FIVN Five9 Inc

LTM Enterprise Subscription Revenue Growth Accelerates to 43%

Five9, Inc. (NASDAQ:FIVN), a leading provider of cloud software for the enterprise contact center market, today reported results for the third quarter 2016 ended September 30, 2016.

Third Quarter 2016 Financial Results

• Total revenue for the third quarter of 2016 increased 27% to a record $41.0 million, compared to $32.3 million for the third quarter of 2015
• GAAP gross margin was 56.6% for the third quarter of 2016, compared to 54.1% for the third quarter of 2015
• Adjusted gross margin was 61.5% for the third quarter of 2016, compared to 59.4% for the third quarter of 2015
• GAAP net loss for the third quarter of 2016 was $(3.9) million, or $(0.07) per share, compared to a GAAP net loss of $(6.0) million, or $(0.12) per share, for the third quarter of 2015
• Non-GAAP net loss for the third quarter of 2016 was $(0.2) million, or $(0.00) per share, compared to a non-GAAP net loss of $(3.9) million, or $(0.08) per share, for the third quarter of 2015
• GAAP operating cash flow for the third quarter of 2016 was $1.7 million, compared to a GAAP operating cash outflow of $(3.2) million for the third quarter of 2015
• Adjusted EBITDA for the third quarter of 2016 was $2.7 million, or 6.7% of revenue, compared to a loss of $(1.1) million, or (3.4)% of revenue, for the third quarter of 2015

“Our third quarter results were once again outstanding.  Our revenue grew 27% year-over-year resulting in record revenue of $41.0 million.  This revenue growth was driven primarily by the continued acceleration in our enterprise business, which delivered 43% growth in LTM enterprise subscription revenue and which drives high marginal profitability.  Additionally, Five9 was once again named a leader in this year’s Gartner Magic Quadrant for Contact Center as a Service, North America, published on October 24th, and we were positioned highest on ability to execute. We see this as further validation of our leadership position in the enterprise market. We believe we are still in the early days of a massive push towards modernization of customer service and contact center technologies.  Given our leadership position in this market and the strong momentum in our business, we are again raising 2016 guidance.”

- Mike Burkland, President and CEO, Five9

Q3 Business Highlights

• Third quarter record for enterprise bookings
• LTM enterprise subscription revenue grew 43% year-over-year, up from 35% in the year ago period
• LTM enterprise revenue increased to 68% of total revenue, up from 63% in the year ago period
• Annual dollar-based retention rate was 100%, up from 95% in the year ago period

Business Outlook

• For the full year 2016, Five9 expects to report:
  • Revenue in the range of $159.2 to $160.2 million, up from the prior guidance range of $155.8 to $157.8 million that was previously provided on August 3, 2016
  • GAAP net loss in the range of $(15.8) to $(16.8) million, including a $1.0 million write-off of unamortized fees and discounts as well as a prepayment penalty from the termination of our prior term debt facility, or a loss of $(0.30) to $(0.32) per share, improved from the prior guidance range of $(17.8) to $(19.8) million, or a loss of $(0.34) to $(0.38) per share, that was previously provided on August 3, 2016
  • Non-GAAP net loss in the range of $(4.5) to $(5.5) million, or $(0.09) to $(0.11) per share, improved from the prior guidance range of $(6.5) to $(8.5) million, or $(0.12) to $(0.16) per share, that was previously provided on August 3, 2016
• For the fourth quarter of 2016, Five9 expects to report:
  • Revenue in the range of $41.3 to $42.3 million
  • GAAP net loss in the range of $(3.5) to $(4.5) million, or a loss of $(0.07) to $(0.09) per share
  • Non-GAAP net loss in the range of $(0.8) to $(1.8) million, or a loss of $(0.02) to $(0.03) per share

