our go to market initiatives, including our March up market, our international expansion and our growth of our partner ecosystem.

Daniel P. Burkland: And with that I'll hand, it over to Barry to cover the financials Barry.

Barry Zwarenstein: We are pleased to report that first quarter revenue reached a record $247 million, growing 13% year-over-year and exceeding the midpoint of our guidance by 3% each point. Thus, true print revenue was the strongest driver, growing 20% year-over-year in the first quarter and now making up nearly 80% of total revenue. Allochem Enterprise Subscription Revenue grew 23% year over year. Our new logo deployments remain robust, with C-turnoffs sitting at a Q1 record, demonstrating our focus on executing against the substantial backlog of box seats.

Barry: Thank you Dan we a basis point that first quarter revenue reached a record $247 million growing 13% year over year and exceeding the midpoint of our guidance by three percentage points.

Barry Zwarenstein: Subscription revenue was the strongest driver growing 20% year over year in the physical Ed and now makes up nearly 80% of total revenue.

Barry Zwarenstein: Allocated enterprise subscription revenue grew 23% year over year.

Barry Zwarenstein: Our new logo deployments remain robust seta sitting a Q1 record demonstrating our focus on executing against the substantial backlog of booked seats.

Barry Zwarenstein: On a geographic basis, investments in EMEA are paying dividends. EMEA subscription revenue, which represents over 40% of international subscription revenue, grew 32% year-over-year in the quarter. Our enterprise business made up 88% of LTM revenue, and our commercial business, which represented the remaining 12%, grew again in the single digits on an LTM basis. Recurring revenue made up 93% of total Q1 revenue. As a reminder, recurring revenue is made up of subscription revenue and usage revenue.

Barry Zwarenstein: On a geographic basis I am missing in EMEA are paying dividends.

Barry Zwarenstein: EMEA is sufficient revenue, which represents over 40% of international subscription revenue grew 32% year over year in the quarter.

Barry Zwarenstein: Enterprise visits made up 88% of LTM revenue and our commercial business, which represented the remaining 12% grew again in the single digits on an LTM basis.

Barry Zwarenstein: Revenue made up 93% of total Q1 revenue.

Barry Zwarenstein: As a reminder, recurring revenue is made up of subscription revenue and usage revenue.

Barry Zwarenstein: Usage revenue grows slower than subscription revenue. As a result, each year, we see a makeshift within recurring revenue of approximately one to three percentage points from the share coming from usage revenue to the share contributed by subscription revenue. The main reason user-driven growth is slow is because as we move up market, our larger customers often use the existing carriers for usage. Additionally, our channel sponsors, like BT and AT&T, are also carriers, and we will not take business away from them.

Barry Zwarenstein: UC revenues growing slower.

Barry Zwarenstein: Production revenue.

Barry Zwarenstein: As a result, each year, we see a mix shift within recurring revenue.

Barry Zwarenstein: Approximately one to three percentage points.

Barry Zwarenstein: From the share coming from UC revenue to the share contributed by subscription revenue.

Barry Zwarenstein: The main reason usage revenue growth slow is because as you move up market, our logic customers often use the existing carriers for usage.

Barry Zwarenstein: Additionally, our channel partners like <unk> and AT&T.

Barry Zwarenstein: Always the carriers and we will not take business away from them.

Barry Zwarenstein: We see the continuing makeshift away from usage assertion as a positive long-term trend for two reasons. First, given that subscription revenue consistently grows faster than usage revenue over time, this makeshift reduces the usage drag on total corporate revenue growth. Second, the mixture delivers an uplift to total corporate gross margins over time, given that the subscription delivers Higher Gross Margin Venues and Professional Services made up the other 7% of total Q1 revenue. I'd like to remind you that our long-term strategy is to enable our partners to deliver these services. This will gradually result in a shift away from PS revenue to subscription revenue.

Barry Zwarenstein: We see the continuing mix shift away from music juices, Susan as a positive long term trend for two reasons.

Barry Zwarenstein: Yes.

Barry Zwarenstein: Given that subscription revenue consistently grows faster than usage revenue overtime.

Barry Zwarenstein: This makes it reduces the usage drag on total corporate revenue growth.

Barry Zwarenstein: The mixture of delivered an uplift to total corporate gross margins overtime given that the subscription delivers.

Barry Zwarenstein: Higher gross margin than usage.

Barry Zwarenstein: Professional services made up the other 7% of total Q1 revenue.

Barry Zwarenstein: I'd like to remind you that our long term strategy is to enable our partners to deliver these services.

Barry Zwarenstein: This will gradually resulting in a mix shift away from gas revenue to subscription revenue.

Barry Zwarenstein: We also see this as a positive long-term trend overall because our subscription to those higher growth margins appears. Additionally, PS revenue continues to be more lumpy, partly due to large mega-deals. Altium's dollar base retention rate declined slightly to 109%, as anticipated, given the macro conditions of the last several quarters.

Barry Zwarenstein: We also see this as a positive long term trend overall, because our subscription delivers higher gross margins than peers.

Barry Zwarenstein: Additionally, <unk> revenue continues to be more lumpy, partly due to large mega deals.

Barry Zwarenstein: LTM dollar based retention rate declined slightly to 109% as anticipated given the macro conditions over the last several quarters we.

Barry Zwarenstein: We expect Q2 LTM dollar base retention rates to be either flat or very slightly down. And we continue to expect a positive inflection in the second half of the year, mainly because of customers with more than 12 months' rent. Longer term, our retention rate is expected to trend towards the high 120s by 2027, due to a higher mix of larger customers who have higher retention rates and a continuation of the trend towards selling more and more software, including AI and automation, to our customers.

Barry Zwarenstein: We expect Q2, LTM dollar based retention rate to be either flat or very slightly down and we continue to expect a pilot inflection in the second half of the <unk>.

Barry Zwarenstein: Mainly because of customers with more than 12 months, perhaps longer term high retention rate is expected to trend towards the high 1527 due to a higher mix of larger customers, who have high retention rates and to a continuation of the trend towards selling more and more software, including AI and automation.

Barry Zwarenstein: To our customers.

Barry Zwarenstein: First quarter adjusted gross margins were 16.8%, increasing by approximately 40 basis points year over year despite the lower than normal revenue growth and the substantial transitory investments we were making to support both our successful march up market and our successful international expansion. First quarter adjusted EBITDA was $37.6 million, representing a 15.2% margin, a decrease of approximately 90 basis points euro a year, primarily driven by our strategic investments, most notably FedRAMP and India, both of which we expect to deliver significant long-term opportunities for. First quarter non-gap EPS was $0.48 per diluted share, a year-over-year increase of $0.07 per diluted share. Before turning to the balance sheet and cash flow,

Barry Zwarenstein: Third quarter adjusted gross margins were 16, 8%, increasing by approximately 40 basis points year over year, despite the lower than normal revenue growth and the substantial transitory investments, we're making to support both our successful March up market and our successful international expansion.

Barry Zwarenstein: First quarter, adjusted EBITDA was $37 6 million representing.

Barry Zwarenstein: Representing a 15, 2% margin a decrease of approximately 90 basis points year over year, primarily driven by our strategic investments most of that it'll be fed ramp in India, both of which we expect to deliver significant long term opportunities for us.

Barry Zwarenstein: First quarter non-GAAP EPS was <unk> 48 cents per diluted share a year over year increase of seven cents per diluted share.

Barry Zwarenstein: Before turning to balance sheet and cash flow.

Barry Zwarenstein: I would like to draw your attention to the progress being made on reducing stock-based compensation as a percent of revenue, which decreased from 24% three quarters ago to 18% in the first quarter. With regard to our balance sheet and cash flow highlights, in the first quarter, we continued our strong cash flow generation, delivering $128 million of LTM operating cash flow, equivalent to 14% of revenue. This is driven by Aiba Da and by strong DSO performance, which came in at 33 days.

Barry Zwarenstein: I would like to join your attention to the progress being made on reducing stock based compensation as a percent of revenue, which decreased from 24% three quarters ago to 18% in the first quarter.

Barry Zwarenstein: With regards to our balance sheet and cash flow highlights in the first quarter. We continued our strong cash flow generation delivering a heightened $28 million of LTM operating cash flow equivalent to 14% of revenue.

Barry Zwarenstein: This is driven by EBITDA and by strong DSO performance, which came in at 33 days.

