All right. Finally, go ahead and get started. Thanks everyone for being here. For those of you that do not know me, my name is Arjun Bhatia. I am the analyst here at William Blair, who covers Five9. For a full list of disclosures, you can go to williamblair.com. With that, I am happy to introduce the Five9 team. Thank you, guys, for being here. We have Mike Burkland, CEO, Andy Dignan, President, and Bryan Lee, who is CFO. Thank you, guys, for taking the time and being here.
Thank you, Arjun. Good to be here.
Maybe if we can start just at a high level, and if you can give us a little bit of a background into where Five9 fits into the CCaaS market, what part of the market do you go after if you're gonna segment the CCaaS space, and where Five9's sweet spot is, and then we can go from there.
Yeah. Sounds good, Arjun. So, you know, by way of background, we're a billion-dollar company, top line's growing in the mid-teens, and a lot of our growth over the years has come from our march up market. We're going after really the largest of the large enterprise part of the market. If you look at our revenue mix, over 50% of our recurring revenue actually comes from customers that are generating a million dollars or more in ARR to Five9. If you look back in time, I've been here 17 years with the company, either CEO or chairman, and when we went public in 2014, I think we had three customers over a million dollars. Now it's making up more than half of our revenue stream, our recurring revenue. We're playing in that part of the market for sure.
That's growing faster than the rest of our business. That is our strategic focus. We're also growing internationally, but we're also seeing the fastest growing part of our business is our AI, and it now makes up 9% of our revenue mix, our subscription revenue mix for enterprise, and that is growing at 32% year over year. If you think about our overall business growing in the mid-teens, our AI business growing in the 30s, and it's very additive. There's a lot of narrative out there around the AI impact on contact center. We'll talk about that, I'm sure, a lot, but look, we see this in our customer base as an additive opportunity and expansion of our TAM, and it's proving out that way.
Yeah. We'll definitely get to AI. I think a lot to talk about there. Before we do, maybe if we can touch on where we are in the last evolution of contact center, because there's a big kind of on-prem install base in this space, right? I think more so than other software markets, you have a lot of Cisco, Avaya.
Yep.
On-prem. And over time, those customers have been moving to cloud, and you've certainly seen the benefit of that. But where are we in that migration? Are customers still moving? And I'm sure AI has a role to play there as well.
Yeah. A great question. Thank you for asking that, Arjun, because it's so important for everybody to understand that, look, we're in a $24 billion core CCaaS market, AI being an expansion above that and an additional TAM. If you look at that core CCaaS market, again, it's growing very nicely for us. We're replacing these end-of-life, in many cases, end-of-life on-prem solutions from these legacy providers where, as an industry, globally, it's about 40% in the cloud, 60% still on-premise. It is a massive, massive opportunity. If you think about it, in core CCaaS, it's still a three-horse race in terms of who we compete with, two other cloud vendors. We're all continuing to penetrate that core market and replace those legacy solutions.
I think a really good way for everybody to think about this is, look, no matter what your philosophy is on this AI bear thesis and AI replacing human agents, again, if you look at the Gartner survey that just came out, you know, to a bunch of large brands, they're looking to, you know, deflect and over time, you know, replace humans with AI to the extent of about 5% of the human agents, not 80% like the Klarna original story when it came out. Again, this core CCaaS market is massive. It's very attractive. If that $24 billion goes down by 5% or 10% because of AI, great. We're still, it's still a massive market. We're a billion. Our two competitors are a little over a billion, adding up to, call it $4 billion out of that $24 billion.
If that 24 becomes 20, so be it. It's still a massive, massive opportunity, and AI is additive to that. I think investors are gonna start realizing this, that this is really an exciting time because customer experience is still very, very strategic to every single brand out there. We talk to our customers all the time. I talk to our customers all the time, and they're really excited about leveraging our AI to augment and make their human agents more effective, but also in some cases, drive self-service. They're doing that with our AI agents, and it's working really well. The ROI on the last earnings call, we talked about a few examples of some of our customers that are leveraging our AI agents.
and, you know, they all, you can see the ARR with Five9 has grown significantly in each of those cases.
