All right. Good afternoon, everyone. Thank you for joining us here today at the Morgan Stanley TMT Conference. My name is Jamie Reynolds. I'm here on behalf of Elizabeth Porter. Very pleased to have with us here today Five9 CEO, Amit Mathradas, CFO, Bryan Lee, and President, Andy Dignan. Before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please direct them to your Morgan Stanley sales representative. With that, let's get started. Amit, starting with you're new to the CEO role at Five9. To start us off, can you walk us through just what drew you to this opportunity?
Yeah, all of four weeks. Super excited. Look, there were two things that had me perk up when the opportunity presented itself. One, I think is obviously as you all may be seeing, like what is happening in the CCaaS and the CX space, right? My belief is very squarely that humans, agents, software systems are coming together to really transform what's happening in this space. In fact, you know, deliver new experiences, just like what happened with, you know, the internet when retail when the internet came along, which was, hey, new experiences like buy online, pick up in store, new kinda end-to-end capabilities that customers haven't even realized right now.
For me, wanting to be a part of that new horizon was super exciting and, you know, obviously I believe interactions are gonna rapidly go up because of this. The second component was, you know, doing it with a company like Five9. You know, one that has pioneered a lot of what's happened in CCaaS and cloud, one that has already extended into the new world of CX and AI. Being a part of that journey and, you know, we've already put points on the board with, you know, $100 million of, you know, AI, ARR coming together with our CCaaS growth, that's an exciting place to be. Those are the two things that brought me here.
That's great. Prior to Five9, you spent time at Avalara and Nintex. Can you walk us through what you did at those companies and how that experience is relevant to the opportunity you see here?
Very different experiences. Avalara was a company I walked into that, you know, had hit $300 million, had a strong product base, but really was one that needed the next inflection point, right. Looking at how do you take this business, go drive growth, scale, and efficiency. It was really about bringing the next level of focus. You know, assembling the team, thinking about the right partnerships, thinking about the right ways to market and go to market. Next thing you know, you know, we're, you know, close to $1 billion in four years and accelerating. Nintex was a little bit different. That was a company that had a toolkit of automation tools, you know, needed a fresh set of eyes on how do you actually adapt that for an AI world.
How do you actually bring together a product platform with AI surging through the products and around the products to make it a magnifier. A lot of that was shifting the business from being automation into orchestration. That was really the work that had to happen. When I think about Five9, to me, I think it's a little bit of a combination of both of them, right? We've gotta be thinking about how we take this business for the next horizon of scale, next horizon of efficiency, and how do we do it with the changing world of AI around our product set and couple those together to build a durable business.
Got it. Just following up on that, what are your top priorities thinking out, you know, over the next 90 days?
Yeah, well, you know, 30 days down. Look, the way I describe myself is, you know, I'm a strategic operator, right? I didn't come up with Five9. I didn't come up with the CCaaS concept. In fact, I didn't come up with any of the companies that I've been at. You know, as I mentioned, where I get brought in is really about the time when we need to look at the problem a little differently and say, how do you go drive scale growth through an efficient model? You know, another way of actually thinking about it is, you know, I would say capital allocation.
How do we put our pennies on the things that really matter and are built to go drive growth and scale, and how do you make room for that from things that are not strategic or not important? Where I've been spending my time right now is on three major areas. One is, you know, the revenue acceleration. How do we continue staying focused on that? We've got a great set of customers, great set of products, AI products that have already taken off, and how do we continue to keep our eye on that? To be enabled to do that, you know, the second part of that or the second leg of that stool is operational excellence and discipline. Are we set up the right way? Do we have the right organizational design? Do we have gaps we've gotta fill?
Are there focus areas that we've gotta go double down on, such as our Google partnership or other pieces that we need to look at? The third component of that is, you know, how do we then, once we've got these two pieces, you know, thought through and the frameworks thought through, then apply, you know, our capital into the areas that we need to double down on, really follow through on that capital allocation and think about it from that lens. That's where my first 90 days is focused on.