Barry Zwarenstein: We have now delivered 31 consecutive quarters of positive LTM operating cash flow, and we remain optimistic about our potential for continuing cash flow generation, given our long-term model, our substantial NOLs, and our low DSOs. As a reminder, we further strengthened our balance sheet with the issuance of new five-year convertible notes in the amount of $747.5 million. After paying down a portion of our existing June 2025 notes, we added $330 million of net proceeds to our cash balance. We are pleased to have successfully completed the over-subscribed offering and obtain Faywul Tote.

Barry Zwarenstein: We have now delivered 31 consecutive quarters of positive LTM operating cash flow.

Barry Zwarenstein: And we remain optimistic about our potential for continuing cash flow generation, given our long term model, our substantial Nols and although DSO.

Barry Zwarenstein: As a reminder, we further strengthened our balance sheet with the issuance of new five year convertible notes in the amount of $747 5 million.

Barry Zwarenstein: After paying down a portion of that you think June 2025 nodes, we added $330 million of net proceeds to our cash balance.

Barry Zwarenstein: We are pleased to have successfully completed the oversubscribed offering obtaining payroll tenants, we locked in a coupon of 1% and effective fixed interest rate of three 8%, including the cost of the capped calls that could take us from dilution until our stock price exceeds $122.

Barry Zwarenstein: We locked in a coupon of 1% and an effective fixed interest rate of 3.8%, including the cost of the cap calls that protect us from dilution until our stock price exceeds $122.18. We believe we are nicely positioned for many years to come. And now I'd like to finish today's prepared remarks with a discussion of our guidance for the second quarter and full year 2024. In terms of the top line, we're guiding Q2 revenue to a midpoint of $244.5 million, which is in line with the commentary we gave a quarter ago during Isaac's call.

Barry Zwarenstein: In 18 states.

Barry Zwarenstein: We believe we are nicely positioned for many years to come.

Barry Zwarenstein: And now I'd like to finish today's prepared remarks with a discussion of our guidance for the second quarter and full year 2024 in terms of top line. We are guiding Q2 revenue to a midpoint of $244 5 million, which is in line with the commentary we gave a quarter ago during our next call.

Barry Zwarenstein: This represents a 1% sequential decline in line with our typical negative growth guidance pattern heading into Q2, for the full year. We are maintaining the midpoint of our revenue guidance at $1,055,000,000. Given the still considerable acceleration in the second half, we are being prudent and not putting through the Q1B to our annual goal.

Barry Zwarenstein: This represents a 1% sequential decline in line with our typical negative growth guidance doesn't heading into Q2.

Barry Zwarenstein: For the full year.

Barry Zwarenstein: We are maintaining the midpoint of our revenue guidance at $1 billion and $55 million.

Barry Zwarenstein: Given the store considerable acceleration in the second half.

Barry Zwarenstein: We are being prudent and not putting through the Q1 beat to our annual guidance.

Barry Zwarenstein: Also, please note we are not expecting any 2024 subscription revenue from the Fortune 50 financial service customer previously mentioned, and others in a moderate amount from PSA. As for the bottom line, we are guiding huge and on-gap DPS to come in at a missed point of 43 cents, which is in line with the outlook we provided last quarter. For the full year, we are slightly increasing the midpoint of our non-GAP EPS guidance from $2.16 to $2.17 per diluted share, reflecting our plans to continue investing in key growth opportunities to build final momentum in the up market and international.

Barry Zwarenstein: Please note we are not expecting any 2020 voice subscription revenue from the Fortune 50 Financial Center discussed then estimate previously mentioned.

Barry Zwarenstein: And only a moderate demand.

Barry Zwarenstein: <unk> revenue.

Barry Zwarenstein: As for the bottom line, we are guiding Q2, non-GAAP EPS to come in at a midpoint of 43 cents, which is in line with the outlook, we provided last quarter.

Barry Zwarenstein: For the full year, we are slightly increasing the midpoint of our non-GAAP EPS guidance from $2 16 to 2017 cents per diluted share, reflecting our plans to continue investing in key growth opportunities to build and find out momentum upmarket and internationally.

Barry Zwarenstein: Additionally, I would like to provide more color on the project profile above the top and the bottom line for the second half of 2024. We expect revenue to increase sequentially in the 3rd quarter and more in the 4th quarter. Given the shape of this revenue curve, we expect non-GAAP EVS to improve in the 3rd quarter and more in the 4th quarter. Please refer to the presentation posted on our World Investment Relations website for additional estimates, including share count, taxes, and capital expenses.

Barry Zwarenstein: Additionally, I would like to provide more color on the quoting profile above the top and the bottom line.

Barry Zwarenstein: And half of 2024 weeks.

Barry Zwarenstein: We expect revenue to increase sequentially in the third quarter and more in the fourth quarter given the shape of this revenue.

Barry Zwarenstein: We expect non-GAAP EPS to improve in the third quarter and more in the fourth quarter.

Barry Zwarenstein: Please refer to the presentation posted on our Investor relations website for additional instruments, including shake out taxes and capital expenditures.

Barry Zwarenstein: In summary, we are pleased with our first quarter performance. Many of the largest contact centers in the world are making mission-critical decisions to migrate to the cloud, and the strategic investments we have been making are paying dividends as customers select our trusted CX platform to leverage the power of AI and deliver the best customer experience. This is only the beginning of our journey in defining the path for the CX market, and we believe the strength of our platform, our people, and our partners will pave the way for continued success. Operator, please go ahead.

Barry Zwarenstein: In summary, we are pleased with our first quarter performance.

Barry Zwarenstein: Many of the largest contact centers in the world are making mission critical decisions to migrate to the cloud and the strategic investments we have been making are paying dividends as customers select our trusted CX platform to leverage the power of AI and deliver the best customer experience.

Barry Zwarenstein: Is only a beginning of our journey in defining the path for the <unk> market and we believe the strength of our platform our people and our partners.

Barry Zwarenstein: Pave the way for continued success.

Speaker Change: Operator, Please go ahead.

Unknown Executive: Thank you so much Barry and everyone. Before we move into the Q&A session, we do want to ask our analysts to please limit themselves to one question to allow for as many questions as time permits. We do thank you for your cooperation in advance, and our first question is going to come from DJ. DJ Hynes with Canaccord. DJ, please go ahead with your question.

Speaker Change: Thank you so much Barry and everyone before we move into the Q&A session. We do want to ask our analysts to please limit yourself to one question to allow for as many questions as time permits. We do thank you for urea Kao operation in advance and our first question is going to come from D. J.

David E. Hynes: D J with Canaccord DJ. Please go ahead with your question Hey, guys.

David E. Hynes: Yeah, hey guys. Good to see everyone. Congratulations on the mega deal. That's, that's great to see. Barry, can I, I'm gonna start with you. One of the numbers, I'm gonna break the rules right up front.

David E. Hynes: Good to see everyone.

David E. Hynes: Congrats on the Mega deal that's great to see.

David E. Hynes: Very frankly, I'm going to start with you one of the numbers on a break the rules are out but not as a quick follow up as well. So the last few years. When you beat Q1, you've typically raise the full year outlook as well.

David E. Hynes: That's a quick follow-up as well. So the last few years when you beat Q1, you've typically raised the full year outlook as well. This year was a beat and reiterate, which you mentioned on the call. Should we read anything into that in terms of, you know, further deterioration of demand or activity in this space? Just any comments there would be helpful.

David E. Hynes: Year weather beaten reiterate what you mentioned on the call. So can we read anything into that in terms of further deterioration of demand or activity in the space with any comments there would be helpful.

Barry Zwarenstein: Absolutely, DJ. So let me just frame it for you a little bit. Where are we sitting? We're sitting, we're coming off a quarter. We had a record for a first quarter in terms of logo install, and seat install. A very strong backlog that gives us great visibility.

Speaker Change: Absolutely Vijay let.

Barry Zwarenstein: Let me just frame it for you a little bit where are we sitting we sitting with coming off a quarter.

Barry Zwarenstein: Had record for a first quarter in terms of.

Barry Zwarenstein: Logo installed Siemens bowls.

Barry Zwarenstein: A very strong backlog that gives us great visibility.

