Five9 Reports Second Quarter Revenue Growth of 27% to a Record $77.4 Million

Five9, Inc. (NASDAQ:FIVN), a leading provider of cloud contact center software, today reported results for the second quarter ended June 30, 2019.

Second Quarter 2019 Financial Results

• Revenue for the second quarter of 2019 increased 27% to a record $77.4 million, compared to $61.1 million for the second quarter of 2018.
• GAAP gross margin was 59.6% for the second quarter of 2019, compared to 59.4% for the second quarter of 2018.
• Adjusted gross margin was 65.0% for the second quarter of 2019, compared to 63.8% for the second quarter of 2018.
• GAAP net loss for the second quarter of 2019 was $(1.9) million, or $(0.03) per basic share, compared to GAAP net loss of $(2.0) million, or $(0.04) per basic share, for the second quarter of 2018.
• Non-GAAP net income for the second quarter of 2019 was $12.3 million, or $0.20 per diluted share, compared to non-GAAP net income of $6.9 million, or $0.11 per diluted share, for the second quarter of 2018.
• Adjusted EBITDA for the second quarter of 2019 was $14.4 million, or 18.6% of revenue, compared to $9.7 million, or 15.8% of revenue, for the second quarter of 2018.
• GAAP operating cash flow for the second quarter of 2019 was $6.8 million, compared to GAAP operating cash flow of $5.7 million for the second quarter of 2018.

“We delivered strong second quarter results. Revenue of $77.4 million grew 27% year-over-year and continued to be driven by our Enterprise business, which delivered 36% growth in LTM Enterprise subscription revenue. To further strengthen our position in this massive market, we have made a meaningful investment in our engineering and technical leadership and added several key industry leaders to expand our channel development. Our strong enterprise ecosystem continues to grow, most recently with the announcement of our partnership with Microsoft Teams, further demonstrating our momentum. Overall, we are making excellent progress on product innovation and enterprise traction and have a strong team in place, including an awesome go-to-market machine, to continue this momentum.”

- Rowan Trollope, CEO, Five9

Business Outlook

• For the full year 2019, Five9 expects to report:
  • Revenue in the range of $312.5 to $314.5 million, up from the prior guidance range of $304.0 to $307.0 million that was previously provided on May 1, 2019.
  • GAAP net loss in the range of $(12.0) to $(10.0) million or $(0.20) to $(0.16) per basic share, improved from the prior guidance range of $(17.3) to $(14.3) million or $(0.29) to $(0.24) per basic share, that was previously provided on May 1, 2019.
  • Non-GAAP net income in the range of $44.7 to $46.7 million or $0.70 to $0.73 per diluted share, improved from the prior guidance range of $39.3 to $42.3 million or $0.61 to $0.66 per diluted share, that was previously provided on May 1, 2019.
• For the third quarter of 2019, Five9 expects to report:
  • Revenue in the range of $78.0 to $79.0 million.
  • GAAP net loss in the range of $(6.3) to $(5.3) million, or a loss of $(0.10) to $(0.09) per basic share.
  • Non-GAAP net income in the range of $8.8 to $9.8 million, or $0.14 to $0.15 per diluted share.

Conference Call Details

Five9 will discuss its second quarter 2019 results today, July 31, 2019, via teleconference at 4:30 p.m. Eastern Time. To access the call (ID 7619063), please dial: 800-263-0877 or 323-794-2094. An audio replay of the call will be available through August 14, 2019 by dialing 888-203-1112 or 719-457-0820 and entering access code 7619063. A copy of this press release will be furnished to the Securities and Exchange Commission on a Current Report on Form 8-K and will be posted to our web-site, prior to the conference call.

A webcast of the call will be available on the Investor Relations section of the Company’s web-site at http://investors.five9.com/.