Can we, so okay, let's switch gears now to AI because this is gonna be the, I think, the important topic. To start off, why in, in CCaaS, why is AI such a bigger, maybe value prop than, than other markets? 'Cause I hear it in other spaces, but I think in CCaaS in particular, it's, it's much, the potential is much greater. And is it the, is it the labor dynamics in the CCaaS space? Is it the ROI? Let's talk about that a little bit.
It is, Arjun. I think that's a great question too because, look, AI's gonna be deployed across all kinds of use cases, across enterprises. If you think about contact center and customer support, customer service, which is essentially what most contact centers do, it's a reactive motion in many cases, right? It's a perfect fit for AI to do its job. Again, let's be really, really careful not to over-rotate on that. As I said, 5-10% of interactions over time, over years, are likely to be handled by AI agents. What's great about this is that, look, as AI advances, it allows us to really provide those applications on top of whatever LLM or other proprietary models that our customers have access to. It really helps us deliver those AI solutions so much faster.
Mm-hmm.
and so much more effectively with real ROI. And we're very focused on the, you know, the tangible ROI. We're very, we talk about being customer-obsessed, and that is our focus. Our focus is helping our customers deliver great customer experience, self-service when necessary and when, when it's a good use case. Again, the contact center is a very, very good place for AI. but it's not gonna replace 80% of the agents.
Yeah. Right.
Human agents. I think people are starting to realize that. I think, look, you know, our customers know it. Our employees know it. I think that the Gartners of the world know it. I think the investor community has completely over-rotated and is, you know, when that herd mentality flips back.
I think there were a few anecdotes in market, mostly from Klarna, I guess,
Yep.
That have quickly reversed back, which has been a pretty interesting reversal.
I'd also add that the bar in the contact center space is extremely high for self-service and automation, right? Because of that labor. You look at mobile apps, you look at self-service, you look at, you know, the classic, you know, IVR voice bots that were out there for the last decade. The bar's really high. I think that's why you look at players like us and some of the main CCaaS players out there. We can actually deliver on this 'cause there's, we have a lot of experience doing that.
Yeah. The industry's been, again, over the last several decades, has always attempted to drive more self-service. This is just one more.
Yeah.
phase of that.
Yeah. What is your, what is your sense of, this is gonna be a hard question maybe, but what is your sense of what the future of contact center looks like? Is it gonna be the lowest kind of 30% of inquiries that are handled by AI and the most complicated 70% are handled by humans? There is some level of you need humans in the mix still and that exception handling. We'll get to that part because that technology, I think, is pretty important, where Five9 comes into play. Talk about, like, what is the right way to think about it?
Yeah. I think the right way to think about it, as I said earlier, is, look, in we've talked to all of our customers. Gartner's talked to a lot of their customers. I think the consensus is, again, somewhere between 5% and 15% over the next few years.
Okay.
Of interactions will be, likely handled by AI. Look, there's no substitute for the human touch. We all know that. You know, as good as AI is and as great as it's going to get, there's still a human touch that's necessary when it comes to customer service. You know, I would also say that we've got opportunities beyond customer service that we're starting to expand our platform into. We acquired a company called Aquion, which is an outbound omnichannel platform. That's also a pretty good use case for AI, but it's also a use case where humans are very involved too.
Yeah. Maybe in terms of Five9's capabilities from an AI front, what is in market today in terms of the offerings that you have? Is it full, is it Agent Assist? Is it full kind of in full interaction with the customer? Talk through a few.
Yeah. I like to think of it kind of in three phases. If you think about the front end of an interaction with a customer, AI agents, as we call them today, but we used to call them IVAs, and this is the self-service part of interaction. So they can be voice bots or chat bots.
Mm-hmm.
We have both. We acquired Inference, the leading IVA provider, four-plus years ago. It got us a huge, a huge lead in AI, and we've built on top of that. Think of it as kind of the first phase of self-service on the front end of the interaction. You think about Agent Assist, which we also have solutions there for everything from transcribing interactions to populating, you know, CRM systems with that to helping the agent have information at their fingertips through Agent Assist. You think about kind of post-interaction workflow automation, process automation. We acquired a company called Wendo a few years back, and that is also powering our agentic AI.
