Q1 2025 Five9 Inc Earnings Call

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Unknown Attendee: You have joined the meeting as an attendee and will be muted throughout the meeting. Thank you for joining us today.

Speaker Change: You have joined the meeting as an attendee and will be muted throughout the meeting.

Thank you for joining us today certain statements made during the course of this conference call that are not historical facts, including those regarding future financial performance and cash position of the company expected improvements in financial unrelated metrics expected.

Unknown Executive: Certain statements made during the course of this conference call that are not historical facts, including those regarding the future financial performance and cash position of the company, expected improvements in financial and related metrics, expected ARR from certain customers, certain expected revenue makeshift, customer growth, anticipated customer benefits from our solution, 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 same, company growth, enhancements to and development of our solution, market size and trends, our expectations regarding macroeconomic conditions, company market position, initiatives and expectations, technology and product initiatives, including investment in R&D and other future events or results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker Change: They are often certain customers certain expected revenue mix shifts customer growth anticipated customer benefits from our solution, including from AI. The expense of the anticipated Tam expansion and our ability to take advantage of any such expansion, our AI revenue opportunities and current estimations regarding same company growth enhancements and development of isolation.

Speaker Change: Market size in China, our expectations regarding macroeconomic condition company market position initiatives and expectation technology and product initiatives, including investment in R&D and other future events or results are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Unknown Executive: Such statements are simply predictions, should not be unduly relied upon by investors, actual events or results may differ materially, and the company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties that could adversely affect Five9's future results and cause these 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 rates, fluctuations in currency exchange rates, lower growth rates within our installed base of customers, and the other risks discussed under the captioned risk factors and elsewhere in Five9's annual and quarterly reports filed with the Securities and Exchange Commission.

Speaker Change: 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.

Speaker Change: These statements are subject to substantial risks and uncertainties that could adversely affect <unk> future results and cause. These forward looking statements to be inaccurate, including the impact of adverse economic conditions, including the impact of macroeconomic challenges, including continuing inflation uncertainty regarding consumer spending high interest rates fluctuations in currency exchange.

Speaker Change: Lower growth rates within our installed base of customers and the other risks discussed under the caption risk factors and elsewhere in <unk> annualized quarterly reports filed with the Securities and Exchange Commission.

Unknown Executive: In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results and guidance is currently available in our press release issued earlier this afternoon, as well as in the appendix of our investor deck that can be found in the investor relations section on Five9's website at investors.five9.com.

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 lines website.

Speaker Change: At investors Dot five nine Dot Com also please note that the information provided on this call speaks only to management's views as of today May <unk> 2025, and may no longer be accurate at the time of a replay.

Unknown Executive: Also, please note that the information provided on this call speaks only to management's views as of today, May 1st, 2025, and may no longer be accurate at the time of a replay. Lastly, a reminder that, unless otherwise indicated, financial figures discussed are non-GAAP.

Speaker Change: Lastly, a reminder, that unless otherwise indicated financial figures discussed are non-GAAP.

Michael Burkland: And now I'd like to turn the call over to Five9's Chairman and CEO, Mike Burkland. Thanks, Emily. And thanks, everyone, for joining our call this afternoon. We are pleased with our first quarter results, which exceeded our guidance across all key metrics. Subscription revenue, which now makes up 80% of total revenue, grew 14% year over year. This was primarily driven by LTM Enterprise subscription revenue growing 20% year over year. Adjusted EBITDA margin was 19% for the first quarter, helping drive a Q1 record operating cash flow of $48 million, or 17% of revenue, and an all-time record of free cash flow of $35 million, or 12% of revenue.

Speaker Change: And now I'd like to turn the call over to five nine chairman and CEO, Mike Burkland.

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

Speaker Change: We are pleased with our first quarter results, which exceeded our guidance across all key metrics.

Speaker Change: Subscription revenue, which now makes up 80% of total revenue grew 14% year over year.

Speaker Change: This was primarily driven by LTM enterprise subscription revenue growing 20% year over year.

Speaker Change: Adjusted EBITDA margin was 19% for the first quarter, helping drive a Q1 record operating cash flow of $48 million or 17% of revenue.

Speaker Change: And at all time record of free cash flow of 35 billion or 12% of revenue.

Michael Burkland: Today, I'd like to start off by providing key highlights of an extensive operational review we recently conducted across the company. We believe the transformation initiatives we're executing will help bolster our long term competitive position and reestablish ourselves as a rule of 40 company as we continue to drive profitable growth. As we pursue this evolution, our goal is to deliver increased profitability while prioritizing investment in key strategic areas, including AI and go to market initiatives to drive revenue growth and capitalize on our massive TAM that we believe is significantly expanding with AI. The transformation will take time, but we're moving quickly and driving cross functional alignment across the entire organization to achieve our goals.

Speaker Change: Today I'd like to start off by providing key highlights of an extensive operational review, we recently conducted across the company.

Speaker Change: We believe the transformation initiatives, we are executing will help bolster our long term competitive position and reestablish ourselves as a rule of 40 company as we continue to drive profitable growth.

Speaker Change: As we pursue this evolution of our goal is to deliver increased profitability, while prioritizing investment in key strategic areas, including AI and go to market initiatives to drive revenue growth and capitalize on a massive Tam that we believe is significantly expanding with AI.

Speaker Change: Transformation will take time, but we're moving quickly and driving cross functional alignment across the entire organization to achieve our goals as a result in 2027, we are targeting to be above the rule of 40 on an adjusted EBITDA basis and be approaching the rule of 40 on a free cash flow basis.

Michael Burkland: As a result, in 2027, we are targeting to be above the rule of 40 on an adjusted EBITDA basis and be approaching the rule of 40 on a free cash flow basis.

Unknown Executive: Brian will provide more details on this in a moment.

Speaker Change: Brian will provide more details on this in a moment.

Michael Burkland: Now I'd like to dive deeper into our AI powered platform and how it's well positioned to empower brands to elevate their CX and how they're realizing meaningful benefits through our Genius AI suite of products. As I touched on last quarter, in order to deliver personalized and accurate self-service using GenAI, you need four key ingredients. First, you need access to LLMs, and it's critical to enable brands to easily change the underlying engine to leverage the latest high-performing models. We believe our engine agnostic approach allows brands to future-proof their AI decision, and our AI application layer above these engines acts as the key competitive advantage.

Speaker Change: Now I'd like to dive deeper into our AI powered platform and how it is well positioned to our power brands to elevate their CX and how theyre, realizing meaningful benefits through our genius AI suite of products.

Speaker Change: As I touched on last quarter in order to deliver personalized accurate self service using Gen. AI you need four key ingredients first you need access to LLS and it's critical to enable brands to easily change the underlying engine to leverage the latest high performing models, we believe our engine agnostic approach.

Speaker Change: Roche allows brands to future proof their AI decision and our AI application layer above these engines acts as the key competitive advantage.

Michael Burkland: Second, you need contextual data, which includes consumer-specific and brand-specific information that is distributed across a large number of back-end systems. Our platform typically integrates into 20-plus systems, which enables contextual data to be fed into the LLM in real time in order to provide true context around an interaction. Third, you need historical interaction data. Our CCAS platform is the system of record for interactions between a consumer and a brand across all channels, including those handled by AI agents as well as human agents. And fourth, you need a platform that provides all channels such as voice, text, email, web chat, and social to connect consumers to an AI agent, as well as to provide a seamless escalation path to human agents.

Speaker Change: Second you need contextual data, which includes consumer specific and brand specific information that is distributed across a large number of backend systems. Our platform typically integrates into 20, plus systems, which enables contextual data to be fed into the low <unk> in real time in order to provide true context around.

Speaker Change: And interaction.

Third do you need historical interaction data our <unk> platform is the system of record for interactions between a consumer and a brand across all channels, including those handled by agents as well as human agents.

Speaker Change: And fourth you need a platform that provides all channels such as voice text email web chat and social to connect consumers to an AI agent as well as to provide a seamless escalation path to human agents.

Michael Burkland: The market demands AI agents that work across all of these channels, but providing a voice channel globally at scale is a huge barrier to entry. These are key reasons why AI point solutions and third party AI vendors are strongly leaning in to partner with us and integrate to our platform. As a result, our platform acts as a control point where we are successfully monetizing that access through our voice stream and transcript stream API.

Speaker Change: The market demands AI agents that work across all of these channels, but providing a voice channel globally at scale is a huge barrier to entry.

Speaker Change: Our key reasons, why AI point solutions and third party vendors are strongly leaning in to partner with us and integrate to our platform.

Speaker Change: As a result, our platform acts as a control point, where we are successfully monetizing that access through our voice stream and transcript stream Apis to.

Michael Burkland: To further enhance the value of our platform, we announced that Five9 is deepening our Salesforce partnership with the launch of Five9 Fusion. A best-in-class native integration with Salesforce to deliver better AI-powered customer experience. With Five9 Fusion, we combine Five9's real-time system of interaction together with Salesforce's system of customer record to create a fully integrated, AI-elevated solution for customer experience. With these new product bundles, which are available today, this enhanced integration helps businesses deliver better customer experience, hyper-personalized self-service, and achieve smarter results with a future-ready foundation to drive meaningful business outcomes for our joint customers.

Speaker Change: To further enhance the value of our platform, we announced that five nine is deepening our salesforce partnership with the launch of $5 nine fusion.

Speaker Change: Best in class native integration with Salesforce to deliver better AI powered customer experiences.

Speaker Change: With $5 nine fusion, we combined <unk> real time system of interaction together with sales forces system of customer record to create a fully integrated AI elevated solution for customer experience.

Speaker Change: With these new product bundles, which are available today. This enhanced integration helps businesses deliver better customer experience hyper personalized self service and achieve smarter results with a future ready foundation to drive meaningful business outcomes for our joint customers.

Michael Burkland: Also, we continue to see significant AI momentum driven by real ROI that we are delivering for our customers through our Genius AI suite of products. This in turn drives our subscription revenue growth as demonstrated by the following three customer examples.

Speaker Change: Also we continue to see significant momentum driven by a real ROI that we're delivering for our customers through our genius AI suite of products.

Speaker Change: This in turn drives our subscription revenue growth as demonstrated by the following three customer examples but.

Michael Burkland: The first is a fast food chain with over 3,000 restaurants globally. Following the deployment of our AI agents, they experienced a nearly 40% improvement in containment rate. Concurrently, they implemented our agent assist solution, which reduced after-call work time by 35%. As a result of these efficiency gains, they estimate their labor savings to be approximately $1.1 million per year. And since deploying our AI agents, their ARR with Five9 increased by 37%.

Speaker Change: The first is a fast food chain with over 3000 restaurants globally. Following the deployment of our AI agents, they experienced a nearly 40% improvement in containment rate.

Speaker Change: Concurrently the implemented our agent assist solution, which reduced after call work time by 35%.

Speaker Change: As a result of these efficiency gains they estimate their labor savings to be approximately $1 $1 million per year.

Speaker Change: And since deploying our AI agents, they're <unk> with 509 increased by 37% the.

Michael Burkland: The second example is a global payment processing provider in the UK. They deployed our AI agents and experienced a 10% increase in self-service in the first year, as well as a 50% containment rate. They also recently deployed our AI Insights product in the first quarter of this year to identify even more use cases to generate additional ROI with our suite of AI products. Since deploying our AI agents, their ARR with Five9 increased by 49%.

