Five9 Inc (FIVN) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen, thank you for standing by. Welcome to the Five9 Inc. first quarter fiscal year 2014 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is also being recorded today, Tuesday, May 13th 2014.

I would now like to turn the conference over to Lisa Laukkanen with the Blue Shirt Group. Please go ahead, ma'am.

Thank you operator, and good afternoon everyone, and thank you for joining us on today's conference call to discuss Five9's first quarter results. Today's call is being hosted by Mike Burkland, CEO, and Barry Zwarenstein, CFO.

During the course of this conference call, Five9's management team will make projections and other forward looking statements regarding future events or the future financial performance of the company. We caution you that such statements are simply predictions, and actual events or results may differ materially. These statements are subject to substantial risks and uncertainties that could cause -- that could adversely effect our future results.

A more detailed discussion of these risk factors, you should consider in evaluating Five9 and its prospects, are included under the caption risk factors and elsewhere in our filings with the Securities and Exchange Commission.

In addition, management will make reference to non-GAAP financial measures during the call. Management believes that this non-GAAP information is useful because it can enhance the understanding of the company's ongoing performance, and Five9 therefore uses non-GAAP reporting internally to evaluate and manage the company's operations. The full reconciliation of the GAAP to non-GAAP financial data can be found in the company's press release issued earlier this afternoon.

Now, I would like to turn the call over to Five9's CEO, Mike Burkland.

Thank you, Lisa. I'm delighted to welcome everyone to our first quarterly earnings conference call. I will begin with a discussion of the business and some key highlights from the quarter. Barry will follow with a more complete review of our financial performance and our outlook. We will then open up the call for your questions.

We are pleased to report strong first quarter results. Revenue for the first quarter was a record $24.3 million, up 27 percent year over year. Before I go into more details about our performance, let me just say it's great to talk to all of you as a public company. The IPO was a first step in our journey as a public company, it was the culmination of a lot of hard work by a number of our employees here at Five9.

On behalf of myself and the entire management team, I want to thank our employees, our customers and our partners for their continued support in helping us reach this important milestone.

Now, back to our results.

Our first quarter growth was driven by a growing demand for Five9's call center solutions as more companies look to move away from premise-based solutions and on to cloud-based solutions. During the quarter, we continued to demonstrate our proven, scalable, go-to-market strategy. We experienced strong momentum in adding new customers, including key enterprise customer wins in three vertical markets: health care, technology and retail.

For example, we brought on a major worldwide retailer that is using Five9 to route calls to internal contact centers, as well as out-source centers in five countries. Our solution is fully integrated with this retail customer's Oracle right-now CRM system and the number of agencies is expected to scale beyond 700 seats in the retail season.

We also closed important expansion deals with several strategic enterprise customers. For example, one of our enterprise customers in the loan servicing and lending business added several hundred seats along with Five9 WFM and QM powered by [NICE].

During the quarter, we continued to strengthen our existing partnerships with leading CRM vendors such as Oracle and Salesforce, and added Zendesk as a new partner. Five9's cloud contact center software is highly complementary with CRM solutions. Our deep integration with a number of leading CRM solutions enables our clients to have a seamless end-to-end solution for customer interactions.

Additionally, we continued integrating the technology of our recent acquisition, SoCoCare, a best-in-class solution for social media engagement and mobile customer care. We believe this acquisition gives us a significant competitive advantage in two major industry trends: social and mobile. In addition, the core technology we acquired will enhance our multi-channel solutions such as e-mail and chat, further extending our competitive advantages.

Our performance in the first quarter is continued evidence that our innovative cloud-based approach is disrupting this massive call center market, which includes 14.5 million agents across the world. Increasingly, we are seeing customers drawn to the benefits of the cloud, low up-front costs, ability to scale on demand, rapid deployments, as well as ease of management and integration.

Since this is our first earnings call, I'd like to take a few minutes to provide some background on Five9, our market opportunity, and how our cloud-based solutions deliver significant value to our customers.

