Q3 2024 Five9 Inc Earnings Call
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Speaker Change: These statements are subject to substantial risks and uncertainties that could adversely affect five nine future results and cause. These forward looking statements to be inaccurate, including the impact of adverse economic conditions, including macroeconomic deterioration in uncertainty, including continuing inflation increase interest rates supply chain disruptions.
Speaker Change: Decrease economic output and fluctuations in currency exchange rates lower growth rates within our installed base of customers and the other risks discussed under the caption risk factors and elsewhere and five nights annual and quarterly reports filed with the Securities and Exchange Commission and.
Speaker Change: 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 in the Investor Relations section on five nines website.
Speaker Change: And investors about five nine dotcom.
Speaker Change: Also please note that the information provided on this call speaks only to management's views as of today November seven 2024, and may no longer be accurate at a temporary blip lastly are minor that unless otherwise indicated financial figures discussed are non-GAAP and.
Speaker Change: And now I'd like to turn the call over to five ninth Chairman and CEO, Mike Burkland.
Mike Burkland: Thanks, Emily and thanks, everyone for joining our call. This afternoon, we're very pleased with our third quarter results, which exceeded our guidance across all key metrics importantly, subscription revenue growth accelerated to 20% year over year and total revenue growth accelerated to 15%.
Mike Burkland: Adjusted EBITDA margin was 20% of revenue, helping drive record quarterly operating cash flow of $41 million or 16% of revenue.
Mike Burkland: I'm energized by the momentum, we're seeing with our AI products.
Mike Burkland: With customers the focus of the discussion often quickly turns to leveraging the power of AI to transform their CX and this is clearly demonstrated by AI products, making up over 20% of our enterprise new logo ACB bookings in Q3.
Mike Burkland: Furthermore, over the last four quarters. The average IRR of new logo deals that included AI, where over five times larger than deals without AI and AI has been attached to a 100% of our 1 million plus or our new logo deals.
This AI momentum is also reflected in our installed base, where AI bookings grew over 50% year over year in Q3.
Our five nine genius AI suite of solutions is helping some of the world's largest brands transform their CX with AI.
The acceleration of AI CX is changing right before our eyes and we call. This the new CX.
Mike Burkland: This new CX as delivered by our AI powered platform that stays aware and engaged throughout the entire customer journey delivering value in many ways. We previously could only imagine.
Mike Burkland: Our next generation IV, which we're launching next week 12, five nine AI agents is a new paradigm for how consumers engage with brands.
Mike Burkland: Interacting across both voice and digital five nine AI agents identify authenticate deriving.
Mike Burkland: And Jack knowledge apply reason take actions completely independently and without the need for a human.
Mike Burkland: Five nine AI engines are designed to achieve unprecedented levels of comprehension capability and autonomy using generative AI.
This allows them to deliver great customer experience, while also reducing the volume of interactions that need to be routed to human agents.
Mike Burkland: With these AI agents plus AI empowered human agents five nine is delivering the new CX.
Mike Burkland: Designed to result in higher customer satisfaction scores happier employees and improved efficiency for organizations around the world.
Mike Burkland: <unk> is helping some of the largest brands in the world to deliver the new CX with our AI powered intelligence CX platform.
Mike Burkland: Five nine genius, AI suite, and our trusted AI experts with these three components and the foundation, we recently rolled out our AI Blueprint program, where our AI experts work with each of our customers to develop their own unique blueprint to transform their CX using AI.
Mike Burkland: For example, one of the world's largest hotel franchises increased first contact resolution by 50% after implementing our self service AI applications for their loyalty points program. Another example is a global automobile manufacturer leveraging five nine AI to handle the recall process.
Mike Burkland: They struggled with the massive influx of traffic that comes from such an event rather than attempting to flex up their agent count they used our IV as self service to not only handle the additional traffic with ease but also to achieve an impressive 53% first contact resolution.
Mike Burkland: With five nine genius, AI and our AI blueprint program, our customers are able to transform their CX with the power of AI.
Mike Burkland: Also with our AI consumption based pricing model customers have the ability to contest improve adoption rates and effectiveness for AI use cases.
Mike Burkland: In summary, I feel great about our leadership position in AI and we remain enthusiastic about the continued large AI market opportunity ahead now.
Now turning to other business highlights in August we closed our acquisition of Acme on this acquisition marks a significant milestone in our strategy to elevated customer experience by further strengthening our intelligent CX platform with.
Mike Burkland: With <unk>, we now offer best in class AI powered Omnichannel and journey orchestration for inbound and proactive outbound use cases across marketing sales e-commerce and customer service.
Mike Burkland: Our expanded capabilities across digital SMS email and social channels are designed to unlock adjacencies and new revenue streams, particularly in sales and revenue recovery.
Mike Burkland: This includes further expansion into the health care vertical with our epic integration.
We're excited about her equion is strengthening the value proposition of five nine and expanding our market opportunity.
