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Core Insights - Five9 reported quarterly earnings of $0.78 per share, exceeding the Zacks Consensus Estimate of $0.73 per share, and showing an increase from $0.67 per share a year ago, resulting in an earnings surprise of +6.85% [1] - The company achieved revenues of $285.83 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 0.46% and up from $264.18 million year-over-year [2] Financial Performance - Five9 has consistently surpassed consensus EPS estimates over the last four quarters, achieving this four times [2] - The company has also topped consensus revenue estimates four times in the last four quarters [2] Stock Performance and Outlook - Five9 shares have declined approximately 44% since the beginning of the year, contrasting with the S&P 500's gain of 15.6% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] Earnings Estimate Revisions - The trend for earnings estimate revisions for Five9 was favorable ahead of the earnings release, leading to a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6] - Current consensus EPS estimate for the next quarter is $0.78 on revenues of $299.98 million, and for the current fiscal year, it is $2.88 on revenues of $1.15 billion [7] Industry Context - The Internet - Software industry, to which Five9 belongs, is currently ranked in the top 35% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Core Insights - Five9 met Wall Street's revenue expectations for Q3 CY2025, reporting sales of $285.8 million, an 8.2% year-on-year increase, but provided a less impressive revenue guidance for the next quarter at $297.7 million, which is 0.8% below analysts' estimates [1][6][7] - The company's non-GAAP profit of $0.78 per share exceeded analysts' consensus estimates by 6.5% [1][6] Company Overview - Five9, named after the "five nines" standard for optimal service reliability, offers cloud-based software for businesses to manage contact centers, focusing on customer service, sales, and marketing across various communication channels [3] Revenue Growth - Five9 has demonstrated a solid long-term sales performance with a compounded annual growth rate of 23.1% over the last five years, outperforming the average software company [4] - However, the company's annualized revenue growth of 13.2% over the last two years indicates a slowdown compared to its five-year trend [5] Financial Performance - Q3 CY2025 revenue was $285.8 million, slightly above analyst estimates of $285.2 million, with an adjusted EPS of $0.78 compared to the expected $0.73 [6] - Adjusted operating income was $57.11 million, beating estimates and achieving a 20% margin [6] - Management raised the full-year adjusted EPS guidance to $2.94, reflecting a 2.1% increase [6] - The operating margin improved to 5.6%, up from -5.8% in the same quarter last year, and free cash flow margin increased to 13.4% from 7.6% in the previous quarter [6] Future Outlook - The company is guiding for a 6.8% year-on-year increase in sales for the next quarter, while sell-side analysts project an 8.7% revenue growth over the next 12 months, indicating potential demand challenges [7]

Financial Data and Key Metrics Changes - In Q3 2025, Five9 reported revenue of $286 million, representing an 8% year-over-year growth [19] - Subscription revenue, which constitutes 81% of total revenue, grew by 10% year-over-year, primarily driven by enterprise AI revenue, which increased by 41% year-over-year [20] - Adjusted EBITDA grew by 37% year-over-year, achieving a margin of 25%, while free cash flow increased by 84% year-over-year, reaching a margin of 13% [5][23] Business Line Data and Key Metrics Changes - Enterprise AI bookings grew over 80% year-over-year, contributing to a healthy backlog [5] - Telecom usage accounted for 12% of revenue, while professional services made up 7%, both categories are not growth drivers and are becoming a smaller percentage of total revenue [20] - The commercial business represented 9% of total revenue but declined in the teens year-over-year as the company focuses on the enterprise market [21] Market Data and Key Metrics Changes - Gartner forecasts the traditional CCAS market to grow at a 9% CAGR and the GenAI customer service market at a 34% CAGR through 2029, leading to a combined annual spend of $48 billion [6] - Five9's dollar-based retention rate was 107% in Q3, down from 108% in Q2, attributed to tough comparisons from previous periods [21][22] Company Strategy and Development Direction - Five9 aims to maintain operational improvements while investing in AI and go-to-market initiatives, targeting the Rule of 40 by 2027 [5][28] - The company is focused on building strategic partnerships, with significant growth in ACV bookings with ServiceNow and Salesforce [12][19] - Five9 is positioned as a leader in the AI-powered customer experience market, leveraging its platform to integrate AI and human agents [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's foundation for the next decade, emphasizing the importance of AI in customer