Barry Zwarenstein: We're going to talk at some point on this call about the inflection in EBRR that we're seeing in the second half and why we're seeing that, and Nathael Brees from our professional services group as well. So overall, we feel pretty good. At the same time, we can't ignore the fact that we're talking about a very considerable re-acceleration in the second half. The first half, you know, based on our guidance, is 11.4. We're basically doubling that in the second half, per our guidance, to 20.1 percent. That's pretty aggressive, and we want to be prudent, and so for that reason... (inaudible)

DJ: We got to talk at some point in this quarter that the inflection and DVR that we see in the second half and why are we seeing that.

Barry Zwarenstein: And to tell breese from a professional services as well so overall, we feel pretty good.

Barry Zwarenstein: At the same time.

Barry Zwarenstein: We can't ignore the fact that we're talking about a very considerable re acceleration in the second half the first half based on our guidance.

Barry Zwarenstein: These 11.4, we are basically doubling that in our second half per our guidance to 21% that's pretty aggressive and we wanted to be prudent and so for that reason.

Barry Zwarenstein: Prudent we are not going to be putting through we didn't put through the mcewen.

Daniel P. Burkland: Okay, fair enough. And then, Dan, for you, maybe a more strategic question, like, do you envision a future in which the pricing model in the CCASP space may significantly evolve away from seat-based pricing and more towards kind of transactional or interaction-driven pricing models? I mean, it feels like AI has the potential to move us in that direction. But we'd love to get your thoughts on how that will go in the next three to five years.

Speaker Change: Okay Fair enough and then Dan for you maybe a more strategic question Mike.

Daniel P. Burkland: Do you envision a future in which the pricing model and the C cap space may significantly above away from seat based pricing and more towards <unk>.

Dan: Transactional or interaction driven pricing models I mean, it feels like AI has the potential to move us in that direction.

Dan: I'd love to get your thoughts Mike.

Daniel P. Burkland: Thanks.

Daniel P. Burkland: Yeah, thanks, DJ. We are absolutely seeing that. And we're seeing it already. As you mentioned, with many of the AI applications, they're not really tied to a seat. And they're not really correlated to a seat. They can be like, as an example, IVA at the front end; we do that per port, which we kind of equate as offsetting a seat. But, But there are many other applications like insight, right? You're pulling insights across an enterprise and getting information to make valuable decisions off of.

Dan: Yeah. Thanks P J.

Daniel P. Burkland: We absolutely are seeing that and we're seeing it already as you mentioned with many of the AI applications that are not really tied to a seat and theyre not really correlated to a seat that can be like as an example, even IV a at the front end, we do that per port, which we kind of equate is offsetting a seat, but there's many other applications like insight.

Daniel P. Burkland: Alright, you're pulling insights across an enterprise and getting information to make valuable decisions.

Daniel P. Burkland: And those are already being track things like transcription and our voice stream applications. Those are all priced based on either per minute or per gigabyte more consumption. Some other consumption measurements. So we're seeing that.

Daniel P. Burkland: And those are already being tracked. Things like transcription and our voice stream application, those are all priced based on either per minute, or per gigabyte, or consumption, some other consumption measurements. So we're seeing that evolve and take place as we speak. But there's still software that sits in front of the agent that helps the human agent. That's the most prevalent that will remain to be a typically a seat based seat based model. But you're absolutely right, over time, we'll see that evolve and have more consumption based. Yeah.

Daniel P. Burkland: Evolve and take place as we speak but Theres still software that sits in front of the agents that helps the human agent.

Daniel P. Burkland: That's the most prevalent that will remain to be typically a seat based.

Daniel P. Burkland: Thanks model, but youre absolutely right over time, we'll see that evolve and have more consumption nice yeah makes sense. Okay. Thank you guys.

Unknown Executive: Yeah, makes sense. Okay. Thank you guys. Our next question will come from Terry Tillman with Truist. Yeah, thanks for taking my question as well. And congratulations on the record transaction. Kind of like DJ, I'm gonna have one question, but it might actually be slightly two parts. In terms of AI and automation, what I'm curious about.

Unknown Executive: Our next question will come from Terry Tillman with truest.

Terrell Frederick Tillman: Our next question will come from Terry Tillman with Truist. Yeah, thanks for taking my question.

Terrell Frederick Tillman: Yeah. Thanks for taking my question as well and congrats on the record transaction kind of like DJ I'm going to have one question, but it might actually slightly be two parts.

Terrell Frederick Tillman: In terms of the AI and automation, what I'm curious about is what kind of impact is that having not to be myopic, but on a seat or kind of an MRO basis per user and then the second part is because you have these interesting tools in the Gen. AI side I think you all had some efforts more recently to kind of programmatically go back to the base to really have them discover these two.

Terrell Frederick Tillman: And what are you seeing in terms of uptake there. Thank you.

Daniel P. Burkland: So if I look first at the question regarding the seats and how much is being impacted or how much that's being affected by AI and automation, what we're seeing is an uplift. You know, we've talked for many quarters about the fact that our AI applications, when you start to automate interactions, we actually collect more revenue for those. You know, whether it's a like-for-like or you're taking calls that are 100% self-served through an IVA that used to be handled through an agent, we're getting twice the revenue per, think of it as per interaction, but it's really on a per-seat basis or per-port basis.

Terrell Frederick Tillman: Yeah, So if I if I look first at the.

Daniel P. Burkland: The question regarding the seats and how much is being impacted or how much that's being affected by AI and automation and what we're seeing is an uplift.

Daniel P. Burkland: We talked we've talked for many quarters about the fact that our AI applications. When you start to automate interactions, we actually collect more revenue for us.

Daniel P. Burkland: Whether it's a like for like or you are taking.

Daniel P. Burkland: Calls that are 100% self served through an iga that used to be handled through an agent we're getting twice the revenue.

Daniel P. Burkland: Think of it as per interaction, but it's really on a per seat basis or a per port basis, but we're collecting rather than just north of $200 per seat for the the human agent software.

Daniel P. Burkland: But rather than the just north of $200 per seat for the human agent software, as we've talked, we get nearly double that in the 400 range when we automate those interactions. And then you talk about the rest of the AI portfolio, that's incremental add-on revenue that we achieve. So the wallet share that we achieve from our customers as they increase the automation and move more towards AI goes up, not down.

Daniel P. Burkland: As we talked we get nearly double in the 400 range.

Daniel P. Burkland: When we automate those interactions and then you talk about the rest of the AI portfolio.

Daniel P. Burkland: That's the incremental add on revenue that we achieved because the wallet share that we achieved from our customers as they increase the automation and move more towards AI.

Daniel P. Burkland: And we're seeing our customer base, from a seat perspective, when they do adopt AI and automation, it's additive. It's usually giving customers added convenience, one more choice to interact with that brand, driving more and more time that an individual will spend with that brand, not taking it as a cannibalization of the human seat.

Daniel P. Burkland: <unk> knockdown.

Daniel P. Burkland: We're seeing our customer base.

Daniel P. Burkland: From a seat perspective, when they do adopt AI and automation, it's additive, it's usually giving customer added convenience one more choice to interact with that brand driving more and more time that an individual's spend with that brand not taking it.

Daniel P. Burkland: Cannibalization of the of the human seats and Terry I'll pile on.

Michael Burkland: And Terry, I'll pile on. Our Gen AI studio is an industry first, as I mentioned in my remarks. And again, we're going to continue to out-innovate the competition, deliver more and more AI products across our platform, and most of those are upsell opportunities to our base, as you mentioned.

Michael Burkland: Our Gen AI studio is an industry first as I mentioned in my remarks, then again, we're going to continue to out innovate the competition deliver more and more AI products across our platform and most of those are upsell opportunities to our base.

Michael Burkland: Mentioned in your question.

Unknown Executive: Thank you. Thanks, Terry. We'll now move on to Taylor McGinnis with UBS. Question.

Speaker Change: Thank you thanks Terry.

Taylor Anne McGinnis: We'll now move on to Taylor McGinnis with UBS. Unknown Speaker. Thanks for the question.

Taylor Anne McGinnis: We will now move on to tailor mcginnis with UBS.

Taylor Anne McGinnis: Question.

Taylor Anne McGinnis: Thanks for the question that Seth Seth Gilbert on for Andre Taylor.

Taylor Anne McGinnis: We'd love to know maybe a little bit about that.

Taylor Anne McGinnis: The vertical seasonality as you mentioned before Barry the guide still assumes a recovery to growth of about 20% for the year.

Taylor Anne McGinnis: So how to verticals like consumer.

Taylor Anne McGinnis: Kind of influence the second half acceleration.

