What changed in this filing

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Item 1. Business

2021-03-01 compared with 2020-02-27 · 133 added, 232 removed, 203 unchanged (64% of the section changed)

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Our purpose-built, highly scalable and secure Virtual Contact Center, or VCC, cloud platform delivers a comprehensive suite of easy-to-use applications that enable the breadth of contact center-related customer service, sales and marketing functions.

We have become an established leader in the cloud contact center market, facilitating more than six billion call minutes between our more than 2,000 clients and their customers per year.

We have become an established leader in the cloud contact center market, facilitating more than seven billion call minutes between our more than 2,000 clients and their customers per year.

We believe our ability to combine software and telephony into a single unified platform that is delivered in the cloud creates a significant advantage.

We believe adoption of cloud contact center software solutions is increasing rapidly as a result of several distinct trends.

We believe there are two key industry trends driving growth in the cloud contact center market.

First is the rapid increase in adoption of cloud contact center software solutions as a result of several distinct factors.

The increasing adoption of cloud computing, especially within customer relationship management, or CRM, is creating strong demand for integrated cloud contact center software solutions.

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These systems are also often inflexible, complex, and require significant duplication of effort and integration across multiple sites.

This creates substantial challenges for clients with on-premise contact center systems to implement new features or upgrades, or to integrate with adjacent cloud solutions.

As a result, cloud contact center software solutions are replacing legacy on-premise contact center systems.

Our solution, which is comprised of our VCC cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our application programming interfaces, or APIs.

In addition, the COVID-19 pandemic has increased the prevalence of agents working remotely which presents a challenge to premise-based systems that, by design, are focused on a particular physical location.

This creates substantial challenges for clients with on-premise contact center systems.

As a result, cloud contact center software solutions are continuing to replace legacy on-premise contact center systems.

Second is digital transformation.

Consumers have the ability to easily and quickly switch brands after experiencing poor customer service.

Therefore, it is more critical than ever to provide the tools and technologies to meet consumer demands for a seamless experience across digital channels of their choice.

Cloud contact center software solutions provide organizations with the agility to adapt to a rapidly evolving environment and innovative functionalities to reimagine the way they engage with customers.

Additionally, with the advent of real-time, accurate and increasingly economical automatic speech recognition and natural language processing, or NLP, previously analog voice conversations with consumers can now be digitized.

This newly-digitized data along with text channels such as WhatsApp, SMS, chat and social are increasingly allowing mundane contact center tasks to be handled economically and efficiently by virtual agents and making live agents more efficient.

Our solution, comprised of our VCC cloud platform and various associated applications such as Workforce Optimization, or WFO, Workforce Automation, or WFA, and interactive virtual agent, or IVA, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through our application programming interfaces, or APIs.

Our VCC cloud platform matches each customer interaction with an appropriate agent resource and delivers relevant customer data to the agent in real-time through integrations with adjacent enterprise applications, such as CRM software, to optimize the customer experience and improve agent productivity.

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Delivered on-demand, our solution enables our clients to quickly deploy agent seats in any geographic location with only a computer, headset and broadband internet connection, and rapidly adjust the number of contact center agent seats in response to changing business requirements.

Unlike legacy on-premise contact center systems, our solution requires minimal up-front investment, can be rapidly deployed and is maintained by us in the cloud.

Unlike legacy on-premise contact center systems, our solution requires minimal up-front investment, can be rapidly deployed and are maintained by us in the cloud.

Our sales model consists of a field sales team that sells our solution into larger opportunities and a telesales team that sells our solution into smaller opportunities.

We have developed a proven, high velocity, metrics-driven sales and marketing strategy, which is designed to effectively identify, qualify and close sales opportunities.

We have developed a proven, high velocity, metrics-driven sales and marketing strategy, designed to effectively identify, qualify and close sales opportunities.

To complement this go-to-market strategy, we have developed a large ecosystem of technology and system integrator partners and independent software vendors to help increase awareness of our solution in the market and drive additional sales opportunities with new and existing clients.

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For the years ended December 31, 2020, 2019 and 2018, our revenues were $434.9 million, $328.0 million and $257.7 million, respectively, representing year-over-year growth of 33% and 27%, respectively.

We incurred net losses of $4.6 million, $0.2 million and $9.0 million for

the years ended December 31, 2019, 2018 and 2017, respectively, as a result of increased investment in our growth.

We incurred net losses of $42.1 million, $4.6 million and $0.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, as a result of increased investment in our growth, along with higher stock-based compensation and interest expense.

As of December 31, 2020, 2019 and 2018, our total assets were $1,063.7 million, $482.4 million and $394.7 million, respectively.

Our recurring revenue model combined with our Annual Dollar-Based Retention Rate, which was 105% as of December 31, 2019, have enhanced our ability to forecast our financial performance and plan future investments.

Our recurring revenue model combined with our Annual Dollar-Based Retention Rate, which was 110% under our prior calculation based on Net Invoicing and 117% under our new calculation based on Net Revenue, both as of December 31, 2020, have enhanced our ability to forecast our financial performance and plan future investments.

For a description of how our Annual Dollar-Based Retention Rate is calculated, please refer to ITEM 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

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Risk Factors.”

Industry Overview

Contact centers must evolve in today’s rapidly changing technology environment

Contact centers are vital hubs of interaction between organizations and their customers and are mission critical to the successful execution of customer service, sales and marketing strategies.

Both consumer and enterprise technology trends are driving an evolution in contact center strategies.

Today, customers increasingly expect seamless communications across multiple channels, including voice, chat, email, web, social media and mobile, thereby increasing the number of touch points between organizations and their customers.

Along with these additional channels, customers expect personalized interactions to enhance overall customer service.