If you think about that spectrum from, you know, self-service to helping, you know, agents be more effective in the contact center, human agents to after, after interaction automation, this is where agentic AI starts to become really exciting. And our AI agents, we're actually, you know, going to be announcing this very soon, our agentic CX platform. This is, you know, a situation where AI agents can work with other AI agents, whether they're our AI agents or whether it's Agentforce, for example. We're partnering very, very tightly with Salesforce.
Mm-hmm.
ServiceNow and other platform players to basically make sure that this is a team sport. We've always partnered well with Salesforce. We have 1,200 joint accounts. They're excited about our partnership. They wanna leverage the fact that we're in the interaction stream, right? And if you think about Agentforce, it's going to mature. It's going to become an option for several of our joint customers. Look, in the end of the day, it's gonna be some of their AI and some of our AI working together, but they've gotta be plugged into our platform.
Mm-hmm.
AI is only as good as the data, the contextual data it has access to.
Yeah.
To get, you know, for Agentforce and other third-party AI to do its job, they've gotta be plugged into our platform. We use TranscriptStream and VoiceStream to provide that through APIs, and we monetize that.
Yeah.
You know, this is a, this is an exciting time for us.
I think a big differentiator for us is if you go back seven years ago when we got into the AI space, we made the decision to build our applications on the software side of AI and leverage the underlying engines, right? We talk about that, the fact that we can use multiple engines under the hood. If you look at how rapidly the space is changing, you had initially there's GenAI, now you're getting into agentic. You're gonna, you know, to Mike's point, there's the velocity of announcements of features and functionality we can deliver because we've built our AI around the fact that we knew this space would evolve. The velocity of innovation, I think, is gonna be very high for us over our competitors.
You're a little bit agnostic to what's underneath.
Exactly.
Is actually what you're saying, okay.
Yeah.
Maybe not to jump the announcement a little bit, but it sounds like you're gonna have agentic capabilities in each of the three buckets that you laid out, and then they will ideally work together. Maybe, Andy, you might have a good perspective here too because when you're going to market with customers and you're talking to them about Five9 delivering their AI capabilities within the three buckets that Mike laid out, do you lead with a particular one? Where are you seeing adoption first, from customers that are looking to bring AI in.
Yeah.
Through Five9 into the, into the contact center?
Usually it starts with the voice bot and chat bot or the, you know, our voice and digital AI agents. Most customers historically didn't like the cost and complexity to go do a voice bot, whether it was the classic Nuance part of the world, was tough for most customers to do. Leaning in immediately with market-leading voice bot and chat bot is kind of that first step. In the Agent Assist center, or some places, you know, better known as Copilot, that is essentially the human and voice bots and chat bots working together. That's actually our fastest-growing product. Our number one is our AI agent, our IVA that came from the Inference acquisition, fastly followed by Agent Assist.
That's just a good proof point of you're in, there are a lot of use cases for voice bot and chat bot, but ultimately then when there's escalations needed, a be a very seamless handoff to the agent.
Right.
Yeah. To then allow AI with Copilot, Agent Assist to be able to help that interaction is, you know, a differentiator for us.
Yeah.
We're continuing to innovate, Arjun, with additional AI products on top of this. We have a product called AI Insights, which is really for the overall business to get insight into the interaction flows in and out of the contact center, for example, and then, helping them through this automation, essentially. We just basically turn it on, run it, let it run for a couple weeks, and then our customers have insight.
Yeah.
Into exactly the mix of interactions, the sentiment of them, the capability, the automation opportunities, because it's use case by use case. That's basically what the clustering is. It's a really powerful, you know, just diagnostic front-end solution as we go in and work with our, you know, our customer base to figure out where to go with AI for second and third. And our AI Blueprint program is, you know, a great initiative that helps our install-based customers, you know, how we help them basically define that blueprint, that roadmap for them as to where to go for second.
Yeah.
We use AI Insights, for example, to get that insight to help define that roadmap. So we're using our own AI technologies to actually help our customers deploy AI, the other AI solutions.