Barry Zwarenstein: Yes, it influences this moderately in the sense that we don't have this deterioration taking place like we saw in the fourth quarter of 2023, when for the first time ever, a subset of the consumer vertical and the consumer discretionary contracted for the first time ever, as I said. So we're coming into more normal compared, and we've got an installed base that is being extremely well managed and could also help.

Taylor Anne McGinnis: Yes.

Taylor Anne McGinnis: It influences it moderately in the sense that we don't have it.

Barry Zwarenstein: This deterioration taking place like we saw in the fourth quarter of 2023 way with first time ever a subset of the consumer vertical in any consumer discretionary.

Barry Zwarenstein: Contracted.

Barry Zwarenstein: For the first time ever as I said, so we accounting into more novo compare.

Barry Zwarenstein: And we've got.

Barry Zwarenstein: And install base that is being extremely well managed it would also help.

Barry Zwarenstein: And.

Barry Zwarenstein: Yes.

Barry Zwarenstein: Why is the vertical is a concern.

Barry Zwarenstein: And yeah, as far as the verticals are concerned, it really comes down to the overall macroeconomy. And we're seeing an economy in which we're not macroeconomists, but we're not blind to the fact that there are challenges out there. But we've allowed for that to the best of our ability and our focus.

Barry Zwarenstein: It really comes down to the overall macro economy.

Barry Zwarenstein: And.

Barry Zwarenstein: We are seeing an economy, that's we're not macroeconomists, but.

Barry Zwarenstein: We're not blind to the fact that they had.

Barry Zwarenstein: Challenges out there.

Barry Zwarenstein: But we've allowed for that in to the best of our ability.

Barry Zwarenstein: Thanks, Barry, maybe maybe just a quick follow up, then are there any, any verticals that are outperforming or underperforming, conversely, that you would call out, if it's not consumer? So, if I can, I can't speak about the end of the year, but take Q1 2024, the third biggest, namely consumer, was expected to be somewhat weaker, and it was, and that's confirmed, so closely by this JP Morgan dividend and credit card data, if I could just take a moment, you know, this is a consumer lending, Maybe two-thirds to a bit higher is consumer and people use cash occasionally, they use Bitcoin, but most of that is credit and debit card data.

Speaker Change: Thanks, Barry maybe maybe just a quick follow up then are there any any verticals that are outperforming.

Barry Zwarenstein: Or are underperforming Conversely that you would call out if it is not consumer.

Barry Zwarenstein: <unk>.

Barry Zwarenstein: I can't speak about the end of the fifth but I'd take Q1 2024.

Barry Zwarenstein: The third biggest namely consumer.

Barry Zwarenstein: Wed expect it to be somewhat weaker than it was and that's confirmed.

Barry Zwarenstein: So closely by this JP Morgan debit and credit card data if I could just take a moment. This is a consumer led economy may two thirds to bid higher is.

Barry Zwarenstein: Consumer and.

Barry Zwarenstein: People use cash occasionally they use bitcoins, but most of that is driven debit card data and.

Barry Zwarenstein: We see it even by month that attracts JP Morgan the largest issue or it can pick.

Speaker Change: UBS is well it with credit cards, and Youll see some of the data and so the consumer one was somewhat weaker as expected the rest of the vehicles were similar to prior quarters, namely slightly up in the first quarter.

Barry Zwarenstein: And we see, even by month, that attracts JP Morgan, the largest issuer; they can pick UBS as well, they've got credit cards, and you'll see similar data. And so the consumer one was somewhat weaker, as expected. The rest of the verticals were similar to prior quarters, mainly slightly up in the first quarter.

Speaker Change: Yeah <unk>.

Unknown Executive: [inaudible] Thank you, Barry. Our next question will come from Ryan MacWilliams with Barclays. Hey guys, thanks for taking the question. So despite the changes in technology and some of these new AI solutions being introduced, Five9.

Speaker Change: Thank you Barry.

Barry Zwarenstein: Yes.

Ryan Patrick MacWilliams: Our next question will come from Ryan MacWilliams with Barclays.

Ryan Patrick MacWilliams: Our next question will come from Ryan Macwilliams with Barclays.

Ryan Patrick MacWilliams: Hey, guys. Thank for taking the question.

Ryan Patrick MacWilliams: Despite the changes in technology and some of these new AI solutions being introduced by <unk> is now seeing some of its largest deal wins over the last few years. So even with these technology changes what do you think the board enterprise customers are choosing to move to the cloud now and does this increase contact center complexity that benefit five nine.

Ryan Patrick MacWilliams: Given your track record of deploying these larger deals like are you seeing these customers want to do you have a one stop shop for your one source of truth for data for a lot of these ad solutions.

Michael Burkland: Solutions. Yeah, I'll start.

Ryan Patrick MacWilliams: I'll start and Dan you can chime in Ryan Great question.

Ryan Patrick MacWilliams: We've talked about this before the shift to the cloud as is happening for many reasons, though the strategic nature of <unk>. The end of life of these on premise legacy solutions.

Ryan Patrick MacWilliams: And the opportunities that that provides these large brands to change the game and re imagine their CX right. So yes, it's way more complex and that helps us that's a huge tailwind for us over the next 10 years as.

Michael Burkland: And Dan, you can chime in. Ryan, great question. We've talked about this before, the shift to the cloud is happening for many reasons. You know, the strategic nature of CX, the end of life of these on-premise legacy solutions, AI, and the opportunities that that provides these large brands to change the game and reimagine their CX, right? So yes, it's way more complex, and that helps us. That's a huge tailwind for us.

Michael Burkland: Complexity are almost always our crews through the platform players and again you have to have the breadth of platform to not just deliver the the.

Michael Burkland: Applications across that platform, but again never end to end visibility that powers. The AI and we talk about Gen. AI studio in my prepared remarks, I talked about it. It is a unique differentiator that allows us to leverage the most advanced engines, whether they are <unk> small small lag.

Michael Burkland: Over the next 10 years, as you know, complexity almost always accrues to the platform players. And again, you have to have the breadth of platform to not just deliver the applications across that platform but again, to have that end-to-end visibility that powers AI. And we talked about Gen AI Studio in my prepared remarks. I talked about it. It is a unique differentiator that allows us to leverage the most advanced engines, whether they're LLMs or small, you know, small language models, or whatever they are.

Michael Burkland: Which models or whatever they are where engine agnostic, but it's the combination of combining those engines are best in the world. The best of the time and those are going to continue to invest with contextual data.

Michael Burkland: And you only way you get to all the contextual data across an enterprise and a brand is by having a platform. So this gen. II studio is a game changer. It is putting us out ahead of our competition and by the way again, we don't spend a lot of time talking about competition and I'll just say this.

Michael Burkland: We've talked about it in my prepared remarks.

Michael Burkland: Generative AI Revolution validated our decision long ago to be engine diagnostic a lot of our competitors didn't take that approach. They built their own engines and guess, what they're having a throw away all that investment they made in pivot <unk>.

Michael Burkland: We're engine agnostic, but it's the combination of those engines, the best in the world, the best of the time, and those are going to continue to advance with contextual data. And the only way you get to all the contextual data across an enterprise and a brand is by having the platform.

Michael Burkland: So this Gen AI studio is a game changer. It is putting us ahead of our competition. And by the way, again, we don't spend a lot of time talking about competition. I'll just say this. We've talked about it in my prepared remarks. The generative AI revolution has validated our decision long ago to be engine agnostic. A lot of our competitors didn't take that approach. They built their own engines. And guess what? They're having to throw away all that investment they made. And pivot and play catch up to Five9. Appreciate the cover. Thanks, guys. And moving on, to Matt VanVliet with BTIG.

Michael Burkland: They catch up to $5 million.

Michael Burkland: Okay.

Michael Burkland: Okay.

Matthew David VanVliet: Thanks, Ron.

Matthew David VanVliet: Moving on to Matt Van Vliet with BT IAG.

Matthew David VanVliet: Hey, good afternoon, thanks for taking the question here.

Matthew David VanVliet: Wanted to check in on sort of where you're at on the fed ramp process and maybe more importantly, how that's helping you win new deals both in the federal market, but also the trickle down and into the state and local maybe even higher Ed as well.

Matthew David VanVliet: What youre seeing in those verticals, yes, Matt we're very very early in that process, where were aiming at the end of 'twenty five 'twenty 'twenty five to be fed ramp certified.

