Five9, Inc. Price & Performance (FIVN)

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 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 Five9 be found in the Investor Relations section on Five9's website at investors.fivenine.com Five9. Also, the information provided on this call speaks only to management's views as of today, 02/20/2025, and may no longer be accurate at the time of a 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 Berkelands.

Thanks, Emily, and thanks everyone for joining our call this afternoon. I'm pleased to share that we finished the year strong with annual revenue exceeding $1,000,000,000 This was driven by fourth quarter revenue growth accelerating to 17% year over year primarily due to our subscription revenue growing 19%. Adjusted EBITDA margin for the fourth quarter reached a record 23% helping drive record operating cash flow of $50,000,000 or 18% of revenue. And record free cash flow of $33,000,000 or 12% of revenue. As you all know, we take a balanced approach to delivering top line growth and bottom line I'm highly encouraged by the execution and bookings momentum being delivered by our sales organization, especially in the $1,000,000 plus ARR part of our business. Andy will provide more color on this in a moment. Also, we recently held our global sales kickoff and the passion, energy and excitement were unparalleled as we all aligned on our formula to drive success for our customers and continue building upon our momentum in 2025 and beyond. On today's call, I will spend much of my time covering our progress in AI and how we believe platforms like Five9 are uniquely positioned when it comes to AI for customer experience.

We continue to extend our leadership position in AI as demonstrated by our enterprise AI revenue growth accelerating to 46% in the fourth quarter. AI has now grown to 9% of enterprise subscription revenue. We believe AI revenue momentum will continue as AI bookings for enterprise new logos grew nearly 50% year over year in Q4. Again making up more than 20% of enterprise new logo ACB bookings with 100% attach rate on $1,000,000 plus ARR deals. [indiscernible] are also successfully penetrating our enterprise installed base, with AI bookings growing 50% year over year in Q4. And now I'd like to spend a few minutes talking about how we believe platforms like when it comes to AI for CX and why we are winning in AI and why we expect to continue winning. Of course, you're all aware we have a broad portfolio of AI solutions, but I'm going to focus today on self-service and AI agents. As consumers, we all know AI agents will only be used by consumers if they are accurate, and personalized. We say accurate, I think that's pretty obvious to everyone. When we say personalized, we mean that the AI agent knows enough about you as the [indiscernible] the details of your recent interactions with that brand, including recent problems or issues you've had and so on.

And brands are learning that if they want to offer AI driven self-service, These AI agents need to be accurate and personalized. And like I said, if they're not, consumers will not use them. CCaaS platforms like Five9 are uniquely positioned to deliver these accurate and personalized AI agents. This is our moat, and this is why we believe we will continue to win in AI. For customer experience. Let me explain further. Four key ingredients are required to deliver this accurate and personalized self-service using Gen AI.

First, you need access to LLMs. Second, you need real time contextual data Third, you need historical interaction data specific to the consumer and their interactions with that brand. And fourth, unique channels to connect consumers to that self-service application as well as provide an escalation path to a human agent, which [indiscernible] So let's take these one at a time. The first ingredient, access to LLMs. Has become commoditized now and all vendors have the ability provided models. Five9, however, has been at the forefront of engine agnostic AI for many years ensuring that brands can easily change the underlying engine quickly to leverage the latest, greatest and highest performing models. Our strategy of being engine agnostic continues to be validated with every new engine that emerges, as everyone knows, Additionally, we have a team of AI experts benchmarking these engines to ensure our customers can leverage the best engine for a given use case. On the other hand, solutions that are built on proprietary models will not be able to leverage these new innovations that are rapidly coming to market. Therefore, we believe Five9's approach allows our customers to future proof their AI decision And when it comes to our competitive moat, it's clear that the layer above these engines is what matters.

And that layer includes our AI applications that require business logic, that require workflows, that require important data, and integrations to back end systems. The second ingredient, contextual data. What is fed into the LLM in real time and provides true context around an interaction. This includes customer specific details as well as brand specific knowledge. Both of which are often distributed across many back end systems. Unlike AI point solutions that require costly one off integrations, to access contextual data in real time, our platform [indiscernible] during the initial customer deployment.

This means that when a brand adopts AI with Five9, they can immediately leverage our seamless integrations which are designed to reduce cost, accelerate time to value, and deliver accurate and personalized experiences at scale. The third ingredient is historical interaction data. From which Five9 is the system of record. Historical interaction data is comprised of voice calls, [indiscernible] emails, web chats and social interactions between a consumer and that brand, including interactions handled by human agents as well as handled by AI agents. This historical interaction data is a significant requirement for personalization. In other words, the AI agent knows not only who you are and what products and services you've purchased, but it also knows every detail of your prior interactions with that brand, including what problems or issues you had. The fourth ingredient is channels. Such as voice, text, email, web chat and social. You need these channels to connect consumers to an AI agent as well as provide a seamless escalation path to a human agent when needed. Market demands AI agents that work across all these channels. However, providing the voice channel globally at scale with reliability is a huge barrier to entry. We have invested hundreds of millions of dollars over two decades to build that globally connected platform optimized for CX across these channels.

AI point solution vendors entering the contact center market have not made that significant investment nor are they likely to. Which is why they prefer to integrate to our platform. We believe these AI point solutions as well as other third party AI will continue to integrate to our platform to gain access to these channels from us. That positions our platform as a control point.

