A Down Quarter for Five9? Partners Don’t Think So

Contact center as a service (CCaaS) and customer experience (CX) platform provider Five9 saw its osses shrink in its last quarter as the vendor eyes the payoff of several large enterprise deals.

Five9 surpassed $1 billion in annual revenue run rate and increased its revenue by 13% to a best-ever $252.1 million, according to its second quarter earnings. Moreover, new business is seeing "renewed momentum," according to CEO Dan Burkland. Five9 saw record enterprise bookings in the second quarter. Four deals in particular combine to make more than $42 million in annual recurring revenue.

And channel partners, including value-added resellers (VARs) and technology advisors (TAs), played a key role in those "new logos." Five9 recorded a record number of bookings through indirect, and 15 partners booked more than $1 million in annual contract value.

Five9 during its earnings announcement publicized its agreed-upon acquisition of Acqueon. Companies use Acqueon's "revenue execution platform" to automate outbound contact with customers. Acqueon and Five9 have partnered together for two years.

Nevertheless ...

The company's stock price took a hit following its Thursday earnings call, dropping from $42 to $31 after several analysts lowered their price targets for the company. Much of that decrease stemmed from Five9 cutting its annual revenue guidance by 3.8%, "reflecting recent bookings trends and the uncertain economic conditions." Despite growth in new accounts, Five9's installed base of customers is facing "headwinds."

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Five9 chief financial officer Barry Zwarenstein specifically pointed to the consumer vertical as the area that specifically faced "macro headwinds" in the previous quarter. Whereas the consumer vertical was growing in the single digits a year prior, it declined in the single digits in the second quarter of 2024.

"Given that consumer is typically our most seasonal vertical in the second half of the year, we have been prudent for now with our annual guidance of factoring in this uncertainty," Zwarenstein told investors.

The downward stock movement might also reflect industrywide anxieties around investment in artificial intelligence. Investors have punished AI stocks in the last few weeks for not delivering enough in the short-term. Five9 and its peers in the CCaaS market have touted their use of generative AI, natural language processing and machine-learning to improve customer experience. Some analysts, Piper Sandler in particular, said they are waiting to see how AI will ultimately impact CCaaS providers.

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"We believe generative AI is the next wave of opportunity for Five9 with the potential to broaden our [total addressable market]. Five9 has been riding the wave of AI and automation for the past several years, and we feel we’re well positioned to continue to push this industry forward," Burkland said. "Not only is the AI revolution a tailwind to our technology and innovation, but it’s also a tailwind to our business. We provide software for enterprise clients to manage their customer interactions."

Despite record-setting revenue for the vendor in the second quarter, its total operating expenses increased to $153 million and ultimately led to a net loss of $12.8 million. However, the loss declined from $21.7 million in the second quarter of 2023.

Scott Prater, senior vice president of technology solutions at BridgepointeCX, said he views Five9 bullishly. He noted that one could probably attribute the lowered guidance to a conservative approach Zwarenstein is known for taking.

"Their two primary financial goals for 2024 were to hit $1 billion in revenue run rate (which is already achieved based upon this quarter's report) and to improve adjusted gross margin to 64% [which scored at 60.5%],which they took a step backwards on, and their future guidance suggests they won’t achieve it, which is likely one of the primary reasons their stock got pummeled outside of just the revenue guidance being lowered," Prater told Channel Futures.

Moreover, Prater pointed to four different factors that are impacting the CCaaS market right now. First he pointed to lengthened enterprise sales process.

"Deal cycles are taking longer as companies try to figure out their AI strategy especially in the enterprise space," Prater said.

Moreover, sales cycles involve more stakeholders than ever, Prater said.

"CIO/CTOs are in the room with sales and operations leaders due to the impact of AI and how it impacts (or perceivably impacts) the business," he said.

There's also the rise of UCaaS providers adding contact center and competing against traditional CCaaS providers in SMB and mid-market.

