Let's get started here. While the last people are piling in, I can read the research disclosures. It's a good use of time. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/research_disclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. We're delighted. I'll see you and raise you and read our safe harbor. We're gonna make today statements about events and trends that affect the company and industry. Actual results may differ from those forward-looking statements. We refer you to our filings with the Securities and Exchange Commission for a detailed discussion of factors which could cause such a difference. Thank you. Got it. For everybody who doesn't know me, I'm Meta Marshall. I cover the communication software space here at Morgan Stanley. Barry needs no introduction, but we'll take the chance, CFO of Five9. Maybe you want to explain- Yeah Mike's absence, who was supposed to be here today. Yeah. Mike came down with an extremely severe case of food poisoning. He said to me over the text that he's never been this ill and as sick in his life. He's so sad. He really wanted to be here. He's given me some notes, and hopefully it'll be okay. Do those notes include where he ate before? All right. That's what I'm interested in. All right. You know, maybe the first question was kind of supposed to be for Mike of, you know, he's come back to the organization. He wasn't far. He was chairman of the board. You know, what has his objectives been, and what have you kind of noticed as kind of any changes that have taken place with the organization with Mike coming back? Yeah. Mike has really come in fully energized. He's done such a lot of major initiatives, projects, if you will, focused on them, and has just given a new verve and excitement without throughout the company. The we recently had a sales kickoff meeting. Never had so much excitement with him getting standing ovations. It's all systems go. Where are we going to? Well, if Mike was here, he would say that the three main areas that he's focused on, has been, and will be, are, first of all, the continued success in up market. We've demonstrated our success over there, some of these mega deals, but also the $1 million-plus ARR deals. We're now at 161. We had three when we went public back in 2014. Secondly, the expansion internationally. We've made the investments over the last several years. Most of the agents in the world are outside of the US. We've had a very tiny presence. It's a lot of upside opportunity. Our fourth quarter bookings in international grew 87% year-over-year. 2022 revenue is up 44%. We're just getting started there. Importantly, is the product. The product is scalable, reliable, fully featured. Now, with the advent of AI and automation, something that I think you're gonna be asking about later on, we've got one of the leading product portfolios there. Those are the three things that the company is focused on under Mike's leadership. Got it. You know, contact center from when Mike stepped away to kind of when Mike came back, came into a lot more focus for investors. You know, how much of that do you think of, and Barry, you've been here the whole time and can kind of comment on that. Like, how much of that is the market finally recognizing the value of the space, and how much of that was just from the product and the channel kind of advancing? Yeah. It's difficult to to immediately bifurcate between the two, but there has been a sea change. If you rewind that movie just a few years, the contact center was in the basement. It was a cost center, a necessary evil almost. How do you reduce the average handle times, and not viewed as strategic at all. Now, it is looked at as central in terms of enhancing customer experience. It is strategic in so many ways. It's not no longer just part of the plumbing. There's a number of reasons for that. Clearly, the product has played a role. Nobody's gonna switch from Avaya or any on-prem system until they can be assured of having feature parity, so they can be assured that they have the reliability. Cause you can have all the features you want, and if the product is not functioning because it's down, it doesn't matter anything. We've demonstrated, at least in our case and others too, extreme reliability and then security as well as scalability. The cherry on the top, of course, as I alluded to earlier, is the AI and automation, which you can only really do in the cloud. You could theoretically do it on-premise. There's also the channel. In light of the on-premise vendors retrenching, the channel has pivoted. They used to sort of quasi embrace us. Now they really are. We've got a major initiative led by people who know the channel, ex-Cisco people, to really develop that and have a dual route to market. At the end of the day, it's a lot more promising than it was a few years ago. Perfect. You know, the contact center market has maybe been a laggard in cloud transition. You know, previously our survey work would kind of say it's triggered with a CRM upgrade or a cloud transition initiative. You know, that survey is maybe a couple of years old. Have you seen the trigger change and, you know, what is driving kind of this accelerated move towards the cloud? Yes. Those two factors that you mentioned, digital transformation and a very good leading indicator is the CRM transition to the cloud, have been and remain really key. I would add to that the realization that if you're on the premise in a world that's, you know, working from home and which is doing the AI and automation in the cloud and where it's more economical and plannable in the cloud, you better start thinking, especially when, you know that your system is not gonna get any major upgrades, it's gonna be end of life at a certain point in time, and so on. There's a certain sharpness that wasn't there before to make to come make plan B real. Sure. Let me just hasten