Non-GAAP Financial Measures

In addition to disclosing financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), this press release and the accompanying tables contain certain non-GAAP financial measures. We calculate adjusted gross profit and adjusted gross margin by adding back the following items to gross profit: depreciation, intangibles amortization and stock-based compensation. We calculate adjusted EBITDA by adding back or removing the following items to or from GAAP net loss: depreciation and amortization, stock-based compensation, interest expense, interest (income) and other, non-recurring litigation settlement costs and related indemnification fees, and provision for (benefit from) income taxes. We calculate non-GAAP operating income as operating income (loss) excluding stock-based compensation, intangibles amortization, and non-recurring litigation settlement costs and related indemnification fees. We calculate non-GAAP net income as GAAP net loss excluding stock-based compensation, intangibles amortization, amortization of debt discount and issuance costs, amortization of discount and issuance costs on convertible senior notes, non-recurring litigation settlement costs and related indemnification fees, and gain on sale of convertible note held for investment. Non-GAAP financial measures do not have any standardized meaning and are therefore unlikely to be comparable to similarly titled measures presented by other companies. Five9 considers these non-GAAP financial measures to be important because they provide useful measures of the operating performance of the Company, exclusive of factors that do not directly affect what we consider to be our core operating performance, as well as unusual events. The Company’s management uses these measures to (i) illustrate underlying trends in the Company’s business that could otherwise be masked by the effect of income or expenses that are excluded from non-GAAP measures, and (ii) establish budgets and operational goals for managing the Company’s business and evaluating its performance. In addition, investors often use similar measures to evaluate the operating performance of a company. Non-GAAP financial measures are presented only as supplemental information for purposes of understanding the Company’s operating results. The non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP. Please see the reconciliation of non-GAAP financial measures set forth herein and attached to this release.

Forward-Looking Statements

This news release contains certain forward-looking statements, including the statements in the quote from our Chief Executive Officer, including statements regarding Five9’s market position, enterprise ecosystem, our go-to-market capabilities, product innovation and enterprise traction, business momentum, expectations for future growth, and the third quarter and full year 2019 financial projections set forth under the caption “Business Outlook,” that are based on our current expectations and involve numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate. Risks that may cause these forward-looking statements to be inaccurate include, among others: (i) our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock; (ii) if we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed; (iii) our recent rapid growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively; (iv) failure to adequately expand our sales force could impede our growth; (v) if we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages; (vi) security breaches and improper access to or disclosure of our data or our clients’ data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation and adversely affect our business; (vii) the markets in which we participate involve numerous competitors and are highly competitive, and if we do not compete effectively, our operating results could be harmed; (viii) if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, our revenues and gross margins will be harmed and we will be required to spend more money to grow our client base; (ix) our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully grow and manage these relationships could harm our business; (x) we have established, and are continuing to increase, our network of master agents and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues; (xi) we sell our solution to larger organizations that require longer sales and implementation cycles and often demand more configuration and integration services or customized features and functions that we may not offer, any of which could delay or prevent these sales and harm our growth rates, business and operating results; (xii) because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern; (xiii) we rely on third-party telecommunications and internet service providers to provide our clients and their customers with telecommunication services and connectivity to our cloud contact center software and any failure by these service providers to provide reliable services could cause us to lose clients and subject us to claims for credits or damages, among other things; (xiv) we have a history of losses and we may be unable to achieve or sustain profitability; (xv) the contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new products in order to maintain and grow our business; (xvi) we may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs; (xvii) failure to comply with laws and regulations could harm our business and our reputation; (xviii) we may not have sufficient cash to service our convertible senior notes and repay such notes, if required; and (xix) the other risks detailed from time-to-time under the caption “Risk Factors” and elsewhere in our Securities and Exchange Commission filings and reports, including, but not limited to, our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Such forward-looking statements speak only as of the date hereof and readers should not unduly rely on such statements. We undertake no obligation to update the information contained in this press release, including in any forward-looking statements.