Delivering customer interactions to an appropriate agent resource, while delivering relevant customer data to the agent in real-time, is crucial in providing effective customer service.

As the needs of organizations and their customers have become more sophisticated, so have the demands for contact centers.

Striving for greater efficiency in meeting demand, the use of remote agents and geographically dispersed contact centers has proliferated.

To increase capacity and undertake upgrades, on-premise contact centers must unify geographically dispersed agents and hardware, which requires building out teams and facilities to forecasted future capacity and is a long-term undertaking.

In order to meet these changing demands, contact centers must upgrade their existing on-premise contact center systems or migrate their contact center operations to the cloud.

Legacy on-premise contact center systems are inefficient

The majority of contact center operations today rely on legacy on-premise contact center systems that include business workflows, as well as hardware and software architectures designed more than a decade ago.

Legacy on-premise contact center systems are typically developed for location-specific deployments and are often costly, inflexible, complex and require significant duplication of effort and integration across multiple sites.

Key shortcomings of these legacy systems include:

• Long and complex implementation and upgrade cycles.

Implementation of legacy on-premise contact center systems requires long deployment timelines and complex integrations with other enterprise systems.

Once these systems have been deployed, integrated and customized, upgrades and modifications can be extremely challenging.

Due to these customized solutions and complex integrations, clients will often forego or postpone upgrades for fear of disabling key functionality.

If they do choose to upgrade, clients are often required to rebuild integrations in order to retain full functionality, which frequently results in significant expenditures of time, resources and capital.

• Inflexible resource deployment.

As organizations expand globally, they require the ability to easily manage remote agents and quickly adjust agent seats to accommodate peak call volumes.

Most legacy on-premise contact center systems do not provide these capabilities and, as a result, their clients are typically unable to quickly scale their contact center operations in response to changing business needs.

This often results in costly over-building of additional capacity to accommodate peak volumes.

• Duplicative technology stacks across multiple sites.

Organizations must integrate multiple contact center sites to drive efficiency and create a unified customer view.

Organizations running on-premise systems often find themselves with dissimilar systems at each site resulting in non-integrated and inefficient silos of technology.

Moreover, technology at each site is in a constant state of change over time.

The initial and ongoing integration of these contact center sites for such organizations requires significant ongoing investment.

Our Opportunity

We believe the market for contact center solutions is undergoing a significant shift to the cloud driven primarily by:

• adoption of cloud CRM solutions;

• sophistication of cloud contact center software solutions;

• technology refresh of on-premise contact center systems;

• simplicity of the cloud vs.

complexity of legacy on-premise.

Adoption of cloud CRM solutions has grown as organizations seek to enhance their sales strategies, increase business agility and reduce costs.

CRM solutions typically integrate deeply with contact center solutions to provide agents with real-time access to customer information.

The shift to cloud CRM and ease of integration are creating significant demand for integrated cloud contact center software solutions.

As the market opportunity has expanded, cloud contact center software solutions have evolved to meet the requirements of large, complex enterprise contact centers.

We believe organizations have typically refreshed their on-premise contact center systems every eight to 10 years.

Given the prevalence of cloud CRM and the capabilities of cloud-based contact centers, cloud solutions are increasingly considered as a replacement alternative to legacy on-premise contact center systems during these refresh decisions.

We deliver a comprehensive, end-to-end cloud software solution for contact centers.

We deliver comprehensive, end-to-end cloud software solution for contact centers.

Our solution enables organizations of all sizes to enhance customer experience through voice as well as digital engagement channels, improve customer service, retain loyal customers, proactively learn about their needs rather than be reactive only when they call with an issue, increase sales performance and improve the efficiency and cost of their operations.

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We provide high voice quality at low costs with our Agent Connect service and our call-by-call carrier optimization routing.

With our Artificial Intelligence, or AI, enablement layer, combined with our robust Natural Language Processing, or NLP, we can determine customer sentiment, reason for contact and recommend the next best action, augmenting their agents capabilities and thereby enabling enterprises to transform their customers’ experience from reactive interactions into trusted, proactive engagements.

Our complete end-to-end capabilities include computer-telephony integration, or CTI, interactive voice response, or IVR, visual IVR, automatic contact distribution, or ACD, with skills-based routing, reporting, dashboards, agent and supervisor desktop, dialer, mobile applications for contact center and customer, pre-built CRM integrations, quality management, speech and desktop analytics, customer surveys and workforce management.

Through our acquisition of substantially all of the assets of Whendu LLC, or Whendu, we now provide a “no-code, visual application layer” that allows enterprises to carry forward their custom workflows and accelerates the adoption of the cloud from on-premise contact center systems.

Our cloud contact center solution, which we refer to as our solution, provides the following key elements:

With our Artificial Intelligence, or AI, enablement layer, combined with our robust NLP we can determine customer sentiment, reason for contact and recommend the next best action, augmenting their agents capabilities and thereby enabling enterprises to transform their customers’ experience from reactive interactions into trusted, proactive engagements.

Our complete end-to-end capabilities include computer-telephony integration, or CTI, IVA, interactive voice response, or IVR, visual IVR, low-no-code workflow automation, automatic contact distribution, or ACD, with skills-based routing, reporting, dashboards, agent and supervisor desktop, dialer, mobile applications for contact center and customer, pre-built CRM integrations, quality management, speech and desktop analytics, customer surveys and workforce management.

Our cloud contact center solution, which we refer to as our solution, provide the following key elements:

• Rapid implementation, seamless updates and pre-built integrations.

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Our solution gives agents the ability to switch between media channels through an easy-to-use, unified interface that provides agents with all of the relevant content and tools needed to complete the task at hand.

