Five9, Inc.

Thank you for joining us today. On the call are Mike Berkland, Chairman and CEO, Dan Berkland, President, and Barry Zwornstein, CFO. Certain statements made during the course of this conference call that are not historical facts, including those regarding the future financial performance of the company, customer growth, anticipated customer benefits, company growth, growth in our portfolio of products and features, industry size and trends, our expectations regarding macroeconomic conditions, company market position, initiatives and expectations, technology and product initiatives, and other future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are simply predictions, should not be unduly relied upon by investors, actual events or results may differ materially, and the company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties, that can adversely affect Five9's future results and cause these forward-looking statements to be inaccurate, including the impact of adverse economic conditions, including macroeconomic deterioration, including increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates, lower growth rates within our installed base of customers, the impact of the Russia-Ukraine conflict, the impact of the COVID-19 pandemic, and the other risks discussed under the caption risk factors and elsewhere in Five9's annual and quarterly reports filed with the Securities and Exchange Commission. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results and guidance is currently available in our press release issued earlier this afternoon, as well as in the appendix of our investor deck, and in the investor relations section on Five9's website at investors.five9.com. Lastly, a reminder that unless otherwise indicated, financial figures discussed are non-GAAP. And now I'd like to turn the call over to Five9's chairman and CEO, Mike Berkland.

Thanks, Emily. And thanks everyone for joining our call this afternoon. I'm pleased to report strong first quarter results with revenue growth of 20% year over year, exceeding our expectations. Our enterprise business, which accounts for 86% of the total revenue, continues to drive this increase with LTM enterprise subscription revenue growing 31% year over year. Adjusted EBITDA margin for the first quarter was 16% of revenue, helping drive a record quarter for operating cash flow of 33.4 million or 15% of revenue. In spite of the current macro backdrop, we remain very optimistic about our long-term opportunity in this market, especially at the upper end, which is the largest and least penetrated part of the market and the fastest growing category of our business. Before we dive into our business, I'd like to spend a few moments to debunk two myths that are emerging around our industry. The first myth is that CCaaS will be disrupted by AI and automation. The reality is that AI and automation represent a significant TAM expansion for us and other CCaaS providers. Let me be clear. The automation from a virtual agent replacing live agent is a labor arbitrage opportunity for our customers and also a major TAM expansion for us. More specifically, if our customer replaces a live agent with a virtual agent, our revenue doubles from approximately $200 per live agent seat to $400 per virtual agent seat. And this is a one-for-one substitution. Therefore, we believe the total count of human and virtual agents combined will remain largely unchanged, thus resulting in a meaningful TAM expansion for us and other CCaaS providers. The second myth is that LLMs like ChatGPT will potentially commoditize contact center solutions. Let me use an analogy to explain why this is not the case. LLMs are the jet engine, while CCAS solutions are the airplane. You can't just strap yourself to a jet engine and fly across the country. We are providing the entire airplane, and it's important to understand that we are leveraging LLMs as the jet engine. These better engines allow us to build a better airplane, but also keep in mind, there's a lot more to building an airplane than just the engine. Think about all the systems necessary to build an entire aircraft and provide a smooth flight across the country. Now let's get into what's really happening in this market and our business. Our confidence in the market opportunity is stronger than ever based on three key trends. First, legacy vendors are retrenching. forcing enterprises to develop concrete plans with an even greater sense of urgency to replace their on-premise contact center solutions. Second, companies are enthusiastically pursuing digital transformation initiatives to enhance customer experience, cut costs, and increase revenue. And third, AI and automation have become front and center in the CX market, providing an attractive and tangible ROI thus becoming a significant catalyst for enterprises to shift to the cloud. Now I'd like to discuss what we view as the three main growth drivers for our business, namely our platform, our march-up market, and our continuing international expansion. Let's begin with our platform. We continue to make investments to enhance our cloud native platform to deliver ongoing reliability, deployment at scale, and continuous innovation across all of the core features of the contact center, as well as some of the new and up and coming innovations. Speaking of innovation, given the importance of AI and automation, to both enhance customer experience and drive tangible business value to our customers, I'm going to focus most of my comments on this aspect of our platform and strategy. Our goal is to help businesses efficiently deliver a world-class customer experience that removes friction and frustration, helps reduce costs, and increase revenue growth. We believe that AI and automation are fundamental to this goal and to the modern contact center. Through the Five9 Intelligent CX platform, we enable our customers to turn this goal into a reality and deliver what we call fluid experiences where consumers can interact with a brand however they wish across any or all channels from digital first to self-service to a live call and everything in between. This journey is a seamless experience in which their interaction history and customer data is persistent and travels with them where agents, whether human or virtual, are empowered with all of the knowledge, information and intelligence they need to delight their customers every time. We are focused on leveraging our unique position as one of the leading CCaaS providers to harness the power of AI in a way that will deliver the most value to our customers. Our AI strategy can be summarized in three key components. First, While we have been delivering our AI and automation solutions, we remain agnostic about which foundational engines such as LLMs we leverage. This allows us to rapidly innovate and consistently be at the forefront of delivering meaningful solutions to our customers that are leveraging the most innovative technology available. This has been our consistent strategy and has proven to be a more sustainable model than what some others have been doing. Second, we are continuing on our commitment to deliver practical AI solutions that deliver tangible business value. An example of a practical AI solution is our AI summaries offering, which uses OpenAI's GPT models to summarize agent conversations and publish them to the CRM in real time. I'm pleased to share that this product is now moved into general availability and we are enthusiastic about its potential. Third, we are embedding AI and automation into the fabric of our intelligent CX platform, allowing our customers to get immediate out of the box value. For example, our workflow automation solution is now fully enabled for all new and existing customers. Workflow automation enables customers to easily automate back office tasks, seamlessly connect disparate systems, aggregate information, and trigger cross-platform workflows, such as launching surveys or sending reminders as part of proactive customer communications. Similarly, our AI Insight solution gathers and aggregates valuable data from customer interactions, identifying repetitive requests, and then acts as a prescriptive tool to identify use case candidates for self-service automation. In summary, we now have a comprehensive suite of eight different AI and automation solutions in market that enhance customer engagement and contact center efficiency, whether that's Our goal is to continue to build out our portfolio and bring to market products that will help our customers reduce cost, increase revenue, improve service quality, and deliver fluid experiences. And now I'd like to focus on our march up market. Let me remind you that our 1 million plus ARR customers now make up over 50% of our recurring revenue. Our partner community is now influencing over 70% of our bookings, and we continue to certify an increasing number of partners, not only for sales, but also implementation services. Over the years, our PS teams have set a very high benchmark for quality of implementation services, as measured by our NPS scores in the 80s. who are committed to investing in maintaining this high standard for successful implementations. We call this important 2023 initiative project pull through, which we believe will not only give us services leverage leading to improved margins, but also provide more top of funnel opportunities, which will come from these partners. We just completed meetings a couple of weeks ago with our partner advisory board, where we collaborated on how to best drive collective success. Lastly, I'd like to touch on our international expansion. I'm pleased to report that our international revenue in Q1 grew 48% year-over-year on an LTM basis and has now grown more than 40% year-over-year in nine of the last 11 quarters. As we've discussed previously, partners play a significant role in our international expansion, and I'm excited to report that Five9 has entered into a strategic partnership with BT, formerly known as British Telecom. They have a large Salesforce throughout Europe and the rest of the world with a specialized contact center practice focused on customer experience transformation. After an extensive multi-year evaluation process, BT has chosen Five9 as its primary CCaaS solution to enable the migration of their thousands of legacy install-based customers to the cloud with the Five9 Intelligent CX platform. In closing, I'd like to express how proud I am of this entire Five9 team. Even with this challenging macro backdrop, the team is executing with an increased level of passion and purpose that I just love to see. The energy and excitement surrounding our opportunity has never been better. This speaks directly to the Five9 team-oriented culture, which I've always believed is one of our most significant competitive advantages. With that, I will turn it over to our president, Dan, go ahead.