About Five9

Five9 is a leading provider of cloud contact center software for the intelligent contact center space, bringing the power of cloud innovation to customers and facilitating more than five billion call minutes annually. Five9 provides end-to-end solutions with omnichannel routing, analytics, WFO and AI to increase agent productivity and deliver tangible business results. The Five9 Genius platform is reliable, secure, compliant and scalable; designed to create exceptional personalized customer experiences. For more information, visit www.five9.com.

FIVE9, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
		June 30, 2019				December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents		$	110,469			$	81,912
Marketable investments		197,007				209,907
Accounts receivable, net		28,153				24,797
Prepaid expenses and other current assets		12,036				8,014
Deferred contract acquisition costs		10,954				9,372
Total current assets		358,619				334,002
Property and equipment, net		28,255				25,885
Operating lease right-of-use assets		10,219				—
Intangible assets, net		455				631
Goodwill		11,798				11,798
Other assets		1,000				836
Deferred contract acquisition costs — less current portion		25,421				21,514
Total assets		$	435,767			$	394,666
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	7,534			$	7,010
Accrued and other current liabilities		14,925				13,771
Operating lease liabilities		5,132				—
Accrued federal fees		1,577				1,434
Sales tax liabilities		1,266				1,741
Finance lease liabilities		5,545				6,647
Deferred revenue		19,991				17,391
Total current liabilities		55,970				47,994
Convertible senior notes		203,051				196,763
Sales tax liabilities — less current portion		836				841
Operating lease liabilities — less current portion		5,707				—
Finance lease liabilities — less current portion		2,402				4,509
Other long-term liabilities		1,231				1,811
Total liabilities		269,197				251,918
Stockholders’ equity:
Common stock		61				59
Additional paid-in capital		321,644				294,279
Accumulated other comprehensive income (loss)		146				(93		)
Accumulated deficit		(155,281		)		(151,497		)
Total stockholders’ equity		166,570				142,748
Total liabilities and stockholders’ equity		$	435,767			$	394,666

FIVE9, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
		Three Months Ended								Six Months Ended
		June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
Revenue		$	77,436			$	61,120			$	151,974			$	120,025
Cost of revenue		31,248				24,814				62,099				49,516
Gross profit		46,188				36,306				89,875				70,509
Operating expenses:
Research and development		10,811				8,367				21,357				16,139
Sales and marketing		23,250				17,912				44,951				35,390
General and administrative		12,042				9,833				23,804				18,936
Total operating expenses		46,103				36,112				90,112				70,465
Income (loss) from operations		85				194				(237		)		44
Other income (expense), net:
Interest expense		(3,406		)		(2,378		)		(6,802		)		(3,188		)
Interest income and other		1,490				206				3,235				604
Total other income (expense), net		(1,916		)		(2,172		)		(3,567		)		(2,584		)
Loss before income taxes		(1,831		)		(1,978		)		(3,804		)		(2,540		)
Provision for (benefit from) income taxes		29				64				(20		)		109
Net loss		$	(1,860	)		$	(2,042	)		$	(3,784	)		$	(2,649	)
Net loss per share:
Basic and diluted		$	(0.03	)		$	(0.04	)		$	(0.06	)		$	(0.05	)
Shares used in computing net loss per share:
Basic and diluted		60,058				57,903				59,714				57,453