Yeah. Actually, and that's, that's a good kind of maybe segue into customer readiness. 'Cause when I talk to customers, AI is 100% on their roadmap all the time, right? Of, they wanna deploy at some point. But to your point, even earlier, in, in terms of what the market experts and Gartner are saying about, you know, it's, it's gonna happen over time.
Mm-hmm.
Where are we in terms of customers having their own sort of data estate in order, having change management, all the process and, and maybe kind of blocking and tackling that we sometimes overlook? Is it there yet? Is it, we're knocking down the blockers? How would you characterize that aspect of it?
Yeah. I mean, I think we talked about the AI fog, you know, middle of last year.
Yeah.
A lot of that came down to two different things. One, customers, CEOs had all said, "Hey, we, you need to go figure out how you deploy AI within, within the company." Most companies, first off, they didn't have the expertise internally, right? Obviously they're getting hit by vendors, you know, probably 10 vendors a day saying they can do X, Y, and Z. A lot of them, secondly, their own data wasn't in a place to really adopt AI. Since then, most companies that we deal with now, pretty much when we go down the path of an RFP, they have a head of AI or they have an AI sort of committee within their company, and they're ready, right? Customer readiness is there much further than it was.
The second piece is we took a step back and we asked, we talked to our customers, and they essentially said, "Hey, look, we want you to focus on what you can deliver now versus the hype.
Mm-hmm.
This is where we invested in hiring more AI expertise within our customer success teams, our TAMs, our professional services, our sellers, enabling them. You know, we believe we have the strongest CX Salesforce in the industry. We also think now we can have the number one AI expertise in the industry. We took that and then did things like AI Blueprint to what Mike talked about to make it very tangible for our customers. It's not just a case study, right?
Mm-hmm.
This is what this use case that we're seeing in your business, how it can deliver the ROI for you and be able to have that demonstrated ROI as well as every customer that wants to have references, right, from within verticals. That was really our focus. We've seen that sort of fog lift essentially because customers are more ready, and then certainly we're meeting them where they need to be met.
Yeah. And what role do you think partners can play in this, in your go-to-market broadly, but especially in kind of addressing this?
Yeah. If you look at partners, I mean, we call it our balanced route to market strategy, right? If you look at it, there's the, you know, we still have that $24 billion CCaaS opportunity. A lot of that is coming from Cisco and on-prem Avaya.
Mm-hmm.
Classically, there were resellers, right, in that space that sold them that. They're still part of that mix. We've doubled down on resellers. There's the classic referral kind of partners. We obviously have our ISV and tech partners like our ecosystem marketplace, as well as Salesforce. You have the service providers like BT and AT&T. We're doubling down across the board. At the end of the day, you know, having a strong ecosystem is a key part of this. You get into the SIs, you know, we look at, we just announced that, in February, Deloitte was our digital AI partner of the year. They're usually in these opportunities helping customers define their digital transformation, CX transformation, and big time in that sort of, the data, changes.
Allowing them to have access to APIs to be able to differentiate what they do and provide those services, that's how you get them to be able to build a practice on Five9. We see a lot of them leaning into that. They're out on the front end making sure that when they think about delivering the customer's AI strategy, they know exactly what we bring to the table, and they have the capabilities to go deliver that as well.
Okay. Very good. Maybe last topic on AI, and then we can, there's some other topics I wanted to talk about as well. But, pricing. Have you figured out how to price each of your capabilities yet? Do you think that's an evolving sort of mechanism, or, and, and how does it compare to your core, you know, seat-based pricing model?
Yeah. Yeah. I'll start, Andy. Feel free to chime in.
Yeah.
Look, all of our AI SKUs are pretty much consumption-based pricing, but those are pre-pre-committed consumption bundles.
Mm-hmm.
You can think of them, look, customers do like predictability. We are, you know, we're in some early opportunities where we'll, on a case-by-case basis, let prospects turn on AI and kind of pay as they go for a period of time. At some point, they like to know how much they're gonna spend on products, software products. We obviously like the visibility as well.
Yeah.