Got it. Maybe transitioning to the business outlook. Your guidance implies a meaningful step-up in revenue in the second half of 2026. Bryan, can you walk us through the forecast construct and what underpins that inflection, you know, in terms of what are you seeing in the core and how does that compare to your expectations on the AI side? Then Andy, perhaps you can provide some color on the deployment schedules and process that support that.
Yeah. I'll go ahead and start. If you look at our backlog, it has grown significantly year-over-year going into 2026. It's comprised of both new logo bookings and install-based bookings that we've already won and that's converting to revenue throughout the year. Every customer in that backlog has a unique schedule of ramp, and it happens to be much more back-end loaded, which is why it's underpinning that acceleration to double-digit growth in the second half of 2026. If you break that down between core CCaaS subscription and enterprise AI, you know, we exited Q4 2025 at 8% growth for core CCaaS, which is an acceleration from 7% the quarter before. We expect the shape of the curve to be relatively similar to the total revenue guide that we gave for the year.
If you back into the enterprise AI subscription piece of it, you know, that accelerated from 41% in Q3 to 50% in Q4, and we expect that to continue growing at a very fast clip, although it may ebb and flow a little bit throughout the year.
Yeah. I can add in, you know, I always like to say we run our deployment process kinda like a sales forecast, right? Our services teams that are out there in the field, you know, you could be running 10 projects. You have to forecast for the quarter, you know, what that ramp schedule looks like. You know, that's how they're bonused, that's how they're focused. You know, they realize how important the forecasting is, and they have a very tight process with the finance team. You know, we feel really good about that methodology that's been in place for quite some time now.
Got it. Andy, you saw really impressive momentum in fiscal 2025 on the booking side with install-based bookings hitting all-time highs, I think, for three consecutive quarters. Can you walk us through what's driving that strong performance in your existing customer base? More broadly, as you look at the strong bookings you delivered throughout the year, particularly the Q4 record, how should we think about the sustainability of this momentum as we head into 2026?
Yeah. Look, if you go back to Q2 2024, we talked about changes that we made in our install-based sales motion. We put more hunters into the base. We kinda retooled our customer success motion. That was really intentional from the fact that what we saw was our product and engineering innovation, we were starting to bring more products to bear, right? Our customers were asking for more of our solutions, wanted us to focus more on outcomes. You know, it takes time when you make those changes, there's obviously a sales cycle that happens. I think it was perfect timing rolling into, you know, record bookings in the install base for three quarters in a row, right, in Q2, Q3, and Q4 in 2025. You know, we feel good about that continuing to go forward.
You know, what gives me even more confidence is the fact that our product teams continue to innovate further. We continue to double down on partnerships like our Google partnership. You know, we feel good about the momentum in the install-based business, continuing to be strong in the future.
Sticking with the go-to-market side of things, I think you mentioned that, more than 80% of Five9's business is partner influenced today. The partnerships with Salesforce and ServiceNow seem to be on firm footing, but you also just announced an expansion of the Google relationship. It'd be great to get a sense of how you view the opportunity for the expansion with Google, and then more broadly, where you see the biggest incremental opportunity within the partner set over the next 12 months.
Yeah. Look, if you look at Google, you know, going back seven years ago, we made a bet on modernizing our platform to the Google Cloud platform. We've continued to innovate our products on top of, you know, the Google solution. If you go back to Q2 2025, we announced that we got into the Google global Marketplace, right? Ultimately, what we saw in the market is joint success. Originally, we were sort of bumping into each other in opportunities, it became, you know, with the Google Marketplace partnership, that accelerated even faster, which then led to, you know, our big announcement this January of an even deeper joint partnership.
If you look at the press release, it was very intentional that we said we're focused on our joint opportunities and the pipeline that we're building in the large enterprise, right? If you look at the 60% of the CCaaS TAM that's out there, right, a lot of it's large enterprise. You know, we've already seen success. We think that's just gonna be an accelerant to growing our core business, but also the AI business. You know, that's probably the biggest partnership we're gonna double down in 2026.
Got it. From the vertical perspective, healthcare and financial services seem to be strong verticals for Five9. You know, are there specific vertical markets where AI adoption is moving faster than others?
