Q2 2025 Five9 Inc Earnings Call

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

Lauren: 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 mixtures, expectations regarding seasonality, customer growth, anticipated customer benefits from our solutions, including from AI, the extent of the anticipated TAM expansion, and our ability to take advantage of any such expansion, our AI and CCaaS revenue opportunities, and current estimates regarding same company growth, enhancements to and development of our solution, market size and trends, our expectations regarding macro conditions, company market and leadership positions, initiatives, pipeline, technology, and product initiatives, including investment in R&D and AI, and other future events or results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Thank you for joining us today. 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, and expected ARR from certain customers.

Certain expected Revenue mix shifts expectations regarding seasonality customer growth. Anticipated customer benefits from our Solutions including from AI.

Lauren: 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, global tariff increases, and potential increases in announcements regarding the same, 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. In addition, management will make reference to non-GAAP financial measures during this call.

The extent of the anticipated TAM expansion and our ability to take advantage of any such expansion. Our AI and CASS revenue opportunities and current estimates regarding same company growth enhancements and the development of our solution market size and trends. Our expectations regarding macro conditions, company market and leadership positions, initiatives pipeline, technology and product initiatives, including investment in R&D, AI, and other future events or results, or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such statements are simply predictions and 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. Forward-looking statements may be inaccurate, including the impact of adverse economic conditions, such as ongoing macroeconomic challenges, including continuing inflation, global tariff increases, and potential increases in announcements regarding the same. There is also uncertainty regarding consumer spending and high interest rates.

Fluctuations in currency exchange rates, lower growth rates within our installed base of customers, and the other risks discussed under the caption "Risk Factors" and elsewhere in our annual and quarterly reports filed with the Securities and Exchange Commission.

Lauren: A discussion of why we use non-GAAP financial measures and information regarding a 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 on the investor relations section of Five9's website at investors.five9.com. Also, please note that the information provided on this call speaks only to management's views as of today, July 31st, 2025, and may no longer be accurate at the time of replay. Lastly, a reminder that unless otherwise indicated, financial figures discussed are non-GAAP. And now I'd like to turn the call over to Five9's Chairman and CEO, Mike Burkland. Please go ahead.

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 a reconciliation of our GAAP versus non-GAAP results is currently available in our press release issued earlier this afternoon, as well as in the appendix of our investor deck that can be found on the Investor Relations section of the Five9 website at investors.five9.com.

Also, please note that the information provided on this call, speaks only to Management's views as of today. July 31st 2025, it may not know longer be accurate at the time of Replay.

Lastly, a reminder that unless otherwise indicated Financial figures discussed are non-gaap.

Mike Burkland: Thanks, Lauren, and thanks everyone for joining our call this afternoon. I'm very pleased to report strong second quarter results. But before we go into our results, as you may have seen in the press release we issued earlier today, I've made the decision to retire from the CEO role here at Five9. The board has kicked off a comprehensive search for our next CEO. Meanwhile, I will continue to serve as CEO until my successor has been appointed. And then I look forward to continuing my service on the board as Executive Chairman at Five9 to ensure a smooth transition. It has been a privilege and an honor to lead this amazing team of Five9ers. While my cancer treatments continue to be effective, I recognize that it's not likely to continue indefinitely.

And now I’d like to turn the call over to Five9 Chairman and CEO Michael Burkland. Please go ahead.

Thanks Lauren and thanks everyone for joining our call this afternoon. I'm very pleased to report strong second quarter results.

But before we go into our results, as you may have seen in the press release we issued earlier today, I’ve made the decision to retire from the CEO role here at 59.

The board is kicking off a comprehensive search for our next CEO.

Meanwhile, I will continue to serve as CEO until my successor has been appointed. Then, I look forward to continuing my service on the board as executive chairman at 59, to ensure a smooth transition.

It has been a privilege and an honor to lead this amazing team of 59ers.

Mike Burkland: After giving it a lot of thought, I believe it's time for me to pass the baton and get back to a more balanced lifestyle. That said, until we appoint my successor, I'm committed to working my tail off as we continue to transform Five9 to drive top-line growth and bottom-line profitability. As you know, we have made a series of changes over the past several quarters to position the company for the future, and we are beginning to see the positive impact of those changes in our results, including strong bookings, AI momentum, and increased profitability. So now let's dive into our Q2 results. As I mentioned earlier, we had a very strong second quarter, which exceeded our guidance across all key metrics. Subscription revenue, which now makes up 81% of total revenue, accelerated to 16% year-over-year growth.

While my cancer treatments continue to be effective, I recognize that it's not likely to continue indefinitely.

After giving it a lot of thought,

I believe it's time for me to pass the Baton and get back to a more balanced lifestyle.

Professor, I'm committed to working my tail off as we continue to transform, 59 to drive, Topline growth and bottom line profitability.

As you know, we have made a series of changes over the past several quarters to position the company for the future. We are beginning to see the positive impact of those changes in our results, including strong bookings, AI momentum, and increased profitability.

So now let's dive into our Q2 results. As I mentioned earlier, we had a very strong second quarter, which exceeded our guidance across all key metrics.

Mike Burkland: This was primarily driven by enterprise AI revenue growth accelerating to 42% year-over-year in the second quarter, now representing 10% of enterprise subscription revenue. Additionally, we were very pleased to see strong momentum in our sales execution as we had the highest quarterly total ACV bookings in two years, excluding the one financial services mega-deal we did in Q1 of last year. And enterprise AI bookings more than tripled year-over-year in the second quarter. In terms of profitability, adjusted EBITDA grew 63% year-over-year, reaching an all-time record margin of 24% in the second quarter, helping drive Q2 records for both operating and free cash flow. Our increased profitability is a direct result of our execution against transformation initiatives as we work toward the rule of 40 and beyond. And now I'd like to spend a few minutes on our AI success and innovation.

Subscription revenue, which now makes up 81% of total revenue, accelerated to 16% year-over-year growth. This was primarily driven by Enterprise AI revenue growth, which accelerated to 42% year-over-year in the second quarter, now representing 10% of Enterprise subscription revenue.

Additionally, we were very pleased to see strong momentum in our sales execution. As we had the highest quarterly total ACB bookings in two years, excluding the one Financial Services mega deal we did in Q1 of last year.

And Enterprise AI, bookings more than tripled year-over-year in the second quarter.

In terms of profitability, I grew 63% year-over-year, reaching an all-time record margin of 24% in the second quarter.

Helping drive Q2 records for both operating and free cash flow. Our increased profitability is a direct result of our execution against transformation initiatives. As we work toward the rule of 40 and beyond.

Mike Burkland: Let's start with the three key drivers underlying our strong momentum in AI. First, enterprises continue to see Five9 as their core CX platform, including AI. For instance, two large healthcare customers extended their contracts with us during the second quarter to five-year terms, with one expanding its anticipated ARR with us by nearly 40% to over $11 million, and the other expanding its anticipated ARR with us by more than 2X to over $5 million. Both enterprises decided to continue their partnership with us long-term as they view Five9 as their single comprehensive platform provider for CX. Second, enterprises are turning to Five9 as they make their long-term decisions around AI, given that we are the core CX platform and we have the AI expertise, products, and integrations.

And now, I'd like to spend a few minutes on our AI success and innovation.

Let's start with the 3 key drivers. Underlying, our strong momentum in AI.

First Enterprises continues to see 59 as their core CX platform, including AI. For instance, two large healthcare customers extended their contracts with us during the second quarter to five-year terms, with one expansion in its anticipated ARR with us.

By nearly 40% to over 11 million dollars.

And the other expanding its anticipated ARR with us by more than 2x to over $5 million.

Both enterprises decided to continue their partnership with us long term, as they view 59 as their single comprehensive platform and provider for CX.

Mike Burkland: For instance, one of our customers in the airline industry worked with our AI experts to evaluate the potential ROI of increasing their self-service capabilities. As a result, they decided to expand their AI portfolio with us in the second quarter, increasing their anticipated ARR with Five9 by more than 2X to over $7 million. Similarly, one of our customers in the pest control industry decided to add new AI capabilities on our platform in Q2, increasing their anticipated ARR with Five9 by more than 30% to over $4 million. And third, enterprises are achieving significant and tangible ROI with our AI solutions. For instance, a customer in the healthcare industry who deployed our AI solutions a year ago has been achieving significant improvements, including an 80% reduction in abandonment rate, a 50% plus increase in containment rate, and a 60% plus improvement in post-interaction work time.

Second Enterprises are turning to 59 as they make, their long-term decisions around AI, given that we are. The core CX platform and we have the AI expertise products and Integrations. For instance, 1 of our customers in the airline industry, worked with our AI experts to evaluate the potential Roi of increasing their self-service capabilities.

As a result, they decided to expand their AI portfolio with us. In the second quarter, in the anticipated, ARR with 59 by more than 2x to over 7 million dollars.

Similarly, one of our customers in the pest control industry decided to add new AI capabilities on our platform in Q2.

Increasing their anticipated ARR by more than 30% to over $4 million.

Mike Burkland: Another example is a digital health company focused on simplifying medical data to improve patient care outcomes who deployed our AI solutions four months ago. In this short period, they've already realized a 19% improvement in self-service containment. Not only was self-service improved, but critical CSAT metrics were improved as well, driven by a 50% reduction in abandonment rate and nearly a 50% reduction in hold time. As you can see, we are well positioned to enable enterprises to unlock real value with AI, and we expect to build on this momentum as we continue to invest in driving innovation within our Genius AI suite. For example, we made big news at CCW in Las Vegas in June, where we launched Agentic CX with AI agents that can reason, decide, and take action. We also launched AI Trust and Governance, our solution to make AI enterprise ready.

And third Enterprises are achieving significant and tangible Roi with our AI solutions. For instance, the customer in the healthcare industry who deployed our AI Solutions a year ago has been achieving significant improvements including an 80% reduction in abandonment rate a 50% plus increase in containment rate and a 60% plus Improvement in post interaction work time.

Another example is a digital Health company focused on simplifying, medical data to improve patient care outcomes, who deployed our AI Solutions 4 months ago.

In this short period they've already realized and 19% Improvement in self-service containment.

Not only with self-service improved, but critical seap metrics were improved as well driven by a 50% reduction in abandonment rate and nearly a 50% reduction in hold time.

As you can see, we are well positioned to enable enterprises to unlock real value with AI.

And we expect a

We continue to invest in driving innovation within our Genius AI Suite.

For example, we made big news at CCW in Las Vegas in June where we launched a genetic CX with AI agents that can reason decide and take action.

Mike Burkland: Let's first discuss our new Agentic AI agents. With this launch, the Five9 Intelligent CX platform now delivers Agentic AI agents to drive CX and AI at scale. With powerful new capabilities designed to reason, decide, and take action, Five9 ushers in a new era of Agentic CX for our customers. Part of our Genius AI suite, AI agents provide accurate, hyper-personalized experiences for consumers that are secure, seamless, and context-aware.

We also launched AI Trust in Governance, our solution to make AI enterprise-ready.

To drive CX and AI at scale.