Mike Burkland: I'm also pleased to announce that a J I want Romani has joined five nine as our chief product officer with over 25 years of product experience and a proven track record of driving software innovation at companies such as Adobe Martino and Oracle Ajay will lead <unk> product strategy as we expand our AI and <unk>.
Mike Burkland: <unk> offerings.
Mike Burkland: In addition, we have several other recent highlights we were once again named a leader in the Gartner Magic quadrant for CCAR ask.
Mike Burkland: Hosted our first ever five nine AI day, we launched a new vertical initiatives targeting AI in health care.
Mike Burkland: We launched a new series called killer digital experiences.
Mike Burkland: We opened our India datacenter and received a certification from the Indian Department of Telecommunications.
Mike Burkland: And five nine was named number 16 in the 'twenty 'twenty four Fortune Best places to work list and the large technology category.
Mike Burkland: In summary, we are pleased with our momentum and success in delivering AI power in CX. We believe the opportunity ahead for five nine is stronger than ever and we remain optimistic about driving long term durable subscription revenue growth in the 20% to 30% range.
Mike Burkland: I also want to thank all of our employees, who bring passion and purpose to five nine everyday.
Mike Burkland: Before moving onto our customer wins I wanted to give you a quick update Dan Burkland is taking on a new role for us as EVP of go to market strategy focused on key partners and customers as well as other external facing evangelism for five time.
Mike Burkland: Our sales organization led by our recently announced EVP of sales will now solely report to Andy Dignan, our CLO.
Speaker Change: So Andy is joining us today to talk about our Q3 customer wins Andy over to you.
Andy Dignan: Thank you, Mike and Hello, everyone, we had a solid quarter with bookings improving sequentially and coming in ahead of our forecast we had several key wins, which I'll discuss in a moment as we stated last quarter in an effort to maximize market coverage and improve execution. We took several steps. These included the appointment of a new EVP.
Andy Dignan: Again sales realignment of resources across each of our sales segments and hiring of personnel to focus on AI and key vertical markets, including healthcare financial services and retail.
Andy Dignan: I am pleased with the energy and focus execution by the team and I'm encouraged to see healthy growth in the pipeline.
Andy Dignan: We also continue to make strategic investments with select to go to market partners as well as a key I S V technology partners, including strategic partners like Salesforce variant and service now.
Andy Dignan: As we normally do I will share some key examples of wins for the quarter.
Andy Dignan: The first example is a global wireless carrier, who is experiencing challenges regarding its consumers to proactively inform them of various offerings, including mobile device upgrade and other up sell services. They.
Andy Dignan: They were using an on premise system that was not achieving desired connection rates and results.
Andy Dignan: Detailed five nine for our proactive omnichannel solution, which we acquired from <unk>.
Andy Dignan: This includes the ability to execute campaigns with AI powered predictive intelligence to determine the best times and best channels to reach each customer based on historical behaviors demographics and customers' preferences. They look to significantly increase revenue along with customer retention rates.
Andy Dignan: We anticipate this initial order to result in over $4 million in error to five nine.
Andy Dignan: The second example is a global manufacturer of technology for automotive trucking and heavy equipment industries. They had been using a premise based solution, which is very limited.
Andy Dignan: After an extensive RFP process. They chose five nine for our full Omnichannel solution front ended with our IV, including voice chat email and SMS, while integrating the salesforce CRM and Microsoft teams.
Andy Dignan: In addition, five nine is providing them with an easy migration off their premise based varian solutions to the more modern very cloud services platform from five nine.
Andy Dignan: We anticipate this initial order to result in over $1 6 million in <unk> to five nine.
Andy Dignan: The third example is a premier online consumer lending platform. They had been challenged with an on premises solution with very limited flexibility for both inbound and outbound interactions detailed five nine for several reasons first it gave them inbound flexibility with IV as chat bots and intelligent call routing.
Second the AI suite of products, which are present throughout the customer journey to provide more accurate and personalized services.
Andy Dignan: Third the convenience of being able to leverage these AI applications on a consumption basis, and finally, our leading proactive outbound solution combining voice with enhanced digital outreach.
Andy Dignan: <unk> nine will help deliver significant improvements to the loan application process and ongoing support to with borrowers. We anticipate this initial order to result in over $1 million in air or to five nine.
And now as we normally do I'll share. An example of a customer who has expanded its use of five nine.
Andy Dignan: The primary health care systems provider has been at five nine customer since 2020 and has been extensively using our IV or V. C C and Wm suite powered by variant for Wf M QM and speech analytics.
Andy Dignan: As they expand and add new health care organizations. They view five nine atheist analytics to be critical in helping them aggregate and normalize data from these new organizations and just valuable data from several platforms and deliver real time dashboards to run their operations more effectively.
With this add on order, we anticipate the IRR to five nine will now be approximately $1 million and now I'd like to turn it over to Barry to take you through the financials Barry.
Barry: Thank you Amie Kay.
Three year over year revenue growth accelerated to 15%, reaching a record of $264 2 million.
