Five9, Inc. (FIVN) Earnings

Management highlights

### Strategic Direction and Core Priorities - Updated corporate priorities established under new CEO Amit Mathuradas: build a performance-driven culture, optimize operations, strengthen the core CCaaS business, and win in AI-powered customer experience. - Refined market focus: target complex regulated industries (financial services, healthcare, insurance) where reliable voice integration, compliance, governance, and human-in-the-loop workflows are mandatory, and reallocate resources to these high-opportunity segments while increasing operating discipline in other areas. - Positioning as a voice-led enterprise CX platform: voice remains the highest-context customer engagement channel, and Five9 differentiates by orchestrating seamless interaction between AI agents, human agents, data, compliance, and routing all within a single trusted platform, rather than offering disconnected standalone AI point products. ### Leadership and Organizational Changes - Restructured product management, AI, automation, and architecture teams under a single unified leadership to streamline ownership and accelerate delivery. Hired Niranjan Vijayaragavan as new Chief Technology Officer to lead this group. - Appointed Rob Hornish as Chief Sales Officer to strengthen go-to-market execution and drive disciplined revenue performance. - Added Sven Linsmaier as EVP Transformation and Strategy to align corporate strategy with execution, lead high-priority transformation initiatives, and oversee corporate development including M&A. ### Product and Partnership Progress - Launched next-generation Five9 voice AI agents, rearchitected natively into the Five9 platform to support seamless handoffs between AI and human agents while adhering to governed, compliance-focused enterprise workflows. - Secured a major 5-year contract with a Fortune 100 financial services customer, with $100 million total contract value, expected to ramp to $25 million in annual recurring revenue (ARR) once fully deployed. This win was delivered in partnership with Google Cloud, and is the first large deal transacted through the Google Cloud Marketplace, with the joint go-to-market motion cited as a key decision driver for the customer. ### Business Momentum - Marked the third consecutive quarter of accelerating subscription revenue growth, with AI adoption growing faster than forecasted due to earlier-than-expected customer deployments. 100% of new $1 million+ deals now include an AI attach.

Guidance

- Full-year 2026 AI revenue growth guidance was raised to at least 60% year-on-year, up from the prior outlook of more than 40%, to reflect earlier-than-expected ramps of existing customer backlog. - Full-year 2026 total revenue guidance midpoint was raised to $1.266 billion, with a range of $1.26 billion to $1.272 billion, up from the prior midpoint of $1.26 billion. - Q3 2026 total revenue guidance is a midpoint of $319 million, with a range of $316 million to $322 million. Non-GAAP diluted EPS guidance for Q3 2026 is a midpoint of $3.26 per share, with a range of $3.22 to $3.30 per share. - Full-year 2026 adjusted EBITDA margin is still expected to exceed 24%, and annual free cash flow is still projected to be approximately $175 million. - The LTM subscription dollar-based retention rate is expected to increase by 1 percentage point in Q3 2026, driven by existing backlog conversion. - The $100 million TCV Fortune 100 financial services win is expected to contribute negligible subscription revenue in 2026, with gradual ramping starting in 2027, following standard large deal ramp schedules. - Full-year 2026 guidance for the second half of the year does not depend on closing new business, and is entirely based on conversion of existing backlog.

Segment performance

Total Q2 2026 revenue was $312 million, above the high end of prior guidance. Subscription revenue grew 14% year-on-year, consisting of two segments: (1) CCaaS revenue: grew 7% year-on-year, in line with management expectations, and concurrency count grew in line with CCaaS revenue. (2) AI revenue: grew 78% year-on-year, reaching $39 million in Q2 2026, representing an annual run rate of over $150 million. AI revenue now accounts for 15% of total subscription revenue, up from 9% year-over-year. Non-GAAP adjusted gross margin was 61% (down from 63% in Q2 2025), and adjusted EBITDA was $70 million, equal to 22% of revenue (down from $68 million, or 24% of revenue, in Q2 2025). Cash from operations was $42 million (13% of revenue), and free cash flow was $15 million (5% of revenue). The LTM subscription dollar-based retention rate was 107% in Q2, in line with expectations.

Risks & headwinds

- Forward-looking statements referenced standard risks, including the risk of unsuccessful development or low market acceptance of Five9's AI solutions, and the risk of failure to maintain and update core contact center solutions, with additional risks detailed in Five9's SEC filings. - Temporary gross margin and adjusted EBITDA margin compression in Q2 was driven by expansion of professional services capacity to support earlier AI deployments, and one-time vendor margins that benefited Q1 2026 and did not recur in Q2. - Organizational design and new leadership initiatives are expected to generate higher temporary operating expenses in 2026, though they are projected to deliver longer-term cost efficiencies and improved operating performance.

Analyst Q&A

• Q: Who will ultimately own the AI orchestration layer for contact centers that integrate with CRM and back-office systems, what should Five9 control directly, where do partnerships add value, and how does this impact Five9 financially?

  A: Five9's key differentiator is its native control of voice telephony and contact center routing, which standalone AI point solutions do not have. Five9 can not only automate customer interactions, but also intelligently route escalated interactions to the most qualified human agent based on issue type and agent skills. This positions Five9 as the full end-to-end solution provider rather than just a single-function point tool, which creates more value for enterprise customers and strengthens Five9's core business opportunity.

• Q: The large new Fortune 100 win went through the Google Cloud Marketplace. What steps will make this large deal size repeatable, and what resources is Google contributing to this joint go-to-market motion?

  A: The joint pipeline with Google already includes deals of varying sizes, not just large-scale cloud migration deals. Five9 and Google have already made hands-on investments in joint product integrations to support enterprise customer needs, and will continue to invest in the partnership as customer requirements evolve to deliver more repeatable wins through the channel.

• Q: What is driving the faster-than-expected ramp of AI deployments, and how widespread is this acceleration across the entire pipeline?

  A: Faster ramps in Q2 were driven by customers aligning internal stakeholders earlier than forecasted, and Five9's professional services team has the flexibility to adjust deployment speed to match customer demand. Even after excluding the pulled-forward ramps, AI growth would have matched the strong 68% growth rate seen in Q1. AI attach is now 100% for new $1 million+ deals, and demand is broad across both new logos and existing customers expanding their AI usage.

• Q: How has new leadership changed sales execution and team morale, and what are recent win rate trends?

  A: Overall pipeline conversion is on track, with strong momentum demonstrated by the large new enterprise win. The new sales leadership brings deep experience in enterprise solution selling, which aligns with Five9's shift from selling individual products to selling end-to-end platform outcomes. The new leadership has increased team enthusiasm, aligned the organization around Five9's growth targets, and brought greater discipline and transparency to go-to-market execution.