In the AI driven CX ecosystem. Enabling us to monetize that access which we are successfully doing through voice stream and transcript stream. So to summarize, the last three of these four key ingredients are unique to platforms like Five9. In addition, our AI experts act as a force multiplier working closely with our customers to tailor an AI blueprint for their business and help them deploy our AI solutions to deliver real business impact. We not only have the talent to ensure success, but we also provide products like AI Insights, to identify high ROI opportunities to deploy AI to enhance CX and drive operational efficiency. As well as our studio products that provide the ability to build these self-service applications workflows, integrations and business logic. And as a result, we believe our comprehensive AI suite combined with our deep AI expertise, will enable us to continue winning in AI.

Our differentiated approach to AI is being validated by the industry where we were once again ranked as having the best AI solutions in the semi annual Baird survey that was recently conducted in December. Additionally, industry analysts continue to recognize our innovation, with Five9 recently winning the 2024 Aragon Research Innovation Award for AI contact centers. Five9 was positioned as the most strategic vendor reinforcing our leadership in AI driven CX, and our long term vision for the CX market. Now I'd like to touch on the momentum we are seeing with our ecosystem of partners. Our partners have been an important part of our success here at Five9 Five9. We have a significant opportunities in 2025 to continue our momentum following announcements we've made over the last few months with partners such as Salesforce. ServiceNow, Microsoft, Verint and Google. The partnership between Salesforce and Five9 continues to gain momentum. Driving alignment across go to market strategies, product innovation and customer acquisition.

Salesforce and Five9 share a vision where AI agents and human agents work together to elevate customer experiences. Are strengthening the integration between Five9 and Agentforce to develop industry specific AI agents including patient scheduling agent and a collections agent Furthermore, we are harnessing customer interaction data such as real time voice, across sales, service and marketing clouds to create a seamless and unified customer journey for brands. To deliver a unified CRM and CCaaS platform for customers to deliver AI elevated CX in industries including financial services, software, life science and other industries. In November, Five9 and Service now jointly announced an expanded partnership to bring AI powered solutions for unified employee experiences and customer experiences. By enhancing our integration, we're streamlining self-service and assisted service creating more efficient support processes that reduce cost, boost agent productivity and elevate customer satisfaction.

Via this expanded integration, Five9 and ServiceNow are redefining the next generation of CX. Expanding beyond our history of ITSM integration and into integrated CRM experiences. Customers gain single agent experiences for voice and digital interaction a unified routing engine to streamline engagement. Additionally, in December, we announced the latest release enterprises are constantly bringing the unified services platforms to enhance employee efficiency and productivity. Five9's integration with Microsoft Teams brings this to life and enhances employee productivity, by delivering our game changing, bidirectional presence between Five9 and agents and Microsoft Teams users to simultaneously view each other's real time availability. This empowers agents and experts to collaborate internally with confidence. And we are pleased with the momentum we're seeing as we have had several new customer wins during the fourth quarter using this enhanced integration. [indiscernible] And with Verint, we've made a key announcement in late Q3 regarding our strengthened partnership announcing a new native cloud to cloud platform integration, which includes Verint bots. Validating demand for our integrated value proposition. And finally, are so excited to announce Five9's global availability on Google Cloud Marketplace, including the full Five9 Five9 powered CX platform, plus the release of a standalone Five9 AI agent designed for Google Cloud Businesses can now quickly activate Five9 seamlessly through Google Cloud Marketplace.

A universal catalog of enterprise grade pre validated solutions that run on or integrate with Google Cloud. This simplifies the procurement, billing and deployment of our joint solution to deliver AI elevated CX. Our innovative solutions create exceptional customer experiences while leveraging their Google Cloud credits to drive loyalty and business success. We're excited about this new route to market look forward to bringing on more mutual customers with Google. In summary, our record results and strong traction in our AI business continue to demonstrate the power of our platform and enabling brands to elevate their CX in this rapidly evolving world of AI. At Five9, we've always been ahead of the curve. Just as we pave the way for the cloud revolution in CX, are now leading the charge in delivering the new CX powered by our suite of AI solutions. I also want to take a moment to thank our amazing team of Five9 whose relentless dedication and passion empower us to continue to lead this market. We believe we are well positioned with our AI powered platform and trusted AI experts to continue driving durable long term growth we look forward to building on our momentum in 2025 Five9.

Before I turn it over to Andy, I'd like to comment on one more topic. As many of you have probably seen, earlier today, we issued a press release announcing Barry's retirement as CFO effective March 31. As well as his providing assistance [indiscernible] Barry, I just want to express my deepest gratitude to you for your exceptional leadership partnership and unwavering commitment to Five9 these last thirteen years. You have played a pivotal role in shaping our company's growth financial strength and company culture. Your contributions have been invaluable. It has been an honor to work alongside you, Barry. And on behalf of the entire Five9 team, I wish you the very best in your well earned retirement. I'm also pleased to announce the appointment of Brian Lee our long term EVP of Finance, to the role of Interim CFO. Brian will be joining us on the call today. As many of you know, he has gained an extremely deep understanding of our business over the last eleven years. Having worked closely with Brian during his tenure here at Five9, I'm will be kicking off a CFO search with Brian as an internal candidate. And with that, I will now turn it over to our COO, Andy Digman, Andy, please go ahead.