Thank you, Mike, and good afternoon, everyone. I want to start by focusing on our move-up market and our momentum with strategic accounts. As we anticipated, our successful execution in delivering the parcel delivery service and the healthcare conglomerate has others taking notice. As a result, our pipeline for strategic accounts is roughly double what it was a year ago, and we continue to see an increase in RFPs. As we've stated previously, you should not expect mega deals every quarter. However, I do want to share some exciting news. We very recently booked another mega deal, a large regional bank where we anticipate this initial order to result in over $8 million in annual recurring revenue to 5.9, once it's fully ramped, which we expect to take up to two years. Given that this booking took place in early Q2 and has high visibility, I wanted to discuss this directly with you now rather than have you hear about it through the grapevine. Additionally, I'm pleased to report that we had our strongest bookings quarter for any Q1 from our mid-market, international, and commercial teams, and our overall pipeline reached another all-time high. All that said, there is a macro backdrop that in some cases is elongating sales cycles for our new logo bookings, as well as slowing seed ads for our install base, as Barry will elaborate on in a few minutes. And now, as I normally do, I'd like to share some key wins for Q1. The first is a healthcare technology and services provider of financial management and patient experience management. They had been using an on-premises Cisco solution, which did not support omnichannel, IVA, WFA, WEM, and several important integrations to deliver valuable data to their agents. We competed with the leading CCaaS providers and Five9 was chosen for our intelligent CX platform, which delivers all of these applications and integrations. In addition, they will be leveraging our AI and automation portfolio to perform authentication with voice biometrics, natural language recognition for call routing, and IVA self-service for checking account balances, payment status, and appointment reminders. We anticipate this initial order to result in approximately $4.7 million in ARR to find mine. The second example is a full-service regional bank operating in several states in the southern U.S. They had been using an outdated aspect on-prem system and evaluated the leading CCaaS providers. They were not only looking for a comprehensive CX platform with the full suite of applications, such as omnichannel, WEM, speech analytics, performance management, several AI and automation solutions, and a truly blended inbound and outbound capabilities. but also they were looking for a partner with the professional services expertise who could best deliver and tailor all of these applications to enhance the customer experience, improve their efficiency, cut costs, and increase revenue. We anticipate this initial order to result in approximately $2.3 million in ARR to 5.9. The third example I'd like to share is a rather unique sale that highlights the true value of moving contact centers to the cloud. One of our premier partners in Europe who has extensive expertise in selling and implementing Five9 acquired a company which has several dozen customers with legacy on-prem contact center solutions, which are being end of life. They placed an order with us to migrate the first phase of these customers over to Five9 throughout 2023 with more to follow in 2024. This initial order for phase one is anticipated to result in approximately $1.8 million in AR to 5.9. And we expect more to follow as their install base gets fully turned over to 5.9. And now, I'd like to share an example of an existing customer who has expanded their use of 5.9. The company has been with us since 2017, handling smartphone repairs, trade-ins, insurance, warranty, and recycling. as well as providing premium support with operations in over 30 countries. They had adopted the use of Five9's IVA in 2022 to measure the impact of providing self-service options for several use cases. The ROI and customer experience feedback both exceeded expectations. So in Q1, they ordered additional voice IVAs, digital IVAs, as well as our native SMS solutions to further provide automation, which are enriching the customer experience while dramatically reducing labor expense. They were a $1.9 million ARR customer before this Q1 order, which will now increase their spend to approximately $3.4 million in 2023. And now I'll hand it over to Barry to cover the financials. Barry?