Furthermore, our AI enabled automation features enable agent efficiency and other cost reductions, including by utilization of NLP.

• Improved customer experience.

Our intelligent contact routing and self-service IVR capabilities, pre-built CRM integrations, and multichannel engagement ensure that customers receive an omnichannel experience.

Our intelligent contact routing and self-service IVA and IVR capabilities, pre-built CRM integrations, and multichannel engagement ensure that customers receive an omnichannel experience.

Each new contact is quickly routed to an appropriate agent resource.

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• Cloud-based, enterprise-grade platform and end-to-end application suite.

We deliver a cloud-based enterprise-grade platform and applications suite with multi-channel capabilities that allows our clients to manage their entire contact center operation.

We deliver a cloud-based enterprise-grade platform and applications suite with multi-channel capabilities that allows our clients to

manage their entire contact center operation.

Our highly scalable, secure and multi-tenant architecture enables us to serve large, distributed enterprises with complex contact center requirements, as well as smaller organizations, all from a single cloud platform.

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salesforce.com, Inc., or Salesforce, Oracle Corporation, or Oracle, Zendesk, Inc., or Zendesk, Microsoft Corporation, or Microsoft, ServiceNow, Inc., or ServiceNow, and others.

Once operational, we offer a high touch premium support service where we assign a technical account manager who has intimate knowledge of the customers’ operations so we can quickly resolve issues

and fine tune the solution.

We also offer integrations into UC partners such as Zoom Video Communications, or Zoom , Microsoft Teams, RingCentral, Fuze and others.

We combined these comprehensive integrations with out-of-the-box application adapters that allow our customers to easily build workflow integrations without the need for dedicated developers.

Once operational, we offer a high touch premium support service where we assign a technical account manager who has intimate knowledge of the customers’ operations so we can quickly resolve issues and fine tune the solution.

As a result, our clients’ contact centers become fully operational faster and they recognize time to value more quickly than with legacy on-premise contact center systems.

Following our acquisition of Whendu, we now are able to combine these comprehensive integrations with over 50 out-of-the-box application adapters that allow our customers to build workflow integrations easily without the need for dedicated developers.

• Reliable, secure, compliant and scalable platform.

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scalability to accommodate the requirements of larger clients;

and legal and regulatory compliance features designed to assist our clients in complying with applicable laws, regulations and industry standards including Telephone Consumer Protection Act, or TCPA, Customer Proprietary Network Information, or CPNI, Health Insurance Portability and Accountability Act of 1996, Communications Assistance for Law Enforcement Act, or CALEA, Gramm-Leach-Bliley Act, various privacy laws including the California Consumer Privacy Act, or CCPA, EU’s General Data Protection Regulation, or GDPR, Canada’s Personal Information Protection and Electronic Documents Act, or PIPEDA, and analogous provincial laws, and the Payment Card Industry Data Security Standard, or PCI DSS.

and legal and regulatory compliance features designed to assist our clients in complying with applicable laws, regulations and industry standards.

• Proven, repeatable and scalable go-to-market model.

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The deep domain expertise of our field sales team is instrumental in selling to larger opportunities, and our highly efficient telesales model enables us to cost-effectively identify, qualify and close a high volume of smaller opportunities.

Our ecosystem of technology and system integrator partners increases awareness of our solution and helps generate new sales opportunities.

Our ecosystem of technology, system integrator and channel partners increases awareness of our solution and helps generate new sales opportunities.

We believe our go-to-market model gives us an efficient and effective means of targeting organizations of all sizes.

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We have cultivated a robust ecosystem of partners including a variety of leading CRM software vendors such as Salesforce, Oracle, Zendesk, Microsoft and ServiceNow;

Workforce Optimization, or WFO, vendors such as Calabrio, Inc., or Calabrio, Verint Systems Inc., or Verint, and Coordinated Systems, Inc., or CSI (rebranded as Virtual Observer);

unified communications vendors such as Microsoft Teams (formerly Skype for Business), Fuze, Zoom Video Communications;

system integrators such as Accenture PLC, Deloitte Consulting LLP and PwC LLP;

master agents and value-added resellers;

WFO vendors such as Verint Systems Inc., or Verint, and Calabrio, Inc., or Calabrio;

unified communications vendors such as Zoom, Microsoft Teams, and Fuze;

system integrators such as Accenture PLC, Deloitte Consulting LLP, IBM, PwC LLP and Slalom Consulting, LLC;

master agents and value-added resellers such as AT&T Inc.

and CDW Corporation;

independent software vendors;

and telephony providers such as AT&T Inc., Verizon Communications Inc.

and CenturyLink Communications, LLC.

and telephony providers globally.

We believe this ecosystem has enabled us to increase our brand awareness and enhance the functionality and value of our solution for our clients.

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Contact centers are a rich source of this data, from call detail records to full recordings of calls and customer interactions.

With recent advances in automatic speech recognition, voice recordings have the potential to quickly become a source for training machine-learning models.

We believe that AI is likely to have a profound impact in how businesses deliver service to their customers.

Our Growth Strategy

Our objective is to strengthen our position as a leader in cloud contact center software.

To accomplish this goal, we are pursuing the following growth strategies:

• Capture increased market share .

We believe that the adoption of cloud contact center software solutions is increasingly driven by mainstream adoption of cloud computing, especially within CRM and unified communications, as well as the increasing capabilities of these solutions.

With organizations refreshing their

on-premise contact center systems every eight to 10 years, cloud solutions have an opportunity to replace legacy on-premise contact center systems at the time a replacement decision is made.

We believe there is a substantial opportunity for us to win new clients and increase our market share given the strength and client benefits of our cloud solution.