Thank you, Mike, and good afternoon, everyone. As Mike mentioned, we had another strong quarter of sequential bookings growth that exceeded expectations. We are pleased with the early results we are seeing from the realignment of our resources and enhancements to our sales motion. For instance, we had strong enterprise new logo bookings in Q4, driven by the highest number of $1,000,000 plus ARR new logo wins in any quarter of twenty twenty four. Additionally, Q4 install base bookings came in at the high [indiscernible] heightened levels of RFP volume in the fourth quarter.

And our pipeline remains robust as we enter 2025 Five9.

In part driven by our Aguion pipeline, increasing ForEx sequentially.

And now as we normally do, I'll share some of the examples of key wins for the quarter. The first example is a leading real estate investment company focused on healthcare infrastructure, senior housing operators, post acute care providers and health systems. Their contact center manages urgent service requests from existing residents and various inquiries from potential residents. They were limited by their on premise system as they struggled operational inefficiencies and quality. They chose Five9 for our industry leading omnichannel capabilities across [indiscernible] text, chat and email, as well as our agent assist to transcribe summaries into the CRM and AI insights to gain visibility into interaction trends, identify opportunities deliver high ROI AI powered outcomes. We anticipate this initial order to result in over $3,100,000 in ARR to 5.9. Now the second example is a nonprofit health system with nine hospitals and hundreds of primary specialty and urgent care clinics. They had been using a premise based solution, which was very limited. They chose Five9 Five9 chat and email and improve the experience for agents and patients through our key integrations, including Epic, ServiceNow and Salesforce. Additionally, they leverage our quality assurance and while Five9 Agent Assist transcribes conversations and standardizes response [indiscernible] The third example is one of the largest credit union service organizations in the country that selected Five9 to replace multiple on premise solutions that were causing inefficiencies, missed SLAs and poor CX.

By consolidating onto Five9, they now benefit from streamlined operations, seamless integration with multiple third party systems and our WM solution powered by Verint. Additionally, they adopted our IVA platform to enable self-service for account inquiries, fund transfers, payments and more.

We anticipate this initial order to result in approximately 2,400,000.0 in ARR to Five9. Now I'd like to highlight a Q4 expansion in one of our largest customers, a parcel delivery company where we expanded into a new business unit that was running on an on premise solution. This business unit provides customer support for global documentation taxation, customs and regulatory requirements This was implemented in Five9 within sixty days and represents over $1,200,000 in additional ARR to Five9 Five9. With that, I'd like to turn it over to Barry to take you through the financials. But before doing so, I'd like to echo Mike's comments and extend my gratitude to you, Barry, for your leadership and your commitment to Five9 Five9. [indiscernible] Thank you, Andy.

And Mike for your kind words, and thank you both for your leadership and support through my tenure at Five9. It has been an incredible privilege to work alongside you the outstanding Five9 team over the years. I've been working uninterrupted for fifty years, including thirteen deep legal warning years here at Five9 Five9. Working through vacations and time away from family, Now it's time to rebalance and focus on my personal journey. As I step away, I do so with immense confidence in Brian's leadership He is more than just a safe pair of hands. He's a natural leader, a strategic thinker, and someone deeply respected both within the company and by many of you, who have worked with him over the years. Do you understand Five9's financial engine? I will be chairing this remarkable company on from the sideline. As it seizes opportunities of an AI driven future backed by an exceptional leadership team and a culture that continues to inspire. Thank you again for the incredible journey And now to business, We are pleased to report fourth quarter revenue growth of 17% year over year primarily driven by subscription revenue growing 19% year over year in Q4.

As Andy mentioned, strong installed base bookings Second, continued strength of market where our $211,000,000 plus ARR customers made up 56% of subscription revenue growing 26% year on year. And third, by the significant traction we are seeing with our enterprise AI revenue, which grew 46% year over year. In the fourth quarter, subscription revenue made up 79% of revenue, while the usage revenue accounted for 14% and professional services made up the remaining 7%. Enterprise revenues from subscription usage and PS combined made up 89% of LTM revenue. Our commercial business, which represented the remaining 11% grew in the low single digits on an LTM basis.

ILTM dollar based retention rate remained same as last quarter at 108%. Turning now to profitability. We are pleased to again report strong margin expansions across the board driven by the increase in revenue, scaling against fixed and semi fixed costs.

Our full quarter impact of the roof and our ongoing focus on tight expense control.

As a result, Q4 adjusted gross margins increased approximately two twenty basis points year over year to 63.5% and adjusted EBITDA margins increased [indiscernible] an all time record. I'd like to point out that stock based compensation again decreased year over year from €50,000,000 to €38,000,000 an improvement of seven percentage points to 14% of revenue in the fourth quarter As a result of both the improved adjusted EBITDA margin and significant improvement in stock based compensation, we are very pleased to report GAAP operating income of $4,200,000 and GAAP net income of $11,600,000 in the fourth quarter. Fourth quarter non GAAP EPS $0.79 per diluted share, up $0.18 year over year. And now for a closer look at the key full year 2024 income statement metrics. As Mike mentioned, 2024 revenue exceeded $1,000,000 growth 14.4% year over year. 2024 adjusted gross margin [indiscernible] to 61.7%, while 2024 adjusted EBITDA margin expanded by approximately 50 basis points to 18.8%. 2024 non GAAP EPS came in at $2.47 a year over year increase of $0.42 per diluted share. Now I'd like to share some cash flow highlights. I'm pleased to report that LTM operating cash flow reached an all time high at $143,000,000 or 14% of revenue.