Speaker Change: The second example is a global payment processing provider in the UK. They deployed our AI agents and experienced a 10% increase in self service in the first year as well as a 50% containment rate.

Speaker Change: They also recently deployed our AI insights product in the first quarter of this year to identify even more use cases to generate additional ROI with our suite of AI products since deploying our AI agents, they're <unk> with 509 increased by 49% for.

Michael Burkland: The third example is a personalized healthcare company that provides patients with easy access to medical equipment and supplies covered by insurance. Following the deployment of our AI agents, they have driven a 15% reduction in call volume by automating common questions, such as medical equipment delivery status and insurance guidelines. They also expanded the use of our AI solutions by adding chatbots and agent assist to gain further efficiencies.

Speaker Change: The third example is a personalized health care company that provides patients with easy access to medical equipment and supplies covered by insurance.

Speaker Change: Following the deployment of our AI agents, they have driven a 15% reduction in call volume by automating common questions, such as medical equipment delivery status and insurance guidelines.

Speaker Change: <unk> also expanded the use of our AI solutions by adding chat bots and agent assist to gain further efficiencies.

Michael Burkland: Since deploying our AI agents, their ARR with Five9 has more than doubled.

Speaker Change: Since deploying our AI agents there.

With five nine has more than doubled. Additionally, we continue to lead the CX market with key AI innovations as demonstrated by our recent announcement of a new offering called spotlight for AI insights, which is designed to help brands unlock the voice of their customers' hidden troves of interaction data.

Michael Burkland: Additionally, we continue to lead the CX market with key AI innovations as demonstrated by our recent announcement of a new offering called Spotlight for AI Insights, which is designed to help brands unlock the voice of their customers hidden in troves of interaction data. AI Insights leverages GenAI to mine customer conversations at scale and understand emerging topics, top trends, and root causes of issues through a powerful visualization interface. Spotlight takes AI insights to a whole new level by harnessing the power of Gen AI to discover specific trends and metrics that are typically very difficult to identify in an automated fashion.

Speaker Change: AI insights leverages Gen AI to mind customer conversations at scale and understand emerging topics top trends and root causes of issues through a powerful visualization interface.

Speaker Change: Spotlight takes AI insights to a whole new level by harnessing the power of Gen AI to discover specific trends and metrics that are typically very difficult to identify in an automated fashion.

Michael Burkland: We believe this will not only provide key insights for contact center operators, but also empower lines of business leaders with valuable data and tailored intelligence to continuously improve their business through increased sales, enhanced products, elevated CX, and more.

Speaker Change: We believe this will not only provide key insights for contact center operators, but also empower lines of business leaders.

Speaker Change: <unk> data a tailored intelligence to continuously improve their business through increased sales enhanced products elevated CX and more.

Michael Burkland: Another AI capability that is becoming a key part of driving AI agent adoption is our Dial of Trust. This allows brands to scale the level of Gen AI that is incorporated into our AI-enabled solutions. Gen AI is becoming more powerful and more accurate by the day. However, there is a trust spectrum for brands that will vary by different topics and different industries when to confidently provide customers with accurate information and answers. Our Dial of Trust enables brands to manage this risk through a continuum where the level of Gen AI infusion can be modified for various use cases.

Speaker Change: Other AI capability that is becoming a key part of driving AI agent adoption as our dial a trust. This allows brands to scale the level of <unk> that is incorporated into our AI enabled solutions Gen. AI is becoming more powerful and more accurate by the day. However, there is a trust spectrum brands that will vary by <unk>.

Speaker Change: Topics and different industries, when using AI to confidently provide customers with accurate information and answers or dial of trust enables brands to manage this risk through a continuum, where the level of G&A I infusion can be modified for various use cases.

Michael Burkland: We believe that this tooling is essential for delivering trusted AI.

Speaker Change: We believe that this tooling is essential for delivering trusted AI.

Michael Burkland: As a result of our leading position in AI, we continue to see significant momentum in our AI business, as evidenced by virtually all of our $1 million plus ARR new logos continuing to attach AI and AI making up more than 20% of enterprise new logo ACB bookings. Additionally, our enterprise AI revenue grew 32% year over year in the first quarter, making up 9% of enterprise subscription revenue. We also continue to further penetrate our install base by leveraging our revolutionary AI blueprint program. It's still early days, but preliminary results are very promising. For instance, in the last several months, we have been collaborating with a growing number of our customers to help them build their AI roadmap and identify use cases to generate significant ROI with our AI solution.

Speaker Change: As a result of our leading position in AI, we continue to see significant momentum in our AI business as evidenced by virtually all of our $1 million plus they are new logos, continuing to attach AI and AI, making up more than 20% of enterprise new logo ACB bookings. Additionally.

Speaker Change: Additionally, our enterprise AI revenue grew 32% year over year in the first quarter, making up 9% of enterprise subscription revenue.

Speaker Change: We also continue to further penetrate our installed base by leveraging our revolutionary AI Blueprint program.

Speaker Change: It's still early days, but preliminary results are very promising for instance in the last several months, we have been collaborating with a growing number of our customers to help them build their AI roadmap and identify use cases to generate significant ROI with our AI solutions.

Michael Burkland: 50% of customers going through the AI blueprint process have purchased our AI products. We're highly encouraged by these results and we expect this momentum to accelerate throughout the year.

Speaker Change: 50% of customers going through the AI blueprint process purchased our AI products. We're highly encouraged by these results and we expect this momentum to accelerate throughout the year.

Michael Burkland: In addition to our AI momentum and opportunity, there remains a significant opportunity in our core CCAS market with a $24 billion TAM as cloud migrations continue. Therefore, we remain very optimistic about our long term durable global opportunity, especially at the upper end of the market, which is the largest and least penetrated part of the market and the fastest growing category of our business.

Speaker Change: In addition to our AI momentum and opportunity there remains a significant opportunity in our core <unk> market with a $24 billion Tam as cloud migrations continue.

Speaker Change: Therefore, we remain very optimistic about our long term durable global opportunity, especially at the upper end of the market, which is the largest at least penetrated part of the market and the fastest growing category of our business now I'd like to touch on the momentum we're seeing with some of our key partners as we announced in November five nine in <unk>.

Michael Burkland: Now I'd like to touch on the momentum we're seeing with some of our key partners. As we announced in November, Five9 and ServiceNow continue to execute on the goals of our strategic partnership. Later this quarter, Five9 Transcript Stream will integrate into ServiceNow Interaction Management, enabling agents to focus entirely on customer issues without the need for manual note-taking. ServiceNow's NowAssist, powered by GenAI, will leverage these real-time transcriptions to generate summaries and resolution notes, significantly reducing call wrap-up activities and average handle time. Additionally, Five9's intelligent routing engine will soon route service now digital channels and cases, ensuring seamless and efficient case management.

Speaker Change: <unk> now continued to execute on the goals of our strategic partnership.

Speaker Change: Later this quarter five nine transcript stream will integrate into service style interaction management, enabling agents to focus entirely on customer issues without the need for manual note taking.

Speaker Change: Service Mouse now assessed powered by Jan AI will leverage these real time transcriptions to generate summaries and resolution notes significantly reducing Paul wrap up activities and average handle times.

Speaker Change: Additionally, five nines intelligent routing engine will soon routes serviced out digital channels and cases, ensuring seamless and efficient case management.

Michael Burkland: ServiceNow is also integrating its metadata to enrich Five9's workforce engagement management solutions. This will reduce operational overhead for managers by streamlining routing management across both platforms, making it easier to adjust staffing dynamically during peak demand periods.

Speaker Change: Service now is also integrating its amount of data to enrich five nines workforce engagement management solutions. This will reduce operational overhead for managers by streamlining routing management across both platforms, making it easier to adjust staffing dynamically during peak demand periods. Additionally.

Michael Burkland: Additionally, last quarter, we announced our launch on the Google Cloud Marketplace, both in the US and internationally, and we saw more than $35 million in ACV pipeline added in the last two months. We're very pleased with the early traction and anticipate the strong momentum to continue.

Speaker Change: Additionally, last quarter, we announced our launch on the Google cloud marketplace. Both in the U S and internationally and we saw more than $35 million in ACB pipeline added in the last two months were very pleased with the early traction and anticipate the strong momentum to continue we also.

Michael Burkland: We also recently teamed with IBM to integrate Watson X into our Genius AI platform to bring customers the option to leverage Watson X as their preferred LLM when building AI-powered CX solutions. This collaboration is designed to enhance our platform's flexibility and help drive the next wave of innovation in AI powered CX, enabling businesses to deliver more personalized, efficient and impactful customer experience. In summary, we are pleased with our continued momentum in AI for CX and our execution against the massive core CCAS market opportunity. We believe that our differentiated approach to accelerate AI adoption, as well as ongoing innovation of new AI offerings to support the entire customer journey from self-service AI agents, to agent augmentation, to operational efficiency are key drivers fueling the momentum in this fastest growing category of our business.

Speaker Change: Recently teamed with IBM to integrate Watson X into our genius AI platform to bring customers the option to leverage Watson acts as their preferred L. O M. When building AI powered CX solutions.

Speaker Change: This collaboration is designed to enhance our platform's flexibility and help drive the next wave of innovation and AI powered CX, enabling businesses to deliver more personalized efficient and impactful customer experiences <unk>.

Speaker Change: Summary, we are pleased with our continued momentum and AI for <unk> and our execution against the massive poor sekos market opportunity, we believe that our differentiated approach to accelerate AI adoption.

Speaker Change: As well as ongoing innovation of new AI offerings to support the entire customer journey from self service AI agents to agent augmentation to operational efficiency are key drivers fueling the momentum in this fastest growing category of our business.

Michael Burkland: Additionally, I want to thank our team of Five9ers, whose passion and unwavering dedication continue to be the driving force behind transforming our business to strengthen our leadership position in the industry.

Speaker Change: Additionally, I want to thank our team of five diners, whose passion and unwavering dedication continue to be the driving force behind transforming our business to strengthen our leadership position in the industry.

Michael Burkland: We're off to a strong start in 2025. And I look forward to sharing our progress as the year unfolds.

Speaker Change: We are off to a strong start in 2025, and I look forward to sharing our progress as the year unfolds and with that I'll turn it over to our President Andy Dignan, Andy. Please go ahead.

Andy Dignan: And with that, I'll turn it over to our president, Andy Dignan. Andy, please go ahead. Thank you, Mike.

Andy Dignan: Thank you, Mike and good afternoon, everyone in the first quarter, we continued to execute well against the strong pipeline seeing an increased volume of new logo wins year over year. Despite.

Andy Dignan: And good afternoon, everyone. In the first quarter, we continue to execute well against a strong pipeline, seeing an increased volume of new local wins year over year, despite some lengthening of sales cycles on larger deals, which we attribute to the macro backdrop.

Andy Dignan: Despite some lengthening of sales cycles on larger deals, which we attribute to the macro backdrop.

Andy Dignan: From a geopolitical perspective, we are starting to see some resistance in international regions to doing business with US vendors. But we are monitoring this very closely as we are operating in a very dynamic environment. For our install-based bookings, we had the highest year-over-year growth rate for any quarter in the last three years. This is a direct reflection of the investments we've made to drive upsell and cross-sell motions into our customer base.

Andy Dignan: From a geopolitical perspective, we are starting to see some resistance in international regions to doing business with U S vendors, but we are monitoring this very closely as we are operating in a very dynamic environment.

Andy Dignan: For our installed base bookings, we had the highest year over year growth rate for any quarter in the last three years. This is a direct reflection of the investments we've made to drive upsell and cross sell motions into our customer base.