We intend to continue to invest aggressively in our sales force and marketing capabilities to win new clients.

• Continue to increase sales in our existing client base .

Many of our clients initially deploy our solution to support only a portion of their contact center agents.

We intend to increase the number of agents using our solution within our existing clients as they experience the benefits of our cloud solution.

We also intend to sell our existing clients incremental applications to increase our revenue and the value of our existing client relationships.

• Maintain our innovation leadership by strengthening and extending our solution .

We have an innovative platform that has enabled us to establish a leadership position in the cloud contact center software market.

To preserve and expand our leadership position, we intend to continue to make significant investments in research and development to strengthen our existing solution and develop additional industry-leading contact center features and applications.

Facilitated by our AI-enablement layer, we plan to provide our customers with innovative AI-powered applications and use-cases, including conversational virtual agents, agent assistance, business insights and AI-powered routing.

We are designing our AI products to improve customer experiences and operational effectiveness while potentially realizing significant cost savings for our clients.

• Access to Data.

As AI becomes increasingly important in the contact center market, access to data will become a key differentiator among vendors.

Leading vendors processing a high number of customer interactions will have more data that can be applied to necessary training of machine learning algorithms, which creates a positive reinforcement cycle that we believe will enable customer contact solutions to be more effective.

• Further develop our partner ecosystem .

We have established strong partner relationships with organizations in the contact center ecosystem to further enhance the value of our VCC cloud platform.

We intend to continue to cultivate new relationships with additional CRM, WFO and unified communications partners as well as system integrators, master agents, resellers, PBX providers, phone systems vendors, independent software vendors and telephony providers to enhance the value of our solution and drive sales.

• Expand internationally .

To date, our primary focus has been on the U.S.

market, which represented 92%, 93% and 94% of our revenue in 2019, 2018 and 2017, respectively, based on bill to addresses.

We believe there is a significant opportunity for our cloud solution to disrupt incumbent legacy on-premise contact center systems internationally.

We plan to increase our sales capabilities internationally by expanding our direct sales force and working with channel partners to target these markets and grow our international client base.

We have co-location data center facilities in Europe to provide clients in certain countries of the European Union, or EU, with regional access to our cloud contact center solution to better serve local needs.

• Selectively pursue acquisitions .

In addition to organically developing and strengthening our solution, we intend to continue to selectively explore acquisition opportunities of companies and technologies to expand the functionality of our solution, provide access to new clients or markets, or both.

We completed acquisition of Whendu in the fourth quarter of 2019 and expect to close acquisition of CSI in the second quarter of 2020.

Our Virtual Contact Center Cloud Platform and Applications

Our cloud contact center software solution consists of our highly scalable VCC cloud platform that delivers a comprehensive suite of easy-to-use, secure applications to cover the breadth of contact center-related customer service, sales and marketing functions.

Our VCC cloud platform acts as the hub for digital engagement channels between our clients and their customers.

This enables clients to fully manage the end-to-end customer experience in a single unified architecture.

Our solution enables our clients to manage customer interactions across multiple channels including voice, chat, email, web, video, social media and mobile and connects them to the most appropriate agent.

Whether the resource is an internal contact center agent, an outsourcer, an agent working from home, a knowledge worker or self-service, our solution enables our clients to deliver a highly effective customer experience.

Our solution is built using a multi-tenant architecture and delivered in the cloud.

The following diagram illustrates our “API-First” Architecture as well as the VCC cloud platform and comprehensive suite of applications used by agents, supervisors and administrators.

In addition, we provide a robust set of management applications including workforce management, reporting, quality management and supervisor tools.

Overall View of Five9 Platform and Customer and Agent Facing Components that Connect With It

Inbound Contact Center :

Our VCC cloud platform provides organizations of all sizes with everything they need to handle their inbound customer engagement.

This includes the ability to take voice calls, respond to chats and emails, and engage with a wide range of social media sources.

Our platform includes a full-featured IVR system that allows our clients to provide a self-service capability and to automatically determine the customer intent and identify the type of resource to best handle the customer inquiry.

At the center of our VCC cloud platform is the ACD module, which provides intelligent routing of customer interactions.

This enables clients to classify and prioritize customer interactions and ensure that the interactions are delivered to the most appropriate resource to provide the best customer experience and maximize business results.

Through CTI capabilities, out-of-the-box integrations with CRM solutions (such as Salesforce, Oracle, Zendesk, Microsoft and ServiceNow), and easy to use open APIs, clients can provide a personalized customer experience by prioritizing important customers and delivering customer information to the agent handling the interaction.

This promotes quick first contact resolution, which is a key factor in delivering a superior customer experience.

Outbound Contact Center:

Our Outbound Contact Center application enables our clients to improve the efficiency and productivity of outbound contact center agents.

We provide a complete solution for outbound sales and marketing campaigns, including multiple automated dialing options, so our clients can find the right match for their needs and environment, whether outbound business-to-consumer, or B2C, business-to-business, B2B, or 1:1 proactive customer care.

We provide a variety of outbound dialer modes, including a patented predictive dialer capability.

The predictive dialer greatly enhances the productivity of agents and sales representatives by increasing productive talk time and minimizing idle time spent listening to voicemail and busy signals.

These dialer solutions allow our clients to choose the automation capabilities that best align with their contact center environment and objectives, including lead prospecting, qualifying, nurturing and converting.

We also provide campaign management tools such as list management, sophisticated dialer rules and agent scripting.

In addition, we provide a manual touch mode option that provides tools to outbound clients to comply with the TCPA regulations.

Blended Contact Center:

We provide both inbound and outbound capabilities on a single platform to unify contact center operations and enable end-to-end customer engagement.