I mean, our three biggest verticals are financial services, healthcare, and retail. Really financial services and healthcare are where we see the highest adoption from an AI perspective. I think it's for a couple of reasons. Anyone who's been in the business for a while, you know, if you just look at classic self-service, you know, companies like Nuance, a lot of these large financial services and healthcare deployed, you know, I would call them, you know, not great experiences of voice bot, chatbots. What they're seeing now is as they're moving off of on-prem self-service solutions, they're looking at, "Hey, how do I move this entire workload that I've been doing for quite some time?" You know, we've all used a, you know, at a financial services company, a voice bot or a chatbot hasn't been great historically.
They're really focused on moving off of those prem solutions to cloud AI solutions, and that's kind of step one. That allows them then to move into other workloads from an AI perspective a lot faster. Those are the two verticals that are coming along nicely.
Got it. Going back to some of the outlook part of the discussion, you know, Bryan, I know you mentioned giving some detail on the organic growth in concurrent seats, but, you know, is there anything we need to factor in when looking at, you know, the impact of the Acqueon acquisition that might have lifted things above kind of the typical growth rate? Then, Andy, you know, what are you seeing in the competitive environment broadly, and then especially on pricing, both for the AI side of things as well as the core?
I'll go ahead and get started. In Q4 2024, we disclosed that we had concurrent agent count of 432,000, and that was including the inorganic contribution of Acqueon. Fast-forward to Q4 2025, we said that concurrent seat count grew healthily quarter-over-quarter, year-over-year, relatively in line with core CCaaS subscription revenue, which grew 8%. I think the best way to contextualize that is if you look at subscription revenue per seat on a year-over-year growth basis, going back historically, a vast majority of the periods grew consistently in the single digits year-over-year, and that includes Q4 2025 as well as Q4 2024, if you look at it on an organic basis.
Yeah. Yeah, in terms of pricing in the competitive market, I mean, look, pricing's always a strategic lever in a SaaS company, right? We actually just came back from our Customer Advisory Board last week, and, you know, some of our largest and most longest tenured customers. You know, what we're seeing in the market from some of these point AI solutions, there's a lot of testing of different models, right? Outcome-based, interaction-based, you know. That's, I think, one of the areas where obviously us being a CCaaS company, a lot of domain expertise, it's really around predictability, right? We feel good about our pricing models now, and its predictability with upside and value.
Couple of things that we've done here recently, we launched new bundles to give our customers access to the full portfolio, right? Our classic CX solutions as well as our AI solutions. What we did is coupled that with moving to, and this is both for our new logo business and our install base, moving to a minimum revenue commit model. What customers like about that is, you know, We've talked about this in our earnings calls the last couple of quarters. We're seeing customers that purchased three to five years ago, they're coming up for renewal. They're making a decision on their next five years of CX and AI, right?
They're moving to this minimum revenue commit model, which then allows them to have a level of comfort that if over time there are some reduction in human seats, right, that'll naturally then get filled with AI seats. We feel good about that, you know, the protection that'll give them, but also gives us, gives us upside. You know, we didn't It's not sort of a just a pricing play, right? It's really value. You know, if you're a large enterprise company, and you're making a bet on CX and AI over the next five years, you have to really believe in the AI solutions that we're bringing to market today, and the roadmap into the future.
I think that's all coming together and, you know, setting us up for high upside and, you know, better predictability for Bryan.
Got it. Following up on that point, as it relates to competing against the AI native startups in the space, you know, what's your pitch to a CIO who's considering one of these newer point solutions versus building on Five9?
Yeah. I mean, look, this is, you know, we talk about the platform advantage of having a CCaaS solution also being your AI solution. I mean, look, depending on the side of the aisle that you're on, if you believe that, humans are still gonna be involved, I mean, we certainly believe that it's more about AI Agents and human agents working together, right? Amit talked about our core belief is that, you know, interactions are gonna go up with AI. You know, when you think about interactions today, in the future, it could be it starts with a human, goes to an AI Agent, might come back to a, to a human agent. Having all of that on a single platform allows you to have a single data set, a single governance model.
you know, we've a lot of our companies have come off of what we call the SaaS sprawl, right? A lot of point solutions out there. They're trying to not recreate that same problem to have to unwind with, you know, 15 different AI point solutions. We feel good about the path we're heading down towards the future. We're also starting to see, we've talked about this as well on some of our earnings calls, is we're starting to see companies who made a decision to go with someone else a point solutions AI a couple of years ago. They're now coming to wanting to put more workloads in AI, and they're realizing that, hey, that platform advantage.
