Q4 2024 Five9 Inc Earnings Call
Thank you for joining us today.
Any statements made during the course of this conference call that are not historical facts, including those regarding our future financial performance and cash position of the company expected improvements in financial and related metrics expected IRR from certain customers certain expected revenue mix shifts customer growth anticipated customer benefits from isolation, including from AI.
The extent of the anticipated Tam expansion and our ability to take advantage of any such expansion, our AI revenue opportunities and current estimations regarding theme company growth enhancement and development of our solution market size in trends or 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 Securities Litigation Reform Act of 1995, 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 could adversely affect <unk> future results and coffee forward looking statements to be inaccurate, including the impact of adverse economic conditions, including the impact of macroeconomic challenges, including continuing inflation uncertainty regarding consumer spending high interest rate fluctuations.
And currency exchange rates lower growth rates are in 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.
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 <unk> website at.
Investors at five nine Dot com.
Also please note that the information provided on this call speaks only to management's views as of today February 20th 2025, and May no longer be accurate at the time of a replay.
Lastly, our matter that.
Unless otherwise indicated financial figures discussed are non-GAAP.
And now I'd like to turn the call over to five <unk>, Chairman and CEO, Mike Burkland.
Thanks, Emily and thanks, everyone for joining our call. This afternoon.
The share that we finished the year strong with annual revenue exceeding $1 billion.
This was driven by fourth quarter revenue growth accelerating to 17% year over year, primarily due to our subscription revenue growing 19%.
Adjusted EBITDA margin for the fourth quarter reached a record 23%, helping drive record operating cash flow of $50 million or 18% of revenue.
And record free cash flow of 33 million or 12% of revenue as you. All know we take a balanced approach to delivering top line growth and bottom line profitability.
I am highly encouraged by the execution of bookings momentum being delivered by our sales organization, especially in the $1 million plus a or are part of our business and Andy will provide more color on guests in a moment.
Also we recently held our global sales kick off and the passion energy and excitement we're unparalleled as we all live on our Formula to drive success for our customers and continue building upon our momentum in 2025 and beyond.
On today's call I will spend much of my time, covering our progress in AI and how we believe platforms like five nine are uniquely positioned when it comes to AI for customer experience. We continue to extend our leadership position in AI as demonstrated by our enterprise AI revenue growth accelerating to 46% in the fourth.
Quarter.
<unk> has now grown benign percent of enterprise subscription revenue.
We believe AI revenue momentum will continue as AI bookings for enterprise, New logos grew nearly 50% year over year in Q4, again, making up more than 20% of enterprise new logo ACB bookings with a 100% attach rate on $1 billion plus <unk> deals.
We're also successfully penetrating our enterprise installed base with AI bookings growing 50% year over year in Q4.
And now I'd like to spend a few minutes talking about how we believe platforms like five nine are uniquely positioned when it comes to AI for CX and why we are winning in AI and why we expect to continue winning of.
Of course, you're all aware that we have a broad portfolio of AI solutions, but I'm going to focus today on self service and AI agents.
As consumers, we all know AIA agents will only be used by consumers if they are accurate and personalized.
When we say accurate I think that's pretty obvious to everyone and when we say personalized we mean that the AI agent knows enough about you as the consumer such as who you are what products and services you purchased from the brand. The details of your recent interactions with that brand, including recent problems or issues that you've had and so on.
And brands are learning that they want to offer AI driven self service. These AI agents need to be accurate and personalized and like I said, if theyre not consumers will not use them.
<unk> platforms like five nine are uniquely positioned to deliver these accurate and personalized AI agents. This is our moat and this is why we believe we will continue to win in AI for customer experience.
Let me explain further.
Four key ingredients are required to deliver this accurate and personalized self service using gen AI.
First do you need access to LLS.
Second you need real time contextual data about the consumer and the brand.
Third you need historical interaction data specific to the consumer and their interactions with that brand and fourth unique channels to connect consumers to that self service application as well as provide an escalation path to human agents when needed.
So let's take these one at a time the first ingredient access to LLS has become commoditized now that all vendors have the ability to use a mix of open source and hyperscale or provided bottles slide nine however has been at the forefront of engine agnostic AI for many years, ensuring that brands can easily change.
The underlying engine quickly to leverage the latest greatest and highest performing models our.
Our strategy of being engine agnostic continues to be validated with every new engine that emerges and as everyone knows this is happening almost on a weekly basis.
Additionally, we havent seem of AI experts benchmarking these engines to ensure our customers can leverage the best engine for a given used case.
On the other hand solutions that are built on proprietary models will not be able to leverage these new innovations that are rapidly coming to market there.
Therefore, we believe five nine's approach allows our customers to future proof their AI decision and when it comes to our competitive moat. It's clear that the layer above these antigens is what matters and that layer includes our AI applications that require business logic that require workflows that require <unk>.
[noise] data and integrations to backend systems.
The second ingredient contextual data is what is fed into the L. O M. In real time and provides true context around an interaction.
This includes customer specific details as well as brand specific knowledge, both of which are often distributed across many backend systems.
Unlike AI point solutions that require costly one off integrations to access contextual data in real time, our platform typically is integrated into more than 20 backend systems during the initial customer deployment.
This means that when a brand adopt AI with five nine they can immediately leverage our seamless integrations, which are designed to reduce cost and accelerate time to value and deliver accurate and personalized experiences at scale.
The third ingredient is historical interaction data for which five nine is the system of record historical interaction data is comprised of voice calls text E mails web chats and social interactions between a consumer and that brand, including interactions handled by human agents as well as handled by <unk>.
AIA agents. This historical interaction data is a significant requirement for personalization and.
Other words, the AI agent knows not only who you are and what products and services you purchased but it also knows every detail of your prior interactions with that brand, including what problems or issues you had.
The fourth ingredient as channels, such as voice text email web chat and social.
You need these channels to connect consumers to an AI agent as well as provide a seamless escalation path to human agents when needed.
The market demands AI agents that work across all of these channels. However, providing the voice channel globally at scale with reliability is a huge barrier to entry.
We have invested hundreds of millions of dollars over two decades to build back globally connected platform optimized for CX across these channels.
I point solution vendors entering the contact center market have not made that significant investment nor are they likely to.