Andy Dignan: And now, as we normally do, I will share some key examples of wins. The first example is a new business unit of our Fortune 50 financial services customer. They chose Five9 to replace legacy systems and enable scalable, compliant voice solutions integrated seamlessly with Salesforce. The solution will improve customer outreach through click to call, ensuring TCPA compliant call recording, and reducing call abandonment by running branch calls to the right banking professionals.

Andy Dignan: And now because we normally do I will share some key examples of wins.

Andy Dignan: The first example is a new business unit of our Fortune 50 financial services customer detailed five nine to replace legacy systems and enable scalable compliant voice solutions integrating seamlessly with salesforce the.

Andy Dignan: The solution will improve customer outreach through click to call and sharing T. C. P. A compliant call recording and reducing call abandonment by writing branch calls to the right banking professionals.

Andy Dignan: The solution aligns with their digital transformation goals, enhances the customer and banker experience, and positions Five9 as a trusted partner in secure, enterprise-scale voice modernization. We closed this deal in early April and anticipate this initial order to result in over $2.8 million in ARR to Five9.

Andy Dignan: The solution aligns with their digital transformation goals enhances the customer and banker experience and positions five nine as a trusted partner and secure enterprise scale voice modernization.

Andy Dignan: We closed this deal in early April and anticipate this initial order to result in over $2 8 million in error to five nine.

Andy Dignan: The second example is a leading vehicle mobility solutions provider that helps consumers with vehicle repair, replacement, fleet management, insurance, and legal services.

Andy Dignan: The second example is a leading vehicle mobility solutions provider that helps consumers with vehicle repair replacement fleet management insurance and legal services.

Andy Dignan: They were using an on-prem solution that was difficult to manage and did not provide holistic visibility into all of their operations. As a result, they chose Five9 for our deep integrations into their ecosystem of applications, including Microsoft Dynamics and Teams. They were also looking to maintain continuity with our partner, Varent, to avoid the retraining that would have been required on other platforms. Most importantly, they selected Five9 for our extensive portfolio of agentic AI solutions, and the significant ROI they expect to generate by eliminating simple tasks with our AI agents and gain further efficiencies with our agent assist transcription and summary capabilities.

Andy Dignan: They were using an on prem solution that was difficult to manage and did not provide holistic visibility into all of their operations.

Andy Dignan: As a result, Batesville is five nine for our deep integration into their ecosystem of applications, including Microsoft dynamics in teams.

Andy Dignan: They were also looking to maintain continuity with our partner merit to avoid the retraining that would've been required on other platforms.

Andy Dignan: Most importantly, they selected five nine for our extensive portfolio of agenda AI solutions and the significant ROI, they expect to generate by eliminating simple tasks with our AI agents and getting further efficiencies with our agent assist transcription and summary capabilities. We anticipate this initial order to result in over.

Andy Dignan: We anticipate this initial order to result in over $1.7 million in ARR to Five9.

Andy Dignan: $1 7 million an error to five night.

Andy Dignan: The third example is a nonprofit health plan serving roughly 400,000 members in California. They were using an on-prem system that lacked key technology capabilities. They chose Five9 to modernize their customer experience by leveraging our comprehensive suite of AI solutions, including AI agents for self-service, agent assist for transcriptions, and AI insights to identify new AI use cases and efficiency opportunities. They are also looking to enhance customer experience across text, chat, email, and voice channels, integrating seamlessly with their Jiva patient record system and HSP claim solution for efficient call handling.

Andy Dignan: The third example is a nonprofit health plan, serving roughly 400000 members and California there.

Andy Dignan: We're using an on prem system that lacked key technology capabilities. They chose five nine to modernize their customer experience by leveraging our comprehensive suite of AI solutions.

Andy Dignan: Leading AI agents for self service.

Andy Dignan: Isn't assist for transcriptions in AI insights to identify new AI use cases and efficiency opportunities.

Andy Dignan: They're also looking to enhance customer experience across text chat email and voice channels integrating seamlessly with their jiva patient records system and H S. P claims solution for efficient call handling there.

Andy Dignan: They also selected Five9 for our deep integration with Microsoft Teams, our WEM portfolio to optimize their operations, and their analytics capabilities to fulfill their state compliant obligations. We anticipate this initial order to result in approximately $900,000 in ARR to Five9.

Andy Dignan: They also selected five nine for our deep integration with Microsoft teams, our WEX portfolio to optimize their operations and their analytics capabilities to fulfill their state compliant obligations.

Andy Dignan: We anticipate this initial order to result in approximately 900000 and are are to five nine.

Andy Dignan: And now I'd like to share an example of an existing customer who expanded their business with us. This leading service provider of Medicaid and other government-funded self-directed care programs have been a Five9 customer for over 10 years. This customer partnered with us to win a major state contract, resulting in a significant increase in the size of their contact center.

Andy Dignan: And now I'd like to share an example of an existing customer who expanded their business with us.

Andy Dignan: This leading service provider of Medicaid and other government funded self directed care programs have been a five nine customer for over 10 years.

Andy Dignan: This customer partnered with us to win a major state contract, resulting in a significant increase in the size of their contact center.

Andy Dignan: Self-service is a major initiative with this expansion, which is why this customer selected our AI agency. With this add on order, we anticipate the ARR to Five9 will increase from 1.5 million to over 5.5 million.

Self service is a major initiative with this expansion, which is why this customer selected our AI agents with this add on order, we anticipate the <unk> to five nine will increase from $1 5 million to over $5 5 million.

Brian: And now I'd like to turn it over to Brian to take you through the financials. Brian. Thank you, Andy. We're pleased to report Q1 revenue growth of 13% year over year, primarily driven by subscription revenue growing 14% year over year. Subscription revenue growth was driven by, first, strong revenue contributions from our backlog of new logos, which exceeded expectations. Second, highest year-over-year growth rate in three years for install-based bookings, which tend to turn to revenue quickly. And third, 32% year-over-year growth in enterprise AI revenue, which continues to be the fastest growing category of our product portfolio.

Brian: And now I'd like to turn it over to Brian to take you through the financials Bryan.

Bryan: Thank you Andy we're pleased to report Q1 revenue growth of 13% year over year, primarily driven by subscription revenue growing 14% year over year.

Bryan: Subscription revenue growth was driven by first strong revenue contributions from our backlog of new logos, which exceeded expectations.

Bryan: Highest year over year growth rate in three years for installed base bookings, which tend to turn to revenue quickly.

Bryan: And third 32% year over year growth in enterprise AI revenue, which continues to be the fastest growing category of our product portfolio.

Brian: However, as anticipated, we experienced tough year over year comparisons due to a stronger downtick among seasonal customers in our consumer and healthcare verticals and significant revenue contributions from our largest customer completing its wrap throughout last year. In the first quarter, subscription revenue made up 80% of revenue, while usage revenue accounted for 13%, and professional services made up the remaining 7%. Enterprise revenue from subscription usage and PS combined made up 90% of LTM revenue. Our commercial business, which represented the remaining 10% declined in the single digits on an LTM basis. Like many software companies, our commercial business is more exposed to the macro environment.

Bryan: However, as anticipated we experienced tough year over year comparisons due to stronger downtick among seasonal customers in our consumer and health care verticals and significant revenue contributions from our largest customer completing its ramp throughout last year.

Bryan: In the first quarter subscription revenue made up 80% of revenue while usage revenue accounted for 13% and professional services made up the remaining 7%.

Bryan: Enterprise revenue from subscription usage N P. S combined made up 90% of LTM revenue or.

Bryan: Our commercial business, which represented the remaining 10% decline in the single digits on an LTM basis.

Like many software companies, our commercial business is more exposed to the macro environment.

Brian: Also, as a reminder, this trend is partially by design, driven by our ongoing focus on larger customers. Additionally, as expected, our LTM dollar base retention rate came in at 107% versus 108% last quarter, primarily driven by the two tough comparison factors I previously mentioned.

Bryan: Also as a reminder, this trend is partially by design driven by our ongoing focus on larger customers.

Bryan: Additionally, as expected our LTM dollar based retention rate came in at 107% versus 108% last quarter, primarily driven by the two tough comparison factors I previously mentioned.

Brian: Turning now to profitability. We continue to generate strong year-over-year margin expansions across the board, primarily due to our ongoing focus on disciplined expense management. As a result, Q1 adjusted gross margin increased approximately 160 basis points year-over-year to 62.4%, and adjusted EBITDA margin increased approximately 360 basis points year-over-year to 18.8%, which is a Q1 record.

Bryan: Turning now to profitability, we continued to generate strong year over year margin expansion across the board primarily due to our ongoing focus on disciplined expense management.

Bryan: As a result Q1 adjusted gross margin increased approximately 160 basis points year over year to 62, 4% and adjusted EBITDA margin increased approximately 360 basis points year over year to 18, 8%, which is a Q1 record.

Brian: First quarter non-GAAP EPS was $0.62 per diluted share, up $0.14 or 29% year over year. Also, stock-based compensation decreased 12% year-over-year from $45 million to $39 million, which equated to 14% of revenue in the first quarter. And we remain highly focused on continuing to moderate stock-based compensation over time.

Bryan: First quarter non-GAAP EPS was <unk> 62 per diluted share up <unk>, 14, or 29% year over year.

Bryan: Also stock based compensation decreased 12% year over year from $45 million to $39 million, which equated to 14% of revenue in the first quarter.

Bryan: And we remain highly focused on continuing to moderate stock based compensation overtime.

Brian: Now I'd like to share some cash flow highlights. As Mike mentioned, I'm pleased to report that operating cash flow was a Q1 record at $48.4 million, or 17.3% of revenue. This was primarily driven by our strong adjusted EBITDA and continued strength in DSO performance, which came in at 33 days. Also, free cash flow reached an all-time high at $34.9 million, or 12.5% of revenue, achieving a free cash flow conversion rate of 66%.

Speaker Change: Now I'd like to share some cash flow highlights as Mike mentioned I am pleased to report that operating cash flow was a Q1 record at $48 4 million or 17, 3% of revenue.

Speaker Change: This was primarily driven by our strong adjusted EBITDA and continued strength in DSO performance, which came in at 33 days.

Speaker Change: Also free cash flow reached an all time high at $34 $9 million or 12, 5% of revenue achieving a free cash flow conversion rate of 66%.

Brian: As a reminder, we're planning to retire the remaining $434 million principal balance of our 2025 convertible notes in cash when it matures in June. The next maturity of our convertible notes is 2029. So we feel comfortable with our cash position.

Speaker Change: As a reminder, we plan to retire the remaining $434 million principal balance of our 2025 convertible notes in cash when it matures in June.

Speaker Change: The next maturity of our convertible notes is playing 29, so we feel comfortable with our cash position and.

Brian: In addition, we expect our free cash flow generation to improve meaningfully, putting us on a path to being net cash positive.

Speaker Change: In addition, we expect our free cash flow generation to improve meaningfully putting us on a path to being net cash positive.

Brian: Additionally, we've developed a holistic framework to evaluate our capital allocation alternatives. Therefore, going forward, we will have a balanced approach in assessing organic investments versus share repurchases versus opportunistic acquisition.

Speaker Change: Additionally, we've developed a holistic framework to evaluate our capital allocation alternatives. Therefore going forward, we will have a balanced approach in assessing organic investments versus share repurchases versus opportunistic acquisitions.

