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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 001-36383
Five9, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware94-3394123
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
Bishop Ranch 8
4000 Executive Parkway, Suite 400
San Ramon, CA 94583
(Address of Principal Executive Offices) (Zip Code)
(925) 201-2000
(Registrant’s Telephone Number, Including Area Code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.001 per shareFIVNThe NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No:  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  No: 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated filer(Do not check if a smaller reporting Company)Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  Yes:  No: 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes:  No: 
As of July 30, 2020, there were 65,335,870 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.


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FIVE9, INC.
FORM 10-Q
TABLE OF CONTENTS

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which involve substantial risks and uncertainties. These statements reflect the current views of our senior management with respect to future events and our financial performance. These forward-looking statements include statements with respect to our business, expenses, strategies, losses, growth plans, product and client initiatives, market growth projections, and our industry. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.
Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. These factors include the information set forth in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Part II, Item 1A, of this Quarterly Report, which we encourage you to carefully read, and include the following:
the effects of the COVID-19 pandemic have materially affected how we, our clients and business partners are operating, and the duration and extent to which it will impact our future results of operations and overall financial performance remain uncertain;
adverse economic conditions may harm our business;
our quarterly and annual results may fluctuate significantly, including as a result of the timing and success of new product and feature introductions by us, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock;
if we are unable to attract new clients or sell additional services and functionality to our existing clients, our revenue and revenue growth will be harmed;
our recent rapid growth may not be indicative of our future growth, and even if we continue to grow rapidly, we may fail to manage our growth effectively;
failure to adequately retain and expand our sales force will impede our growth;
if we fail to manage our technical operations infrastructure, our existing clients may experience service outages, our new clients may experience delays in the deployment of our solution and we could be subject to, among other things, claims for credits or damages;
our growth depends in part on the success of our strategic relationships with third parties and our failure to successfully maintain, grow and manage these relationships could harm our business;
we have established, and are continuing to increase, our network of master agents and resellers to sell our solution; our failure to effectively develop, manage, and maintain this network could materially harm our revenues;
security breaches and improper access to or disclosure of our data or our clients’ data, or other cyber-attacks on our systems, could result in litigation and regulatory risk, harm our reputation and our business;
the markets in which we participate involve numerous competitors and are highly competitive, and if we do not compete effectively, our operating results could be harmed;
if our existing clients terminate their subscriptions or reduce their subscriptions and related usage, our revenues and gross margins will be harmed and we will be required to spend more money to grow our client base;
we sell our solution to larger organizations that require longer sales and implementation cycles and often demand more configuration and integration services or customized features and functions that we may not offer, any of which could delay or prevent these sales and harm our growth rates, business and operating results;
because a significant percentage of our revenue is derived from existing clients, downturns or upturns in new sales will not be immediately reflected in our operating results and may be difficult to discern;
we rely on third-party telecommunications and internet service providers to provide our clients and their customers with telecommunication services and connectivity to our cloud contact center software and any
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failure by these service providers to provide reliable services could cause us to lose clients and subject us to claims for credits or damages, among other things;
we have a history of losses and we may be unable to achieve or sustain profitability;
the contact center software solutions market is subject to rapid technological change, and we must develop and sell incremental and new products in order to maintain and grow our business;
we may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs;
we may acquire other companies or technologies or be the target of strategic transactions, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results;
failure to comply with laws and regulations could harm our business and our reputation; and
we may not have sufficient cash to service our convertible senior notes and repay such notes, if required.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may differ materially from what we anticipate. You should not place undue reliance on our forward-looking statements. Any forward-looking statements you read in this report reflect our views only as of the date of this report with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We undertake no obligation to update any forward-looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FIVE9, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, 2020December 31, 2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$233,235  $77,976  
Marketable investments452,708  241,973  