Mike Burkland: Our Agentic AI agents can do so much more than prior generations because they have flexible, advanced self-service capabilities that adapt at any stage of the AI maturity through five key features, including AI Summary Node, which auto-summarizes voice and digital interactions with language-selectable summaries, Intent Detection and Entity Extraction, which enables seamless, natural dialogues, ensuring the quickest path to resolution, Knowledge Node, which uses Retrieval Augmented Generation, or RAG, to generate contextual answers based on enterprise knowledge, pre-built templates, which make it easy to deploy with starter kits that allow customers to quickly build new AI agents for their specific needs, and lastly, CodeCrafter, which leverages the capabilities of LLMs to generate high-quality JavaScript functions, reducing development and implementation effort from weeks to hours. Additionally, our Agentic AI agents are able to provide context and facilitate handoffs to human agents for those cases where it may be required.

With powerful, new capabilities designed to reason decide and take action 59 ushers in a new era of agentic CX. For our customers part of our genius, AI Suite, AI, agents provide accurate hyper, personalized experiences for consumers, that are secure seamless and context aware.

Our agentic AI agents can do so much more than prior Generations because they have flexible, Advanced self-service capabilities that adapt at any stage of the AI maturity through 5 key features, including AI summary node which Auto summarizes voice and digital interactions with language selectable summaries.

Intent detection and entity extraction enable seamless, natural dialogues, ensuring the quickest path to resolution.

Knowledge node which uses retrieval augmented generation or rag to generate. Contextual answers based on Enterprise knowledge.

Rebuilt templates make it easy to deploy with starter kits that allow customers to quickly build new AI agents for their specific needs.

And lastly, Code Crafter leverages the capabilities of LLMs to generate high-quality JavaScript functions, reducing development and implementation effort from weeks to hours.

Mike Burkland: They can be configured to transfer to a human agent and quickly summarize the conversation in real time to promote a seamless handoff. This reduces handle time and is designed to eliminate the need for consumers to repeat themselves, reducing frustration and improving the experience. Also, as our customers are learning how to operationalize AI within their CX solutions, we're developing new practices to serve as their trusted expert in building their agent ops capabilities. Agent ops is an emerging discipline for managing the deployment, monitoring, and optimization of AI agents. And a critical component of deploying AI agents is to provide granular guardrails for agent ops personnel to tailor AI models and outputs for different use cases, keeping AI-powered consumer experiences reliable and safe. This is where Five9 AI Trust and Governance comes into play.

Additionally, our agentic AI agents are able to provide context and facilitate handoffs to human agents for those cases, where it may be required.

They can be configured to transfer to a human agent and quickly summarize the conversation in real time to promote a seamless handoff.

This reduces handle time and is designed to eliminate the need for consumers to repeat themselves, reducing frustration, and improving the experience.

as our customers are learning how to

CX solution.

We're developing new practices to serve.

Their trusted expert in building their agent, Ops capabilities.

Agent Ops is an emerging discipline for managing the deployment, monitoring, and optimization of AI agents. A critical component of deploying AI agents is to provide granular guardrails for Agent Ops personnel to tailor AI models and outputs for different use cases. Keeping the AI-powered consumer experience reliable and safe.

Mike Burkland: As we enter this new era of Agentic CX, Agentic AI is continuing to shape the entire customer journey from accurate and personalized self-service to agent assistance, process automation, and managerial insights. And it is essential for Agentic AI to behave ethically and consistently. With our Five9 AI Trust and Governance suite, enterprises are scaling AI safely with capabilities such as granular guardrails to better customize AI behavior across channels, proactive monitoring and response to risks such as prompt injection attacks, better AI observability with comprehensive reporting and dashboards, and hallucination detection to easily detect and correct AI behavior if needed. As you can see, our ongoing investments in our Genius AI suite continue to fuel innovation and strengthen our leading position as a trusted partner to help enterprises navigate through this rapidly evolving world of AI.

This is where 59 AI trust in governance comes into play.

As we enter this new era of agentic CX.

Agentic AI is continuing to shape the entire customer Journey from accurate and personalized self-service to agent assistance process Automation and managerial insights. And it is essential for agentic, AI to behave, ethically and consistently.

With our 59, AI Trusting Governance, Suite Enterprises are scaling AI safely with capabilities such as granular guardrails to better customize AI behavior across channels.

proactive monitoring and response to risks such as prompt injection attacks.

Better AI observability with Comprehensive reporting and dashboards.

And hallucination detection to easily detect and correct. AI behavior if needed.

Mike Burkland: This is also why we were once again ranked as having the best AI solutions in the semi-annual Baird Survey that was recently conducted in July. Now I'd like to touch on the momentum we are seeing with some of our key partners. In the second quarter, we had very strong performance across multiple routes to market. We also continued to gain significant traction with technology partners during the quarter. For example, with Salesforce, we're having a lot of success in the field, working hand in hand with the Salesforce sales teams through joint selling and value positioning. As a result, we saw a significant increase in bookings, as well as a meaningful increase in the pipeline for Five9 Fusion for Salesforce. With Google Cloud Marketplace, pipeline once again doubled this quarter, and we closed multiple $1 million plus ARR deals through this partnership.

As you can see our ongoing investments in our genius, AI Suite, continue to fuel Innovation and strengthen our leading position as a trusted partner to help Enterprises navigate through this rapidly evolving world of AI.

This is also why we were once again.

Frank is having the best AI Solutions in the semiannual beard survey that was recently conducted in July.

Now, I'd like to touch on the momentum we are seeing with some of our key partners. In Q2, we had very strong performance across multiple routes to market. We also continued to gain significant traction with technology partners during the quarter.

For example, with Salesforce, we're having a lot of success in the field, working hand in hand with the sales force sales, teams through joint selling and value positioning. As a result, we saw significant increase in bookings, as well as a meaningful increase in the pipeline for 59 Fusion, for sales force.

Mike Burkland: With ServiceNow, we doubled our bookings quarter over quarter, and we also published our certification and alignment to their Yokohama release, their most recent platform update focusing on AI, showcasing our deep partnership. And lastly, with regard to Epic, we are excited to share that Five9 is now listed in the Epic showroom as a toolbox solution. Epic is one of the largest healthcare CRM providers and is a key partner for us as we continue to deepen our healthcare vertical integrations. We are offering a digital patient experience solution, embedding our capabilities into Epic. And this is one of the many planned native integrations with them as we continue progressing our joint roadmap, which includes AI agents, agent assist, and other AI solutions.

With Google Cloud Marketplace pipeline, once again, doubled this quarter and we closed multiple 1 million plus ARR deals through this partnership.

With service, we now doubled our bookings quarter over quarter. We also published our certification and alignment to their Yokohama release, their most recent platform update focusing on AI, showcasing our deep partnership.

Room as a toolbox solution.

Epic is 1 of the largest Healthcare CRM providers and is a key partner for us as we continue to deepen our Healthcare vertical Integrations.

We are offering a digital patient experience solution, embedding our capabilities into Epic.

And this is 1 of the many planned native Integrations with them. As we continue progressing, our joint roadmap

Mike Burkland: In summary, we are very pleased with the momentum in our business and the progress we're making on our transformation initiatives for both top and bottom line. We remain at the forefront of developing leading Agentic CX solutions to help reshape the AI-driven customer journey and experience, and I'm extremely excited about the future of Five9. I'm confident that we have the platform and the experts to drive long-term, durable growth as we continue to capitalize on our massive market opportunity. And before I turn it over to our President Andy Dignan, I would like to discuss some changes in our leadership team. For starters, following a comprehensive CFO search, I'm thrilled to congratulate Bryan Lee on his appointment.

which includes AI agents, agent, assist, and other AI Solutions

In summary, we are very pleased with the momentum in our business and the progress. We're making on our transformation initiatives for both top and bottom line.

We remain at the Forefront of developing leading, agentic, CX solutions to help reshape the AI driven, customer journey and experience and I'm extremely excited about the future of 59.

I'm confident that we have the platform and the experts to drive long-term durable growth as we continue to capitalize on our massive market opportunity.

Mike Burkland: Bryan has been a key member of the finance organization at Five9 for 11 years, and he has been instrumental in helping us achieve our operational and financial goals, and I have so much confidence in Bryan. In addition to Bryan's appointment to CFO, we made additional changes to our leadership team by realigning our executive org structure in order to maximize alignment, ownership, and operational efficiency. As part of these changes, we promoted Tiffany Merriweather from Chief Legal Officer to Chief Administrative and Legal Officer, where she will now also lead HR. In addition, we promoted Matt Tuchness to Chief Revenue Officer. Matt is a 12-year veteran at Five9 who has risen through the sales ranks, leading various sales orgs, and has had a significant impact on our go-to-market organization and our bookings reacceleration. In this role, Matt will also lead our marketing team.

And before I turn it over to our president, Andy dignan, I would like to discuss some changes in our leadership team for starters, following a comprehensive CFO search. I'm thrilled to congratulate Brian Lee on his appointment.

Brian has been a key member of the finance organization at Five9 for 11 years and has been instrumental in helping us achieve our operational and financial goals. I have so much confidence in Brian.

In addition to Brian's appointment to CFO, we made additional changes to our leadership team by realigning. Our executive org structure in order to maximize alignment ownership and operational efficiency.

As part of these changes, we promoted Tiffany Maryweather from Chief Legal Officer to Chief Administrative and Legal Officer, where she will now also lead HR.

In addition, we promoted Matt Tuck this to Chief Revenue officer.

Matt is a 12-year veteran at 59 who has risen through the sales ranks, leading various sales organizations and has had a significant impact on our go-to-market organization and our bookings re-acceleration.

Mike Burkland: And with that, I will turn it over to Andy.

In this role, Matt will also lead our marketing team.

Andy Dignan: Thank you, Mike, and good afternoon, everyone. As Mike mentioned, we are very pleased to see strong bookings across the board in the second quarter, reaching the highest quarterly total ACV bookings in two years, excluding the one financial services mega-deal we did in Q1 of last year. Most importantly, we had triple-digit year-over-year enterprise AI bookings growth in Q2, with enterprise AI new logo bookings more than doubling year-over-year, and our enterprise AI install-based bookings more than quadrupling year-over-year. Once again, AI bookings made up more than 20% of enterprise new logo ACV bookings, and we attached AI to virtually all of our $1 million plus ARR new logos. Also, we continue to see significant momentum with our AI Blueprint program, which is helping us accelerate expansion within our enterprise install base. And outside of AI, our non-AI bookings grew significantly for both new logos and install base.

And with that, I will turn it over to Andy.

Thank you, Mike and good afternoon everyone. As Mike mentioned, we are very pleased to see strong bookings across the board in the second quarter.

Reaching the highest quarterly total ACV bookings in two years, excluding the one Financial Services mega deal we did in Q1 of last year.

Most importantly, we had triple-digit year-over-year Enterprise AI bookings growth in Q2, with Enterprise AI new logo bookings more than doubling year-over-year and our Enterprise AI installed base bookings more than quadrupling year-over-year. Once again, AI bookings made up more than 20% of Enterprise new logo ACV bookings, and we attached AI to virtually all of our 1 million-plus new logos.