Barry: At ground made up less than 1% of revenue in the third quarter.
Barry: Q3 year over year subscription revenue growth accelerated to 20% made up nearly 80% of total revenue.
Barry: We focus on subscription revenue for several reasons.
Barry: We believe subscription revenue is the most accurate indicator of how our business is doing well.
Barry: More specifically, it's a metric that can affect the growth in a number of customers on our platform.
Barry: As well as an increase and then how about Fedex purchased.
Barry: Second as we have mentioned in the past the two other revenue streams, namely telecom usage N P. S.
Barry: I'm not good indicators of the momentum in our business because by design and then that will elaborate in a moment.
Barry: We are not focused on driving growth in either.
Barry: The subscription revenue has gross margins that are meaningfully higher than those of usage and P. S.
Barry: Lastly.
Barry: Subscription revenue is a metric that is directly comparable to metrics provided by the <unk>.
Barry: In our industry.
Barry: The continued strong subscription revenue growth is a result of further penetration of the large enterprise market, we've got market, leading and pallet intelligent CA platform.
Barry: This sensitivity because there was particularly strong in three key areas.
Barry: Enterprise, new logos from the backlog, which reached a Q3 record.
Barry: $1 million plus a our customers who represented approximately 56% of subscription revenue in the third quarter.
Barry: <unk> grew 29%.
Barry: The AI revenue, which grew 40% year over year in the quarter.
Barry: In part due to agent assist which enjoyed 158% yearly umbrella.
Barry: Turning now to the attitude of revenue streams, Tennessee.
Barry: Telecom usage revenue made up 50% of Q3 revenue.
Barry: Many earlier in the low single digits. These declines the UC revenues continue to be primarily driven by our March up market with larger customers opting to avoid the own telephony.
Barry: This results in a consistent annual revenue mix.
Barry: One to three percentage points from usage to subscription.
Barry: We see that continuing mix shift is a positive long term trend for both corporate revenue growth and gross margins.
Barry: Professional services made up the remaining 7% of revenue.
Barry: We expect the percent of total revenue from professional services to remain in and around this level and by the way the decline of the longer term as you continue to enable our partners to take on more implementations.
Barry: Enterprise revenue from subscription usage tiers combined made up 88% of LTM revenue, our commercial business, which represented the remaining 12% grew again in the single digits on an LTM basis.
Barry: LTM dollar based retention rate remained flat sequentially at one 8%.
Barry: Third quarter adjusted gross margin was 61, 8%, a 1.3 percentage points sequentially and one two percentage points year over year.
Barry: The three biggest drivers for the year over year improvement with increases in revenue scaling against fixed and semi fixed costs.
Barry: The revenue impact.
Barry: And then mix shift from usage to subscription.
Barry: Third quarter adjusted EBITDA Mine unit went 19, 8%.
Barry: Three two percentage points sequentially, and one nine percentage points year over year.
Barry: Driven by the improved gross margin and tight expense control.
Barry: We are pleased with our margin trajectory and he say further improvement, although with inevitable ebbs and flows.
Barry: Stock based compensation as a percent of revenue by 15% down eight percentage points year over year share dilution year over year was 2% on a fully diluted basis.
Barry: Our GAAP net loss was $4 $5 million in.
Barry: Included in the GAAP net loss was $9 6 million on a one time charge for the risk.
Barry: And a $4 8 million on a one time tax benefit from the acquisition of <unk>.
Barry: Excluding these one time items, our GAAP net income would've been slightly better than breakeven.
Barry: We are pleased that GAAP bottom line and the EPS trajectory and expect further improvements that we think inevitable ebbs and flows.
Barry: Third quarter non-GAAP EPS was <unk> 67 cents per diluted share of <unk> 15 cents from Q3 2023.
Barry: With regards to cash flow in Q3, we continued our strong cash flow generation delivering $130 million of LTM operating cash flow equivalent to 13% of revenue. This was driven by adjusted EBITDA and by a strong DSO performance, which came in at 73 days.
Barry: As an aside our third quarter operating cash flow was a record $41 million.
Barry: And now I'd like to discuss that guidance for the remainder of 2024 as well as provide high level commentary regarding 2025.
Barry: For Q4, we are guiding revenue to a midpoint of $267 $5 million.
Barry: Arrays to our prior implied Q4 guidance.
Barry: This guidance assumes ongoing muted seasonality.
Barry: Accordingly for 'twenty 'twenty four we are raising the midpoint of our revenue guidance from one point or one 5 billion to one ceiling.
Barry: And so the bottom line, we're guiding first quarter non-GAAP <unk> to a midpoint of 70 cents per diluted share, which is also raised to our prior implied Q4 guidance.
Barry: We continue to expect EBITDA margin to exceed 20% in the fourth quarter.
Barry: For the full year, we're raising the midpoint of our non-GAAP EPS guidance from $2 27 to $2.37 per diluted share. It would not I provide some preliminary high level commentary on our current thinking for 2020 five.
