Five9, Inc. (FIVN) Q4 2025 Earnings Call Transcript
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Overview
The earnings call highlights strong financial performance with raised EBITDA and EPS guidance, a significant AI revenue milestone, and a strategic partnership with Google. The Q&A session reveals optimism in AI adoption and sector growth, although some details remain vague. The $150 million share repurchase program further supports a positive outlook. Considering the mid-cap market cap, the stock is likely to see a positive reaction, potentially in the 2% to 8% range.
Key Financial Performance
Total Revenue (Q4) $300 million, representing 8% growth year-over-year. Subscription revenue, which makes up 82% of total, accelerated to 12% year-over-year growth in Q4. This was driven by enterprise AI revenue growth accelerating from 41% to 50% year-over-year and core CCaaS subscription revenue growth accelerating from 7% to 8% year-over-year.
Enterprise AI Annual Run Rate Revenue Surpassed $100 million in Q4. This growth reflects the increasing adoption of AI solutions by enterprises.
Adjusted EBITDA Margin (Q4) Increased to 26%, an all-time record, demonstrating a focus on balanced growth and operational excellence.
Free Cash Flow Margin (Q4) More than doubled year-over-year to 22%, reflecting improved cash generation and operational efficiency.
Total Revenue (Full Year 2025) $1.15 billion, growing 10% year-over-year, with subscription revenue growing 13% year-over-year.
Adjusted Gross Margin (Full Year 2025) Expanded by approximately 110 basis points year-over-year to 63%, driven by a focus on high-margin subscription revenue.
Adjusted EBITDA Margin (Full Year 2025) Expanded by approximately 470 basis points to 23%, reflecting disciplined expense management and productivity improvements.
Operating Cash Flow (Full Year 2025) $226 million, reflecting strong cash generation.
Free Cash Flow (Full Year 2025) $162 million, reflecting improved operational efficiency and cash management.
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Operating Highlights
Enterprise AI annual run rate revenue: Surpassed $100 million in the fourth quarter.
AI-powered solutions: Announced a suite of new AI-powered solutions including AQM, Genius Routing engine, OneVue analytics platform, and Adaptive Digital Engagement solution.
Partnership with Google Cloud: Launched a joint Enterprise CX AI solution to accelerate AI-driven CX.
Market opportunity: Gartner forecasts traditional CCaaS market to grow at 9% CAGR and gen AI customer service market at 34% CAGR through 2029, reaching $48 billion combined annual spend.
Customer examples: Secured deals with a global power management company ($2.8M ARR), a life, health, and financial services provider ($1.1M ARR), and a hospitality technology company ($3.4M ARR).
Q4 financial performance: Total revenue of $300 million, subscription revenue grew 12% year-over-year, and free cash flow margin doubled to 22%.
Profitability: Achieved adjusted EBITDA margin of 26% and GAAP EPS of $0.23 per diluted share.
Leadership transition: Amit Mathradas appointed as CEO, emphasizing product innovation, AI, and operational excellence.
Partnership strategy: Expanded partnerships, with over 80% of business partner-influenced and doubled certified partners year-over-year.
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Risk or Challenges
Macroeconomic Challenges: The company faces risks from adverse economic conditions, including continuing inflation, uncertainty regarding consumer spending, high interest rates, and fluctuations in currency exchange rates. These factors could negatively impact financial performance and customer growth.
Customer Growth and Retention: Lower growth rates within the installed base of customers and challenges in maintaining a high dollar-based retention rate (DBRR) could adversely affect revenue and long-term customer relationships.
Regulatory Risks: The company is subject to risks discussed under the caption 'Risk Factors' in its annual and quarterly reports filed with the SEC, which could include compliance and regulatory hurdles.
Seasonality and Revenue Mix: Seasonal variations in revenue, particularly in telecom usage and subscription revenue, could lead to fluctuations in financial performance.
Competitive Pressures: The company operates in a competitive market, and its ability to maintain its leadership position in AI-powered CX and CCaaS solutions is critical. Failure to innovate or differentiate could impact market share.
Strategic Execution Risks: The transition to a new CEO and the execution of strategic initiatives, including AI and R&D investments, carry risks of misalignment or underperformance.