They're based on consumption bundles. Sometimes it's data, sometimes it's other, you know, throughput. Sometimes it's capacity-based.
Mm-hmm.
across the AI, the AI set of products that we have. I think it's, it's right down the fairway in terms of how most AI solutions are being priced these days.
Yeah. So you're like, you're buying a pack of consumption, it expires at some point, and it's sort of use it or lose it up until the end.
Yeah. If you go over that, you.
You have to, yeah.
You also pay the overage fee.
Yeah. Okay.
Yeah.
Yep. Perfect. Okay. In your early customers that are adopting, do you have a sense of how, where are customers adding it? To your point, is it additive to their core seats, and it's an uplift to the overall ACV?
Yeah. I, on the last earnings call, talked about three examples of many across our customer base. What most of them are doing is, look, they're building a business case based on labor arbitrage.
Mm-hmm.
They're going and getting budget based on AI, you know, allowing them to have less humans in their contact center. When the rubber meets the road, they actually deploy our AI agents, and they typically just don't grow their agents like they were planning to grow.
Mm-hmm.
Instead of increasing their agents, again, these are, a lot of these are growth businesses. Normally they would grow their human agent count, you know, in good times, and especially in good macro environments, which we're not in. They're essentially, these three examples that I talked about, you know, many of the, I think you could think about it as mostly keeping their agent count relatively flat, maybe a slight decline.
Yeah.
They're redeploying these humans. They're also, even if their call volume is reduced slightly because of AI doing its job and containing self-service interactions, they're redeploying some of those humans. They're allowing those humans to have longer, more meaningful, more strategic conversations, more upsell conversations with those customers as opposed to trying to get them off the phone as fast as possible.
Yeah.
That's where the reality is. You know, those three examples, I think our ARR increases with each of those. We're anywhere from 37% ARR increase to Five9 over the last couple of years as they've gone through this journey with us to 100% growth in ARR. It's working, it's working really, really well. Again, part of it is we're delivering ROI to these businesses. These are some of the largest brands in the world, as you know.
Yeah. Okay. I'm sure we could keep talking about this forever.
Yeah.
Maybe for the benefit of everyone here, if you, so you mentioned at the start, Mike, that, you know, there's kind of three major CCaaS players in the space that are kind of going after the opportunities. Where do you kind of think about Five9 fitting in competitively? And what are your kind of core differentiators versus the other two that you would point out?
Yeah. I would just say, look, at a high level, we're the only of the three that is a pure cloud company, a SaaS company from day one, right? Both of our competitors have legacy parts of their business. Sometimes they're migrating their legacy customer base into their cloud solutions. We don't have a legacy install base. We're winning, quite frankly, against them in some of the largest opportunities like the $50 million ARR plus financial services company we won. It's because of reliability. Our name is Five9 for a reason. Scalability, it's because of our AI leadership. I would say, very importantly, it's our people, our expertise, and our customer obsession. We are very well known, and our reputation compared to our direct competitors is, it's night and day.
Our customers know we care about their success on our platform, and we are gonna deploy the people necessary to help them make that happen.
Yeah.
We're just different in that regard. They know that. They learn that through the sales cycle. We spend a lot of time with these megas, especially, through that long sales cycle, and they get to know us, and they get to know what our, you know, what our culture's all about and how obsessed we are to help them drive that success.
Yeah. These are complex. These very large enterprises are complex. And the mega's multi-year deployments, right?
Mm-hmm.
Moving off of on-prem, oftentimes multiple on-prem systems within the customer. We are just well known in the industry that we have perfected the migration off of Prem to Cloud.
Mm-hmm.
Right? I think that's a big reason why we're winning.
Yeah. Maybe, Andy, for you, we've had some sort of go-to-market adjustments and changes over the last year or so. Part of it has been balancing, you know, how do you go after big deals versus your kind of core. Maybe talk about where you are in those changes and how you are managing that balance at this point.
