Five9 (FIVN), which is a provider of cloud software for contact
centers, is trading higher today after reporting Q4 results last night. Turning
to the Q4 results, non-GAAP EPS more than tripled to $0.23 from just $0.07 a
year ago. The $0.23 was well above prior guidance of $0.13-0.14. Revenue rose
30.5% yr/yr to $72.3 mln, which was also well above guidance of $65.8-66.8 mln.
So, what is driving the upside? It seems that very strong margin expansion is at least part of the reason. Adjusted EBITDA margin improved to a record 22.7%, a big improvement from 12.4% last year and a nice jump sequentially from 19.6% in Q3. For the full year 2018, Adjusted EBITDA margin improved to a record 18.0% vs 8.8% in 2017.
FIVN closed 2018 with what it calls its strongest quarter ever. Accelerating revenue growth, combined with strong execution and expense discipline, helped FIVN drive those impressive margins. In terms of guidance for Q1, FIVN expects non-GAAP EPS of $0.11-0.13 and revenue of $70-71 mln. EPS guidance is in-line with market expectations while revenue guidance was better than expected.
FIVN says these stand-out Q4 results are representative of the large market opportunity it's addressing and of the continued momentum in its Enterprise business. As customer experience becomes a strategic priority and the market shifts towards the cloud, Five9 says it's extremely well positioned to capitalize on this opportunity.
In sum, the way to think about Five9 is that it's a play on companies moving to the cloud and it's a play on companies realizing that they need to evolve. Specifically, companies need to interact with customers in more ways than just a customer 800-number. FIVN's Virtual Contact Center (VCC) cloud platform enables clients to engage with their customers through voice, video, website, mobile, chat, email, click-to-call, callback, social, and messaging.
This was another good quarter for FIVN and it sounds like more growth lies ahead. The bigger picture to remember here is that this market is still in the early days of a massive shift to the cloud. We have been following FIVN for years, since its IPO. It always struck us as a small but steady grower. Now it feels like it's stepping on the gas and becoming a large player in this burgeoning market.
This is probably not a coincidence less than a year after it hired a new CEO. In May 2018, Rowan Trollope took the reins. He was formerly SVP & General Manager of Cisco's (CSCO) Applications Group. The new CEO seems like a good fit, it's always good to see someone come over from a big tech company like Cisco in this case. It shows that he sees good potential here and it seems he has been instrumental in perhaps taking FIVN to the next level.
On a final note, FIVN sees a big opportunity as cloud penetration of the contact center market in North America is just 10-15% but it's growing rapidly. Companies typically refresh their contact center systems every 8-10 years, which provides an opportunity for cloud providers to replace legacy on-premise systems when these replacement decisions arise.
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