They're coming back to, moving to our AI solutions, and so that's kinda how we're dealing with the, with the market.
Got it. Bryan, turning back to you, how should we be thinking about DBRR here? Sounds like it picked up a little bit in Q4, I think the reported number was down 2 points, you know, granted that that is like a trailing 12-month number. Just any puts and takes there.
If you look at the spot DBR rate in Q4, it actually stepped up quarter-over-quarter, and that was mainly driven by the conversion of our install-based bookings in the backlog into revenue during the quarter. Of course, if you look at it on a last 12 month basis, it did step down from 107% to 105%. In actuality, it was a little bit over 1 percentage point, and that was mainly due to the LTM calculation, where we're dropping off Q4 2024 that had benefited from really strong seasonality, especially on the telecom side. Where at that time, it stepped up as a % of revenue by 1 percentage point. If you fast-forward to Q4 2025, it was anticipated that it would be much weaker, and it did step down as % of revenue by 1 percentage point there as well.
If you look at DBRR going forward, we expect stabilization in the first half with some minor fluctuations in either direction, but then an inflection upward in the second half of the year.
That's great. Amit, turning back to you, in your first few weeks meeting with customers, what are you hearing about their priorities and how they're thinking about their contact center investments?
You know, as Andy just mentioned, you know, I was really fortunate last week to be down in San Diego meeting with our CAB, or Customer Advisory Board, you know, that's our largest as well as some of our longest tenured customers. Look, our customers are in two buckets. One, you know, a lot of our mid-sized customers have already tested out AI. They may be kinda expanding with their POC or adding the next component of it. The second bucket is our larger enterprise customers who are now finally lifting their heads and saying, "Okay, like, the hype cycle is over.
Let's start thinking about what AI looks like and what that first deployment is." What I found really fascinating is, and one of my thesis coming in was, the unifying factor for them both was they don't want to do this through multiple vendors. Look, a lot of the CIOs there were like, "Folks, we have just coming off a post-COVID, you know, SaaS sprawl cleanup. We don't wanna go back into an AI cleanup with, you know, 15 different vendors doing, you know, point solutions.
The other big thing that once we talked about the platform and the power of the platform, you had a bell go off or, you know, or a light bulb go off because think about what the platform really allows you to do with AI. We can go launch AQM or Agentic Quality Management. The output from that becomes the input for Agent Assist, right? All running on the same data. You've got a customer that says, "Hey, all these agents are struggling with this piece, and we see that in Quality Management." Next time Agent Assist goes up and serves up a solution to an agent, make sure they answer this part of it because we just caught it. You can't do that with point products, especially as they're sitting on different, you know, different unification and in different platforms and data pools.
The other big thing that, you know, is coming up is really about them wanting us to invest both in CCaaS and in the AI play. When I talk about CCaaS, not the bells and whistles and the functionality. Sure, there is some of that, but it's really about how do you integrate and build the connection points so that your CCaaS engine can support all this AI tooling around it to be the 1 plus 1 equals 3. That was the clear feedback that we got and where they want to see the investments going.
Got it. I'm realizing you're still new in the seat, but when you look at the product roadmap, you know, what excites you the most looking out over the next year?
Look, when I first came in, you know, and the product was presented, I was like, "Hey, this sounds exciting." Now coming off what customers are saying, it really is exciting because the team has already started investing in AI feature functionality for core CCaaS, such as, you know, things like AI Agents for voice, agentic routing, and investments into the new CX space, such as AQM, analytics, and all the pieces coming together. What really excites me is, hey, we're already off to the races, and this is not theoretical anymore, right? We've already generated $100 million of ARR in our AI features, and it's actually growing at a really healthy clip. You couple that and start adding things like orchestration and other pieces around it, and it's an exciting space to be.
