Five9, Inc. Q3 FY2024 earnings call

• AI momentum: AI products made up over 20% of enterprise new logo ACV bookings in Q3; AI bookings in installed base grew over 50% y-o-y. Five9 Genius AI suite helps large brands transform CX. - Acquisition: Closed acquisition of Acqueon, strengthening intelligent CX platform with capabilities in omnichannel and journey orchestration. - Leadership changes: A.J. Awatramani joined as Chief Product Officer. - Other highlights: Named a leader in Gartner Magic Quadrant for CCaaS, hosted Five9 AI day, launched vertical initiatives, opened India data center, named in Fortune Best Places to Work list.

Subscription revenue growth accelerated to 20% year-over-year, total revenue growth to 15%. AI products made up over 20% of enterprise new logo ACV bookings in Q3. Subscription revenue is nearly 80% of total revenue. Telecom usage revenue was 13% of Q3 revenue, declining year-over-year; professional services made up 7% of revenue. Adjusted EBITDA margin was 20% of revenue, with record quarterly operating cash flow of $41 million or 16% of revenue.

• Q4 revenue midpoint is $267.5M, raising 2024 revenue guidance to $1.031B. - Q4 non-GAAP EPS midpoint is $0.70. - Long-term subscription revenue growth target is 20%-30%.

• Adverse economic conditions including macroeconomic deterioration, inflation, increased interest rates, supply chain disruptions, currency exchange rate fluctuations. - Lower growth rates within installed base of customers. - Risks discussed in Risk Factors and annual/quarterly reports filed with SEC.

Q: Congrats on the quarter. Nice results. I'm curious for some of your early adopters of AI functionality, what's the narrative from those guys today? Are they content working with what they have? Are they looking to go deeper with AI? Are they pulling back on agent seat counts?

A: Yes. AI is front and center in CX today. We're helping some of the largest brands in the world AI enable their customer experience. We're seeing some companies justify CCaaS decisions using AI ROI and labor arbitrage. Customers are adding AI as an additive part of their technical offering, using AI to enhance live human agent support. We're a beneficiary whether interactions are human-assisted, AI-driven, or AI-assisted.

Q: Mike, at the end of your prepared remarks, you mentioned long-term subscription revenue growth of 20% to 30%. You're sort of towards the lower end of that this quarter and can appreciate, we've been working through a lot of changes in the underlying environment. But just wondering, are you signaling that's a trough? Is that more of a normalized assumption as we roll forward?

A: We're very excited about the long-term potential to drive subscription revenue growth in that 20% to 30% range. We delivered 20% subscription revenue in Q3, which was up from 17% last quarter. Subscription revenue is the key metric, about 80% of our revenue mix, and it's the best indicator of our business. We remain very bullish on the massive TAM we're going after.

Q: Okay. Great. Maybe start with you, Barry, just thinking about consumer retail, some of the exposure headwinds you've had there. I wonder if you could just kind of update us what you kind of saw through the Q3 period. And what your expectations and visibility are into Q4 as we head into this holiday season, presumably baked into guidance, but just kind of what the latest trend lines are?

A: In the third quarter, we actually saw overall in all the verticals, except in one education, a slightly better environment than we had originally thought. As we look into Q4, we pay deep respect to credit and debit card data from JPMorgan and Bank of America, which show sequential declines. We've prudently taken that into account when setting the Q4 guidance and aren't planning a hockey stick this year.

Q: One for Barry and one for Mike. Barry, just how should we think about the Acqueon contribution to the 4Q revenue guide? And then is it fair to streamline that for the rest of next year? And then for Mike, AI agents, this seems like a shift from agent assist to like a more proactive approach in terms of like working alongside the customer and potentially doing more outbound or like more expansive use cases. So I guess, how do you think that can really help your existing customers? And then how does that look like from a pricing or addition to a contract value standpoint for Five9?

A: Mike: AI agents are the next generation of IVA and DVA, the next level of self-service. It allows for more autonomous and reasoning interactions, leveling up self-serve capabilities. Barry: Acqueon contributed slightly less than 1% of Q3 revenue. We're not going to explicitly break out Acqueon's contribution for Q4 and beyond as it's co-mingled with Five9's business and not material enough to separate.