experience [12][13] - The CEO search is progressing well, with a focus on finding a leader experienced in product innovation and operational excellence [14] - The company anticipates a return to double-digit revenue growth in the second half of 2026, driven by strong install-based bookings and new logos [26][27] Other Important Information - Five9 announced a $150 million share repurchase program, reflecting confidence in long-term growth opportunities [19] - The company expects Q4 revenue to be approximately $297.7 million, indicating a sequential growth of 4% [24] Q&A Session Summary Question: What happened in the quarter regarding guidance? - Management noted that the growth environment is transitioning, leading to expectations of smaller beats in guidance. Subscription revenue growth was impacted by tough comparisons and a decline in commercial revenue due to underallocation of demand and a gap in sales capacity [30][31] Question: Why is it taking so long to translate install-based bookings to revenue? - Management explained that install-based bookings have longer implementation cycles, and revenue conversion will ramp up throughout 2026, particularly in the second half of the year [35][36] Question: What is the current state of the bookings environment? - The company reported strong bookings momentum, with AI bookings up 80% year-over-year and record install-based bookings [40][41] Question: Are there any pricing pressures on core live agent seats? - Management indicated that there is no significant pricing pressure at renewal time, and customers are looking for pricing models that incorporate AI [79][81]

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Q3 2025 Performance Highlights - Total revenue reached $286 million[8] - Adjusted EBITDA margin was 25%[8, 12] - Free cash flow margin was 13%[8, 12] - Dollar Based Retention Rate (DBRR) was 107%[8, 12] AI Metrics in Q3 2025 - Enterprise AI revenue experienced year-over-year growth of 41%[13] - AI contributed 11% to enterprise subscription revenue[13] - Enterprise AI bookings grew by over 80% year-over-year[13] - AI accounted for over 20% of enterprise new logo ACV bookings[13] - AI was virtually always attached to $1M+ ARR new logo deals[13] Financial Guidance and Share Repurchase Program - The company authorized a $150 million share repurchase program expiring on December 31, 2027[9, 11] - An Accelerated Share Repurchase (ASR) agreement is intended to repurchase $50 million of common stock, with final settlement expected by the end of Q1 2026[11] - Q4 2025 revenue is projected to be between $2947 million and $300.7 million[36] - Full-year 2025 revenue is guided to be between $1.1435 billion and $1.1495 billion[36]

Financial Performance - Revenue for Q3 2025 reached $285.8 million, a 8.5% increase from $264.2 million in Q3 2024[18] - Gross profit for Q3 2025 was $157.3 million, compared to $142.2 million in Q3 2024, reflecting a gross margin improvement[18] - Net income for Q3 2025 was $18.0 million, compared to a net loss of $4.5 million in Q3 2024, marking a significant turnaround[18] - Total revenue for the nine months ended September 30, 2025, was $848,806,000, up from $763,278,000 in the same period of 2024, marking a growth of 11.2%[109] - Net income for the three and nine months ended September 30, 2025, was $18.0 million and $19.7 million, compared to net losses of $4.5 million and $24.4 million for the same periods in 2024[139] - Adjusted EBITDA for the three and nine months ended September 30, 2025, was $71.7 million and $192.4 million, compared to $52.4 million and $131.7 million for the same periods in 2024[147] Assets and Liabilities - Total assets decreased to $1.77 billion as of September 30, 2025, down from $2.05 billion at the end of 2024[15] - Total liabilities decreased to $993.1 million as of September 30, 2025, compared to $1.43 billion at the end of 2024[15] - Total stockholders' equity increased to $775.3 million as of September 30, 2025, up from $622.2 million at the end of 2024[15] - Cash and cash equivalents decreased to $193.4 million from $362.5 million at the end of 2024[15] - Total cash, cash equivalents, and restricted cash decreased to $195.4 million at the end of the period from $292.9 million at the end of the previous year[30] Expenses - Research and development expenses for Q3 2025 were $35.2 million, down from $42.5 million in Q3 2024[18] - Sales and marketing expenses for Q3 2025 were $71.7 million, a decrease from $78.6 million in Q3 2024[18] - General and administrative expenses for the three months ended September 30, 2025, decreased by $2.2 million (6%) compared to the same period in 2024, primarily due to a $1.1 million decrease in office and facilities costs[170] - For the nine months ended September 30, 2025, general and administrative expenses increased by $4.8 million (5%) compared to the same period in 2024, driven by a $2.9 million increase in personnel-related costs[171] Cash Flow - Net cash provided by operating activities increased to $142.6 million, compared to $93.4 million for the