To pick up on the $100 million of AI ARR detail, you know, I think it accelerated to 50% year-over-year growth in the fourth quarter. Bryan, can you break down what types of products kind of comprise that mix? Andy, how do you expect that to evolve in 2026 relevant to 2025?
Yeah. If you look at the $100 million of annualized subscription revenue for enterprise AI, the biggest portion of that is AI agents, followed by Agent Assist. Then we have a number of other products that are smaller, but growing very quickly in that portfolio.
Yep.
Yeah. How I look at it playing out in 2026, we announced in November at our CX Summit our new agentic AI agent solution. You know, to Bryan's point, that continues to be the biggest, you know, TAM of the market, right? We also announced our Agentic Quality Management solution coming in the second half. We, you know, we think that'll start to have a more meaningful impact. If you look at, you know, both AQM and AI agent as well as our AI Insights product, which is we go to our customers, we can turn on AI listening to all the conversations, which allows us to understand where the key pain points happening in the business and deploy that quickly into an AI agent.
What Agentic Quality Management allows you to do is manage those interactions across AI agents and human agents. That just really comes back to, you know, we think the future looks like AI agents and human agents working together, and our R&D focus is really around that, you know, that connectivity issue.
Got it. Going back to, some of the model type of questions, you know, obviously Q4 solid quarter reiterated 2026 guidance. Bryan, can you know, I think you noted how the guidance does not require any go get revenue. Just can you elaborate on that a little bit more?
Yeah, definitely. If you look at our guide, it implies $105 million of incremental revenue to get to the midpoint at $1.254 billion. I talked earlier about LTM DBRR exiting the year at 105%, stabilizing in the first half, and then inflecting upward in the second half. Let's just conservatively assume that DBRR on average is, you know, 106% for the year. That basically contributes 2/3 of that $105 million. The remaining third is fully covered by the backlog that we have, which we have great visibility into, which essentially means that there's no dependency on new logo go get bookings in 2026. That's what's underpinning our guidance.
Got it. On the margin side, you know, I think the 2026 Adjusted EBITDA margin guidance is around 24%. That's a little bit more of a modest pace of expansion after you drove margins about 4 points higher in 2025. I guess, just what's driving that slowdown in the pace of margin expansion?
If you look at 2025 on an annual basis, it did step up over 400 basis points. We did have two workforce reductions that were impacting 2025 margins. One was in August of 2024, so you got the full year benefit of that, as well as another one in April of 2025. We remain laser-focused in terms of going after different cost savings initiatives. Some of the key ones include increasing the mix of offshore hiring, automation throughout the organization, third party spend renegotiations, and the list goes on. At the same time, we are surgically investing in key areas like AI and go-to-market to drive top-line acceleration and continued long-term growth. When you net all of that out, our guidance comes out to at least 24% EBITDA margin for the year.
Got it. Sticking with profitability, you achieved positive GAAP earnings for the first time on a full year basis in fiscal 2025. How should we think about the trajectory of GAAP profitability and stock-based compensation as a % of revenue going forward?
Yeah. GAAP profitability, on an annual basis in 2025 was positive for the first time, as you mentioned.
We are expecting that momentum to continue, which is why if you look at the midpoint of our GAAP net income guidance, it's expected to double year-over-year to $80 million. There are really two components to it. One is the cost savings initiatives that we've been executing on. The other is stock-based comp, which we have been very much focused on bringing down as much as possible. If you look at the annual stock-based comp as a percent of revenue in 2024, it was 16%, then it dropped to 13% in 2025. In our guidance, we're expecting 11% in 2026, and we'll continue to focus on bringing that down further in the long run.
Got it. Maybe take a moment here to pause, see if there's any questions from the audience. Okay. Amit and Andy, just maybe a higher level question for you guys. You know, investor sentiment towards the CCaaS sector has been under pressure for a while, you know, even as Five9 and, you know, some of your peers have spoken positively about the AI opportunity. You know, when we do our checks, we consistently hear, you know, steady optimism from the channel partners. I guess, where do you think that disconnect is coming from, and what needs to happen to bridge that gap?
