Five9 Inc (FIVN) 2014 Q4 法說會逐字稿

Good day and welcome to the Five9 Fourth Quarter 2014 Earnings Call.

Today's conference is being recorded.

At this time, I'd like to turn the call to Miss.

Lisa Laukkanen.

Please go ahead.

Thank you, operator.

Good afternoon, everyone, and thank you for joining us on today's conference call to discuss Five9's fourth quarter and full-year 2014 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 wish to caution you that such statements are simply predictions, and actual events or results may differ materially, and the Company undertakes no obligation to update the information in such statements.

These statements are subject to substantial risks and uncertainties that could adversely affect our future results and cause these forward-looking statements to be inaccurate.

A more detailed discussion of the risk factors you should consider in evaluating Five9 and its prospects is 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 this non-GAAP information is useful because it can enhance the understanding of the Company's ongoing performance and Five9 therefore uses non-GAAP financial information internally to evaluate and manage the Company's operations.

This non-GAAP financial information should be considered along with and not as a replacement for financial information reported under GAAP.

The full reconciliation of the GAAP to non-GAAP financial data can be found in the Company's press release issued earlier this afternoon and available at five9.com.

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

Thank you, Lisa.

Welcome everyone to our fourth quarter and full-year 2014 earnings call.

We are extremely pleased to report results for the fourth quarter that were better than expected across all metrics and capped off a very strong year for Five9.

Total revenue for the fourth quarter was a record $28.3 million, up 20% year-over-year.

This strong revenue growth combined with continued gross margin improvements and diligent expense management resulted in a significant improvement to our bottom line.

We remain focused on investing at the appropriate levels to achieve solid topline growth while at the same time continuing our path to profitability, as evidenced by the fact that we narrowed our fourth quarter adjusted EBITDA loss by 620 basis points year-over-year.

I'd also like to add, we are confident that we will achieve further improvement this year as we continue on our path to profitability and cash flow breakeven and plan to do so without the need to further access capital market.

Throughout the year, we continued to build momentum by adding new enterprise clients and expanding deployments with existing enterprise clients.

This drove 28% growth in annual enterprise revenue in 2014.

As a reminder, this growth is entirely organic.

This success is a direct result of our ability to help our clients improve agent productivity, enhance customer satisfaction and reduce total cost of ownership and as evidenced by our strong win rates against key competitors.

We continue to penetrate the enterprise market as we deploy larger and larger customers.

Our strong implementation and support capabilities are proven to be key differentiators for Five9.

We have a comprehensive six-step implementation process, including onsite consultation, design, test, launch, training and optimization.

In addition, we offer premium support with dedicated personnel and ongoing training through our Five9 University.

In the fourth quarter, we implemented numerous 300-plus seat customers, driving a record number of seats into production during the quarter.

Another reason for our continued success in penetrating the enterprise market is our excellent stability and uptime performance.

Over the past few quarters, under new leadership in cloud operations, we have made tremendous progress in reliability, which has been driven by several initiatives, including increased monitoring, more efficient IT service management, more resilient software design and greater geographic (inaudible).

Our sales and marketing team continued to execute extremely well, driving the strongest fourth quarter bookings in the Company's history.

Now, let me share a few examples of recent enterprise wins and expansions.

The first is a new customer in the education space that provides student loan and education financing solutions.

The company implemented Five9 to improve efficiencies and optimize the customer experience, while maintaining strict compliance and data privacy.

Prior to Five9, they had an expensive outsourced speech-driven IVR system, front-ending their premise-based Avaya ACD.

They also had the requirement to ensure PCI compliance and data protection.

Five9 provided the customer with complete control over speech-driven IVR, skills-based routing, CTI through integration with Salesforce.com CRM, as well as full data encryption, secure storage and PCI compliance.

This is a great example of a customer turning to Five9 to handle their end-to-end contact center requirements and leverage our ability to integrate with various business applications.