Which is why they prefer to integrate to our platform.
We believe these AI point solutions as well as other third party AI will.
<unk> to integrate to our platform to gain access to these channels from us.
That positions our platform as a control point and the AI, driven CX ecosystem, enabling us to monetize that access once.
Once we are successfully doing through voice stream and transcript stream.
So to summarize the last three of these four key ingredients of our unique platforms like five nine.
In addition, our AI experts act as a force multiplier working closely with our customers to tailor an AI blueprint for their business and help them deploy our AI solutions to deliver real business impact.
We not only have the talent to ensure success, but we also provide products like AI insights to identify high ROI opportunities to deploy AI to enhance CX and drive operational efficiency.
As well as our studio products that provide the ability to build these self service applications workflows integrations and business logic.
And as a result, we believe our comprehensive AI suite.
Combined with our deep AI expertise will enable us to continue winning in AI.
Our differentiated approach to AI is being validated by the industry, where we were once again ranked as having the best AI solutions in the semi annual Bird survey that was recently conducted in December.
Additionally, industry analysts continue to recognize our innovation with five nine recently, winning the 2024 Aragon Research Innovation award for AI contact centers.
<unk> was positioned as the most strategic vendor reinforcing our leadership in AI driven CX.
And our long term vision for the CX market.
Now I'd like to touch on the momentum we are seeing with our ecosystem of partners.
Our partners have been an important part of our success here at five nine we have a significant opportunities in 2025 to continue our momentum following announcements we've made over the last few months with partners such as Salesforce service now Microsoft variant and Google.
The partnership between Salesforce and <unk> continues to gain momentum driving alignment across go to market strategies product innovation and customer acquisition.
Salesforce and five nine share a vision, where AI agents and human agents work together to elevate customer experiences. We are strengthening the integration between five nine and agent force to develop industry specific AI agents, including patient scheduling agent and a collections agent. Furthermore.
We are harnessing customer interaction data such as real time voice across sales service and marketing clouds to create a seamless and unified customer journey for brands.
And numerous recent wins, we've been able to work with Salesforce to deliver a unified CRM and <unk> platform for customers to deliver AI elevated CX and industries, including Telecommunications financial services software life Science and other industries.
In November five nine in service now jointly announced an expanded partnership to bring AI powered solutions for unified employee experiences and customer experiences.
By enhancing our integration, we're streamlining self service and assisted service, creating more efficient support processes that reduce cost boost agent productivity and elevate customer satisfaction.
This expanded integration five nine and serviced our redefining the next generation of CX expanding beyond our history of TSM integration and into integrated CRM experiences custom.
Customers gained single agent experiences for voice and digital interactions and a unified routing engine to streamline engagement.
Additionally, in December we announced the latest release of our Microsoft teams UC integration.
Enterprises are constantly bringing the unified employee communications platforms closer to the customer services platforms to enhance employee efficiency and productivity.
<unk> integration with Microsoft teams brings this to life and enhances employee productivity by delivering our game changing bidirectional presence between five nine agents and Microsoft teams users to simultaneously view each other's real time availability.
This empowers agents and experts to collaborate internally with confidence.
And we are pleased with the momentum we're seeing as we've had several new customer wins during the fourth quarter using this enhanced integration.
And with variant we've made key a key announcement in late Q3 regarding our strengthened partnership announcing a new native cloud to cloud platform integration, which includes parent bonds. During the fourth quarter, we saw an acceleration of opportunities validating demand for our integrated value proposition.
And finally, we're so excited to announce five ninth global availability on Google cloud marketplace, including the full five nine AI powered CX platform plus the release of a standalone five nine AI agent designed for Google Cloud.
Businesses can now quickly activate five nights seamlessly through Google cloud marketplace, a universal catalog of enterprise grade pre validated solutions that run on or integrate with Google cloud.
This simplifies the procurement billing and deployment of our joint solution to deliver AI elevated CX.
Our innovative solutions, which leverage Google cloud technology can enable organizations to create exceptional customer experiences while leveraging their Google cloud credits to drive loyalty and business success. We are excited about this new route to market and look forward to bringing on more mutual customers with Google.
In summary, our record results and strong traction in our AI business continued to demonstrate the power of our platform and enabling brands to elevate their CX in this rapidly evolving world of AI.
Five Nine: At five nine we've always been ahead of the curve just as we pave the way for the cloud Revolution in CX. We are now leading the charge in delivering the new CX powered by our suite of AI solutions.
Five Nine: I also want to take a moment to thank our amazing team of five diners, who is relentless dedication and passion empower us to continue to lead this market.
Five Nine: We believe we are well positioned with our AI powered platform and trusted AI experts to continue driving durable long term growth and we look forward to building on our momentum in 2025.
Speaker Change: Before I turn it over to Andy I'd like to comment on one more topic.
As many of you have probably seen earlier today, we issued a press release announcing Barry's retirement as CFO effective March 31, as well as providing assistance with the transition for six months.
Speaker Change: Barry I just want to express my deepest gratitude to you for your exceptional leadership partnership and unwavering commitment to five nine these last 13 years.
Speaker Change: You have played a pivotal role in shaping our company's growth financial strength and company culture.
Speaker Change: Your contributions have been invaluable it has been an honor to work alongside you Berry and on behalf of the entire five nine team I wish you the very best in your well earned retirement.
Speaker Change: I'm also pleased to announce the appointment of Brian Lee, our longterm EVP of finance to the role of interim CFO.
Speaker Change: Brian will be joining us on the call today as many of you know he has gained an extremely deep understanding of our business over the last 11 years having.
Speaker Change: Having worked closely with Brian during his tenure here at five nine I'm excited to have him step in as interim CFO and I'm confident in his ability to excel.
Speaker Change: We will be kicking off a CFO search with Brian as an internal candidate and with that I will now turn it over to our CLO Andy Dignan Andy. Please go ahead.
Speaker Change: Thank you, Mike and good afternoon, everyone as Mike mentioned, we had another strong quarter of sequential bookings growth that exceeded expectations. We are pleased with the early results. We're seeing from the realignment of our resources and enhancements to our sales motion for instance, we had strong enterprise new logo bookings in Q4.
Speaker Change: Driven by the highest number of $1 million plus are our new logo wins in any quarter of 2024.