Look, I'm not gonna speak on behalf of what investors are getting right and wrong, but I can tell you what my thesis is and why I am here. I think there are two things you have to believe for this space to be really vibrant. One is that human agents, systems, software, AI are going to work together to actually deliver outplaced, you know, experiences for end users and new and efficient ways of go-to-market. You have to believe that calls may start with AI, move to a human, come back to AI, go back to digital, and that in itself, that orchestration is going to drive, you know, interactions dramatically up. That's one.
Two, you really have to believe that a customer is not going to go solve that with 15 different point solutions of AI, where all these vendors have different methodologies, different backends, different ways of solving the problems, and you're leaving it up to the customer to stitch together the CX experience they wanna bring. This is the power of the platform. This is truly where agentic software systems come together to unlock something that you will not be able to get. Those are the two big pieces that I think from where I sit, you have to believe. If for companies like Five9, if you can play in the traditional CCaaS space and you can play in the AI space, the combined TAMs are growing.
Just like what we are showing, which is, hey, you're seeing core CCaaS being healthy and ticking along, and you're seeing AI really pick up. The models that, you know, Andy's talking about on minimum revenue commits really pays off because as and when customers see human seats flatline or come down, it's made up by the other side, which is catching, which is AI. If you're solving both of them together and connecting it just is a robust long-term business. I, you know, that's the piece for me, which where my head is at and why I'm so excited about what we're doing in this space.
The only thing I would add, I mean, look, I've been in this space for 27 years. You know, we've sort of navigate a lot of these the CCaaS contact center space, whether pre-routing to on-prem, to IP on-prem, to cloud, and now AI. Through all of those transition points, the one thing that's remained true is interactions have gone up. I think, you know, that coupled with we're one of the software spaces is that's the closest to our customers end customers. I think that's the powerful place to be, a lot of domain expertise, and it requires both tech and experts and partnerships and, you know.
I think that is playing out again in this kind of AI wave with interactions going up and delivering, you know, both human agents and AI agents is a strong point of our focus.
Got it. Just to follow up there, I mean, like, where do you think the, you know, the argument's most flawed today in terms of either the number of agents that potentially get cut, you know, or kind of the, CCaaS provider that eventually benefits? You know, why do you ultimately believe that Five9 is best positioned relative to competitors? You know, I know we talked about some of the AI native startups, but thinking about some of the larger scale peers in the space.
Look, I'll take a stab and, you know, Andy, add a little bit. Look, one of the things we have already started to see is some of our customers that started on point solutions coming back when we have launched our AI capabilities. We're already starting to see that the shift back towards a platform has already started for all the reasons, you know, we are flagging. The other piece that I think, you know, when you're talking about flawed, look, I have to believe that over time, human agents will come down and AI will solve some of the pieces, not all, some of the pieces. In fact, in some industries, it's regulated that it has to be tied to a human.
I think for me, it's not the flaw, I think it's a model you have to believe in, which is it's not a zero-sum game, and that humans will be around, whether in standard capacity or oversight capacity. AI will serve a purpose, digital will serve a purpose, humans are gonna serve a purpose, and the connection of what happens there is really the unlock. I think that's really what you have to get comfortable and get your, you know, our heads around. For me, that is what we are building towards.
Yeah. Look, we can get a lot of feedback from a lot of listening posts, but, you know, I always put the most focus on what our actual customers are telling us, both, you know, with words as well as, you know, what they're doing in terms of purchasing our applications and leveraging it. I go, you know, go back to what we've been talking about is our existing customers. They're making bets on us for the next five years. They're making big bets on, you know, how they engage with their customers, how they use CX. How they use AI, and what they're telling us is, yes, over time, they're modeling in, you know, 5%-15%, I think, is the general number out there, again, over time.
Many of them aren't seeing that happen, you know, out of the gate, but, you know, I think we're building the right products and we have the right go-to-market that's allowing our customers to go on that journey with us to ultimately, you know, allow them to have the outcomes that they need and, you know, that'll ultimately bring us the outcomes we need as well.
