Business Wire | Aug 3, 2020 04:05PM EDT

Five9 Reports Second Quarter Revenue Growth of 29% to a Record $99.8 Million

Aug. 03, 2020

SAN RAMON, Calif.--(BUSINESS WIRE)--Aug. 03, 2020--Five9, Inc. (NASDAQ:FIVN), a leading provider of cloud contact center software, today reported results for the second quarter ended June 30, 2020.

Second Quarter 2020 Financial Results

* Revenue for the second quarter of 2020 increased 29% to a record $99.8 million, compared to $77.4 million for the second quarter of 2019. * GAAP gross margin was 57.5% for the second quarter of 2020, compared to 59.6% for the second quarter of 2019. * Adjusted gross margin was 65.7% for the second quarter of 2020, compared to 65.0% for the second quarter of 2019. * GAAP net loss for the second quarter of 2020 was $(16.1) million, or $(0.25) per basic share, compared to GAAP net loss of $(1.9) million, or $(0.03) per basic share, for the second quarter of 2019. * Non-GAAP net income for the second quarter of 2020 was $14.1 million, or $0.21 per diluted share, compared to non-GAAP net income of $12.3 million, or $0.20 per diluted share, for the second quarter of 2019. * Adjusted EBITDA for the second quarter of 2020 was $18.3 million, or 18.3% of revenue, compared to $14.4 million, or 18.6% of revenue, for the second quarter of 2019. * GAAP operating cash flow for the second quarter of 2020 was $14.8 million, compared to GAAP operating cash flow of $6.8 million for the second quarter of 2019.

"We delivered exceptionally strong second quarter results with revenue of $99.8 million. Revenue growth accelerated to 29% year-over-year and 5% sequentially, adjusted EBITDA margin was 18.3%, and we delivered our eighteenth consecutive quarter of positive operating cash flow. We believe the on-premises to cloud and digital transformation trends driving our massive market opportunity are likely to accelerate as work-from-home trends continue and retail sales personnel are increasingly displaced by contact center agents. Our better-than-expected second quarter results and pipeline also demonstrate the strength of our core business and, most importantly, our consistent sales execution. Our increased go-to-market investments are paying dividends, most notably with system integrators and AT&T. Meanwhile, our enhanced product and engineering leadership team is driving faster product innovation at greater scale. We remain focused on driving superb execution and disciplined, balanced growth."

- Rowan Trollope, CEO, Five9

Business Outlook

Five9 provides guidance based on current market conditions and expectations. The Company emphasizes that the guidance is subject to various important cautionary factors referenced in the section entitled "Forward-Looking Statements" below, including risks and uncertainties associated with the COVID-19 pandemic.

* For the full year 2020, Five9 expects to report: Revenue in the range of $399.0 to $401.0 million, higher than the prior guidance range of $380.5 to $383.5 million that was previously provided on May 4, 2020. GAAP net loss in the range of $(56.4) to $(54.4) million, or $(0.88) to $(0.85) per basic share, lower than the prior guidance range of $(45.4) to $(42.4) million, or $(0.72) to $(0.67) per basic share, that was previously provided on May 4, 2020. This decline is primarily due to a $12.6 million increase in amortization of discount and issuance costs related to our 2025 convertible senior notes issued in May and June 2020 and the concurrent repurchase of a portion of our 2023 convertible senior notes, along with a $5.8 million loss on early extinguishment of a portion of our 2023 convertible senior notes. Non-GAAP net income in the range of $52.7 to $54.7 million, or $0.77 to $0.80 per diluted share, higher than the prior guidance range of $48.3 to $51.3 million, or $0.72 to $0.76 per diluted share, that was previously provided on May 4, 2020. * For the third quarter of 2020, Five9 expects to report: Revenue in the range of $100.5 to $101.5 million. GAAP net loss in the range of $(18.9) to $(17.9) million, or $(0.29) to $(0.28) per basic share. Non-GAAP net income in the range of $11.6 to $12.6 million, or $0.17 to $0.18 per diluted share.

