Five9(FIVN) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This section outlines Five9, Inc.'s Form 10-Q filing details, including registrant identification, trading symbol, and filer status Registrant Information This section provides key identification details for Five9, Inc.'s Form 10-Q filing for the quarterly period ended June 30, 2025, including its incorporation state, principal executive offices, trading symbol, and filer status - Five9, Inc. is incorporated in Delaware, headquartered in San Ramon, CA, and trades on The NASDAQ Global Market under the symbol FIVN[2][3] Filer Status as of June 30, 2025 | Filer Status | Mark | | :-------------------- | :--- | | Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | | Emerging growth company | ☐ | - As of July 25, 2025, there were 77,262,690 shares of common stock outstanding[4] Special Note Regarding Forward-Looking Statements This section clarifies forward-looking statements and outlines key risks that could materially impact future financial performance Nature of Forward-Looking Statements This section clarifies that the report contains forward-looking statements reflecting management's current views on future events, strategies, and financial performance, which are subject to substantial risks and uncertainties - Forward-looking statements in this report cover business, expenses, strategies, growth plans, product and customer initiatives, market growth projections, and industry outlook[10] - Such statements are identified by words like 'expect,' 'intend,' 'plan,' 'believe,' 'project,' 'forecast,' 'estimate,' 'may,' 'should,' and 'anticipate'[10] Risk Factors The company highlights important factors that could cause actual results to differ materially from forward-looking statements, including adverse economic conditions, challenges in customer acquisition and retention, AI solution development risks, and competitive market pressures - Adverse economic conditions, including inflation, high interest rates, and geopolitical conflicts, may continue to harm the business[11] - Failure to attract new customers, sell additional services, or retain existing subscriptions could harm revenue and gross margins[11] - Risks associated with AI solutions include potential decreases in subscription revenue if AI solutions do not replace licenses, unsuccessful development, reputational harm, and legal/business risks from evolving AI technologies[11] - Other risks include managing technical operations, reliance on third-party distributors and service providers, volatility in quarterly results, inability to attract and retain skilled employees, and challenges in international expansion[11][13] PART I. FINANCIAL INFORMATION This section presents Five9, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Five9, Inc., including the balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining significant accounting policies and financial components Condensed Consolidated Balance Sheets (Unaudited) This section presents the unaudited condensed consolidated balance sheets, detailing changes in assets, liabilities, and equity Condensed Consolidated Balance Sheets (In thousands) | ASSETS | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $205,479 | $362,546 | | Marketable investments | $430,397 | $643,410 | | Accounts receivable, net | $127,835 | $115,172 | | Total current assets | $894,194 | $1,248,568 | | Total assets | $1,704,860 | $2,051,214 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Convertible senior notes (current) | $— | $433,490 | | Total current liabilities | $201,589 | $641,691 | | Convertible senior notes (non-current) | $733,620 | $731,855 | | Total liabilities | $987,483 | $1,429,022 | | Total stockholders' equity | $717,377 | $622,192 | | Total liabilities and stockholders' equity | $1,704,860 | $2,051,214 | - Total assets decreased by approximately $346.3 million from December 31, 2024, to June 30, 2025, primarily due to a reduction in cash, cash equivalents, and marketable investments[16] - Current convertible senior notes were fully repaid by June 30, 2025, leading to a significant decrease in total current liabilities[16] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) This section presents the unaudited condensed consolidated statements of operations, highlighting revenue, gross profit, and net income (loss) Condensed Consolidated Statements of Operations (In thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $283,269 | $252,086 | $562,974 | $499,096 | | Gross profit | $155,404 | $133,672 | $309,136 | $266,152 | | Loss from operations | $(1,561) | $(19,365) | $(6,989) | $(40,060) | | Net income (loss) | $1,154 | $(12,816) | $1,730 | $(19,893) | | Basic net income (loss) per share | $0.02 | $(0.17) | $0.02 | $(0.27) | | Diluted net income (loss) per share | $0.01 | $(0.17) | $0.02 | $(0.27) | - The company reported net income for the three and six months ended June 30, 2025, reversing net losses from the prior year