This improves agent productivity as interactions are automatically selected and routed to agents based on interaction volume.

When inbound call volumes are low, the blending ability allows clients to shift inbound agent resources to outbound-related functions.

For example, inbound agents can be assigned to the outbound queue for automatic follow-ups on any customer interaction, flag customer surveys for personalized attention, or resolve open customer issues.

Digital Engagement Channels Powered by Five9:

Our multichannel applications are powered by a unique set of technologies.

These technologies include an advanced NLP engine to filter and categorize interactions, eliminate spam and determine sentiment.

Based on a client’s unique set of business policies and needs, our solution provides simpler, smarter and more productive digital engagement channels by offering agents sentiment analysis, clustering, trending topics and relevance.

In addition, Five9 powers agent assistance tools to help agents resolve issues quickly.

Five9 VCC integrates voice with chat, email, web, social media and mobile applications for a true omnichannel agent and customer experience.

• Five9 Social - Applies contact center customer service and sales best practices to social channels.

Our solution routes, tracks and reports on agent performance in responding to social media posts in the same manner as other channels.

• Five9 Chat - Live consumer-to-agent chat from mobile or web devices gives agents the ability to respond, record and manage multiple chat interactions.

• Five9 Email - Makes email a high-response sales, service and support channel.

Our solution’s email routing capability filters and intelligently routes email requests to enable the best qualified agents to respond in a timely manner.

• Five9 Visual IVR - Our solution’s visual IVR application provides mobile customer care for today’s connected customers.

It allows clients to develop an IVR script once and deploy it on multiple touchpoints, including mobile devices and websites.

Management Applications:

Our integrated portfolio of management applications is built and delivered on our highly scalable and flexible VCC cloud platform.

Our solution provides real-time supervisor tools to monitor and manage the performance of agents and call flows.

We also provide a suite of configurable management reports to enable clients to manage the end-to-end performance of their contact center operations.

For clients with high-end WFO needs, our solution can provide fully integrated workforce and quality management applications through our strategic relationships with Calabrio, Verint and CSI.

Our solution has native recording capabilities for contact centers that need to record their interactions.

Our clients can access our VCC cloud platform in five different ways:

• Agent Desktop:

Serves as the unified environment for contact center agents.

Agents are provided with one easy-to-use desktop that is designed to allow agents to seamlessly conduct omnichannel interactions.

Our universal transaction model adjusts to the needs of the interaction, including voice, chat, email, web, social media or mobile, yet feels familiar to the agent, making training simple.

Automated call scripting and real-time customer data, such as purchase and interaction history, is delivered to empower agents with the information they need to deliver a superior customer experience as illustrated in the following images.

• CRM Integrations:

For clients that prefer to have their agents or sales representatives work within their CRM desktop, we offer pre-built integrations with leading providers of CRM systems such as Salesforce, Oracle, Zendesk, Microsoft and ServiceNow.

In addition, professional services can provide integrations with custom or legacy CRM systems.

Our solution provides softphone and telephony capabilities within the CRM desktop, and routes each customer interaction to an appropriate agent resource.

Agents are able to work within a familiar desktop, equipped with full telephony controls and giving them immediate access to the most current, relevant and accurate information about the customer.

• Supervisor Plus:

Provides supervisors with a modern browser-based tool to optimize the contact center and ensure high quality customer interactions.

This tool includes a visual supervisor dashboard that provides easy to use visibility into call routing, queues, service levels, workflow management, utilization, campaign statistics and agent productivity.

A mobile tablet version of the supervisor application is also available to help supervisors monitor agents, listen in on conversations, coach agents, and oversee queues and agent performance metrics while on the contact center floor.

These metrics typically include average handle time, first contact resolution, number of interactions handled and contact outcomes as illustrated in the following images.

• Administrator:

Provides administrators with a comprehensive set of integrated tools to easily configure agent skills (such as language, domain expertise, and media channels to service), determine interaction routing strategies, specify IVR scripts and manage the contact center operation.

The Five9 Administrator system is easy to use so contact center business personnel can set up and make changes themselves, without having to rely on specialized IT staff often required to manage legacy on-premise contact center systems.

This represents a key advantage of our VCC cloud platform as it allows businesses to adapt quickly to keep up with the rapid changes required in contact center operations.

• Reporting and Analytics:

Real-time and historical reports provide statistics and key performance indicators to allow executives and supervisors to monitor the contact center, improve reaction time to interaction volume and manage agents more effectively.

We provide more than 100 standard reports with multiple views and drill-downs into individual inbound calls and multichannel interaction metrics, customer interaction outcomes, and outbound sales and marketing program metrics.

Our reporting module also enables clients to build customized reports and reporting schedules.

Experience Orchestration:

The Five9 Engagement Workflow allows businesses to decide how customers can interact with the contact center.

At the heart of Engagement Workflow is a powerful drag-and-drop workflow tool that is used to configure the customer experience.

This is done using a set of pre-built and configurable modules;

speech services such as automated speech recognition and text-to-speech synthesis;

text services such as NLP;

data services such as database query;

customization services such as scripting;

and real-time rules modules.

The Five9 AI-enablement layer is an integral part of Engagement Workflow, which allows AI technologies to be effectively applied to the delivery of experience to the customer.

Five9 Open Platform:

We provide a comprehensive set of open APIs and SDKs that allow customers, developer partners, system integrators and independent software vendors to customize our application and to integrate complementary products with the Five9 solution.

This open platform approach ensures that customers can have the confidence that the already high level of functionality we provide out-of-the-box can be further customized or enhanced to meet the specific needs of their business.

With recent advances in automatic speech recognition, voice recordings are becoming a source for training machine-learning models.

