Hi, good afternoon, everybody. Thanks for joining us. For this session, I have Five9, the President, Dan Burkland, and CFO, Barry Zwarenstein. Gents, thanks for joining us. How are you doing today? Doing just fine. Thank you very much, yourself? Wonderful. Thanks. All right. Great. Appreciate it. Happy to have you here Oh, sorry, Barry. I know safe harbor, I forgot. Yeah. This is why I'm not a CFO. Hello, everybody. Today we're going to make forward-looking statements about events and trends that could affect the industry, the company, and its operations. Obviously, the actual results may be materially different. Refer you to our SEC filings, 10-K and 10-Q, under the caption Risk Factors for things that could cause such a variance. Thank you. Great. Thanks, Barry, for that. Appreciate it. I thought it would be helpful. We're just coming off of earning season. The company had a really good 1Q. It was better than both what your expectations were, I think, better than investor expectations as well. Could you maybe start off with what drove that solid 1Q, and maybe what were some of the underlying factors that I think largely align with your overall confidence as well? Absolutely. Yes, we were very happy with the top and the bottom line and the cash flow from Q1. In terms of the revenue, when you think about Five9, always compartmentalize it into two major buckets, roughly equal in terms of the drivers for annual revenue growth. The one bucket is the new logos. These are the new bookings that go live and then generate revenue, and the other one is in the store base as that expands. In Q1, we handily outperformed on the revenue side, beating the consensus by about 5%. The big driver was, in fact, on the new logo side, where we had record Q1, well, Record, actually, all-time, see turn-ups, beyond our expectations. On the other side, the install base side, it was pretty much in line with our expectations on puts and takes. Great. You know, I think you'd mentioned that seasonality has bounced around on you a little bit in 4Q and then again in 1Q. Just what did you see from a seasonality perspective versus a normal 1Q, should we think about maybe seasonality going forward? Absolutely. If you go back in history, very typically, we have H1, H2 split, 47, 53, 48, 52, that type of thing. The third quarter is always stronger than the second quarter and the fourth quarter than the third quarter. This past year was no exception. However, we do, we do track 17 different verticals, and there were some changes, most notably in our first and third biggest verticals, namely healthcare and consumer and retail, which, along with our second biggest financial services, account for about half of our total revenue. In the healthcare and consumer, those in 2021, grew sequentially by 24%. This past year, only grew by about 12% for a host of different factors, including just mainly, though, the macro. That in Q1 abated and didn't go up as much, and it also didn't go down as much. It was moderately better than we might have thought. In Q1, on our financial services, which is you've all heard about, we did have some headwinds. It was weaker than we thought. Normally, it grows sequentially in the year-over-year in the high single digits. It only grew basically flat. These are companies that are making consumer loans, they're making mortgage loans, debt consolidation, that type of thing. The growth is still growing overall. The other 14 grew, pretty much in line with what we normally have, but just a slower growth as the activity into the contact center was not as strong as it was before, and people don't have as much need for the seats. One parting comment on this, if you don't mind, Samad, and that is our logo retention has been excellent. When inevitably the economy comes back, we will see the benefit of the other side of that same coin that we're now going through on the install base side. I think that gross retention point on the logos is really important. You know, Barry, one of the things you mentioned was new logos doing better in 1Q. Dan, you are the man that makes that happen. There's a lot of people underneath you, but you drive that car. Why don't you talk us through what you saw there? What were the things that contributed to that strong new logo performance? Yeah. Thanks, Samad. You know, Q1 is always a bit more challenging than a Q4, as an example. Sequentially, it tends to be more challenging because at Q4, like most organizations, we're pulling forward as much as we can and trying to book as much as we can to finish the year strong. Q1s tend to be somewhat lighter. We were fortunate this Q1 to see a couple of things. One is we mentioned a series of large deals, as we normally do, that were significantly higher from a bookings perspective. We also saw an increase in the pipeline that was for the high end of the market, what we call strategic accounts and large enterprise. It was double from what it was the year prior, that's being driven by two major trends. One is the companies that are on legacy, on-prem, systems, platforms that have been there for many, many years, still 80% of the market, it's estimated, are still on those legacy platforms. Most of them have been end of lifed. They're not getting any more development into them. Customers recognize they've got to get off of those and onto a platform that's in the cloud. That's one driver. The second driver is the AI and automation, that I'm sure we're gonna talk about today, is driving that interest to get to the cloud, more quickly so that they can start to take advantage of some of these new innovative, AI and automation solutions. Those are the two main drivers. Enterprises, especially at the high end, realize it may take them a couple years to go through a decision process and then migrate onto the cloud