periods[19] - Revenue increased by 12% for the three months and 13% for the six months ended June 30, 2025, compared to the same periods in 2024[19] Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section presents the unaudited condensed consolidated statements of stockholders' equity, detailing changes in capital structure Changes in Stockholders' Equity (In thousands) | Metric | Balance as of Dec 31, 2024 | Six Months Ended June 30, 2025 | | :----------------------------------- | :------------------------- | :----------------------------- | | Common Stock (Shares) | 75,808 | 77,263 | | Common Stock (Amount) | $76 | $77 | | Additional Paid-In Capital | $1,039,125 | $1,133,107 | | Accumulated Other Comprehensive Income | $636 | $108 | | Accumulated Deficit | $(417,645) | $(415,915) | | Total Stockholders' Equity | $622,192 | $717,377 | - Total stockholders' equity increased by $95.2 million from December 31, 2024, to June 30, 2025, driven by net income and stock-based compensation[27] - Stock-based compensation contributed $86.0 million to additional paid-in capital during the six months ended June 30, 2025[27] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $83,445 | $52,231 | | Net cash provided by (used in) investing activities | $191,063 | $(360,103) | | Net cash (used in) provided by financing activities | $(431,125) | $340,412 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(156,617) | $32,540 | | Cash, cash equivalents and restricted cash, End of period | $207,568 | $177,382 | - Operating cash flow increased significantly to $83.4 million for the six months ended June 30, 2025, from $52.2 million in the prior year[29] - Investing activities shifted from a net cash outflow of $360.1 million in 2024 to a net cash inflow of $191.1 million in 2025, primarily due to changes in marketable investment purchases and maturities[29] - Financing activities resulted in a net cash outflow of $431.1 million in 2025, mainly due to the repayment of 2025 convertible senior notes at maturity[29] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes to the financial statements, explaining accounting policies and key financial components Note 1. Description of Business and Summary of Significant Accounting Policies Five9, Inc. is a cloud software provider for contact centers, incorporated in Delaware in 2001. The financial statements are prepared under GAAP, with no material changes to significant accounting policies from the prior annual report. The company is evaluating the impact of several new FASB ASUs on income tax disclosures and expense disaggregation - Five9, Inc. provides cloud software for contact centers and operates globally with offices in Europe, Asia, and Australia[32] - The company is assessing the impact of ASU 2023-09 (Income Taxes), ASU 2024-03/2025-01 (Expense Disaggregation Disclosures), and ASU 2024-04 (Debt with Conversion and Other Options) on its financial statements[36][37][38] Note 2. Revenue This note details the company's contract balances, including accounts receivable, deferred contract acquisition costs, and contract liabilities. It also outlines remaining performance obligations, with approximately three-fourths expected to be recognized over the next 24 months Contract Balances (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Accounts receivable, net | $127,835 | $115,172 | | Total deferred contract acquisition costs, net | $246,410 | $231,757 | | Net contract liabilities | $(65,462) | $(72,832) | - The company expects to recognize revenue on approximately three-fourths of its $1,150.1 million remaining performance obligations over the next 24 months[43] - Revenue recognized from contract liabilities at December 31, 2024, was $11.4 million for the three months and $60.9 million for the six months ended June 30, 2025[42] Note 3. Investments and Fair Value Measurements This note details the company's marketable investments, classified as available-for-sale, and their fair value measurements using a three-level hierarchy. It also discusses an equity investment in a privately-held company and the fair value of convertible senior notes Short-Term Marketable Investments (Fair Value, in thousands) | Investment Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Certificates of deposit | $816 | $802 | | U.S. treasury securities | $217,137 | $442,572 | | U.S. agency and government-sponsored securities | $184,731 | $146,760 | | Commercial paper | $5,703 | $9,608 | | Municipal bonds | $900 | $— | | Corporate bonds | $21,110 | $43,668 | | Total | $430,397 | $643,410 | - The fair value of 2029 convertible senior notes was $653.7 million as of June 30, 2025, classified as Level 2 in the fair value hierarchy[52] - An equity investment in a privately-held company, accounted for at cost minus impairment, is classified within Level 3, with a $1.3 million impairment charge recorded in 2024[53] Note 4. Financial Statement Components This note provides a detailed breakdown of various financial