We believe that AI is having, and is likely to have, an increasingly profound impact in how businesses deliver service to their customers.

We have a large and diverse client base comprised of more than 2,000 organizations as of December 31, 2020, with no single client representing more than 10% of our revenues in 2020, 2019 or 2018.

Our client base spans organizations of all sizes across multiple industries, including banking and financial services, business process outsourcers, consumer, healthcare and technology.

Sales and Marketing

To build client awareness and adoption of our solution, our lead generation activities consist primarily of client referrals, search engine marketing, internet advertising, digital marketing campaigns, social media, trade shows, industry events, co-marketing with strategic partners, telemarketing and out-of-home campaigns.

We have adapted to various COVID-19 restrictions by converting our user group meeting from in-person to virtual and switching from in-person to virtual attendance at various trade shows.

In addition, our industry analyst, press and media outreach programs, and web site marketing initiatives are designed to build brand awareness and preference for our solution.

We offer free trials and services to allow prospective clients to experience the quality and ease-of-use of our cloud solution, to learn about the features and functionality of our VCC cloud platform in more detail, and to quantify the benefits of our cloud solution.

Direct Sales.

Our sales model consists of a field sales team that sells our solution into larger opportunities and a telesales team that sells our solution into smaller opportunities.

We established our business targeting smaller opportunities and have expanded our sales focus to larger opportunities as we gained traction in the market and enhanced the capabilities of our cloud solution.

We have developed a disciplined, high volume, metrics-driven sales strategy designed to enable us to efficiently generate and close a large number of new sales opportunities.

Our telesales team focuses on qualified leads generated through traffic to our websites, and also supports our field sales team through lead generation and lead-tracking activities.

Our field and telesales teams are also responsible for selling to existing clients that may renew their subscriptions, increase the number of agents using our cloud solution, add new applications from our solution and expand the deployment of our solution across their contact centers.

Indirect Sales.

We have cultivated strong partner relationships with master sales agents, system integrators and resellers to drive sales of our solution.

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This network has helped us attract additional clients.

In addition, our industry analyst, press and media outreach programs, and web site marketing initiatives are designed to build brand awareness and preference for our solution.

To complement our sales and marketing efforts, we have developed a large ecosystem of software, technology, telephony and system integrator partners and independent software vendors that help increase awareness of our solution and generate new and installed base sales opportunities.

Research and Development

Our ability to compete depends in large part on our continuous commitment to research and development and our ability to improve the functionality of, and add new features to, our VCC cloud platform.

Our core research and

development center is based in our San Ramon, California headquarters with additional engineers located in Russia, which allows us to benefit from relatively low-cost and highly skilled software developers.

Our engineering team has deep software and telecommunications skills, and works closely with our sales team to identify our clients’ product requirements.

In addition, continuous interactions with our partners enable our engineers to enhance the usability and performance of our platform and its integration with best-in-class CRM and other business applications and telephony technologies.

As of December 31, 2019, we had 243 employees in our research and development group.

Our research and development expenses totaled $45.2 million, $34.2 million and $27.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

We intend to increase, in absolute dollars and as a percentage of revenue, our research and development spending in 2020 to continue to deliver robust functionality to our clients.

Professional Services

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Our professional services include application configuration, system integration, and education and training.

Our clients may use our professional services team for implementing our solution or, in limited cases, they may also choose to perform these services themselves or engage third-party service providers to perform such services.

Our cloud solution allows us to eliminate the need for lengthy and complex technology integrations, such as deploying equipment or maintaining hardware infrastructure for individual clients.

As a result, we are typically able to deploy and optimize our solution in significantly less time than required for deployments of legacy on-premise contact center systems.

Research and Development

Our ability to compete depends in large part on our continuous commitment to research and development and our ability to improve the functionality of, and add new features to, our VCC cloud platform.

Our core research and development center is based in our San Ramon, California headquarters, with additional engineers located in Australia and Russia, which allows us to benefit from relatively low-cost and highly skilled software developers.

Our engineering team has deep software and telecommunications skills, and works closely with our sales team to identify our clients’ product requirements.

Technology and Operations

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Our platform is designed to be redundant and we believe that all components can be upgraded, expanded or replaced with minimal or no interruption in service.

We currently deliver our services globally from four third-party co-location data center facilities located in Santa Clara, California;

Atlanta, Georgia;

Slough, England and Amsterdam, the Netherlands.

We currently deliver our services globally from third-party co-location data center facilities located in the United States, the United Kingdom, Europe and Australia and from a public cloud location in Canada.

We also host some of our voice services on the public cloud in Europe, Asia, South America and Australia.

In addition, we are in the process of establishing new public cloud deployments to facilitate our platform in certain international markets.

We have partnered with a third-party to develop, test and deploy our technology to offer a full stack of services on the public cloud in certain international markets.

Our infrastructure, including our third-party co-location facilities, is designed to support real-time mission-critical telecommunications, applications and operational support systems.

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Combined with the disruptive nature of the cloud in the contact center, this has resulted in competitors who come from different market and product heritages, and who vary in size, breadth and scope of the products and services offered.

We currently compete with large legacy telephony vendors that offer on-premise contact center systems, such as Avaya Inc., or Avaya, and Cisco Systems, Inc., or Cisco, and legacy on-premise software companies that come from a CTI heritage, such as Aspect Software, Inc., or Aspect, and Genesys Telecommunications Laboratories, Inc., or Genesys (including through its acquisition of Interactive Intelligence Group, Inc., or Interactive Intelligence).

These legacy technology and software companies are increasingly supplementing their traditional on-premise contact center systems with competing cloud offerings, through a combination of acquisitions, partnerships and in-house

Additionally, we compete with vendors that historically provided other contact center services and technologies and expanded to offer cloud contact center software such as NICE inContact, Inc.