Brian: Before turning to guidance, I would like to provide more details on the financial impact of our transformation initiatives, as well as share our perspectives on the latest macro condition and its impact on our outlook.

Speaker Change: Before turning to guidance I would like to provide more details on the financial impact of our transformation initiatives as well as share our perspectives on the latest macro condition and its impact on our outlook.

Brian: As part of our extensive operational review, we announced a 4% reduction in our global workforce on April 3rd. This impacted most of our departments, mainly in the US, and it represented a net reduction of $20 to $25 million in annualized compensation-related non-GAAP expense.

As part of our extensive operational review, we announced a 4% reduction in our global workforce in April 3rd.

Speaker Change: This impacted most of our departments, mainly in the U S and it represented a net reduction of $20 million to $25 million in annualized compensation related non-GAAP expense.

Brian: As Mike mentioned, our goal is to increase long-term profitable growth and surgically invest in key areas such as AI and go-to-market initiatives in order to capitalize on our massive TAM opportunity that is further expanding with AI.

Speaker Change: As Mike mentioned, our goal is to increase long term profitable growth and surgically invest in key areas such as AI and go to market initiatives in order to capitalize on a massive tam opportunity that is further spending with AI.

Brian: In combination with ongoing cost optimizations, we expect the net effect to drive at least a two percentage point improvement in annual adjusted EBITDA margin in 2025 from the 18.8% we reported in 2024.

Speaker Change: In combination with ongoing cost optimization, we expect the net effect to drive at least a two percentage point improvement in annual adjusted EBITDA margin in 2025 from the 18, 8% we reported in 2024.

Brian: As a reminder, we expect one-time cash expenditures associated with the RIF to range between $7 to $9 million and non-cash expenditures of approximately $1 to $1.5 million, both of which are not accounted for in the non-GAAP bottom line guidance I'll be providing shortly.

Speaker Change: As a reminder, we spent one time cash expenditures associated with the risk to range between $7 million to $9 million and noncash expenditures of approximately one to one and a half million dollars Boe.

Speaker Change: Both of which are not accounted for in the non-GAAP bottom line guidance I'll be providing shortly.

Brian: With regard to the macro environment, I'd like to remind you that we started 2025 with what we believed to be conservative guidance, based on the assumption that macro conditions would not change materially from what we were seeing at the beginning of the year. Given recent heightened macro uncertainty, we believe it is important to take a slightly more prudent stance in terms of our guidance. As a result, we're keeping our full year 2025 revenue guidance unchanged at $1.14 billion. And for second quarter revenue, we're guiding to midpoint of $275 million. As for the second half of the year, we expect revenue to increase sequentially in the third quarter and slightly more in the fourth quarter.

Speaker Change: With regard to the macro environment I'd like to remind you that we started 2025 with what we believed to be conservative guidance based on the assumption that macro conditions would not change materially from what we were seeing at the beginning of the year.

Speaker Change: Given the recent heightened macro uncertainty we believe it is important to take a slightly more prudent stance in terms of our guidance as a result, we're keeping our full year 2025 revenue guidance unchanged at $1, one $4 billion and for second quarter revenue, we are guiding to a midpoint of $275 million.

Speaker Change: That's for the second half of the year, we expect revenue to increase sequentially in the third quarter and slightly more in the fourth quarter.

Brian: With regards to the bottom line, we are raising the midpoint of our 2025 non-GAAP EPS to $2.76, which is 16 cents higher than the guidance we provided during our last earnings call. For the second quarter, this is the first time we're guiding Q2 to a positive sequential growth for non-GAAP EPS at a midpoint of $0.65 per diluted share. This is reflective of the net savings from our recent RIF, as well as disciplined ongoing expense management. As for the second half of the year, we expect non-GAP EPS to increase sequentially in the third quarter and slightly more in the fourth quarter.

Speaker Change: With regards to the bottom line, we are raising the midpoint of our 2025 non-GAAP EPS to $2.76, which is 16 cents higher than the guidance. We provided during our last earnings call.

Speaker Change: For the second quarter. This is the first time, we're guiding Q2 to positive sequential growth for non-GAAP EPS at a midpoint of <unk> 65 per diluted share.

Speaker Change: This is reflective of the net savings from our recent risks as well as discipline ongoing expense management.

Speaker Change: As for the second half of the year, we expect non-GAAP EPS to increase sequentially in the third quarter and slightly more in the fourth quarter.

Brian: Please refer to the presentation posted on our investor relations website for additional estimates, including share count, taxes and capital expenditures, as well as gap to non-gap reconciliation.

Speaker Change: Please refer to the presentation posted on our Investor Relations website for additional estimates, including share count taxes and capital expenditures as well as GAAP to non-GAAP reconciliations.

Brian: In summary, we're pleased with our first quarter results. We will remain laser focused on everything we can control in order to drive strong profitability while making strategic high impact investments and key initiatives to further our leadership position.

Speaker Change: In summary, we're pleased with our first quarter results. We will remain laser focused on everything we can control in order to drive strong profitability, while making strategic high impact investments in key initiatives to further our leadership position operator. Please go ahead.

Unknown Attendee: Operator, please go ahead. Thank you.

Speaker Change: Thank you before we begin our Q&A session, yes, and our analysts please be on camera and lets us off the one question to allow for as many questions as time permits we will begin with Scott Berg from Needham.

Unknown Attendee: Before we begin our Q&A session, we ask that our analysts please be on camera and leave us also one question to allow for as many questions as time permits.

Scott Berg: We'll begin with Scott Berg from NIDA. Hi, everyone. Thanks for taking my question.

Rob Reilly: Hi, everyone. Thanks for taking my question. This is Rob Reilly on for Scott Congrats on the quarter.

Rob Morelli: This is Rob Morelli, I'm for Scott. Congrats on the quarter. We'd like to just touch on the subscription revenue guide for the year. Do you believe 1Q is going to be the trial for the year? Just like to see how that's going to trend. Got it. That's helpful. I saw color.

Speaker Change: Can you just touch on subscription.

Speaker Change: The subscription revenue guide for the year do you believe <unk> is going to be the trough for the year just like to see how that's going to trend.

Speaker Change: Yeah. So I can help answer that so we haven't given specifics around this description growth in terms of the guidance you have our annual total revenue guidance out there we have an unchanged at $1 one $4 billion from what we guided to at the beginning of the year and what's reflected in there is that right.

Speaker Change: You can kind of go back starting from Q1 throughout the year.

Speaker Change: In Q1, we saw relatively stable macro conditions, although we did see consumer and health care seasonal downtick being stronger which was anticipated because of the strong uptick we saw in Q4, and then going into Q2, we saw the.

Speaker Change: Uncertainty and macro conditions increased a bit.

Speaker Change: So we are being slightly more prudent despite the fact that we're not actually seen material changes in our business through April so far so with this light crude is built into Q2 and the rest of the year, that's what's reflected into our revenue and a similar type of assumption can be made for subscription.

Speaker Change: Got it that's helpful color and then when it comes to the rule of 40 target you guys outlined can you provide any color on the breakdown for your interesting, which means either adjusted EBITDA and revenue growth of free cash flow and a revenue growth yes.

Unknown Executive: And then when it comes to the Rule 40 target you guys outlined, can you provide any color on the breakdown that you're interested in between either adjusting EBITDA and revenue growth or cash flow and revenue growth?

Ryan Macwilliams: Ryan, do you want to speak to the medium-term model? Yeah, so the medium-term, what we have assumed for revenue growth is 10 to 15 percent, and that's assuming a stable macro condition similar to what we saw in Q1. Now, from a bottom-line perspective, we expect EBITDA margin in the 25 to 30 percent range. And if you kind of look at the different components there, the growth margin today we reported 62.4 percent, and we're expecting 66 to 68 percent in the medium-term model. And that's really driven by our subscription gross margin getting deep into the 70s, driven by revenue scaling against fixed and semi-fixed costs.

Speaker Change: Right.

Speaker Change: Definitely yeah. So the medium term what we have assumed.

Speaker Change: I assume for revenue growth is 10, 15% and that's assuming stable macro conditions similar to what we saw in Q1 now from a bottom line perspective, we expect EBITDA margin to 25% to 30% range and you can kind of look at the different components. There. The gross margin today, we reported 62, 4%.

Speaker Change: We're expecting 66% to 68% in the medium term model and that's really driven by our subscription gross margin getting deep into the seventies driven by revenue scaling against fixed and semi fixed costs and also we have mix shifts happening from our usage and professional services revenue into subscription and those have lower gross margins than <unk>.

Unknown Executive: And also we have mixed shifts happening from our usage and professional services revenue into subscription, and those have lower gross margins than 50s and break-even levels. So that's a mixed shift that helps overall gross margin. And of course, we'll expect to continue to get operating expense leverage as well, and that's coming from the RIF that we just recently did and the transformation initiatives that Mike talked about, where we'll be focused on various areas like automation, process improvement, percentage of our workforce, increasing lower-cost offshore locations, and so on and so forth. So we're confident that we'll get to target above Rule of 40 on an EBITDA basis and approach Rule of 40 on a free cash flow basis.

Speaker Change: <unk> and breakeven levels. So that's a mix shift that helps the overall gross margin of course, we'll expect to continue to get operating expense leverage as well and that's coming from the risk that we just recently did and the transformation initiatives that Mike talked about where it will be focused on various areas like automation process improvement.

Speaker Change: Percentage of our workforce.

Speaker Change: Increasing lower cost offshore locations and so on and so forth. So we're confident that we'll get to a target above our rule of 40 out of an EBITDA basis and approach rule of 40 on a free cash flow basis.

Unknown Executive: Scott, if it's helpful, make sure to call her in to grab some quarters. Yeah, thank you.

Speaker Change: Got it that's helpful. Thanks for the color and congrats on the quarter.

Speaker Change: Thank you.

Sitikantha Panigrahi: Moving on to Siti Panigrahi from Missoula. Thanks for taking my question. I want to drill into the comment about, you know, longer sell cycle on the enterprise side you talked about due to macro. Could you elaborate a bit on that? Is it particularly, particularly in the international region or US? When do you start seeing that? And is this only on the enterprise side or mid market? Any color would be helpful. Yeah, good question. So yeah, it's really focused on the large end of the enterprise market, just these bigger deals, just a little bit longer sales cycles.

Speaker Change: Moving on to <unk> <unk> from Mizuho.

Speaker Change: Thanks for taking my question.

Speaker Change: I wanted to drill into the comment about that you know.

Speaker Change: Longer sales cycle and the enterprise side, you talked about due to macro could you elaborate a bit on that is it particularly particularly in the international Louisiana U S. When do you start seeing that and is this the only on the enterprise side or the mid market any color would be helpful.

Speaker Change: Yeah. Good question. So you have to really focus on the large end of the enterprise market. Just these bigger deals just a little bit longer sales cycles.

Unknown Executive: You know, the team's still focused on them, obviously, continuing to go forward. But it's really just in that space, international, different reason, right, a little bit what's going on in part of the geopolitical landscape, some of our business with US vendors. But we are focused on our install based customers there, which, which, which, as you heard, had a good quarter. Just to clarify, did it trigger any kind of deal slippers to next quarter or anything? Or is it that ongoing trend you saw? Yeah, that's so these deals just flipped into the next quarter. And you know, the teams are still focused on those deals and things are looking good.

Speaker Change: The team is still focused on them, obviously continuing to go forward, but it's really just in that space International different reason right a little bit what's going on in front of the geopolitical landscape some of her business with U S vendors.