"... and when they are the incumbent provider, contractually it becomes the 'easy button,'" Prater said.

Add to that hyperscalers, who have already established a relationship with many enterprise around AI, Prater said.

Rise Technology Advisors co-founder Eric Ludwig, who consults on different CX platforms, pointed to Five9's results around subscriptions. Five9's subscription revenue for the last 12 months (LTM) increased 21%. Look no further than new subscriptions when trying to forecast revenue and gross profit, Ludwig told Channel Futures.

Rise's Eric Ludwig

“Nice to see continued growth and lower net loss for Five9," Ludwig said. "Clients love Five9 for their core CCaaS functionality, and the acquisition of Acqueon gives them more native Five9 options vs. third-party partner integration.”

Beyond CCaaS

Partners and suppliers in the cloud contact center business have stressed the evolution of the industry into customer experience (CX) and beyond. Burkland noted that Five9 scored an 80% attach rate on its $1 million-plus annual recurring revenue deals in Q2. That means, in 80% of bookings, the customers bought a secondary offering from Five9.

"As AI and automation become that much more important, it’s asked for in virtually all the RFPs today, it’s presented whether asked for or not, and we can find use cases for customers across the board now that we have this full portfolio of eight different applications that we can deliver and combinations where you combine the two and deliver a pretty unique use case," Burkland said. "So we’re seeing a lot of brainstorming within the new customers. They use it to justify their business case to move to Five9 and to the cloud, in particular, but they also in the installed base."

The acquisition of Acqueon, which is strong in health care, where Five9 has also scored recent big wins, are examples of the investment in automation.

E78's Nabila Lulow

“The additional investments and innovation in their AI offering will offer clients more options to stay on the core Five9 platform, versus pursuing external offerings," Ludwig said. "Acqueon has some excellent uses cases, particularly in health care with their Patient Experience product.”

Nabila Lulow, vice president of enterprise technology solutions at E78 Partners, pointed to Five9's strategic partnership with contact center workforce optimization provider Calabrio.

"This new [Acqueon] offering combined with the additional offering of Calabrio as a [workforce management] solution has probably contributed to their financial growth," Lulow told Channel Futures.

Prater credited Five9 for its ability to cross-sell and up-sell upon its core CCaaS deals.

"Five9 has (and has had for 2 years) the best sales motion to get their AI products included in new deals which provides revenue protection from reduced seat licenses driven by continued AI automation. Other providers that don’t have the same initial take rate on AI automation put themselves at risk to third party best of breed solutions (such as Kore.ai) taking that AI automation revenue and impacting the CCaaS providers revenue seat license revenue stream as automation increases," he said.

Professional Services

Burkland noted on the earnings call that some of Five9's recent large customer wins won't haven't taken effect revenue-wise.

And keeping in mind the challenges he referenced around the installed base, Burkland said Five9 will increase its resources around professional services. Nine percent of Five9's revenue in the last quarter came from professional services, which includes implementation.

"Given the record number of large new logo wins this last quarter, we are making upfront incremental investments to further scale professional services," he said.

He added that partners are conducting more than 60% of international implementations. Many technology advisors, who generally do not handle implementation, have partnered with consultancies such as BridgepointeCX and InflowCX to help organizations complete deployment.

Five9 Channel

On the earnings call, Burkland gushed about the impact of channel partners. He gave a shout-out to Jake Butterbaugh, senior vice president of the Five9 global partner organization.

"We’ve really scaled up that part of the organization. And it’s not just about going out and signing up new partners, but it’s making sure that they view us as being their go-to-market first choice," Burkland said. "We spend a lot of effort and a huge investment to make sure that we’re catering to our partners and making sure that they can go to market and represent Five9 in the right way and that we always make sure we’re doing the right thing for the customer, but we’re also doing the right thing for the partner and making it easy to do business with us."

Butterbaugh said at the recent Telarus Partner Summit that Five9 grew its net-new business from 28% channel-driven to 82% over the past five years.