Also, we continue to see significant momentum with our AI blueprint program, which is helping us accelerate expansion within our Enterprise install base.

Andy Dignan: Additionally, we had a healthy mix of million-dollar plus ARR new logo wins, along with robust channel activity, both domestically and internationally. That drove strong new logo bookings during the second quarter. And install-based bookings hit an all-time high, driven by continued momentum in upsell and cross-sell initiatives. Looking ahead, we remain optimistic about the future as our pipeline and RFPs continue to remain at elevated levels. And now, as we normally do, I will share some examples of key wins during the quarter, in addition to the $2.8 million new logo we won in April, which we discussed during our last earnings call. The first example is a global data and analytics company who selected Five9 through a reseller to modernize from a rigid legacy platform that had stalled prior transformation efforts. They needed a scalable AI-powered CX solution to elevate customer engagement and drive operational efficiency.

And outside of AI our non AI bookings. Grew significantly for both new logos and install base.

Additionally, we had a healthy mix of million-dollar. Plus our new logo wins along with robust Channel activity, both domestically and internationally.

Strong new logo, bookings. During the second quarter.

And install base bookings hit an all-time high, driven by continued momentum and upsell and cross-sell initiatives.

Looking ahead. We remain optimistic about the future as our Pipeline and rfps continue to remain at elevated levels.

And now as we normally do, I will share some examples of key wins. During the quarter, in addition to the 2.8 million, new logo, we want in April which we discussed during our last earnings call.

The first example is a global data and analytics company who selected 59 through a reseller to modernize from a rigid legacy platform that had stalled prior transformation efforts.

Andy Dignan: With Five9, they're activating all digital channels, along with intelligent routing and post-call surveys to capture real-time customer sentiment. Agent assist will empower their teams with contextual guidance and automated conversation summaries. Deep CRM integrations, including Salesforce, ServiceNow, and a proprietary CRM system, are designed to ensure voice and digital AI agents, as well as human agents, have instant access to the contextual data they need, reducing friction and improving resolution times. They will also use AI insights to uncover key trends, optimize both AI agent and human agent staffing, and drive smarter business decisions. We anticipate this initial order to result in approximately $3.3 million in ARR to Five9. The second example is a national mortgage services provider who selected Five9 through a reseller to modernize from an inflexible on-prem system that was limiting agility and contributing to client churn.

They needed a scalable AI, powered CX solution to elevate, customer engagement and drive, operational efficiency.

With 59, they're activating all digital channels, along with intelligent routing and post-call surveys, to capture real-time customer sentiment.

Aging assists will Empower their teams with contextual guidance and automated conversation summaries.

Deep CRM integrations, including Salesforce, ServiceNow, and a proprietary CRM system, are designed to ensure that voice and digital AI agents, as well as human agents, have instant access to the contextual data they need.

reducing friction and improving resolution times.

A key trend is optimizing both AI agents and human agents, staffing, and driving smarter business decisions.

Andy Dignan: They needed a cloud platform that could support inbound and outbound engagement, integrate with a complex CRM stack, and elevate their customer experience. With Five9, they're enabling all digital channels and voice, integrating with both Salesforce and their proprietary mortgage platform to surface customer data instantly. Microsoft Teams gives agents real-time access to subject matter experts, while Agent Assist transcribes and summarizes conversations for continuity across interactions. They'll also use WFA to automate tasks like sending mortgage payoff statements, streamlining operations, and improving both agent productivity and customer satisfaction. We anticipate this initial order to result in approximately $1.2 million in ARR to Five9. The third example is a global veterinary services provider with over 2,000 locations across 20 countries who selected Five9 through a reseller to consolidate fragmented on-prem systems and elevate both the customer and agent experience.

We anticipate this initial order to result in approximately 3.3 million in ARR to 59. The second example is a national mortgage services provider who selected 59 through a reseller to modernize from an inflexible on-prem system that was limiting agility and contributing to client churn

They needed a cloud platform that can support inbound and outbound engagement integrate with a complex CRM stack and Elevate their customer experience.

With 59, they're enabling all digital channels and voice integrating with both Salesforce and their proprietary mortgage platform to service customer data instantly.

Microsoft Teams provides agents with real-time access to subject matter experts, while Agent Assist transcribes and summarizes conversations for continuity across interactions.

they'll also use WFA to automate tasks like sending mortgage payoffs to

Streamlining operations and improving both agent productivity and customer satisfaction.

We anticipate this initial order to result in approximately $1.2 million in ARR to 59.

Andy Dignan: Rapid growth through acquisition had left them with no visibility into the full customer journey and no ability to proactively engage clients with reminders for appointments or refills, resulting in missed revenue opportunities. With Five9, they're unifying their contact center on a modern cloud platform, activating voice in all digital channels. Voice and digital AI agents will now handle common tasks like appointment rescheduling and prescription refills, while post-call summaries and Zendesk integration help both AI agents and human agents understand context and continue conversations seamlessly. Microsoft Teams integration gives agents real-time access to non-contact center experts like clinic staff when a call requires specialized input. With AI insights, they'll now have a clear visibility into performance trends, training needs, and AI agent and human agent staffing, turning insights into action across the organization. We anticipate this initial order to result in over $1.1 million in ARR to Five9.

The third example is a global veterinary services provider with over 2,000 locations, across 20 countries who selected 59 through reseller to consolidate fragmented, on-prem systems and Elevate, both the customer and agent experience.

Rapid growth through acquisition had left them with no visibility into the full customer journey, and no ability to proactively engage clients with reminders for appointments or refills resulting in missed Revenue opportunities.

With 59, they're unifying their contact center on a modern cloud platform, activating voice in all digital channels.

Voice and digital, AI agents will now handle common tasks like appointment rescheduling and prescription refills while post call summaries and zendesk integration. Help, both AI agents and human agents understand context and continued conversations seamlessly.

Microsoft teams integration gets agents real-time access to non-contact Center, experts like staff, when a call requires specialized input with AI insights. They'll now have a clear visibility and to Performance Trends, training needs and AI agent and human agent Staffing. Turning insights into action across the organization.

Andy Dignan: And now I'd like to share an example of an existing customer who expanded their business with us. A leading academic health system significantly expanded its partnership with Five9 by signing a new five-year agreement. The organization initially deployed Five9 to support its patient access team, improving the patient experience using our AI agents. After three years of success, they committed to a long-term strategy built on flexibility, integration, and scalability. This expansion is comprised of new business units and an increase in our AI agents, including the use case where Five9 and Epic are integrated to streamline clinical workflows, as well as additional AI agent use cases. Additionally, they are leveraging Five9 Fusion for Salesforce. They also expanded their use of technical account management to include specialized AI expertise. This extended agreement reflects a deeper value-based partnership focused on expanding patient access, improving operational efficiency, and supporting long-term growth.

We anticipate this initial order to result in over 1.1 million and arrive to 59.

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

A leading academic Health System, significantly expanded his partnership with 59 by signing a new 5-year agreement.

The organization initially deployed 59 agents to support its patient access team, improving the patient experience using our AI agents.

After three years of success, they committed to a long-term strategy built on flexibility, integration, and scalability.

This expansion is comprised of new business units and includes an increase in our AI agents, including the use case where Five9 and Epic are integrated to streamline clinical workflows, as well as additional 8i agent use cases.

additionally, they are leveraging 59 Fusion for Salesforce

They also expanded their use of technical account management to include specialized, AI expertise.

Andy Dignan: With this add-on order, we anticipate the ARR to Five9 will increase from approximately $2 million to over $5 million. And now I'd like to turn it over to Bryan to take you through the financials. Bryan?

This extended agreement, reflects a deeper value, based partnership focused on expanding patient access, improving operational, efficiency and supporting long-term growth with this add-on order. We anticipate the ARR to 59 will increase from approximately 2 million to over 5 million.

Bryan Lee: Thank you, Andy. It's an incredible honor to take on the role of CFO. I'm deeply grateful to Mike and the board for the opportunity, and I'm excited to continue working with the team to drive the company's next chapter of success. Now turning to financial results for the second quarter, we're pleased to report Q2 revenue growth of 12% year-over-year, primarily driven by subscription revenue growth accelerating to 16% year-over-year. Subscription revenue growth was driven by, first, enterprise AI revenue growth accelerating to 42% year-over-year, which continues to be the fastest growing category of our product portfolio. Second, strong revenue contributions from our backlog of new logos, which exceeded expectations. And third, as Andy mentioned, the highest ever install-based bookings.

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

Thank you, Andy. It's an incredible honor to take on the role of CFO. I'm deeply grateful to Mike and the board for the opportunity and I'm excited to continue working with the team to drive the company's next chapter of success.

Now turning to financial results for the second quarter. We're pleased to report Q2 Revenue growth of 12% year-over-year, primarily driven by subscription Revenue growth accelerating to 16% year rear.

Subscription revenue growth was driven by first Enterprise AI revenue, with growth accelerating to 42% year-over-year, which continues to be the fastest-growing category of our product portfolio.

Bryan Lee: As a reminder, subscription revenue is the most meaningful metric for our business, as it reflects the growth in the number of customers coming onto our platform, as well as the increase in the number of products they're purchasing, including our AI solutions, which are sold on a capacity or consumption-based pricing model. While our CCount continues to grow at a healthy rate, we're laser-focused on driving high-margin subscription revenue dollars, increasingly led by our AI solution. I'd also like to remind you that we are strategically de-emphasizing telecom usage and professional services, and we expect both to have growth rates lower than total revenue. For example, when it comes to telecom usage, larger customers tend to bring their own telephony, and channel partners like BT and AT&T offer their own telephony. For professional services revenue, our strategy is to enable our partners to take on more deployment.

second, strong Revenue contributions for our backlog of new logos, which exceeded expectations, and third, as Andy mentioned, the highest ever install base bookings,

As a reminder, subscription revenue is the most meaningful metric for our business. It reflects the growth in the number of customers coming onto our platform, as well as the increase in the number of products they are purchasing, including our AI Solutions, which are sold on a capacity or consumption-based pricing model.

Healthy rate where laser focused on driving high margin. Subscription Revenue dollars increasingly led by our AI Solutions.

I’d also like to remind you that we are strategically de-emphasizing Telecom usage and Professional Services, and we expect both to have growth rates lower than total revenue.

For example, when it comes to telecom usage, larger customers tend to bring their own telephony, while channel partners like BT and AT&T offer their own telephony.

Bryan Lee: In the second quarter, subscription revenue made up 81% of revenue, while usage revenue accounted for 12%, 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. Also, as a reminder, this trend is by design driven by our ongoing focus on large customers. Additionally, our LTM dollar-based retention rate increased to 108% versus 107% last quarter, driven in part by our AI revenue acceleration.

For Professional Services Revenue, our strategy is to enable our partners to take on more deployments.

In the second quarter, subscription revenue accounted for 81% of revenue, while usage revenue represented 12%, 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% decline in the single digits, on an LTM basis.