This is primarily driven by our record adjusted EBITDA and continued strength in DSO performance, which came in at thirty four days. LTM free cash flow also came in strong at $79,000,000 or 8% of revenue, As Mike mentioned, our fourth quarter operating and free cash flow both hit all time records of 50,000,000 and 33,000,000 Before turning to guidance, I would like to comment on seat count. As our business has evolved, the CECL metric we have been providing annually in the fourth quarter has become less relevant as a growing number of our products are no longer priced on a per seat basis, Subscription revenue is the most meaningful metric for our business as it reflects the growth in customers coming onto our platform as well as the products they are purchasing. We are mindful though that we need to close the supporting chapter properly and we are therefore sharing that the average sheet counts totaled 432,818 in the fourth quarter, including Aquion, Going forward, we will not be providing our seat count metric Five9 it is no longer a meaningful performance indicator. One more item before guidance.

Given the CFO transition, we will not be hosting an Analyst Day in the first half this year, Please stay tuned for an update on timing. Turning now to our full year 2025 and first quarter guidance. For the full year, we are guiding annual revenue to a midpoint of $1,140,000,000 which is $11,500,000 higher the high level outlook we provided last quarter. This, of course, is a starting point and we will update our outlook as the year progresses. With regards to the bottom line, we are guiding 2025 non GAAP EPS to a midpoint of $2.6 per diluted share which is $0.08 higher than the high level outlook we provided during our last earnings call. Please note that this guidance reflects our assumption $400,000 principal balance on our 2025 convertible notes which will be maturing in June.

Also, we expect annual adjusted gross margins and adjusted EBITDA margins As for the first quarter, we are guiding revenue to a midpoint of $272,000,000 This represents a 2% sequential decline, which is similar to our typical guidance guidance pattern in the first quarter. As for the remainder of the year, we expect a very small sequential growth in the second quarter and larger sequential increases in the second half. We expect first quarter non GAAP EPS to come in at $0.48 per diluted at the midpoint, a decline of $0.31 sequentially. As a reminder, our first quarter on our GAAP EPS is always the weakest of the year, and the $0.31 over quarter decrease is similar to our typical guidance pattern in Q1. For the remainder of the year, we expect non GAAP EPS to increase slightly in Q2 and further improve in the second half.

Please refer to the presentation posted on our Investor Relations website for additional estimates, including share count, taxes and capital expenditures, as well as LTM enterprise subscription revenue. In summary, we are very pleased with our fourth quarter performance. We accelerated revenue growth, and we had demonstrated as the metrics made clear superb execution on our winning AI strategy and we were efficient. We achieved record highs adjusted EBITDA GAAP net income and for operating and free cash flow. In 2025, we will remain laser focused on driving higher profitability, while investing surgically in key strategic areas to further position as a leader in AI for CX. Operator, please go ahead.

Thank you, Barry. We will now move into the Q and A session. When I call on your name please, ensure your video is on and that you unmute your line. As a reminder, in an effort to hear from everyone, please limit yourself to one question.

And with that, our first question comes from Ryan McWilliams with Barclays. Ryan?

Excellent. Barry, man, congrats on the career. This is tough, but some great work with you, and, I'm going to have some Captain Crunch in your honor this weekend.

And for that reason, I'll save my first question, from Mike. Like you know, how have the conversations with your customers been since the election? [indiscernible] And as you think about potential upside drivers for 2025, what gets you most excited? Is it potential improvements in cloud conversions for larger contact centers? Is it AI up sells? Is it adding more usage receipts? Like, what could improve in 2025 Five9? Yes. Great questions, Ryan.

Look, our conversations with customers continue to be very focused around leveraging AI and frankly, we're investing a lot in enabling our go to market teams to be the AI experts and help guide our customers in this new world. Our results are showing our progress with AI, not just technically, but in our business, right, up to 9% of our revenue mix and 46% growth in enterprise AI revenue. So it's a new world and the customers all want to talk about the new world, but you heard a lot of my comments were kind of nuts and bolts around self-service. And we could spend a lot of time talking about Agentic and other very advanced things that we're obviously delivering as an industry, but today, our customers, they want to deliver self-service and they want to deliver it accurately in a personalized way. And that is so important to them. And so that's why I really spent a lot of time today talking about that. In terms of upside drivers for us in 2025, obviously, look, AI is growing faster than the rest of our business, but our core business is growing very, very nicely. Subscription revenue is the key metric. 19% this last quarter.

We're very excited about the pipeline we've got. Andy and Matt and the rest of the sales organization are executing in a just a great way. And I we've still got upside on that, but we're getting we're just getting to that level where I feel like we're optimized, but I think we've still got a little headroom there too. So I think there's upside there as well as obviously we've talked about macro and the impact of a better macro is going to be significant as well. But again, we're delivering this growth that we delivered in Q4 and arguably a a sideways macro, a little bit better in Q4. Right? It was a little bit better and we'll talk about that, I'm sure. Appreciate the color. Thanks, Mike. Thanks, Ryan.