Supply Chain and Partner Dependencies: The company relies heavily on partnerships, with over 80% of its business being partner-influenced. Any disruptions or failures in these partnerships could impact operations and revenue.
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Guidance & Outlook
Revenue Expectations: For 2026, the company is guiding to a midpoint revenue of $1.254 billion, with Q1 revenue expected at a midpoint of $299.5 million. Revenue is anticipated to return to double-digit growth in the second half of 2026, driven by a strong backlog of new logo and installed base bookings.
Profitability Projections: The company expects 2026 non-GAAP EPS to have a midpoint of $3.18 per diluted share, higher than the previous outlook. GAAP profitability is also expected, with a midpoint of $0.91 per diluted share for GAAP EPS. Adjusted EBITDA margin is projected to be at least 24%, and annual free cash flow is expected to be approximately $175 million.
Market Trends and Growth Drivers: The market for traditional CCaaS is forecasted to grow at a 9% CAGR, while the generative AI customer service market is expected to grow at a 34% CAGR through 2029, leading to a combined annual spend of $48 billion. These trends are expected to create a tailwind for Five9's growth.
AI and Product Innovation: The company is focusing on AI-driven CX solutions, including a suite of new AI-powered products such as AQM, Genius Routing, OneVue, and Adaptive Digital Engagement. These innovations aim to strengthen the end-to-end platform and drive customer adoption.
Partnerships and Strategic Alliances: Five9 is expanding its partnership with Google Cloud, launching a joint Enterprise CX AI solution. This collaboration is expected to accelerate AI adoption and innovation, providing faster time to value and personalized interactions for customers.
Customer Growth and ARR: The company highlighted several customer wins and expansions, including a health care provider increasing its ARR commitment from $6 million to over $10 million, with a focus on leveraging AI Agents for cost savings. Other notable customer wins are expected to contribute significantly to ARR.
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Shareholder Return Plan
Share Repurchase Program: We completed a $50 million accelerated share repurchase on February 2, buying back approximately 2.6 million shares. We have $100 million remaining under our authorization through December 2027. This reflects our strong cash generation and confidence in Five9's value creation opportunity.
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Key Q&A
Q:Can you help us understand some of the breakdown between what is greenfield and then what is within your existing customer base? And then what is factored into the 2026 guide just from that portfolio?
A:The growth is a combination of success with new logo attach of AI and penetration into the installed base. Both are growing significantly, but the exact breakdown was not quantified. The 2026 revenue guidance includes growth rates for enterprise AI and core CCaaS, with enterprise AI being the fastest-growing part of the portfolio.
Q:How do you see to navigate Five9 when it comes to product? Or where do you think you can bring some changes? Or where do you think it's working? Or do you think it is too early to talk about that?
A:Amit Mathradas stated that it is a bit early to provide specifics as he is still familiarizing himself with the product and roadmaps. However, he is optimistic about the transformation in the CX space and aims to unlock new opportunities with AI and traditional CCaaS. He highlighted the $100 million ARR in AI as a proof point of growth.
Q:What do you think people are missing right now in terms of the contact center opportunity?
A:Michael Burkland emphasized the massive AI opportunity and Five9's end-to-end platform advantage. He highlighted the company's position as a system of engagement and interaction, providing AI-driven and human agent solutions. He also noted the acceleration in core CCaaS revenue growth (7% to 8%) and AI revenue growth (41% to 50%).
Q:What sectors are seeing the highest uptake for the newer features? And what are customers saying about their biggest pain points?
A:Health care and retail sectors are seeing the highest uptake. Customers are focusing on evolving their CX strategy to AI, but data quality remains a significant challenge. Five9 has been helping customers improve their data strategy to deliver on AI use cases.
Q:What percentage of your enterprise base is adopting AI, especially AI Agent Assist and Genius Routing?
A:It is still early days for full penetration of AI within the enterprise base. Almost every enterprise is exploring AI, but the rollout is in its initial stages. Five9 has crossed $100 million in ARR for AI, indicating strong growth.
Q:How do you think about the risk that the LLM native platforms bypass the traditional CCaaS architecture entirely?