before they can even get their hands on the AI stuff. We're seeing that and feeling an uplift in the overall pipeline as a result. They wouldn't let me keep working here if I didn't ask about AI, so I'm glad you actually, you brought me to it. Let's talk about that, right? It's a topic that you don't go a day without hearing about it in the broader zeitgeist, and obviously, it's being discussed, and you guys have been working on AI for years. Why don't we talk about what Five9 is doing there and how you're thinking about the impact, the benefit of AI to you or the impact to the overall business? This is really helpful. Thanks, Samad, 'cause there's a what I'll call a false narrative around, "Oh, AI is gonna replace the need for human agents in the contact center and take over customer experience." While we're seeing AI play a role, it's mostly there to help agents be more effective and more efficient at their jobs. We're applying, and we've been at this for several years, and we've been preaching to really helping move your technology towards AI so that you can get more efficiency, and we even made two strategic acquisitions in this realm, and we are beneficiaries. As the market shifts and starts to implement, the more AI and automation we can bring to customer experience and into the contact center, the more Five9 benefits. I'll explain it and try to put this simply: if you think about think about us as we have a capacity for concurrent sessions or ports on a system, and let's just, for simplicity, call it we have 100 ports or capacity to handle 100 concurrent inbound interactions from my company's consumers, whatever company I happen to be in. Consumers inquiring to a business aren't changing. In fact, one could argue, as we give them more options, they're actually going up as we deliver chat, email, voice, chatbots, self-service IVAs, all these technologies that help. We're gonna take those calls in. If you use the traditional basic voice that's handled by a human agent, and we queue the calls and feed the agents, those are done at $200 per month, per port or per concurrent session. As customers start to take advantage of the AI and automation, an IVA, for instance, Intelligent Virtual Agent, okay, can now listen to the call, transcribe it, look for an answer, come back, and speak that answer to the customer, and the customer doesn't have to interact with a human agent at all. For that automated agent or virtual agent, as we call it, the cost that they pass is $400 per month per concurrent session. If I took the 100 access ports, and I found some very basic, straightforward use cases that could be handled by an IVA, my revenue would go up because I'd have 90 at the $200, and I'd have the remaining 10 ports at $400. That's just the base level. When you look at AI and automation in general, people say, "Well, how is it being applied to contact center?" We would argue that it's being applied throughout the journey of that customer interaction. From the very beginning, where we answer the call and identify the caller and derive their intent, to, okay, whether I've gone through the IVA example that I just gave you and self-serve without an agent, or whether I opt for speaking to an agent. If I speak to an agent, we're also gonna listen in on that conversation, transcribe it in real time, understand what's being asked through NLP, fetch the answer, and feed it back to the agent, and we call that Agent Assist. I'm assisting that agent to be more effective and more responsive and, you know, much more efficient with their time. That is also an area where we can help agents be more efficient. The third example, then I'll stop there, is one more of our modules, which is call summaries. This is a technology where we're using ChatGPT to take the transcript of the call, go out and use GPT to summarize it, bring that back to the agent, let the agent, in a matter of three or four seconds, scan the summary, submit it to the CRM for a permanent record. The reason that's important is in many contact centers, after the call is over, the agent spends a minute or two wrapping up their call with notes and putting in that information before they take their next call. If we can reduce that from a minute or two down to a few seconds, we've just allowed them to do more with less. We're seeing a lot of efficiency savers, and those types of efficiency savers have been introduced for the last couple of decades, since, you know, since I've been doing this, and we're constantly trying to help customers do more with less. Most of them say it'll help them grow their agent count slower than they would have otherwise. Very rarely do we have a customer that says, "I'm gonna reduce the number of agents because of the automation." It helps, and it'll make a dent, but if you think about the different automation or self-service alternatives that we give to customers, many brands already push the easy stuff out to their website. "Oh, go to our website. You need to change your password?" You know, we all use the website and have one emailed to us. "Oh, you need to make a hotel reservation or an airline reservation?" You're gonna do that online already. The contact centers have already pushed out a lot of these transactions to self-service vehicles. This is just one more vehicle. That's where we see things. Yeah, that's very helpful. Barry, as a follow-up, you know, we get a lot of questions on how should we think about the margins of this, right? Especially as it grows in the mix, how does it compare to maybe your traditional subscription margins, and how should we think about that going forward as it scales? Yeah. You should think of it favorably. We still a little bit of a voyage of discovery on some of these, but not on the IVAs. On the IVAs, when we bought the company, we