Five9, Inc. Q3 FY2021 earnings

Five9 reported record third quarter revenue of $154.3 million, up 37.6% from $112.1 million in the prior-year quarter. Year-to-date revenue reached $436.0 million, up 42.0% from $307.0 million. Management said the growth came primarily from larger clients, supported by more sales and marketing activity and improved brand awareness. No single client accounted for more than 10% of total revenue. The company highlighted last-twelve-month enterprise subscription revenue growth of 51%. Its annual dollar-based retention rate was 123% for the twelve months ended September 30, 2021, compared with 114% for the comparable prior-year period. Remaining performance obligations rose 72.9% to $495.3 million, and current deferred revenue rose 29.3% to $36.9 million. Subscription and related usage fees represented 92% of revenue for the three and nine months ended September 30, 2021.

Profitability moved in the opposite direction. GAAP gross margin fell to 56.5% from 58.5% a year earlier, even though gross profit rose 32.9% to $87.2 million. GAAP operating loss widened to $19.0 million, and operating margin fell to negative 12.3% from negative 1.6%. The net loss widened to $20.5 million, or $0.30 per diluted share, from a narrower loss in the prior-year quarter. Non-GAAP net income was $20.0 million, or $0.28 per diluted share, against $18.5 million, or $0.27 per diluted share. Adjusted EBITDA was $27.4 million, or 17.8% of revenue, compared with $24.1 million, or 21.5% of revenue. The gap between GAAP and non-GAAP results remained wide, reflecting stock-based compensation, acquisition-related costs, and integration expenses.

Cash generation weakened. GAAP operating cash flow was negative $4.8 million in the quarter, down from positive $22.8 million a year earlier. For the nine months ended September 30, 2021, operating cash flow was $20.3 million, down from $48.0 million. Capital expenditures were $9.0 million in the quarter, up 63.0% from $5.5 million, and $28.5 million year to date, up 39.5% from $20.4 million. The higher spending reflects continued investment in capacity and infrastructure.

Guidance points to continued expansion. For the fourth quarter of 2021, Five9 expects revenue of $164.5 million to $165.5 million and non-GAAP net income per share of $0.36 to $0.37, assuming about 72 million diluted shares. For the full year 2021, revenue is guided to $600.5 million to $601.5 million, with non-GAAP net income per share of $1.09 to $1.10, assuming about 71 million diluted shares. The company did not reconcile its non-GAAP per-share guidance to GAAP net loss per share because stock-based compensation, one-time integration costs, and contingent consideration expense cannot be reasonably predicted.

The terminated merger with Zoom cast a shadow over the quarter. Stockholders did not approve the transaction at a special meeting on September 30, 2021, and the companies mutually agreed to terminate the merger agreement that day. Management said Five9 incurred transaction costs related to the merger, but the company continued to operate independently. Risks include competition, the chance that existing clients terminate or reduce subscriptions, longer sales and implementation cycles for larger customers, and reliance on third-party telecommunications and internet providers. Five9 also cited its history of losses, the uncertain duration and impact of COVID-19, and the potential need for additional financing. The quarter showed durable demand and strong retention, but margins and cash flow moved in the wrong direction as costs rose.