The second example is an expansion of an existing customer relationship, a European-based security software company serving nearly 200 million customers worldwide.

They were looking to create one virtual contact center in the cloud for their 11 customer service centers, as well as their global sales teams.

Having already implemented Salesforce.com, it was natural for them to look to the cloud and Five9 for one fully integrated solution.

It began nine months ago by implementing Five9 for their Global Support Group and in the fourth quarter added over 200 Five9 seats for their SMB and consumer sales divisions.

This is a terrific example of the land and opportunity within many of our enterprise accounts.

Finally, I'd like to share an example of a technology company that provides cloud-based software for transportation applications.

The company is using Five9 for its inbound call processing.

Five9 WFM powered by NICE as well as integration to its Salesforce CRM solution.

The company had initially decided to upgrade their premise-based solution, but later realized that the time and expense required to integrate to both WFM and CRM would be unacceptable.

With our cloud-based solution, we provided both a pre-integrated WFM solution and out-of-the box integration with their CRM.

This customer was fully implemented on Five9 in a matter of weeks.

In 2014, we released several significant enhancements to our cloud platform that expand our ability to capture even more of the $22 billion global contact center market.

At a high level, these software releases added native mobile, social, chat and email applications to enable companies to engage with customers in the channel of their choice.

These applications are powered by Five9 Connect, our unique technology engine that filters, prioritizes, routes, and assigns text interactions to the appropriate agent, while providing tools to help agents resolve issues quickly and improve agent productivity.

We've also enhanced our supervisor reporting and dashboard capabilities and released a very popular iPad app for supervisors.

In addition, we deepened our integrations with leading CRM solutions such as Oracle, Salesforce and Zendesk, allowing us to complement and enhance their multi-channel strategies.

This is important given that roughly one-third of our enterprise bookings in 2014 were referred by CRM vendors and other key alliance partners.

In summary, we entered 2015 with a very optimistic view of our business and our market.

As more and more enterprises move their contact centers to the cloud, given our competitive advantages and our ability to outexecute our competition, we are confident that we will capture a large share of this growing market.

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

Thank you, Mike.

At the outset, I'd like to highlight again how pleased we are with the progress we made during 2014.

As Mike mentioned, our better-than-expected fourth quarter results were due to strong momentum in the enterprise market, continued improvement in gross margins and diligent expense control.

We are intensely focused on making sure that we invest at the appropriate level to achieve solid topline growth while at the same time continuing our path to EBITDA and cash flow breakeven.

And we plan to reach cash flow breakeven with ample liquidity in hand.

Turning now to our results, our revenue for the fourth quarter of 2014 was $28.3 million, up 20% from the fourth quarter of 2013.

The two main drivers for our larger-than-expected revenue growth were, first, faster-than-anticipated turnups by new enterprise clients; and second, our forecast of the fourth quarter seasonal uptick turned out to be conservative.

The key strength of our business model is that 97% of our revenue is recurring and that our recurring revenue enjoyed excellent dollar-based retention rates.

Specifically, our dollar-based retention rate for the period ended December 31, 2014, was 96%.

Please keep in mind that the dollar-based retention rate is a blended rate.

For the 61% of our revenue which comes from enterprise customers, where our rate is consistently above 100% and the 39% of our business that comes from SMB where as you would expect, it is below 100%.

As a reminder, before we move on to discuss gross margin, we calculate the dollar-based retention rate by taking average of the 12 months of year-upon-year net invoicing changes from clients in our installed base in the prior 12 months, similar to same-store sales.

Gross margin, adjusted to exclude all non-cash charges, namely depreciation, amortization and stock-based compensation, and an out-of-period adjustment, was 54.6% for the fourth quarter compared to 51.9% for the same period of 2013.

The gross margin came in higher than expected for two main reasons.

First, the inevitable impact of higher subscription revenues set against fixed and semi-fixed costs; and second, bigger-than-anticipated increase in usage gross margins, following the introduction of least-cost routing technology in the course of the fourth quarter.