to add that we're not talking about a big land grab over here. This is something that's measured over time and slow. Got it. All right. It's standing room only in here, in part because AI is the topic du jour. Okay. It's certainly applicable within the contact center. You know, can you just outline what your spectrum is of AI solutions and from entry-level to advanced and just where some of those are your own homegrown solutions and where some of those are kind of partner solutions? Absolutely. When you think of the Five9 AI portfolio, think of 8 separate but in some cases related modules. The first two are before the call even starts. That's IVA, intelligent voice assistant, both the voice one and the digital one. What now with the, you know, real-time economical, highly accurate, ability to understand and hear what's being said through the bot, the call gets deflected with a massive return to the customer and to, by the way, to Five9. To the customer, because instead of paying $4,000 per seat per month, per seat, per agent per month, they're paying $400. In our case, we're going from $200 to $400. It is a one-to-one, by the way. It's not that the bot's speaking faster than a human would. That's the first two. During the call, let's assume that the call is not deflected, you then got Agent Assist. The agent, the live agent is sitting there and chatting to you. He or she is sort of trying to find out how to answer this particular question and is, you know, looking at the FAQs and knowledge database. Agent Assist comes up and pops a answer. Whether the agent accepts that answer or not, it's training that module, and it can do it much more efficiently and faster. That's the third one. After the call is done, we have Workflow Automation from our Window acquisition, which sends out reminders and sends out surveys and the like. That's as far as the agent is concerned. The last... The next 4 and the last 4 are with respect to the running of the contact center efficiently. The first one is a long time standard. All the companies have that, which is simply speech analytics. You know, we can listen to calls. You can't listen to 100% of them, but they pick out certain ones and see where the agent needs coaching and the like. The 3 that were new, that were announced on our fourth quarter earnings call a few weeks ago. First of all, Analytics. This allows a dive into the data within the contact center to look at the trends, prepare dashboards, look at custom reporting and all on a self-service basis. To help that, we've got over 250 metrics, both old traditional metrics like average handle time and first call resolution and newer times like, you know, how quickly the email matter was resolved or whether conference was set up, a virtualization layer and a very robust data, analysis engine. You need that because you're talking about in Five9's cases, 10billion, 11 billion minutes a year with different calls that you're trying to analyze in between all calls between May 1st and May 31st that had a campaign of such and such a nature. That's analytics, and that's out with our customers. Many scores of those customers that are evaluating it. The smart money is betting that we'll start getting revenue from that in the 2nd quarter. Not material, but it'll grow over time. The last two are AI Insights and AI Summaries. The first one automatically in real time makes a transcription of the call, figures out where the different intents are, what's really happening, clusters them together, and comes up with suggestions on ways to make improvements and does so with no professional services. Using that data, you get into the AI Summaries, which is then automatically uploaded into CRM system, and it too does not require any professional services. Those last two would not be a complete discussion with AI without mentioning ChatGPT-3. Those are both powered by ChatGPT. I do wanna make an announcement on that this is not just, you know, let's make a press release type of thing. We've been working closely with OpenAI for quite some quarters, and these products are in beta. They're real, and they're not just as simply as, you know, calling of an API. These are real integrated products. I mean, what is the kind of adoption journey of those like? Like, you know, I think a lot of people in this room might be familiar with chatbots and that getting a company to adopt a chatbot may be easier than some of these other products. Just what is kind of the customer journey, in adopting some of these AI products? Or how do you envision that if they haven't adopted all of them? Yeah. It varies a lot by different products. The IVAs have a natural adoption in the sense that the ROI is just so huge. The chatbot, just to do the basic functionalities may be a little bit less so, more incremental to the agent. The big difference, though, is more between new orders coming in and the install base. In terms of the new orders coming in, as you can imagine, everybody is fired up. We're doing this big digital transformation. We're revamping all of our procedures. We're making things more efficient. We've got the purses up. We've got senior management's attention, and we tend to have a pretty high attach rate there. On the other hand, in the install base, it's a little bit more difficult in the sense that you've got to have a catalyst to have people want to adopt it. If we stick just with IVAs for a moment, you know, the customer says, "Oh, okay, I'd like to get started. I've heard all about this." Then we say, "Fine. Where do you wanna get started?" They say, "We don't know." They don't because they haven't had the benefit of doing these analysis to see what are the best work streams to be automated. Now, with that, what I just mentioned a moment ago, the IVA summaries, without any peers, we can go in and diagnose where the most likely areas are and have a start on the IVA. We're