Just as other enterprise cloud software leaders like Salesforce and Workday have replaced legacy on-premise solutions by moving major business applications to the cloud, Five9's cloud solution is replacing legacy on-premise solutions in the call center market, or as we refer to it these days, the contact center market.

Since our inception, we've exclusively focused on delivering our software in the cloud. We provide our solution through a SAS business move that drives recurring and predictable revenue through subscriptions. We have over 2,000 customers that process over 3 billion customer interactions per year on Five9's platform.

Contact centers are mission-critical to organizations' successful delivery of customer service, sales and marketing strategies. Using Gartner Data and our pricing, we estimate that the global market for our solution is $22 billion and we're at the very early stages of penetration in this enormous market opportunity.

For example, cloud penetration in the contact center market in North America is expected to more than double from 5 percent to 13 percent from 2012 to 2016. There are several trends that are fueling the adoption of cloud contact center software, including most notably the rapid adoption of CRM within the cloud, which is pulling Five9 into more and more opportunities.

Our ability to combine our robust mission-critical enterprise software in the cloud, along with telephony in the cloud, creates a significant barrier to entry. Bottom line, it's hard to do what we've done. It requires both software DNA and telecom DNA. We've invested over 800 man-years to develop our platform.

Our platform is designed to enable organizations of all sizes to optimize their contact center operations by enhancing agent productivity, improving customer satisfaction, and driving cost efficiency. A comprehensive solution matches each customer interaction with the appropriate agent resource that facilitates blended in-bound and out-bound customer connections, as well as multi-channel interactions across voice, chat, e-mail, web, social and mobile channels.

In summary, this is a very exciting time for Five9. We've demonstrated strong growth on multiple fronts. We're gaining market share as evidenced by the fact that our revenues are growing significantly faster than our competitors. We believe that Five9 is uniquely positioned to capture a large portion of this enormous market opportunity over time.

I will now turn the call over to Barry to provide more color on the financials.

Thank you, Mike.

I'd like to highlight again how pleased we are with our first quarter performance. As Mike mentioned, our revenue growth has been driven by securing new customer wins and by expanding our relationship with existing customers.

I will review our results in the first quarter and provide our outlook for the second quarter and the full year 2014.

But first, given that this is our initial earnings call, I would like to briefly provide and overview of our revenue model, as well as review the [supplemental] metrics that we currently plan to share with our investors going forward.

Recurring revenues accounted for 98 percent of our revenues in the first quarter. Recurring revenue is made up of monthly prescriptions, based on the number of agencies and minutes of usage on our virtual contact vendor, or VCV cloud platform. Our subscription fees are billed monthly in advance, while related usage fees are billed in arrears.

The other 2 percent of our revenue is comprised of professional services fees generated from assisting clients in implementing the Five9 solution and optimizing its use.

We also focus on our dollar-based retention rates. This metric is derived by taking an average of the trailing 12 months of (inaudible) revenue increases from customers in our installed base in the prior year, similar to same-store sales. These rates demonstrate the recurring nature of our revenue stream and a high retention rate of our customers. Our dollar-based retention rate for the period ended March 31st, 2014 was 100 percent, compared to 100 percent for the 2013 fiscal year.

We have a diversified customer base of over 2,000 customers with no single customer representing more than 5 percent of revenue.

Now, moving on to our financial results for the first quarter. Revenue for the first quarter of 2014 was $24.3 million, up 27 percent from the first quarter of 2013. Gross margins adjusted to exclude all non-cash charges, namely stock-based compensation, amortization and depreciation, was 51.1 percent for the first quarter, compared to 43.5 percent for the same period in 2013.

The improvement to our adjusted gross margin are primarily driven by improved usage efficiencies, continued benefit from economies of scale, and the elimination of duplicate data centers in 2013. It is important to point out that while usage revenue generated gross margins below our subscription margin, usage revenue comes with very minor incremental operating expenses and therefore generates considerable bottom-line leverage.