nine months ended September 30, 2024, reflecting a 52.8% increase[30] - Net cash provided by investing activities was $119.2 million for the nine months ended September 30, 2025, primarily from cash proceeds of $736.4 million from sales and maturities of marketable investments[183] - Net cash used in financing activities was $(430.5) million for the nine months ended September 30, 2025, mainly due to $434.4 million paid for the maturity of the 2025 convertible senior notes[185] Stock and Equity - The company issued $747.5 million in convertible senior notes in March 2024, with an estimated fair value of $662.1 million as of September 30, 2025[54] - The net carrying amount of the 2029 convertible senior notes was $734.6 million as of September 30, 2025, slightly up from $731.9 million at the end of 2024[75] - The Company repurchased approximately $313.1 million of 2025 convertible senior notes for about $304.9 million in cash, resulting in an extinguishment gain of approximately $6.6 million[65][67] - As of September 30, 2025, the Company had 78,214,059 shares of common stock issued and outstanding, an increase from 75,807,505 shares as of December 31, 2024[81] Customer and Revenue Composition - Subscription and related usage fees accounted for 93% of total revenue for the three and nine months ended September 30, 2025, compared to 92% for the same periods in 2024[134] - The company has over 3,000 customers across multiple industries, with no single customer accounting for more than 10% of total revenue[139] Future Outlook and Challenges - The company expects to recognize revenue on approximately 75% of the remaining performance obligations over the next 24 months[47] - Macroeconomic challenges, including global tariff increases and geopolitical conflicts, are expected to continue impacting revenue in future periods[135] - The company anticipates continued investment in professional services and cloud operations to maintain service quality, which may lead to long-term declines in cost of revenue as a percentage of revenue[153] Acquisitions and Restructuring - The company acquired Acqueon for approximately $173.8 million on August 27, 2024, to enhance its AI-powered customer experience platform[120] - The company implemented a reduction in force plan in 2024, resulting in a 6% decrease in global full-time employees, incurring $9.6 million in restructuring costs[126] - A further reduction of approximately 4% in global full-time employees was executed under the 2025 Plan, with restructuring costs totaling $7.9 million during the nine months ended September 30, 2025[138]

Financial Performance - Revenue for Q3 2025 increased 8% to a record $285.8 million, compared to $264.2 million for Q3 2024[3] - GAAP net income for Q3 2025 was $18.0 million, or $0.21 per diluted share, compared to a net loss of $(4.5) million in Q3 2024[3] - Adjusted EBITDA for Q3 2025 was $71.7 million, or 25.1% of revenue, compared to $52.4 million, or 19.8% of revenue, in Q3 2024[3] - Non-GAAP net income for Q3 2025 was $60,604,000, compared to $50,461,000 in Q3 2024[30] - Basic GAAP net income per share for Q3 2025 was $0.23, compared to a loss of $0.06 per share in Q3 2024[30] - Adjusted EBITDA for the nine months ended September 30, 2025, was $192,372,000, compared to $131,726,000 for the same period in 2024[24] Revenue Expectations - For the full year 2025, Five9 expects revenue in the range of $1.1435 to $1.1495 billion[9] - For Q4 2025, Five9 expects revenue in the range of $294.7 to $300.7 million[9] Cash Flow and Assets - GAAP operating cash flow for Q3 2025 was $59.2 million, up from $41.1 million in Q3 2024[3] - Cash flows from operating activities for the nine months ended September 30, 2025, were $142,641,000, up from $93,353,000 in the same period of 2024[20] - Total current assets decreased to $949,413,000 as of September 30, 2025, down from $1,248,568,000 at the end of 2024[16] - Total liabilities decreased to $993,119,000 as of September 30, 2025, compared to $1,429,022,000 at the end of 2024[16] Share Repurchase and Stock Compensation - Five9 announced a $150 million share repurchase program, including a $50 million accelerated share repurchase[4] - The company plans to execute an accelerated share repurchase agreement in November 2025 to repurchase $50 million of its common stock, expecting an upfront delivery of approximately 1.7 million shares[40] - Stock-based compensation for Q3 2025 totaled $33,339,000, down from $39,556,000 in Q3 2024[27] - Stock-based compensation expenses are estimated to be between $34,232 million and $36,232 million for the three months ending December 31, 2025[38] Expenses and Costs - Research and development expenses for the three months ended September 30, 2025, were $35,218,000, down from $42,482,000 in the same period of 2024[18] - Acquisition-related transaction costs for Q3 2025 were $1,620,000, down from $4,486,000 in Q3 2024[27] - The company reported a reduction in force plan cost of $403,000 in Q3 2025, significantly lower than $9,625,000 in Q3 2024[27] - Acquisition