Speaker Change: But we are focused on our installed based customers, there, which are which as you heard had a good quarter.

Speaker Change: Just to clarify did it.

Speaker Change: Kind of a deal slippage to next quarter or anything or is that ongoing Chinese yes.

Speaker Change: So these deals just slipped into the next quarter and you know the teams are still focused on those deals and things are looking good.

Unknown Executive: Great, thank you.

Speaker Change: Great. Thank you.

Speaker Change: Thanks C J, thanks, moving onto Raimo <unk> from Barclays.

Ramel: Moving on to Remo Linschow from Parkland. Hey, good to see you guys again. The quick question for me, Mike, you know, you and I go way back, and we've seen uncertain times before. Like, how does genius AI now play into kind of this environment and customers making decisions? Because it does feel like delaying it or kind of showing a lot of uncertainty might have been the old good reaction, but with AI now, it feels like we kind of actually need to move faster. Can you speak to what you're seeing in the field there?

Speaker Change: See you guys again.

Speaker Change: <unk>.

Speaker Change: A quick question from me Mike.

Speaker Change: You and I go way back and have you seen uncertain times before like how does <unk> play into kind of this environment and customers, making decision because it does feel like the leading edge or kind of throwing a lot of uncertainty might have been the old good reaction, but I know it feels like we kind of actually.

Speaker Change: We need to move off take can you speak to what you're seeing there.

Michael Burkland: Yeah, well, it's great to see you, Ramo. And thanks for being back on the team, so to speak. Yeah, you're right. I mean, look, uncertain times always impact decision making of any kind, right. But I think we're we're also benefiting from this You know, AI revolution that is really causing a rush in a lot of ways by a lot of these companies to figure out AI. Every CIO is being told by every CEO, go figure out AI. The good news is we've come up the learning curve as a, as an industry, not the vendors necessarily, because we've been, we've been at this quite a long time.

Speaker Change: Yeah, well, it's great to see you Raimo and thanks for being back on the team so to speak Ah, Yes, Youre right. I mean look uncertain times always impact decision, making of any kind right, but I think where we're also benefiting from this.

You know AI Revolution that is really causing a rush and a lot of ways by a lot of these companies to figure out AI.

Speaker Change: Every CIO is being told by every CEO go figure out AI.

Speaker Change: The good news is we've come up the learning curve as a as an industry not the vendors necessarily because we've been we've been at this quite a long time, but I think customers are coming up that learning curve.

Michael Burkland: But I think customers are coming up that learning curve. And, you know, we're seeing great momentum in terms of decision making. And it's not just in, you know, the 100% attach rate on new logo, million dollar plus deals that we're doing. It's also in our install base. I mean, we have this AI blueprint program, which we've been talking about, and we came out with that, you know, a couple quarters ago, and it's really, really working well. 50%, five zero, 50% of the customers that go through this AI blueprint program with us are purchasing our AI solutions.

Speaker Change: And yeah, we're seeing great momentum in terms of decision, making and it's not just in you know the 100% attach rate on new logo a million dollar plus deals that we're doing it's also in our installed base I mean, we have this AI blueprint program.

Speaker Change: Which we've been talking about and we came out with that.

Speaker Change: A couple of quarters ago, and it's really really working well, 50% five zero, 50% of the customers that go through this AI blueprint program with US who are purchasing our AI solutions.

Michael Burkland: And so we're penetrating our install base, excuse me, as well as attaching AI to new deals. It is, you know, I feel like we've unlocked the opportunity with AI, but at the same time, look, this, you know, the real scale of AI use does depend on the ROI that we're delivering. And you heard about those three, just three of many customer examples, where we're delivering real tangible ROI, whether it's higher containment and self service, or whether it's higher reduction. And after, you know, call handling time, it's, it's an exciting time in the industry.

Speaker Change: So we're penetrated are penetrating our installed base excuse me.

Speaker Change: As well as attaching AI in new deals. It as you know I feel like we've unlocked the opportunity with AI, but at the same time walk.

Speaker Change: All of this you know the real scale with AI use does depend on the ROI that we're delivering and you've heard about those two or three just three of many customer examples where we're delivering real tangible ROI, whether it's higher containment and self service or whether it's reduction in after you know call handling time.

Speaker Change: It's it's an exciting time in the industry.

Unknown Executive: But then, sorry, and then Brian, one for you, like, if you think about the transformation you started with, you know, following the review, if you think about it, how should we think about the impact on the organization in terms of the different divisions? Was that kind of a more like, take on the performance out, think about more what is needed in the new AI world versus where we have people kind of working on before? Like, how should we think about, like, the implication, the impact there?

Speaker Change: Oh, sorry.

Speaker Change: Sorry, and then Brian one for you like if you think about the.

Speaker Change: The transformation you started flowing to review if you think about it how should you think about the impact on the organization in terms of the different divisions was that kind of it and more of our like chic underperformance I'll speak about more what is needed in the new world versus where we have people that kind of working on before like how should we think about it.

Speaker Change: The implication of the impacted areas there.

Unknown Executive: Is there like a, is there going to be like a period where everyone adjusts or how should, you know, how's that going to play out for you? Thank you.

Speaker Change: Is there going to be like a period, where everyone adjust her outfit.

Speaker Change: I'll take them to play out for you. Thank you, yes, I can touch on it and Mike you can chime in so it was across first of all the reduction enforced lives across most departments and a majority of that was.

Unknown Executive: Yeah, so I can touch on it and Mike, you can chime in.

Brian: So it was across, first of all, the reduction in force was across most departments and a majority of that was in the US. But what we made sure is that from a sales capacity basis, you know, it's not impacted and we continue to reinvest in that area and our go to market initiative as well as our AI initiatives as well. So that's where we're focused and we'll continue to make sure that that's aligned internally strategically.

Speaker Change: In the U S.

Speaker Change: But what we made sure that from a sales capacity basis is not impacted and we continue to reinvest in that area and our go to market initiatives as well as our AI initiatives as well so.

Speaker Change: That's where we're focused and we'll continue to make sure that that's aligned internally strategically.

Unknown Executive: Okay, thank you. Thanks, Ramel.

Speaker Change: Okay. Thank you thanks.

Raimo: Thanks Raimo.

Terry Tillman: And next, moving on to Terry Tillman from Truett. Great. Mike, Andy, Brian, thanks for taking the question.

Speaker Change: Thank you and next moving onto Terry Tillman from Truest.

Raimo: Okay.

Speaker Change: Great Mike.

Andy Brian Thanks for taking the question. This is Bobby down for Terry I wanted to double click on the five nine infusion announcement with Salesforce specifically the press release mentioned that five minutes bring your own telephony adoption has doubled in 2025, what do you think is driving the growth and B Y O T and why now.

Bobby Dion: This is Bobby Dion for Terry.

Unknown Executive: I wanted to double click on the Five9 Fusion announcement with Salesforce. Specifically, the press release mentioned that Five9's bring your own telephony adoption has doubled in 2025. What do you think is driving the growth in BYOT? And why now? Yeah, I mean, I think as we've long been partnered with Salesforce, obviously, Salesforce has been heavily investing and taking their customers on the AI journey. And we've been on that journey with them collectively. And so they've been really driving the BYOT within their customer base within their, their sales teams. And so that really the idea behind Five9 Fusion was to really simplify the go to market so that the Salesforce sellers are sellers.

Speaker Change: Yeah, I mean, I think as we've you know we've long been partnered with Salesforce, obviously yourself, where it's been heavily investing in and taking their customers on the AI journey and we've been on that journey with them collectively and so they've been really driving the b Y O T within their customer base within there their sales teams and so that's really the idea behind five minute fusion was to really.

Speaker Change: Simplify the go to market so that the sales force sellers or sellers and then most importantly, the customers they really understand the value proposition and what solutions you need on both sides and certainly with B Y O T. When you get to the upper end of that offering you need our voice stream or a transcript human voice stream to drive Einstein and so that's really what's kind of draw.

Michael Burkland: And then most importantly, the really understand the value proposition and which solutions you need on both sides. And certainly with BYOT, when you get to the upper end of that offering, you need our voice stream or our transcript stream and voice stream to drive Einstein. And so that's really what's kind of driving a lot of the opportunities in the install base with Salesforce and new logos.

Speaker Change: <unk> a lot of the opportunities in the in the installed base with with Salesforce and new logos.

Bobby Dion: Thank you.

Speaker Change: Thank you.

Unknown Executive: Thanks, Bobby.

Speaker Change: Thanks, Bobby.

Peter Levine: Moving on to Peter Levine from Everett. Thank you, gentlemen, for taking my questions. Maybe just to double down, Mike, on your earlier comments. Can you maybe just talk about the transformation you're going through internally? You know, one thing you mentioned in the call, go-to-market initiatives to drive revenue growth, maybe just share with us, what does that entail? Is it more partners? Are you coming across new buyers, given it's more of an AI kind of world? I mean, again, we've talked a lot about sales cycles, but just curious, maybe just talk about, you know, what the operational view look like, and then some of the initiatives, especially when we go to market.

Speaker Change: Moving on to Peter Levine from Evercore.

Peter Levine: Great. Thank you gentlemen for taking my taking my question, maybe just a double down Mike on your earlier comments do.

Peter Levine: Can you maybe just talk about the transformation you're going through internally you know one thing you mentioned in the call go to market initiatives to drive revenue growth be able to share with us what is that entail is it more partners.

Peter Levine: You're coming across new buyers given it's more of an AI kind of world I mean, it's again, it's talked a lot about sales cycles, but just curious maybe just talk about what the operational review will look like and then some of the initiatives, especially around go to market.

Michael Burkland: Yeah, great question, Peter. And again, transformational initiatives across top line and bottom line, right to get on that path to rule of 40 on a free cash flow basis. And if you think about the top line, and the go to market, it really is, I would say both product as well as go to market. And so we think about from a product standpoint, we're definitely investing much heavier into AI, showing in our innovation, some of the products we just announced, are evidence of that, and there will be more. But it's also a continuation of some of the sales execution and sales org changes we've made.

Speaker Change: Yeah, Great question, Peter and again transformational initiatives across topline and bottom line right.

Speaker Change: Get on that path to rule of 40 on a free cash flow basis, and if you think about the top line and the go to market. It really is I would say both product as well as go to market and so if you think about from a product standpoint, we're definitely investing much heavier into AI showing at our innovation some of the products, we just announced.

Speaker Change: Oh are evidence of that and there will be more but it's also a continuation of some of the sales execution and sales org changes we've made.

Michael Burkland: But it's also top of funnel initiatives, Peter, I mean, again, I've been here 17 years, and I can tell you right now, there is a science to sales and marketing that we've always employed, so to speak. And you know what, we hire sales capacity based on our ability to grow top of funnel leads and opportunities. We've got a number of really exciting top of funnel initiatives that we are investing in. Again, we're being very surgical about it. We're being very scientific about it. But there are some really exciting marketing initiatives that we're in the midst of, I would say piloting.

Speaker Change: It's also top of funnel initiatives, Peter I mean, again I've been here 17 years and I can tell you right now there is a science to sales and marketing that we've always.

Speaker Change: Employed so to speak and you know what we we hire sales capacity based on our ability to grow top of funnel leads and opportunities. We've got a number of really exciting top of funnel initiatives that we are investing in again were being very surgical about it we're being very scientific about it but there are some really exciting.

Speaker Change: Marketing initiatives that were.