We believe our adjusted gross margin is on track to reach 65 percent to 70 percent in the long term, driven by, in ascending order of importance, first, further improvements in usage margins late this year as we get a return on the capital and expense investments we are currently making in least-cost routing and related initiatives; second, reducing the drag on overall margins (inaudible) from our professional services revenues, as we will see the benefits in 2015 and 2016 of various steps being taken in this area; and thirdly, continuing (inaudible) benefits from economies of scale as revenue increases over time.

Please note that a reconciliation of GAAP gross margins to adjusted gross margin, as well as other reconciliations from non-GAAP to GAAP results is provided with our earnings press release.

GAAP sales and marketing expenses for the first quarter of 2014 total 37 percent of revenue, or $9 million, compared to 32 percent of revenue or $6.1 million for the first quarter of 2013. We continue to aggressively invest in both sales and marketing to continue to gain market share.

GAAP R&D expenses for the first quarter of 2014 totaled 22 percent of revenue, or $5.2 million, compared to 22 percent of revenue or $4.2 million a year ago. The dollar-based increase was driven by continued investment and enhancement of our industry-leading platform.

GAAP G&A expenses for the first quarter of 2014 totaled 25 percent of revenue or $6.2 million compared to 20 percent of revenue or $3.8 million for the prior year period. The increase was driven mainly by preparation for the IPO and for being a public company.

Adjusted EBITDA loss was $6.5 million for the first quarter of 2014, compared to a loss of $5.5 million for the first quarter of 2013. GAAP net loss for the first quarter of 2014 was $8.3 million, or a $1.48 per share, compared to a net loss of $6.7 million or $1.88 per share for the first quarter of 2013.

Non-GAAP net loss for the first quarter of 2014 was $8.7 million or a $1.55 per share, compared to a net loss of $6.6 million or $1.87 per share for the first quarter of 2013.

Included in the GAAP net loss for the first quarter of this year was a benefit of $1.7 million (inaudible) to 31 cents per share, due to the revaluation of preferred and common stock warrants relating to the pricing of our IPO.

Per-share (inaudible) impact of our issuance of 11.5 million shares of our common stock and the conversion of 30.6 million preferred shares as a result of our IPO on April the 4th, 2014.

Regarding our tax rates, we have substantial NOL balance that we will continue to utilize. We expect the dollar amount of taxes relating to our foreign subsidiaries to be approximately $120,000 for the year 2014.

As of March 31st, 2014, cash, cash equivalents, and short-term investments totaled $29.2 million. Underwriting fees, operating expenses, net proceeds from initial public offering were approximately $72.7 million, resulting in pro forma cash of $101.9 million.

As of March 31st, 2014, our (inaudible) total, $28.2 million comprised of a revolver in loans, debts payable, and capital leases. We maintain a strong DSO performance and DSOs for the period ended March 31st, 2014, with 22 days compared to 25 days in the prior year. Cash outlook from operations was $6.2 million, and free cash outflow was $7.1 million after taking into account $900,000 of capital expenditures in the third quarter.

I'd like to finish today's prepared remarks with a brief discussion of expectations for the second quarter, and full year, 2014. For the second quarter, we expect revenue in the range of $24.4 million to $25.2 million. GAAP net loss is expected to be in the range of $11.6 million to $12.6 million, and non-GAAP net loss is expected to be in the range of $9.8 million to $10.8 million.

For the full year, we expect revenue in the range of $102 million to $106 million. GAAP net loss is expected to be in the range of $41.7 million to $43.9 million, and non-GAAP net loss will be expected to be in the range of $37.8 million to $38.8 million.

For (inaudible) purposes, we would like to provide you the following additional information. Calculating each year, we expect our shares to be $45 million in the second quarter, $49 million in the third quarter, and $49.6 million in the fourth quarter, and $34.6 million for the full year. Our CapEx is expected to total approximately $9 million for 2014.