and related transaction costs, along with one-time integration costs, are projected to be around $2,668 million to $3,668 million for the three months ending December 31, 2025[38] - The company anticipates a reduction in force plan will incur costs of approximately $8,169 million[37] - Legal fees related to the securities class action are expected to be around $400 million for the three months ending December 31, 2025[37] Growth and Market Strategy - Enterprise AI revenue grew 41% year-over-year in Q3 2025[3] - The company emphasizes the importance of AI in driving growth and customer engagement in the evolving CX market[12] Future Projections - GAAP net income for the three months ending December 31, 2025, is projected to be between $11,986 million and $18,098 million, with a year-end estimate of $31,681 million to $37,769 million[37] - Non-GAAP net income for the same period is expected to range from $59,213 million to $62,325 million, with a year-end forecast of $225,423 million to $228,511 million[37] - Diluted GAAP net income per share is anticipated to be between $0.14 and $0.21 for the three months ending December 31, 2025, and between $0.36 and $0.43 for the year[37] - Diluted non-GAAP net income per share is projected to be between $0.76 and $0.80 for the three months ending December 31, 2025, and between $2.92 and $2.96 for the year[37]

Core Insights - Scalar Gauge Management sold its entire stake in Five9 for an estimated $10.6 million in the third quarter, liquidating 399,717 shares [1][2] - Five9's stock price closed at $24.28, reflecting an 18% decline over the past year, underperforming the S&P 500's nearly 17% gain during the same period [3] - Scalar Gauge's exit from Five9 indicates a broader trend of pulling back from cloud software investments amid compressed enterprise valuations [6][7] Company Overview - Five9 is a leading provider of cloud software for contact centers, facilitating customer interactions across various digital and voice channels [5][9] - The company reported a trailing twelve months (TTM) revenue of $1.1 billion and a net income of $8.8 million [4] Market Context - Scalar Gauge noted that software multiples have fallen below 2022 troughs despite stronger profitability, indicating that valuation pressures are influencing market behavior rather than fundamentals [7] - The firm continues to view enterprise software as an attractive segment but is temporarily reducing exposure while awaiting market stabilization [7][10]

Core Insights - The AI-driven bull run that began in 2023 and 2024 continues into 2025, with AI infrastructure developers poised for significant growth [1] - Despite the overall positive trend, several AI stocks have underperformed in 2025, presenting potential growth opportunities [2] Company Summaries Five9 Inc. (FIVN) - Five9 is a contact center software solutions provider benefiting from increased subscription revenues and enterprise AI traction [4][9] - The company offers a virtual contact center cloud platform with applications for customer service, sales, and marketing [5] - FIVN's expected revenue and earnings growth rates for the current year are 10.6% and 16.6%, respectively, with a 4.3% improvement in earnings estimates over the last 90 days [9] TaskUs Inc. (TASK) - TaskUs provides outsourced digital services across various sectors, including social media and e-commerce [11] - The company has formed strategic partnerships to enhance its agentic AI consulting services, driving double-digit growth [12][13] - TASK's expected revenue and earnings growth rates for the current year are 17.8% and 16.3%, respectively, with a 4.2% improvement in earnings estimates over the last 60 days [13] Workday Inc. (WDAY) - Workday's diversified product portfolio and cloud-based business model are key growth drivers, supported by significant investments [15][16] - The company has strong customer wins across various sectors, contributing to its revenue growth [16] - WDAY's expected revenue and earnings growth rates for the current year are 12.7% and 21.1%, respectively, with a 0.3% improvement in earnings estimates over the last 60 days [17] GitLab Inc. (GTLB) - GitLab offers a DevOps platform that enhances visibility and control over the DevOps lifecycle, with significant innovations in its product portfolio [18] - The introduction of GitLab Duo Workflow, a secure agentic AI, is expected to expand its market presence [19] - GTLB's expected revenue and earnings growth rates for the current year are 23.8% and 12.2%, respectively, with a notable 10.7% improvement in earnings estimates over the last 60 days [19] BILL Holdings Inc. (BILL) - BILL Holdings focuses on AI-enabled financial software for small and medium businesses, benefiting from a growing client base [21][22] - The company is enhancing customer experience through its AI-powered financial operations platform [22] - BILL's expected revenue and earnings growth rates for the current year are 10.5% and -3.2%, respectively, with a 0.5% improvement in earnings estimates over the last 30 days [23]