Five9, Inc. Q4 FY2024 earnings call

• Finished the year with annual revenue exceeding $1 billion, with Q4 revenue growth accelerating to 17% y-o-y, driven by subscription revenue growth of 19%.
• Adjusted EBITDA margin for Q4 reached a record 23%, and operating and free cash flow were record highs.
• AI enterprise revenue grew 46% y-o-y, with AI bookings for enterprise new logos growing nearly 50% y-o-y in Q4, making up over 20% of enterprise new logo ACV bookings.
• Five9's platform is engine-agnostic, integrates with over 20 back-end systems, is the system of record for historical interaction data, and has a globally connected platform for channels.
• Strong partnerships with Salesforce, ServiceNow, Microsoft, Verint, and Google Cloud, with new integrations and market availability announcements, such as global availability on Google Cloud Marketplace.

Fourth quarter revenue grew 17% year-over-year, primarily driven by subscription revenue growing 19%. Subscription revenue was 79% of revenue, usage revenue 14%, and Professional Services 7%. $211 million plus ARR customers made up 56% of subscription revenue, growing 26% year-on-year. Enterprise AI revenue grew 46% year-over-year and now accounts for 9% of enterprise subscription revenue. LTM dollar-based retention rate was 108%. Q4 adjusted gross margins increased approximately 220 basis points year-over-year to 63.5%, and adjusted EBITDA margins increased approximately 290 basis points year-over-year to 23.1%, a record.

• Full year 2025 revenue midpoint is $1.14 billion, $11.5 million higher than previous outlook. 2025 non-GAAP EPS midpoint is $2.60 per diluted share, $0.08 higher than last outlook.
• Q1 2025 revenue midpoint is $272 million, a 2% sequential decline. Expect small sequential growth in Q2 and larger sequential increases in the second half. Q1 non-GAAP EPS midpoint is $0.48 per diluted share, a $0.31 sequential decline.

• Adverse economic conditions, including inflation, consumer spending uncertainty, high interest rates, and currency exchange rate fluctuations.
• Lower growth rates within the installed base of customers.
• Risks related to AI adoption and proprietary models, as well as uncertainties in macroeconomic impact on business.

Q: How have conversations with customers been since the election and potential upside drivers for 2025?

A: Conversations with customers are focused on leveraging AI. Upside drivers include AI upsells, cloud conversions for larger contact centers, and core business growth.

Q: How does Five9 monetize data access for third-party AI?

A: Through transcript stream and voice stream, charging per minute consumption, adding $40-$50/month recurring revenue per AI agent.

Q: Seasonality in Q4 and guidance prudence?

A: Q4 had better-than-expected growth in consumer and health care; guidance is prudent due to macroeconomic uncertainty.

Q: AI trajectory and seat count metric?

A: AI revenue is growing 46% y-o-y, and the seat count metric is less relevant as the business shifts to a consumption-based model.

Q: Q1 trends and NRR trajectory?

A: Q1 guide reflects a stronger-than-expected Q4 seasonal uptick; the dollar-based retention rate has crosscurrents but is supported by AI momentum.

Q: Impact of Avaya's platform change?

A: Monitoring the impact, but Five9 is good at migrations for relevant customer segments.

Q: AI strategy advantage in RFP?

A: Engine-agnostic strategy allows leveraging the latest engines, differentiating in the RFP process.

Q: Reconciling optimism with guidance?

A: Guidance is prudent due to macroeconomic uncertainty, seasonal factors, and tough comparisons, but platform and AI traction are strong.