In summary, we are very pleased with our strong performance for the quarter. We remain confident in our ability to achieve a long-term operating model, gross margins of 65 to 70 percent, and projected EBITDA margins greater than 20 percent. Moving forward, we will leave at a comprehensive (inaudible) software solution for contacts (inaudible) provide us with a clear advantage to capture increased market share in a dynamic market, multi-billion dollar market, while also benefiting from increasing sales into our existing customer base.

Lastly, before we turn to your questions, I'd like to mention our upcoming conference participation. We are presenting at the JP Morgan 2014 Technology, Media, and Telecom Conference in Boston on Tuesday, May 20th. And the Bank of America-Merrill Lynch 2014 Global Technology Conference in San Francisco on Wednesday, June 4th. A press release will be issued with further details on these events.

And now, we'd like to open the call for your questions. Operator, please go ahead.

Thank you sir. We will now begin the question and answer session. (Operator Instructions).

One moment please, for our first question.

And our first question comes from the line of Sterling Auty, with JP Morgan. Please go ahead, sir.

Hey guys.

Hey Sterling.

So, let me ask two questions, and then I'll jump back in the queue. The first one is, can you give us a sense in terms of, you know, sale cycles, I think you've talked about you know, through your road show, you have relatively short sale cycles across, you know, the customers that you target. What did you see through the quarter in terms of those sale cycles? Any change in either direction?

Good question Sterling. No, we see continued sale cycles in that -- you know, roughly 45 days for our SMB customers, and somewhere in the neighborhood of 120 days sale cycles for enterprise customers, so business as usual.

And then, as a follow-up, in terms of the wins that you had in the quarter, especially some of the more notable, larger wins, any trends that you're seeing in terms of the type of implementation that they currently had that they were looking to migrate to the clouds? In other words, any trends in terms of what you're displacing, and did that differ versus what you've seen in the past?

Very consistent with what we've seen in the past, Sterling. Our premise replacements continue to -- to be mostly with a Avaya customers, but we've also replaced other premise solutions this quarter. And again, we had continued very strong momentum in enterprise customer wins and customer expansions.

And maybe just one quick little follow-on in terms of those larger deals. You mentioned the retail customer that might scale to over 700 seats in the holidays. Can you give us a sense so that investors can understand, you know, how far you can scale?

At this point, what is the largest implementation or largest customer in terms of seat count?

Yeah, our largest customer is over 1,000 seats. And again, as we've climbed upstream, just to give you a sense, over the last three years, we look at enterprise customers as those above 50 seats. Again, so it's 50 to over 1,000 seats today, in terms of the seat range. That enterprise group makes up approximately 60 percent of our recurring revenue today. And if you look back three years ago, it was approximately 30 percent of our recurring revenue.

So, we continue to do more and more larger deal, and that enterprise market opportunity continues to be a big part of our growth strategy.

okay. Great, thank you.

Thank you. And our next question comes from the line of Raimo Lenschow, with Barclays. Please go ahead.

Thank you. Thanks for taking my question, and congrats on the first quarter as a public company, from me.

Quick one. Let's stay on Sterling -- if I could, stay on Sterling's point for a little bit. If you think about the, you know, the (inaudible) for example that you kind of won there. Can you talk a little bit about a competitive dynamic there? Obviously, there are some guys that kind of used to be on premise, or used to be other players, and who are now claiming to be in your space. Can you just kind of talk us through like how you square up and give us (inaudible) with those guys?

Yeah, sure. Glad to do it, Raimo. And again, we compete most -- most often with the premise players that we are replacing. There are some hybrid companies, as I call them, out there that have either come from premise and have a very small percentage of their business coming from cloud now. Very tough -- tough to do that. It's a difficult challenge, I think, to be both a premise vendor as well as a cloud vendor, but there are companies trying to do that.

And again, we compete very effectively against those players in that we are a pure cloud play, a multi-tenant cloud play that requires no hardware at all on-premise. I can't say the same for some of our competitors in the hybrid category. So, it -- you know, competitively, for the quarter, we did very, very well against those hybrid companies.