Accounts receivable, net39,607  37,655  
Prepaid expenses and other current assets17,529  10,656  
Deferred contract acquisition costs16,151  13,014  
Total current assets759,230  381,274  
Property and equipment, net39,799  33,190  
Operating lease right-of-use assets10,006  8,746  
Intangible assets, net25,605  15,533  
Goodwill34,444  11,798  
Marketable investments82,064    
Other assets2,789  1,184  
Deferred contract acquisition costs — less current portion39,366  30,655  
Total assets$993,303  $482,380  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$12,045  $10,156  
Accrued and other current liabilities34,817  18,385  
Operating lease liabilities5,247  5,064  
Accrued federal fees1,670  2,303  
Sales tax liabilities1,565  1,885  
Finance lease liabilities2,032  3,518  
Deferred revenue26,306  24,681  
Total current liabilities83,682  65,992  
Convertible senior notes642,203  209,604  
Sales tax liabilities — less current portion847  838  
Operating lease liabilities — less current portion5,249  4,329  
Finance lease liabilities — less current portion100  809  
Other long-term liabilities6,814  4,350  
Total liabilities738,895  285,922  
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock65  61  
Additional paid-in capital432,877  351,870  
Accumulated other comprehensive income 1,004  576  
Accumulated deficit(179,538) (156,049) 
Total stockholders’ equity254,408  196,458  
Total liabilities and stockholders’ equity$993,303  $482,380  
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except per share data)

Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Revenue$99,792  $77,436  $194,880  $151,974  
Cost of revenue42,453  31,248  82,490  62,099  
Gross profit57,339  46,188  112,390  89,875  
Operating expenses:
Research and development17,208  10,811  32,397  21,357  
Sales and marketing32,231  23,250  62,391  44,951  
General and administrative16,129  12,042  30,787  23,804  
Total operating expenses65,568  46,103  125,575  90,112  
Income (loss) from operations(8,229) 85  (13,185) (237) 
Other income (expense), net:
Interest expense(5,734) (3,406) (9,218) (6,802) 
Interest income and other(4,965) 1,490  (3,893) 3,235  
Total other income (expense), net(10,699) (1,916) (13,111) (3,567) 
Loss before income taxes(18,928) (1,831) (26,296) (3,804) 
Provision for (benefit from) income taxes(2,876) 29  (2,807) (20) 
Net loss$(16,052) $(1,860) $(23,489) $(3,784) 
Net loss per share:
Basic and diluted$(0.25) $(0.03) $(0.38) $(0.06) 
Shares used in computing net loss per share:
Basic and diluted63,282  60,058  62,494  59,714  
Comprehensive Loss:
Net loss$(16,052) $(1,860) $(23,489) $(3,784) 
Other comprehensive income (loss)(626) 65  428  239  
Comprehensive loss$(16,678) $(1,795) $(23,061) $(3,545) 
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of March 31, 201959,637  $60  $303,946  $81  $(153,421) $150,666  
Issuance of common stock upon exercise of stock options444  1  3,266  —  —  3,267  
Issuance of common stock upon vesting of restricted stock units429  —  —  —  —  —  
Issuance of common stock under ESPP109  —  3,996  —  —  3,996  
Stock-based compensation—  —  10,436  —  —  10,436  
Other comprehensive income—  —  —  65  —  65  
Net loss—  —  —  —  (1,860) $(1,860) 
Balance as of June 30, 201960,619  $61  $321,644  $146  $(155,281) $166,570  
Balance as of March 31, 202061,992  $62  $368,260  $1,630  $(163,486) $206,466  
Equity component of issuance of the 2025 convertible senior notes, net of issuance costs—  —  154,363  —  —  154,363  
Purchase of capped calls related to the 2025 convertible senior notes—  —  (90,448) —  —  (90,448) 
Equity component from conversion of the 2023 convertible senior notes—  —  (293,809) —  —  (293,809) 
Issuance of common stock upon partial conversion of the 2023 convertible senior notes2,724  3  268,570  —  —  268,573  
Issuance of common stock upon exercise of stock options161  —  3,484  —  —  3,484  
Issuance of common stock upon vesting of restricted stock units316  —  —  —  —  —  
Issuance of common stock under ESPP103  —  5,666  —  —  5,666  
Stock-based compensation—  —  16,791  —  —  16,791  
Other comprehensive loss—  —  —  (626) —  (626) 
Net loss—  —  —  —  (16,052) (16,052) 
Balance as of June 30, 202065,296  $65  $432,877  $1,004  $(179,538) $254,408  
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
Common StockAdditional Paid-In CapitalAccumulated
Other Comprehensive Income (Loss)
Accumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance as of December 31, 201859,210  $59  $294,279  $(93) $(151,497) $142,748  
Issuance of common stock upon exercise of stock options660  2  4,247  —  —  4,249  
Issuance of common stock upon vesting of restricted stock units640  —  —  —  —  —  
Issuance of common stock under ESPP109  —  3,996  —  —  3,996  
Stock-based compensation—  —  19,122  —  —  19,122  
Other comprehensive income—  —  —  239  —  239  
Net loss—  —  —  —  (3,784) $(3,784) 
Balance as of June 30, 201960,619  $61  $321,644  $146  $(155,281) $166,570  
Balance as of December 31, 201961,544  $61  $351,870  $576  $(156,049) $196,458  
Equity component of issuance of the 2025 convertible senior notes, net of issuance costs—  —  154,363  —  —  154,363  
Purchase of capped calls related to the 2025 convertible senior notes—  —  (90,448) —  —  (90,448) 
Equity component from conversion of the 2023 convertible senior notes—  —  (293,809) —  —  (293,809) 
Issuance of common stock upon partial conversion of the 2023 convertible senior notes2,724  3  268,570  —  —  268,573  
Issuance of common stock upon exercise of stock options321  —  6,080  —  —  6,080  
Issuance of common stock upon vesting of restricted stock units604  1  —  —  —  1  
Issuance of common stock under ESPP103  —  5,666  —  —  5,666  
Stock-based compensation—  —  30,585  —  —  30,585  
Other comprehensive income—  —  —  428  —  428  
Net loss—  —  —  —  (23,489) (23,489) 
Balance as of June 30, 202065,296  $65  $432,877  $1,004  $(179,538) $254,408  
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30, 2020June 30, 2019
Cash flows from operating activities:
Net loss$(23,489) $(3,784) 
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization11,213  6,553  
Amortization of operating lease right-of-use assets2,786  2,147  
