Call center software provider Five9 (NASDAQ: FIVN) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 13.2% year on year to $279.7 million. The company expects next quarter’s revenue to be around $275 million, close to analysts’ estimates. Its non-GAAP profit of $0.62 per share was 27.9% above analysts’ consensus estimates.
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Five9 (FIVN) Q1 CY2025 Highlights:
- Revenue: $279.7 million vs analyst estimates of $272.5 million (13.2% year-on-year growth, 2.6% beat)
- Adjusted EPS: $0.62 vs analyst estimates of $0.48 (27.9% beat)
- Adjusted Operating Income: $40.31 million vs analyst estimates of $31.1 million (14.4% margin, 29.6% beat)
- The company reconfirmed its revenue guidance for the full year of $1.14 billion at the midpoint
- Management raised its full-year Adjusted EPS guidance to $2.76 at the midpoint, a 6.2% increase
- Operating Margin: -1.9%, up from -8.4% in the same quarter last year
- Free Cash Flow Margin: 12.5%, similar to the previous quarter
- Net Revenue Retention Rate: 107%, down from 108% in the previous quarter
- Annual Recurring Revenue: $1.06 billion at quarter end, up 11.6% year on year
- Billings: $275.3 million at quarter end, up 12% year on year
- Market Capitalization: $2.11 billion
StockStory’s Take
Five9’s first quarter results reflected ongoing momentum in its enterprise subscription business and notable improvements in profitability, as management cited strong adoption of its artificial intelligence (AI) solutions and disciplined expense controls. CEO Mike Burkland pointed to a 32% year-over-year increase in enterprise AI revenue and highlighted customer success stories that demonstrated measurable efficiency gains, such as a fast-food chain achieving a nearly 40% improvement in call containment rates.
Looking ahead, management reconfirmed annual revenue guidance but expressed caution given ongoing macroeconomic uncertainty and lengthening sales cycles in large enterprise deals. CFO Bryan Lee noted, "Given recent heightened macro uncertainty, we believe it is important to take a slightly more prudent stance in terms of our guidance," while raising full-year adjusted EPS guidance on the back of cost-saving initiatives and improved operating leverage. The company continues to invest in AI and go-to-market strategies, aiming to sustain profitable growth and achieve its medium-term "Rule of 40" targets.
Key Insights from Management’s Remarks
First quarter performance was underpinned by strength in Five9’s enterprise AI offerings, ongoing cloud migration, and operational discipline. Management attributed outperformance to robust demand for AI-powered customer experience solutions and successful upsell initiatives in the installed base, while also flagging external factors affecting international growth.
- AI Product Momentum: Management emphasized accelerating adoption of its AI suite, with over 20% of enterprise new logo bookings containing AI and enterprise AI revenue up 32% year over year. The AI blueprint program, designed to help customers identify and deploy AI use cases, contributed to both new sales and upsells.
- Cloud Migrations Continue: The company noted that the shift from on-premise to cloud-based contact center solutions remains a major driver of growth, especially among large enterprise customers. Management described the upper end of the market as "the largest and least penetrated part of the market and the fastest growing category of our business."
- Operational Review and Cost Controls: Five9 completed an operational review, resulting in a 4% workforce reduction to streamline expenses and focus investment on AI and go-to-market initiatives. This contributed to margin expansion and improved cash generation.
- Strategic Partnerships Deepen: The company launched Five9 Fusion, a new native integration with Salesforce, and expanded collaborations with ServiceNow, Google Cloud, and IBM. These partnerships are designed to enhance AI-powered customer experience offerings and broaden market reach.
- International Headwinds: Management reported some resistance among international customers to U.S. vendors, largely driven by geopolitical factors. They indicated this was more pronounced in new logo opportunities than in the existing customer base.
Drivers of Future Performance
Management’s outlook for the remainder of the year centers on continued investment in AI innovation, targeted go-to-market initiatives, and careful monitoring of macroeconomic headwinds, particularly in international and large enterprise segments.
- AI Adoption and Monetization: The company expects further growth from its AI offerings, with management indicating that higher AI mix should support gross margin expansion and long-term profitability.
- Sales Cycle and Market Conditions: Management highlighted lengthening sales cycles for large enterprise deals and increased caution among buyers, which could impact deal timing and revenue conversion.
- Cost Discipline and Margin Focus: Ongoing expense management, including the recent workforce reduction, is expected to support margin improvement and higher non-GAAP EPS, even as the company continues to invest in strategic initiatives.
Top Analyst Questions
- Robert Morelli (Needham): Asked if first quarter subscription revenue would be the trough for the year; management responded that revenue guidance assumes muted seasonality and increased prudence but was not specific about quarterly trends.
- Siti Panigrahi (Mizuho): Inquired about elongated sales cycles in enterprise, especially internationally. Management confirmed longer cycles in large deals and noted some international resistance but said most deals merely slipped to the next quarter.
- Raimo Lenschow (Barclays): Questioned how AI is impacting customer decision-making amid uncertainty; CEO Burkland said AI is accelerating adoption, with 50% of customers in the AI blueprint program purchasing AI products.
- Samad Samana (Jefferies): Asked about co-sell dynamics with partners and AI’s impact on gross margins; management described active co-sell arrangements and noted that AI revenue carries higher margins, benefiting overall profitability.
- Rishi Jaluria (RBC): Pressed for clarity on what counts as AI revenue and whether increased AI adoption could pressure gross margins; management specified only advanced AI products are included and that AI is a margin tailwind, not a headwind.
Catalysts in Upcoming Quarters
In the quarters ahead, the StockStory team will monitor (1) the pace of enterprise AI adoption and its impact on subscription growth, (2) progress of new strategic partnerships—particularly the Salesforce Fusion integration—and associated pipeline expansion, and (3) signs of stabilization or improvement in international and large enterprise sales cycles. Additionally, we will track management’s ability to maintain cost discipline while investing for long-term growth.
Five9 currently trades at a forward price-to-sales ratio of 2.1×. At this valuation, is it a buy or sell post earnings? Find out in our free research report.
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