Yeah. And then on the push into enterprise. I mean, can you talk a little bit? I mean, you talked to (inaudible) who's obviously having very good momentum with their services cloud, and how do you -- how do we have to think about the enterprise market and the opportunity here? I mean, how legacy is it -- (inaudible) where the world is in reality, whereas obviously, you know...

Let me make sure to clarify something Raimo, and that is, you know, CRM solutions like Salesforce, service cloud, for example, are -- are very complementary to what Five9 delivers, more tightly integrated with Salesforce and other CRM systems in almost every deployment. So, really important for folks to understand that we are not a CRM player, and the CRM players are not contacts that our players. We're very, very complementary.

As I said, we're often integrated, if not almost always integrated with the CRM solution, depending on the type of opportunity. And Salesforce continues to be a wonderful partner for us. They bring us into opportunities where contact center is needed. Oracle has been a very good partner as well, and they're bringing us into more and more opportunities.

That was kind of the point I was trying to get to, that those guys are (inaudible) next to you and so as we look about it, you take momentum that (inaudible) could be at least to degree an indicator for what's going for your space as well, then.

Yeah, they -- yes, exactly. They have created a wonderful wake for us and again, created a lot of pull in the marketplace. As enterprises migrate their CRM from a premise solution to a cloud solution like Salesforce, that is a perfect opportunity, I should say, for those same enterprise customers to move their contact center solutions to the cloud, with Five9.

okay. And one last question is for Barry from my side.

Is the -- the gross margin expansion was very strong this quarter. Can you talk a little bit about the visibility you have around (inaudible) and the different drivers for that? Thank you.

Yes, Raimo. So, the drivers for our future expansion are very clear. We're investing currently both on the expense side and the CapEx side on various usage initiatives that'll take our usage margins up to -- starting towards the end of this year from the current mid-30s. And this is proven, well-trodden technology that we know can deliver.

The second is our professional services. This is currently a drag on our overall margin. Steps have been taken to improve this, and we'll see the results of that in 2015 and 2016. And finally, and inevitably, as the revenue increases, we enjoy the economy of scale against those elements of our cost revenue that are fixed or semi-fixed. So, good visibility, and -- that's it.

All right. Thank you.

Thank you.

And our next question comes from the line of [Akash Ranjan] with Merrill Lynch. Please go ahead.

Hi, thanks for taking my question. Can you, Mike, talk about the enterprise market, you could say, larger opportunity, more seats, presumably higher [ASB]. When do we potentially reach the inflection point of your business where you can see the fruits of all the investments you've made in the enterprise market show up and -- and even more revenue (inaudible) I'm sure that it would be -- the enterprise market unfolds, you could get even more opportunity there.

And secondly, may you look at the (inaudible) universe, (inaudible) about the lifetime value of (inaudible). How does your company about the lifetime value of [Mr. Striber] as it relates to how you're closely monitoring acquisition costs, service costs, retention, upsell, et cetera? Thank you so much.

Yeah, great questions Akash. So, I'll take the first one, first.

So, we are definitely laying the groundwork currently for accelerating revenue in 2015 relative to enterprise customers converting into, you know, revenue generation at the top line. So, again, a lot of investments going into the sales and marketing and go to market strategy for you know, in '14 for revenue growth in '15. So, we expect some revenue acceleration in '15 at the top line.

In terms of how we look at lifetime value of customers, again, remember we have a wonderful business model. We have a very proven, very scalable go to market strategy with deal flow that is pretty predictable. We've got 98 percent of our revenue that is recurring in nature, and we've got 100 percent dollar based retention.

You combine those things together and it allows us to, I think to have a very, very powerful business model. But to answer your question you know, about lifetime value and return, very simply, the [TAC] LTV ratios that we do on an ad hoc basis are higher for enterprise customers than they are for SMB customers. Hence, our disproportionate investment in enterprise go to market efforts.

Thank you. And our next question comes from the line of [Michael Hwang] with [Niedeman company]. Please go ahead.

Thanks very much. Congrats guys on making it out there as a public company.