Speaker Change: In the midst of a I would say piloting again, we're being careful in terms of how much we spend but so far the early signs are very good in terms of lead flow increases, which to me is the leading leading indicator that has to drive our bookings growth. So.

Michael Burkland: Again, we're being careful in terms of how much we spend. But so far, the early signs are very good. In terms of lead flow increases, which to me is the leading, leading indicator that has to drive our bookings growth. So I would say it's everything from investments in product, top of funnel marketing initiatives, as well as sales execution initiatives, and some of the things we've been working on, as well as, I would say, upsell into our install base as well. So when you think about new logos, that's really, you know, what I've already talked about.

Speaker Change: I would say, it's everything from the investments in product.

Speaker Change: Top of funnel marketing initiatives as well as sales execution initiatives.

Speaker Change: And are some of the things we've been working on as well as I would say upsell into our installed base as well. So when you think about new logos that's really.

Speaker Change: You know what I've already talked about but if you think about it in penetrating our installed base things like the AI blueprint program as well as some of those changes we made to our.

Michael Burkland: But if you think about penetrating our install base, things like the AI blueprint program, as well as some of those changes we made to our, you know, CSM and AD orgs last year. You know, you've heard a continuous drumbeat on new partnerships, strengthening partnerships, and so a lot of focus on area as well.

Speaker Change: C S M a D or <unk> last year okay.

Speaker Change: It's really driving a lot of opportunities with our top partners you know you've heard of continuous drumbeat on new partnerships strengthening partnerships and sold a lot of focus on area as well.

Brian: Yeah, awesome. And for you, Brian, can you maybe just share with us like how you stress tested the full year guide? And I do know like the macro sensitive, you know, segments of the market that you guys are having consumer, I mean, that drives a lot of upsell for you guys. And I think it's 3Q, 4Q in the back half.

Speaker Change: For you Brian can you, maybe just share with us like how you stress tested the full year guide and I do know like the macro sensitive segments of the market that you guys are having in consumer demand that drives a lot of up sell for you guys and I think it's <unk> 40 in the back half, but again, there's still a lot of uncertainty right. So if you think about what you're seeing today in the pipeline.

Brian: But again, there's still a lot of uncertainty, right? So if you think about what you're seeing today in the pipeline, just walk us through like how you stress tested these numbers to kind of re-insure us that these are de-risked. Yeah, absolutely, Peter. So if you think about it, at the beginning of the year, when we set the guide, we mentioned that we were assuming the seasonal uptick in the second half of this year to be more muted than the strong seasonality that we saw in the background of 2024. Now, given the increased uncertainty, we have assumed that that muted seasonality even slightly more muted than what we were originally assuming at the beginning of the year.

Speaker Change: Through like how you stress tested these numbers to kind of a reinsurer off these are derisked.

Brian: Absolutely Peter so.

Brian: If you think about it at the beginning of the year when we set the guidance. We mentioned that we were assuming the seasonal uptick in the second half of this year to be more muted than the strong seasonality that we saw in the back plane plenty for now given the increased uncertainty we have assumed that that muted seasonality, even slightly more muted than what we were originally.

Brian: Assuming at the beginning of the here and that's if we beat Q1 by $7 $7 million against the midpoint of our guidance and essentially we haven't put that through so it gives us a little bit of that cushion now on the headwinds that of course, we have the tough comparison of the largest customer that ran throughout right.

Brian: And that's, if we beat Q1 by $7.7 million, that's against the midpoint of our guidance. And essentially, we haven't put that through. So it gives us a little bit of that cushion. Now, on the Hedlund side, of course, we have the tough comparison of the largest customer that ran throughout, finishing its multi-year round throughout last year. So that still exists. But there's also positive factors like our 32% AI, enterprise AI revenue growth. And we expect that momentum to continue with some ebbs and flows throughout the year. So and also, as Andy mentioned, you know, enterprise install-based bookings coming in at the highest year-over-year growth rate in the last three years.

Brian: Finishing its multi year round throughout last year. So that's still exist, but there's also a positive factor thank our 32%.

Brian: Enterprise revenue growth and we expect that momentum to continue with some ebbs and flows throughout the year. So and also as Andy mentioned enterprise installed base bookings coming in at the highest year over year growth rate in the last three years. So when you sort of net out all of those positives and potential headwinds that's how we landed at that unchanged.

Brian: So when you sort of net out all those positives and potential headwinds, that's how we landed at that unchanged midpoint of $1.14 billion.

Brian: A mid point of 1.14 billion.

Unknown Executive: Thank you for the call.

Speaker Change: Thank you for the color.

Brian: Yeah.

Arjun Bhatia: Moving on to Arjun Bhatia. Hi, everyone.

Brian: Moving on to origin.

Brian: Yeah.

Willa Miller: I'm Willa Miller on for Arjun Bhatia. And thanks for taking our question. So maybe to double click on is guidance de-risked and your prepared remarks, you talked about seeing some resistance of international companies using American vendors, how much of a risk is this? And in your conversations with these customers, are you able to reassure them enough that you can still win the deal?

Brian: Hi, everyone I'm willing Miller on for Arjun Bhatia and thanks for taking our question. So maybe at a double click on guidance do rest on your prepared remarks, you talked about some resistance of international companies using American vendors, how much of a risk is this and.

Brian: In your conversations with these customers are you able to reassure them enough that you can still win the deal.

Unknown Executive: I'll start. I think, I guess, if you want to call this a silver lining, you know, international represents about 12% of our business. So it's, again, it's not a large portion, but it's, you know, it is greater than zero, so to speak. And again, I think it's, we're seeing it more on the net new side than we are on the install base side.

Brian: Yeah, I'll start I'll start.

Brian: I think I guess, if you want to call. This a silver lining you know our international represents about 12% of our business. So it's a.

Brian: Again, it's it's not a large portion, but it's you know it is greater.

Brian: Greater than zero, so to speak and again I think it's we're seeing it more on the net new side than we are in the install base side and Andy you can speak a little bit to that yeah. I mean, I think it's it's not all deals and again I think I mentioned also in the installed base in international to our existing customers. There's still a lot of obviously competence in us and the other part is I mean, we are a stir.

Andy Dignan: And Andy, you can speak a little bit to that. Yeah, I mean, I think it's not all deals. And again, I think I mentioned also in the install base in international to our existing customers, there's still a lot of, obviously, competence in us. And the other part is, I mean, we are a strong global company, right? We have co-workers and customers across the globe. And so how we treat our data, how we treat their data in terms of our architecture, we're able to have that kind of level of conversation. It seems to be right now just a little bit of a, for lack of a better term, emotional, in terms of just wanting to make sure that they fully understand what's going on.

Brian: <unk> a global company right, we have a we have our coworkers and customers across the globe and so how we treat our data how we treat their data in terms of our architecture, we're able to have that kind of level of Congress conversation that seem to be right now just a little bit of a.

Brian: Or for lack of a better term emotional in terms of just wanted to make sure that they fully understand what's going on but the confidence that as some of that starts to dissipate over time that will continue to execute on international front.

Andy Dignan: But, you know, confident that as some of that starts to dissipate over time, that, you know, we'll continue to execute on the international front.

Brian: And also in terms of the guidance being de-risked, whether domestically or internationally, another way to look at it is breaking down the business between new logos and install base contribution to the incremental revenue that we're guiding, right? So right now in the last three quarters of 2025, our guidance implies $67 million of incremental revenue. And if you look at just the recurring revenue side of that, that's 93% of it or 62 million. So if we assume that DVRR stays at 107%, which we just reported in Q1, that implies that 52 of that 62 million incremental revenue comes from our existing base.

Speaker Change: In terms of the guidance being derisked, whether domestically or internationally or another way to look at is breaking down the business between new logos and installed base contribution to the incremental revenue that we're guiding right. So right now in the last three quarters is 2025, our guidance implies $67 million of increment.

Speaker Change: Revenue and if you look at just the recurring revenue side of that that's 93% of it or $62 million. So if we assume that D. Var stays at one of the 7%, which we just reported in Q1 that implies that 52 of that 62 million incremental revenue comes from our existing base and then and then the remaining $10 million.

Brian: And then the remaining 10 million is coming from new logos, but a vast majority of that is from new logos that are already in our backlog. So we have good visibility into the ramp of those revenue throughout the rest of the year. And a very small portion would come from the new logo GoGets that would happen in the next month or two, because the rest of it will impact 2026 revenue.

Speaker Change: Coming from new logos, but a vast majority of that is from new logos that are already in our backlog. So we have good visibility into the ramp of those revenue throughout the rest of the year and a very small portion would come from the new logo go gets that would happen in the next month or two because the rest of it will impact point 26 revenue.

Catharine Trebnick: Thank you.

Unknown Executive: That's helpful. Moving on to Catharine Trebnick from. Hi, thanks for taking my question. Pressing more on international BT, you know, that was a nice land you guys did over a year and a half ago. How is that progressing? Now after this April 2 with the tariff announcement, even though you're a software vendor, I'm just curious to see if there's any different interaction. The reason I bring it up is I spoke to a company in the UK that said their business really increased dramatically because they're a contact center based in the UK. So I just would be helpful to get more color.

Speaker Change: Okay. That's helpful.

Catherine trip: Moving on to Catherine trip, Nick from Rosenblatt, Hi.

Nick: Hi, Thanks for taking my question pressing more on international B T. You know that was a nice land you guys at all.

Nick: Over a year and a half ago, how is that progressing now after the April 2nd with the tariff announcement, even though you're a software vendor I'm just curious to see if there's any different in traction and the reason I bring it up is.

Nick: I spoke to a company in the U K that said their business really increase dramatically because they're a contact center based in the U K.

Nick: But it'd be helpful to get more color. Thank you yeah, I mean, our relationship with BT continues to be strong a lot of good activity continue to win deals and certainly we continue to lean heavily in international honor partners right, because they sort of help balance out that story, you know V T, making the investment with us so.

Michael Burkland: Thank you. Yeah, I mean, our relationship with BT continues to be strong. A lot of good activity, continue to win deals. And certainly, we continue to lean heavily in international on our partners, right? Because they sort of help balance out that story. You know, BT making the investment with us. So, you know, I think they're just, we're just going to continue to execute with them and no real major change, I would say, in the business in the pipeline, we just got to keep executing together.

Nick: There are just we're just going to continue to execute with them and no real major change I would say in the business in the pipeline, we just got to keep executing together.

Samad Samana: All right. Thank you.

Nick: Alright, thank you thanks.

Catherine trip: Thanks Catherine.

Andy Dignan: Moving on to Samad Samana from Chester. Hey, guys, good evening. Appreciate you taking my question. Maybe first, just in terms of the partners that you guys mentioned, it's obviously like a really marquee list of, of great companies. I'm just curious, are any of these where there's a joint co selling motion where the vendors are actually incentivizing their own sales organizations, just trying to get a sense of how much distribution you're getting here beyond your own go to market efforts. And then I have one follow up. Yeah, I would say Samad that all of them have very, very healthy co-sell arrangements, where we're just partnering so effectively in the field with our counterparts.

Nick: Moving on to some odd samana from Jefferies.

Speaker Change: Hey, guys. Good evening I appreciate you taking my question maybe.

Speaker Change: First just in terms of the partners that you guys mentioned, it's obviously like a really marquee list.

Speaker Change: Of great companies.

Speaker Change: I'm just curious are any of these where theres a joint co selling motion, where the vendors are actually incentivizing their own sales organizations, just trying to get a sense of how much distribution you're getting there beyond your own go to market efforts and then I have one follow up question.

