Five9, Inc. Q3 FY2023 earnings

Five9 reported third quarter fiscal 2023 revenue of $230.1 million, up 16% from the prior-year quarter. Gross profit rose 14.2% to $119.0 million. Gross margin was 51.7%, down 0.8 percentage points from the prior-year quarter. Operating margin was -11.2%, down 0.2 percentage points. The company posted a net loss of $20.4 million, and diluted EPS was -$0.28. Operating loss widened to $25.7 million. Operating cash flow was $37.0 million, up 21.3% from the prior-year quarter. Capital expenditures were $3.3 million, down 71.4%. Deferred revenue was $64.6 million, up 19.9%. Remaining performance obligations were $1.05 billion, up 39.3%. For the first nine months of 2023, revenue was $671.4 million, up 17.7%, gross profit was $351.2 million, up 17.4%, and net loss was $69.4 million. Gross margin for the nine months was 52.3%, down 0.2 percentage points. Operating margin for the nine months was -11.9%, up 1.1 percentage points. Operating cash flow for the nine months was $92.3 million, up 64.4%. Capital expenditures for the nine months were $19.9 million, down 56.7%.

Operational momentum centered on enterprise and AI. Last twelve months enterprise subscription revenue grew 28% year over year. Management said AI and automation adoption was unprecedented and pipeline reached a record level. Five9 served more than 2,500 clients as of September 30, 2023. Subscription and related usage fees made up 92% of revenue for the third quarter and first nine months of 2023, compared with 90% and 91% in the prior-year periods. Annual dollar-based retention was 110%, down from 118% a year earlier. The company attributed the decline to macroeconomic headwinds that began in 2022 and continued through the third quarter of 2023. Its installed base business, which typically contributes about half of annual revenue growth, continued to face those headwinds. Five9 also closed the Aceyus acquisition in August 2023, paying $80.6 million net of cash acquired.

Non-GAAP profitability improved. Adjusted gross margin was 60.6% for the third quarter, compared with 61.4% a year earlier. Non-GAAP net income was $38.0 million, or $0.52 per diluted share. Adjusted EBITDA was $41.3 million, or 17.9% of revenue. Management issued guidance for the fourth quarter of 2023 and the full year 2023. For the fourth quarter, non-GAAP net income per share is expected in the range of $0.47 to $0.49, assuming diluted shares outstanding of approximately 73.8 million. For the full year, non-GAAP net income per share is expected in the range of $1.91 to $1.93, assuming diluted shares outstanding of approximately 73.0 million. The company also provided revenue ranges and GAAP net loss per share ranges for both periods.

Risks remain broad. Five9 cited adverse economic conditions, including macroeconomic deterioration, continuing inflation, increased interest rates, supply chain disruptions, decreased economic output, and currency fluctuations. It also flagged the Russia-Ukraine conflict and the conflict in Israel. The company incurred $0.9 million and $2.7 million in costs related to closing and relocating its Russian operations during the three and nine months ended September 30, 2023. Other named risks include failure to attract new clients or sell more to existing clients, client terminations or subscription reductions, reliance on a significant percentage of revenue from existing clients, sales force retention, technical infrastructure failures, AI development and legal risks, competition, international expansion, security breaches, and a history of losses. Liquidity was $718.7 million in working capital as of September 30, 2023, including $127.8 million in cash and cash equivalents and $572.5 million in marketable investments. The company had $747.5 million in aggregate principal amount of 2025 convertible senior notes outstanding.