FIVE9, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
		Six Months Ended
		June 30, 2019				June 30, 2018
Cash flows from operating activities:
Net loss		$	(3,784	)		$	(2,649	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		6,553				4,769
Amortization of operating lease right-of-use assets		2,147				—
Amortization of premium on marketable investments		(883		)		(43		)
Provision for doubtful accounts		30				66
Stock-based compensation		19,122				12,122
Gain on sale of convertible note held for investment		(217		)		(312		)
Amortization of discount and issuance costs on convertible senior notes		6,234				1,733
Others		(23		)		25
Changes in operating assets and liabilities:
Accounts receivable		(3,378		)		(1,114		)
Prepaid expenses and other current assets		(4,053		)		(3,140		)
Deferred contract acquisition costs		(5,488		)		(3,338		)
Other assets		(12,571		)		4
Accounts payable		159				1,493
Accrued and other current liabilities		6,516				2,415
Accrued federal fees and sales tax liability		(337		)		246
Deferred revenue		2,539				1,170
Other liabilities		5,412				261
Net cash provided by operating activities		17,978				13,708
Cash flows from investing activities:
Purchases of marketable investments		(151,308		)		(109,506		)
Proceeds from maturities of marketable investments		165,354				1,400
Purchases of property and equipment		(8,226		)		(1,092		)
Proceeds from sale of convertible note held for investment		217				1,923
Net cash provided by (used in) investing activities		6,037				(107,275		)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes, net of issuance costs paid of $7,946		—				250,804
Payments for capped call transactions		—				(31,412		)
Proceeds from exercise of common stock options		4,248				5,821
Proceeds from sale of common stock under ESPP		3,996				2,884
Repayments on revolving line of credit		—				(32,594		)
Payments of notes payable		—				(318		)
Payments of finance leases		(3,702		)		(4,403		)
Net cash provided by financing activities		4,542				190,782
Net increase in cash and cash equivalents		28,557				97,215
Cash and cash equivalents:
Beginning of period		81,912				68,947
End of period		$	110,469			$	166,162

FIVE9, INC. RECONCILIATION OF GAAP GROSS PROFIT TO ADJUSTED GROSS PROFIT (In thousands, except percentages) (Unaudited)
		Three Months Ended								Six Months Ended
		June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
GAAP gross profit		$	46,188			$	36,306			$	89,875			$	70,509
GAAP gross margin		59.6		%		59.4		%		59.1		%		58.7		%
Non-GAAP adjustments:
Depreciation		2,416				1,776				4,694				3,482
Intangibles amortization		88				88				176				176
Stock-based compensation		1,658				853				2,887				1,531
Adjusted gross profit		$	50,350			$	39,023			$	97,632			$	75,698
Adjusted gross margin		65.0		%		63.8		%		64.2		%		63.1		%

FIVE9, INC. RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA (In thousands, except percentages) (Unaudited)
		Three Months Ended								Six Months Ended
		June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
GAAP net loss		$	(1,860	)		$	(2,042	)		$	(3,784	)		$	(2,649	)
Non-GAAP adjustments:
Depreciation and amortization		3,361				2,449				6,553				4,769
Stock-based compensation		10,436				6,797				19,122				12,122
Interest expense		3,406				2,378				6,802				3,188
Interest income and other		(1,490		)		(206		)		(3,235		)		(604		)
Legal settlement		420				—				420				—
Legal and indemnification fees related to settlement		64				241				356				241
Provision for (benefit from) income taxes		29				64				(20		)		109
Adjusted EBITDA		$	14,366			$	9,681			$	26,214			$	17,176
Adjusted EBITDA as % of revenue		18.6		%		15.8		%		17.2		%		14.3		%

FIVE9, INC. RECONCILIATION OF GAAP OPERATING INCOME (LOSS) TO NON-GAAP OPERATING INCOME (In thousands) (Unaudited)
		Three Months Ended								Six Months Ended
		June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
Income (loss) from operations		$	85			$	194			$	(237	)		$	44
Non-GAAP adjustments:
Stock-based compensation		10,436				6,797				19,122				12,122
Intangibles amortization		88				116				176				232
Legal settlement		420				—				420				—
Legal and indemnification fees related to settlement		64				241				356				241
Non-GAAP operating income		$	11,093			$	7,348			$	19,837			$	12,639