Just to follow up on that point, I think you guys have provided some pretty compelling examples in the slide decks in terms of the amount of sort of incremental spend that you capture, even when a customer kind of meaningfully reduces the seat base. Can you just remind us sort of like what the average kind of uplift is in more of those like, you know, 15%, call it, seat reductions?
Yeah. Usually we've actually given several examples over the last three or four quarters where typically a customer that, you know, purchases AI and deploys it for over a year, their overall ARR growth has been somewhere between, you know, 20%, 30%, 40% type ranges. They see the value, and that's what's driving that ARR increase regardless of, you know, what the human seat count may be versus what the AI portion is. I think to Andy's point, the revenue commit model really gives them that flexibility going forward as well, which is very well-received by our customers.
Great. If we step back and just look at the overall market opportunity, I think third parties kind of cite that 40% of enterprise contact centers have made the shift to the cloud, leaving the remaining 60% to go. I guess just are these customers getting easier or harder to move, you know, and is AI accelerating their decision to migrate? Are you kind of seeing any competitive displacements when those decisions happen?
Yeah, look, if you look at, you know, so 60% of the market's still out there, right? You know, when everyone even if there is a, you know, a reduction in seats, we're a winner of every seat that moves over, right? If you look at what makes up the largest portion of that 60%, it is the larger enterprise, right?
Mm-hmm.
Yeah, there's naturally, you know, there is a switching cost that's there. Now, some of those switching costs are coming down, but, you know, largely because the tools that we've built, because we understand, how to integrate to some of these on-prem solutions that are out there, kinda pull out the configurations and then move those into, on-prem or, sorry, into our cloud platform. One of the things we are starting to see, but in a kind of a smaller percentage, is customers saying, "Hey, maybe I'll wait for that transition, and I'll go with your AI first, movement." We've had deals lately where we have landed the AI first, but with a fast follow, of the on-prem to CCaaS migration.
I would say in the majority of the time, you know, there are customers who start there. You know, historically the model was, let's move you to the cloud, then let's start letting you take advantage of AI. We've worked really hard within our products, within our processes and our services teams and our partners. They can move from on-prem to cloud and take advantage of AI at the same pace. At the end of the day, you know, they're not getting security patches and new features and new functionality managing these on-prem platforms. I think that's still gonna be the majority, customers will make that decision. You know, we're also able to handle customers who say, "Hey, I wanna start with AI first and then follow with the transition later.
Great. Brian, maybe for you, it'd be great to just kind of get a sense of what your latest thoughts on capital allocation are, you know, particularly in the context of the accelerated share repurchase program that you announced in the third quarter.
Yeah. We announced the inaugural share purchase program of $150 million expiring over two years. We just completed the first $50 million through an accelerated share purchase program that ended in February. Going forward, you know, we'll continue to have that optionality to buy back shares, but we'll look at it from the context of a balanced capital allocation strategy between organic and inorganic investments as well as buybacks to maximize shareholder value.
Maybe one for the group to just close it out. You know, going back to some of the things we were talking about earlier, you know, what is the biggest thing you think investors are kind of misunderstanding about this market opportunity and kind of like what has you most excited, you know, for the rest of the year?
Yeah, I mean, look, I think we've been talking about it, right? I mean, we have a big CCaaS TAM, and if you look at the AI TAM coming together, you know, I think that our overall TAM is sort of a 1 plus 1 equals 3. I think with our focus on our customers, being able to take advantage of CX and AI and really leveraging our roadmap of products that are gonna help them deliver their outcomes. You know, I'm excited about the space. Like I said, I've been in it 27 years and hope to be not another 27, but excited to see the outcome that we're gonna see.
Great.
Look, I'll just echo that. As I've said, I think the big opportunity, this is not theoretical anymore, right? It's being backed up by what you're seeing in the numbers with the CCaaS part of the business, not only from us, but in the market growing, AI growing, and customers taking both solutions from unified platform vendors. It's, for me, that is really what is starting to happen. It's starting to be proven out over and over again. You know, for us, it's just how do we string together the next X amount of quarters to make sure that everyone else sees what we are seeing and come along for that ride.
Terrific. We are at time, so thank you to the Five9 team for joining us, as well as to the audience.
Thank you.