Amortization of premium on marketable investments630  (883) 
Provision for doubtful accounts353  30  
Stock-based compensation30,585  19,122  
Gain on sale of convertible note held for investment  (217) 
Amortization of discount and issuance costs on convertible senior notes8,571  6,234  
Loss on early extinguishment of debt5,794    
Tax benefit of valuation allowance associated with an acquisition(2,910)   
Others82  (23) 
Changes in operating assets and liabilities:
Accounts receivable(2,119) (3,378) 
Prepaid expenses and other current assets(7,065) (4,053) 
Deferred contract acquisition costs(11,848) (5,488) 
Other assets(1,604) (12,571) 
Accounts payable2,553  159  
Accrued and other current liabilities9,561  6,516  
Accrued federal fees and sales tax liability(945) (337) 
Deferred revenue3,292  2,539  
Other liabilities(281) 5,412  
Net cash provided by operating activities25,159  17,978  
Cash flows from investing activities:
Purchases of marketable investments(460,899) (151,308) 
Proceeds from maturities of marketable investments167,850  165,354  
Purchases of property and equipment(14,891) (8,226) 
Cash paid to acquire Virtual Observer(28,313)   
Cash paid to acquire substantially all of the assets of Whendu LLC (100)   
Proceeds from sale of convertible note held for investment  217  
Net cash (used in) provided by investing activities(336,353) 6,037  
Cash flows from financing activities:
Proceeds from issuance of 2025 convertible senior notes, net of issuance costs 728,812    
Payments for capped call transactions related to the 2025 convertible senior notes(90,448)   
Repurchase of a portion of 2023 convertible senior notes, net of costs(181,462)   
Proceeds from exercise of common stock options6,080  4,248  
Proceeds from sale of common stock under ESPP5,666  3,996  
Payments of finance leases(2,195) (3,702) 
Net cash provided by financing activities466,453  4,542  
Net increase in cash and cash equivalents155,259  28,557  
Cash and cash equivalents:
Beginning of period77,976  81,912  
End of period$233,235  $110,469  
Supplemental disclosures of cash flow data:
Cash paid for interest$305  $590  
Cash paid for income taxes$141  $153  
Non-cash investing and financing activities:
Equipment purchased and unpaid at period-end$2,838  $1,602  
Capitalization of leasehold improvement through non-cash lease incentive$  $42  
Acquisition and related transaction costs accrued at period-end$3,700  $  
See accompanying notes to the unaudited condensed consolidated financial statements.
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FIVE9, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Five9, Inc. and its wholly-owned subsidiaries (the “Company”) is a provider of cloud software for contact centers. The Company was incorporated in Delaware in 2001 and is headquartered in San Ramon, California. The Company has offices in Europe and Asia, which primarily provide research, development, sales, marketing, and client support services.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. All intercompany transactions and balances have been eliminated in consolidation.
Certain prior period amounts included in the condensed consolidated financial statements have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates made by management affect revenue and related reserves. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses. The Company adopted ASU 2016-13 using the modified retrospective method on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial position, operating results or cash flows. See Notes 3 and 4 for further information on the impact of this adoption.
Recent Accounting Pronouncements Not Yet Effective
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which amends its guidance to simplify the accounting for income taxes by, among other provisions, removing exceptions to certain general principles in Topic 740, Income Taxes. The standard will be effective for the Company beginning in the first quarter of 2021, with early adoption permitted.
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The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.
The Company has reviewed or is in the process of evaluating all other issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such accounting pronouncements will cause a material impact on its consolidated financial position, operating results or cash flows.
2. Revenue
Contract Balances
The following table provides information about accounts receivable, net, deferred contract acquisition costs, contract assets and contract liabilities from contracts with customers (in thousands):
June 30, 2020December 31, 2019
Accounts receivable, net$39,607  $37,655  
Deferred contract acquisition costs:
Current$16,151  $13,014  
Non-current39,366  30,655  
Total deferred contract acquisition costs$55,517  $43,669  
Contract assets and contract liabilities:
Contract assets (included in prepaid expenses and other current assets)$771  $825  
Contract liabilities (deferred revenue) 26,306  24,681  
Contract liabilities (deferred revenue) (included in other long-term liabilities)3,701  1,550  
Net contract liabilities$(29,236) $(25,406) 
The Company receives payments from customers based upon billing cycles. Invoice payment terms are usually 30 days or less. Accounts receivable are recorded when the right to consideration becomes unconditional.
Deferred contract acquisition costs are recorded when incurred and are amortized over a customer benefit period of five years.
The Company’s contract assets consist of unbilled amounts typically resulting from professional services revenue recognition when it exceeds the total amounts billed to the customer. The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized.
In the three and six months ended June 30, 2020, the Company recognized revenue of $4.0 million and $20.0 million, respectively, related to its contract liabilities at December 31, 2019.
Remaining Performance Obligations
As of June 30, 2020, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $242.0 million. The Company expects to recognize revenue on approximately four-fifths of the remaining performance obligation over the next 24 months, with the balance recognized thereafter. The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606.

3.