Speaker Change: Additionally, Q4 installed base bookings came in at the highest level, we've seen in eight quarters.
Speaker Change: We also continue to experience heightened levels of RFP volume in the fourth quarter.
Speaker Change: And our pipeline remains robust as we entered 2025 and part driven by our <unk> pipeline, increasing forex sequentially.
Speaker Change: And now as we normally do I'll share some of the examples of key wins for the quarter.
Speaker Change: The first example is a leading real estate investment company focused on health care infrastructure senior housing operators post acute care providers and health systems that.
Speaker Change: Their contact center managers urgent service requests from existing residents and various inquiries from potential residence.
Speaker Change: They were limited by their on premise system as they struggled with operational inefficiencies and quality.
Five Nine: Detailed five nine for our industry, leading omnichannel capabilities across voice text chat and email as well as our agent assist to transcribe summaries into the CRM and AI insights to gain visibility into interaction trends identify opportunities deliver high ROI AI powered outcomes we.
Five Nine: This initial order to result in over $3 1 million in <unk> to five minute.
Five Nine: Now the second example, a nonprofit health system with nine hospitals and hundreds of primary specialty and urgent care clinics. They.
Five Nine: They had been using a premise based solution, which is very limited.
Five Nine: They chose five nine for a comprehensive platform that includes our equion solution, allowing the health care provider to managed voice chat and email and improve the experience for agents in patients who are our key integrations, including epic service now and Salesforce.
Five Nine: Additionally, they leverage our quality assurance and automated scheduling through our Wm powered by parent while five nine agent assist transcribes conversations and Standardizes responses.
Five Nine: We anticipate this initial order to result in approximately 3 million in <unk> to $5 nine.
Five Nine: The third example is one of the largest credit Union service organizations in the country that selected five nine to replace multiple on premise solutions that were causing inefficiencies missed SLA is in poor CX by.
Five Nine: By consolidating onto five nine they now benefit from streamlined operations seamless integrations with multiple third party systems and our Wm solution powered by parent.
Five Nine: Additionally, they adopted our IV a platform to enable self service for account inquiries fund transfers payments and more we anticipate this initial order to result in approximately $2 4 million and <unk> to five nine.
Five Nine: Now I'd like to highlight that Q4 expansion in one of our largest customers a parcel delivery company, where we expanded into a new business unit that was running on an on premise solution.
Five Nine: This business unit provides customer support for global documentation taxation customs and regulatory requirements. This was implemented and live within 60 days and represents over $1 2 million in additional air to five nine.
Speaker Change: With that I'd like to turn it over to Barry to take you through the financials, but before doing so I'd like to Echo Mike's comments and extend my gratitude to you Barry for your leadership and your commitment to five nine.
Five Nine: Barry.
Barry: Thank you Andy and Mike for your kind words, and thank you both for your leadership and support over my tenure at five nine it.
Barry: It has been an incredible privilege to work alongside you and the outstanding $5 19 over the years.
Barry: I've been working uninterrupted for 50 years, including 13 deeply rewarding years here at five nine.
Barry: That's a lot of early morning alarms working through vacations and time away from family now, it's time to rebalance and focus on my personal journey.
Barry: As I step away.
Barry: I do so with immense confidence in Brian's leadership.
Barry: He is more than just a safe pair of hands.
Barry: He is a natural leader Mr Qi.
Speaker Change: Do you think and so deeply respected both within the company.
Speaker Change: Many of you who have worked with him over the years.
Speaker Change: If you understand by that five nights financial engine.
Speaker Change: Other than he does.
Speaker Change: I will be carrying the two Mako boat company on from the sidelines as it sees as opportunities of an AI driven future backed by an exceptional leadership team and a culture of continuous to inspire.
Speaker Change: Thank you again for the incredible journey and now as a business.
Speaker Change: We are pleased to report fourth quarter revenue growth of 17% year over year, primarily driven by subscription revenue growing 19% year over year in Q4.
Speaker Change: Subscription revenue growth was driven by first and Andy mentioned strong install base bookings.
Speaker Change: Second continued strength up market, we're at $211 million, plus or our customers made up 56% of subscription revenue growing 26% year on year.
Speaker Change: And third.
Speaker Change: By the significant traction we are seeing with our enterprise AI revenue, which grew 46% year on year.
Speaker Change: In the fourth quarter subscription revenue made up 79% of revenue.
Speaker Change: He uses revenue accounted for 14% and professional services made up the remaining 7%.
Speaker Change: Enterprise revenues are from subscription usage M. P. S combined made up 89% of LTM revenue.
Speaker Change: Commercial business, which represented the remaining 11% grew in the low single digits on an LTM basis.
Speaker Change: I Hope you have dollar based retention rate remained the same as last quarter at 108%.
Speaker Change: Turning now to profitability.
Speaker Change: We are pleased to again report strong margin expansion across the board driven by the increase in revenue scaling against fixed incentive fixed costs.
Speaker Change: A full quarter impact of the roof and an ongoing focus on tight expense control.
Speaker Change: As a result Q4 adjusted gross margin increased approximately 220 basis points year over year to 63, 5%.
Speaker Change: And adjusted EBITDA margins increased approximately 290 basis points year over year to 23, 1%, an all time record.
Speaker Change: And I can point out that stock based compensation again decreased year over year from.
Speaker Change: From 50 million to $38 million.
Speaker Change: An improvement of seven percentage points to 14% of revenue in the fourth quarter.
Speaker Change: As a lot of both the improved adjusted EBITDA margin and significant improvement in stock based compensation. We are very pleased to report GAAP operating income of $4 $2 million and GAAP net income of $11 $6 million in the fourth quarter.
Speaker Change: First quarter non-GAAP EPS was <unk> 79 cents per diluted share up 18 cents year over year.
Speaker Change: And now for a closer look at the key full year 2020 for income statement metrics as Mike mentioned 'twenty 'twenty four revenue exceeded $1 billion growing 14, 4% year over year.
Speaker Change: So a 2024 adjusted gross margin expanded by approximately 70 basis points year over year to 61, 7%, while the 'twenty 'twenty four adjusted EBITDA margin expanded by approximately 30 basis points to 18, 8%.