Our next question comes from Vijay Haynes with Canaccord. TJ? Question is for Barry. What are you going to do with all those ties?

I'd save the special one for today. Yes, good.

Hey, Mike, one for you. So I think one of the questions that I think investors are wrestling with is if it's not the CCaaS vendors, whose AI or agents that end up winning in the space, right? Like maybe that business gets cut off at the past by a Salesforce or ServiceNow or whoever that third party might be, Like, obviously, those other systems still need access to that contextual data that you highlighted as being so important today, right? All that resides inside of Five9. Can you talk about how you monetize that data access and what that could mean for your financial model, just given there's still some uncertainty about kind of who wins in the end with AI?

Yes, really good question, DJ. And again, you're spot on, right? It's about contextual data. AI is only as good as the data it has access to. And our platform is a control point for a lot of that contextual data not just information about the customer and about the brand, but also about recent interactions between that consumer and the brand. It's absolutely critical to delivering AI driven self service, as I said in my remarks. And the good news is, as you stated, look, we're a winner either way. We are a great partner to Salesforce, a great partner to ServiceNow. We are in the market together and look, we're in the business of winning the CCaaS platform. We We know that Salesforce, for example, is in the business of winning the CRM platform. The question at hand is, whose AI are they the customer is the customer going to choose? It's going to be a mix. We're very convinced of that. And the good news for us is even if in a given use case for a given business unit, that organization wants to use Salesforce for their AI the good news is they still need access for that AI to do its job.

They need access to all the contextual data in our platform And that's why we're great partners. They know they need us and we're very welcoming to that relationship. We want to do what's best for the customer. And at the end of the day, we monetize that through VoiceStream and TranscriptStream. Think of that as a pipe or an API, where essentially we're charging on per minute consumption basis, and that adds up to somewhere between $40 and $50 per month in recurring revenue to us just for that Connect connection per AI agent, say on that third part of party's part. So and again, that can actually scale up even higher than that on a monthly revenue basis. For us if those AI agents are more efficient than say a human agent. So I hope that's helpful.

Yes, no, it is. It makes perfect sense. Thank you, guys. Our next question comes from Michael Turrin with Wells Fargo. [indiscernible] No, wonderful. Testing my reflexes with the Zoom.

I'll echo, Barry, congrats.

We'll all miss you sitting in front of the firm, but I appreciate you being here today. I wanted to ask about 4Q specifically and just on seasonality, if there's anything you'd call out in terms of seasonal expansion or overall deal cadence of what you're seeing in enterprise? And as a second part, Barry, I'd be remiss if I didn't ask just on your prudent guidance, if there's anything else you're contemplating Five9 the transition there as well? Thanks very much. Yes. So let me start with the fourth quarter.

We look at it by vertical. And it is clear that for the consumer in particular, but healthcare as well, it is better than we originally anticipated. And better than last year. I know that number of you have rolled your eyes when we keep talking about the JPMorgan data, especially if you don't work at JP JPMorgan. But at the end of the day, At the end of the day, the numbers are clear. If you look December it was 03:44. So for the first time in a long time, we've had actually positive real growth as opposed to just nominal growth. And that showed up in the numbers. Interestingly, in the consumer side, there was actually more use both healthcare and and consumer actually, there was more usage. So definitely usage, that's why I went from 13% of total up to 14%. You can you just can't hire an agent that quickly if you you might have this longer held time or whatever, you just go and fix that. Quickly. And with respect to 2025 Five9, look, we're not macro economists. We don't know exactly what's going to happen. What we do know that there's a lot of uncertainty out there.

January, retail sales are the weakest in two years almost. And you're talking about tariffs, you're talking deportations, you're talking about wars and so on. And we just we compensate for that by being more prudent. We've laid that prudence into 2025 Five9. And by the way, you should be hearing these financial answers in serials because actually is doing it is Brian. And lastly, we took an extra layer of portion in the seasonality for the second half of the year. Because of this massive uncertainty we're facing. Okay.

So you asked about expansion. And as you heard Mike talk about in our install base bookings team, we made some changes in Q2 and this is really starting to accelerate. And so having the largest install base bookings quarters in eight quarters, with 50% year over year growth in AI driving that, gives us a lot of confidence on the expansion side that the teams are really executing on what we're asking them to do.

Perfect.

Our next question comes from Sedi Panagrahi with Mizuho.

Thank you. And great congrats on your retirement. Certainly, it was great working with you and Brian Congrats on your new role. So Mike, I want to keep it at a high level. I mean, we keep hearing about how AI is going to replace in our human agents. Even we saw last year, when [indiscernible] they're going to full on an AI for customer support. And then we recently, I don't know if you have seen, they talked about reversing the course now to include it in human agents. So my question is, as AI becoming more mainstream, what are you hearing from your customer when they are thinking about their AI strategy for customer service and what's your view on seat reduction we should expect how that offset by AI?

Yes. Thank you, Sidi. Great question and thank you for citing that quote by the Glarna CEO. It's amazing how look, we all get out ahead of ourselves sometimes when there are innovations like this, right? And I'm not surprised at all. We've been saying that, look, that was an over rotation to say the least. Our customers are doing what we've been saying for quite some time.