A:Michael Burkland highlighted Five9's competitive advantages, including its data (historical and real-time conversational data) and orchestration capabilities across channels and backends. He emphasized that LLMs are foundational technologies and cannot replace the orchestration and end-to-end platform capabilities of Five9.
Q:Can you help us understand the $100 million in AI revenue, what percentage of that is seat-based, usage-based?
A:The $100 million in enterprise AI revenue is entirely consumption or capacity-based. Customers are charged for committed units (e.g., minutes, gigabytes), with overage charges for exceeding those commitments.
Q:How much of the AI revenue is allocated towards next-gen solutions versus foundational solutions like Inference?
A:The two biggest contributors to AI revenue are AI Agents and Agent Assist, followed by Workflow Automation. Both next-gen and foundational solutions are contributing to the growth, with significant traction in gen AI-based solutions.
Q:How influential are Five9's AI features in landing new customers? And how does AI help dollar-based gross retention and upselling in renewal contracts?
A:AI features are highly influential in landing new customers and expanding within the installed base. Enterprise AI bookings have been growing significantly, contributing to backlog and revenue growth. AI also supports upselling during renewals by demonstrating value and driving customer confidence.
Q:What are you seeing across the different verticals you serve? Are any verticals strengthening more than others?
A:The strongest verticals are financial services, health care, and retail. These sectors are adopting AI solutions due to regulatory and security needs, as well as the complexity of CCaaS deployments. Seasonal trends in consumer and health care verticals are also factored into the guidance.
Q:Can you talk about the Google partnership and its implications for Five9?
A:The Google partnership is significant and was driven by joint success in the market. It involves a joint solution with engineers from both companies collaborating. Five9 leverages Google's Gemini application and foundational models to build AI products, while maintaining a multi-LLM approach for flexibility and innovation.
Q:Has the AI fog among enterprise customers lifted, or are you seeing any lengthening in sales cycles?
A:The AI fog has largely lifted, and enterprises are prioritizing AI decisions. Five9 has positioned itself as a key player in CX-related AI decisions, which has helped accelerate sales cycles. The company focuses on vertical-driven outcomes and proven use cases to drive adoption.
Q:How do you think about the impact of AI adoption on revenue growth and gross margins?
A:AI adoption is a significant driver of revenue growth, with enterprise AI bookings growing rapidly. AI Agents, the largest part of the AI portfolio, have gross margins in the high 70s to 80s, making AI an accretive part of overall gross margins.
Q:Review of Unclear Management Responses
A:Management avoided directly quantifying the breakdown between greenfield and existing customer base growth. Additionally, Amit Mathradas did not provide specific details on product changes or roadmaps, citing that it was too early to comment. There was also no exact mix provided for next-gen versus foundational AI solutions, and the percentage of enterprise base adopting AI was described as 'early days' without specific figures.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AQM generation
ARR addition
ARR commitment
ARR example
Adaptive Digital
Agent collaboration
Agent voice
Agentic Quality
Agents cost
Amit Five
CX platform
CX solution
Five CX
Five Google
Five opportunity
Five prem
Google Cloud
Partners
agent Agent
booking record
brand world
customer interaction
employee
end platform
engine
enterprise booking
excellence
foundation
health care
hospitality
innovation
orchestration
order ARR
power
record enterprise
role
run rate
success
suite solution
transition
vector market
FIVN Transcript
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Positive5-1
The earnings call reveals strong financial performance with increased guidance, significant AI-driven growth, and a strategic partnership with Google Cloud. The Q&A section highlights robust customer adoption, a healthy sales pipeline, and a positive market position. The market cap indicates a likely strong positive reaction to these factors, as the company is well-positioned for growth in the expanding AI and CCaaS markets.
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Five9, Inc. (FIVN) Q4 2025 Earnings Call Transcript
Positive2-19
The earnings call highlights strong financial performance with raised EBITDA and EPS guidance, a significant AI revenue milestone, and a strategic partnership with Google. The Q&A session reveals optimism in AI adoption and sector growth, although some details remain vague. The $150 million share repurchase program further supports a positive outlook. Considering the mid-cap market cap, the stock is likely to see a positive reaction, potentially in the 2% to 8% range.
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