statement components, including cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, property and equipment, other assets, and accrued and other current liabilities Cash and Cash Equivalents (In thousands) | Component | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Cash | $167,900 | $162,902 | | Money market funds | $37,579 | $114,370 | | Certificates of deposit | $— | $496 | | U.S. treasury securities | $— | $42,946 | | U.S. agency and government sponsored securities | $— | $41,832 | | Total cash and cash equivalents | $205,479 | $362,546 | Property and Equipment, Net (In thousands) | Component | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Computer and network equipment | $177,866 | $173,671 | | Computer software | $65,765 | $66,455 | | Internal-use software development costs | $72,900 | $49,340 | | Furniture and fixtures | $4,559 | $5,127 | | Leasehold improvements | $6,746 | $6,736 | | Property and equipment (gross) | $327,836 | $301,329 | | Accumulated depreciation and amortization | $(173,337) | $(156,441) | | Property and equipment, net | $154,499 | $144,888 | - Depreciation and amortization expense for property and equipment was $21.6 million for the six months ended June 30, 2025, up from $19.8 million in the prior year[58] Note 5. Goodwill and Intangible Assets This note outlines the changes in goodwill and intangible asset balances, including a measurement period adjustment for the Acqueon acquisition and amortization expenses. Developed technology represents the largest component of intangible assets Goodwill and Intangible Asset Activity (In thousands) | Metric | Goodwill | Intangible Assets | | :----------------------------------- | :------------ | :---------------- | | Beginning of period, Dec 31, 2024 | $365,436 | $65,632 | | Measurement period adjustment (Acqueon) | $1,262 | $— | | Amortization | $— | $(7,564) | | End of period, June 30, 2025 | $366,698 | $58,068 | Components of Intangible Assets (June 30, 2025, in thousands) | Component | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Amortization Period (Years) | | :------------------ | :-------------------- | :----------------------- | :------------------ | :----------------------------------------------------- | | Developed technology | $105,714 | $(57,317) | $48,397 | 5.9 | | Customer relationships | $12,850 | $(3,942) | $8,908 | 3.9 | | Trademarks | $1,300 | $(537) | $763 | 1.9 | | Total | $120,334 | $(62,266) | $58,068 | 5.5 | - Amortization expense for intangible assets was $7.6 million for the six months ended June 30, 2025, an increase from $5.3 million in the prior year[60] Note 6. Debt This note details the company's convertible senior notes, including the issuance of 2029 notes, the repurchase and maturity of 2025 notes, and related capped call transactions. It also covers the interest expense associated with these debt instruments - In March 2024, the company issued $747.5 million aggregate principal amount of 1.00% convertible senior notes due 2029[66] - The company repurchased $313.1 million of its 2025 convertible senior notes for $304.9 million, resulting in a $6.6 million extinguishment gain[62][63] - The 2025 convertible senior notes matured on June 1, 2025, and obligations were settled in cash; no 2025 notes were outstanding as of June 30, 2025[76][97] Interest Expense on Convertible Senior Notes (In thousands) | Note Type | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :----------------------------- | :----------------------------- | | 2029 Convertible Senior Notes | $5,503 | $3,662 | | 2025 Convertible Senior Notes | $1,820 | $2,686 | | Total | $7,323 | $6,348 | Note 7. Stockholders' Equity This note details the company's capital structure, including common and preferred stock, shares reserved for future issuance, and activity related to stock options and restricted stock units (RSUs), including performance-based RSUs (PRSUs). It also provides a breakdown of stock-based compensation expense - As of June 30, 2025, 77,262,690 shares of common stock were issued and outstanding[78] Common Stock Reserved for Future Issuance (June 30, 2025, in thousands) | Category | Shares | | :------------------------------------- | :----- | | Stock options outstanding | 848 | | RSUs (including PRSUs) outstanding | 7,198 | | Shares available for future grant under 2014 Plan | 13,029 | | Shares available for future issuance under ESPP | 3,961 | | Total shares of common stock reserved | 25,036 | Total Stock-Based Compensation Expense (In thousands) | Expense Category | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------ | :------------------------------- | :----------------------------- | | Cost of revenue | $7,296 | $14,480 | | Research and development | $8,829 | $17,519 | | Sales and marketing | $13,355 | $24,929 | | General and administrative | $12,379 | $24,176 | | Total | $41,859 | $81,104 | - During the six months ended June 30, 2025, the company granted 267,711 market-based PRSUs with a