It is important to point out that while the usage revenue generates gross margins below our description margins, usage revenue comes with very minor incremental operating expenses and therefore generates considerable bottom line leverage.

Our long-term model for gross margin remains in the 65% to 70% range although we will have a slight impact in the near term from incremental investments that we are making and from the January 1 reset of FICA and other federal and state contribution limits.

Please note that a reconciliation of our GAAP gross profit to adjusted gross profit as well as other reconciliations from GAAP to non-GAAP results is provided with our earnings press release and in our investor presentation on our website.

The investor presentation also provides details of the non-GAAP adjustments to operating expenses.

GAAP R&D expenses for the fourth quarter of 2014 were 21% of revenue or $5.8 million compared to 21% of revenue or $4.9 million a year ago.

The dollar-based increase was driven primarily by personnel-related cost as we invested to enhance our industry-leading platform.

GAAP sales and marketing expenses for the fourth quarter of 2014 were 33% of revenue or $9.5 million compared to 33% of revenue or $7.7 million a year ago.

Our sales and marketing expenses have increased on a dollar basis as we continue to scale our sales capacity and as we spend on lead generation, both of which are primarily aimed at the enterprise market opportunity.

GAAP general and administrative expenses for the fourth quarter of 2014 were 24% of revenue or $6.7 million compared to 25% of revenues or $6 million a year ago.

The increase in dollars versus the prior year was driven in part by the expenses associated with being a public company and the investments to improve our systems.

Adjusted EBITDA loss declined to $4.3 million for the fourth quarter of 2014 compared to a loss of $5.1 million for the fourth quarter of 2013.

Our adjusted EBITDA margin improved by 620 basis points from a loss of 21.6% of revenue last year to 15.3% this year.

This improvement came from both the year-over-year improvement in gross margins and from operating leverage.

GAAP net loss for the fourth quarter of 2014 was $9.4 million or $0.19 per share compared to a GAAP net loss of $8.6 million or $1.72 per share for the fourth quarter of 2013.

Non-GAAP net loss for the fourth quarter of 2014 was $6.8 million or $0.14 per share compared to a non-GAAP net loss of $6.9 million or $1.38 per share for the fourth quarter of 2013.

Before turning to our full-year performance, I'd like to note that our average concurrent seat count for the fourth quarter of 2014 grew to 46,686, a 19% increase from a year ago.

As a reminder, we are providing the seat count on an annual basis.

And now, for a closer look at 2014.

For the year ended December 31, 2014, revenue was $103.1 million, up 23% from the $84.1 million for the year ended December 31, 2013.

As Mike mentioned earlier, the driver for this increase was the 28% growth in our enterprise revenue in 2014, which is where we have been focusing our increased investments.

I would like to add that we are providing the enterprise growth rate at the end of the year on a once-a-year basis.

Gross margin, adjusted to exclude all non-cash charges and an out-of-period adjustment, was 52.7% for the year 2014 compared to 46.6% for the prior year.

Adjusted EBITDA loss for 2014 was $22.7 million compared to $22 million adjusted EBITDA for the loss in 2013.

GAAP net loss for the year ended December 31, 2014, was $37.8 million or $1.00 per share compared to a GAAP net loss of $31.3 million or $7.82 per share for the year ended December 31, 2013.

Non-GAAP net loss for the year ended December 31, 2014, was $32.3 million or $0.86 per share compared to $27.4 million or $6.84 per share for the year ended December 31, 2013.

Regarding our tax rate, we have a substantial NOL balance.

Taxes, which relate primarily to our foreign subsidiaries, were $85,000 for the year 2014.

As of December 31, 2014, our cash, cash equivalents, and short-term investments totaled $78.3 million.

Cash outflow from operations in the fourth quarter was $3.5 million, well below the outflow in the prior quarters.