Daniel P. Burkland: Matt, we're very, very early in that process. We're aiming at the end of 2025 to be FedRAMP certified. We haven't really, you know, begun a go-to-market motion in earnest yet. We're still doing state and local government business. We've been doing that for quite a while.

Matthew David VanVliet: We haven't really.

Daniel P. Burkland: Begun in go to market motion in earnest, yet, we're still doing the state and local government business, we've been doing that for quite a while but it's again, it's going to be another year and a half or so by the time were true in that market, but.

Daniel P. Burkland: But again, it's going to be another year and a half or so before we're truly in that market. But having said that, it does help us in a go-to-market perspective where we have some of these large financial institutions and others that want to make sure that we're on a path to get that authorization in FedRAMP because they serve clients that are federal-based clients and agencies. They want to make sure we're on the path to that.

Daniel P. Burkland: Having said that it does help us in our go to market perspective, where we have some of these large financial institutions and others that want to make sure that we're on a path to get that authorization.

Daniel P. Burkland: Fed ramp because they serve clients that are federal federal based clients and agencies that they want to make sure. We're on the path for that so it's playing a role in securing that business, but as Mike says, we haven't really gone to market yet.

Daniel P. Burkland: So it's played a role in us securing that business. But we, as Mike says, we haven't really gone to the market yet. We'll be what's considered in process at the end of this year. And that process, once you get in process with a sponsor, then it's typically about a 12-month period before you get authorization.

Speaker Change: We'll be in what's considered in process at the end of this year and that process. Once you get in process with a sponsor then it's typically about a 12 month period before you get authorization to proceed and I would like to add one thing to that because we are going to at some point you're talking about we are washed with investment opportunities we'd be taking advantage of it.

Michael Burkland: And I would like to add one thing.

Michael Burkland: And I would like to add one thing, Matt, because we are going to at some point talk about being washed with investment opportunities which we're taking advantage of, and I believe this management team has demonstrated their shrewdness in some ways to be able to pick the right investments, and it's clearly one of them, FedRAMP. But it's a lot of money, a lot of money. And we will give you a quarterly report on what it is. And starting now with Q1 2024, the cost will be $1.9 million, with 77 basis points to be deducted.

Michael Burkland: I'll leave this management team has demonstrated that.

Michael Burkland: The student is in some ways to be able to pick the right investments in this case one of them paying rent on.

Michael Burkland: And it's a lot of money a lot of money.

Michael Burkland: We will give you a quarterly track on what it is.

Michael Burkland: Starting now with Q1 2024.

Michael Burkland: The cost was $1.9 million.

Michael Burkland: 77 basis points of EBITDA.

Sitikantha Panigrahi: All right, great. Thank you, and Siti Panigrahi with Mizuho has the next question. Thanks for taking my question. I know you guys talked about Q4 as

Matt: Alright, great. Thank you.

Sitikantha Panigrahi: and Siti Panigrahi with Mizuho have the next question.

Sitikantha Panigrahi: At CP panic Rocky with Mizuho has the next question.

Sitikantha Panigrahi: Thanks for taking my question I know you guys talked about Q4 or the record booking and you're expecting some of those go lives that's embedded in your guidance in the second half so wondering.

Sitikantha Panigrahi: How does that how does the go lives going and do you have visibility into their go live and have you baked in any kind of conservatism and pumped up.

Sitikantha Panigrahi: In case of any go lives slips.

Sitikantha Panigrahi: So part of that.

Daniel P. Burkland: Yeah, hi, CT. I'll start.

Sitikantha Panigrahi: Yes, Hi, <unk>.

Sitikantha Panigrahi: I'll start feel free to chime in very Big go lives are going great. We turned up a record number of seats in Q1 and.

Sitikantha Panigrahi: We manage that backlog.

Daniel P. Burkland: No.

Sitikantha Panigrahi: Products seats subscriptions and other AI products included we manage it like a pipeline.

Sitikantha Panigrahi: Once we book that business Rps team our implementation team is very very metrics, driven and our turnover we track them very close way backwards as presented at our board meeting recently so.

Sitikantha Panigrahi: We're very.

Sitikantha Panigrahi: It has we have great visibility on it with us and he's aggregate add two things to that.

Sitikantha Panigrahi: What you're asking about is very important.

Sitikantha Panigrahi: In the sense that is key to the dollar base retention rate inflection.

Sitikantha Panigrahi: So in terms of our spot.

Sitikantha Panigrahi: Spot rate, we gave you the LTM rate, but it has been.

Sitikantha Panigrahi: It's been flat for the last at the.

Sitikantha Panigrahi: Spot rates for the last three quarters.

Sitikantha Panigrahi: What it would take it up is the ramping of our big assessment and the go lives is so key in that and we've got a really high stepping team they every quarter quarter in quarter out they.

Daniel P. Burkland: Feel free to chime in, Barry. But the go lives are going great. We turned up a record number of seats in Q1. And again, we manage that backlog of, you know, products, seats, subscriptions, and other, you know, AI products included. We manage it like a pipeline. It's, you know, once we book that business, our PS team, our implementation team, is very, very metrics driven. And our turn-ups; we track them very closely.

Barry Zwarenstein: And eat meat, but typically beat their number of seats that they said they were being up and they're not dealing with wishes and hopes it actually there was a backlog.

Daniel P. Burkland: Now of course, the customer thinks and include a thing again, but most of that done because of the pretty motivated.

Barry Zwarenstein: That's great. Thank you.

Daniel P. Burkland: Thomas Blakey with Keybanc.

Speaker Change: The next question. Please go ahead.

Daniel P. Burkland: In fact, we've just presented it at our board meeting recently. So we're very, it has, we have great visibility on it. And if I could just add two things to that. What you're asking about is very important in the sense that it's key to the dollar base retention rate inflection. So in terms of our C.D. of our Spot rate, we give you the LTM rate, but it's been flat for the last three quarters. What if we take it up is the ramping of our bigger customers, and the go-live is so key to that. And we've got a really high-stepping team.

Barry Zwarenstein: Hey, guys. Thanks for taking my question again congratulations.

Daniel P. Burkland: The Mega deal I'll, just a two part question that most people who've had the Dan for you just if you could highlight one or two key reasons for winning this deal.

Daniel P. Burkland: Every quarter, quarter in, quarter out, they at least meet, but typically beat, the number of seats that they said they would bring in. And they're not dealing with wishes and hopes. It's actually there in the background. Now, of course, customers can intrude or something like that, but most of the time, the customers are pretty motivated.

Daniel P. Burkland: And then you talked about trust and whatnot, but just trying to.

Daniel P. Burkland: View, how this could impact our future wins down the road with we're seeing deals get larger and larger here.

Thomas Blakey: Thomas Blakey with KeyBank.

Daniel P. Burkland: And then Barry for you on backlog you mentioned I think in your preamble, but maybe talk about any type of Cushing you might have there as it relates to the sharp uptick in our growth into the second half.

Unknown Executive: Hey, guys. Thanks for taking my question. Again, congratulations on the mega deal. I just have two more questions, which I guess most people have had.

Thomas Blakey: Would be helpful. Thank you.

Thomas Blakey: Yeah, Great question so regarding.

Thomas Blakey: The large bank.

Thomas Blakey: I mentioned in the prepared remarks, the trust, but if you look at the process that they went through.

Daniel P. Burkland: Dan, for you, just if you could highlight one or two key reasons for winning this deal. I know you talked about trust and whatnot, but just trying to see how this could impact future wins down the road. We're seeing deals get larger and larger here. And then, Barry, for you on backlog, you mentioned that, I think, in your preamble, maybe talk about any type of cushion you might have there as it relates to the sharp uptick in growth into the second half. That'd be helpful. Thank you.

Thomas Blakey: They're looking at you know when you look across all of their different divisions and the global footprint that they have they did a very thorough inspection and audit of us and our competitors and I mean.

Daniel P. Burkland: Yeah, great question. So, regarding the large bank, as I mentioned, the prepared marks, the trust, but if you look at the process that they went through, they're looking at, you know, when you look across all of their different divisions and the global footprint that they have, they did a very thorough inspection and audit of us and our competitors. And I mean, like no other. I'll say that.

Daniel P. Burkland: Like no other I'll say that.

Daniel P. Burkland: Spending days here.

Daniel P. Burkland: Here with us at our corporate offices and inspecting not just the product.

