Five9 Reports Fourth Quarter Revenue Growth of 31% to a Record $72.3 Million

36% Growth in LTM Enterprise Subscription Revenue

Fourth Quarter GAAP Net Income of $3.7 Million

Fourth Quarter Adjusted EBITDA of $16.4 Million, a Record 22.7% of Revenue

SAN RAMON, Calif. - February 19, 2019 - Five9, Inc. (NASDAQ:FIVN), a leading provider of cloud contact center software for the digital enterprise, today reported results¹ for the fourth quarter and full year ended December 31, 2018.

Fourth Quarter 2018 Financial Results

• Revenue for the fourth quarter of 2018 increased 31% to a record $72.3 million, compared to $55.4 million for the fourth quarter of 2017.
• GAAP gross margin was 60.8% for the fourth quarter of 2018, compared to 59.6% for the fourth quarter of 2017.
• Adjusted gross margin was 65.1% for the fourth quarter of 2018, compared to 63.6% for the fourth quarter of 2017.
• GAAP net income for the fourth quarter of 2018 was $3.7 million, or $0.06 per diluted share, compared to GAAP net loss of $(0.6) million, or $(0.01) per basic share, for the fourth quarter of 2017.
• Non-GAAP net income for the fourth quarter of 2018 was $14.5 million, or $0.23 per diluted share, compared to non-GAAP net income of $4.0 million, or $0.07 per diluted share, for the fourth quarter of 2017.
• Adjusted EBITDA for the fourth quarter of 2018 was $16.4 million, or a record 22.7% of revenue, compared to $6.9 million, or 12.4% of revenue, for the fourth quarter of 2017.
• GAAP operating cash flow for the fourth quarter of 2018 was $15.5 million, compared to GAAP operating cash flow of $2.9 million for the fourth quarter of 2017.

2018 Financial Results

• Total revenue for 2018 increased 29% to a record $257.7 million, compared to $200.2 million in 2017.
• GAAP gross margin was 59.6% for 2018, compared to 58.5% in 2017.
• Adjusted gross margin was 63.9% for 2018, compared to 62.7% in 2017.
• GAAP net loss for 2018 was $(0.2) million, or $(0.00) per basic share, compared to a GAAP net loss of $(9.0) million, or $(0.16) per basic share, in 2017.
• Non-GAAP net income for 2018 was $37.0 million, or $0.60 per diluted share, compared to a non-GAAP net income of $6.3 million, or $0.11 per diluted share, in 2017.
• Adjusted EBITDA for 2018 was $46.4 million, or a record 18.0% of revenue, compared to $17.6 million, or 8.8% of revenue, in 2017.
• GAAP operating cash flow for 2018 was $38.6 million, compared to GAAP operating cash flow of $11.1 million in 2017.

“We closed 2018 with our strongest quarter ever with fourth quarter revenue growth accelerating to 31%. This accelerating revenue growth, combined with our strong execution and expense discipline, allowed us to deliver 22.7% adjusted EBITDA margin. These stand-out results are representative of the large market opportunity we are addressing and continued momentum in our Enterprise business. As customer experience becomes a strategic priority and the market shifts towards the cloud, we believe Five9 is extremely well positioned to capitalize on this opportunity. Our customers view Five9 as a trusted strategic partner who can help them at every stage of the customer experience journey. We believe that we are at the nexus of a transformative opportunity, and that this will enable us to continue to deliver sustained growth and advance our goal of creating the world’s best intelligent contact center delivered through the cloud and powered by AI.” - Rowan Trollope, CEO, Five9

Business Outlook

For the full year 2019, Five9 expects to report

• Revenue in the range of $298.5 to $301.5 million.
• GAAP net loss in the range of $(22.1) to $(19.1) million, or $(0.36) to $(0.31) per basic share.
• Non-GAAP net income in the range of $36.8 to $39.8 million, or $0.58 to $0.62 per diluted share. 

• Revenue in the range of $70.0 to $71.0 million.
• GAAP net loss in the range of $(5.7) to $(4.7) million, or a loss of $(0.10) to $(0.08) per basic share.
• Non-GAAP net income in the range of $7.1 to $8.1 million, or $0.11 to $0.13 per diluted share.

¹On January 1, 2018, Five9 adopted Accounting Standards Codification (ASC) 606 “Revenue from Contracts with Customers” using the modified retrospective transition method. While the financial results for the fourth quarter and full year 2018 are presented under ASC 606, financial results for the fourth quarter and full year 2017 are presented under ASC 605. A reconciliation of the financial results for the fourth quarter and full year 2018 under ASC 606 and ASC 605 is presented in the “Reconciliation of ASC 605 to ASC 606 P&L items” table included in this release.

Conference Call Details

Five9 will discuss its fourth quarter and full year 2018 results today, February 19, 2019, via teleconference at 4:30 p.m. Eastern Time. To access the call (ID 2920436), please dial: 800-458-4121 or 323-794-2093. An audio replay of the call will be available through March 5, 2019 by dialing 888-203-1112 or 719-457-0820 and entering access code 2920436. 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, intangibles amortization and stock-based compensation. We calculate adjusted EBITDA by adding back or removing the following items to or from GAAP net income (loss): depreciation, amortization, stock-based compensation, interest expense, interest (income) and other, non-recurring litigation settlement costs and related indemnification fees, reversal of interest and penalties on accrued federal fees, and provision for income taxes. We calculate non-GAAP operating income as operating income (loss) excluding stock-based compensation, intangibles amortization, non-recurring litigation settlement costs and related indemnification fees, and reversal of interest and penalties on accrued federal fees. We calculate non-GAAP net income as GAAP net income (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, reversal of interest and penalties on accrued federal fees and non-cash adjustment on 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, business momentum, expectations for future growth, product positioning, enterprise customer views of the value of our products and vision for the future, the Company’s long-term goals, and the first 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 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 digital enterprise, bringing the power of cloud innovation to customers and facilitating more than three billion customer interactions 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 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)

FIVE9, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

FIVE9, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF ASC 605 TO ASC 606 P&L ITEMS - GAAP

(In thousands, except per share data and percentages)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF ASC 605 TO ASC 606 P&L ITEMS - NON-GAAP

(In thousands, except per share data and percentages)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF GAAP GROSS PROFIT TO ADJUSTED GROSS PROFIT

(In thousands, except percentages)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED EBITDA

(In thousands)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF GAAP OPERATING INCOME (LOSS) TO NON-GAAP OPERATING INCOME

(In thousands)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME

(In thousands, except per share data)

(Unaudited)

FIVE9, INC.

SUMMARY OF STOCK-BASED COMPENSATION, DEPRECIATION AND INTANGIBLES AMORTIZATION

(In thousands)

(Unaudited)

FIVE9, INC.

RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET INCOME – GUIDANCE

(In thousands, except per share data)

(Unaudited)