pretty optimistic about that. We also, frankly, are sharpening ourselves in terms of having more, if you will, hunters in that install base than basically the farmers that we've had up to now. We're expecting increased adoption. Got it. Maybe you can just kinda outline... You've talked about AI being something that doubles kind of the ARPU that you can get from a customer. But just how should we think of, you know, you just laid out eight categories of AI. It's just not product by product, but just how to think about, you know, what is a traditional customer and what is kind of a fully loaded customer for AI, and how many products is that? It's not an easy question. I guess I'm just asking, when you typically have talked about it doubling the ARPU opportunity, is that they've adopted three of those products? Is it they've adopted? Yeah something that contextualize that? In the case of the IVA, it's simply double. We average seat price for a live agent per month is $200. We've got three different categories in terms of the IVA. It's $400. To be perfectly candid with respect to the Analytics and certainly the Insights and Summaries, we're still a little bit on a voyage of discovery over there. We've figuring out seat versus usage, bundle versus non-bundle, what exactly the pricing will end up with from OpenAI and Microsoft and so on. Got it. Just how does a, you know, you mentioned in the last quarter that 40% of RFPs now kind of have some sort of AI component to them. Just how much do AI considerations slow a sales cycle and just kind of what have been effective approaches to kind of speeding up these cycles? For new logos, it probably does elongate it slightly, not in a period. It varies a lot, but probably measured in days or weeks or with an extra demonstration or extra sign-off, extra because of extra expense. I will say, though, that on the other side, we're pushing on an open door when we talk about the balance because we've established the cloud capability. Got it. We also or, you know, another question we've been getting from investors is just what are AI tool-- Like, you mentioned you have ChatGPT for a couple of these tools, but what are the values that you're kind of bringing to some of the AI tools that can't be done by some of these kind of ChatGPT or other generative AI models? Yeah. Yeah. The key over here is to, is to fully understand and embrace the fact that these enhanced products like GPT-3 are not overlapping or replacing products that we are selling and we and our competitors are selling. These are a core technology that we are using in replace of some of the other core technologies we were doing before. It's really nothing more than a more powerful NLU engine that we were using anyway before. What we bring at the end of the day, something that's unique, something that's important, and something that's absolutely essential, and that is the data. The actual conversation with the either voice or exchange digital with the customer. To that, we bring our own voice stream, we bring our own transcription services, we bring our own virtualization, we bring our own clustering algorithms, and all within the Five9 administrative console. Very powerful. It's that whole incremental UI is something that, you know, is just where we add the value. Got it. All right, maybe moving on to Q4 results. You noted seeing some weakness amongst kind of existing retail and healthcare customers. Just as you look forward to 2023, just how are you seeing conditions versus kind of when you saw them originally or when you saw them maybe 90 days ago on Q3 earlier? Just to level set so everybody is on the same page, we have a pronounced seasonality in the fourth quarter. The typical overall corporate increase from Q3 to Q4 is pre this year was between 4% and 12%, primarily in two areas. As we always talked about healthcare, people primarily buying insurance and consumers, people just interacting with the contact center and in the holiday season and the like. From the third to the fourth quarter of 2021, those two categories, which account for roughly about a third of our install base revenue, and which is our first and third biggest verticals, grew 24%. This last quarter, they grew slightly less than that, so around about 11%-12%. The other 15 that we tracked all grew pretty regularly as expected. It was a little bit slower than we would have hoped. We still ended up, frankly, to be perfectly blunt, we still ended up beating the guidance by 2%, which in this environment is a pretty respectable beat because it's not a very effervescent consumer environment. We then have not taken that into account when we look at 2023, and we've assumed a similar sort of macro environment for the install base and a similar seasonal uptick in the H2. Okay, got it. You've had some very large deals come on board in 2022. You know, what is that market looking like for large deals in 2023? Our strategic business, as we commented on the call, is doing extremely well. Five9, approximately half comes from install base, which we just talked about a moment ago, the other half from new logos being implemented and ramping. That part of the business, we had some mild softness in the mid-market, but the strategic and international are both doing extremely well. We do not see that changing. Okay. I mean, I think in the past in conversations, you know, you guys have said there's a long pipeline of customers who are maybe waiting to see these kind of 8-figure deals get implemented. Do you think you kind of need to wait for some of those to get implemented for kind of some of this pipeline to make decisions? Are you seeing them kind of already start making decisions now that there's kind of confidence in elections of some of these things? Yeah. I mean, these sales cycles for these mega deals, the parcel delivery service and the healthcare company, $55 million, $40 million