While the fourth quarter is typically a good quarter for cash flow, with seasonally stronger sales, we are nonetheless very pleased with this outcome, given that it exceeded our expectations by several million dollars.

Our capital spending for the fourth quarter was $1.9 million, of which $1.4 million was financed via three-year capital leases and the remaining $0.5 million was paid for in cash.

For 2014 in total, capital spending came in at $6.9 million or 6.7% of revenue.

$5.9 million of the $6.9 million of 2014 capital spending was financed via capital leases and the remaining $1 million was paid for in cash.

Free cash outflow in the fourth quarter, defined as operating cash flow less capital spending, was $4.1 million.

If one also subtracts the $1.4 million in capital spending financed via capital leases, free cash outflow in the fourth quarter was $5.4 million.

As of December 31, 2014, our debt, made up of term notes and our revolver, totaled $38.4 million.

Our obligations on the capital leases as of December 31, 2014, was $9.3 million.

With respect to our revolver, please note that as announced in December, we renegotiated the terms as follows.

Increased the credit commitment by $7.5 million from $12.5 million to $20 million, extended the March 2015 maturity date to December 1, 2016, reduced the interest rate by 75 basis points to prime plus 50 points, and increased the required cash deposits by $2 million to $7.5 million.

Separately, we have agreed with [First REIT Capital] to extend the deadline for us to draw down the remaining $10 million in the term notes facility from February 2015 to February 2016.

In addition, please note, our debt is not subject to financial covenants and our term debt has extended maturities.

In particular, I'd like to emphasize that our principal obligations for the term debt are only $10.2 million through the fourth quarter of 2016.

I mentioned the fourth quarter of 2016 as a reference point and that is when we are modeling EBITDA to be at or close to breakeven.

We expect to achieve cash flow breakeven six to nine months later, and to do so, with ample cash to spare and without the need to further access capital market.

We maintained a strong DSO performance, with fourth quarter 2014 DSOs averaging 24 days compared to 26 days in the prior year.

I'd like to finish today's prepared remarks with a brief discussion of our expectations for the first quarter and full-year 2015.

For the first quarter, we expect revenue in the range of $28 million to $29 million.

GAAP net loss is expected to be in the range of $10.3 million to $11.3 million or $0.21 to $0.23 per share.

Non-GAAP net loss is expected to in the range of $7.8 million to $8.8 million or $0.16 to $0.18 per share.

For the full year, we expect revenue in the range of $117 million to $122 million.

GAAP net loss is expected to be in the range of $37.1 million to $40.1 million or $0.73 to $0.79 per share.

Non-GAAP net loss is expected to be in the range of $27.4 million to $30.4 million or $0.54 to $0.60 per share.

For modeling purposes, we'd like to provide the following additional information.

Our first quarter guidance includes the impact of higher costs and expenses related to hires we have made in the last few months and the annual restart of FICA and unemployment obligations.

For calculating EPS, we expect our shares to be 49.7 million for the current quarter and 51 million for the full year.

Our CapEx expected to total approximately $8 million to $9 million for 2015.

In summary, we have made significant progress last year and we are confident in our ability to continue to grow revenue and improve our bottom line results during 2015.

We continue to be relentless in taking a balanced approach to revenue growth and investment in the business and believe that our 28% enterprise revenue growth in 2014 validates our strategy.

Lastly, before we turn to your questions, I'd like to mention our upcoming conference participation.

We will be presenting at the 27th Annual Roth Conference in Laguna Niguel on March 9. The forthcoming will be issued with additional details on this event.

And now, we'd like to open the call for questions.

Operator, please go ahead.

Thank you.

(Operator Instructions) Sterling Auty, JPMorgan.

Hi, it's actually Darren Jue on for Sterling.

Appreciate all the commentary on the enterprise business.

Just wondering if you could maybe provide a little bit more color on how the SMB segment did in the quarter.

Yes, happy to do it, Darren; this is Mike.