Also, as a reminder, this trend is by design due to our ongoing focus on large customers.

Bryan Lee: For the remainder of the year, we expect LTM dollar-based retention rate to fluctuate within a small band, reflecting a combination of factors such as our AI momentum and expansions of larger customers being offset by tough year-over-year comparisons due to significant revenue contributions from our largest customer completing its rent throughout last year and our assumption that second-half seasonality will be minimal this year due to macro uncertainty. Turning now to profitability, we continue to generate strong year-over-year and quarter-over-quarter margin expansion across the board in the second quarter, primarily due to our ongoing commitment to increase profitability and drive operational excellence. Q2 adjusted gross margin increased approximately 250 basis points year-over-year and 60 basis points quarter-over-quarter to 63%. This was primarily driven by subscription gross margin expansion and subscription revenue growth accelerating to become a bigger part of the mix.

Additionally, our LTM dollar-based retention rate increased to 108% versus 107% last quarter, driven in part by our AI revenue acceleration.

For the remainder of the year. We expect LTM dollar-based retention rate to fluctuate within a small band, reflecting a combination of factors such as our AI momentum and expansions of larger customers being offset by tough year-over-year comparisons due to significant Revenue contributions. For our largest customer completing a threat throughout last year and our assumption. That second half seasonality will be minimal this year due to macro uncertainty.

Turning. Now to profitability, we continue to generate strong year-over-year and quarter quarter margin expansion of the board in the second quarter, primarily due to our ongoing commitment to increase profitability and drive operational excellence.

Due to adjusted gross margin, increase the approximately 250 basis points year-over-year, and 60 basis points. Quarter of a quarter to 63%,

Bryan Lee: As a reminder, the revenue mix shift towards subscription from telecom usage and PS provides an uplift to total adjusted gross margins since subscription gross margin is in the 70s. Q2 adjusted EBITDA margin increased approximately 740 basis points year-over-year and 520 basis points quarter-over-quarter to 24%, which is an all-time record. Second quarter non-GAAP EPS grew 45% year-over-year to 76 cents per diluted share. Now I'd like to share some cash flow highlights. As Mike mentioned, I'm pleased to report that both operating cash flow and free cash flow represented Q2 records. We generated $35.1 million, or 12.4% of revenue in operating cash flow, and $21.6 million, or 7.6% of revenue in free cash flow, despite incurring $7.8 million in one-time restructuring costs for the April RIF.

This was primarily driven by subscription gross margin expansion and subscription revenue, with growth accelerating to become a bigger part of the mix.

As a reminder, the revenue mix shift toward subscription from Telecom usage and PS provides an uplift to Total, adjusted, gross margins and subscription. Gross margin is in the 70s.

Q2 adjusted to the thumb margin increased, approximately 740 basis points, year-over-year and 520. Basis points, quarter a quarter to 24%, which is an all-time record.

Second quarter, non gab, EPS grew 45% year-over-year to 76 cents per diluted share.

Now, I'd like to share some cash flow highlights as Mike mentioned. I'm pleased to report that both operating cash flow and free cash flow represented Q2 records.

Bryan Lee: As a reminder, we also paid off the remaining $434 million principal balance of our 2025 convertible notes in cash when it matured on June 1. The next maturity of our convertible notes is 2029, so we feel comfortable with our cash position. In addition, we expect our free cash flow generation to improve more meaningfully, putting us on a path to being net cash positive near term. And now I'd like to finish today's prepared remarks with a discussion of our guidance for the third quarter and full year 2025. For revenue, we're guiding Q3 to a midpoint of $284.5 million, and we're increasing the midpoint of our annual guidance by $5 million to $1,146.5 million, representing double-digit consolidated growth for the full year. Please note the following items which are reflected in our guidance.

We generated $35.1 million, or 12.4% of revenue, in operating cash flow and $21.6 million, or 7.6% of revenue, in free cash flow, despite incurring $7.8 million in one-time restructuring costs for the April Rifts.

As a reminder, we also paid off the remaining $434 million principal balance of our 2025 convertible notes in cash when it matured on June 1st.

The next maturity of our convertible notes is 2029, so we feel comfortable with our cash position.

In addition, we expect our free cash flow generation to improve more meaningfully, putting us on a path to being net cash positive in the near term.

And now, I'd like to finish today's prepared remarks with a discussion of our guidance for the third quarter and full year 2025.

For revenue, we're guiding Q3 to a midpoint of $284.5 million, and we're increasing the midpoint of our annual guidance by $5 million, to $1.1465 billion, representing double-digit consolidated growth for the full year.

Bryan Lee: First, we are prudently assuming minimal seasonality for the remainder of the year, starting in Q3, based on discussions with our top seasonal customers who are anticipating continued macro uncertainty. Second, as we mentioned earlier, we have been successful in upselling and cross-selling more software into our base, which drove the highest ever install-based bookings in Q2. But there's a longer ramp associated with these types of bookings, which will layer into revenue during the fourth quarter and next year. For non-GAAP EPS, we're guiding Q3 to a midpoint of 73 cents, or a three-cent sequential decline, which is in line with our typical guidance pattern for the third quarter and reflects lower interest income given the $434 million payoff of the 2025 convertible notes in cash, as well as the reinvestments we're starting to make in AI and go-to-market initiatives.

Please note the following items, which are reflected in our guidance.

First, we're prudently assuming minimal seasonality for the remainder of the year. Starting in Q3 based on discussions with our top seasonal, customers who are anticipating continued, macro uncertainty,

Second, as we mentioned earlier, we have been successful in upselling, and cross-selling more software into our base, which drove the highest ever installed base bookings in Q2, but there's a longer ramp associated with these types of bookings, which will layer into Revenue during the fourth quarter. And next year,

Bryan Lee: For the full year, we're raising the midpoint of our non-GAAP EPS guidance by 12 cents to $2.88. Additionally, we are raising our full year 2025 adjusted EBITDA margin expectations to now be at least 22% compared to our previous expectations of approximately 21%. Beyond 2025, we remain committed to our medium-term operating model and achieving the rule of 40 plus in 2027, driven by both double-digit revenue growth and continued margin expansion. 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. In summary, we're very pleased with the progress we're making and the momentum we're seeing across the business. We will continue to be very disciplined in managing our expenses and allocate capital to opportunities that we believe offer the highest impact on both top and bottom line growth.

For the full year, we're raising the midpoint of our non-GAAP EPS guidance by 12 cents to $2.88.

Additionally, we are raising our full year 2025 adjusted Eva thumb margin expectations to. Now be at least 22% compared to our previous expectations of approximately 21%.

Beyond 2025, we remain committed to our medium-term operating model and achieving the role of 40+ in 2027, driven by both double-digit revenue growth and continued margin expansion.

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.

Bryan Lee: Operator, please go ahead.

In summary, we're very pleased with the progress we're making and the momentum we're seeing across the business. We will continue to be very disciplined in managing our expenses and allocate capital to opportunities that we believe offer the highest impact on both top and bottom line growth. Operator, please go ahead.

Operator: Thank you, Bryan. Before we begin our Q&A session, we ask that our analysts please be on camera and limit themselves to one question to allow for as many questions as time permits. With that being said, we will begin with Terry Tillman from Truist. Please unmute and ask your question. Terry, please unmute and ask. Please ask your question, Terry.

Thank you, Brian.

Before we begin our Q&A session, we ask that our analysts please be on camera and limit themselves to 1 question to allow for as many questions as time permits.

With that being said, we will begin with Terry Tillman from Truist. Please unmute and ask your question.

Terry, unmute and ask.

Please ask your question, Terry.

Terry Tillman: Yes, sorry about that. Hopefully, you can hear me OK. First of all, Mike, congratulations on being able to get to a more balanced life. That's awesome, and good luck with everything in the future. And Bryan, congratulations as well. My question is, and it's a tough question to answer, but the stats on your enterprise AI business are impressive. You know, so for me, a thought is the sustainability of this goodness. And so, you know, what kind of visibility do you have in your pipeline and just, you know, whether it's the new logos that are attaching while your AI capabilities or the install base, and now you have the AI agent stuff, just how should we think about the sustainability of well above corporate average growth for just the whole portfolio of AI products? Thank you.

Yeah, sorry about that. Uh,

Mike Burkland: Yeah, Terry, thank you very much. Look, the AI bookings numbers were obviously very, very strong. The good news is, you know, it's on net new bookings as well as install-based bookings. So our enterprise AI bookings for the net new side of our business, right, net new logos, doubled year over year, and for the install base, it quadrupled. So again, this is the result of a lot of things, our AI platform being ahead of the competition, a lot of the enablement that we've been doing in our go-to-market motion, and things like our Blueprint program. So we've actually deployed some strategies that are designed to help penetrate our install base with our AI solutions, and that's what this is showing. So again, we're really, really bullish on keeping that momentum. Again, these are big numbers, but look, we're really pleased with it.

The, uh, hopefully you can hear me. Okay. First of all, Mike, uh, congratulations on, uh, being able to get to a more Balanced Life uh, uh, that that's awesome. And, uh, and good luck with everything in the future, um, and Brian congratulations as well. Um, so my question is, and it's a tough question to answer, but this the stats on your Enterprise AI business or impressive, you know? So for me, a thought is the sustainability of this goodness. And so you know, what kind of visibility do you have in your pipeline? And just, you know, whether it's the new logos that are attaching while your AI capabilities or the installed base and now you have the AI agent stuff. Just how, how, how should we think about the sustainability of well above corporate average growth for just the whole portfolio of AI products? Thank you. Yeah, Terry. Thank you very much. Um, look, um, the AI bookings numbers. Uh, were obviously very, very strong. The good news is, you know, it's on net, new bookings as well as uh, install based booking. So our Enterprise

Terry Tillman: All right, thank you.

AI bookings, uh, for the net, new side of our business, right? Net new logos, uh, double, uh, year-over-year and for the install base it quadrupled. So again, this is, uh, the result of a lot of things. Our our AI platform being, uh, ahead of the part, the, uh, the competition. Uh, a lot of the enablement, uh, that we've been doing in our go to market motion, uh, our and our things like, our blueprint program. So we've actually deployed some strategies that are designed to help penetrate our install base with our AI Solutions and that's what this is showing. So again, um, we're really, really bullish on uh, uh, keeping that momentum again. It's, these are big numbers. But uh, look, we're we're, we're really pleased with it.

Mike Burkland: Thanks, Terry.

All right. Thank you, thanks. Terry.

Operator: Our next question will come from Siti Panegrahi from Mizuho. Please unmute and ask your question.

Siti Panigrahi: Great. I also throw my congrats to both Bryan and Mike. Our best wishes for your good health and retirement, Mike. Just looking at Dion AI momentum, it's good to see all the momentum we talked about. Last quarter, you talked about some kind of deal elongation on the enterprise side and slowdown in the international market. How is that momentum going this quarter, and what's your assumption for the second half, especially when I look at your guidance? Second half implies 7% to 8% growth, and Bryan, if you could cover your assumption on the subscription side, that would be great and especially Q4.