So, just -- just a few questions for you. You know, first of all, you know, in terms of the product roadmap, you know, wondering if you could share with us kind of how far, you know, how far along you are in kind of the integration with the kinda social care and email and chat, and the other day, like you know, when you look at the enterprise market, what type of pinup demand is there for some of these product areas?

Yeah, great question Michael. So, we are quite far along. We will be delivering a summer release. We have not announced it yet, so I don't want to let the cat get too far out of the bag, but I will tell you we're very excited about our summer release, and that you know, one of the key themes in this release is that the integration of our recent acquisition of SOCO care, which brings to us, again, social and mobile customer care solutions as well as core technology in the form of a natural language processing engine that allows us to enhance our email and chat and multichannel capability.

So, really, really excited about -- about that integration. The efforts have been going very, very well and again, later this summer, our customers will (inaudible) to have the benefit of a fully-integrated solution.

Gotcha. And do you want to comment on kinda whether or not there's -- there's pinup demand for these product areas?

Yeah, we're seeing more and more interest, especially in the areas of mobile and social. Email and chat have been around in the contact center for quite some time, and being able to deliver that natively, and in a more robust fashion is something that is going to be, I think very significant for us in terms of our market momentum.

In the terms of social and mobile, again, those are new trends that are front -- front and center, top of mind, if you will for VPs of customer care. And again, it's something that I think most of our customers are looking at deploying at some point in the near future, but most importantly, they want to make sure they choose a vendor that future proofs their decision and has solutions for social and mobile that are definitely a growing part of customer interactions.

Gotcha. And on the -- on the nice retailer win in the quarter, and I know someone kind of asked a couple questions around that. So was that -- you know, was that your biggest deal in the quarter? And you know, I know that you know, you don't have a -- you know, any customer concentration, but just wanted to get a sense for kinda how many, you know, how many type deals did you have with -- with the seat potential like that, and then you know, maybe it's got to drill on into this deal in particular.

What ultimately was the catalyst for the retailer to move to Five9 now?

Yeah, in this case, you know, they were moving off of a system that they just were not getting the, you know, the performance metrics that they wanted, and they saw the value proposition of performance metrics in terms of agent productivity, even in terms of customer, you know, customer sat metrics. And I think we're going to help them deliver higher customer sat, higher agent productivity, along with you know, the business agility that we deliver. So, kinda standard action in terms of the value proposition that we've brought that customer.

I'll give you another -- another customer example in the health care arena. A national administration and managing agency that specializes in health and wellness products. We started out with, you know, a little over 100 seats deployment, with three more contact centers behind that -- that individual contact center.

So, again, most of our enterprise opportunities have, you know, a lot of headroom or upside in them, and this is very much a land and expand time to go to market.

Gotcha. And then last question for you. You know, just -- at the highest level, you know, when you think about the opportunity with, you know, within the enterprise segment, it's mostly kinda as you -- you know are seeing, you know, those with 700 seats or kinda north of a thousand seats, you know, ultimately, what -- what is the big dating factor to -- to win kinda the 1,000 seaters? You know, is it more product footprint, or is it sales and marketing and kind of, you know, some of the (inaudible) strengths that you may have? Thanks.

Yeah sure. You know the -- the -- our ability to penetrate the very large enterprise customers is -- is really conditioned upon the market itself in some respects. This is just a matter of time. If you look at the evolution of Five9 over the last six years since I've been running the company, we've gone from, you know, an SMB player up four and a half years ago, we started moving into the enterprise space. It's now 60 percent of our recurring revenue, as I said.

And part of this is just the market is evolving. These larger enterprises are getting comfortable deploying mission critical applications and solutions like ours in the cloud. If you look at the adoption of CRM in the cloud, it is paving the way for much, much larger deals for us. So, this is really about the market opening up in a systematic or sequential fashion up above 1,000 seats for cloud solutions. The writing's on the wall, it's happening. And again, we don't see a constraint in terms of our ability to continue to add, you know, sales capacity, (inaudible) perspective is there a real constraint on our ability to continue to move upstream.

You've got it.

Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you're using speaker equipment, you will need to lift the handset before making your selection.

And our next question comes from the line of Brendan Barnicle with Pacific Crest Securities. Please go ahead.

Thanks so much guys. Mike, one of the things I still hear from investors is sort of some confusion around where you guys come in and where service cloud overlaps and other vendors that are out there like Zendesk and some others. So following up on Raimo's question a little bit, could you give us like an example of where in a Salesforce partner deal, where you guys could come in and what you would do and then what Salesforce would specifically do?

Sure, happy to do it Brendan.

The best way to think about Five9 solution, think of us as the routing engine for customer interaction. So, we're really the brains in -- that are intelligently routing customer interactions, whether they're phone calls, chats, emails, social posts, we're doing intelligent routing to the proper agent within the contact center or call center based on everything from availability of agents, skills of agents, what we know about that customer based on our integration with the CRM system and other business rules.

So, again, think of us as the routing engine underneath. CRM in this case, those CRM systems do not do the routing. What they're really responsible for is keeping customer information. So, we see them as the -- the system of record if you will, the customer information, and we're the routing engine. And that really is the difference between CRM and contact center at a high level.

And so would those applications be the front end maybe the UI, and you guys would be the backend and so, customers might not see you as much, but they'd certainly be seeing the benefits of your -- or the agent wouldn't be seeing you as much, but certainly be seeing the benefits of your -- your role?

Great question. I'm glad you asked that, because our user interfaces are actually integrated. So, when you look at, from an agent's perspective, it's using Salesforce and Five9 integrated, you'll actually see the native -- the native Salesforce user interface with the Five9 soft phone, if you will, along the left-hand side of the screen real estate. So, we're actually sharing the screen real estate in a contact center in terms of what the agent's experience is.

Great, thanks so much for that clarity.

Thank you.

Thank you. And our next question is from the line of Richard Davis with Canaccord Genuity, please go ahead.

Hey, thanks.

On the -- on the upsales part, are they part of a salesman's quota? In other words, cause you've called out some of those as nice successes there. So is that part of your quota, and is that part of your bonus? And then the second question is, where do you feel you are with regard to kinda being able to cover and know, you know, that deals are going down, you know, more or less anywhere in North America, if not the world?

You know, in other words, where are you, kind of, in your sales, hiring flush out strategy? Thanks.

Yeah, great questions, Richard.

So, we actually have both hunters and farmers as I call them in both our enterprise sales organization as well as our SMB sales organization. So, hunters being those responsible, those sales people responsible for bringing in new accounts, and farmers being those sales people that are responsible for managing existing customers, and those farmers or account managers, as we call them, are carrying at quota for upsales and seat-adds.

As you know, Richard, you know, we have one full sweep that sell today, so our historical product upsells have not been involving new products, but they've been involving seat-adds. So those sales people are responsible for continuing to grow or expand our footprint from a number of agencies within those -- within those accounts. And yes, they are compensated on that.

Secondly, to answer your question about, you know, deals, you know, deal visibility and where we are from a sales capacity standpoint, I assume is your question.

Correct.

We continue to expand our sales capacity much quicker in enterprise than in SMB. It's a much larger market opportunity. It's a faster growing market opportunity for us. And that is where we are placing our bets in terms of sales capacity.

Great. Thank you.

Thank you.

Once again, ladies and gentlemen, if you would like to ask a question, please press the star followed by the one at this time.

And I'm showing no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Well, thank you, everyone, for joining us today. We're very, very enthusiastic about our results in Q1 and the future. So we look forward to seeing you in the near future at one of our conferences or whenever the occasion arises.

Thank you so much for joining us.

Ladies and gentlemen, this concludes the Five9, Inc. first quarter fiscal year 2014 earnings conference call. This conference will be available for replay after 3:30 p.m. Pacific Time today, through May 27th, 2014 at midnight, Pacific Time.

You may access the replay system at anytime by dialing 303-590-3030 or 1-800-406-7325 and entering the access code of 468-0481 followed by the pound sign.

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