Five9

: NASDAQ : US$4.45
BUY FINV
Target: US$7.00

COMPANY DESCRIPTION:
Five9 provides cloud-based software solutions for contact
centers. The company’s solutions help call centers
improve business dexterity and reduces the complexity of
contact center operations, while also significantly
reducing costs for the firm. The suite of applications
enables a firm to provide a breadth of call center
functions, including inbound, outbound, and blended
solutions. Five9 was founded in 2001 and is
headquartered in San Ramon.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software– Software as a Service
A SOLID QUARTER; SUFFICIENTLY INEXPENSIVE TO KEEP A BUY RATING
Investment thesis
Following a June quarter earnings shortfall due to the drop-off of call volumes as
scheduled Obamacare signups ceased, Five9 had something to prove to investors.
The firm took the first step of what we hope is many more consistent “meet or beat”
quarters needed to give investors confidence about future execution. At this
juncture, with a modicum of execution, we believe FIVN shares should provide
above-market returns. We have retained our Buy rating.
 A good bounce-back –upside across the board. FIVN reported Q3/14 revenues
and Adjusted EBITDA of $25.9M and loss of ($5.0M), which were respectively
$1.4M and $2.6M ahead of our estimates. Revenue growth was 23% in the
quarter, despite headwinds of the healthcare segment slowdown noted last
quarter, and FCF losses of ($7.9M) were $4.4M ahead of our estimate.
 Enterprise bookings remain healthy. Five9 had another record bookings
growth quarter; management suggested that Enterprise bookings have
advanced in-step with sale rep hiring that has paced in the 30-40% growth
range (SMB hiring has been closer to 10%). This quarter was highlighted by a
several hundred seat replacement of Avaya/Cisco/Aspect at a large pharma
company, a senior living referral placement service with ~400 agents, and a
nationwide energy company that came in through the Salesforce.com channel.
Dollar-based retention was 97% in the quarter, which is consistent with C2013
levels and down marginally from 98% in Q2/14.
 Outlook: a slight increase,

Q4 should be a bottom in growth. FIVN laps a
difficult Q4 compare against a 2013 period that saw heavy ACA call volumes,
but the December quarter should mark a bottom in growth declines at ~15%,
according to our estimates. We have slightly increased our C2015 projections
and are forecasting 20% revenue growth and more than 500 bps of EBITDA
margin expansion (~19% EBITDA margin losses). We believe there remains an
upward bias to our current growth assumptions.

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