Speaker Change: 'twenty 'twenty four and non-GAAP EPS came in at $2 47, a year over year increase of 42 cents per diluted share.
Speaker Change: Now I'd like to share some cash flow highlights.
Speaker Change: I'm pleased to report that LTM operating cash flow reached an all time high at $143 million or 14% of revenue.
This is primarily driven by a record adjusted EBITDA and continued strength in DSO performance, which came in at 34 days.
Speaker Change: Free cash flow. Okay also came in strong at $79 million or 8% of revenue as Mike mentioned, our fourth quarter operating and free cash flow, both hidden or both had all time record of $15 million and $33 million respectively.
Speaker Change: Before turning to guidance I would like to comment on seat count.
Speaker Change: And that business has evolved.
Speaker Change: The seat count metric, we have been providing entity in the fourth quarter it.
Speaker Change: Had become less relevant as a growing number of our products are no longer priced on a per seat basis.
Speaker Change: Subscription revenue is the most meaningful metric for our business as it reflects the growth in customers coming onto our platform as well as the products they are purchasing.
Speaker Change: We are mindful, though that we need to close the supporting chapter properly and where they're pushing that the average seat count totaled 432818 in the fourth quarter, including equity out.
Speaker Change: Going forward, we will not be providing a teach out matrix given that there's no longer a meaningful performance indicators.
Speaker Change: One more item before guidance.
Speaker Change: Given the CFO transition will not be hosting an analyst day in the first half of this year. Please.
Speaker Change: Please stay tuned for an update on timing.
Speaker Change: Turning now to our full year, 'twenty 'twenty, five and first quarter guidance for.
Speaker Change: For the full year, we are guiding annual revenue to a midpoint of $1.14 billion, which is 11 $5 million higher than the high level outlook, we provided last quarter.
Speaker Change: Of course as a starting point.
Speaker Change: And we will update our outlook as the year progresses.
Speaker Change: With regard to the bottom line, we are guiding 2025, non-GAAP EPS to a midpoint of $2.60 per diluted share.
Speaker Change: Which is eight cents higher than the high level outlook, we provided during our last earnings call. Please note that this guidance reflects our assumption that we will use cash to retire the remaining $434 4 million principal balance.
Speaker Change: Now 2025 convertible notes, which will be maturing in June.
Speaker Change: Also we expect annual adjusted gross margins and adjusted EBITDA margins to improve for the year earlier.
Speaker Change: That's where the first quarter, we are guiding revenue to a midpoint of $272 million. This represented 2% sequential decline, which is similar to a typical guidance guidance pattern in the first quarter.
Speaker Change: And for the remainder of the year, we expect a very small sequential growth in the second quarter and largest sequential increases in the second half.
Speaker Change: We expect first quarter non-GAAP EPS to come in at 48 cents per diluted share at the midpoint a decline of 31 cents sequentially. As a reminder, our first quarter and I'll get Evs is always the weakest of the year and if anyone since quite other quota decrease is similar to a typical guidance pattern in Q1.
Speaker Change: For the remainder of the year, we expect non-GAAP EPS to increase slightly in Q2 and further improve in the second half. Please.
Speaker Change: Please refer to the presentation posted on our Investor Relations website for additional estimate including share count taxes and capital expenditures as well as the LTM enterprise subscription revenue.
Speaker Change: In summary, we are very pleased with our fourth quarter performance, we accelerated revenue growth and we have demonstrated and the matrix may clear superb execution, and our winning AI strategy and.
Speaker Change: And we love efficient, we achieved record highs for adjusted EBITDA GAAP net income and for operating and free cash flow in Tony's UNFI will remain laser focused on driving higher profitability, while investing surgically in key strategic areas to further our position as a leader in AI for Phoenix.
Speaker Change: Operator, Please go ahead.
Speaker Change: Thank you Barry we will now move into the Q&A session. When I call. Your name. Please ensure your video is on and that you are on mute. Your line as a reminder, in an effort to hear from everyone. Please limit yourself to one question.
Ryan Macwilliams: And with that our first question comes from Ryan Macwilliams with Barclays Brian.
Speaker Change: Excellent.
Speaker Change: Sorry.
Speaker Change: Congrats on the career this is tough, but no great working with you and I'm going to have some captain crunch in your honor this weekend.
Speaker Change: And for that reason I'll save my first question for Mike.
Speaker Change: You know how have the conversations with your customers been since the election has there been any changes or any changes to start this year and as you think about potential upside drivers for 2025 will get you. Most excited is it potential improvements in cloud conversions for allergic contact centers is that AI upsells, adding more.
Speaker Change: Uses receipts like what could improve and towards like but yeah, great questions Ryan.
Speaker Change: Look our conversations with customers continue to be very focused around leveraging AI and frankly, you know we're investing a lot in enabling our go to market teams to be the AI experts and help guide our customers in this new world.
Speaker Change: You know our results are showing our progress with AI not just technically but in our business right up to 9% of our revenue mix and 46% growth in enterprise AI revenue. So.
Speaker Change: So it's a it's a new world and the customers all want to talk about the new World, but you know you heard a lot of my comments were kind of nuts and bolts around self service and you know we spend a lot of time talking about agenda and other you know very advanced things that we're obviously delivering as an industry, but today our customers.
Speaker Change: They want to deliver self service and they want a deliberate accurately in a personalized way and that is so important to them and so that's why I really spent a lot of time today talking about that in terms of upside drivers for us in 'twenty twenty-five obviously look AI is growing faster than the rest of our business, but our core business is growing very very nicely.
Subscription revenue is the key metric, 19% this last quarter.
Speaker Change: You know we are very excited about the pipeline, we've got Andy and Matt and the rest of the sales organization are executing in a in a just a great way and I think we've still got upside on that but we're getting we're just getting to that level, where I feel like we're optimized but I think we've still got a little headroom there too so I think theres upside there.
Speaker Change: As well as obviously, we've talked about macro and you know what the impact of a better macro is going to be significant as well.
Speaker Change: But again, we're delivering you know this growth that we delivered in Q4 and you know arguably you know a sideways macro a little bit better in Q4, Ryan It was a little bit better and we'll talk about that I'm sorry.
Appreciate the color thanks, Mike Thanks, Ryan.