grant date fair value of $13.9 million[83] Note 8. Net Income (Loss) Per Share This note details the calculation of basic and diluted net income (loss) per share, including the weighted-average shares outstanding and the securities excluded from diluted EPS calculation due to their anti-dilutive effect Net Income (Loss) Per Share (In thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1,154 | $(12,816) | $1,730 | $(19,893) | | Basic shares | 76,654 | 74,203 | 76,303 | 73,845 | | Diluted shares | 88,523 | 74,203 | 88,964 | 73,845 | | Basic net income (loss) per share | $0.02 | $(0.17) | $0.02 | $(0.27) | | Diluted net income (loss) per share | $0.01 | $(0.17) | $0.02 | $(0.27) | - For periods of net loss (e.g., June 30, 2024), stock options, RSUs, and convertible senior notes were excluded from diluted EPS calculation as their effect would have been anti-dilutive[89] Note 9. Income Taxes This note details the provision for income taxes, which primarily consists of U.S. federal and state tax expenses due to IRC Section 174 requirements and tax attribute utilization limitations, as well as foreign current income tax expense. The company maintains a full valuation allowance against its U.S. net deferred tax assets Provision for Income Taxes (In thousands) | Period | June 30, 2025 | June 30, 2024 | | :--------------------------------- | :------------ | :------------ | | Three Months Ended | $1,382 | $3,345 | | Six Months Ended | $1,566 | $4,334 | - The provision for income taxes is primarily driven by U.S. federal and state tax expenses due to IRC Section 174 capitalization requirements and foreign current income tax[91] - A full valuation allowance is maintained against U.S. net deferred tax assets, as the company does not believe their realization is more likely than not[93] Note 10. Commitments and Contingencies This note outlines the company's principal commitments, including those under co-location hosting, telecommunication usage, cloud services, software and maintenance agreements, and convertible senior notes. It also addresses legal matters, specifically a securities class action and a related shareholder derivative action - As of June 30, 2025, commitments include $12.0 million for co-location hosting and telecommunication services, and $25.5 million for cloud services and software/maintenance agreements[95][96] - The 2025 convertible senior notes matured on June 1, 2025, and $747.5 million of 2029 convertible senior notes remain outstanding[97] - The company is a defendant in a securities class action lawsuit filed in December 2024, alleging violations of the Securities Exchange Act, and a related shareholder derivative action filed in March 2025[98][100] - The company intends to vigorously defend the lawsuits and cannot estimate the reasonably possible loss at this time[99] Note 11. Segment and Geographical Information Five9 operates as a single operating and reportable segment, providing cloud contact center solutions through a SaaS business model. Revenue is generated from subscriptions, usage-based telephony, and professional services. The note also provides a breakdown of revenue and long-lived assets by geographic region - The company's Intelligent CX Platform, powered by Five9 Genius AI, offers a comprehensive suite of applications for customer service, sales, and marketing functions[102] Revenue by Geographic Region (In thousands) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $251,390 | $224,532 | $498,446 | $443,792 | | International | $31,879 | $27,554 | $64,528 | $55,304 | | Total revenue | $283,269 | $252,086 | $562,974 | $499,096 | Long-Lived Assets, Net by Geographic Region (In thousands) | Region | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :---------------- | | United States | $142,702 | $136,382 | | International | $11,797 | $8,506 | | Total | $154,499 | $144,888 | Note 12. Leases This note provides details on the company's operating and finance leases for offices, data centers, and equipment, including lease expenses, cash flow impacts, balance sheet information, and maturity schedules. New equipment finance lease agreements were recognized during the period Lease Expenses (In thousands) | Lease Type | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------ | :------------------------------- | :----------------------------- | | Operating lease cost | $3,123 | $6,295 | | Total finance lease cost | $2,600 | $4,867 | - The company entered into additional three-year equipment finance lease agreements, recognizing $3.9 million in right-of-use assets and corresponding liabilities during the six months ended June 30, 2025[112] Total Lease Liabilities (In thousands) | Lease Type | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Total operating lease liabilities | $46,698 | $48,329 | | Total finance lease liabilities | $19,186 | $19,456 | - Weighted average remaining lease terms are 4.7 years for operating leases and 2.2 years for finance leases as of June 30, 