We currently compete with large legacy vendors that offer on-premise contact center systems, such as Avaya Inc., or Avaya, and Cisco Systems, Inc., or Cisco.

These legacy telephony vendors are increasingly supplementing their traditional on-premise contact center systems with competing cloud offerings, through a combination of acquisitions, partnerships and in-house development.

Additionally, we compete with vendors that historically provided other contact center services and technologies and expanded to offer cloud contact center software such as NICE Ltd., or NICE, and Genesys Telecommunications Laboratories, Inc., or Genesys.

We also face competition from many smaller contact center service providers such as Talkdesk and Seranova, as well as vendors offering both unified communications and contact center solutions.

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In addition, we require our employees and independent contractors involved in development of intellectual property on our behalf to enter into agreements acknowledging that all works or other intellectual property generated or conceived by them on our behalf are our property, and assigning to us any rights, including intellectual property rights, that they may claim or otherwise have in those works or property, to the extent allowable under applicable law.

As of December 31, 2019, our intellectual property portfolio included five registered U.S.

As of December 31, 2020, our intellectual property portfolio included three registered U.S.

trademarks, 11 issued U.S.

patents, three pending U.S.

patents, four pending U.S.

patent application and one registered U.S.

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We are also a party to various license agreements with third parties that typically grant us the right to use certain third-party technology in conjunction with our solution.

We expect that software and other applications in our industry may be subject to third-party infringement claims as the number of competitors grows and the

functionality of applications in different industry segments overlaps.

We expect that software and other applications in our industry may be subject to third-party infringement claims as the number of competitors grows and the functionality of applications in different industry segments overlaps.

Any of these third parties might make a claim of infringement against us at any time.

We believe that there can be seasonal factors that may cause our revenues in the first half of a year to be lower than our revenues in the second half of the year.

We believe that there are seasonal factors that cause our revenues in the first half of a year to be lower than our revenues in the second half of the year.

During 2020, 2019 and 2018, 55%, 54%, and 53% of our total revenues were generated in the second half of each year.

We believe this is due to increased activities in retail, healthcare and education in the second half of each year.

As of December 31, 2019, we had 1,210 full-time employees, including 528 in technology and operations, 243 in research and development, 296 in sales and marketing and 143 in general and administrative.

None of our employees are covered by collective bargaining agreements.

We believe our employee relations are good and we have never experienced any work stoppages.

Employees and Human Capital Resources

Our employees and the culture we have established are the key to our success.

As of December 31, 2020, we had 1,549 full-time employees.

42% of our employees are in various cost of revenue functions, 20% in research and development, 27% in sales and marketing and 11% in general and administrative.

Our employee turnover for the last three years has averaged 10.6%.

The key human capital measures and objectives that we focus on in managing our business are maintaining our company culture, increasing our diversity and inclusion, compensation philosophy and COVID-19 and employee safety.

Company Culture

We have built a culture of high performance based upon our Five9 values:

Always do the right thing for the customer.

Good enough isn’t good enough.

We value diversity.

We are relentless learners.

We bias toward action, “kick the bolt”.

We treat it like we own it.

A spirit of service guides us.

We believe in the servant leader.

We act with integrity and humility and as a team.

We keep it simple.

Less is more.

The Five9 values are woven through the entire employee lifecycle and used in the interview process to ensure we hire candidates that have personal values that align with our values, they are instrumental in the employee performance self-reflection cycle by having employees share how they’ve lived our values, Five9 regularly celebrates employees that live our values through recognition and rewards.

We introduce new employees to our values during new hire orientation and our values are visible in the offer package as well as company employee resources pages.

Our CEO also weaves the values into quarterly company meetings and regular meet ups, such as “Thursdays in the Cloud” where one of the values may be highlighted through a story and employee example.

We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture.

77% of employees participated in our most recent employee survey in 2020.

Last year we achieved the highest level of employee engagement according to our vendor, Culture Amp, as noted in its Engagement and Inclusion benchmark (top quartile) based upon responses from 1,801 companies.

Employees’ highest rated areas were the following:

contribution to broader purpose (97%) and engagement (97%).

Diversity & Inclusion at Five9

We value diversity and hold ourselves accountable to create a culture where our employees represent humanity.

We embrace authenticity and trust and lead with transparency, empowering our employees to have a voice that's heard.

We are committed to learning, empowering, advocating, allying and supporting each other within the company and in our communities.

Our recruiting programs support and encourage diversity.

We recruit from various diversity organizations, including historically black colleges and universities, the Career Cast Diversity Network of Women, Black, Hispanic, Asian, LGBTQIA, the Career Cast Disability Network, and the Career Cast Veteran Network.

In addition, we have several Employee Resource Groups, or ERGs, that are committed to diversity and creating and fostering a culture of inclusion.

Our ERGs include Women In Tech, Blatinx, Five9 Faith and Pride @ Five9.

We are currently working with Black Girls Code to offer an online educational session for underserved girls enlisted in their program and female employees are facilitating the class.

We have also created a mentorship programs with a specific eye towards diversity.

Executive sponsors of the program reach out to employees from underrepresented groups to promote the program and encourage employees to participate.

Our human resources team pairs mentors with mentees to enable employees to receive opportunities for growth and development.

Women represent 28% of our worldwide employees and racial and ethnic minorities represent 21% of our U.S.

employees as of December 31, 2020.

Compensation Philosophy

At Five9, we strive to attract and retain the best employees by providing a total rewards package that is at or above market rates to enable us to attract and retain employee talent needed to accomplish our goals and objectives.