Our next question comes from Vijay Haynes with Canaccord D J.
Speaker Change: Hey, guys.
Speaker Change: The first question is for Barry what what are you going to do with all those ties.
Speaker Change: Yeah, I'd say of the federal I'd put today, good Ah Hey, Mike one for you. So I think one of the questions that I think investors are wrestling with is.
Speaker Change: If it's not the C class vendors.
Speaker Change: Whose AI or agent that end up winning in this space right like maybe that business gets cut off at the pass by our sales force our service and our whoever that third party might be like obviously those other systems still need access to that contextual data that you highlighted as being so important today right all that resides inside of five nine.
Speaker Change: Can you talk about how you monetize that data access and what that could mean for your financial model just given there's still some uncertainty about kind of who wins in the end with a yes.
Speaker Change: Really good question DJ and again, you're spot on right. It's about contextual data AI is only as good as the data it has access to on our platform.
Speaker Change: As a control point for a lot of that contextual data.
Speaker Change: Not just a you know information about the customer and about the brand, but also about recent interactions between that consumer and the brand. It's absolutely critical to delivering AI driven self service as I said in my remarks and the good news is as you stated you know look we're a winter either way we are a great partner to sales.
Speaker Change: For us a great partner to service now.
Speaker Change: You know we are in the market together and what we're in the business of winning the <unk> platform.
Speaker Change: We know that Salesforce for example was in the business of winning the CRM platform. The question at hand is who's AI are they do you know the customer is the customer going to choose it's going to be a mix. We're very convinced of that and the good news for US is even if you know in a given use case for a given business unit.
Speaker Change: That organization wants to use salesforce for their AI.
Speaker Change: The good news is they still need access for that AI to do its job they need access to all of the contextual data in our platform and that's why we're great partners. They know they need us and worked very welcoming to that relationship and we want to do what's best for the customer and the end of the day, we monetize that through voice stream and transcripts dream I think of that as a paper in <unk>.
Speaker Change: We're essentially we're charging on a per minute consumption basis that adds up to somewhere between 40 and $50 per month in recurring revenue to us just for that connect our connection her AI agent say on you know that for third party third parties part so and again.
Speaker Change: That can actually scale up even higher than that on a monthly revenue basis for us if those AI agents are more efficient than say a human agent.
Speaker Change: So I hope that's helpful. Yeah, no that makes perfect sense. Thank you guys. Thanks P J.
Speaker Change: Our next question comes from Michael <unk> with Wells Fargo Michael.
Oh wonderful.
Speaker Change: Testing my reflections of the Zim.
Speaker Change: I'll Echo Barry Congrats.
Speaker Change: I'll Miss you are sitting in front of the firm, but I. Appreciate you being here today I wanted to ask about <unk>, specifically and just on seasonality if there's anything you'd call out in terms of seasonal expansion in our overall deal cadence of what you're seeing in enterprise.
Speaker Change: And as a second part Barry it would be I'd be remiss, if I didnt ask just on your prudent guidance, if there's anything else you're contemplating given the transition there as well thanks very much.
Speaker Change: Yeah, So let me start with the fourth quarter.
Speaker Change: We look at it by vertical.
Speaker Change: And it is clear that for the consumer in particular about health care as well and we did better than we originally anticipated.
Speaker Change: And better than last year.
Speaker Change: I know that a number of you have grown your eyes, when we keep talking about the JP Morgan data, especially as it at work at Jpmorgan, but at the end of the day.
Speaker Change: At the end of the day the numbers are clear our if you look at our last well look in Q3. The numbers is 112 that is a percentage increase in July August and September and then for the for this last quarter October November December it was three or four fold. So for the first time in a long time, we've had actually positive.
Speaker Change: Got it.
Speaker Change: As opposed to just nominal growth and that showed up in the numbers and interestingly in the consumer side. There was actually more use it both health care and cause and consume it actually it was more usage.
Speaker Change: Telephony usage, that's why I went from 13% in total and up to 14%.
Speaker Change: Can you just go on hire an agent that quickly and who.
Speaker Change: You might have as long a hell of a time or whatever you're just going to fix that quickly and with respect to anything if I look we're not macroeconomists, we don't know exactly what's going to happen, but we do know is that there's a lot of uncertainty out there.
Speaker Change: January retail sales are the weakest in in two years, almost and you're talking about tariffs and you're talking about the potential you talk about what it was and so on.
Speaker Change: And we just we pump in say for that by being more prudent and we've learned that potency into 2025.
Speaker Change: And by the way you should be having these financial answers and see if it was because I think I actually it's doing it is Bryan and and asked me we took an extra layer of propulsion and the seasonality for the second half of the because of the this massive uncertainty we pace.
Speaker Change: Okay.
Speaker Change: You asked about expansion and you know as you heard me talk about our in our installed based booking teams. We made some changes in Q2 and this is really starting to accelerate and so having the largest install base bookings quarters and eight quarters.
Speaker Change: With 50% year over year growth in AI driving that you know gives us a lot of confidence on the expansion side that the teams are really executing on that although we're asking them to do.
Speaker Change: Alright, thanks very much.
Speaker Change: Our next question comes from CB, Pentagon E with Mizuho C D.
Speaker Change: Okay. Thank you and congrats on your retirement.
Speaker Change: Suddenly it was great working with you and Brian Congrats on your new role.
Speaker Change: So Mike I want to keep it at a high level I mean, we keep hearing about how AI is going to replace human events, even though we saw last year when cloud now announced that they're going to full on on AI for customer support and then we recently I don't know if you have seen that talked about reversing the course now to include it in here.
Speaker Change: So my question is as becoming more mainstream what are you hearing from your customer and when they are thinking about their AI strategy for customer survey.
Speaker Change: Customer service and what's your view on citrus reduction, we should expect how that upset by AI.
Speaker Change: Yeah. Thank you city, a great question and thank you for citing that the quote by the Florida CEO. It's amazing how you'll look we all get out ahead of ourselves sometimes when there are innovations like this right and.
Speaker Change: No I'm not surprised at all we've been saying that that was and over rotation to say the least of our customers are doing what we've been saying for quite some time, what they're trying to do is you.
Speaker Change: You know.
