Five9, Inc.

During today's conference call, certain statements will be made that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to statements regarding our Q2 second half of 2026 and full year 2026 guidance, expected improvements in operating and financial metrics, CCAS and AI revenue growth trends, industry trends, including with respect to AI, our strategy, priorities and execution, our product roadmap and technology investment, our markets, customer demand trends, our market position and opportunity, our capital allocation strategy, including our share repurchase programs and other future events or results. Such statements are simply beliefs and 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 could adversely affect Five9's future results and cause these forward-looking statements to be inaccurate, including the impact of adverse economic conditions, lower growth rates within our installed base of customers, failure to manage our technical operations infrastructure, unsuccessful development of our AI solutions, failure to maintain and develop our contact center solutions, failure to achieve the anticipated benefits of our share repurchase activity, 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 the 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 that can be found in the investor relations section of Five9's website at investors.five9.com. Also, please note that the information provided on this call speaks only to management's views as of today and may no longer be accurate at the time of a replay. Lastly, a reminder, unless otherwise indicated, financial figures discussed are non-gap. And now, I'd like to turn the call over to Five9 CEO. Please go ahead, Anand.

Thank you, Tony, and welcome, everyone, to our first quarter 2026 earnings call. We delivered an encouraging start to the year, and I am particularly pleased to report an acceleration in subscription revenue growth with top and bottom line results coming in above the high end of the guidance ranges. While we are still early in our work, this quarter marks an important step in showing that our actions are beginning to translate into better business performance with the indicators we care about moving in the right direction again. This is my first full earnings call as CEO. I want to frame our work around four priorities that I believe are essential to driving long-term value at ByteLine. First, building a performance-driven culture rooted in accountability and transparency. Second, optimizing operations. Third, stabilizing and strengthening the core business. And fourth, winning in AI-empowered customer experiences. Let me start with our first priority, culture. Over the past three months, I've spent a significant amount of time with our teams and leaders across the company and had frank conversations with employees across functions and geographies. What is clear to me is that Five9 has talented people, highly strategic assets, and a real desire to win. But winning also requires clarity of mission, high standards, urgency, and accountability. We need a culture where performance is measured rigorously, decisions are made quickly, and leadership is held to a high standard. That starts with me. Transparency with the investor community is equally important. Over time, our story has become harder for investors to underwrite than I believe it should be. Some of that was about how we executed, how we communicated, and how clearly we translated our strategy into measurable progress. Going forward, we will demonstrate progress through clearer, relevant, and trackable metrics that help investors assess the health of the business and hold management accountable. We understand that investors want evidence, not ambition, and our job is to convert our vision into results that are quantifiable. Turning to operations, over the past year and with the support and oversight of the board, Five9 has been executing a significant operational review designed to improve efficiency and simplify execution. This work, which was well underway before I joined, helped drive the 470 basis points increase in EBITDA margin from 2024 to 2025. This foundational work is crucial, but it is only the beginning. We are now in a better position to move faster and reinvest in critical areas. Building on this foundation and with the support of external advisors, I am leading a series of deep dives across the product portfolio to align investments with our long-term competitive priorities. To help accelerate this effort, we are filling gaps and making changes in leadership, adjusting our organizational design, including reducing spans and layers to improve focus, speed, and accountability. These changes will help us operate more efficiently and effectively and build more discipline, foundation for innovation, growth, and continued operating leverage over time. An example of this was our recent hire of Jerry, our new Chief Marketing and Growth Officer. In this newly created role, J will unify global marketing with revenue strategy and operations to build a more aligned, insights-driven, go-to-market engine that delivers a seamless experience for customers and partners. Let me shift to my point of view on the strategic outlook for our industry and