Five9, Inc. Q1 FY2025 earnings call

AI Platform

• Key ingredients for AI-powered CX: access to LLMs, contextual data, historical interaction data, multi-channel platform. Launched Five9 Fusion with Salesforce for enhanced AI customer experiences.

Partnerships

• Strong momentum with ServiceNow, Google Cloud Marketplace, and IBM. Integrated Five9 transcript stream into ServiceNow, launched on Google Cloud Marketplace, and collaborated with IBM to integrate watsonx into the genius AI platform.

Customer Wins

• Examples of new business units, leading vehicle mobility solutions provider, nonprofit health plan, and existing customer expansion with anticipated ARR increases.

Transformation Initiatives

• 4% reduction in global workforce, aiming to be above the rule of 40 on adjusted EBITDA and approaching on free cash flow by 2027, with focus on AI and go-to-market initiatives.

Subscription revenue grew 14% year-over-year, making up 80% of total revenue, with LTM Enterprise subscription revenue up 20% YOY. Adjusted EBITDA margin was 19% in Q1. Operating cash flow was a record $48 million (17% of revenue) and free cash flow was $35 million (12% of revenue). Enterprise AI revenue grew 32% YOY in Q1, making up 9% of enterprise subscription revenue, and AI accounts for over 20% of enterprise new logo ACV bookings.

Full-year 2025 revenue guidance unchanged at $1.14 billion. Second quarter revenue guided to a midpoint of $275 million. Raised midpoint of 2025 non-GAAP EPS to $2.76. Expect revenue growth of 10%-15% medium term with EBITDA margin in 25%-30% range, aiming for above Rule of 40 on adjusted EBITDA and approaching on free cash flow by 2027.

Geopolitical resistance in international regions to doing business with U.S. vendors. Macro-economic challenges including inflation, consumer spending uncertainty, high interest rates, currency fluctuations, and lower growth rates in the installed base of customers.

Q: Do you believe 1Q is going to be the trough for the year?

A: Slight prudence built into Q2 and rest of the year reflected in total revenue, with similar assumption for subscription.

Q: Elaborate on longer sales cycles in enterprise due to macro?

A: Focused on large enterprise deals, international geopolitical factors, deals slipping into next quarter.

Q: Growth in BYOT and why now?

A: Salesforce driving BYOT, Five9 Fusion simplifying go-to-market, driving value proposition with voice and transcript streams.

Q: Transformation go-to-market initiatives?

A: Investments in product, top-of-funnel marketing, sales execution, and upsell into install base.

Q: International risk and reassurance?

A: International represents 12% of business, net new side affected, but install base and global data architecture reassuring customers.

Q: AI revenue contribution and gross margin?

A: AI revenue growing, high gross margin in AI portfolio, potential tailwind to overall gross margin.

Q: Top-of-funnel initiatives and comp structures?

A: Fine-tuning comp plans, incenting right behavior for go-to-market teams, new metrics for installed base sellers.

Q: Elongating deal cycles and Fusion with Salesforce?

A: Elongation due to extra signatures, Fusion starting point for AI-powered customer experiences, journey to enhance agent force and channels.

Q: AI product bucket and gross margin headwinds?

A: AI products include self-service agents, agent assist, etc., not simple automation; AI seen as tailwind to gross margin with lower model costs.