Call center software provider Five9 (NASDAQ: FIVN) reported Q1 FY2023 results beating Wall St's expectations, with revenue up 19.5% year on year to $218.4 million. The company expects that next quarter's revenue would be around $214 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Five9 made a GAAP loss of $27.2 million, improving on its loss of $34.1 million, in the same quarter last year.
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Five9 (FIVN) Q1 FY2023 Highlights:
- Revenue: $218.4 million vs analyst estimates of $208 million (5.03% beat)
- EPS (non-GAAP): $0.41 vs analyst estimates of $0.24 ($0.17 beat)
- Revenue guidance for Q2 2023 is $214 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed revenue guidance for the full year, at $907.5 million at the midpoint
- Free cash flow of $21.7 million, down 18.2% from previous quarter
- Gross Margin (GAAP): 52%, in line with same quarter last year
“We are pleased to report strong first quarter results with revenue growing 20% year-over-year to a record $218.4 million, exceeding our expectations. This growth was driven by the continued strength of our Enterprise business where LTM subscription revenue grew 31% year-over-year. Our investments in international expansion are also paying off as LTM international revenue grew 48% year-over-year. These financial results demonstrate that we continue to be a leader in delivering on a massive, under-penetrated market opportunity,” said Mike Burkland, CEO of Five9
Started in 2001, Five9 (NASDAQ: FIVN) offers software as a service that makes it easier for companies to set up and efficiently run call centers, and offer more tailored customer support.
Work is becoming more distributed, both across geographies and devices. In order for businesses to keep functioning efficiently, they need to be able to communicate as well as they did when the teams were co-located, which drives the demand for integrated communication platforms.
As you can see below, Five9's revenue growth has been very strong over the last two years, growing from quarterly revenue of $137.9 million in Q1 FY2021, to $218.4 million.
This quarter, Five9's quarterly revenue was once again up 19.5% year on year. We can see that revenue increased by $10.1 million in Q1, which was roughly the same as in Q4 2022. This steady quarter-on-quarter growth shows the company is able to maintain its paced growth trajectory.
Guidance for the next quarter indicates Five9 is expecting revenue to grow 13% year on year to $214 million, slowing down from the 31.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 15.8% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Five9's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 52% in Q1.
That means that for every $1 in revenue the company had $0.52 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.
Key Takeaways from Five9's Q1 Results
With a market capitalization of $4.05 billion Five9 is among smaller companies, but its more than $629.7 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
We liked to see that Five9 beat analysts’ revenue expectations pretty strongly this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 12.7% on the results and currently trades at $63.58 per share.
Should you invest in Five9 right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.