Yeah. If you go back going into 2024, we made some major changes initially in how we go after our install base, right? Some changes in our customer success. If you look at Q1, we announced that we had the largest year-over-year growth in our install base in the last three years. That was kind of step one, make sure that we can upsell and cross-sell all of our solutions, obviously with AI, and it was really important. The success of that is there. In the mid-year last year in our new logo side of the business, you know, we talked about it. We had our sales teams were kind of whale hunting a little bit, right? You start to win bigger and bigger deals. It happens within sales organizations.
We didn't have the discipline to sort of make sure that each team was focusing in their lane, right? You had our megas and our large enterprise deals. That's our major's part of the business. So we've now had much stronger discipline in terms of the bulk of our resources. Our sales teams are in that bell curve going after the, you know, the dolphins, as we call them, those $1 million-$5 million deals. And we still have a team that's focused on those megas. There's still a lot of very, very large opportunities out there. We're well positioned, in going after them, but much more discipline in terms of how we, how we do that.
You are seeing that play out in a more predictable, forecasting our business and, you know, overall continue to then invest in things like, like, I talked about enabling our resources to be the best AI experts out there, being more vertical focused, right? Historically, CCaaS was always sort of vertically focused, but AI has really pushed you to make sure that as you go in and you approach a healthcare company or a financial services or retail, that you have all of the use cases and the experts to be able to go deliver that.
Okay. Perfect. And then maybe we can, if we can focus on the near term a little bit here because there is certainly, you know, a lot of questions about macro and tariff impacts. So I'm curious how what you're seeing in terms of pipeline and how your customers are engaging with you. And then Bryan, I don't wanna leave you out, but how would you account for that in guidance? Because that is a big question, I think, right now, especially given visibility, you know, into the back end.
Yeah. I'll make a quick comment on tariffs if I could.
Yeah.
Bryan, I wanna make sure you get some airtime. Look, we talked about it on the last earnings call. We probably over-rotated a little bit in the message. We had a couple of deals internationally, one in Sweden, one in Canada, that mentioned directly the tariffs and, you know, we're having trouble with our leadership. This is them telling us during the sales cycle that we're having trouble with our leadership getting their permission to do business with a US-based vendor. It was two deals. It wasn't a significant impact, but in our, you know, again, our approach is to be very transparent with everyone in terms of what's happening with our business.
It was, you know, this was something that was affecting a lot of companies, and we wanted to make sure that people knew that, yes, we've had a couple of cases where it did affect.
Yeah.
But.
Yeah.
Bryan, if you wanna talk about,
Yeah. Absolutely. From a guidance perspective, if you look at the macro environment in Q1, I would characterize that as being relatively stable. Of course, the uncertainty increased in April. Even though we did not see material changes in our business, we decided to become slightly more prudent in terms of our guidance, which is why for the annual guidance, we kept it unchanged at $1.14 billion or 10% year-over-year growth. If you kind of break that down between, you know, the new logo side of our business versus the install base, illustratively speaking, if we assume that dollar-based retention rate remains at 107%, which is what we report in Q1, that would generate about $52 million of incremental revenue for the rest of the year. We need about $52 million to get to our guidance.
You're left with that $10 million that needs to come from new logos. We have a vast majority of that coming from our backlog of new logos that we already won. We have great visibility into the ramp schedule of those. From the go gets, new bookings that have to come in, it's a very small portion, and it's really only through June or so because everything else impacts 2026 revenue. Based on those components, we feel comfortable with where we are for the annual guidance.
Okay. Perfect.
Mike, maybe just to clarify on your comment, I would assume what you're maybe trying to say is it hasn't spread since the concern on international doing business with US vendors.
I haven't heard.
Kind of been relatively quiet.
I haven't heard, but Andy, you're closer to the sales.
Yeah. Like I said, we maybe over-rotated a little bit in terms of.
Okay.
Again, just being transparent, we haven't seen that continue to play out kind of at times.
Okay. All right.
Yep.
Perfect. We are up on time. Andy, Mike, Bryan, thank you so much for joining us. Thanks, everyone, for coming. We are upstairs for Q&A in, oh, hold on. I will get you to we are in Jenny B. If you have questions for the team, please come upstairs. We'll see you there.
Thanks, everyone.
Thank you.
Thank you.