FIVE9, INC. RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET INCOME (In thousands, except per share data) (Unaudited)
		Three Months Ended								Six Months Ended
		June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
GAAP net loss		$	(1,860	)		$	(2,042	)		$	(3,784	)		$	(2,649	)
Non-GAAP adjustments:
Stock-based compensation		10,436				6,797				19,122				12,122
Intangibles amortization		88				116				176				232
Amortization of debt discount and issuance costs		—				20				—				40
Amortization of discount and issuance costs on convertible senior notes		3,155				1,733				6,234				1,733
Legal settlement		420				—				420				—
Legal and indemnification fees related to settlement		64				241				356				241
Gain on sale of convertible note held for investment		—				—				(217		)		(352		)
Non-GAAP net income		$	12,303			$	6,865			$	22,307			$	11,367
GAAP net loss per share:
Basic and diluted		$	(0.03	)		$	(0.04	)		$	(0.06	)		$	(0.05	)
Non-GAAP net income per share:
Basic		$	0.20			$	0.12			$	0.37			$	0.20
Diluted		$	0.20			$	0.11			$	0.35			$	0.19
Shares used in computing GAAP net loss per share:
Basic and diluted		60,058				57,903				59,714				57,453
Shares used in computing non-GAAP net income per share:
Basic		60,058				57,903				59,714				57,453
Diluted		62,950				61,105				62,843				60,741

FIVE9, INC. SUMMARY OF STOCK-BASED COMPENSATION, DEPRECIATION AND INTANGIBLES AMORTIZATION (In thousands) (Unaudited)
		Three Months Ended
		June 30, 2019												June 30, 2018
		Stock-Based Compensation				Depreciation				Intangibles Amortization				Stock-Based Compensation				Depreciation				Intangibles Amortization
Cost of revenue		$	1,658			$	2,416			$	88			$	853			$	1,776			$	88
Research and development		1,907				450				—				1,064				233				—
Sales and marketing		2,749				1				—				1,585				2				28
General and administrative		4,122				406				—				3,295				322				—
Total		$	10,436			$	3,273			$	88			$	6,797			$	2,333			$	116

		Six Months Ended
		June 30, 2019												June 30, 2018
		Stock-Based Compensation				Depreciation				Intangibles Amortization				Stock-Based Compensation				Depreciation				Intangibles Amortization
Cost of revenue		$	2,887			$	4,694			$	176			$	1,531			$	3,482			$	176
Research and development		3,377				890				—				1,941				427				—
Sales and marketing		4,998				2				—				2,947				3				56
General and administrative		7,860				791				—				5,703				625				—
Total		$	19,122			$	6,377			$	176			$	12,122			$	4,537			$	232

FIVE9, INC. RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET INCOME – GUIDANCE (In thousands, except per share data) (Unaudited)
		Three Months Ending								Year Ending
		September 30, 2019								December 31, 2019
		Low				High				Low				High
GAAP net loss		$	(6,313	)		$	(5,313	)		$	(11,981	)		$	(9,981	)
Non-GAAP adjustments:
Stock-based compensation		11,775				11,775				42,983				42,983
Intangibles amortization		88				88				351				351
Amortization of discount and issuance costs on convertible senior notes		3,250				3,250				12,788				12,788
Legal settlement		—				—				420				420
Legal and indemnification fees related to settlement		—				—				356				356
Gain on sale of convertible note held for investment		—				—				(217		)		(217		)
Income tax expense effects (1)		—				—				—				—
Non-GAAP net income		$	8,800			$	9,800			$	44,700			$	46,700
GAAP net loss per share, basic and diluted		$	(0.10	)		$	(0.09	)		$	(0.20	)		$	(0.16	)
Non-GAAP net income per share:
Basic		$	0.14			$	0.16			$	0.73			$	0.76
Diluted		$	0.14			$	0.15			$	0.70			$	0.73
Shares used in computing GAAP net loss per share and non-GAAP net income per share:
Basic		61,500				61,500				61,100				61,100
Diluted		64,500				64,500				64,200				64,200
(1) Non-GAAP adjustments do not have an impact on our income tax provision due to past non-GAAP losses.

 

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