our business specifically. AI is one of the most important shifts underway in our industry, and customer experience is one of the most compelling application areas. In my conversation with customers, I'm consistently hearing that AI is fundamentally increasing the importance and value of every customer interaction. Historically, contact center spending has been overwhelmingly weighted towards labor, creating a difficult tradeoff between lowering costs and delivering better experiences. AI is acting as a catalyst to change this. Customers now see the potential to reallocate a portion of their labor spend to fund the combination of AI and enhanced CX, better addressing the tradeoff between cost and quality. This makes the move to a modern cloud-based platform more urgent than ever. This shift is forcing a critical decision. Customers must now consider how AI is incorporated into their CCaaS platform because they want to avoid a sprawling collection of disparate AI tools that cannot seamlessly coordinate between their human agents. This means that AI's point solutions are not enough because they only solve a fraction of the problem. Enterprises are looking for a complete customer experience platform they can trust to handle the entire lifecycle, the orchestration, the data, the integrations, and the governance needed to run reliably in production. This is precisely what 5.9 provides. What's interesting is that AI handles a large share of routine customer requests. The role of agents is elevated, not eliminated. People become experts who manage complex escalations and provide essential oversight, a necessity in several regulated industries. A platform infused with AI and CS technology empowers these agents with real-time guidance and suggested next steps, while simultaneously giving supervisors unprecedented visibility into every interaction, not just the sampling. Importantly, human-based intelligence and case resolution provides a critical feedback loop for training AI agents, which in turn drives continuous performance improvements of the entire unified platform and further differentiates Slide 9. This evolution is about more than just efficiency. It's about value capture. As AI reduces the customer's traditional labor spend, that budget shifts towards technology. We believe this fundamentally expands our monetizable service area. By enabling entirely new use cases and more differentiated customer experiences, our path to success is no longer about simply selling seats. Instead, it's about selling a complete solution based on capabilities and consumption. This is where we believe our category is going, and we plan to lead it by pairing these and other powerful agentic capabilities into a platform that has trust, governance that enterprises seek. But we are not assuming success here. We must earn it. And we will measure ourselves not by demos, but by production, adoption, and customer outcomes. We are seeing signs that our strategy is working. In the first quarter, we posted our second consecutive quarter of year-on-year accelerating subscription revenue growth, an important indicator that the core business is strengthening. We are also seeing customers adopt our AI solutions in production as an integrated part of our CX platform, leading to multiple quarters of strong AI revenue growth. This effort is amplified by the strength of our platform and our ecosystem. Our cloud-native CCaaS platform is built for high reliability and features open integrations, which has allowed us to build an ecosystem of over 1,400 partners. Our deep strategic relationships with market leaders within this ecosystem are critical, serving to validate our technology, strengthen our go-to-market reach, and accelerate enterprise adoption. This is a large opportunity, and we believe 5.9 is one of the few key players truly positioned to capture it. We intend to do so with both urgency and discipline. Before I hand it over to Brian, let me say a few words about capital allocation. We take our role as stewards of shareholder capital seriously. Our approach will be disciplined, return-oriented, and balanced. This includes investing organically in our business, evaluating inorganic opportunities against a high strategic and financial bar, and when appropriate, returning capital to shareholders. On the last point, reflecting our confidence in the company's intrinsic value, we intend to complete our remaining amount of $150 million share repurchase authorization by the end of Q3. In addition, our board has authorized an additional $200 million share repurchase program. We see this as a compelling use of capital, and Brian will provide more details in a moment. Since joining in February, it has become even clearer to me that Five9 has talented employees, a portfolio of highly strategic assets, and significant upside potential. It has also become clear to me that we must operate with greater urgency, better execution, and higher accountability as we build towards an AI-driven future. That work is underway, and I intend to drive meaningful change as we work to turn Five9 from a good company into a great business with a disciplined focus on creating long-term shareholder value. With that, I'll turn the call over to Brian.