Conference Call Details

Five9 will discuss its second quarter 2020 results today, August 3, 2020, via teleconference at 4:30 p.m. Eastern Time. To access the call (ID 1396522), please dial: 866-248-8441 or 720-452-9102. An audio replay of the call will be available through August 17, 2020 by dialing 888-203-1112 or 719-457-0820 and entering access code 1396522. 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 web-site 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 and adjusted gross margin by adding back the following items to gross profit: depreciation, intangibles amortization, stock-based compensation and COVID-19 relief bonus for employees. We calculate adjusted EBITDA by adding back or removing the following items to or from GAAP net loss: depreciation and amortization, stock-based compensation, interest expense, interest (income) and other, acquisition-related transaction costs and one-time integration costs, non-recurring litigation settlement costs and related indemnification fees, COVID-19 relief bonus for employees and provision for (benefit from) income taxes. We calculate non-GAAP operating income as GAAP operating income (loss) excluding stock-based compensation, intangibles amortization, acquisition-related transaction costs and one-time integration costs, non-recurring litigation settlement costs and related indemnification fees, and COVID-19 relief bonus for employees. We calculate non-GAAP net income as GAAP net loss excluding stock-based compensation, intangibles amortization, amortization of discount and issuance costs on convertible senior notes, acquisition-related transaction costs and one-time integration costs, non-recurring litigation settlement costs and related indemnification fees, gain on sale of convertible note held for investment, COVID-19 relief bonus for employees, loss on early extinguishment of debt, and tax benefit of valuation allowance associated with an acquisition. 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 expectations for market acceleration from on premise contact centers to the cloud and drivers thereof, Five9's expectations regarding the benefits of its go-to-market investments, Five9's sales pipeline, Five9's faster product innovation and greater scale, and Five9's growth expectations, and the third quarter and full year 2020 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) the effects of the COVID-19 pandemic have materially affected how we, our clients and business partners are operating, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain; (ii) 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; (iii) 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; (iv) 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; (v) failure to adequately retain and expand our sales force will impede our growth; (vi) 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; (vii) our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business; (viii) 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; (ix) adverse economic conditions may harm our business; (x) security breaches and improper access to or disclosure of our data or our clients' data, their customers' data, or other cyber attacks on our systems, could result in litigation and regulatory risk, harm our reputation and our business; (xi) 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; (xii) 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; (xiii) 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; (xiv) 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; (xv) 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; (xvi) we have a history of losses and we may be unable to achieve or sustain profitability; (xvii) 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; (xviii) we may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs; (xix) we may acquire other companies or technologies or be the target of strategic transactions, which could divert our management's attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results; (xx) failure to comply with laws and regulations could harm our business and our reputation; (xxi) we may not have sufficient cash to service our convertible senior notes and repay such notes, if required, and other risks attendant to our convertible senior notes and increased debt levels; and (xxii) 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 annual report on Form 10-K and quarterly reports 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 intelligent contact center space, bringing the power of cloud innovation to customers and facilitating more than six billion call minutes 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 Genius 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)

June 30, December 31, 2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 233,235 $ 77,976

Marketable investments 452,708 241,973

Accounts receivable, net 39,607 37,655

Prepaid expenses and other current assets 17,529 10,656

Deferred contract acquisition costs 16,151 13,014

Total current assets 759,230 381,274

Property and equipment, net 39,799 33,190

Operating lease right-of-use assets 10,006 8,746

Intangible assets, net 25,605 15,533

Goodwill 34,444 11,798

Marketable investments 82,064 -

Other assets 2,789 1,184

Deferred contract acquisition costs - less 39,366 30,655 current portion

Total assets $ 993,303 $ 482,380

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 12,045 $ 10,156

Accrued and other current liabilities 34,817 18,385

Operating lease liabilities 5,247 5,064

Accrued federal fees 1,670 2,303

Sales tax liabilities 1,565 1,885

Finance lease liabilities 2,032 3,518

Deferred revenue 26,306 24,681

Total current liabilities 83,682 65,992

Convertible senior notes 642,203 209,604

Sales tax liabilities - less current portion 847 838

Operating lease liabilities - less current 5,249 4,329 portion

Finance lease liabilities - less current portion 100 809

Other long-term liabilities 6,814 4,350

Total liabilities 738,895 285,922

Stockholders' equity:

Common stock 65 61

Additional paid-in capital 432,877 351,870

Accumulated other comprehensive income 1,004 576

Accumulated deficit (179,538) (156,049)

Total stockholders' equity 254,408 196,458

Total liabilities and stockholders' equity $ 993,303 $ 482,380



FIVE9, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



Revenue $ 99,792 $ 77,436 $ 194,880 $ 151,974

Cost of revenue 42,453 31,248 82,490 62,099

Gross profit 57,339 46,188 112,390 89,875

Operating expenses:

Research and 17,208 10,811 32,397 21,357 development

Sales and marketing 32,231 23,250 62,391 44,951

General and 16,129 12,042 30,787 23,804 administrative

Total operating 65,568 46,103 125,575 90,112 expenses

Income (loss) from (8,229) 85 (13,185) (237) operations

Other income (expense), net:

Interest expense (5,734) (3,406) (9,218) (6,802)

Interest income and (4,965) 1,490 (3,893) 3,235 other

Total other income (10,699) (1,916) (13,111) (3,567) (expense), net

Loss before income (18,928) (1,831) (26,296) (3,804) taxes

Provision for (benefit (2,876) 29 (2,807) (20) from) income taxes

Net loss $ (16,052) (1,860) $ (23,489) $ (3,784)

Net loss per share:

Basic and diluted $ (0.25) $ (0.03) $ (0.38) $ (0.06)

Shares used incomputing net loss per share:

Basic and diluted 63,282 60,058 62,494 59,714



FIVE9, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

June 30, June 30, 2020 2019

Cash flows from operating activities:

Net loss $ (23,489) $ (3,784)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 11,213 6,553

Amortization of operating lease right-of-use 2,786 2,147 assets

Amortization of premium on marketable investments 630 (883)

Provision for doubtful accounts 353 30

Stock-based compensation 30,585 19,122

Loss on early extinguishment of debt 5,794 -

Gain on sale of convertible note held for - (217) investment

Amortization of discount and issuance costs on 8,571 6,234 convertible senior notes

Tax benefit of valuation allowance associated with (2,910) - an acquisition

Others 82 (23)

Changes in operating assets and liabilities:

Accounts receivable (2,119) (3,378)

Prepaid expenses and other current assets (7,065) (4,053)

Deferred contract acquisition costs (11,848) (5,488)

Other assets (1,604) (12,571)

Accounts payable 2,553 159

Accrued and other current liabilities 9,561 6,516

Accrued federal fees and sales tax liability (945) (337)

Deferred revenue 3,292 2,539

Other liabilities (281) 5,412

Net cash provided by operating activities 25,159 17,978

Cash flows from investing activities:

Purchases of marketable investments (460,899) (151,308)

Proceeds from maturities of marketable investments 167,850 165,354

Purchases of property and equipment (14,891) (8,226)

Cash paid to acquire Virtual Observer (28,313) -

Cash paid to acquire substantially all of the (100) - assets of Whendu LLC

Proceeds from sale of convertible note held for - 217 investment

Net cash (used in) provided by investing (336,353) 6,037 activities

Cash flows from financing activities:

Proceeds from issuance of 2025 convertible senior 728,812 - notes, net of issuance costs

Payments for capped call transactions related to (90,448) - the 2025 convertible senior notes

Repurchase of a portion of 2023 convertible senior (181,462) - notes, net of costs

Proceeds from exercise of common stock options 6,080 4,248

Proceeds from sale of common stock under ESPP 5,666 3,996

Payments of finance leases (2,195) (3,702)

Net cash provided by financing activities 466,453 4,542

Net increase in cash and cash equivalents 155,259 28,557

Cash and cash equivalents:

Beginning of period 77,976 81,912

End of period $ 233,235 $ 110,469



FIVE9, INC.

RECONCILIATION OF GAAP GROSS PROFIT TO ADJUSTED GROSS PROFIT

(In thousands, except percentages)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



GAAP gross profit $ 57,339 $ 46,188 $ 112,390 $ 89,875

GAAP gross margin 57.5 % 59.6 % 57.7 % 59.1 %

Non-GAAP adjustments:

Depreciation 3,382 2,416 6,232 4,694

Intangibles amortization 1,738 88 2,828 176

Stock-based compensation 2,499 1,658 4,488 2,887

COVID-19 relief bonus for 618 - 618 - employees

Adjusted gross profit $ 65,576 $ 50,350 $ 126,556 $ 97,632

Adjusted gross margin 65.7 % 65.0 % 64.9 % 64.2 %

FIVE9, INC.

RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA

(In thousands, except percentages)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



GAAP net loss $ (16,052) $ (1,860) $ (23,489) $ (3,784)

Non-GAAP adjustments:

Depreciation and 6,243 3,361 11,213 6,553 amortization

Stock-based 16,791 10,436 30,585 19,122 compensation

Interest expense 5,734 3,406 9,218 6,802

Interest income and 4,965 (1,490) 3,893 (3,235) other

Legal settlement - 420 - 420

Legal andindemnification fees - 64 - 356 related to settlement

Acquisition-relatedtransaction costs and 1,637 - 1,966 - one-time integrationcosts

COVID-19 relief bonus 1,817 - 1,817 - for employees

Provision for(benefit from) income (2,876) 29 (2,807) (20) taxes

Adjusted EBITDA $ 18,259 $ 14,366 $ 32,396 $ 26,214

Adjusted EBITDA as % 18.3 % 18.6 % 16.6 % 17.2 %of revenue



FIVE9, INC.

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

(In thousands)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



Income (loss) from $ (8,229) $ 85 $ (13,185) $ (237) operations

Non-GAAP adjustments:

Stock-based compensation 16,791 10,436 30,585 19,122

Intangibles amortization 1,738 88 2,828 176

Legal settlement - 420 - 420

Legal andindemnification fees - 64 - 356 related to settlement

Acquisition-relatedtransaction costs and 1,637 - 1,966 - one-time integrationcosts

COVID-19 relief bonus 1,817 - 1,817 - for employees

Non-GAAP operating $ 13,754 $ 11,093 $ 24,011 $ 19,837 income



FIVE9, INC.