Barry: At this time, we are being prudent and therefore feel comfortable with the current street consensus of $1 130 billion for 2020, five and see potential upside if the macro conditions improve materially.
Barry: We anticipate revenue to follow a typical pattern with slightly more than 50% of our revenue in the second half even with the expectation that seating the clothing muted again next year.
Barry: In terms of non-GAAP EPS, we believe we will surpass the current street consensus of $2.52 per diluted share for the full year in 2025.
Barry: And we say increases in adjusted EBITDA margin for the full year in 2025 and.
Barry: In addition.
Barry: I would like to provide an outlook on the quarterly profile of our Buckeye mine. If you look at our historical financials non-GAAP EPS is typically amongst the lowest of the year in the first quarter and we expect this to be the case again in 2025. Therefore, we anticipate non-GAAP EPS in Q1 25 to be in the forties.
Barry: But sure we exit.
Barry: Bottom line to improve slightly in the second quarter and more meaningfully in the second half, especially in the fourth quarter.
Barry: Please refer to the presentation posted on our Investor Relations website for additional instrument getting share count taxes capital expenditures as well as the LTM enterprise subscription revenue.
Barry: Before concluding I would like to mention that we will be updating our long term model and also hold a financial analyst day in the first half of next year, we will be sending out a save the day notification in vehicles in salary as a leader in AI for CX.
Barry: Continuing to invest in initiatives, which we believe position us to deliver durable long term subscription revenue growth between 20 and 30%.
Barry: Also see significant opportunities for margin expansion.
Barry: Towards GAAP profitability and improved free cash flow of the time.
Speaker Change: Operator, Please go ahead.
Speaker Change: Thank you so much Barry and everyone before we begin our Q&A session. We ask our analysts to please limit yourself to one question to allow for as many questions as time permits. We thank you in advance for your cooperation well pause for just a moment with symbol the roster.
Speaker Change: And we'll hear first from DJ Hynes with Canaccord.
Speaker Change: Hey, guys good to see everyone. Congrats on the quarter nice results I'll, let others ask about the bookings environment I want to zoom in a little bit on AI I'm curious.
Speaker Change: For some of your early adopters of AI functionality, what what's the narrative from those guys. Today are they content working with what they have are they looking to go deeper with AI are they pulling back on agency counts just trying to get an early sense for trends as AI adoption matures in this space.
Speaker Change: D J I'll start and white Ami chime in but Oh look we talked about it before AI as a front and center in CX today, we've talked about the Tam expansion for us when it comes to AI.
Speaker Change: We're helping some of the largest brands in the world.
Speaker Change: Really AI AI enable their customer experience and it's it's it's working really really well we're seeing some companies.
Speaker Change: Just a five a decision around.
Speaker Change: C Kaz using the AI ROI in the labor arbitrage, but we're also seeing a lot of customers that are.
Speaker Change: Truly just adding a I am making a.
Speaker Change: It's an additive part of their of their of their technical offering if you will and it's really important to understand that yes, we do see opportunities and our customers see opportunities for automation and self service, but theyre also using AI for so many other things to enhance the agents that are delivering a live human.
Speaker Change: Agent support if you will but again if that automation turns out to be a big number a world winner in terms of that Tam expansion, we're providing software for our customer interactions whether or not they're human assisted our AI driven or AI assistance. So we're a beneficiary in either case, yeah. Thanks, Mike.
Speaker Change: The thing I would add would be obviously IV, a was where we kind of got out of the gate in terms of our AI bookings growth you heard us talk about the agent assist our bookings growth and certainly our you know with our genius AI products launching we just have our product and engineering teams are delivering innovation at a fast pace, that's more skus to sell and so you know we're excited about the the uplift there.
Speaker Change: Perfect. Thank you guys.
Speaker Change: Thanks T J.
Speaker Change: And moving on to Michael <unk> with Wells Fargo.
Speaker Change: Thanks I appreciate you taking my question nice to see everyone.
Mike Burkland: Mike at the end of your prepared remarks, you mentioned long term subscription revenue growth of 20 to 30 per stock.
Mike Burkland: You're sort.
Speaker Change: Towards the lower end of that this quarter and can appreciate we've been working through.
Speaker Change: A lot of changes in the underlying environment, but just wondering are you signaling that the trough is that more of a normalized assumption as we roll forward just kind of walk us through what you're seeing today versus the aspirational target and what gets you what keeps you in that range Yeah. Michael I mean, we do as you know we're very excited about the long term potential to drive.
Speaker Change: Absorption revenue growth in that 20 to 30 per cent Ranjan is as you said I mean, we delivered 20% subscription revenue in this third quarter that just finished up from 17% last quarter. It is the key metric I want to make sure everybody pays very close attention to that metric and again, it's not because it's growing faster. It's it's it's really the best indicator of our.
Speaker Change: Business, it's about 80% of our revenue mix. So it's the vast majority of our revenue and it is the best indicator for customers coming onto our platform and them purchasing more and more products from us. So that's really important to stay focused on that subscription revenue number.