We continue to grow our SMB business.

While it's a slower-growing business than our enterprise business, it continues to be a nice, healthy, consistent, steady machine underneath the faster-growing enterprise business.

So we are thrilled with the output on both sides.

Okay.

Could you also maybe talk about whether or not you're starting to get any benefits from the least-cost routing?

Yes, we are.

I'll let Barry speak to that in a little detail here.

Yes, absolutely.

One of the two drivers for the improvement in our gross margins and the expected future improvements in on the usage side; the other, of course, being the highest subscription revenue against the fixed and semi-fixed costs, and we're delighted with what's happening on the usage side.

We commenced the implementation of these cost riding in the course of the fourth quarter, and as I've mentioned in prior occasions, it's actually more value-based routing, which was introduced at the aspect of quality.

And through this, we've been able to get meaningful improvements in both margins and customer satisfaction.

Okay.

Thank you.

[Nikolay Beliov], Bank of America.

Hi.

Thank you for taking my question and a nice quarter.

I was just wondering about what trends the guidance embeds for enterprise versus SMB growth rates, international expansion and lastly retention rates?

If you can talk about, qualitatively about the trends and the puts and takes, that'd really helpful.

Thank you.

Yes, happy to take that, Nikolay.

Our guidance as you can see is you know -- and I'll remind everyone that our revenue growth is a blended growth rate between enterprise, which makes up about 60%, 61%, of our business today; and our SMB business, which makes up about 39% of our business.

So again, please keep that in mind when you look at our guidance going forward.

We continue to invest in sales capacity for the enterprise opportunity and clip of 30% to 40% year-over-year growth in sales capacity and our sales productivity has continued to be very consistent amongst that organization and that is a meaningful input if you're trying to model that the difference here.

And when you think about the SMB business, we've been increasing the sales capacity by about 10% on a year-over-year basis and that's also a very good reference point for modeling.

And then, is there any international revenues implied in the guidance?

As you know, we've built our first data center and are turning up first customer in Europe and we just did that recently and we will take an incremental approach in Europe in terms of growth to have a meaningful impact on our overall revenue will take time.

I can tell you the other strategic reason for our expansion into Europe was for our multinational customers that require a global footprint from us in terms of our data center presence and one of the examples I touched on earlier, the customer wins in the quarter was a customer that had that very requirement that got 11 service centers around the globe and it was important for them that we had a data center in Europe.

And then a question for Barry, so agent seats increased 19% last year whereas total revenues increased 23%.

I'm just wondering whether the difference was driven by maybe higher ASPs or maybe higher usage.

In fact, it's not higher usage and it has been a steady tailwind in terms of ASPs and pricing.

It has been somewhat firm and nothing dramatic.

And that is the main reason for the improvement.

And one last question, last year, you hit some seasonality around the BPOs in the healthcare vertical.

How shall we think about that for 2015?

Yes, very good question, [Nikolai].

We've done a complete bottoms-up analysis of all of our enterprise customers that have some seasonal aspect to their business.

So we do model that into our internal models for that to go forward into 2015.

But again, it's -- if you look at it from a big picture standpoint, we typically see Q3 and Q4 as seasonally strong, mainly driven by year-end activities in some of those industries.

Got it.

Thank you.

Richard Davis, Canaccord.

Hey, thanks.

A quick question, in terms of thinking about the operating leverage in the model, is it so we kind of think of it fairly evenly spread?

I mean you gave kind of 0 headline thoughts on gross margins, but then in terms of OpEx should it kind of evenly spread out there and then secondly are there any large customers' accounts kind of like what we saw last year with the Affordable Care Act in aggregate affecting the numbers that we should be aware of that could or might cause a motion in the numbers?

Thanks.

Richard, in terms of the first question, in terms of the operating leverage, so as you mentioned on the gross margin side, we're on a steady march to that 65% to 70%, maybe some headwinds in the first part of this current year due to the fact of the resets on the limits, etcetera.