RECONCILIATION OF GAAP NET LOSS TO NON-GAAP NET INCOME

(In thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended

June 30, June 30, June 30, June 30, 2020 2019 2020 2019



GAAP net loss $ (16,052) $ (1,860) $ (23,489) $ (3,784)

Non-GAAP adjustments:

Stock-based 16,791 10,436 30,585 19,122 compensation

Intangibles 1,738 88 2,828 176 amortization

Amortization ofdiscount and issuance 5,251 3,155 8,571 6,234 costs on convertiblesenior notes

Legal settlement - 420 - 420

Legal andindemnification fees - 64 - 356 related to settlement

Acquisition-relatedtransaction costs and 1,637 - 1,966 - one-time integrationcosts

COVID-19 relief bonus 1,817 - 1,817 - for employees

Loss on earlyextinguishment of 5,794 - 5,794 - debt

Gain on sale ofconvertible note held - - - (217) for investment

Tax benefit ofvaluation allowance (2,910) - (2,910) - associated with anacquisition

Non-GAAP net income $ 14,066 $ 12,303 $ 25,162 $ 22,307

GAAP net loss per share:

Basic and diluted $ (0.25) $ (0.03) $ (0.38) $ (0.06)

Non-GAAP net income per share:

Basic $ 0.22 $ 0.20 $ 0.40 $ 0.37

Diluted $ 0.21 $ 0.20 $ 0.38 $ 0.35

Shares used incomputing GAAP net loss per share:

Basic and diluted 63,282 60,058 62,494 59,714

Shares used incomputing non-GAAP net income per share:

Basic 63,282 60,058 62,494 59,714

Diluted 67,171 62,950 65,960 62,843



FIVE9, INC.

SUMMARY OF STOCK-BASED COMPENSATION, DEPRECIATION AND INTANGIBLES AMORTIZATION

(In thousands)

(Unaudited)

Three Months Ended

June 30, 2020 June 30, 2019

Stock-Based Depreciation Intangibles Stock-Based Depreciation Intangibles Compensation Amortization Compensation Amortization



Cost of revenue $ 2,499 $ 3,382 $ 1,738 $ 1,658 $ 2,416 $ 88

Research and 3,684 497 - 1,907 450 - development

Sales and 5,265 2 - 2,749 1 - marketing

General and 5,343 624 - 4,122 406 - administrative

Total $ 16,791 $ 4,505 $ 1,738 $ 10,436 $ 3,273 $ 88



Six Months Ended

June 30, 2020 June 30, 2019

Stock-Based Depreciation Intangibles Stock-Based Depreciation Intangibles Compensation Amortization Compensation Amortization



Cost of revenue $ 4,488 $ 6,232 $ 2,828 $ 2,887 $ 4,694 $ 176

Research and 6,491 963 - 3,377 890 - development

Sales and 9,371 3 - 4,998 2 - marketing

General and 10,235 1,187 - 7,860 791 - administrative

Total $ 30,585 $ 8,385 $ 2,828 $ 19,122 $ 6,377 $ 176

FIVE9, INC.

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

(In thousands, except per share data)

(Unaudited)

Three Months Ending Year Ending

September 30, 2020 December 31, 2020

Low High Low High



GAAP net loss $ (18,938) $ (17,938) $ (56,402) $ (54,402)

Non-GAAP adjustments:

Stock-based 17,618 17,618 66,191 66,191 compensation

Intangibles 1,738 1,738 6,232 6,232 amortization

Amortization ofdiscount andissuance costs on 8,637 8,637 25,975 25,975 convertible seniornotes

Loss on earlyextinguishment of - - 5,794 5,794 debt

Acquisition-relatedtransaction costs 2,545 2,545 6,003 6,003 and one-timeintegration costs

COVID-19 relief - - 1,817 1,817 bonus for employees

Tax benefit ofvaluation allowance - - (2,910) (2,910) associated with anacquisition

Income tax expense - - - - effects (1)

Non-GAAP net income $ 11,600 $ 12,600 $ 52,700 $ 54,700

GAAP net loss pershare, basic and $ (0.29) $ (0.28) $ (0.88) $ (0.85) diluted

Non-GAAP net income per share:

Basic $ 0.18 $ 0.19 $ 0.82 $ 0.85

Diluted $ 0.17 $ 0.18 $ 0.77 $ 0.80

Shares used incomputing GAAP netloss per share and non-GAAP net incomeper share:

Basic 64,900 64,900 64,200 64,200

Diluted 69,100 69,100 68,100 68,100



* Non-GAAP adjustments do not have an impact on our income tax provision due to past non-GAAP losses. View source version on businesswire.com: https://www.businesswire.com/news/home/20200803005548/en/

CONTACT: Investor Relations Contacts:

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

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