Daniel P. Burkland: Spending days here with us at our corporate office and inspecting not just the product, the platform, but really understanding our ability to deliver and our ability to support an operation of their size and complexity. And so when we talk about product, and we talk about innovation, absolutely, those things are critically important, but they really wanted to understand how we could help them deliver the business outcomes that they were wanting to achieve. And you have to demonstrate. You can't just, you know, put up slides and talk about what you've done before or what you're going to do for them. You've got to get into the trenches.

Daniel P. Burkland: Platform, but really understanding our ability to deliver and our ability to support.

Daniel P. Burkland: And operation of their size and complexity.

Daniel P. Burkland: And so while we talk about product that we talked about the innovation absolutely those things are critically important but they really wanted to understand how would we help them deliver the business outcomes that they wanted to achieve and you have to demonstrate that you can't just.

Daniel P. Burkland: And so we had dozens, literally dozens of people, technical folks from the bank that spent several consecutive days here on multiple occasions to really understand that and understand, as I mentioned, the partnership. Can we leverage the partners that we have? You know, when you look at the AI and automation solutions, you know, as we talked earlier about, why are why are these large organizations moving to the cloud? Now, a big part of it when you look at the AI functionality is cloud to cloud integration, you know, you're taking data and shooting it over to a hyperscale or to get some underlying engine that they have, and being able to get back data that can then be leveraged and utilized to deliver an experience that hasn't been realized before. And so understanding who our partners are and how we're working with them to deliver a joint solution. And the example is Google, right? That was a big factor, right?

Daniel P. Burkland: Put up slides and talk about what you've done before or what you are going to do for that you've got to get into the trenches and so we had dozens literally dozens of people technical folks from from the bank that spent.

Daniel P. Burkland: Several consecutive days here on multiple occasions to really understand that and understand as I mentioned the partnerships can we leverage the partners that we have you know when you look at the AI and automation solutions.

Daniel P. Burkland: As we talked earlier about why or why are these larger organizations moving to the cloud now a big part of it when you look at the AI functionality as is cloud to cloud integration, you're taking data shooting in over to hyperscale or to get some underlying engine that they have and be able to get back.

Daniel P. Burkland: Data that can then be leveraged at utilized to deliver an experience that.

Daniel P. Burkland: How do we leverage Google in much of the AI applications that we're going to deliver for them? So it comes down to the comprehensiveness and our ability to deliver and support for a global organization. As you can imagine, they have many, many systems, hundreds of different systems. They've got dozens, as I mentioned in the prepared remarks, of CRM systems. They want to make sure that we've got the platform but really the expertise and wherewithal.

Daniel P. Burkland: It hasnt been realized before and so understanding who our partners work and how we're working with them to deliver a joint solution and the example is Google right that was a big factor right, how do we leverage Google and much of the AI applications that we're going to deliver for them.

Daniel P. Burkland: So it comes down to the comprehensiveness and our ability to deliver and support for our global organization like that as you can imagine they had many many system hundreds of different systems, they've got dozens as I mentioned in the prepared remarks CRM systems. They want to make sure that we've got the platform, but really.

Daniel P. Burkland: The expertise and wherewithal, Mike has mentioned several times about our professional services team that team comes with experience many have worked in.

Daniel P. Burkland: Mike has mentioned several times about our professional services team. That team comes with experience. Many have worked on their side of the table for customers, for large financial institutions, putting in and operating on the customer side large, complex solutions such as this. They just felt very comfortable that we were the right fit and had the right direction to help them for decades.

Daniel P. Burkland: Their side of the table for customers for large financial institutions, putting in and operating on the customer side.

Daniel P. Burkland: Large complex solutions such as this they just felt very comfortable that we were the right fit and had the right direction to help them for decades to come.

Daniel P. Burkland: Have we mentioned ACS? Yeah, ACS, our acquisition of ACS played a role as well.

Daniel P. Burkland: As we mentioned the Acs.

Daniel P. Burkland: Yes, atheists our acquisition of ACS played a role as well. So when you look at that that takes information the data that's coming from all of the disparate systems that they have across those positions and brings them together normalizes it and displays it so that the operator of the contact centers and the management that are making the strategic decisions.

Daniel P. Burkland: So when you look at that, it takes information, data that's coming from all the disparate systems that they have across those divisions, and brings it together, normalizes it, and displays it so that the operator of the contact centers and the management that are making the strategic decisions don't need to worry about what systems are behind that. I've oftentimes been in with those ACS customers and said, well, what data am I looking at? Is that coming off of Nevaeh or Cisco or Genesys or Five9 if we're in the middle of a migration?

Daniel P. Burkland: Need to worry about what systems are behind that I've oftentimes been in those acos customers and said well what date in mind looking at is that coming off of an avaya or Cisco or Genesis or five 9% for the middle of a migration and frankly, the operator doesn't know it does occur. So it helps us accelerate the move over they don't have to say whoa Whoa time out I can't let you.

Daniel P. Burkland: And frankly, the operator doesn't know and doesn't care. So it helps us accelerate the move over. They don't have to say, "whoa, time out."

Daniel P. Burkland: I can't let you cut over this division because it's going to skew all my reporting. And I do my payroll based on certain metrics that come out of that reporting. Well, guess what? We don't. It doesn't matter. We can go behind the curtain and make that transition happen, and it's invisible to the user on the floor.

Daniel P. Burkland: Cut over this division because it's going to skew all my reporting and I do my payroll based on certain metrics that come out of that reporting well guess, what we don't it doesn't matter. We can go behind the curtain and make that transition happen and it's invisible to the user on the floor.

Barry Zwarenstein: And then, Tom, thanks, Dan, to answer the second part of the question. So for that re-acceleration, taking out three quarters, not just the second half, just for ease of arithmetic, we need $116 million extra year-over-year growth. That $116 million is bifurcated, as we've talked about in the past when we were talking about the full year, between the DBRR at $64 million of that $116 million, and then the remaining part, the $52 million, comes from new logo deployments that you're asking about. So the majority is the DBRR. Now, And that, by the way, is prior to the inflection; I'm using 110.

Speaker Change: And then Tom too Thanks, Dan.

Dan: To answer the second part of the question so for that Reacceleration.

Barry Zwarenstein: <unk> now three quarters not just the second half just for ease of arithmetic, we need $116 million extra year over year growth there.

Barry Zwarenstein: <unk> hundred 16.

Barry Zwarenstein: Its bifurcated as we've talked about in the past when we were talking about the full year between the a b R. R.

Barry Zwarenstein: $64 million of that 116, and then the remaining part of 52 million common strong new logo deployment that you're asking about so the majority of the DVA.

Barry Zwarenstein: Now.

Barry Zwarenstein: The 52 is largely in backlog, not totally. There are what we refer to in the past as go-get in the next month or two. That's still we still need to complement that to some extent, but largely it's all in backlog. And we talked earlier about the expertise and competence of our professional services team.

Barry Zwarenstein: The 52 is largely in backlog not totally there are what we refer to in the past at Colgate and the next month or two that's still we still need to complement that to some extent, but largely it's all in backlog.

Barry Zwarenstein: And we talked earlier about.

Barry Zwarenstein: The expertise and competence of our professional services team.

Barry Zwarenstein: Thank you, Barry. Thank you, guys.

Meta A. Marshall: Meta Marshall with Morgan Stanley has the next question. I think Meta might be joining us audio only today. Yeah, apologies. No videos better than frozen video.

Unknown Executive: So I guess the question is, you know, time to migration, obviously, as you get these longer and longer or larger and larger deals, it's a consideration. And obviously, ACS helps with that. I just wanted to get a sense of, you know, is there any way to quantify how much ACS can shorten those migration cycles?

Unknown Executive: So I.

Unknown Executive: I guess the question is you know time to migrate and obviously as you get these longer and longer are larger and larger deals.

Unknown Executive: Or, you know, and just on the service provider channel, or service system integrator channel, as you've used those guys to kind of help with migrations, you know, is the pace of those migrations kind of the same as you've seen with your own channel? Just trying to get a sense of, you know, what trends are in the pace of migration. But most of the actual work of the configuration and integration effort is done by our professional services team.

Unknown Executive: Now, we're in the process of enabling those SIs to get certified and really, you know, get their skill sets to where ours is. We have a very, very high bar that we set for what we require and demand. And we're starting to get leverage from them. The goal is to ultimately move more and more of that off of our personnel and onto theirs, for obvious reasons. But that's something that it's really hard to, you know, shorten too much.