What they're trying to do is deflect to self-service on the margin, some small percentage of their interactions, 5%, 10% in the near term, eventually it will be a little more than that. If we're all successful in delivering AGENTIC and personalized and accurate AI, which we're well on our way to doing. But at the same time, look, there they're being very our customers are being very calculated around how fast they try and push automation upon their consumer, right? It's so important to deliver a great customer experience. In the end of the day, we're still getting tremendous ROI, even if they're able to shave 5% of those interactions and put them through self-service, it's usually resulting in just less growth in human agents as opposed to a true reduction. But sometimes, again, they're striving to get that labor arbitrage ROI in the long run for sure. And we're helping them deliver that very tangible ROI. So it's a real thing, but it's not anywhere near what I think people were concerned about.

Great. Thanks for that color. [indiscernible] Our next question comes from Scott Berg with Needham. Scott?

Hi, everyone. First of all, can you hear me okay? Yeah. We got you, Scott.

Great.

Nothing like being in an airport lounge right now, but all good there.

So, Michael, why don't you just talk about the bookings or maybe Andy wants to take this. You seem pretty happy with the fourth quarter bookings. Are they as you're seeing pipelines and building activity actually hit, is it truly in kind of a normalized environment today relative to what you saw in Q2? And the improvement that you saw in Q3? Just trying to help understand where we are in trajectory, if that's still to come or you think we're squarely there today?

I'll start and Andy, please chime in. It's a very good question. We've talked about this in the past, right? Q2 was kind of the the pinnacle of the AI fog, as I call it. The distraction factor, right, where everybody was just really trying to figure out AI. Q3 got better, Q4 got even better on top of that. And again, It's I wouldn't necessarily say we're all the way back to normal because there is still uncertainty. There's still kind of this in the macro side of things. William, our bookings were strong on both net new and installed base. But again, I do believe in a even healthier macro. There's upside there. But Andy?

Yes. I mean, the only thing I would add, Scott, would be just, yes, the execution of the team, right? In terms of we got we were focusing on mega deals. And when I look at the the largest number of million dollars plus ARR deals in 2024 and just look what the team is executing on, we're getting more of the Dolphins, right, more of the size of the customers that we which is the engine of the company, which is the biggest part of the market. And that's good to see.

Got it. Helpful. And then Mike, in your pre scripted comments, you'd spoken about some agents that you're building in conjunction with Salesforce in a couple of different areas.

What is the monetization of that look like relative to your own agents? Help us understand if that economic model kind of looks like for Five9 Five9.

Yes. And it relates to my earlier comments, Scott. Again, we're monetizing Third party AI, if it's in some of these cases, again, when it comes to Salesforce, a lot of times it's our AI, not theirs. Sometimes it's going to be their AI, but we monetize it if it is their AI. Through transcript stream and voice stream. And again, it's a win win no matter what. Between Five9 and Salesforce. We like to say we're better together and we're out winning joint accounts, especially in some of these vertical markets like healthcare. Where we're actually delivering vertical AI agents like patient scheduling agent, which AI agent, which is again, if you think about it as a consumer, wouldn't it be great to be able to schedule schedule a healthcare appointment with AI and [indiscernible] doing it with Salesforce through some deep integration. It's pretty cool. Awesome. And lastly, Barry, been a really fun ten years. Thanks, Scott. Okay. Our next question comes from Peter Levine with Evercore. [indiscernible] Thank you guys for taking my question. I'll let go, congrats, Barry, on your retirement. Maybe a two part question. What is on the AI trajectory the 9%, which is up from 7%, I think, Q4 of last year, maybe help us understand what's trajectory of that look like?

Is it steady state or is there an inflection point where we could really see that ramp And then the second question would be, Barry, you talked about CCAP not being the metric anymore. Customers are moving more from seat basis to more of a consumption token based model. So maybe help us understand, you know, you guys used to talk about a metric where the seat price was 150 for the core and then there was a 3x to 4x up left. Is that still the case with a fully autonomous agent today? If the CECOUNT metric necessarily isn't the right metric?

Yes. Let me start, Barry, and feel free chime in. Peter, great questions. The trajectory out of our AI revenue is again, it was 46% year over year growth in AI revenue This is the enterprise part of our SMB or commercial business. There's not a lot of AI there. So where AI exists for us is in our enterprise business. It grew 46% year over year in terms of the trajectory. That's up from I believe 40% last quarter. And again, we talked about kind of our bookings as a leading indicator and that's what I said. I said, we feel very good about AI revenue growth in the future Five9 the bookings growth we're seeing for AI, net new as attached as well as in the installed base. So again, we're very pleased with the fact that it's growing in the mid-4s and that's obviously growing a lot faster than the rest of our business, albeit it's only 9% today. But again, a growing percentage of the mix, we're excited about that. And Barry, if you want to start on the seat count side of things, I may add a little bit, but I'll let you.

Well, it's very straightforward. It's a huge ROI to our customers from this. We're going to be able to charge for that on a consumption basis as we currently are. And the number that you cited, the 3x, when you do compare it to the historic sea place, which is still, of course, majority of our business, It is in the order of 3x on particularly on, Five9. But you heard Michael talk about the voice stream and transcript stream adding another $50 And more than enough to go around for our customer and for Five9 Five9.