Conference Call Details

Five9 will discuss its third quarter 2016 results today, November 1, 2016, via teleconference at 4:30 p.m. Eastern Time.  To access the call (ID 2120093), please dial: 888-437-9362 or 719-325-2492.  An audio replay of the call will be available through November 15, 2016 by dialing 888-203-1112 or 719-457-0820 and entering access code 2120093.  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 website 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 by adding back the following items to gross profit: depreciation, amortization, and stock-based compensation expenses.  We calculate adjusted EBITDA by adding back the following items to net loss: depreciation, amortization, interest expense, income tax expense, stock-based compensation expense, and interest and other, which consists primarily of interest income and foreign exchange gains and losses.  We calculate non-GAAP operating income (loss) as operating loss excluding stock-based compensation, amortization of acquisition intangibles and an immaterial one time out of period adjustment for sales taxes.  We calculate non-GAAP net loss as net loss excluding stock-based compensation, amortization of acquisition intangibles, extinguishment of debt, amortization of debt discount and issuance costs, and an immaterial one time out of period adjustment for sales taxes. 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 unusual events, as well as factors that do not directly affect what we consider to be our core operating performance.  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, customer service and contact center market trends, increasing demand for Five9’s solutions, and the fourth quarter 2016 and full year 2016 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, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock;  (ii) we may be unable to attract new clients or sell additional services and functionality to our existing clients or could experience a reduction in seats or revenues from existing clients;  (iii) our recent rapid growth may not be indicative of our future growth and we may fail to manage our growth effectively;  (iv)  we may not be able to grow our sales and support staff sufficiently to continue to grow our business; (v) the markets in which we participate are highly competitive and we may be unable to compete effectively;  (vi) we may be unable to manage our technical operations infrastructure, which could cause our existing clients to experience service outages, cause our new clients to experience delays in the deployment of our solution and subject us to, among other things, claims for credits or damages;  (vii) a decline in our dollar-based retention rate could cause our revenues and gross margins to decrease and our net loss to increase and we may be required to spend more money to grow our client base to maintain our revenues; (viii) sales of our solutions to larger organizations may require longer sales and implementation cycles and we may be unable to offer the configuration and integration services or customized features and functions required by larger organizations, which could delay or prevent sales of our solution to them;  (ix) downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern;  (x) third-party telecommunications and internet service providers on which we rely may fail to provide our clients and their customers with reliable telecommunication services and connectivity to our cloud contact center software;  (xi) we may be unable to achieve or sustain profitability; (xii) we may be unable to secure additional financing on favorable terms, or at all, to meet our future capital needs; and (xiii) 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 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 software for the enterprise contact center market, bringing the power of the cloud to thousands of customers and facilitating over three billion customer interactions annually. Since 2001, Five9 has led the cloud revolution in contact centers, helping organizations transition from legacy premise-based solutions to the cloud. Five9 provides businesses with cloud contact center software that it reliable, secure, compliant and scalable which is designed to create exceptional customer experiences, increase agent productivity and deliver tangible business results. For more information visit www.five9.com.

FIVE9, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
		September 30, 2016				December 31, 2015
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	57,333			$	58,484
Accounts receivable, net		12,899				10,567
Prepaid expenses and other current assets		4,097				2,184
Total current assets		74,329				71,235
Property and equipment, net		13,690				13,225
Intangible assets, net		1,657				2,041
Goodwill		11,798				11,798
Other assets		1,225				934
Total assets		$	102,699			$	99,233
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	3,609			$	2,569
Accrued and other current liabilities		10,500				7,911
Accrued federal fees		5,873				5,684
Sales tax liability		1,307				1,262
Revolving line of credit		—				12,500
Notes payable		1,070				7,212
Capital leases		5,634				4,972
Deferred revenue		8,838				6,413
Total current liabilities		36,831				48,523
Revolving line of credit — less current portion		32,594				—
Sales tax liability — less current portion		1,591				1,915
Notes payable — less current portion		470				17,327
Capital leases — less current portion		4,902				4,606
Other long-term liabilities		532				582
Total liabilities		76,920				72,953
Stockholders’ equity:
Common stock		53				51
Additional paid-in capital		192,415				180,649
Accumulated deficit		(166,689		)		(154,420		)
Total stockholders’ equity		25,779				26,280
Total liabilities and stockholders’ equity		$	102,699			$	99,233

FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
		Three Months Ended								Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
Revenue		$	40,982			$	32,287			$	117,883			$	92,835
Cost of revenue		17,790				14,812				51,164				43,860
Gross profit		23,192				17,475				66,719				48,975
Operating expenses:
Research and development		6,041				5,473				17,642				17,079
Sales and marketing		12,925				10,797				38,268				31,322
General and administrative		6,143				6,087				18,561				19,389
Total operating expenses		25,109				22,357				74,471				67,790
Loss from operations		(1,917		)		(4,882		)		(7,752		)		(18,815		)
Other income (expense), net:
Interest expense		(961		)		(1,235		)		(3,357		)		(3,529		)
Extinguishment of debt		(1,026		)		—				(1,026		)		—
Interest income and other		12				119				(66		)		72
Total other income (expense), net		(1,975		)		(1,116		)		(4,449		)		(3,457		)
Loss before income taxes		(3,892		)		(5,998		)		(12,201		)		(22,272		)
Provision for (benefit from) income taxes		(2		)		50				68				48
Net loss		$	(3,890	)		$	(6,048	)		$	(12,269	)		$	(22,320	)
Net loss per share:
Basic and diluted		$	(0.07	)		$	(0.12	)		$	(0.24	)		$	(0.45	)
Shares used in computing net loss per share:
Basic and diluted		52,708				50,369				52,078				49,931

FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
		Nine Months Ended
		September 30, 2016				September 30, 2015
Cash flows from operating activities:
Net loss		$	(12,269	)		$	(22,320	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		6,302				5,525
Provision for doubtful accounts		58				157
Stock-based compensation		6,927				6,010
Loss on disposal of property and equipment		1				10
Loss on extinguishment of debt		1,026				—
Amortization of debt discount and issuance costs		221				260
Accretion of interest		11				—
Others		(10		)		40
Changes in operating assets and liabilities:
Accounts receivable		(2,383		)		(1,149		)
Prepaid expenses and other current assets		(1,927		)		(957		)
Other assets		(25		)		(178		)
Accounts payable		1,039				(1,329		)
Accrued and other current liabilities		2,749				788
Accrued federal fees and sales tax liability		(90		)		161
Deferred revenue		2,449				192
Other liabilities		(75		)		(83		)
Net cash provided by (used in) operating activities		4,004				(12,873		)
Cash flows from investing activities:
Purchases of property and equipment		(973		)		(689		)
(Increase) Decrease in restricted cash		(60		)		806
Purchase of short-term investments		—				(20,000		)
Proceeds from maturity of short-term investments		—				40,000
Net cash (used in) provided by investing activities		(1,033		)		20,117
Cash flows from financing activities:
Proceeds from exercise of common stock options		4,050				419
Proceeds from sale of common stock under ESPP		792				680
Repayments of notes payable		(23,866		)		(2,622		)
Proceeds from revolving line of credit		32,594				—
Payment of prepayment penalty and related fees		(368		)		—
Payments for debt issuance costs		(206		)		—
Payments of capital leases		(4,618		)		(4,509		)
Repayments on revolving line of credit		(12,500		)		—
Net cash used in financing activities		(4,122		)		(6,032		)
Net (decrease) increase in cash and cash equivalents		(1,151		)		1,212
Cash and cash equivalents:
Beginning of period		58,484				58,289
End of period		$	57,333			$	59,501

FIVE9, INC.
RECONCILIATION OF GAAP GROSS PROFIT TO ADJUSTED GROSS PROFIT
(Unaudited, in thousands, except percentages)
		Three Months Ended								Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
GAAP gross profit		$	23,192			$	17,475			$	66,719			$	48,975
GAAP gross margin		56.6		%		54.1		%		56.6		%		52.8		%
Non-GAAP adjustments:
Depreciation		1,580				1,382				4,700				4,203
Intangibles amortization		88				88				264				264
Stock-based compensation		357				233				951				639
Adjusted gross profit		$	25,217			$	19,178			$	72,634			$	54,081
Adjusted gross margin		61.5		%		59.4		%		61.6		%		58.3		%

RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(Unaudited, in thousands)
		Three Months Ended								Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
GAAP net loss		$	(3,890	)		$	(6,048	)		$	(12,269	)		$	(22,320	)
Non-GAAP adjustments:
Depreciation and amortization		2,140				1,840				6,302				5,525
Stock-based compensation		2,519				1,945				6,927				6,010
Interest expense		961				1,235				3,357				3,529
Extinguishment of debt		1,026				—				1,026				—
Interest income and other		(12		)		(119		)		66				(72		)
Provision for (benefit from) income taxes		(2		)		50				68				48
Out of period adjustment for sales tax liability (G&A)		—				—				—				765
Adjusted EBITDA		$	2,742			$	(1,097	)		$	5,477			$	(6,515	)