Our next question will come from CT. Panigrahi from the zoo. Please unmute and ask your question.

Uh great. Uh I also say it for my congrats to both Brian and Mike uh our best use is for your good health. Uh, and retirement, Mike, um, just, uh, looking at Dion AI momentum. It's good to see all the momentum we talked about uh, last for that. You talked about some kind of deal elongation and the Enterprise side and slow down in Internet. So Market uh, how is that momentum going? This quarter, and what's your agents and for the second half?

Terry Tillman: Andy, why don't you take the first part?

Class. Especially when I look at your guidance, I cannot imply 7 to 8% growth. Um, and Brian, if you could cover your exams on the subscription side, that would be great and especially Q4

Andy Dignan: Yeah, so on the enterprise side, we didn't see the same kind of elongation we saw last time. There's always deals that slip at the end of the quarter, but nothing like we saw last quarter. And on the international side, we didn't see the same thing either. We saw strong growth through our partners internationally, which is the goal, and we didn't see the same things we saw last quarter. So I feel really good about where we're at.

Bryan Lee: Yeah, and Siti, in terms of guidance, let me start off by making an overarching comment about it. So if you look at our Q2 revenue, it came in approximately $8 million above the midpoint of our guidance, and we put through $5 million of that to the annual guide. Now, we kept $3 million back to be slightly more conservative, given our assumption that we're expecting seasonality in the second half to be minimal. And that's based on our conversations with top seasonal customers who we survey at this time of the year generally, and they've all said that they're expecting minimal seasonality, given the ongoing macro uncertainty. So that's one factor. The other factor that I want to point out is we mentioned how we had the highest install-based bookings in Q2.

And you want to take the the first part. Yeah. So on on the Enterprise side we didn't see the same kind of elongation. We saw last time, uh, there's always deals that slip at the end of the quarter, but nothing like we saw last quarter and on the international side we didn't see the same thing. Either we saw uh strong strong growth through through our through our partners, International which is the goal. And uh, we didn't see the same things we saw last quarter. So feel feel really good about where we're at.

Bryan Lee: Well, a large portion of that was through upselling and cross-selling software, and that comes with longer ramps. So those will typically turn into revenue in Q4 and into 2026 as well. So if you kind of look at when you net all that out and you look at the sequential pattern of the guide, Q3, you'll see that the sequential growth is similar to how we guided last year. And then Q4 will actually show sequential growth that's slightly higher than what we guided to last year. And that's driven primarily by the install-based bookings piece of it that I just talked about. And then to your point about the year-over-year growth in terms of 8% for Q3 and 7% for Q4, there's one additional factor beyond the tough comparison of the seasonality because we had strong seasonal uptick last year, and then we're now expecting minimal seasonality.

In terms of guidance, let me start off by making an overarching, comment about it. Um, so if you look at our Q2 Revenue, uh, it came in approximately 8 million dollars above the midpoint of our guidance and we put through 5 million of that to the annual guide. Now, we kept 3 million bag, uh, to be slightly more conservative, uh, given our assumption that we're expecting seasonality in the second half to be minimal. And that's based on our conversations with top seasonal, customers who we serve at this time of the year generally, and, uh, they've all said that they're expecting minimal seasonality given the ongoing macro uncertainty, so that's 1 Factor. The other factor that I want to point out, is we mentioned, how we had the highest install base bookings in Q2? Well, a large portion of that was through upselling and cross-selling software and that comes with longer ramps. So those will typically turn into Revenue in Q4 and into 2026 as well. So, if you kind of look at when you net all that,

Out and you look at the sequential pattern of the guide.

Q3 you'll see that the sequential growth is similar to how we guided last year and then Q4 will actually show sequential growth that slightly higher than what we guided to last year and that's driven primarily by the install base, bookings piece of it that I just talked about and then to your point about the year-over-year growth in terms of 8% for Q3 and 7% for Q4 uh there's 1 additional Factor beyond the tough comparison of the seasonality because we have strong seasonal up to last

Bryan Lee: But then there's the other factor, which is our largest customer who is finishing its ramp throughout last year and has significant growth. That also creates a layer of tough comparison.

Mike Burkland: Great, thanks for that, Keller.

Last year. And then we're now expecting minimal seasonality, but then there's the other factor, which is our largest customer. Who is finishing, its ran throughout last year and has significant growth. That also creates a layer of tough comparison.

Great, thanks for that color.

Operator: Our next question will come from Raimo Lenshaw from Barclays. Please unmute and ask your question.

Terry Tillman: Yeah, perfect, thank you. Congrats from me as well, Mike and Bryan. I hope me rejoining didn't cause Mike to kind of say I'm out of here now.

Our next question will come from Rio Leno from barklay. Please unmute and ask your question. Yeah, perfect. Thank you. Congrats for me as well. Mike. And, and Brian, um,

Mike Burkland: Yeah, nothing to do with it.

Terry Tillman: Yeah, I wanted to more ask a topic for a question. And we just saw a new flow of investment of some of the guys that you work with, like Salesforce and CRM, and one of the players in your market. You could see it as a very nice, strong endorsement of your industry, you know, because, you know, there's a lot of questions about it. And you want like, you know, those who invest in come, and that's kind of a strong endorsement. How do you see it in terms of like, but also, you know, still partnering with the other players as well? So maybe just kind of frame it more from a bigger picture perspective. Thank you.

I I hope me rejoining didn't course Mike to kind of say I'm out of here now, never mind. Yeah, nothing to do with it.

Mike Burkland: Yeah, great question, Raimo. Yeah, again, we saw the same rumor, if you want to call it that, or print. Again, we'll see if it's real. And look, it's an.

Terry Tillman: Yeah, they just did an announcement, I think, again.

Mike Burkland: Oh, they did announce it. OK, good. Look, it's a great endorsement of our space. Especially Salesforce, they've invested across, you know, our competitive set for quite a while. We're a public company, so they really can't do similar things with us. And they could buy our stock if they want, but that's really not their business, right? They tend to invest in private companies. So look, it's nothing new in some respects. But look, they're going to continue to play the field. Our momentum with Salesforce and ServiceNow is stronger than ever. And quite frankly, our co-development work, our co-roadmap work, our co-selling efforts are working better than ever. So I don't think it'll change anything in terms of our go forward.

The, uh, I I want, I wanted more ask a topical question. Um, you know, we just saw a a new flow of the investment of a a some of the guys that you work with like a sales person CRM in 1 of the players in your Market. Uh you could see it as a very nice strong endorsement of your industry, you know? Because, you know, there's a lot of questions about it and you want like, you know, those who don't invest in come, that's kind of a strong endorsement. How do you see it in terms of? Like but also, you know, still partnering with the other players to tell. So maybe just kind of frame it more for them and then they get a picture of perspective. Thank you. Yeah, great question rainbow. Uh, yeah. Again we saw the same rumor if you want to call it that or print. Uh, again, we'll see if it's real and look. Yeah, they just treat an answer I think. Yeah. Okay, good, and also. Okay, good. Uh, I look, it's an

Terry Tillman: OK, perfect. Thank you. All the best.

It's a great endorsement of our space. Um, especially Salesforce they've invested across, you know, our, our competitive set for quite a while, um, uh, we're a public company. So they really can't do simpler and similar things with us and they can buy our stock and they want, but that's really not their their business, right? They they tend to invest in private companies. So look, it's nothing new in some respects. Um, but look, it's a, it's, they're going to continue to play the field. Our momentum with sales force and service now is stronger than ever. Um, and quite frankly, our code development work, our code roadmap work. Our co-selling efforts are, uh, working better than ever. So, uh, I don't think it'll it'll change anything in terms of our, you know, our go forward.

Mike Burkland: Thank you.

Okay. Perfect. Thank you all the best. Thank you.

Operator: Our next question will come from DJ Hines from Canaccord. Please unmute and ask your question.

Our next question will come from DJ Hines from canaccord. Please unmute and ask your question.

Andy Dignan: Hey, guys, you got me there?

Mike Burkland: Gotcha, DJ.

Andy Dignan: Good to see everyone. Congrats on all the milestones and the nice print. So look, Mike, you gave some great examples of customers kind of leaning in on AI. Those that are further along, what's happening with their human agent seed count, right? I mean, I think that's the million-dollar question that everyone's trying to figure out. Are you seeing those seed count reductions that the market seems to be expecting? Are you able to make up for that with incremental AI spend? Like, how is this all shaking out?

Hey guys, you got me there, got you DJ good to see everyone uh, congrats on all the milestones and the nice print. Um, so look, Mike, you gave some great examples of customers kind of leaning in, on AI those that are further along what, what's happening with their human agency count, right? I mean, I think that's a million-dollar question that everyone's trying to figure out

Mike Burkland: Yeah, great question, DJ. Look, I mean, we've talked about this a little bit. Our non-AI business continues to grow nicely. You can do the math. You can figure it out based on the percentages we've given, our overall blended growth, and the AI growth. So there's a good data point for you. Customers in general are what they're trying to, for the most part, the strategy that they're taking is leveraging our AI agents and self-service to minimize the growth in their agents or potentially keep them flat. We just haven't seen a lot of, you know, a lot of our customers that are reducing agents. And again, it very much lines up with what we've been saying, which is they're trying to deflect a small percentage of interactions to self-service powered by AI, and they're doing it really, really successfully.

Mike Burkland: You heard some of the ROI stats that I gave. And these are customers that have been, you know, at the AI, you know, game, so to speak, for a while. There was one that I mentioned that just joined us recently and also had great ROI right out of the gate. But for the most part, we're not seeing that movie play out as the AI bear thesis as we've been talking about. So again, I do believe that there's a little bit of a revelation that's still to come. But again, the proof's in the pudding. And if you look at our numbers, our core business, our non-AI business is growing, and our AI business is growing faster. And that is the best data point.

In, for the most part, the strategy that they're taking is leveraging, our AI agents and self-service, to minimize the growth in their agents or potentially keep them flat. We just haven't seen a lot of, you know, a lot of our customers that uh, are are reducing agents and and I I again very much lines up with what we've been saying which is, they're trying to deflect a small percentage of interactions to self-service, powered by Ai and they're doing it really, really successfully. You. You heard some of the ROI

they gave and these are customers that have been, you know,

Andy Dignan: Yeah, I mean, we've heard some of the, like, digital channel native vendors talk about, you know, 70% deflection rates. I assume it's different in voice, right? It's got to be a lot lower. Like, what is that percentage that they can deflect to agency, I think, today?

Mike Burkland: Yeah, they're looking at 5%, 10% of their voice interactions. And again, digital can be higher. But again, I think, you know, that's what we're hearing from our customers, and that's what we're seeing from our customers too. So again, as AI gets better, that could go up. But that's their goal at this point.