had margins in the 80s. Our current margins in Q1 was 60% for the corporate-wide, for everything higher on the subscription. We're experiencing similar type margins on the IVAs now. The target for the other offerings within the portfolio is to get to something in excess of 70% and probably in excess of 80%. Let me just make one further comment, is that we are not investing ourselves in developing obviously things like LLMs. We are taking advantage of the commoditization that you all know about in terms of the prices of these Large Language Models coming down. GPT-4 is one-tenth of the cost of GPT-3. The analogy that people use is, we selling the cake, and just because the price of flour goes down, doesn't mean to say we're gonna cut the price of the cake as we sell it. I see that you're thinking about cake already for later. Now we know where your head's at. Maybe, Dan, I wanna stay on this for one last question. You know, this is almost like a tectonic shift, right? Where you've been talking about AI for years. Suddenly, the plates rub together, and there's this earthquake of commentary around it. I think one of the other areas where it may ultimately benefit you is taking advantage of AI requires change. How do you think that that benefits Five9 versus maybe some of the incumbents that are in the space? Yeah, as far as change to. Well, to take advantage of AI, you need to be in the cloud, right? Okay. How does that end up benefiting you guys? Yeah. That's the first prerequisite to really take advantage of this technology, is you've got to get to the cloud. As I mentioned earlier, 80% of the customers are still with these on-prem legacy systems that need to be upgraded. To think for a moment, while there's chatbots, they can't just take a on-prem legacy platform and upgrade it to a chatbot. You know, what do you do with the other 90% of the transactions that need to be handled with a full platform? If you step back and think about it for a moment, what we deliver is an interaction platform that allows customers to come to it in a variety of ways, whether they're coming in with an inquiry through chat, through email, through a voice call, whatever it is, we then can determine... Identify who they are, and then determine what to do with that inquirer. The engines that we use can be swapped in and out, but the platform itself has to have the scale, the reliability, the security, protecting the customer's data, and the list goes on and on and on about what the capabilities are built into that. That's the true moat. While the engines might be commoditizing and leapfrogging one another, and we continue to swap those out as we see fit to stay with the best of breed on those, the platform itself is what is really difficult to replicate. We've had very few entrants into our market. I've been here at Five9 for 13 years, it's the same players we've mentioned from the day we went public in 2014, are still the same players that we compete with today. You know, there's been mention of, you know, the Microsofts and the Zooms and Twilios of entering the space, even as far back as 2017 for Twilio Flex. They're not here yet with the full platform. You've got companies that have come in and stated that, you know, they're gonna enter this space. You know, there is one that has built a cloud platform. Genesys has been successful. They took an Interactive Intelligence acquisition that had been developed for three or four years, spent another three or four years, and here they are, and they're there, and they're a viable competitor. That gives you an idea of how long it takes to build out the full stack and the full platform solution. The advantage of the platform is such that if I build integrations, as an example, in a large healthcare conglomerate that most of you know, that we've signed, they have 40 some odd integrations with back-office data sources that they use. It's so important to be on a single platform 'cause we build those integrations once, and they apply to all the different transaction types. We can help them deliver a consistent experience, regardless of whether they came into the chatbot or whether they came into a voice call or whether they came to an agent. The information that they're gonna have read back to them all comes from the same data sources. Imagine if you put a standalone solution in on the side, you'd have to build all those same 40 integrations with a little chatbot. Nobody's gonna do that. It's cost prohibitive. There are true advantages to being on a platform solution. Great, that's helpful. Barry, why don't we switch gears and move off of this topic? I wanna maybe dig into large enterprise activity in general. You guys obviously had a good 1Q. Can you just remind the audience how you're thinking about what's embedded in terms of large customers ramping as the year progresses into your guidance? Just, I know it's too early to think about 2024, but just how you're thinking about, in general, that progression in the current environment? We're talking here about, to go back to my very first comments about the new logos ramping up during the course of the year. There are three buckets over here, and, I'm gonna go from the smallest to the biggest. The smallest is the parcel delivery service, which initially launched in terms of as recurring revenue in the fourth quarter of 2021. That is gonna be done by the end of this year and be back-end loaded. Bigger than that, is a healthcare company that that Dan just referred to, that started gently in the fourth quarter of 2022, will continue growing through the course of 2023, back-end loaded again, and, then be done in the first part of 2024. With respect to the biggest bucket, which is those orders that Dan and the team entered in the second half of 2022, and for the first part of this