FIVE9, INC.
RECONCILIATION OF GAAP OPERATING LOSS TO NON-GAAP OPERATING INCOME (LOSS)
(Unaudited, in thousands)
		Three Months Ended								Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
Loss from operations		$	(1,917	)		$	(4,882	)		$	(7,752	)		$	(18,815	)
Non-GAAP adjustments:
Stock-based compensation		2,519				1,945				6,927				6,010
Intangibles amortization		129				128				384				$	384
Out of period adjustment for sales tax liability (G&A)		—				—				—				765
Non-GAAP operating income (loss)		$	731			$	(2,809	)		$	(441	)		$	(11,656	)

RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS
(Unaudited, in thousands, except per share data)
		Three Months Ended								Nine Months Ended
		September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
GAAP net loss		$	(3,890	)		$	(6,048	)		$	(12,269	)		$	(22,320	)
Non-GAAP adjustments:
Stock-based compensation		2,519				1,945				6,927				6,010
Intangibles amortization		129				128				384				384
Amortization of debt discount and issuance costs		43				89				221				260
Extinguishment of debt		1,026				—				1,026				—
Out of period adjustment for sales tax liability (G&A)		—				—				—				765
Non-GAAP net loss		$	(173	)		$	(3,886	)		$	(3,711	)		$	(14,901	)
GAAP net loss per share:
Basic and diluted		$	(0.07	)		$	(0.12	)		$	(0.24	)		$	(0.45	)
Non-GAAP net loss per share:
Basic and diluted		$	—			$	(0.08	)		$	(0.07	)		$	(0.30	)
Shares used in computing GAAP and non-GAAP net loss per share:
Basic and diluted		52,708				50,369				52,078				49,931

SUMMARY OF STOCK-BASED COMPENSATION, DEPRECIATION AND INTANGIBLES AMORTIZATION
(Unaudited, in thousands)
		Three Months Ended
		September 30, 2016												September 30, 2015
		Stock-Based Compensation				Depreciation				Intangibles Amortization				Stock-Based Compensation				Depreciation				Intangibles Amortization
Cost of revenue		$	357			$	1,580			$	88			$	233			$	1,382			$	88
Research and development		547				204				—				475				126				—
Sales and marketing		626				27				29				448				23				29
General and administrative		989				200				12				789				181				11
Total		$	2,519			$	2,011			$	129			$	1,945			$	1,712			$	128
		Nine Months Ended
		September 30, 2016												September 30, 2015
		Stock-Based Compensation				Depreciation				Intangibles Amortization				Stock-Based Compensation				Depreciation				Intangibles Amortization
Cost of revenue		$	951			$	4,700			$	264			$	639			$	4,203			$	264
Research and development		1,510				513				—				1,389				315				—
Sales and marketing		1,604				78				85				1,430				67				85
General and administrative		2,862				627				35				2,552				556				35
Total		$	6,927			$	5,918			$	384			$	6,010			$	5,141			$	384

FIVE9, INC.
RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET LOSS – GUIDANCE
(Unaudited, in thousands, except per share data)
		Three Months Ending								Year Ending
		December 31, 2016								December 31, 2016
		Low				High				Low				High
GAAP net loss		$	(3,520	)		$	(4,520	)		$	(15,789	)		$	(16,789	)
Non-GAAP adjustments:
Stock-based compensation		2,579				2,579				9,506				9,506
Intangibles amortization		116				116				500				500
Amortization of debt discount and issuance costs		25				25				247				247
Extinguishment of debt		$	—			$	—			$	1,026			$	1,026
Non-GAAP net loss		$	(800	)		$	(1,800	)		$	(4,510	)		$	(5,510	)
GAAP net loss per share, basic and diluted		$	(0.07	)		$	(0.09	)		$	(0.30	)		$	(0.32	)
Non-GAAP net loss per share, basic and diluted		$	(0.02	)		$	(0.03	)		$	(0.09	)		$	(0.11	)
Shares used in computing GAAP and non-GAAP net loss per share:
Basic and diluted		53,000				53,000				52,300				52,300

 

Investor Relations Contact:

Five9, Inc.
Barry Zwarenstein
Chief Financial Officer
925-201-2000 ext. 5959
IR@five9.com

The Blueshirt Group for Five9, Inc.
Lisa Laukkanen
415-217-4967
Lisa@blueshirtgroup.com

Tony Righetti
415-489-2186
Tony@blueshirtgroup.com