Five9, Inc. (NASDAQ:FIVN) shares fell about 21% Friday despite a third-quarter earnings beat, as the company lowered its full-year adjusted EPS outlook and issued fourth-quarter earnings guidance below analyst estimates.
Five9 reported adjusted EPS of 82 cents, beating the 80-cent estimate, while revenue rose 13% year over year to $323.3 million, topping the $319.1 million estimate. Subscription revenue increased 16%.
Margins Narrow as EBITDA Rises
Diluted EPS was 19 cents, compared with 21 cents a year earlier. GAAP net income fell to $14.5 million from $18.0 million, while non-GAAP net income increased to $63.7 million from $60.6 million.
GAAP gross margin declined to 53.4% from 55.0%, while adjusted gross margin fell to 61.7% from 62.8%. Adjusted EBITDA rose to $81.2 million from $71.7 million, with margin unchanged at 25.1%.
Operating cash flow was $58.4 million, compared with $59.2 million.
CEO Amit Mathradas said, “Q3 was another solid quarter, highlighted by accelerating subscription revenue growth, with AI revenue growth stepping up significantly.”
Five9 said AI revenue grew 91% year over year to about $45 million, representing 17% of subscription revenue. The company also raised its full-year 2026 AI revenue growth expectation to at least 75% from at least 60%.
Five9’s trailing-12-month subscription dollar-based retention rate was 109%, while subscription and telecom retention was 107%.
Level AI Opens a New Route Into Enterprises
Five9 agreed to acquire Level AI for about $325 million in cash, funded from its balance sheet. Level AI handles more than 1 billion customer interactions annually.
The companies have worked together since 2022, and the transaction is expected to close in the fourth quarter of 2026, subject to closing conditions.
On the earnings call, Mathradas said Level AI will allow Five9 to sell standalone AI products to enterprises using other cloud and on-premise contact-center platforms.
“Standalone AI is an attractive business in its own right, whether or not those customers eventually adopt Five9 CCaaS,” Mathradas said.
He also pointed to integration between AI and human agents as a differentiator. “The handoff works when AI and the contact center are tightly connected, and it breaks when they are not,” he said.
Mathradas said Five9 will maintain an open partner ecosystem despite adding Level AI’s products.
Five9 ended the quarter with $263.8 million in cash and cash equivalents and $433.8 million in marketable investments. Convertible senior notes totaled $738.2 million.
Revenue Outlook Rises, Adjusted EPS View Falls
For 2026, Five9 raised GAAP EPS guidance to 75 cents-83 cents from 71 cents-82 cents, versus an 80-cent estimate. It lowered adjusted EPS guidance to $3.17-$3.21 from $3.22-$3.30, versus $3.25.
Five9 raised its revenue outlook from $1.260 billion-$1.272 billion to $1.269 billion-$1.275 billion, versus a $1.268 billion estimate.
For the fourth quarter, Five9 expects adjusted EPS of 88 cents-92 cents versus 99 cents, GAAP EPS of 28 cents-36 cents versus 38 cents, and revenue of $328 million-$334 million versus $330.8 million.
The outlook excludes Level AI contributions.
CFO Bryan Lee cautioned that recent growth could create tougher comparisons in 2027, saying, “While we acknowledge that these strong ramps will create difficult year over year growth comparisons for 2027, we do feel good about the near term trajectory.”
FIVN Price Action: Five9 shares were down 21.09% at $26.94 at the time of publication Friday, according to Benzinga Pro data.
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