At the AI, uh, you know, games, so to speak for a while. Uh, there was 1 that I mentioned that just joined us recently and also had great Roi right out of the gate, but for the most part, uh, we're not seeing that uh, that movie play out as the AI bear thesis as we've been talking about. So, uh, again, I, I do believe that there's a, a little bit of a revelation that's still to come and do that, but again, it'll the person to putting, uh, and if you look at our numbers, our Core Business, our non-ai business is growing and our AI business is growing faster, and that is the best data point. Yeah, I mean, we've heard some of the like digital channel native vendors. Talk about, you know, 70% deflection rates. I I assume it's different in voice, right? It's got to be a lot lower. Like, what is that percentage that they can deflect to agency? I think today, you know, they're, they're looking at 5 10% of their voice.

Andy Dignan: Yeah, very helpful. Thank you, guys.

Mike Burkland: Thanks, DJ.

Operator: Our next question will come from Jackson Ader from KeyBank. Please unmute and ask your question.

Interactions. Um, and again, digital can be higher but uh, again I think, you know, that's what we're hearing from our customers and that's what we're seeing from our customers too. So uh, again that's AI gets better. That could go up. Um, but that's that's their goal at this point. Yeah, very helpful. Thank you guys. Thanks DJ.

Siti Panigrahi: Hey, guys, good to see you. So Mike, the last time that, you know, we brought in, I guess, an outside CEO, it came from a communications competitor, right, like in the space. So I'm just curious, you know, is that something that's going to be high on the priority list? Like, what type of background are you really looking for? And then I've got a quick follow-up.

Our next question will come from Jackson. Aider from KeyBank. Please unmute. And ask your question.

Great. Uh Hey guys, good to see you. Um okay.

Mike Burkland: Yeah, it's a great question, Jackson. Look, we're kicking off the search. We've, you know, formally announced it, and we have a search firm retained, and we're excited to go attract the best CEO in the market. And again, it's going to be someone that has a great track record and experience of innovation, including AI. So it's going to be much more, I would say, AI and innovation-focused as opposed to comps. It'd be great if they also understand the core comps space too, but you can't have everything. And so again, it's about innovation, including AI, number one. Number two is someone with a track record of delivering operational excellence at scale. You know, we're a growth company. We're a billion in revenue today.

So uh Mike the the last time that, you know, we brought in a a I guess an outside CEO, um it came from a Communications competitor, right, like in the space. So I'm just curious. Um, you know, is that something that's going to be high on the priority list? Like what type of background are you really looking for? And then I've got a quick follow-up. Yeah, it's a great question. Jackson, look, we're kicking off the search. We've, you know, formally announced it and we have a search firm uh, retained and we're we're excited to, uh, go attract the, the, the best CEO, uh, in the market. And again, it's going to be someone that has a great track record and experience of innovation including AI. Um, so it's going to be much more. Uh, I would say Ai and, uh, Innovation focused as opposed to Cops, uh, it'd be great if they also understand the core comes to space too, but you can't have everything. And so again, it's about Innovation, including AI number 1. Uh, n number 2 is

Mike Burkland: I want to bring on a CEO here that can take us to $2 billion and $5 billion and $10 billion and beyond over time. And so we want someone that's growth-oriented and has a growth mindset as well. So those are kind of some of the high-level characteristics and experience sets we're looking for. But again, we're going to go find the best CEO we can.

Someone with a track record of, uh, delivering operational excellence at scale. Uh, you know, we're we're a growth company. Uh, we're a billion in Revenue today. Uh, I want to bring on a CEO here that can take us to 2 billion and 5 billion and 10 billion and Beyond over time. And so we want someone that's uh growth oriented and has a growth mindset as well. So those are kind of some of the high-level.

Andy Dignan: Got it. That makes sense. And then I guess following up on AI, when I hear about, you know, you listed, you rattled off all these different AI capabilities, right? And some of them sound not like CCaaS, right? Or like not like communications, like code generation, AI ops, right? You know, so how much do you feel like you need to compete on a much broader set of AI capabilities versus like, hey, we're a contact center software company, and we're going to develop AI for contacts.

Characteristics when experience sets we're looking for. But um, again we're we're going to go find the the best uh the best CEO we can.

Got it. Um that makes sense and then I guess following up on AI when I hear about

You know, you lift the, you route it off all these different AI capabilities, right? And some of them sound not like.

Cass, right? They're not like communications, like code generation.

Mike Burkland: Yeah, I would say think of us as AI for CX, customer experience, today. Now again, we can go beyond that potentially. But look, we want to go deep and be the best of breed, the best solution in customer experience. So think about that as kind of contact center plus other parts of the customer journey. And obviously, part of what we do is going to be automation around processes in the back office related to customer experience. So it may not be just, you know, real-time communication driven by AI, but it's also process automation that would fulfill a customer experience situation, right? And so it does span beyond just the comms and the real-time contact center interactions and into the back office in those cases.

AI Ops right you know. Ah ah so how much do you feel like you need to compete on a much broader set of AI capabilities versus like Hey we're a contact center software company and we're going to De develop AI for contacts.

Yeah, I would say think of us as AI for CX. Customer experience today. Now again we we can go beyond that potentially. Um, but what we want to go deep and be the best of breed the best solution in customer experience. So think about that as kind of context Center plus other parts of the customer Journey. Um, and obviously

Part of what we do is going to be uh automation around processes in the back office related to customer experience. So it may not be just, you know, real-time communication.

Andy Dignan: And I think too, if you look at some of these things are just becoming table stakes to deliver AI, right? Enterprise software companies and brands are looking for companies that deliver things like Agent Ops and CodeCrafter. I mean, these things allow you to simply deliver AI, you know, and obviously we're focused on the CX space.

Tom's and the real-time contact center interactions and into the back office in those cases.

Mike Burkland: Yeah, thank you, guys.

I think too, if you look at some of these things, they are just becoming table stakes to deliver AI, right? Enterprise software companies and brands are looking for companies that deliver things like agent ops and code craft. I mean, these things allow you to simply deliver AI. Um, you know, and obviously we're focused on the CX space.

Andy Dignan: Thank you, Jackson.

Thank you guys.

Operator: Our next question will come from Peter Levine from Evercore. Please unmute and ask your question.

Thank you, Jack.

Terry Tillman: Thank you for taking my question. I'll echo my congrats, Mike and Bryan. You know, I mean, I guess, Mike, you know, how would you assess, I think, the general level of like AI readiness across like your customer base, right? Is it technical? Is it organizational? Is it security that's maybe holding some of these customers back? It's clear there's an ROI that's been demonstrated, shown. So maybe just one, it's just help us understand like what the hurdle is to get you from 10% of enterprise revenue to 20%. Is that four quarters? Is that two years? Just help us understand like the ramp and maybe what's holding customers back.

Our next question will come from Peter, Levine from evercore. Please, unmute. And ask your question.

Mike Burkland: Yeah, great question, Peter. Look, a number that I think everyone should kind of pay attention to is the mix of our bookings that are AI, right? So again, 10% of revenue, subscription revenue in enterprise today is AI, but over 20%. Over 20% of our ACV bookings for enterprise are AI. So that's a leading indicator for what that mix shift can do over time. And look, this is new territory for a lot of customers. We're helping them through that process. But you know, the adoption, you can see it in our numbers, right? I mean, net new logo bookings are doubling, install-based AI bookings quadrupling. There's great momentum picking up in our ability and in these customers' ability to actually make decisions around AI. And we're not talking about, you know, it used to be stick their toe in the water, try this stuff out.

Uh, thank you for taking my question. I like, um, congrats Mike and Brian. Um, you know, I mean I guess, uh Mike, you know, how would you assess? I think, the general level of, like, AI Readiness to cross, like your customer base right? Is it technical? Is it organizational? Is it, is it security, that's maybe holding some of these customers back. It's clear. There's an Roi. That's been demonstrated Joan, So maybe just 1 it's just help us understand like what the hurdle is to get you from 10% of Enterprise Revenue to 20%. Is that is that 4 quarters? Is that is that 2 years just help us understand like the ramp and maybe what's holding customers back? Yeah, a great question. Peter look, a number that I think everyone should kind of pay attention to is the mix of our bookings, that are AI, right? So uh again 10% of Revenue. Uh, subscription revenue and Enterprise today is AI but over 20%

Over 20% of our ACV, bookings for Enterprise our AI. So that's a leading indicator for what that mix shift can do over time. Uh, and look,

Mike Burkland: Now it's scaling. And you saw in our AI revenue growth acceleration, you know, based on our prior bookings, it went from 32% revenue growth to 42% revenue growth. So there's a lot of, I would say, a lot of momentum picking up in terms of these customers being ready. I would say the one thing that we see as a common thread across most prospects and customers is they've got to get their data in order. You know, AI is only as good as the data it has access to. And we have a lot of huge customers that, frankly, they're very disciplined. Some of the CIOs that are on our customer advisory board talk about this a lot, which is we've got to, you know, be sure that we've got our data in order. That'll allow us to really deploy AI and get the ROI out of it.

This is New Territory. Um, for a lot of customers, we're helping them through that process. Um, but you know, the adoption, you can see in our numbers, right? I mean, net new logo, bookings a doubling uh install base. AI bookings quadrupling. There's there's there's great momentum picking up in our ability and then these customers ability to actually make decisions around Ai. And we're not talking about, uh, you know, it used to be stick their toe in the water. Try this stuff out. Now it's it's, uh, it's it's scaling and you saw it in our AI Revenue growth acceleration, you know, based on our prior bookings, it went from 32%, Revenue growth to 42% Revenue growth. So there's a lot of uh I would say a lot of momentum picking up in terms of these customers being ready. I would say the 1 thing that we see as a Common Thread across um most prospects and customers is they've got to get their data.

Mike Burkland: And if you don't have your data in order, it's a little more difficult. But again, we're helping a lot of customers figure that out too.

Terry Tillman: If you can, can you provide some color? I know there's a lot of mixed messaging in terms of pricing that we hear from your competitors. Is it on a perceived basis, usage basis, token basis? You know, given where you are in this journey, like what model is working best for your customers where you actually go into a sales cycle and it's accelerating? Where it's, you know, it's not as complex in terms of what customers are willing to pay and how they're willing to pay for it.

You know, AI is only as good as the data, it has access to. And we have a lot of huge customers that, uh, frankly, they're very disciplined, uh, some of the cios that are on our customer Advisory Board talk about this a lot, which is we've got to, you know, be sure that our we've got our data in order. That'll allow us to really deploy Ai and get the ROI out of it. And if you don't have your data in order, it's uh, it's a little more difficult, but again, we're helping a lot of customers figure out figure that out too.

Mike Burkland: Yeah, well, look, when it comes to AI, we talked about this. Our AI solutions are mostly consumption-based pricing or capacity-based pricing. And you know, the traditional products that we've been selling for years and years, the pricing model hasn't really changed. And frankly, you know, our customers aren't looking for that to change. They really appreciate the simplicity of our pricing model. So the good news is I think we're in an evolving market, and we'll continue to evolve our pricing as necessary. And you know, you'll see some small players in certain parts of our space, you know, try to break in with disruptive pricing schemes and outcome-based pricing. But again, as a large company, you don't typically see, you know, companies of our size change their pricing to that kind of model.