Speaker Change: Yeah, I would say some of that all of them have very very healthy co sell.

Speaker Change: Arrangements, where we're just partnering so effectively in the field with our counterparts. I mean, we've always been good at that and we've always been great at that and you know there are some incentives and some of those partnerships as well, but and if you want us their cultures incentives and co selling at both sides of it each each company kind of has a different approach in how they do these do these D.

Andy Dignan: I mean, we've always been good at that. And we've always been great at that. And, you know, there are some incentives in some of those partnerships as well.

Andy Dignan: But Andy, if you want to... Yeah, there's incentives in co-selling on both sides. I mean, each, each company kind of has a different approach in how they do these, do these deals. But ultimately, you know, across all of them, I can say there's, there's incentive on both sides to deliver. And a lot of times what comes with these partnerships is dedicated people on both sides, you know, working together to make sure that they're getting out in front of their, you know, obviously, these partners that we're talking about are very large sales forces. And so having dedicated people on their teams to make sure that they're, they're out there pitching, you know, the value proposition.

Speaker Change: But ultimately you know across all of them I can say, there's a there's incentive on both sides to deliver and in a lot of times. It comes with these partnerships is dedicated people on both sides you know working together to make sure that they're getting out in front of their you know obviously these are partners that we're talking about a very large sales forces and so having dedicated people on.

Speaker Change: Their teams to make sure that they're out there pitching you know the joint value proposition, so, yes, great relationships and incentives and across the board.

Andy Dignan: So yeah, great relationships and, you know, incentives and across the board.

Speaker Change: Very helpful. And then maybe just the medium term operating model that's in the slide deck I think that's that's new Brian I'm, just curious what you're thinking about in terms of what the AI revenue contribution will look like as you March toward that maybe what what assumption you've made in and the reason I'm asking is maybe how the gross.

Speaker Change: Margin at that revenue stream looks compared to the current gross margins came in is that something that could maybe push gross margins, even higher than where we are today.

Unknown Executive: Yeah, no, thanks a lot. So for the medium term target, the 10 to 15% revenue growth has sort of a general momentum of AI that we're seeing today. Now, so there is further upside in terms of potential revenue growth if AI acceleration really takes off. Now, from the gross margin perspective, you're right in that AI gross margin, and I, you know, our AI agent portfolio is a good representation of this because when we acquired Inference five years ago, the gross margin of that business is in the high 70s and low 80s. And we've maintained that if anything, we've actually improved it further.

Speaker Change: Yeah, no. Thanks for myself and for the medium term target of 10% to 15% revenue growth has sort of a J.

Speaker Change: General momentum of AI that we're seeing today no. So there is further upside in terms of potential revenue growth acceleration.

Speaker Change: It really takes off now from the gross margin perspective, Youre right in that gross margin and I are our agent portfolio is a good representation of this because when we acquired inference five years ago.

Speaker Change: The gross margin in that business is in the high 70, the low eighty's and we've maintained that if anything we've actually improved it further so as AI becomes a bigger mix of revenue that should have a tailwind to overall gross margin on the subscription margin side as well as the total gross margin.

Unknown Executive: So as AI becomes a bigger mix of revenue, that should have a tailwind to overall gross margin on the subscription margin side, as well as the total gross margin.

Michael Burkland: Great, thank you so much. I'll add one other data point just to consider in the mix here relative to AI, again, 20% plus of our ACB enterprise bookings were AI in the last few quarters, right? So just that's another good number to kind of be able to triangulate what you're at. Great, thank you, Mike. Appreciate it. You got it.

Speaker Change: Great. Thank you so much model I had one other data point to consider in the mix here relative to I guess, 20% plus of our ACB enterprise bookings, where AI in the last few quarters right. So that's like that's another good number to kind of be able to triangulate what you're asking.

Speaker Change: Great. Thank you Mike I appreciate it you got it.

Thomas Blakey: Moving on to Tom Blakey from Crater. Hi, guys. Thank you very much for taking my question. I think it's on the heels of maybe what Samad was just asking about what the what the kind of revenue looks like, you know, going further out, obviously, no, no, no numbers or no, you know, kind of hard, you know, guidance here, but, you know, previously, Five9 is always kind of, you know, if you go back a couple years, got it to 16%, you know, that was the that was a lot of previous line, and then you'd beat that and, you know, grow in the 20s.

Tom Blakey: Moving on to Tom Blakey from cleaner.

Tom Blakey: Hi, guys. Thank you very much for taking my question.

Tom Blakey: I think it's on the heels of maybe with some more I was just asking about what the what the kind of revenue looks like.

Tom Blakey: Going further out obviously no no no numbers or do you know kind of hard guidance here, but you know previously five nine is always kind of.

Tom Blakey: If you go back a couple of years Scott at the 16% that was the that was the previous line and then you'd beat that grow in the Twenty's now were 10 to 15.

Michael Burkland: Now we're 10 to 15. So maybe talk about the level of, you know, kind of comfort you're in, you know, cushion you're putting into that 10 to 15. And what the revenue looks like today, in the future from a consumption perspective, versus a C perspective from a partner perspective, you know, like Samad just asked about AI. So, you know, that's obviously going to go up as a percentage of revenue, given its growth dynamic, but any other type of color, and you know, what kind of cushion you're baking into that 10 to 15, I think would be helpful.

Tom Blakey: So maybe talk about the level of you know kind of comfort you're in Cushing youre, putting into that 10 to 15 and what the Rev.

Tom Blakey: Revenue looks like today in the future from a consumption perspective.

Tom Blakey: Versus a seat perspective from a partner perspective.

Tom Blakey: Like some I just asked about AI. So that's obviously going to go up as a percentage of revenue given its growth dynamic but any.

Tom Blakey: Many of the type of color and what kind of Cushing youre baking into that 10 to 15 I think it would be helpful.

Brian: Yeah, so, you know, this is a result of the operational review that we just completed. And as Mike and Andy mentioned, you know, we will continue to invest on the curve for our sales capacity and drive go to market initiatives. So that is what's reflected in this, the 10 to 15%, obviously, is two years out, you know, we've been growing into 13% in the most recent quarter, we're guiding to 10% with slightly more prudence than in our guide than what we were originally thinking. So you can kind of triangulate using that because we haven't given specifics around, you know, what the B level would look like and things like that.

Speaker Change: Yeah. So you know this is a result of the operational review that we just completed and as Mike and Andy mentioned, we will continue to invest on the curve for our sales capacity and drive go to market initiatives. So that is what's reflected in the 10% to 15%. Obviously is two years out you know.

Speaker Change: We've been growing into a 13% of the most recent quarter, we're guiding to 10% with slightly more prudent and.

Speaker Change: Guy than what we were originally thinking so you can kind of triangulate using that because we haven't given specifics around what the beat level would look like and things like that but you can triangulate using those data points.

Brian: But you can triangulate using those data points. From a pricing perspective, of course, our AI portfolio is all based on some type of consumption based pricing, and that's going to become a bigger mix of our overall revenue. And so that will be a nice driver going forward as well. And as I mentioned earlier with the month, if there's acceleration in the adoption of AI, then that would become a much bigger driver. And Tom, to answer your last point there about partners, I mean, look, we continue to do more and more with partners, not just the strategic partners we're talking about, but also with just traditional channel partners, especially internationally, but even domestically.

Speaker Change: From a pricing perspective of course, our AG portfolio is all based on some type of consumption based pricing and that's going to become a bigger mix of our overall revenue.

Speaker Change: And so that will be a nice driver going forward as well and as I mentioned earlier with the mud if there's acceleration in the adoption of fan out I think that would become a much bigger driver.

Speaker Change: And then Tom to answer your last point, there about partners I mean look.

Speaker Change: We continue to do more and more with partners not just the strategic partners. We're talking about but also with just traditional channel partners, especially internationally.

Brian: And so, again, I think you'll continue to see us get more and more opportunities from partners, but also, you know, just get more reach out of those partners.

Speaker Change: Even domestically and so again I think you'll continue to see us get more and more opportunities.

Speaker Change: From partners, but also you know just get more reach out to those partners.

Michael Burkland: Okay, and just maybe just one quick follow up on the transcript stream deal that you did there. And I know you've mentioned this a couple of times now, Mike, you seem awfully excited about it. I know you've given us a color about the AI products. Sorry for the granular questions here, but, you know, IVA and Insights and Summaries are still leading the way here. Is there an anticipation that this could uptick here in the second half of calendar 25? That's it for me. Yeah, I think it's a good question, Tom. And again, when it comes to transcript stream and voice stream, and those API layers, they're becoming much more important, especially in some of these partners, partnerships, these strategic partnerships, we've been enhancing, and, you know, empowering our partners to do more with our data, but making sure we monetize that along the way.

Speaker Change: And just maybe just one quick follow up on the transcript stream deal that you did there and I know you've mentioned this a couple of times now Mike.

Speaker Change: You seem awfully excited about it I know you've given us color about the AI products, sorry for the granular questions here, but you know and and insights and summaries are still leading the way here is there an anticipation that this good that's good uptick here in the second half of calendar 'twenty five that's it for me. Thank you Yeah, I think it's a good quest.

Tom Blakey: And Tom It again, when it comes to transcript stream and voice stream and those API layers, they're becoming much more important especially in some of these partners partnerships. These strategic partnerships, we've been enhancing and empowering our partners to do more with our data.

Tom Blakey: But making sure we monetize that along the way right. So.

Michael Burkland: Right. So, again, we'll see it's a pretty small number today. But I do think that's another separate growth factor in a lot of ways. And when we think about, again, the AI pie or the AI game, it's, it's a team sport, we are going to, you know, be in accounts with Salesforce and ServiceNow and other CRM vendors, for example, and it's going to be some of ours, some of theirs, and we're going to monetize it when it's there.

Tom Blakey: Again, we'll see it's a pretty small number today, but I do think that's another separate growth sector and a lot of ways. I mean, when we think about again the AI pie are the AI game. It's it's a team sport we are going to be in accounts with Salesforce in service now and other CRM vendors for example, and it's.

Tom Blakey: Can it be some of our some of theirs and we're going to monetize it when it's there.

Michael Burkland: Thank you, Mike. Thank you, guys. You got it. Thanks.

Speaker Change: Thank you Mike. Thank you guys you got it thanks Tom.

Jim Fish: Moving on to Jim Fish from Pipeler Sands. Hey, guys, wanted to follow up on Peter's question. What are some of those top of funnel initiatives you're investing in?

Jim Fish: Moving on to Jim fish from Piper Sandler.

Jim Fish: Hey, guys I wanted to follow up on Peter's question, what are some of those upper funnel initiatives youre investing in is there.

Jim Fish: Is there a plan to change comp structures at all, either? Yeah, I mean, look, we're always thanks fish there. We're always looking at comp structures and commission plans and making sure that we've got the right incentives. to, you know, drive the right behavior in terms of our go to market teams, we're always fine tuning those those comp plans. So on an absolute basis, you know, there's not going to be a whole lot of change, but there may very well be, you know, new metrics or KPIs that get introduced, especially, you know, in areas like our install base sellers, right, they're selling into our base, doing certain, you know, spits around AI, for example, in large enterprise, making sure that we're also incenting, not just one whale, you know, for rep, but a bunch of dolphins, right.

Jim Fish: Glenn to change comp structures at all either.

Jim Fish: Yeah, I mean look we're always thanks fish there we're always looking.