Speaker Change: We remain very bullish in this massive Tam that we're going after yes, AI has been kind of a a bit of a.
Speaker Change: The distraction factor in a tailwind to that.
Speaker Change: Other things as well in our market, but let's not lose sight of the fact that we're going after a very large tam which is expanded what to say I opportunity. So we're just really excited about the future.
Speaker Change: Thanks, very much we got it.
Speaker Change: Moving on to meta Marshall with Morgan Stanley.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, maybe a question for me.
Just what are you seeing in terms of I know there was kind of some pauses last quarter on needing to see kind of a media ROI with investments and so.
Speaker Change: Have you been able to either see that kind of step down or demonstrate that quicker or kind of give people an entry point that makes that a little bit easier to kind of get to that initial ROI.
Speaker Change: And then just on the completion rates I know you kind of noted some of those on the virtual side, but just any kind of changes you're seeing with customers on kind of completion rates.
Speaker Change: Maybe I'll start with that and again, Andy feel free to chime in but again.
Speaker Change: We did talk about some of the distraction factors of AI right and the fact that every CEO on the planet quite frankly is telling their CIO to go out and go out and figure out AI is the highest priority in and again I think personally my view is this is a transitory distraction.
Speaker Change: And you know AI is here forever, we know that it's something it's real but at the same time I think there's a learning curve as steep learning curve that a lot of companies and people are going through when it comes to AI.
Speaker Change: And I think we're going to get through that learning curve pretty quickly here everybody's focused on it and I would say if you want to Andy talked about the bookings I mean, we had a sequential increase in our bookings again, one quarter doesn't make a trend, but we're encouraged by what we see in terms of decision, making and again I think in a healthy macro.
Speaker Change: Past AI distraction I'm very optimistic about CCAR decisions and decisions being made at a healthy clip.
Speaker Change: Great. Yeah, that's the only thing I would add would be you know to your point, it's all about ROI and the good thing is AI drives some of the highest ROI values right and so a lot of the things that we're doing is a lot of enablement of our sales team to have a very AI centric approach and you know what this comes down to a lot of times with these very large enterprises that are going to have to go through multi year implementation.
Speaker Change: To migrate from on Prem to cloud.
Speaker Change: And so some of the things that we're also doing within our our implementation team is making sure that we adjust so that you can get value out of AI kind of on the front end and throughout the implementation without having to wait until the end and so you know between enabling our teams to really put together those rois and show the value of AI, and then again, making sure that we deliver AI.
Speaker Change: What sort of time to value much faster for our customers that will continue to help us kind of get through this to Mike's point is transitory issue.
Speaker Change: Great. Thanks, so much guys.
Speaker Change: Thanks Man.
Speaker Change: Our next question will come from will power with Baird.
Speaker Change: Okay, great. Thanks for taking the question.
Speaker Change: Maybe starting with you Barry just thinking about you know consumer retail exposure headwinds you've had I wonder if you could just kind of update us what you kind of saw through the Q3 period, what are your expectations and visibility are into Q4 as we head into this holiday season, presumably baked into guidance, but just kind of what's the latest trend lines are.
Speaker Change: Absolutely so.
Speaker Change: In the third quarter and we.
Speaker Change: We actually saw overall.
Speaker Change: In all the verticals accepting one education, which is not one of the big verticals for us a slightly better environment than we had originally thought.
Speaker Change: And.
Speaker Change: As we look.
Speaker Change: Into Q4, and this is indeed baked into the guidance is that we we would pay deep respect to the patent debit card data from JP Morgan and Bank of America. Other banks are available, but we can any take so many and they are showing hum sequential declines year on year declines nominally.
Speaker Change: Even more so after.
Speaker Change: If you take into account inflation and so we've prudently taken that into account when.
Speaker Change: When we set the Q4 guidance.
Speaker Change: And time will tell at the moment, we're not planning that hockey stick that we typically would see in other areas. This year.
Speaker Change: For the timing.
Speaker Change: If I could maybe just fit in one more if they do have a follow up on AI from the comments in the prepared remarks, I mean sticky indicators yet 50%.
Speaker Change: Bookings growth in your existing customer base and I think that's been around for small numbers and I know this has been one of the big opportunities right. It feels like a lot.
Speaker Change: Adoption has been new customers, maybe just talk about.
Speaker Change: What's helping drive some improvement there that go to market changes and what else is on the horizon, you really kind of upselling.
Speaker Change: Upselling our customer base.
Speaker Change: Yeah. Thanks, Paul So yeah. So one of the things that we've done I think we mentioned it in Q1 as we make changes with our customer success organization. We took our single a emerald split it up into that CSM and a D. Basically that hunter and then nurture role and so we're seeing a lot of encouraging signs of our account directors aligning with our customers putting together very strong account.
Speaker Change: Plans and most importantly, we really training the teams enabled them to focus on what the customers' business value is and what the requirements are of course other company objectives. I'm you know I think previously it was just about hey, Here's Skus do you want to buy them. This is more aligned what's your company objectives, and so a lot of anecdotal feedback from our customers as they loved this approach they are lumpy.