Unknown Executive: Yeah, the tools help, like I said in that last example, like ACS. But for the most part, it's a matter of going as quickly as the customer can. We'd obviously like to move as quickly as they're able so that we can get to revenue sooner, but there's a lot of planning. And oftentimes, there are a lot of changes that they're doing, and so they have to have a lot of internal meetings themselves in order to make some important decisions.

Unknown Executive: Great, thank you. We'll move on to Jim Fish with Piper Sandler.

James Edward Fish: Hey guys, nice to get the win on the board here, and I'm sure you're sick of answering the question about stagecoaches, Barry. You know, actually, building off of that last question, you guys mentioned incentivizing these SIs to lead with Five9 through, I think you call it project pull through. Can you just walk us through what you're changing in terms of these incentives and any go-to-market changes outside of this that you're planning for this year?

Michael Burkland: Yeah, Fish, I'll start, and Dan, feel free to chime in, but, you know, we kicked off Project Pull Through, boy, close to 18 months ago, and that was really designed to lean into a lot of the SIs and other resellers that want the services revenue as part of this equation, and if you look at our business, right, you look at our, we talked about subscription revenue, and subscription revenue is the key metric that everybody should be paying attention to, and as we offload some of these services, services to SIs and other partners, you know, we're not going to get that revenue, and that's, you know, that's why there's a disproportionate growth rate in our PS revenue and our usage revenue compared to subscription, but that is our strategy. It's part of our business model we think is a very good thing from a margin perspective, but it's also the reason we named it Project Pull Through was because we know that there's an incentive on these SIs and other resellers.

James Edward Fish: And with that SI aspect, kind of how we should think about SI contribution today in terms of, you know, how much it's pulling you guys in versus where you expect it could be over the next couple years? Thanks, guys. Yeah, Fish, I'll start.

Michael Burkland: If they've got the services revenue, you know, in a deal, they're more likely to bring us into a deal, and we were, quite frankly, missing out on that opportunity 18 months ago, so that's why we kicked it off. It's been a very nice impact up market, and again, it's still somewhat early days, but they're, you know, we're getting third parties are doing a very good proportion of our implementations these days, especially internationally, and a very, you know, good growth in our SIs. Our U.S. implementations.

Unknown Executive: Thank you. Thanks. Thanks.

William Verity Power: Baird's Will Power has the next question.

William Verity Power: Right, thank you. Maybe I'll come back to the Fortune 50 win.

Daniel P. Burkland: Great, great to see that. Congratulations. You know, I mean, it sounds like professional services and your ability to execute are big, you know, pieces of that. But I'd love to get some color as to how important AI was, how focused they were on the IVAs and the capabilities you have there and what kind of stood out your platform on that front, perhaps, you know, versus others, and I guess, kind of tied to this kind of mega-deal. You know, thought process, I mean, any qualitative color as to how the pipeline is building for other dolphins and whales, I guess, as you look forward. Yeah, thanks, Will.

Daniel P. Burkland: When you look, I'll start with that one, the dolphins and whales, you know, when you take that large bank out of the equation, the pipeline is a record, we're still at a record. If you take that out of the equation, obviously, that came in, so it dropped the pipeline down pretty significantly because of the size of the deal, but otherwise, a very, very healthy pipeline, striving towards that. But if you look at AI, it was very key front and center for them in their decision. In fact, if you think about it, most banks, including this one, have a lot of automation and self-service already on their legacy platforms. And it just, it just isn't as good, right?

Daniel P. Burkland: It doesn't have the accuracy, right? When you have speech enabled, I'll call it speech enabled IVR from 10 or 15 years ago, you can do some basic things. You can call in and do some banking by phone and check your balance and see if your checks cleared. But it's just not as robust and not what you can get with today's technology. And so a big, big, big part of it was how they would replace that with, you know, today's next generation IVAs.

Daniel P. Burkland: And thank goodness, we have, you know, the inference of that acquisition and the enhancements we've made to that platform to be able to then deliver what they felt was the market-leading IVA solution for, for not just self service, but for, and then when you combine, you take the IVA for self service, of course, but then you combine that with our agent assist and our ability, like I said, with that Google partnership to be able to And then fetch the right data from the right source.

Daniel P. Burkland: Our agent assist and our ability like I said with a Google partnership to be able to take real time conversational data and be able to interpret it.

Daniel P. Burkland: If you think about a large bank with, you know, dozens of CRM systems, we've got to go fetch the right data to be able to answer that customer's question. And those types of functions are way down in the weeds, technically, but we came out very superior compared to our competitors. Because of some of the things Mike said, the engine agnostic, the speed at which we've been able to work with these other engines, and then the flexibility, they were actually able to come to us and say, hey, in this particular use case, we want to use this engine; in that particular use case, we want to use another one.

Daniel P. Burkland: And then searched the right data from the right source, if you think about a large bank with.

Daniel P. Burkland: Dozens of CRM systems, we've Gotta go fetch the right data to be able to answer that customer's questions and those types of functions are way down in the weeds.

Daniel P. Burkland: Technically, but we came out very superior compared to our competition because of some of the things Mike set the engine agnostic.

Daniel P. Burkland: And oh, by the way, in this one, we may want to build our own small one with just our data, because it's faster at getting to the data. You don't want to go search 23 databases. But if you know you have a specific use case, you want to build one that's very personalized and customer-specific, so you can get the data very quickly.

Daniel P. Burkland: Getting getting to the data you don't want to go search twenty-three databases, but you know you have a specific use case you want to build one that's very personalized and customer specific so that you can get the data very quickly.

Speaker Change: Okay. Thank you.

Unknown Executive: We will now hear from Scott Berg on Meta.

Scott Randolph Berg: Hey, everyone, a really nice quarter. Thanks for taking the question here. Mike, you made a comment on the summit status with Salesforce. I think that's an interesting comment because they effectively partner with all your competitors in the space as well. And whether they've made investments in them, or they're really partnered supposedly tightly, if you're a company based in Seattle, you, if you're the first one to reach that status, I think that's kind of interesting.

Scott Randolph Berg: Everyone really nice quarter.

Speaker Change: Thanks for taking my question here.

Scott Randolph Berg: Mike you'd made a comment on the summit status with Salesforce I think that's an interesting comment because they effectively partner with all your competitors in the space as well and whether they've made investments into them or they're really part there supposedly tightly if you're a company based in Seattle.

Scott Randolph Berg: Your.

Speaker Change: You are.

Speaker Change: If you're the first one the status I think that's kind of interesting help us understand a little bit more maybe what this can give you outside of you an early look on technologies et cetera, My guess if theres. Some other commercial opportunities, but just would like to understand that better. Thanks, Yes, Scott I think its visibility.

Scott Randolph Berg: Help us understand a little bit more, maybe what this can give you outside of, you know, an early look at technologies, etc. My guess is there are some other commercial opportunities, but I just would like to understand that better. Thanks.

Michael Burkland: Yeah, Scott, I think it's visibility. It's technology, as we mentioned in the prepared remarks. And summit status is very objective.

Michael Burkland: Technology as we mentioned in our prepared remarks.

Michael Burkland: It's based on business we've done together, frankly. So at the end of the day, that's how they measure that. And that's who gets that status. And we're the only ones that have it. It's essentially a good metric to kind of get a sense for how much business we've done together with Salesforce.

Michael Burkland: To kind of.

Unknown Executive: It's a big deal. It's a really big deal. It's a big deal to them. It's a big deal to us. That's all I have.

Michael James Turrin: Thanks for taking my questions. Thanks, Scott. Moving on to Michael Turrin with Wells Fargo. Hey, thanks, guys.

Speaker Change: So I'll have to ask for taking my questions Mexico.

Barry Zwarenstein: Yeah, so it's easier to break it into three buckets: new, established, and peers.

Barry Zwarenstein: In terms of new, the background was largely there, and it's been added to somewhat in the intervening three months. Nothing dramatic there has changed. Also, with respect, Michael, to the inflection that we've been referring to in the dollar-value tension rate. Yes, it did, as expected, go down one percentage point this last quarter, and that is simply a fact of that, while the spot rates have been flat for the last three quarter

Barry Zwarenstein: We've now dropped off one of the higher ones, and we now have a higher one that we had to compare with, and then we're down slightly, but we can see now clearly that we've, you know, the flow, and the last time we had an increase in the dollar base retention rate was all the way back to the second quarter of 2021. So, a long time ago.