2025[114] Note 13. Acquisition This note details the acquisition of Acqueon on August 27, 2024, for approximately $173.8 million. The acquisition aims to enhance Five9's AI-powered CX platform with omnichannel proactive customer engagement. The purchase price allocation includes significant goodwill and intangible assets - Five9 acquired Acqueon for approximately $173.8 million to expand its AI-powered CX platform and outbound capabilities[115] Preliminary Purchase Price Allocation (Acqueon Acquisition, in thousands) | Asset Acquired | Amount | | :------------------ | :----- | | Cash | $6,661 | | Tangible assets acquired | $3,559 | | Other assets acquired | $7,333 | | Acquired technology | $30,400 | | Customer relationships | $8,700 | | Trademarks | $800 | | Goodwill | $139,429 | | Total assets acquired | $196,882 | | Deferred tax liability | $(5,058) | | Liabilities assumed | $(17,997) | | Total | $173,827 | - Goodwill of $139.4 million was recorded, which is not deductible for tax purposes[116][117] Note 14. Restructurings This note describes two reduction in force plans, the 2024 Plan and the 2025 Plan, implemented to drive profitable growth and prioritize AI investments. Both plans involved employee reductions and incurred restructuring costs, primarily for severance and benefits - The 2024 Plan, announced in August 2024, reduced global full-time employees by approximately 6%, incurring $9.6 million in restructuring costs[121] - The 2025 Plan, approved in March 2025, reduced global full-time employees by approximately 4%, incurring $7.8 million in restructuring costs and an additional $2.1 million in stock-based compensation costs during the three and six months ended June 30, 2025[122] - Both plans aimed to drive balanced, profitable growth and prioritize investments in key strategic areas, including artificial intelligence[121][122] Note 15. Subsequent Event This note discloses a subsequent event: the signing of H.R.1, the One Big Beautiful Bill Act (OBBBA), on July 4, 2025. This new tax law introduces significant changes to the U.S. tax code, including bonus depreciation and R&D expensing, which are expected to impact the company's effective tax rate and financial position starting in Q3 2025 - H.R.1, the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, will reinstate 100% bonus depreciation and allow immediate expensing of domestic R&D expenditures[123] - The OBBBA's effects are not reflected in the Q2 financial statements but are expected to impact the company's effective tax rate, cash flows, and capital allocation strategy starting in the third quarter of 2025[123] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Five9, Inc.'s financial condition and results of operations for the three and six months ended June 30, 2025 and 2024. It covers the company's business overview, key performance metrics, detailed analysis of revenue and expenses, liquidity, capital resources, and critical accounting policies Overview Five9 is a leading provider of intelligent cloud contact centers, focusing on transitioning organizations from legacy systems to its AI-powered Intelligent CX Platform. The company has expanded its market to larger contact centers and embedded AI throughout its platform, driving revenue growth despite macroeconomic challenges and recent workforce reductions - Five9 is a leading provider of intelligent cloud contact centers with over 3,000 customers, offering a SaaS solution for managing customer interactions across multiple channels[125][132] - The company's Intelligent CX Platform, powered by Five9 Genius AI, optimizes customer experience and agent productivity[125] - Subscription and related usage fees accounted for 93% of revenue for the three and six months ended June 30, 2025[127] - The company implemented reduction in force plans in 2024 and 2025, reducing global full-time employees by approximately 6% and 4% respectively, to drive profitable growth and prioritize AI investments[129][131] Key Operating and Non-GAAP Financial Performance Metrics This section highlights key metrics used to evaluate business performance, including Annual Dollar-Based Retention Rate and Adjusted EBITDA. The retention rate remained stable, while Adjusted EBITDA saw significant growth, reflecting improved operational performance Annual Dollar-Based Retention Rate | Period | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :---------------- | :-------------------------------- | :-------------------------------- | | Retention Rate | 108% | 108% | - The Annual Dollar-Based Retention Rate remained stable at 108% year-over-year, influenced by macroeconomic headwinds, seasonal decreases in certain markets, and growth from AI and existing customer expansions[136] Adjusted EBITDA (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1,154 | $(12,816) | $1,730 | $(19,893) | | Adjusted EBITDA | $67,950 | $41,781 | $120,652 | $79,366 | - Adjusted EBITDA increased by 62.6% for the three months and 52.0% for