Speaker Change: And at the end of the day again, we're just trying to drive that ROI value and Mike mentioned, the AI blueprint. That's another thing that we've launched essentially helping our customers building a customized blueprint for how they take advantage of and deliver high up high business outcomes and kind of a roadmap of what are the solutions and products that we have towards that so just picking that up but.
Speaker Change: Essentially a lot of good change coming from our go to market changes.
Speaker Change: Thank you.
Speaker Change: Thanks will.
Speaker Change: Arjun Bhatia with William Blair has our next question.
Perfect. Thank.
Speaker Change: Thank you guys I appreciate it and congrats on the nice quarter here I heard I think in your prepared remarks, and the presentation that enterprise New logo turn ups were a record in Q3 can you just maybe touch a little bit on what's driving that because I think we've been talking about that for a few quarters.
Speaker Change: Now and then would love to hear what else is in the pipeline as you look at kind of the remainder of the year and how that.
Speaker Change: Incremental revenue might trend from what what you're implementing.
Speaker Change: Yeah, So I'll start feel free to chime in guys, but again the backlog.
Speaker Change: Has been continually.
Speaker Change: Growing over time, as we book more and more business right and I think it's important for everybody to understand that yes, we had a record number of turn ups from new logos from that backlog, but at the same time, our backlog has increased and that's a good sign for us right and that really gets down to.
Speaker Change: To driving future growth in our business. So we're pleased with the with what we're seeing and again Andy over the years and his professional services team has that they built a machine toward turning up you know customers large medium and small are very predictable rates. So it's a it's great to see.
Speaker Change: Alright awesome good to hear thank you guys. Thank you.
Speaker Change: Our next question will come from Ryan Macwilliams with Barclays.
Speaker Change: Hey, guys. Thanks for taking the question.
Speaker Change: One for Barry and one for Mike.
Speaker Change: Barry just how should we think about the Acme on contribution to the four key revenue guide and then is it fair to streamline that.
Speaker Change: For the rest of the next year and then for Mike agents that seems like a shift from agencies right through like a more proactive approach in terms of like working alongside the customer and potentially doing more outbound or like more expansive use cases. So I guess, how do you think that kind of early help your existing customers and then how to.
Speaker Change: That looks like from a pricing or addition to a contract value standpoint for five months do you mind, if I go first thanks.
Speaker Change: Thanks, Ryan a very good question and thank you for asking it do you want to be really crystal clear AI agents are really the next generation of IV a M. D V. A so we've talked about that right and intelligent virtual agent, which is essentially a voice bot right of virtual agents. This is just the next generation of that.
Speaker Change: As well as our digital virtual agent DVA. So this is not in the agent assist category. It's in the it's in the self service.
Speaker Change: Front end.
Speaker Change: Part of the AI cycle, if you will and it really just.
Speaker Change: Allows those Ivy as our DBA is to do more and it gets into the fact that them being having the ability to reason.
Speaker Change: And actually be more autonomous so it's just a levels out the amount of interactions that we can truly self serve with our with our technology. So that's the easiest way to think about it Barry and Ryan. Thank you for that question with respect to let me start with Q3.
As I said in our prepared remarks, and some people might have missed it.
Speaker Change: Equion, which closed in August.
Speaker Change: Committed funding to less than 1%.
Speaker Change: The revenue for the quarter.
Speaker Change: At 859 total reported revenue with respect to Q4 and on into 2025.
Speaker Change: We're not going to be giving the explicit breakout why it's because we've been partners close partners with equity I. Nevertheless, let's say 18 24 months.
Some really big deals for example in the Q1 Big Bank deal that was obviously on our paper.
Speaker Change: On a business deal that Andy talked about for this quarter, which is also.
Speaker Change: I'm joined paper, but our paper essentially and so we have.
Speaker Change: Mingling of the head of the two companies and it's a fool's errand to go and say well this function as a typical 259 work because Fortunately we took the two excellent indigenous people and it's just a fool's errand to try and do that and so since the numbers anyway are not that material.
Speaker Change: Going to go down that path.
Speaker Change: I appreciate it well I think they're shut the lights off on me in my office for asking two questions though.
Speaker Change: Thanks Ross.
Speaker Change: And we'll now hear from Terry Tillman with truest.
Speaker Change: Great. Thanks for taking the question. This is Bobby Dion for Terry I wanted to double click on the India data center opening and receiving some important certifications for operating in that market. How are you all sizing up the opportunity there and what are the unlocks associated with with that announcement.
Speaker Change: Yeah, no exciting announcement for us we've been building that for quite some time. The initial investment really started with some of our very large customers. A couple of our mega deal customers, who had requirements in India to have kind of that local presence and so we started down this path and build the data centers launched them, we've been building leading up to building a healthy pipeline.