Speaker Change: Deflect to self service on the margin some small percentage of their interactions now 510% in the near term eventually it'll be a little more than that if were all successful and delivering agenda can you now personalized and accurate AI, which we're well on our way to doing but at the same.
Speaker Change: <unk>, what they're there they're being very our customers are being very.
Speaker Change: Calculated around how fast they try and push automation upon their consumer right. It's so important to deliver a great customer experience and the end of the day.
Speaker Change: We're still getting tremendous rois, even if theyre able to shave, 5% of those interactions and put them through self service, it's usually resulting in just less growth in human agents as opposed to a true reduction, but sometimes again, they're striving to get that labor arbitrage ROI in the long run for sure.
Speaker Change: Sure and we're helping them deliver that very tangible ROI. So it's a it's a real thing, but it's not anywhere near what I think people were concerned about.
Speaker Change: Great Thanks for that color.
Neely: Thanks Neely.
Speaker Change: Our next question comes from Scott Berg with Needham Scott.
Neely: Scott.
Scott graves: Hi, everyone first of all can you hear me Okay, Yes, we got to Scott graves, nothing like being in an airport lounge right now but.
Speaker Change: So Mike I wanted to just talk about the bookings maybe Andy wants to take this you seem pretty happy with where our bookings are they.
Speaker Change: As you've seen pipelines both in the agency that actually hit is it truly in kind of a normalized environment today relative to what you saw in Q2 and.
Speaker Change: Improvement that you saw in Q3, just trying to help understand where we are in that trajectory. If that's still to come or do you think we're squarely there today, the I'll start and Andy Please China and it just.
Speaker Change: Scott It's a very good question, we've talked about this in the past right Q2 was kind of the the pinnacle of the AI fog as I call. It a distraction factor right, where everybody was just really trying to figure out AI Q3 got better in Q4 got even better on top of that and again you know, it's it's I wouldn't necessarily say we're.
Speaker Change: You know all the way back to normal because there is still uncertainty. There's still you know kind of this in the macro side of things going on where bookings were strong on both net new and installed base, but again I do believe in a in a even healthier macro there's upside there, but and yeah. I mean, the only thing I would add Scott would be just the ebb.
Speaker Change: <unk> of the team right just in terms of we got we were focusing on Mega deals and you know when I look at the the largest number of a million dollar plus there are deals in 'twenty 'twenty four and just look what the teams executing on we're getting more and more of the dolphins right more of the size of the customers that we are which is the engine of the company, which is the biggest part of the market and you know that.
Speaker Change: That's good to see.
Speaker Change: Got it helpful and then Mike in your scripted comments you'd spoken about some.
Speaker Change: Agents that Youre building in conjunction with Salesforce in a couple of different areas. What is the monetization of that look like relative to your all in Asia to help us understand if economic model and it looks like the $5 million.
Speaker Change: Yeah, and as it relates to my earlier comment Scott again, we're monetizing our you know.
Speaker Change: Third party AI, if it's in some of these cases, but again when it comes to sales force a lot of times, it's our AI not there, sometimes it's going to be their AI, but we monetize it if it is their AI.
Speaker Change: Through transcripts stream and voice stream and again, it's a win win no matter what between five nine and Salesforce, where we like to say, we're better together and we're out winning joint accounts, especially in some of these vertical markets like health care, where we're actually delivering vertical AI agents like patient scheduling agent.
Speaker Change: What's your AI engine, which is again, if you think about it as a consumer wouldn't it be great to be able to schedule schedule healthcare appointment.
Speaker Change: With AI instead of a human agent, that's a perfect transaction for AI to handle and we're doing it with salesforce through through some deep integration, it's pretty cool.
Speaker Change: And then lastly, Barry it's been a really funny 10 years, thanks to all of the Oh Okay.
Speaker Change: Thanks Scott.
Peter Levine: Okay. Our next question comes from Peter Levine with Evercore.
Speaker Change: Alright, Thank you guys.
Speaker Change: Question.
Speaker Change: Congrats on your retirement.
Speaker Change: Maybe a two part question one is on the AI trajectory, the 9%, which is up from 30% in Q4 of last year or maybe help us understand what's trajectory about book like that.
Speaker Change: Steady state or is there an inflection point, where we can really see that ramp and then the second question would be Barry you talked about see kind of that being the right metric anymore. No customers are moving more from a seat basis to more of a consumption token based model. So maybe help US understand you guys used to talk about a metric where the seat price was 150 for the core and then there was a.
Speaker Change: Three to four X uplift is that still the case with a fully autonomous agents today, if the seat count metric that necessarily isn't the right metric.
Speaker Change: Yeah, Let me start Barry and feel free to chime in Peter Great questions.
Speaker Change: The the trajectory out of our AI revenue as you know again, it was 46% year over year growth in AI revenue. This is the enterprise part of.
Speaker Change: Our SMB or commercial business, there's not a lot of AI, there, so where are where AI exists for us is in our enterprise business.
Speaker Change: Grew 46% year over year in terms of the trajectory that's up from I believe a.
Speaker Change: 40% last quarter and again we.
Speaker Change: We talked about kind of our bookings as a leading indicator and that's what I said I said, where we feel very good about AI revenue growth in the future given the bookings growth that we're seeing for AI net new is attach as well as in the install base. So again.
Speaker Change: We're very pleased with the fact that it's growing in the mid Forty's and that's obviously growing a lot faster than the rest of our business, albeit it's only 9% today, but again a growing percentage of the mix, we're excited about that and.
Speaker Change: Barry if you want to start on the seat count side of things I'm I may add a little bit, but I'll, let you well it's very straightforward.
Speaker Change: Huge ROI to our customers from this are we going to be able to charge for that on a consumption basis isn't currently are and.
Speaker Change: The number that you cited the three X when you do compare it to the historic seat base, which is still of course, the majority of our business. It is in the order of three X on particularly on.
Speaker Change: Ivy as but you know that Mike was talking about the voice Scream at times could seem adding another $50.
Speaker Change:
Speaker Change: And Ah.
Speaker Change: Theres more than enough to go around for our customer and for $5 million.
Peter Levine: Yeah, I think you said it it's good thank you Peter Thank you guys.
Speaker Change: Yeah.
Taylor Mcguinness: Our next question comes from Taylor Mcguinness with UBS Taylor.
