Changes to the sales organization and a headcount reduction are signs of a maturing company ready to build in proactive service and revenue management.
Recently, Five9 reported its second quarter FY24 results. While the quarter was strong, the forward-looking guidance was light, which sent the stock tumbling over 25%. I asked the company about the light outlook, and a spokesperson stated, “We reduced our 2024 revenue guidance by 3.8%, primarily driven by macro headwinds.” While the company cited macro as an issue, its guidance contradicted Five9’s publicly traded peers, which all echoed a more consistent outlook.
I do believe factors that could slow the growth of the economy played a part in the reduced guidance: global issues, talent shortages, AI uncertainty, and the election are causing customers to rethink IT investments. The other factor was sales execution, and the company took action to address this. That said, Five9 may see some looming weakness that the other CCaaS providers will not, but we won’t know that until next quarter.
Post results, the company has taken some action to right the ship, which should cause the stock to rebound over time. The first was to promote Matt Tuckness, VP of Global Customer Success, to EVP of Sales and Customer Success. On the earnings call, leadership described the move as “promoting an accomplished 10-year Five9 veteran, giving us a single 100% dedicated sales leader.”
Tuckness will be focused on $1M to $10M TCV deals, which makes sense given that Five9 has been concentrating on growing its enterprise base. On the earnings call, Scott Berg from Needham questioned the timing and commented appointing Tuckness to this role seemed like “a knee jerk reaction” to a single quarter and mentioned the books for the past five quarters had been strong.
Dan Burkland, Five9 President who had previously run sales as part of his job, commented, “This was absolutely not a knee-jerk reaction. It’s a situation where we had an EVP of sales several years ago. I’ve been stretched thin with different responsibilities across the company, and we wanted to ensure we had somebody every day who is 100% dedicated to sales execution.”
Given that Five9 is trying to win more enterprise accounts with longer sales cycles and more complicated deals, putting Tuckness in that role is the right thing to do. The bigger question was why they didn’t put a dedicated person in the EVP of sales role earlier. On a follow-up call with the company, I asked Burkland why he hadn’t made the change earlier, and he said that the team had previously executed very well, so there was no need to. To Burkland’s point, Five9 has been the model of revenue consistency, and this quarter will likely prove to be a hiccup, but the decision to have a resource laser-focused on day-to-day sales execution is the right one.
Five9 also announced it was laying off about 7% of the workforce, which equates to about 185 workers. This layoff was the first in the company’s history, which is a surprise given Five9 has used acquisitions as a growth engine as seen in their most recent acquisition news with the intent to acquire Acqueon, a leading real-time revenue execution platform. Typically, when a company makes an acquisition, they accrue excess people from overlapping areas first, then have to rationalize headcount later. The fact that Five9 has never had to do this is a testament to the strong growth the company has seen, as the demand to add people has outweighed any people brought on board from an acquisition.
When asked about why the need to reduce headcount during the earnings call, the company stated, “This change allows us to continue to focus on profitable growth and long-term business resilience. We remain focused on serving the needs of our global customers and partners while making strategic investments to continue innovating.”
Layoffs are never viewed positively, as they affect people’s lives and livelihoods. However, layoffs are a part of doing business. Most UCaaS and CCaaS providers staffed up during the pandemic and then had to cut bloated headcounts when the post-pandemic market softened. Five9 did not go through that, but the market has changed, and, unfortunately, it was time to trim a bit of the staff.
Five9 said the acquisition of Acqueon will help accelerate the Five9 vision by merging expertise in inbound and outbound communications to deliver personalized, proactive customer experiences across marketing, sales, and service. In addition, Acqueon unlocks access to additional market opportunities for sales, proactive service, and revenue management. The structure of the Five9 teams has remained the same, and Acqueon will continue to operate as Acqueon, as a business unit within Five9. The longer-term plan is to absorb the Acqueon brand under the larger Five9 brand.
Overall, Five9 had a more than solid quarter. Q2 was a record-breaking quarter, and the company exceeded the $1B ARR run rate for the first time. Total subscription revenue grew by 17%, and the company has a strong balance sheet with over $1B in cash.
All of the activity over the past year indicates a Five9 maturing as it grows into a bigger company. Late last year, Niki Hall joined Five9 as its CMO and revamped marketing. Over the past few quarters, the company has appointed regional sales leads, and now there’s a dedicated sales leader. The headcount reduction adjusts Five9’s cost structure to where the business is. This activity should enable Five9 to return to putting up the “beat and raises” that we have all been accustomed to.