Thank you, Ahmed, and good afternoon, everyone. I would like to begin by underscoring our commitment to transparency in our reporting. To that end, starting today, you'll find a supplemental metric disclosure in the investor relations section of our website. While many of these metrics have been disclosed previously, we believe this new format will help simplify your modeling. As Amit noted, we have taken decisive action on returning capital to shareholders. After repurchasing $10 million of shares in the first quarter, we intend to enter into an accelerated share repurchase program for the remaining $90 million under the current authorization, which we expect to be completed by the end of Q3. The Board has also approved a new share repurchase program of $200 million, which we expect to execute opportunistically. These actions reflect our deep conviction in our long-term opportunity and confidence in continuing to generate strong free cash flow while also providing ample strategic flexibility. Now turning to our financials. Q1 revenue was $305 million, up 9% year-over-year. Of the total for the quarter, the contributions from subscription, telecom, and professional services were approximately 82%, 12%, and 6% respectively. Our subscription revenue grew 13% year-over-year. This is driven by our CCAS revenue, which grew 8%, and our AI revenue, which grew 68%, to an annual run rate of over $125 million. For clarity, please note that this AI revenue figure now includes both enterprise and commercial, providing a complete view of this growth driver. Our AI revenue now represents approximately 13% of total subscription revenue compared to approximately 8% a year ago, and the year-over-year growth rate accelerated from 49% in Q4-25 to 68% in Q1-26, primarily driven by our backlog ramping earlier than anticipated. Looking ahead, we expect total subscription and CCAS growth to trend with our overall revenue guidance. AI revenue growth is expected to fluctuate quarter-to-quarter given varying rent schedules, with full-year 2026 growth anticipated to exceed 40% year-over-year. LTM dollar-based retention rate, defined in our filings as the retention rate of recurring revenue from subscription plus telecom, was 105%, which is the same as Q4 2025. Given our focus on subscription revenue going forward, we will transition our DBRR disclosure to LTM subscription DBRR, which came in at 107% in Q1, compared to 106% in Q4-25. Please refer to the previously mentioned supplemental metric disclosure on our investor relations website with nine quarters of historical dollar-based retention rates. As anticipated, both DVR metrics stabilized in Q1, and we expect Q2 to be at relatively similar levels, plus or minus one percentage point, before inflecting in the second half of the year. Adjusted gross margin in Q1 was 64%, compared to 62% in Q1 last year. Adjusted EBITDA was $74 million, or 24% of revenue, compared to $53 million, or 19% of revenue in the same quarter last year. In terms of cash flow, cash from operations was $64 million, or 21% of revenue, and free cash flow was $49 million, or 16% of revenue. These profitability and cash flow margins benefited by slightly more than one percentage point in the first quarter from a one-time discount negotiated with a key vendor that we do not expect to recur in future periods. From a balance sheet perspective, we ended the quarter with $724 million in cash, cash equivalents, and short-term investments. On to guidance. For the second quarter, we're guiding total revenue to a midpoint of $306 million with a range of $303 million to $309 million. For the same period, our guidance for non-GAV UTS is a midpoint of $0.60 for diluted share with a range of $0.65 to $0.69. The largest driver of the sequential decline is the one-time discount I mentioned a moment ago that benefited Q1. Additionally, this guidance includes an estimated 3.6 billion shares being retired through an accelerated share repurchase. For the second half, we continue to expect total revenue growth to accelerate to double digits, driven by our backlog of both new logo and install-based bookings. For now, GAAP EPS, we expect steady sequential increases in the second half. For the full year of 2026, we're guiding total revenue to a midpoint of $1.26 billion, with a range of $1.254 billion to $1.266 billion, which is up from our initial midpoint guidance of $1.254 billion. Our guidance for 2026 non-GAAP EPS is a midpoint of $3.26 per diluted share, with the range of $3.22 to $3.30, which is up from our initial midpoint guidance of $3.18 per diluted share. Additionally, we continue to anticipate annual adjusted EBITDA margin to exceed 24%, and the annual pre-cash flows to be approximately $175 million. That said, our organizational design initiatives are expected to initially result in higher temporary expenses but provide longer-term cost efficiencies along with improved focus, speed, and effectiveness. To assist with modeling, please note the following. Purchase of PP&E is expected to be approximately 3.5% of revenue for 2026 due to a global data center refresh. Please refer to the presentation posted on our investor relations website for additional estimates, including share count and taxes, as well as GAAP to non-GAAP reconciliations. With that, I would like to ask our president, Andy Dignan, to join us for Q&A and open the call. Operator, please go ahead.