Five9(US:FIVN)2023-11-01 16:00PART I. FINANCIAL INFORMATION Financial Statements The unaudited statements show asset growth to $1.46 billion, a 16% revenue increase, and a reduced net loss Condensed Consolidated Balance Sheets Total assets grew to $1.46 billion, driven by marketable investments, while stockholders' equity also increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $127,828 | $180,520 | | Marketable investments | $572,462 | $434,628 | | Total current assets | $890,673 | $778,710 | | Goodwill | $227,412 | $165,420 | | Total assets | $1,456,444 | $1,244,485 | | Liabilities & Equity | | | | Total current liabilities | $171,976 | $150,776 | | Convertible senior notes — less current portion | $741,169 | $738,376 | | Total liabilities | $962,574 | $934,520 | | Total stockholders' equity | $493,870 | $309,965 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q3 revenue grew 16% to $230.1 million, while the quarterly net loss improved to $20.4 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $230,105 | $198,342 | $671,426 | $570,501 | | Gross Profit | $119,025 | $104,231 | $351,229 | $299,294 | | Loss from operations | $(25,738) | $(21,731) | $(79,978) | $(74,331) | | Net loss | $(20,419) | $(23,207) | $(69,406) | $(80,997) | | Net loss per share | $(0.28) | $(0.33) | $(0.97) | $(1.16) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity grew to $493.9 million, driven by stock-based compensation and capped call settlements Changes in Stockholders' Equity (in thousands) | Account | Dec 31, 2022 | Sep 30, 2023 | | :--- | :--- | :--- | | Additional paid-in capital | $635,668 | $887,087 | | Accumulated deficit | $(323,086) | $(392,492) | | Total stockholders' equity | $309,965 | $493,870 | Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $92.3 million, while investing activities used $235.0 million Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $92,294 | $56,125 | | Net cash (used in) provided by investing activities | $(234,974) | $20,903 | | Net cash provided by (used in) financing activities | $91,047 | $(38,461) | | Net (decrease) increase in cash | $(51,633) | $38,567 | Notes to Condensed Consolidated Financial Statements Notes detail the Aceyus acquisition, $1.05 billion in performance obligations, and convertible note status - On August 14, 2023, the Company acquired Aceyus for total cash consideration of approximately $82.0 million to accelerate its ability to migrate large enterprise customers to the cloud and leverage data for its AI & Automation solutions18 - As of September 30, 2023, the company had $1.046 billion in remaining performance obligations for contracts with original durations greater than one year, with approximately three-fourths expected to be recognized as revenue over the next 24 months69 - The company has $747.5 million in 0.500% Convertible Senior Notes due in 2025, while the 2023 convertible senior notes matured on May 1, 2023, and were settled96101 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 16% YoY revenue growth, a 110% retention rate, and the strategic Aceyus acquisition Overview The company operates a SaaS model with 92% recurring revenue and faces ongoing macroeconomic risks - The company's business model is based on SaaS with recurring subscriptions, with 92% of revenue in Q3 2023 coming from subscription and related usage fees20 - The company is subject to macroeconomic risks, including inflation and increased interest rates, which are expected to continue to have an adverse impact on revenue143151 - In March 2022, the company decided to close its Russia office and establish a new development center in Portugal, incurring costs of $0.9 million and $2.7 million in the three and nine months ended September 30, 2023, respectively151 Key Operating and Non-GAAP Financial Performance Metrics The Annual Dollar-Based Retention Rate was 110%, while Q3 Adjusted EBITDA increased to $41.3 million - The Annual Dollar-Based Retention Rate was 110% for the twelve months ended September 30, 2023, a decrease from 118% in the prior year, attributed to macroeconomic headwinds148155 Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(20,419) | $(23,207) | $(69,406) | $(80,997) | | Stock-based compensation | $52,611 | $44,503 | $156,721 | $128,682 | | Depreciation and amortization | $12,482 | $11,215 | $35,553 | $33,650 | | Adjusted EBITDA | $41,284 | $36,705 | $117,968 | $94,261 | Results of Operations Q3 revenue rose 16% to $230.1 million, with operating expenses increasing due to higher personnel costs Revenue and Gross Profit (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $230,105 | $198,342 | 16% | | Gross Profit | $119,025 | $104,231 | 14% | | Gross Margin | 52% | 53% | -1 ppt | Operating Expenses (in thousands) | Expense Category | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $40,391 | $34,113 | 18% | | Sales and marketing | $73,366 | $67,353 | 9% | | General and administrative | $31,006 | $24,496 | 27% | Liquidity and Capital Resources The company holds $718.7 million in working capital and generated $92.3 million in cash from operations - The company had $718.7 million in working capital as of September 30, 2023, including $127.8 million in cash and cash equivalents177 Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $92,294 | $56,125 | | Net cash (used in) provided by investing activities | $(234,974) | $20,903 | | Net cash provided by (used in) financing activities | $91,047 | $(38,461) | Contractual and Other Obligations Significant obligations include $747.5 million in convertible notes and over $140 million in other commitments - Outstanding principal of $747.5 million for 2025 convertible senior notes, due June 1, 2025194196 - Lease obligations total $60.1 million, with $55.1 million for operating leases and $5.0 million for finance leases199 - Commitments include $72.0 million for cloud services and software, and $17.0 million for hosting and telecommunication services200201 Quantitative and Qualitative Disclosures about Market Risk Market risk exposure is unchanged, primarily related to interest rates and foreign currency fluctuations - Market risk exposure has not changed materially since year-end 2022206 - Interest rate sensitivity exists for the $700.3 million in cash, cash equivalents, and marketable securities, though a hypothetical 100 basis point change in interest rates would not have a material impact207 - Foreign currency risk primarily affects operating expenses, where a hypothetical 10% change in exchange rates would have a maximum impact of $5.9 million207 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes reported - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023209 - No material changes to internal control over financial reporting occurred during the third quarter of 2023210 PART II. OTHER INFORMATION Legal Proceedings Ongoing legal matters are not expected to have a material impact on the company's financial condition - The company is involved in various legal matters but does not expect them to have a material impact on its financial position130213 Risk Factors New risk factors focus on the development, regulation, and internal use of Artificial Intelligence technologies - A key risk is that the continued development of the company's AI solutions may not be successful, meet client needs, or achieve market acceptance, potentially harming operating results214 - The company faces legal and business risks from new and evolving AI technologies, including potential regulatory scrutiny, litigation, and intellectual property disputes214 - The use of AI by the company's workforce presents risks related to data protection, exposure of confidential information, and misuse of intellectual property5215 Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the reporting period - Not applicable216 Defaults Upon Senior Securities The company reports no defaults upon senior securities during the reporting period - None217 Mine Safety Disclosures This section is not applicable to the company's business operations - Not applicable218 Other Information The Chief Accounting Officer adopted a Rule 10b5-1 trading plan to cover tax obligations from RSU vesting - On September 13, 2023, Chief Accounting Officer Leena Mansharamani adopted a Rule 10b5-1 trading arrangement to satisfy tax obligations upon the vesting of restricted stock units6219223 Exhibits Filed exhibits include amended bylaws, CEO/CFO certifications, and interactive XBRL data files - The report includes several exhibits, such as Amended and Restated Bylaws, CEO/CFO certifications (Rule 302 and 906), and XBRL data files220