Speaker Change: I'll start to fill up that data center and so really the goal is to fill it up with the current backlog and then then essentially move into building. Some go to market resources around how do we continue to accelerate that further but again, a really important milestone. There's a lot of obviously contact center opportunity in India and you know again customers have been asking for this for quite some time for us.
Speaker Change: And I'm just kind of jump in if you don't mind.
Speaker Change: No I'm not going to get where you think I'm Gonna go Hey, Bobby I just wanted to mention one thing, though when we look at gross margins, which we automation to improve and we've already shown a very nice sequential and year over year improvement. The India thing is non trivial because at least as Andy mentioned, it's sitting there with a bolus of expenditures with very little current revenue that will come.
Speaker Change: But in the meantime, it's a it's a a burden to bear which will ameliorate over time for sure.
Speaker Change: Very good thank you.
Bob: Thanks, Bob.
Bob: Mizuho Cte panic Rocky has the next question.
Speaker Change: Great. Thanks for taking my question first of all congratulation on your new executive hire a chief product officer, if yourself great hires.
Speaker Change: Look I want to ask question about AI Ah you know that the question. We're getting is a lot of investments right now going into startups on AI and of course, you've talked about some of the momentum in the AI is in your installed base I'm wondering what are you hearing from your customer are those who are going for.
Speaker Change: Hey, I citizen from five nine.
Speaker Change: Verses some of them going after some of this you know startups to AI.
Speaker Change: You see that directly is it gets us on the customer experience side, how do you differentiate yourself and what do you see the challenges and opportunity there.
Speaker Change: Yeah No great question. So you know we've talked about this before essentially right. If you look at where we sit is that power of the platform right and so when you look at the AD products that we're delivering you know specifically the new AIG newest product suite.
Speaker Change: They're really purpose built to take care of to take advantage of that platform. So essentially the front end being able to have all the interaction data merge that data up with.
Speaker Change: And normalize that data to essentially give that full personalized experience. Yes, we're definitely seeing customers that are doing bake offs essentially of these point solutions as well as as well as us we're having good success in those in those instances and there's also times, where if a customer does.
Speaker Change: And he has an existing solution that maybe they they purchased there we're engaged with before we came in we provide our voice stream integration right as we've talked about before to be able to allow them to integrate and again, we monetize that on a consumption basis and so again at the end of the day, if we focus on the right use cases for the customer we believe the platform wins in the end.
But ultimately if there's a solutions out there and partners of ours that want to integrate to our platform. You know again, we're all about delivering that business outcome. So we're seeing a little bit of both.
Speaker Change: Great. Thank you.
Speaker Change: Thank you Sir.
Speaker Change: Well now hear from James Fish with Piper Sandler.
Speaker Change: Hey, guys. This is quick on for Jim fish, Thanks for taking our question.
Speaker Change: Maybe piggybacking a little bit on that last question you talked about in those AI beg off you are seeing some more of these point solutions.
Speaker Change: In terms of the mix is it increasingly more and more you're competing against the point solutions in CRM vendors or is it predominantly still see cast vendors that you're competing against for AI, specifically and then Barry just quickly for you as you look to 2025, how are you thinking about the mix between new and expansion here do you need a material improvement in.
Speaker Change: Underlying in Iraq to hit the midpoint or are we baking in kind of flat from here.
Speaker Change: Yeah. Good question I would say, it's still more of the point solutions, especially in our base, obviously, new customers, we're competing against our key competitors in their portfolio, we feel strongly about our natively built our portfolio and how we are we put that together and so that's been the majority of it the CRM as you know obviously large lead flow.
Speaker Change: For US you know great relationships with them you know you hear as you heard me talk about doubling down on go to market, It and engineering investments and with service now in Salesforce you know.
They're gonna have their space, where they win and we're going to continue to be partners there, but at this point. It's I mean, it's mainly the point solutions that we're competing against and.
Speaker Change: And Clinton and I say United still on.
Speaker Change: In terms of the split between the two we haven't given those comments yet I wouldn't see major changes in the dollar based retention rate.
Speaker Change: But we're just not we believe given the initial commentary and we wanted to put our content with that.
Speaker Change: By the time, Inc.
Speaker Change: I appreciate it thank you.
Speaker Change: And our next question will come from Samad Samana with Jefferies.
Speaker Change: Hey, guys Billy Fitzsimmons on for some odd Barry maybe expanding on some of the prior questions. During last quarter's call. One of the factors cited that that led to the guidance change was that some large deals maybe stalled.
Speaker Change: Maybe cio's, we're citing a constraint budgets at the time.
Speaker Change: First was there any kind of change since last quarter.
Speaker Change: I know you've kind of commented on that but also second can you walk us through how maybe some of this particular deal cited last quarter progressed in the third quarter did.
Speaker Change: Most of those deals now close are there still conversations are customers still on hold and then how is that kind of reflected in the prelim common data Terry for 2025.
Speaker Change: You mind, if I just.
Speaker Change: Happy to talk about this family. So look we had a better quarter in Q3 than we did in Q2 and that was actually in spite of a couple of very large deals that should take very large medium to large deals pushing into Q4.