ACV respectively, they have a long sales cycle, and we've said repeatedly we will not be in the slightest bit embarrassed if it takes quarters or even years before we have the next one. In the meantime, though, the million-dollar-plus customers are doing very well. We ended up with 161, like I talked about earlier, those remain robust. In due time, the next mega deal will come along. Got it. I mean, kind of noted on Q4 that it really isn't a new customer pipeline issue. It's largely just your kind of existing customers and even narrowing that further to kind of your retail and healthcare customers. Just are there any changes at all that you're seeing in kind of RFP activity, whether kind of a smaller piece upfront or just any changes you're seeing there? No. In terms of the RFP and the new logo side, it stays strong. We're seeing, strong interest in AI and automation, like 41% was either the main or auxiliary reason, to go out to RFP. We talked about earlier the retrenchment in terms of the legacy providers. Yeah, that remains robust on the new logo side. Got it. I have a bunch more questions here. Are there any questions from the audience? Thanks for taking my question. Very good to see you. Yes. I was just wondering, you talked about the slight differences in customer seg- by segment a second ago. One thing I noticed clearly was, you know, your enterprise revenue growth, which is the vast majority of your revenue, still had a pretty healthy clip even in the last couple of quarters, despite the macro stuff. Your non-enterprise business, which I know you had been thinking about moving away from or slowing down through deprioritization versus enterprise anyway. I noticed that actually ticked down quite a bit in the last couple of quarters. Can you help us just think through how to think about that? Like, is that a sort of customer macro demand thing? Is that a your focus thing? Would love to just put that in context. Yeah. Thank you. Just real quick, so everybody's on the same page. 86% of the business is enterprise, which is growing very healthy. We've committed to having a 3 handle on the LTM enterprise growth rate on the subscription part of it, which is 60% of our total revenue. That may dip into the high one-twenties because of the macro environment. The other 14% is our commercial business that was growing in the 20s, now growing in the teens. Frankly, we're putting less investment in it. It is a meaningfully lower LTV to CAC on a truncated 5-year basis. Enterprise is 6 times, commercial is half that. We are seeing, you know, pretty good response from the channel. They don't distinguish whether the customer's got 40 seats or 100 seats. They come to us. We feel comfortable with the LTM teen stock growth on the commercial side, and the investment mainly is going on enterprise. I mean, there's a lot of new big logos talking about kind of offerings in the contact center space. Just, you know, how do you see the contact center, or competitive landscape within the contact center? Yeah. That's a big question. There's the three of us at the core and have been, and likely will be for a long time. There's been no new entrants of scale, and that's nice. Genesys and Five9. In terms of the shared owners, that remains Cisco, but especially Avaya, and then Genesys install base. By the way, if a Genesys install-based customer decides to change, they might as well go out to RFP, given that it's a very different environment to go to the Genesys cloud from a Genesys premise. There's also... I don't want to cause any serious problems here. Let me see how to phrase this. There's got Amazon, which is a company always to be respected, but they don't have a product. What they have is a suite of packages that can be assembled by an SI or internal IT department over a period measured in years, and you get a highly customized ideal for that particular organization. That's not what a Avaya customer is looking to go to. They want a complete package solution to implement it in a few quarters, typically. You know, Twilio Flex is out there, though that's probably more of a point solution. Zoom has got a embryonic, I think they would describe it themselves in that way. It's got a fair amount of feature enhancement that still has to come in the fullness of time. Who else am I... I don't want to neglect anybody. Microsoft also has announced a few quarters ago, a few years ago now, actually, a product that we frankly haven't yet seen it in the field, but they've got, you know, a lot of resources. They've also got Nuance. They've got Dynamics for the CRM because there's always a close connection between the contact center and the CRM system. They may be they may become serious down the road. That's all I can think of at the moment. Okay. You've made a number of investments over the past couple of years, whether it be international expansion or professional services. You know, just how do you see some of those investments ramping and just kind of margin profile of the business over the next couple of years? Yeah. What's being referred to here is we made a massive investment in professional services when we had these mega customers coming to us to go global. Our headcount in professional services went from the 30s up to 58% in the second quarter of 2022, back down to 24% now. That's largely behind us. We also put a massive amount into cloud operations also to be able to stamp out our GCP instances across the world. We're now in Canada, Frankfurt, Amsterdam, India coming, South Africa coming, et cetera. Those are largely behind us, and we've got back on the resumption of leveraging into the fixed and semi-fixed costs, a path well-trodden by Five9 in the past before we had to do those investments. All right. Perfect. Well, we hope Mike feels better. Yes. Barry, thank you so much for being here today. I think that that wraps up tonight. Thank you very much.