Jim Fish: Looking at comp structures and commission plans and making sure that we've got the right incentives.

Jim Fish: To.

Jim Fish: Drive the right behavior in terms of our go to market teams, we're always fine tuning those those comp plans so on an absolute basis.

Jim Fish: Yeah, theres not going to be a whole lot of change, but there may very well be a.

Jim Fish: New metrics or Kpis that get introduced especially in areas like our install base.

Jim Fish: Right, they're selling into our base.

Jim Fish: Doing certain you know spits around AI for example.

Jim Fish: In large enterprise, making sure that word also and Scenting not just one whale.

Jim Fish: Per rep, but a bunch of dolphins right. So there are ways that we can incent the right behavior across our sales organization.

Jim Fish: So there are ways that we can incent the right behavior across our sales organization, based on where we see the market opportunity. I hope that addresses.

Jim Fish: Based on where we see the market opportunity I hope that.

Brian: Yeah, that's helpful. And just to just to follow up, net retention rate, you know, slipped a little bit, I know, came in roughly where you were expecting, right. But, you know, for as we think about like the in period numbers, it sounds, you know, a little bit sequentially, and it seems as though the enterprise net expansion rate was really the driver there. So I guess what's given the confidence that we're going to start to see stability here that that you walk through the guide Brian of the 52 out of 62, and so forth, that we've actually hit bottom, is there a way to think about cross sell upsell mix there, even turn of seats?

Jim Fish: Gotcha.

Jim Fish: That's helpful and just a just a follow up.

Speaker Change: Net retention rate.

Speaker Change: Slipped a little bit I know it came in roughly where you were expecting right, but you know for as we think about like the in period number. It sounds you know a little bit sequentially and it seems as though the enterprise net expansion rate was really the driver there. So I guess, what's giving us confidence that we're going to start to see stability here that that you walked through the guide Brian.

Speaker Change: Of the 52 out of 62, and so forth that we actually hit bottom and is there a way to think about cross sell upsell mix there, even even turn a steep thanks guys.

Brian: Thanks, guys. Yeah, absolutely, Jim. So if you think about the DBR are coming down to one of 7%, I was actually anticipated at the beginning of the quarter. So we had those tough comparisons I talked about with the mega customer and seasonal downtick. So those two were the key drivers. If you look forward into Q2 and the remainder of the year, you know, those tough comparisons still exist. But we have positive offsets as well, the AI momentum and the 32% revenue growth that we just reported. Also, the million plus AR customers have a much higher DBR than the one of 7% that we just reported, and they're the fastest growing category of our customer base.

Speaker Change: Yeah, absolutely John So if you think about the D var are coming down to one 7% that was actually anticipated at the beginning of the quarter. So we had those tough comparisons as I talked about with the mega customer and seasonal downtick. So those two were the key drivers.

Speaker Change: If you look forward into Q2, and the remainder of the year.

Speaker Change: Those tough comparisons still exist, but we have positive offsets as well and momentum in the 32% revenue growth that we just reported also the million plus they our customers have a much higher D var or than the one 7% that we just reported and they are the fastest growing category of our customer base. So those.

Brian: So those, if you net it all out, you know, we believe there will be fluctuations in either direction in small amounts throughout the year.

Speaker Change: Net it all out you know, we believe there will be fluctuations in either direction and small amounts throughout the year.

Speaker Change: Yeah.

Meta Marshall: Moving on to Meta Marshall from Morgan. Great, thanks.

Speaker Change: Moving on to meta Marshall from Morgan Stanley.

Michael Burkland: You know, just on the elongating deal cycle, I just wanted to see were there initiatives that you guys were putting in place that were maybe helping kind of quicker time to ROI for customers to kind of help offset that or just kind of help them see that they can kind of take this in smaller bites to maybe shrink those deal sales evaluation cycles.

Speaker Change: Great. Thanks.

Meta Marshall: Just on the elongated and deal cycle I just wanted to see where there are initiatives that you guys were putting in place that were maybe helping kind of quicker time to ROI for our customers to kind of help offset that or just kind of help them see that they can kind of take this in smaller bites to maybe shrink those deal sales.

Speaker Change: So in cycles.

Michael Burkland: And then maybe second, just on the Fusion announcement with Salesforce, you know, it sounds like that that's kind of step one and kind of multi product initiative kind of over time, just kind of how we should see that relationship evolving, particularly kind of as it, you know, relates to agent force. Thanks. Yeah, we've deployed within the sales teams, a lot of focus around delivering AI and the platform at the same time in the new logo business. That's continued to go well. Really, when we talk about the elongation of sales cycles, it's more around just a couple extra signatures, right?

Speaker Change: And then maybe second just on the use in announcements with Salesforce you know it sounds like that that's kind of step one and kind of multi.

Speaker Change: Initiative kind of over time, just kind of how we should see that relationship evolving and particularly kind of as it.

Speaker Change: Relates to agent force. Thanks.

Speaker Change: Yeah, we've deployed within.

Speaker Change: Within the sales teams a lot of focus around <unk>.

Speaker Change: Delivering AI and the platform at the same time and the new logo business that's.

Speaker Change: That's continued to go well really when we talk about the elongation of sales cycles. It's more around just a couple of extra signatures right. They're just more focus on the spend by companies. It's not really anything we changed in our our go to market you know, we're continuing to execute well there.

Michael Burkland: They're just more focused on the spend by companies. It's not really anything we changed in our, our go to market, you know, we're continuing to execute well there.

Michael Burkland: On the Five9 Fusion. Yeah, really, the key focus right now with this is, Salesforce, like we mentioned, is driving a lot of this BYOT opportunities to drive that into Einstein. If you think about further bring your own channel to be able to allow us to route all of the channels within the Salesforce platform, and then certainly agent force. So that's kind of a journey as well. So this is kind of the start of that. We've been we're excited about it. And you know, this is only the only the beginning. Great, thanks.

Speaker Change: On the five nine fusion, yeah, but really the key focus right now with this is salesforce like we mentioned is driving a lot of this b Y O T opportunities to drive that into Einstein. If you think about further bring your own channel to be able to allow us to a route all of the channels within the Salesforce platform and then certainly agent force. So that's kind of a journey is.

Speaker Change: Well. So this is kind of the start of that are you know we're excited about it and you know this is the only the only the beginning.

Speaker Change: Great. Thanks.

Rishi Jaluria: And now we'll be taking our final question from Rishi Jaluria from Oh, wonderful. Thanks so much for squeezing me in. I have two questions I wanted to ask, continuing on the theme of AI. First, look, I appreciate all the metrics and disclosures you've given us around AI. I think it really helps kind of bolster the case that you can be a real AI beneficiary. Just for the sake of our own clarity and investor clarity, can you remind us what exactly is included in that bucket in terms of products and SKUs? Because the pushback I've always been getting from BEARS has been, oh, there's a lot of basic automation included there that's not truly AI.

Speaker Change: And that will be taking our final question from Rishi <unk> from RBC.

Speaker Change: Oh wonderful thanks, so much for squeezing me in.

Rishi: Two questions I wanted to ask a continuing on the theme of AI first look I appreciate all the metrics and disclosures you've given us around AI I think it really helps kind of bolster the case that you can be a real beneficiary just for the sake of our own clarity and invest your clarity can you remind us what exactly is included in that bucket in terms of.

Rishi: <unk> skus because it could be the pushback I've always been getting from from payers has been Oh, there's a lot of basic automation included there that's not truly AI. So I think I'll remind you there would be really helpful. And then the second part is if we think about your medium term target model and again I. Appreciate you putting that in the slide deck you got to do a good amount of gross margin expansion, which is great to see.

Rishi Jaluria: So I think a reminder there would be really helpful. And then the second follow on is if we think about your medium-term target model, and again, appreciate you putting that in the slide deck, you're getting a good amount of gross margin expansion, which is great to see. To what extent should we be thinking about increased AI usage and adoption being a potential headwind to that gross margin number, just given how prohibitively expensive these AI workloads are, you know, even post all the model efficiency that we've been seeing over the past six, nine months. Thanks so much.

Speaker Change: To what extent should we be thinking about increased AI usage and adoption being a potential headwind to that gross margin number just given how prohibitively expensive. These AI workloads are even post all the model of efficiency that we've been seeing over the past six nine months. Thanks, so much.

Michael Burkland: Yeah, I'll start with the first question. Rishi, thank you for these questions. They're very good. So when in terms of in terms of which products are included in our AI revenue, what there, I don't want, I want there to be no confusion. And I've said this before, no confusion. This does not include simple automation and other things, including WEM functionality is not included in that. These are just the AI products since we acquired inference and the new ones we've announced that go along with that. So whether it's AI self-service, AI agents, as we call them today for either digital or voice, whether it's agent assist, summaries, transcriptions, it's all the new technologies and new products we've delivered that are AI focused.

Speaker Change: Yeah I'll start with the first question Rishi. Thank you for these questions are very good so when it turns to in terms of which products are included in our AI revenue.

Speaker Change: What they're doing.

Speaker Change: I want them to be no confusion that I've said this before no confusion. This does not include simple automation and other things, including WAM functionality that is not included in that these are just the.

Speaker Change: The AI products since we acquired inference in the new ones, we've announced that go along with that so whether it's.

Speaker Change: AI self service AI agents as we call them today for either digital or voice, whether it's agent assist summaries transcriptions, it's all the new technologies and new products, we've delivered that our AI focused and it does not include any kind of a simple automation that we had before that so that's the best way I.

Michael Burkland: And it does not include any kind of simple automation that we had before that. So that's the best way I can answer that. And when it comes to, you know, the medium term model and our gross margin expansion and AI being a potential headwind, as Brian just said a few minutes ago, we actually see it just the opposite. We see AI as a tailwind. You know, we talked about the gross margins in the rear view mirror back in the inference days, the model costs, the engine cost per interaction or cost per, you know, consumption has gone down dramatically.

Speaker Change: Can answer that and when it comes to.

Speaker Change: The medium term model and our gross margin expansion in AI being a potential headwind as Brian just said a few minutes ago, we actually see it just the opposite we see AI as a tailwind.

Speaker Change: You know when we talked about the gross margins in the rear view mirror back an inference days the model costs, the engine cost per interaction or cost per consultant.

Speaker Change: Consumption has gone down dramatically.

Michael Burkland: And, you know, again, we're pretty efficient the way we develop the software. So we expect that to be a tailwind, not a headwind.

Speaker Change: You know again, we're pretty efficient the way we develop the software. So we expect that to be a tailwind not a headwind.

Unknown Executive: Wonderful. Thank you so much, guys. You got it. Thank you, Rishi.

Rishi: All right well. Thank you so much guys you got it thank you Rishi.

Speaker Change: Yeah.

Speaker Change: Yeah.

Michael Burkland: All right. I just want to say thank you for joining us. We look forward to keeping you apprised as we progress through the year and as we progress toward becoming a rule of 40 company on a free cash flow basis again in the future. But we're excited about the initiatives that are underway and the progress we're making. Thanks, everyone. This concludes our meeting. Thank you for joining us. Goodbye.

Speaker Change: Alright, I just want to say thank you for joining us we look forward to keeping you apprised as we progressed through the year and as we progress toward.

Speaker Change: Becoming a rule of 40 company on a free cash flow basis again in the future, but we're excited about the initiatives that are underway and the progress we're making thanks everyone.

Speaker Change: This now concludes our meeting thank you for joining.

Speaker Change: Goodbye.