the six months ended June 30, 2025, compared to the same periods in 2024, indicating improved operational performance[139] Key Components of Our Results of Operations This section details the primary components of the company's financial results: revenue, cost of revenue, and operating expenses. Revenue is primarily from recurring subscriptions and usage, supplemented by professional services. Cost of revenue is influenced by telecommunications fees and infrastructure investments, while operating expenses are categorized into research and development, sales and marketing, and general and administrative, all expected to increase in absolute dollars to support growth - Revenue consists of subscription and related usage fees (recurring) and professional services, with subscription fees recognized straight-line and usage fees based on actual usage[141] - Cost of revenue includes personnel, telecommunications fees, USF contributions, depreciation, data center costs, and amortization of acquired technology and internal-use software[145] - Research and development expenses are primarily personnel costs for new product development and improvements, expected to increase in absolute dollars[147] - Sales and marketing expenses include personnel, amortization of deferred contract acquisition costs, and advertising, also expected to increase in absolute dollars to drive revenue growth[148] Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024 This section provides a detailed comparative analysis of the company's operating results, highlighting revenue growth driven by larger customers, increased gross profit, and changes in operating expenses. Net income was achieved in 2025, a significant improvement from net losses in 2024, despite increased interest expense from new convertible notes Operating Results as a Percentage of Revenue | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | 100% | 100% | 100% | 100% | | Gross profit | 55% | 53% | 55% | 53% | | Loss from operations | (1)% | (8)% | (1)% | (8)% | | Net income (loss) | 0% | (5)% | 0% | (4)% | - Revenue increased by 12% and 13% for the three and six months ended June 30, 2025, respectively, primarily due to growth from larger customers and enhanced brand awareness[152] - Gross profit increased by 16% for both the three and six months ended June 30, 2025, compared to the same periods in 2024, with gross margin improving from 53% to 55%[154] - Interest income and other decreased by 43% and 25% for the three and six months ended June 30, 2025, respectively, due to lower investable balances after the 2025 convertible notes maturity and increased foreign currency transaction losses[163] Liquidity and Capital Resources The company's liquidity is primarily supported by sales, equity, and debt financings. As of June 30, 2025, it had $692.6 million in working capital. The 2025 convertible senior notes were repaid, and the 2029 notes remain outstanding. The company expects existing cash and equivalents to cover needs for the next 12 months but may seek additional financing for growth initiatives and potential acquisitions - As of June 30, 2025, working capital was $692.6 million, including $205.5 million in cash and cash equivalents and $430.4 million in marketable investments[164] - The company repaid $434.4 million for the maturity of the 2025 convertible senior notes on June 1, 2025[164][176] - Net cash provided by operating activities increased to $83.4 million for the six months ended June 30, 2025, from $52.2 million in the prior year[171][173] - Net cash provided by investing activities was $191.1 million in the six months ended June 30, 2025, a significant shift from a net outflow of $360.1 million in the prior year[174][175] Critical Accounting Policies and Estimates This section states that there have been no material changes to the company's critical accounting policies and estimates since its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to critical accounting policies and estimates were reported since the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[179] Recent Accounting Pronouncements This section refers readers to Note 1 of the condensed consolidated financial statements for information on recent accounting pronouncements - Refer to Note 1 for details on recent accounting pronouncements[180] Contractual and Other Obligations This section details the company's material cash requirements from contractual obligations, including convertible senior notes, leases, cloud services, software and maintenance agreements, and hosting and telecommunication usage services. It also addresses indemnification agreements and legal contingencies - The 2025 convertible senior notes matured on June 1, 2025, and were settled in cash. $747.5 million aggregate principal amount of 2029 convertible senior notes remain outstanding[182][183] - Outstanding operating lease obligations totaled $51.3 million as of June 30, 2025, with $6.8 million due in the remainder