Our competitive rewards packages include cash, bonus programs dependent upon the position, equity awards and benefits aligned to prevailing market practices, and in cases where business demands are unique, we may lead the competitive market.

Full-time employees and their family members enjoy comprehensive benefits programs and perks because we believe they often provide much needed resources and improve the daily life of our employees.

In an effort to attract and retain the best talent we strive to offer benefit programs that will enable our employees to thrive both at work and at home.

We cover 100% of the employee portion of our healthcare benefits and share a high portion of the dependent costs.

Our competitive global benefits include a Parental Leave Policy, flexible schedules, financial and physical wellness programs and fertility benefits.

COVID-19 and Employee Safety

During the Covid-19 pandemic our primary focus has been the health and safety of our employees and their families.

We enabled all of our global employees to transition to a work from home environment and we provided two Covid-19 relief bonuses to all employees Sr.

Director and below to help offset the financial impact of the pandemic.

We assisted employees with a work from home stipend that employees could use to make their home office more conducive to comfortably working from home.

In addition, we offered a meal delivery service discount to employees during the summer months to assist employees with balancing the demands of working from home and managing the distance learning requirements of their children.

We also offered benefits that enabled employees to prioritize their wellness by offering health and wellness resources such as yoga, meditation and counseling resources if needed.

Talent Development

Employee development is a key focus in the attraction, retention and management of our talent.

Semi-annually, we facilitate employee self-reflection cycles where employees have development conversations with their manager.

The purpose of these conversations is to foster the employee’s development plans and career goals.

Managers and employees discuss growth and development opportunities in these sessions and conversations and development plans are tracked via the employee performance platform.

We also host a quarterly development series for all employees to enhance their career development.

The development series topics have included mentorship, communicating for shared success, the art of influence and a career workshop.

This development series aims to provide educational opportunities for leadership and growth for our employees.

We also have succession planning that focuses on identifying employees that are high potential and high performing and plans for developing them into future leadership roles by creating action plans and a path for the employee’s progression.

The following summarizes important, but not all, federal, state and foreign regulations that could impact our operations.

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We must comply with numerous federal regulations, including:

• Telephone Consumer Protection Act, or TCPA, which regulates the use of automatic dialing equipment and pre-recorded messages to contact consumers, and the Telemarketing Sales Rule, which has similar obligations as to telemarketing activities;

• The TRACED Act and corresponding forthcoming regulations from the FCC, which requires carriers to authenticate incoming calls;

• Telephone Consumer Protection Act of 1991, or TCPA, which regulates the use of automatic dialing equipment and pre-recorded messages to contact consumers, and the Telemarketing Sales Rule, which has similar obligations as to telemarketing activities;

• The TRACED Act and corresponding regulations from the FCC, which requires carriers to authenticate incoming calls using the STIR/SHAKEN caller ID framework and correspondingly compels providers of telecommunications services to implement capabilities to certify as authentic the traffic they provide to those carriers;

• CALEA, which requires telecommunications service providers to assist law enforcement in undertaking electronic surveillance;

• KARI’s Law and RAY BAUM’s Act, which require telecommunications carriers to ensure their users can directly dial 911 emergency services and, if technically feasible, automatically convey dispatchable location information with the call;

• contributions to the USF, which requires that we pay a percentage of our revenues resulting from the provision of interstate telecommunications services to support certain federal programs;

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• Federal Trade Commission Act and rules promulgated thereunder, which generally relate to avoiding unfair and deceptive trade practices, our advertising, and privacy practices;

• The California Consumer Privacy Act of 2018, or the CCPA, which requires us to comply with a new privacy framework and disclosure obligations to consumers for whom we hold or process personal data.

• The California Consumer Privacy Act of 2018, or the CCPA, which requires us to comply with a privacy framework and disclosure obligations to consumers for whom we hold or process personal data.

In addition, we must make contributions and other payments on our usage-based fees to state and local governmental entities.

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If taxing and regulatory authorities enact new rules or regulations or expand their interpretations of existing rules and regulations, we could incur additional liabilities.

In addition, the collection of additional taxes, fees or surcharges in the future could increase our prices or reduce our profit margins.

The amount that we are required to pay under certain of these tax and regulatory structures also continues to increase as a percentage of our telecommunications revenues.

The collection of additional taxes, fees or surcharges in the future could increase our prices or reduce our profit margins.

Compliance with these regulations may also make us less competitive with those competitors who are not subject to, or choose not to comply with, these regulations.

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We operate in a single reportable segment.

Our principal executive office is located at Bishop Ranch 8, 4000 Executive Parkway, Suite 400, San Ramon, CA 94583 and our telephone number is (925) 201-2000.

Our principal executive office is located at 3001 Bishop Drive, Suite 350, San Ramon, CA 94583 and our telephone number is (925) 201-2000.

Our website address is www.five9.com.

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In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products.

Solely for convenience, some of the copyrights, trademarks and trade names referred to in this annual report on Form 10-K are listed without ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks and trade names.

but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks and trade names.

Available Information

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The SEC maintains a website at https://www.sec.gov that contains reports, proxy and information statements and other information regarding Five9 and other companies that file materials with the SEC electronically.

Copies of Five9’s reports on Form 10-K, Forms 10-Q and Forms 8-K, may be obtained, free of charge, electronically through our internet website, http://investors.five9.com/sec.cfm as soon as reasonably practicable after such material is filed electronically with, or furnished to, the SEC.

Copies of our reports on Form 10-K, Forms 10-Q and Forms 8-K, may be obtained, free of charge, electronically through our internet website, http://investors.five9.com/sec.cfm as soon as reasonably practicable after such material is filed electronically with, or furnished to, the SEC.

The information on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business