Taylor Mcguinness: Okay can you guys hear me okay.
Speaker Change: Perfect Barry Congrats on retirement.
Speaker Change: And I'm very happy for you to take our next chapter.
Speaker Change: Yeah.
Speaker Change: Barry maybe for you and Brian to win you talked a little bit about the usage trends earlier and it was clear like in the results that there definitely was a big acceleration in that piece. So as we get into <unk> can you just talk about the trends that you're seeing are you seeing maybe a little bit of a reversal from what you saw in <unk> can you remind us maybe.
Speaker Change: What verticals are have greater exposure in one.
Speaker Change: And maybe it's like a second part to that question, how we should think about the trajectory from.
Speaker Change: From here.
Speaker Change: Got it so I'm happy to answer the first part and I'll pass on to Barry, but before I do I just wanted to say to Perry, it's been truly an honor and a career highlight for me to have worked with you and I just want to thank you for everything you've done for finite and for me personally and I Hope you love retirement as much as you love being CFO.
Speaker Change: And so to get back to your question Taylor in terms of the Q1 guide you'll see that we're implying a 2% quarter over quarter decline and that is right within the range of zero to negative 4% that we typically guide to for Q1, but if you compare to last year, you'll notice that we actually guided to sequential.
Speaker Change: The flatness quarter over quarter in Q1 and that reflects what Barry said earlier, we had a stronger than expected seasonal uptick in consumer and health care in Q4, So we're expecting that downtick to be stronger than what we felt last year and there's actually one more component there from a tough comparison perspective, so one of our biggest mega customers was going through a significant grew.
Speaker Change: <unk> phased in the brand throughout playing 24 who've ended the rent, but if you kind of look at these multiyear rent, it's usually small contributions in the beginning and much more in the latter part so that Q4 to Q1 transition last year compared to this year. It creates a little bit of a tough comparison. So so that's what's in the 2% guide quarter over quarter decline, but I do on it.
Speaker Change: Emphasize the fact that you know we have a prudent guidance philosophy and that hasn't changed.
Speaker Change: Yeah, and then in terms of the D. B R. R.
Speaker Change: He says it doesn't look like it's quite placid, we've had three quarters at 108, but there's actually a significant cross currents underway.
Speaker Change: The on the headwind side, if you will.
Speaker Change: Working against US is the fact that we have a sharper downturn that Brian just mentioned, but also on top of that just the the muted seasonal uptick that we assuming for the time being on the positive side, we have the AI momentum we have there the.
Speaker Change: Million plus customers have a dollar base retention rate that is meaningfully higher than one eight and which are growing faster and again. This is quoted at a 26%.
Speaker Change: I I believe yeah and.
Speaker Change: So we didn't quite know how to handicap that but we can say is that and.
Speaker Change: Where that goes upsides or downsides upcoming quotas that fluctuations are likely to be extremely minor.
Speaker Change: And that's the best we can say at the moment.
Speaker Change: Perfect. Thank you guys. So much thank you.
Speaker Change: Our next question comes from meta Marshall with Morgan Stanley.
Speaker Change: Great, Thanks, and I'll Echo the congrats Barry.
Speaker Change: Couple of questions I know you guys kind of man across the board a risk and it has been kind of flowing through our results. This year. Just how do you think about kind of where investments as you kind of a ramp up again, what kind of be more guests are in now, particularly given the rest.
Speaker Change: Then maybe just a second just any disruption from Dan kind of upcoming departure or Dan Burkland kind of upcoming departure. Thanks, Yeah. Thanks me to I'll talk about Dan first again, Oh look we.
Speaker Change: We promoted Matt to EVP of sales Andy.
Speaker Change: Has all of sales and go to market functions rolling up to him now and as you know, both Matt and Andy have kind of solidified in their seats.
Speaker Change: You know Dan will be less involved in the day to day and moving to a consultant role and again, we don't Oh, we've been extremely lucky to not have disruption we've been a team for forever. We're still a team and that's just kind of a $5 nine way and that's.
Speaker Change: Part of our culture. So I would say you know very very little disruption if any.
Speaker Change: And in terms of you know where we're investing.
Speaker Change: It is it is.
Speaker Change: Look we believe in this market so much it where we obviously are going to continue to put the pedal down a little bit on R&D investments specifically in AI to extend our leadership position there.
Speaker Change: It will probably not probably but we are also pretty focused on our go to market team and our sales capacity and our quota capacity again the way we grow our business the way we've been growing it for 17 years I've been here is bookings growth right and the only you know there's a formula there obviously, we got to grow the top of the funnel, but we have to increase our.
Speaker Change: Quota capacity, along with that and we're very careful about not getting out ahead of ourselves, but you'll see us continue to add quota capacity through the year as well. So it's really you know building building product and selling product and those will be the priority areas for us.
Speaker Change: Great. Thanks, Thanks meta.
Jim Fish: Our next question comes from Jim Fish with Piper Sandler.
Speaker Change: Hey, guys. This is went down for Jim fish. Thanks for taking my question and also wanted to add our congrats to both Barry and Brian here.
Speaker Change: Mike or Andy maybe questions for either of you you know avaya.
Speaker Change: Avaya recently announced the change to their platform that kind of forces some customers away no. It's still really early here, but as you kind of think this announcement any change in the pipeline or customers coming to you basically any any early indication of the donation that you expect from that competitor or is this just you know they've been doing anything for us.
Speaker Change: Island, So you expect that to be more steady from here.
Speaker Change: I can take that yeah, yeah, I mean, obviously, we've been donating for awhile to use your term, but yeah. We we obviously noticed that we do have a lot of good processes in place to make these migrations from Avaya are pretty straightforward now it was there if I experienced platform public REIT for 200 seats and below so kind of one piece of the piece of the puzzle and yeah, where we're focused on that.
Speaker Change: Part of the market, what I would be interested in seeing would be as there's customers that are higher than 200 seats right, which is another big engine for US you know do they see sort of a lack of commitment for the future from that so it's something we're keeping an eye on and we're focused on and you know what where we're good at those migrations and yeah, well keep an eye on it.
Got it thank you.
Speaker Change: Excellent.
Speaker Change: Our next question comes from Tom Blakey from Cantor Tom.