If you can, can you provide some color? I know there's a lot of mixed messaging in terms of pricing. That we hear from your competitors is that a perceived basis usage basis, token bases, you know, we're given where you are in this journey, like, what, what model is working best through your customers, where you actually go into a sales cycle and it's accelerating where it's, you know, it's not as complex in terms of what customers are willing to pay and how they're willing to pay for it.

Yeah, well look when it comes to AI. Um, we've talked about this our AI Solutions are mostly consumption based pricing uh or capacity based pricing. Uh and you know the the the traditional products that we've been selling for years and years. Uh, the pricing model hasn't really changed and frankly, um, you know, our customers aren't looking for that to change. They, they really appreciate the Simplicity of our pricing model. So, um, the good news is I think we're in a, we're in an evolving market and we'll continue to evolve our pricing as necessary. Uh, and you know, you'll see some small players in certain

Terry Tillman: Thank you very much, guys.

The parts of our space, you know, try to break in with disruptive pricing schemes, um, and outcome based pricing. Uh, but but again, as a, as a large company, uh, you don't typically see, uh, you know, companies of our size, uh, change their pricing to that kind of model.

Mike Burkland: You got it. Thanks, Peter.

Operator: Our next question will come from Samad Samana from Jeffries. Please unmute and ask your question.

Thank you very much, guys. You got it. Thanks Peter.

Andy Dignan: Hey, guys, this is Billy Fitzsimmons for Samad. First, from a vertical perspective, anything to call out there in terms of strength or weakness and any verticals growing faster in terms of AI adoption at this point?

Our next question will come from Samad Samana from Jefferies. Please unmute and ask your question.

Bryan Lee: Yeah, so I'll take the verticals from a financial perspective, and I'll turn it over to Andy from an AI perspective. So if you look at our overall, the 17 verticals that we typically track, there really wasn't anything substantial to note. The sequential growth there was pretty similar to what we saw in Q2 of last year. And then consumer specifically, that also was growing slightly sequentially, and that's relatively in line with the historical trends that we've seen. And I'll turn it over to Andy.

Again, this is Billy fits Simmons on for some mod. Um, first from, from a vertical perspective, anything to call out there in terms of strength or weakness and, and any vertical growing faster in, in terms of AI adoption, at this point,

Andy Dignan: Yeah, on the customer side and bookings, I mean, ultimately what we're seeing is financial services, health care, and retail are really where the opportunities have been. I mean, there's others, but when you look at those companies, back to what Mike said, it's all about the data. And many of those companies in those spaces have really been, they've leaned into self-service for quite some time, and so their data tends to be in a better spot. So I think it's allowing them to go much faster, but those are the top verticals that we're seeing.

Effective and then I'll turn it over to Andy from AI perspective. So, if you look at our overall at the 17th, that we typically track there really wasn't anything substantial to note. The sequential growth there was pretty similar to what we saw in Q2 of last year and then consumer specifically. Um, that also was uh, growing slightly sequentially and that's relatively in line with uh, the historical trends that we've seen, you know,

Terry Tillman: OK, and then if I could expand a little bit, anything to call out in terms of commercial customers? I know you guys give us the enterprise's percent of revenue on a trailing 12-month basis. If we kind of back that out and apply as commercial's been down kind of the last three quarters on a rolling basis, and obviously it's a smaller piece of the business, less important, enterprise is growing faster, but just want to better understand what's kind of happening there.

Mike Burkland: Yeah, Billy, good question. Look, as you know, commercial is becoming less and less of our mix over time. It has not been a strategic investment area for us, but we actually do pretty well there still. And you know, you got to understand too, we have graduations that occur. So some of our small commercial customers graduate into our enterprise category, and that gets picked up in enterprise revenue as opposed to commercial revenue. So there's a little bit of that going on too. And it's a good seeding, it's a way for us to seed the market for some of these growth companies. But we also, I think, do a very good job still of executing against that market opportunity with a pretty low cost of acquisition of those customers too.

Yeah. On the on the customer side and bookings. I mean ultimately what we're seeing is financial services Healthcare and Retail. Um are really where the the opportunities have been? I mean there's others but when you look at those companies back to what Mike said, it's all about the data and many of those companies in those spaces, have really been they've leaned into self-service, for quite some time. And so, their data tends to be in a better spot. So I think it's allowing them to go much faster, but those are the top verticals that we're seeing. Okay? And then if I, I could expand a little bit anything to call out in in terms of commercial customers. I know you guys give us the Enterprises percent of Revenue on a trailing 12-month basis. If we kind of back that out implies commercials has been down, kind of the the last 3 quarters on a on a rolling basis. And obviously it's a smaller piece of the business, less important Enterprise growing faster, but just want to better understand what? What's kind of happening there. Yeah. Bill a good question. Uh, look as you know commercial is becoming, uh, less and less subbar mix over time and has not been a a, a strategic

Mike Burkland: So anyway, again, we don't expect it to be a growth driver for us over time, but we also believe it's still a good business to be in.

Investment area for us, but we we actually do pretty well there still. And, you know, you got to understand too, we have graduations that occur. So some of our small commercial customers graduate into our Enterprise category and that gets picked up in Enterprise Revenue, uh, as opposed to commercial Revenue. So there's a little bit of that going on too. Um, and it's a, it's a good seating it's a way for us to seed the market for some of these growth companies. Uh, but we also um I think do a very good job, still of executing against that market opportunity with a pretty low cost of acquisition of those customers too. So,

Don't expect it to to be a growth driver for us over time. But um, we also believe it's a uh it's still a good business to be in.

Terry Tillman: Thanks, Billy.

Operator: Our next question will come from Taylor McGuinness with UBS. Please unmute and ask your question.

Thanks Billy.

Terry Tillman: Hi, this is Seth Gilbert on for Taylor. The acceleration in subscription revenue and inflection in NRR was solid. Maybe can you walk us through kind of what drove the upside and what the trend line in subscription revenue growth has been excluding AI? And then maybe I'll press a little bit on some of the earlier questions on the AI side. Can you touch on what AI could scale to as a percentage of enterprise subscription revenue growth over, say, the next year or two? Thank you.

Our next question will come from Taylor mcginness with UBS. Please unmute and ask your question.

Hi. This is this is Seth Gilbert on for Taylor the acceleration in subscription revenue and inflection in nrr was solid can maybe can you walk us through? Kind of what drove the upside and what the trend line and subscription Revenue. Growth has been excluding Ai and then, uh, maybe I'll press a little bit on some of the earlier questions on the AI side.

Can you touch on?

Bryan Lee: Yeah, so I can start. So in terms of subscription revenue acceleration, it went from 14% in Q1 to 16%. And then enterprise AI, as Mike mentioned earlier, went from 32% to 42%. So the key driver of that subscription revenue acceleration was the enterprise AI piece of it. And even if you take out that enterprise AI piece, there was still acceleration in the non-AI subscription revenue. And then if you look at the enterprise AI revenue growth accelerating, we have our top three products, which are AI agents, agent assist, and workflow automation. And across the board for all three of those, they accelerated. So it was a really strong quarter. And you know, in terms of percent of revenue, what it can get to, Mike mentioned earlier that our AI continues to make up more than 20% of enterprise net new ACV bookings.

What AI could scale to as a percentage of Enterprise subscription revenue growth over, say, the next year or two? Thank you.

Bryan Lee: So today we're at 10% of enterprise subscription revenue. So you can kind of assume that's the path that it's going to. But you know, we haven't given specifics around exactly what it'll get to in the next year or two.

Yeah, so I can start. Um, so in terms of subscription Revenue acceleration, it went from 14%, uh, in q1 to 16%, and then, uh, Enterprise AI as Mike mentioned earlier, went from 32% to 42%. So, the key driver of that subscription, Revenue acceleration was the Enterprise AI piece of it. And if you, even if you take out that Enterprise AI piece, there was still acceleration in the non AI subscription revenue. And then if you look at the Enterprise AI Revenue growth accelerating we have our top 3 products, which are AI agents, agent assist, and workflow Automation and across the board for all 3 of those, they accelerated. So the really strong quarter. And um, you know, in terms of percent of Revenue, what it can get to Mike mentioned earlier that our AI continues to make up more than 20% of Enterprise net in the ACB, bookings. So today, we're at 10% of Enterprise subscription Revenue so you can kind of assume that's the path that

Operator: Got it. Thank you.

That is going to but, you know, we haven't given a specific surround exactly what it'll get to in the next year, or 2.

Bryan Lee: Thanks, Seth.

Got it. Thank you.

Thanks, Seth.

Operator: Our next question will come from Scott Berg from Needham. Please unmute and ask your question.

Our next question will, come from Scott, Berg from medium? Please, unmute. And ask your question.

Terry Tillman: Hey, everyone, really nice quarter. Mike, 3X. That's what I heard a few years ago, 3X.

Mike Burkland: You got it. I'm going back there, Scott, but not right away. We got a lot of work to do, and we got to find the right next person.

Andy Dignan: Agreed. And Bryan, it's been like 10 or 11 years. Looking forward to the next 10 or 11 or whatever the number is.

Hey everyone really nice quarter. Uh Mike 3x. That's what I heard a few years ago. 3x. You got it. I'm I'm going back there Scott but not right away we gotta we got a lot of work to do uh and we got to find the right next first.

Terry Tillman: Thank you, Scott. I guess my question is probably directed a little bit towards Andy. You had made the comments that I think pipelines are at elevated levels right now. But I think one of the questions I get frequently from shareholders and others is, you know, talking about the, you know, overall industry kind of pipeline activity. It's been a little on the light side or maybe a lot on the light side at different periods over the last, you know, one, two, or three years. But how does activity really kind of compare to maybe what you saw in '21 or early '22 before the industry, you know, saw some slowdown? Or are we back at a normal cadence? And obviously, AI is part of that. Are we still trying to build up to those levels?

Andy Dignan: Yeah, I mean, no, we've seen those levels consistently going back two years, and they've kind of stayed at the same level. Obviously, AI, as we've been talking about, does, you know, continue to be a tailwind. I think you're seeing obviously that play out this quarter. And so, you know, we feel good about where we're at. You know, and then obviously as well, that's on the new logo side. We feel really good about, you know, the changes we made on the install-based side as well, both in the AI side as well as the non-AI side. We saw significant growth there. So, you know, I think we're, like I said, we're in a growth business both for our core business as well as AI. And so, you know, again, we feel good about the pipeline in the future.

Terry Tillman: Excellent. Congrats, again.

A little on the light side or maybe a lot on the light side of different periods over the last you know, 1 2 or 3 years. But how does activity really kind of compared to maybe what you saw in 21 or early 22 before the industry? You know, saw some slowdown or are we back at a normal Cadence and obviously, AI is part of that. Are we still trying to build up to those levels? Yeah, I mean know, we we've seen those levels consistently Going Back 2 years and they just kind of stayed at the at the same level obviously AI. As we've been talking about, does, you know, continue to be a a Tailwind. I think you're seeing obviously that play out this quarter. And so, you know, we feel good about where we're at um you know and then obviously as well that's on the new logo side, it would feel really good about, you know, the changes we made on the install base side as well. Um both in uh uh the AI side as well as the Nona side. We saw at the significant growth there. So you know, I think we're like I said, we're in a we're in a growth business both for our Core Business as well as Ai. And so, we, you know, again, we feel good about the pipeline in the future. Excellent, congrats again.