With respect to the operating expenses, you'll see the biggest leverage unquestionably in G&A and we've started to demonstrate that already if you look at the dollar amounts on a non-GAAP basis, which is after all what we're talking about over here.

We've improved year-over-year by between 300 basis points and 400 basis points.

We also will get leverage in R&D.

You can see the dollar amounts there have also been relatively flat recently and we'll get some leverage but less in terms of the sales and marketing expenses as we invest there, primarily on the enterprise side and continue to get success.

On your second question on the seasonal impact, well, first of all, let's all hope that the complete [tectonic] shift in the plates that happened last year is not repeated this year again, and it doesn't appear to be all accounted.

It seems to be going very smoothly and we have taken quite a number of additional steps to make sure, as one can possibly be on this sort of thing that we've taken it into account, specifically our account managers have reached out to the key customers and got detailed bottoms-up forecast of major accounts and we feel very, very solid on the first part of the year.

Naturally, this early in the year, it's a little bit more difficult to look at the second half for our clients, let alone us.

And therefore, we've reflected upon prior seasonal patterns, obviously normalizing for the ACA and we've added a degree of conservatism into that process until we see what happens.

Got it.

Thank you.

(Operator Instructions) Raimo Lenschow, Barclays Capital.

Thanks for taking my question.

And quick one, first, Mike, you've been investing into kind of sales and marketing capacity but also into the marketing organization.

At some point, like in the past, we were thinking of like that should probably kind of lead you towards an acceleration of growth.

Can you just talk a little bit how you think about that at this point, especially if I look at the guidance 2015.

Is that kind of more second half 2015 and 2016 when these guys get productive and you should see that and then I had a couple of follow-up questions.

So, yes, we've been investing in sales and marketing capacity for enterprise in the 30% to 40% range; and over time, that will translate into revenue growth that lines up with that.

But I will tell you this, I mean we are striking a balance to invest in driving solid topline growth and making sure that we make significant progress on our path to profitability at the same time.

So we are taking a balanced view.

And as Barry said, we've got some conservatism built into the revenue guidance in the second half of the year based on seasonality and again it's our work directly with our installed base of customers to estimate that.

But again, given how far that as in the future, we felt it was best to be somewhat conservative on that.

So I hope that gives you some insight.

Perfect.

Hey, that's helpful.

And Barry, congratulations and thanks for giving us a lot more clarity on the cash and the debt situation.

Can you talk a little bit about the puts and takes there that kind of changed the equation for you, like you kind of looked quite far out?

What are the leaves that you were looking at to kind of over or underperform there on kind of coming towards that Q4 2016 and then a little bit later for EBITDA at breakeven and then a little bit later for cash?

Yes.

A very good question.

So Mike basically summarized it.

We got the message.

There's a balance between solid growth and profitability.

We were enormously encouraged by our performance, both on the income statement and the balance sheet in the fourth quarter.

We shouldn't have been quite that surprised because our model is such that we do have these fixed and semi-fixed costs which inevitably are going to generate higher cash profits and cash flows as the revenue rises.

And we've just been extremely mindful in all areas of the Company to do more with less.

Perfect.

That's really helpful.

Hey, thank you and congrats on a great quarter.

Thank you, Raimo.

Michael Huang, Needham & Company.

Thanks very much and good afternoon, guys.

A couple of questions for you.

First of all, was wondering if you could talk on, how much have you seen with respect to cross-sell opportunity given the fact you're able to roll out social mobile last year and kind of what are you trending there and then maybe as a follow-up to that from a product road map standpoint, what are some of the key initiatives for this year?

Good question.

So in terms of cross-sell, again, social mobile and native multi-channel being added to our product during 2014, those were significant milestones for us from a product development standpoint and we continue to see very, very good traction in the market from both our installed base, as well as new customers in the attach rates.