year, which will go live in the second part, those are going extremely well as well. That's the visibility we have on the new logo side for 2023. You're right, with respect to 2024, I'm not yet ready to talk about it. But I will say that our model of $2.4 billion in 2027, assuming the macro resumes positively next year, remains very much our goal. Great. Dan, you know, when we're thinking about large customers, even in general, not even the ones that you've already booked, but just, you know, there's a lot of scuttlebutt about companies having to make decisions now, modernize, there's this urgency. What are you seeing from a competitive landscape? And, you know, what are the one or two things that customers are really talking about that are differentiating Five9? Yeah. Thanks. Yeah, there is that interest to move to the cloud, we love our opportunity, especially as I've mentioned, upmarket, the pipeline doubling our validation that we can serve the largest and most complex organizations in the world. It's interesting 'cause customers do have a hard time distinguishing and differentiating purely the products. We all have slight nuances and differences in how we go about bringing the technologies together. If you look at, you know, our chief competitors, NICE, Genesys, and Five9, the three of us, what we find is what's very critical and important is the team of experts that we apply to put that product in place to allow the customers to extract the most value from it. That cannot be underestimated. We pride ourselves on carrying, by far, the best NPS scores in the industry. Almost unbelievable. Well, we hired head of professional services who didn't want to believe the numbers. Now he's running our professional services team globally and understands why. It costs us a little more upfront, but we put in the expertise and the consultation and the ongoing optimization of the solution. That last point is very key. A lot of companies will supply a solution, implement it, and then they kinda turn their back and say, "Hey, here's who you call for break fix." We don't. We apply a team of resources that live with that customer on an ongoing basis. They have a sales account manager. They also have a technical account manager, an engineer that can go in and inspect on a quarterly basis to make the tweaks and adjustments to the system. That's very, very important. Key differentiator. Great. We only have a few minutes left, Barry, I want to come back to you and think about... We've talked about growth mostly, but you guys have also had a really nice couple of quarters on the margin side. Can you just help us understand what you're doing? Is that just revenue upside that's driving the leverage? Is that also cost controls? Just help us understand the recent leverage that we've seen kind of really start to pick up in the model. Yeah, it has been a few things. I'm gonna focus on EBITDA margin, making occasional references to gross. On the EBITDA margin is we've been able to moderate two major investments that we have been making in the past two or three years. They're both very much internationally related, driving our professional services. We're in all these different countries in the world where the parcel delivery companies, et cetera, need them, countries that we can't even go into, most of the people in this audience, sometimes, and cloud operations. Both of those now are abating. We've also increased our capacity in the data centers so they can accommodate the type of growth that we've been seeing. Now it comes down to further international expansion and product innovation. In terms of operating expenses, we're pretty much where we want to be in terms of our long-term model, which is with 23% adjusted EBITDA margins in 2027. By that I mean, we're currently, this past quarter, at 44%. The midpoint of the model is 47%, so we actually have some leeway. In terms of gross margins, there's three or four drivers there, but the biggest one is what you alluded to, which is with revenue growing, we have a slow, steady, classical improvement in margin that we leverage the fixed and semi-fixed costs. We also are gonna have the benefit of the higher ARPU that is gonna come primarily from these AI and automation solutions. A number of other ones, but I'll spare you the details. No problem. I think maybe just the last one, this is, I think, in some ways, a question for both of you. Just thinking about capital allocation within that M&A, you haven't really done a deal in a while. I know it's been more, call it, like, tuck-ins. I'm curious how you think about M&A and then maybe capital allocation more generally, Barry. Yeah. From an M&A perspective, we're always looking at immediate adjacencies and seeing how to extend the platform and portfolio of solutions. We made those acquisitions. You know, we saw Inference as the leading IVA company and scooped it up for that very reason, because we saw this trend that is now, you know, upon us. We also, you know, acquired Whendu, which is a workflow automation solution, which allows us to do a lot of closing the loop and outreach and SMS messaging to round out that piece of the portfolio. We're constantly looking at other areas where we can do. Nothing we can obviously talk about, but yeah, we're keeping our eye on lots of things. Yeah. I do not have a whole lot to add to that. We generate consistently every quarter LTM operating cash flow and free cash flow records for both of those this last quarter. We expect that to continue growing our cash balance. We'll make, you know, small technology tuck-ins from time-to- time. That's about it. Great. Well, we'll leave it there for time. Barry, Dan, thank you so much. Barry, I'll see you in London at the Nasdaq conference. Well, look forward to it, Samad. Thank you very much. Thanks so much.