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Introduction & Market Context
Five9 Inc . (NASDAQ:FIVN) reported its first quarter 2025 results on May 1, showing continued revenue growth and margin expansion despite a slight deceleration from the previous quarter. The cloud contact center software provider maintained its focus on enterprise customers and artificial intelligence solutions, which are becoming increasingly critical differentiators in the competitive customer experience market.
The company’s shares responded positively to the results, with the stock gaining 3.27% in after-hours trading to $25.90, following a regular session close of $25.14. This reaction suggests investors were encouraged by Five9’s ability to maintain double-digit growth and its improving profitability metrics.
Q1 2025 Financial Highlights
Five9 reported Q1 2025 revenue of $280 million, representing 13% year-over-year growth compared to $247 million in Q1 2024. Subscription revenue, which accounts for 80% of total revenue, grew at a slightly faster pace of 14% year-over-year. The company’s enterprise segment continues to dominate, representing 90% of total revenue.
As shown in the following chart of quarterly and annual revenue growth:
The company has maintained a consistent growth trajectory, with annual revenue reaching $1.042 billion in 2024, a 14% increase from 2023. This marks a significant milestone as Five9 crossed the billion-dollar revenue threshold for the first time in its history.
Customer retention remains strong, with the Last Twelve Months Dollar-Based Retention Rate (LTM DBRR) at 107% for Q1 2025, indicating that existing customers continue to expand their usage of Five9’s platform:
While this retention rate has declined slightly from previous quarters, it remains well above 100%, demonstrating the company’s ability to not only retain customers but also expand relationships over time.
AI Growth and Customer Success Stories
A standout area of growth for Five9 is its AI solutions, with enterprise AI revenue increasing by 32% year-over-year in Q1 2025. AI now represents 9% of enterprise subscription revenue, and more than 20% of new logo Annual Contract Value (ACV) bookings include AI components. Notably, virtually all new customer deals exceeding $1 million in Annual Recurring Revenue (ARR) included AI solutions.
The company highlighted several customer success stories demonstrating the value of its AI solutions:
These case studies illustrate how Five9’s AI solutions are delivering tangible business outcomes, including improved containment rates, reduced call volumes, and decreased agent workload. The resulting increases in ARR (ranging from 37% to over 100%) demonstrate how AI adoption is driving expanded customer relationships.
Five9 also secured several significant new customer wins and expansions during the quarter:
These new customer acquisitions and expansions, with ARR ranging from $0.9 million to $4.0 million, highlight Five9’s success in targeting enterprise customers and positioning its AI solutions as key differentiators.
Operational Efficiency and Margin Expansion
Five9 continues to improve its operational efficiency and profitability metrics. The company reported an adjusted gross margin of 62% for Q1 2025, with adjusted EBITDA margin reaching 19%. Operating cash flow margin was 17%, while free cash flow margin stood at 12%.
The following chart illustrates the company’s consistent gross profit expansion:
Five9 has made significant progress in expanding its margins since its IPO, with adjusted gross margin increasing from 51.5% to 62.4%, while simultaneously reducing operating expenses as a percentage of revenue:
The company has also made notable progress in reducing stock-based compensation expense, which declined from 21% of revenue in Q4 2023 to 14% in Q1 2025:
This reduction in stock-based compensation, combined with improved operational efficiency, has contributed to the company’s expanding EBITDA margins and cash flow generation:
Forward Guidance and Medium-Term Outlook
Looking ahead, Five9 provided guidance for Q2 2025 and the full year 2025. For Q2, the company expects revenue between $274.5 million and $275.5 million. For the full year 2025, Five9 projects revenue of $1.140 billion to $1.144 billion, with non-GAAP net income per diluted share of $2.74 to $2.78.
The company also shared its medium-term operating model, targeting 10-15% annual revenue growth by 2027, with adjusted gross margins of 66-68%+ and adjusted EBITDA margins of 25-30%+:
Five9 sees significant market opportunity ahead, particularly as AI expands its total addressable market (TAM) from $24 billion for traditional cloud contact center software to $234 billion when including the contact center labor spend that can potentially be optimized or replaced by AI solutions:
This expanded market opportunity, combined with Five9’s enterprise focus and AI capabilities, positions the company for continued growth despite the slight deceleration in revenue growth rate from 17% in Q4 2024 to 13% in Q1 2025. The company’s consistent improvement in profitability metrics and cash flow generation suggests that Five9 is successfully balancing growth investments with operational efficiency as it scales beyond the billion-dollar revenue milestone.
Full presentation:
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