I will tell you this, it will take time for that to become a considerable part of our overall revenue, but we're seeing very, very good signs from a cross-sell, up-sell perspective.

In terms of product road map, we've got a machine here that's producing products and upgrades on a very, very regular cadence, which I'm really proud of.

Most of our innovation going forward is going to center around the customer experience, but really driven by the age and experience.

We're providing in our next release significant -- I would call it innovation around age and experience, not only in terms of the user interface but also the tools that we arm agents with within the contact centers so that they can have a great customer interaction.

And in the end of the day, that's what our enterprise customers want, that's what our mid-enterprise and even our SMB customers want us to drive a great customer experience.

Great.

Okay.

And then, with respect to the seat count, appreciated the update there on seat count of the year.

What is -- and I don't know if you have a general sense for what this is, like what is the penetration rates of your enterprise customers in terms of potential seat count?

I mean do you have a sense for what percentage of the potential seats that you guys are in right now?

We look at that anecdotally from time to time, Mike.

I can't give you an exact figure, but I can tell you, in many of our large enterprise accounts, we're 10% to 15% penetrated.

But you heard earlier about that example customer that added 200 seats in the quarter.

That's a perfect example of our land and expand opportunity in many of these large enterprise accounts.

Okay.

And then, final question, just with respect to competition, how often are you bumped up against the more cloud-focused guys like inContact and Interactive, who also both appear to be doing well and to the degree that you have some sense here, I mean are they doing well because that's the strength of secular trends here or what are you seeing out there?

Thanks.

Yes.

A great question, Mike.

So we continue to see, again the on-premise legacy guys, Avaya, Genesys, Cisco, more than anyone mainly because we're replacing them in these enterprise opportunities.

I'd say in roughly half the opportunities, we see the hybrid cloud competitors; and our win rates remain very, very strong against them namely our most often seen competitor, we had a win rate north of 60% this past quarter.

Great.

Thanks, guys.

(Operator Instructions).

And we have no further questions in the queue at this time.

(Operator Instructions).

Brendan Barnicle, Pacific Crest Securities.

Hey, thanks so much guys.

Barry, just following up on Richard Davis' question about where we could see the margin leverage, as we think about getting to that free cash flow breakeven point, maybe sometime in 2017, what at that point would you see percent of revenue from those areas, R&D, sales and marketing, and G&A looking like?

Yes, Brendan, it will be -- I don't want to go into the really specifics of each item in there.

There would be steady progress across each of the three areas, gross margin, R&D and G&A; and we haven't provided that level of interim modeling.

Okay.

And then, Mike, I appreciate the color on the competition that you were just sharing.

I was impressed with the ASP increases and I was curious about maybe a little more color on that pricing increase you guys were seeing.

Is that you think just reflective of the overall shift, more towards kind of cloud-based alternatives versus competitive win rate or is that just a reflection of that competition?

Yes, I think it's all of the above, Brendan.

And I can tell you that one data point that I think will probably be helpful for you guys is we did a quick analysis of the average deal size in our enterprise go-to-market efforts, 2013 to 2014; and I can tell you our average deal size as we continue to move upstream has grown significantly, up by about 25% to 30% on a year-over-year basis and our average enterprise win are customers that are going to generate about $350,000 in annual revenue for us.

Great.

That's helpful color.

Thanks, guys.

You got it.

Thanks, Brendan.

And we have no further questions in the queue at this time.

Well, thank you, operator.

I just want to thank everyone for joining us today.

In closing, I will just say that 2014 was a very, very strong year for Five9 across all metrics, highlighted by our enterprise revenue being up 28% for the full year and tremendous progress on adjusted EBITDA on our path to profitability.

I would also add that our Q4 finish to the year was significantly strong with 9% sequential growth in total revenue.

So we entered 2015 with a strong momentum and great optimism about the future and our business and our markets.

So, thank you again for joining us, everyone.

And that does conclude today's conference.

Thank you for your participation.