Operator: Our next question will come from Rishi Jallaria from RBC. Please unmute and ask your question. Rishi, please unmute and ask your question. All right, our next question will come from Catherine Tremblanc from Rosenblatt. Please unmute and ask your question.

Our next question will come from Rishi Galleria from RBC, please unmute. And ask your question.

Richie, please unmute and ask your question.

All right. Our next question will come from Katherine. Tremblant from rosenblat please unmute and ask your question.

Catharine Trebnick: Hi, thank you for taking my question. And it's Tremblanc, but who's keeping score? Congratulations to both of you. I hope you enjoy your retirement. Looking forward to working with you, Bryan. So my question has to go back to the decision you made regarding the three executives who let go on Monday. What went into that methodology and why at this point in time? Thank you.

Mike Burkland: Yeah, hi, Catherine. Really good question. Look, we've really realigned our executive team. We've had multiple promotions, which we talked about, right, with Bryan and Tiffany Merriweather and then Matt Tuchness becoming chief revenue officer. So look, we've had some people moving up and some people moving out, if you want to think about it that way. We're trying to get efficient at the top. And look, combining marketing and sales under a chief revenue officer created an opportunity for us to do that, right? So we just, it's a bit about cost efficiency, but it's also about creating better ownership and alignment across these critical functions. So again, we were very thoughtful about this. And it really positions us for the future.

Um, hi. Thank you for taking my question. And it's trivik. But, um, who's keeping score? Congratulations, both of you. Uh, I hope you enjoy your retirement looking forward to working with you, Brian. So my question has to go back to the decision. You made regarding, um, the 3 Executives to let go on Monday, what went into that methodology, and why, why at this point in time? Thank you. Yeah, hi, Katherine. I really good. Question, look, we've we've uh, really, uh, realigned our executive team. We've had multiple promotions, which we talked about right with Brian. And, uh, and, uh, Tiffany Merryweather, and, and Matt Tuck is becoming Chief Revenue officer. So, what we've had some people moving up and some people moving out. If you want to think about it that way, we're trying to get efficient at the top. Um, and, uh, look, combining marketing and sales under a chief Revenue officer created an opportunity for us to do that. Right? So we just we, we, it's a bit about cost efficiency but it's all

also about

Mike Burkland: And that was part of the reason we made all these changes at once to really put the executive team in a structure, in my opinion, that we've got, you know, the best players in the best positions, so to speak, or the right players in the right positions for the future growth of this company. And that was, you know, that was one of my goals when I came back almost three years ago, Catherine, was to set this company up for the future. And I think that's what, that was a big part of what we did here.

Catharine Trebnick: All right, thank you. Appreciate it.

Creating better ownership and Alignment across these critical functions. Uh, so again we were very thoughtful about this, um, and it really positions us, uh, for the future. And that was part of the reason we made all these changes at once, uh, to really put the executive team in a, in a structure in my opinion, uh, that we've got, you know, the best, the best players and the best positions. So to speak of the right players, the right positions, uh, for the future, uh, growth for this company. And that was, you know, that was 1 of my goals. When I came back, almost 3 years ago, Katherine was to set this company up for the future, and I think that's what that was a big part of what we, what we did here.

Mike Burkland: Thank you.

Operator: Our next question will come from Meta Marshall from Morgan Stanley. Please unmute and ask your question.

All right. Thank you. Appreciate it. Thank you.

Meta Marshall: Great, thanks. And I'll echo my congrats. Maybe I just wanted to spend a second on, you know, you guys had mentioned professional services becoming a smaller portion of the revenue. I know you guys had put an emphasis on kind of building out that channel and kind of utilizing them for professional services. But just any update on that, particularly since you noted that kind of customers are starting to ramp faster than expected. Just kind of what traction are you seeing there? And you know, are there leverages that could still be pulled to kind of speed implementations? Thanks.

Mike Burkland: Yeah, great question, Amita. And I'll start, and Andy, you can pile on. But we instituted Project Pull-Through almost, you know, coming up on two and a half years ago. And it's working really, really well in terms of the percentage of our implementations being done by third parties. And that, you know, means we're not having to grow our professional services capacity, and therefore we won't necessarily grow our PS revenue anywhere near as fast as we grow our subscription revenue. And look, it continues to increase internationally. It's a big mix of our implementations. And domestically, it's a growing percentage of those implementations. But we still got a lot of headroom in that regard. And look, we're getting, I think, you know, a lot of contribution in terms of speed of deployment from our technology.

Our next question will come from meta Marshall from Morgan Stanley, please unmute. And ask your question. Great, thanks. And I'll echo my congrats. Um, maybe you just wanted to spend a second on, you know, you guys had mentioned, uh, Professional Services, becoming a smaller portion of the revenue. I know you guys had put an emphasis on kind of building out that channel, uh, and kind of utilizing them for Professional Services, but just any update on that particularly since you noted, that kind of customers are starting to ramp faster than expected. Just kind of what traction are you seeing there. And, you know, are they leveraging that could still be pulled to kind of uh speed implementations? Thanks. Yeah, great question. I mean, you know and I'll I'll start and Andy you can file on but

We instituted project pull through. Um, almost they are coming up on 2 and a half years ago and it's working really, really well in terms of the percentage of our implementations being done by Third parties and that you know, means we're not having to grow our Professional Services capacity or and therefore, we won't necessarily grow our PS Revenue, uh, anywhere near as fast as we grow our subscription revenue and look, it continues to increase internationally. It's, uh, it's uh, a big mix of our, uh, implementation and domestically, it's a growing percentage of those implementations, but we still got a lot of Headroom in that regard. Um, and uh, look, we're getting, uh, I

Mike Burkland: So, and when you start to, you know, leverage, when we start to leverage our own technology, GenAI and, you know, these Agentic AI agents.Are

Lauren: a perfect example. We can deploy them much faster than we could deploy an AI agent even six months ago or a year ago.

Mike Burkland: Yeah. The last thing I'd say too is, I mean, you saw three of the new logos we announced. I mentioned that they were through a reseller. A lot of those partners that deliver those services are resellers. So I think our kind of overall balanced route to market strategy and our partner business is doing really, really well. And that's kind of hand in hand, right? Driving top line opportunities as well as helping us on the bottom line with the services.

Lauren: Great. Thanks.

Ai. And you know, these agentic AI agents are a perfect example. We can deploy them much faster than we could deploy. An AI agent even 6 months ago or a year ago, but Andy. Yeah, the last thing I'd say too is, I mean, you, you saw 3 of the new logos, we announced. I mentioned that they were through a reseller a lot of those partners that deliver those services are resellers. So I think our kind of overall balance route to Mark strategy and our our partner business is doing really, really well and that's kind of hand in hand, right? Driving Topline opportunities as well as helping us on the bottom line with the services.

Mike Burkland: Thanks, Mira.

Great, thanks.

Lauren: Our final question will come from Mike Latimore from Northland. Mike, please unmute and ask your question.

Thanks Mita. Thank you.

Our final question will come from Mike Latimore from Northland.

Mike, please unmute and ask your question.

Andy Dignan: All right. Great. Thank you. Congrats on the strong quarter and the new role. On the GenSec AI, can you talk a little bit about the potential ARPU impact there relative to kind of what you've had to date and maybe more traditional conversational AI? And then just clarify what percent of AI is usage-based? I know you said it's a strong portion, but is it 90% or is it 51%? Maybe a little bit more ballpark of that would be great.

All right, great, thank you. Um,

Congrats on the strong quarter and the new role. Um,

The uh on on a magentic AI. Um can you talk a little bit about the potential rfu impact, their relative to kind of what you've had today and, you know, maybe more traditional um, conversational AI.

Lauren: Yeah. Mike, thank you for the questions. Look, I think from an Agentic AI perspective and relative to ARPU, look, we're going to continue to deliver more advanced AI capabilities. And with that comes a slightly higher price point. I think we're 25% higher for our advanced AI agent than we were for our core AI agent. So ARPU should trend north on that. No pun intended, Northland. And look, we haven't really projected what percentage exactly. But look, you know, a lot of our--we talked about the top three products in AI being our AI agent, what we used to call IVA, right? Agent Assist, as well as workflow automation. The first is capacity pricing. The second and third are pretty much consumption-based. And again, it's prepackaged consumption commitments.

And then just clarify what percent of AI is is usage based, I know you said, you know, a strong portion but is it you know 90% or is it 51%? Maybe a little bit more ballpark of that would be right. Yeah. Uh Mike uh, thank you for the questions. Um look I I think from an agentic AI perspective and a relative to our poo um what we're going to continue to uh deliver more advanced AI capability.

Lauren: So it's not like our usage revenue that's kind of built in our rears and you kind of, you know, we don't know what's coming. These are pre-committed blocks of consumption. So you can really think of them as subscription kind of predefined from a sizing perspective with some overage charges for those other two products. So hopefully that gives you a sense. But again, our top three products, two of the three, are consumption-based. One is capacity-based.

Abilities. And with that comes up, you know, slightly higher price point. I think we're 25% higher for our Advanced AI agent than we were for our core AI agent. Um, so our Pooh should Trend North on that. Um, no pun intended, North 1. Um, and uh, look we haven't, we haven't really projected what, uh, you know what percentage, uh, exactly. But, um, look, you know, a lot of our, we talked about the top 3 products, in AI being, our AI agent, what we used to call Iva right? Agent assist, uh, as well as workflow automation, the first is capacity, pricing, the second and third are pretty much consumption based and again it's pre-packaged consumption.

Andy Dignan: Thanks a lot. Best of luck.

Lauren: Thank you, Mike. Good to see you.

Andy Dignan: Likewise.

Bryan Lee: This concludes the Q&A portion of our call. I will now hand it back over to Mike for closing remarks.

Rears and you kind of, you know, we we don't know what's coming. These are free committed blocks of consumption, so you can really think of them as subscription kind of predefined from a sizing perspective with some overage charges, uh, for those other 2 products. So, hopefully that gives you a sense. But again, our top 3 products 2 of the 3 are, uh, you know, consumption, based 1 is capacity based. That's great. Thanks a lot best of luck. Thank you. Mike. Good to see you, likewise.

Lauren: All right. Well, thank you, everyone, for joining us today. Thanks to our employees, our customers, our shareholders, our partners. We're excited about the future. I'm excited about the future for Five9, and we look forward to keeping you up to date as we progress through the year. Thanks so much.

This concludes the Q&A portion of our call. I will now hand it back over to Mike for closing remarks. All right. Well, thank you, everyone, for joining us today.

To our, uh, employee.

Our shareholders, our partners, uh, we're excited about the future, uh, I'm excited about the future for 59 and we look forward to keeping you up to date as we progress through the year. Thanks so much.

Operator: Goodbye.