Yes, I think you're saying. Good. Thank you, Peter.

You, guys. Our next question comes from Taylor McGinnis with UBS.

Taylor, Okay. Can you guys hear me?

We can.

Perfect. Barry, congrats on retirement. Sad to see you go, but I'm very happy for you as you take that next chapter.

Thank you.

Barry, maybe a plea for you and Brian too. When you talked a little bit about the usage trends earlier and it was clear like in the results that there definitely was a big acceleration in that piece. As we get into 1Q, can you just talk about the trends that you're seeing? Are you seeing maybe little bit of a reversal what you saw in April. Can you remind us maybe what verticals are have greater exposure in 1Q? And maybe it's like a second part to that question, how we should think about the trajectory of of NRR from here?

Got it.

So I'm happy to answer the first part and then I'll pass it on to Barry. But before I do, Taylor, I just want to say to Barry, it's been truly an honor and a career highlight for me to have worked with you. And I just want to thank you for everything you've done for Five9 and for me personally. And I hope you love retirement as much as you love being the CFO of Five9. And so to get back to your question, Taylor, in terms of the Q1 guide, you'll see that we're implying a 2% quarter over quarter decline. And that is right within the range of 0% to negative 4% that we typically guide to for Q1. But if you compare it to last year, you'll notice that we actually guided to flatness quarter over quarter in Q1 and that reflects what Barry said earlier. We had a stronger than expected seasonal uptick in consumer and healthcare in Q4. So we're expecting the downtick to be stronger than what we saw last year. And there's actually one more component there from a tough comparison perspective. So one of our biggest mega customers was going through a significant growth phase in the ramp throughout 2024.

We've ended the ramp, but if you kind of look at these multiyear ramps, it's usually small contributions in the beginning and much more in the latter part. So that Q4 to Q1 transition last year compared to this year creates a little bit of a tough comparison. So that's what's in the 2% guide, a quarter over quarter decline. But I do want to emphasize the fact that you know we have a prudent guidance philosophy and that hasn't changed.

Yes. And in terms of the DBRR, on the surface, it will look like it's quite placid. We've had three quarters at 108. But there's actually significant cross currents underway. On the headwind side, if you will, working against us is the fact that we have a sharper Dante, Brian just mentioned, but also on top of that just the muted seasonally uptick that we're assuming for the time being. On the positive side, we have the AI momentum, we have the toy the million dollar past customers that have a dollar based retention rate that is meaningfully higher than 1.8 and which are great faster than growing this last quarter at 26%. I believe, yes. And so we don't quite know how to handicap that. What we can say is that whether it goes up slightly or down slightly over the upcoming quarters, that fluctuation is likely to be extremely minor. And that's the best we can say at the moment.

Perfect. Thank you guys so much.

Thank you. Our next question comes from Meta Marshall with Morgan Stanley. Great. Thanks. And I'll echo the congrats, Barry.

Couple of questions, I know you guys kind of made an across the board rift that has been kind of flowing through results this year. Just how do you think about where investments as you kind of ramp up again will kind of be most focused, particularly given the rift. And then maybe just second, just any disruption from Dan's kind of upcoming departure, Dan Bergland's upcoming departure? Thanks.

Yes.

Thanks, Meta.

I'll talk about Dan first.

Again, look, we promoted Matt to EVP of Sales. Andy has all of sales and go to market functions rolling up to him now. And as both Matt and Andy have kind of solidified in their seats, Dan will be less involved in the day to day and moving to a consultant role. And again, we don't we've been extremely lucky to not have disruption. We've been a team forever. We're still a team. And that's just kind of the Five9 way, and that's part of our culture. So I would say, very, very little disruption if any. And in terms of where we're investing, it is look, we believe in this market so much and we're we obviously going to continue to put the pedal down a little bit on R and D investments as specifically in AI to extend our leadership position there. It will probably not probably, but we are also pretty focused on our go to market team and our sales capacity and our quota capacity. [indiscernible] is bookings growth, right? And the only there's a formula there. Obviously, we got to grow the top of the funnel, but we have to increase our quota capacity along with that.

And we're very careful about not getting out ahead of ourselves, but you'll see us continue to add quota capacity through the year as well. So it's really building product and selling product and those will be priority areas for us. Thanks, Mina. Our next question comes from Jim Fish with Piper Sandler.

Jim? Hey, guys. This is Quentin on for Jim Fish.

Thanks for taking our question and also wanted to add congrats to both Barry and Brian here.

Mike or Andy, maybe questions for either of you. You know, Avaya recently announced a change to their platform that kind of forces some customers away No, it's still really early here, but as you've kind of seen this announcement, any change in the pipeline or customers coming to you, basically any early indication of the donation that you expect from that competitor or is this just they've been donating for a while and so you expect that to be more steady from here? Thanks. Yes, I can take that.

Yes, I mean obviously, they've been donating for a while to use your term, but yes, we obviously noticed that. We do have a lot of good processes in place to make these migrations from Avaya pretty straightforward. Now it was their Avaya experience platform public, right, for 200 seats and below. So kind of one piece of the puzzle. And yes, we're focused on that part of the market. What I would be interested in seeing would be as customers that are higher than 200 seats, right, which is another big engine for us, you know, do they see sort of a lack of commitment for the future from that? So something we're keeping an eye on and we're focused on and we're good at those migrations and we'll keep an eye on it.