Speaker Change: Oh, well I didn't get a heads up for that thank you for taking the call on <unk>.
Speaker Change: Terry Congratulations it's been great working in dining with you and best.
Speaker Change: Best wishes to you and your family.
Speaker Change: And just maybe a two parter first we've been hearing from yourself throughout last year and from some of your peers about.
Speaker Change:
Speaker Change: You know slowdown in close rates and elongated sales cycles related to the increased complexity of large deals in.
Speaker Change: Layering in AI in making these things harder to implement I'd love to get.
Speaker Change: Your update there on what Youre seeing Andy and Mike in terms of visibility on those types of the deals and then Barry on the model and these partnerships. We're picking this up from our checks to congratulations on this this new channel I'd love any color. If you can maybe extend the type of color you normally give us in terms of what you were you believe partnerships.
It could be over time and any impact to the model to meet his question about investing you know maybe maybe there could be some leverage here leveraging these huge partners that'd be helpful. Yeah, let's start with the last question Tom.
Speaker Change: Look the partnership ecosystem is driving a lot of our business already we expect that to continue to increase when you think about that Google.
Speaker Change: Cloud marketplace.
Speaker Change: Announcement that we made that's a game changer for us and again something that opens up.
Speaker Change: No new avenues and easier procurement process and.
You know into the Google customer base and these are the types of partnerships quite frankly that to me are so important to us to continue to move the needle in terms of our penetration into this market. So again, whether it's deeper integration with salesforce or service now or continuations with variant or it's like Google.
Speaker Change: Loud marketplace announcement, we're going to continue to leverage the ecosystem.
Speaker Change: In this this new world of CX, It's a wonderful time to be in this space and it's a big driver of our growth in the future and again, we will continue to.
Speaker Change: To aim to find additional leverage points like this.
Speaker Change: That allow us to get again, just like I said leverage right and again, we're going to continue to build out our quota capacity, but we're also going to continue to get lever leverage from partners in the channel.
Speaker Change: And then that Tom the other part of the question was going or are we still seeing elongated sales cycles, you know Mike talked about that.
The AI fog being lifted and you know, we're seeing a little bit of that right. We're cautiously optimistic about that and obviously macro as well, but we now look at the sales cycles. You know our teams are doing an excellent job really focusing on the AI. The ROI part of AI right, which is we launched our AI blueprint for leveraging our teams to go in and really identify those ryu's cases that.
Speaker Change: Helps and these customers are going him I'm going to make my CX decision, but the AI part of it is going to really drive it and so I think we're executing well there and again cautiously optimistic that those very very long sales cycles are shortening.
Thank you very much.
Tom Blakey: Thanks, Tom.
Speaker Change: Our next question comes from Michael Funk with Bank of America Michael.
Tom Blakey: Yeah, great. Thank you for fitting me in and out and Barry Congratulations to you.
Tom Blakey: Mike I wanted to dig into a comment you made your prepared remarks about your AI strategy robots.
Tom Blakey: Terry models that are out there kind of an advantage is five nine.
Speaker Change: Any more color on how it doesn't advance you during negotiations during the RFP process I think I know, you're talking about but love to hear more detail on how that differentiates you.
Michael: Yeah, a great question Michael.
Michael: Our engine agnostic strategy from literally day, one even before we acquired inference is playing out.
Michael: So nicely no pun intended.
And I really mean that there was nothing intended there. We we started out I think with the right strategy others are now following this strategy. So again it everyone's going to have access to these L. L. EMS, that's not going to be a differentiator what is a differentiator as everything that we built on top of those engines and you know the good news for US is we didn't waste it.
Michael: A lot of time and energy trying to build our own engines. We're now again able to leverage the latest and greatest for our customers to leverage the latest and greatest engines as they come to market. We just plug them in and it's easy to do through our AI studio a framework and.
Michael: It is a real advantage and again in the RFP process, we get a lot of questions around or are you now our AI strategy, including the architecture of it including which engines, we're leveraging and custom.
Michael: Customers are really do appreciate the way we've approached it and we're winning because of that.
Michael: Great. Thank you Mike.
Michael: Thank you.
Speaker Change: Our final question will come from Arjun Bhatia with William Blair.
Michael: Perfect. Thank.
Speaker Change: Thank you guys.
Speaker Change: Barry since this is your last call here, one for you too and it may be just I think.
This is maybe the most optimistic.
Speaker Change: I've heard you're sounding on some of the forward looking trends like bookings.
Speaker Change: AI attraction pipeline et cetera, and in several quarters here and yet you know the the guidance for next year I think still suggests.
Speaker Change: Sub 10% growth when when we're trying to reconcile those two can you just give us a sense for where there is kind of the most conservatism I know you mentioned Q4 seasonality, but how are you thinking about turn up so are you thinking about cloud migrations AI bookings converting into revenue. If you could just give us a little bit more detail there that'd be super.
Speaker Change: Helpful. Thank you.
Speaker Change: And I'm happy to answer that so.
Speaker Change: So the way, we think about the annual guide I want to point out first when we had our earnings call last quarter. We did mention that the outlook. The consensus at one point of around $3 billion, we were comfortable with that number and the guidance that we gave this time for the midpoint is an 11 and a half million beaten race right. So there's that point.
And I do want to emphasize the point that our guidance philosophy is always prudent and that has not changed and Barry mentioned a seasonal uptick in Q4, we have to be printed there's a lot of uncertainty out there in terms of the background, but we have to be prudent at that.
Speaker Change: There's another layer of conservatism there.
Speaker Change: In the back half of 2020 five.
Speaker Change: For seasonal.
Speaker Change: Assumptions and of course, the Mega customer ramp that I talked about and that would be a tough comparison. So at the end of the day.
Speaker Change: It's prudent and it's the starting point and we'll continue to update you as the year progresses.
Speaker Change: Alright, perfect. Thank you.
Speaker Change: Thanks Arjun.
Speaker Change: Alright, well thanks, everyone for joining us Barry we're going to Miss you Congratulations and thank you, but thank you for everybody for to all of you for joining us and well look forward to keeping you updated as we progress through the year and thanks again.
Speaker Change: That concludes today's call. Thank you, everyone and have a good evening.
Speaker Change: Goodbye.