of 2025[185] - Outstanding finance lease obligations totaled $20.4 million as of June 30, 2025, with $5.1 million due in the remainder of 2025[185] - Commitments for cloud services and software/maintenance agreements totaled $25.5 million, and hosting/telecommunication usage services totaled $12.0 million as of June 30, 2025[186][187] ITEM 3. Quantitative and Qualitative Disclosure about Market Risk This section discusses the company's exposure to market risks, primarily from fluctuations in interest rates and foreign currency exchange rates. It notes no material changes in market risk exposure since December 31, 2024, and details the impact of these risks on investments and operations Interest Rate Sensitivity The company's cash, cash equivalents, and marketable securities totaled $635.9 million as of June 30, 2025, invested in highly rated securities. A hypothetical 100 basis point change in interest rates would not materially impact the value of these investments. The 2029 convertible senior notes bear fixed interest rates, limiting interest rate risk - Cash, cash equivalents, and marketable securities totaled $635.9 million as of June 30, 2025, primarily invested in U.S. government and agency securities[193] - A hypothetical 100 basis point change in interest rates would not have a material impact on the value of the company's cash and marketable investments[193] - The 2029 convertible senior notes bear fixed interest rates, making them not subject to interest rate risk[195] Foreign Currency Risk The company's sales are primarily U.S. dollar-denominated, limiting direct foreign currency risk on revenue. However, operating expenses are largely in local currencies, exposing the company to fluctuations. A hypothetical 10% change in foreign currency exchange rates could impact operating expenses by up to $5.8 million - Sales are primarily denominated in U.S. dollars, but operating expenses are generally in local currencies, creating foreign currency risk[196] - A hypothetical 10% change in foreign currency exchange rates could impact operating expenses by a maximum of $5.8 million during the six months ended June 30, 2025[197] - The company has not entered into any hedging arrangements for foreign currency risk[197] ITEM 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting. Management concluded that disclosure controls were effective as of June 30, 2025, and no material changes occurred in internal control during the quarter Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[199] - Disclosure controls are designed to provide reasonable assurance of timely and accurate reporting of information required under the Exchange Act[199] Changes in Internal Control over Financial Reporting There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[201] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information ITEM 1. Legal Proceedings This section refers to Note 10 of the condensed consolidated financial statements for information regarding legal proceedings - Information on legal proceedings is incorporated by reference from Note 10 to the condensed consolidated financial statements[204] ITEM 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to Risk Factors were reported since the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[205] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as not applicable for this reporting period - This item is not applicable[206] ITEM 3. Defaults Upon Senior Securities This item reports that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[207] ITEM 4. Mine Safety Disclosures This item is marked as not applicable for this reporting period - This item is not applicable[208] ITEM 5. Other Information This section discloses information regarding Rule 10b5-1 trading arrangements adopted, modified, or terminated by the company's directors and officers during the fiscal quarter ended June 30, 2025 Rule 10b5-1 Trading Arrangements (Fiscal Quarter Ended June 30, 2025) | Name | Title | Adoption Date | Expiration Date | Aggregate of securities to be sold | | :------------ | :-------------------- | :------------ | :-------------- | :----------------------------------- | | Panos Kozanian | EVP, Product Engineering | May 14, 2025 | March 31, 2026 | 39,623 | - The disclosed Rule 10b5-1 trading arrangement is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)[209] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1) and various XBRL taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[211] SIGNATURES This section contains the duly authorized executive signatures affirming the submission of the report Executive Signatures This section contains the duly authorized signatures of Five9, Inc.'s Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, affirming the submission of the report - The report is signed by Michael Burkland (Chief Executive Officer), Bryan Lee (Chief Financial Officer), and Leena Mansharamani (Chief Accounting Officer) on July 31, 2025[214]