Speaker Change: And so.
Speaker Change: The good news is those two deals that pushed out of Q3 and into Q4 were actually closed in October and in fact are fairly early in October so Andy and team have done a great job of kind of you know.
Speaker Change: Just continuing to execute on the Dolphins and.
Speaker Change: The middle of that the middle of the Bell curve as I always call. It right that the bread and butter of our deal flow. If you look at the examples that Andy talked about that third example is a classic dolphin that's a million dollar deal they valued our AI they valued.
Speaker Change: Equion and they've got they've got just the right ingredients and again, we're going to see I think that's a pattern that are you know I look forward to seeing more and more of those kind of deals because again, they they're there right in our sweet spot there's tons of them and they are turned to revenue fairly quickly.
Speaker Change: Perfect. Thank you very much thanks Bill Thanksgiving.
Speaker Change: Our next question will come from Michael Funk with Bofa.
Speaker Change: Thank you all for the question.
Speaker Change: Barry you've talked a lot about the macro environment, but love to hear your thoughts on the competitive environment are you seeing more competitive pricing pressure.
More competitors at the table when you're bidding for a deal and then finally are you seeing customers ask or get price down per seat coming to you asking for concessions or reworking of pricing.
Speaker Change: Yeah, Mike I can go and take that one so essentially when we're not seeing a different set of competitors. It's the main competitors that we've continued to have in terms of pricing pressure, we're not seeing that either I think we've held strong our pricing in terms of seat based and then obviously when you look at the AI applications that were that were building.
Speaker Change: On top you know, we're continuing to see our MLR proceed go up.
Speaker Change: And so yeah, that's that's really sort of the the main thing I think from a competitive perspective, I've decided to add onto that if you don't mind, Andy I mean once here in the fourth quarter, we gave the numerator and the denominator and you'll be able to see clearly again.
Speaker Change: There's no major changes these many things moved very slowly.
Speaker Change: And remember, we're sending more and more software and with that come to a higher prices, especially on the AI side, well I mean, it's a massive the benefit to the customer and the benefit to ourselves. So people are not fun ideas information and then I don't know I've never sell a contact center system in my life, but people are not making.
Speaker Change: This decision based upon a price that they wanted to see a roadmap, saying they can't believe and do we have AI leadership that sort of thing.
Speaker Change: And of course.
Speaker Change: Start out with checkbook, but it's still.
Speaker Change: They're very responsible across the industry.
Speaker Change: Great. Thank you both.
Speaker Change: And we have time for one additional question, which will come from Kathryn Trebek with Rosenblatt.
Speaker Change: Katherine are you out there.
Speaker Change: Just I saw a step away from her.
Speaker Change: She is.
Speaker Change: Okay.
Speaker Change: Sorry, I got another call.
Speaker Change: Busy day, they tend to think you might see that.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: A lot of questions I had is there do you have a partnership with there and how is that progressing compared to the one that <unk> announced today and they announced $11 million deal or a voice bot and how does that play in like what Youre working on it. Thank you yeah, Great question, Catherine I've already heard from Dan Bodner, They're a key partner for us there at that.
Speaker Change: As the CEO at variant we continued to do a lot of business together.
Speaker Change: But again do you think about what Varian does there they're a win WAM provider they partner with you.
Speaker Change: You know the entire market of <unk> players and I think it's important for their business for them to be open and partnering with more than just $5 nine where their number one partner. We just won their partner of the year again, but we don't we don't have any issue with them partnering with other players.
Speaker Change: And when we get that that interest expense you know their market opportunity and you know ring central was at the low end of the contact center market they've been in the UC market for a long long time, they're building their own CCAR.
Speaker Change: Solution, replacing overtime, probably the nice.
Speaker Change: <unk> solution with their own and just like we partner with Vera they're gonna be partner for parents. So I think it's all it's all it's all good for the industry and you know again I know.
Speaker Change: Lab that ring and Dan at variant and.
Speaker Change: They're both good leaders and and quite frankly, good partners to us. So it's all good and the only thing I would add would be you've heard us launch the the cloud to cloud integration with Barron's club portfolio. We're building a strong pipeline there executing and so when people will continue to see opportunities where our teams work closely together with our customers and they have.
Speaker Change: They're bought portfolio and at the end of the day, we'll we'll look at what's the best solution for the customer in terms of the ROI around AI use cases.
Speaker Change: Alright, thank you.
Catherine: Thanks Catherine.
Catherine: And that does conclude today's Q&A session I will turn it back to Mike for closing comments, yeah. Thanks, Kelsey I just want to say thanks again for joining US. We're so excited about the momentum in.
Catherine: And the success, we're having with our you know with helping our customers deliver AI powered CX and it's an exciting time in the industry and we also look forward, they're very optimistic about our opportunity to drive durable subscription revenue growth in the 20% to 30% growth range in the long run. So thanks again for joining us.
Catherine: Bye.