Barry Zwarenstein: We're really, really looking forward to that and hoping that the economy cooperates, because it really does target its residents. So, that's about it. That's the whole picture. What our analysis shows is that we've got a number, not just five, ten, but more, of big companies, enterprises, that came into the base starting in Q2 of 2023 that are ramping up, and I'm not just talking about the healthcare companies and so on, a lot of them, and those will also help, given the flaw in the spot rate, if you understand what I mean. Then, the last one is this tailbreed that we have from professional services. We will get a moderate amount from this major Fortune 50 institution finance service company, and that will help as well.

Barry Zwarenstein: We will get a moderate amount from this.

Barry Zwarenstein: Major fortune 50.

Barry Zwarenstein: Fusion financing for this company.

Barry Zwarenstein: And.

Barry Zwarenstein: That will help as well.

Barry Zwarenstein: Okay.

Speaker Change: Very helpful Barry.

Samad Samana: Samad Samana, with Jeff Reyes, has the next question.

Barry Zwarenstein: So much from the line of with Jefferies has our next question.

Barry Zwarenstein: Great, thanks for squeezing me in. Barry, I have a question for you just thinking about the monetization of AI. I think someone earlier asked about maybe a pricing model shift. And when I think about maybe gross profit dollars for $1 of AI revenue versus maybe what you would get for core subscription, if it's obviously double the revenue, you should get more gross profit dollars. But when you factor in maybe WFO as well, I guess what I'm trying to figure out is should we think about AI being a gross profit dollar tailwind as well, and not maybe just in the pipeline? And how should we think about that flowing through maybe over the next year or two?

Samad Samana: Yeah.

Samad Samana: Great. Thanks for squeezing me in Barry I have a question for you just thinking about the monetization of AI and someone earlier asked about maybe a pricing model shift and when I think about maybe gross profit dollars for a dollar of AI revenue versus maybe what you would get for core subscription, but it's obviously double the revenue you should get more gross profit.

Barry Zwarenstein: $1, but when you factor in maybe <unk> as well I guess, what I'm trying to figure out is should we think about AI being a gross profit dollar tailwind as well and that may be just on the top line and how should we think about that flowing maybe over the next year or two.

Barry Zwarenstein: Yes, but I'm going to resist the temptation to talk about it for the next year. And the reason I'm going to resist that temptation is that we've got five reasons why growth margins are going to go up, but they're going to go up over time. And the biggest of those is not what you've just been referring to, that's number two; it is the fact that revenue growth against fixed and semi-fixed costs is, by far and away, the biggest one.

Speaker Change: Yes, so I'm going to resist the temptation to talk about it for the next year.

Barry Zwarenstein: And the reason I'm going to resist that temptation is that we've got.

Barry Zwarenstein: Five reasons why gross margins are going to go up but they're going to go up over time and the biggest of those.

Barry Zwarenstein: It's not what you've just been referring to it that's number two.

Barry Zwarenstein: It is the fact that revenue.

Barry Zwarenstein: Growth against fixed and semi fixed cost is by far away the biggest one and we actually.

Barry Zwarenstein: I don't know how to put this without sounding boastful, but I've been pretty happy with the fact that we've maintained the growth margins where we have, despite the somewhat soggy revenue growth current. And so I'm not going to get into that. I don't want us to get into a corner with revenue.

Barry Zwarenstein: Hum.

Barry Zwarenstein: To put this without sounding bushel like we're pretty happy with the fact that we've maintained the gross margins, where we have despite the somewhat soggy revenue. Both currently and so I'm not going to get into I don't want to get into a corner with the revenue but in terms of your net number two is the upsell and the cross sell and the attach rates.

Barry Zwarenstein: But in terms of yours, number two is the upsell and the cross-sell and the attach rate from these AI automation solutions. And they clearly, clearly have higher gross margins. And these attach rates, both in the new bookings and in the installed base, are non-trivial. I'm not talking about 1%, 2% increases; it's a component of the total, it's more than that. And then, just in case with that teaser you're wondering what the other items are, they're what we talked about in the prepared remarks, mainly the makeshift wave over time from both usage, which has margins in the 50s rather than the 70s, and professional services, which have negative gross margins.

Barry Zwarenstein: From these AI automation solutions and they clearly clearly have higher gross margin and these attach rate both in the new bookings and in the.

Barry Zwarenstein: Install base on non trivial I'm, not talking about 1% 2% increases.

Barry Zwarenstein: A component of the total is more than that.

Barry Zwarenstein: And then just in case with that teaser you wonder what the other items are it's what we talked about in the prepared remarks, namely the mix shift away overtime from boat usage, which is on budget and associated rather in the seventies and professional services, we had negative gross margins.

Barry Zwarenstein: Thirdly, the number three one, we've also got one-time investments; FedRAMP features prominently there. Those are transitory, India is another one. The cost is there, the revenue is not there. And then we have a number of initiatives in the professional service organization because there's no need for that to run at a negative gross margin.

Barry Zwarenstein: Thirdly the.

Barry Zwarenstein: We're the number three one.

Barry Zwarenstein: They are one time investments feedback with features prominently there those are transitory India is another one.

Barry Zwarenstein: Got it the revenue is not there.

Barry Zwarenstein: And then we have a number of initiatives in the professional services organization is no need why that needs to run it at the at a negative gross margin.

Samad Samana: Great. Thanks, as always, for sending me in. I appreciate it.

Speaker Change: Great Thanks, as always to get them yet.

Speaker Change: Got it okay.

Peter Marc Levine: We have time for one additional question, so our final question is going to come from Peter Levine with Evercore. This is Bill.

Unknown Executive: We have time for one additional question. So our final question is going to come from Peter Levine with Effort Corps...

Samad Samana: We have time for one additional question. So our final question is going to come from Peter Levine with Evercore.

Peter Marc Levine: This is bill on for Peter and Thanks for taking my question with the health care expansion story gone from $2 3 million a $6 million of IRR, how often will that's kind of increasingly the norm or should we think of that as kind of uplift and then every now and then.

Unknown Executive: You know, at that amount, I would say it's an every now and then. That's why I highlighted it.

Unknown Executive:

Peter Marc Levine: That amount I would say it's in every now and then that's why I highlighted it but we get our installed based customer we talked about I think last quarter about.

Daniel P. Burkland: But we get our install-based customer. We talked about, I think last quarter, the folks that are focused on our install base. We had individuals that were wearing both hats of CSM and seller. So they were taking care of day to day issues with the customers and then putting their sales hat on and trying to do cross-sell and upsell. We've actually taken that team and divided it into separate individuals for each customer.

Daniel P. Burkland: The folks that are focused on our installed base. We had individuals that were wearing both passive CSM and seller. So they were taking care of day to day issues with the customers and then putting ourselves out on and trying to do cross sell upsell, we've actually taken that team and divided into separate individuals.

Daniel P. Burkland: So they now have a CSM that's responsible for the day to day. And they have a seller that's there to upsell and cross sell to carry the bookings quota. And they're primarily focused on these applications, the cross-sell and upsell applications. And so that will take effect and show itself over time. But that's what most software companies about our size typically go to, you know, that mix of hunter and farmer, even in the installed base. And that should contribute nicely to it. And we're seeing, you know, software being sold to our install base at good rates, and that will only increase as we roll out more.

Daniel P. Burkland: As for each customer so they now have a CSM that's responsible for the day to day and they have a seller that's there to upsell cross sell the carry that bookings quota and they are primarily focused on these.

Daniel P. Burkland: Applications, the cross sell upsell applications, and so that will take effect in show itself overtime, but thats what typical most software companies about our size.

Daniel P. Burkland: That mix of Hunter and farmer, even in the installed base.

Daniel P. Burkland: That should contribute nicely to it and we're seeing software being sold to our install base.

Speaker Change: Good right.

Daniel P. Burkland: Will only increase as we rollout more and more of these.

Speaker Change: Alright, Thanks for taking my question Yeah. Thanks Bill.

Daniel P. Burkland: And again this does conclude our Q&A session. So I'll turn it back to you Mike for closing comments, yes. Thank you very much for joining us today as I said.

Unknown Executive: Yeah, thank you very much for joining us today. As I said,

Unknown Executive: In my prepared remarks, it's been an amazing journey 10 years as a public company.

Unknown Executive: Really look forward to the next 10 years and seeing what we were able to achieve as a team I want to thank all the five nine there is one more time and thanks again for joining our call.