Got it. Thank you. [indiscernible] Our next question comes from Tom Blakey from Cantor. Tom?

Oh, wow. I didn't get a heads up for that. Thank you for taking the call and Barry, congratulations. It's been great working in dining with you and Best wishes to you and your family.

Just maybe a two parter. First, we've been hearing from yourself throughout last year and from some of your peers about slowdown in close rates and elongated sales layering in AI and making these things harder to implement. I'd love to get your update there and what you're seeing Andy and Mike in terms of visibility on those types of deals. And then, Barry, on the model and these partnerships picking this up from our checks too. Congratulations on this. This new channel. I'd love any color if you can maybe extend the type of color you normally give us. In terms of what you believe partnerships could be over time and any impact to the model? To me this question about investing maybe there could be some leverage here leveraging these huge partners, that'd be helpful. Yes. I'll start with the last question, Tom.

Look, the partnership ecosystem is driving a lot of our business already. We expect Google Cloud Marketplace announcement that we made, that's a game changer for us. And again, something that opens up new avenues and an easier procurement process and into the Google customer base. And these are the type of partnerships, quite frankly, that to me are so important to us to continue to move the needle in terms of our [indiscernible] continuations with Verint or it's a Google Cloud marketplace announcement, we're going to continue to leverage the ecosystem in this new world of CX, it's a wonderful time to be in this space and it's a big driver of our growth in the future. And again, we'll continue to aim to find additional leverage points like this that allow us to get against just like I said, leverage, right? And again, we're going to continue to build out our quota capacity, but we're also going to continue to get leverage from partners in the channel. Then Tom, the other part of the question was, are we still seeing elongated sales cycles Mike talked about that the AI fog being lifted and we're seeing a little bit of that, right?

We're cautiously optimistic about that. And obviously macro as well. But when I look at the sales cycles, our teams are doing an excellent job really focusing on the ROI part of AI right, which is we launched our AI blueprint, so leveraging our teams to go in and really identify those ROI use cases that helps in these customers that are going to him. I'm going to make my CX decision, but the AI part of it is going to really drive it. And so I think we're executing well there and again, cognitively optimistic that those very, very long sales cycles shorten. Thanks Tom.

Our next question comes from Michael Funk with Bank of America.

Michael?

Yes, great. Thank you for fitting in and very congratulations to you. Mike, I wanted to dig into a comp you made in your prepared remarks about your AI strategy relative to some proprietary models that are out there. How that advantages Five9. Any more color on how that does advantage during negotiations, during the RFP process. I think I know you're talking about, but love to hear more detail on how that differentiates.

Yes. Great question, Michael. And again, our NGINAG literally day one, even before we acquired Inference is playing out so nicely, no pun intended. We and I really mean that, there was nothing intended there. We started out I think, with the right strategy. Others are now following this strategy. So again, everyone's going to have access to these LLMs. That's not going to be a differentiator. What is a differentiator is everything that we built on top of those engines. And the good news for us is we didn't waste a lot of time and energy trying to build our own engines. We're now again able to leverage the latest and greatest for our customers leverage the latest and greatest engines as they come to market We just plug them in. It's easy to do through our AI studio framework. And it is a real advantage in, again, in the RFP process. We get a lot of questions around our AI strategy, including the architecture of it, including which engines we're leveraging, and customers really do appreciate the way we've approached it and we're winning because of that. Great. Thank you, Mike. Thank you.

Our final question will come from Arjun Bahatia with William Blair.

Perfect.

Thank you, guys.

Barry, since this is your last call here, one for you to And then maybe just I think, this is maybe the most optimistic I've heard, you sounding on some of the forward looking trends like bookings, AI traction pipeline, etcetera, in several quarters here. And yet, the guidance for next year, I think, still suggests sub-ten percent growth. When we're trying to reconcile those two, can you just give us a sense for there is kind of the most conservatism. I know you mentioned Q4 seasonality, but are you thinking about turn ups? Are you thinking about cloud migrations? AI bookings converting into revenue? If you could just give us a little bit more detail there, that would be super helpful.

Ben, I'm happy to answer that. So Arjun, the way we think about the annual guide, I want to point out first when we had our earnings call last quarter, we did mention that the outlook the consensus at $1,130,000,000 we were with that number.

And the guidance that we gave this time for the midpoint is an $11,500,000 beat in raise. Right? So there is that point. And I do want to emphasize the point that guidance philosophy is always prudent and that has not changed. And you have Barry mentioned the seasonal uptick. In Q4 have to be prudent. There's a lot of uncertainty out there in terms of macro. So we have to be prudent that that there's another layer of conservatism there in the back half of twenty twenty five for CECL. Assumptions. And of course, the mega customer ramp that I talked about, that would be a tough comparison. So at the end of the day, it's prudent and it's a starting point and we'll continue to update you as the year progresses.

All right. Perfect. Thanks Arjun.

All right. Well, thanks everyone for joining us. Barry, we're going to miss you Thank you guys too. Congratulations and thank you. But thank you for every to all of you for joining us and we'll look forward to keeping you updated as we progress through the year. And thanks again.

That concludes today's call. Thank you everyone and have a good evening.