Five9, Inc. 10-K

ITEM 1. Business Overview Five9 is a pioneer and leading provider of intelligent cloud software for contact centers. We were “born in the cloud,” and since our inception, we have exclusively focused on delivering our platform in the cloud and are disrupting a significantly large market by replacing legacy on-premise contact center systems. Contact centers are vital hubs of interaction between organizations and their customers and, therefore, are essential to delivering successful customer service, sales and marketing strategies. Our mission is to empower organizations to transform their contact centers into customer engagement centers of excellence, while improving business agility and significantly lowering the cost and complexity of their contact center operations. 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 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 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. In addition, cloud contact center software solutions now offer the functionality required by large, complex enterprise contact centers. Furthermore, we believe organizations typically refresh their on-premise contact center systems every eight to 10 years, which provides an opportunity for cloud solutions to replace legacy on-premise contact center systems when these replacement decisions arise. On-premise systems require large up-front investments, long deployment cycles, and are burdensome to maintain. These systems are also often inflexible, complex, and require significant duplication of effort and integration across multiple sites. 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. Our solution ensures our clients always have the latest version of our software. 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 are maintained by us in the cloud. 4 Table of Contents 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, 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. We have also established, and are continuing to increase, our network of master sales agents, which provide sales leads and resellers that sell our solution to new clients. This network has helped us attract additional clients. Our resellers have assisted us in expanding in both domestic and international markets. We provide our solution through a software-as-a-service, or SaaS, business model with recurring subscriptions based primarily on the number of agent seats and minutes of usage, as well as the specific functionalities and applications our clients deploy. We have achieved significant growth in recent periods. 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 $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 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. We operate in a single reportable segment. Please refer to the geographical information for each of the last three years in Note 11 of the notes to our consolidated financial statements. Please refer to the discussion of risks related to our foreign operations in the section entitled “ITEM 1A. Risk Factors.” Our Solution 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. Our solution is designed to enable our customers to comprehensively and seamlessly engage through voice, video, website, mobile, chat, email, click-to-call, callback, social and messaging. Our agent interface is an intuitive modern browser-based design that provides easy visualization of customer profile, context and cross channel history. This solution is built on a modern SaaS architecture, leveraging both our own data centers and the public cloud for certain international voice services. Our Freedom platform provides a modern micro services-based open enterprise architecture built with representational state transfer, or REST, APIs and powerful software development kits, or SDKs, that enables customers, partners and developers to deliver powerful solutions that bridge the context gap between their unique systems. 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 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. 5 Table of Contents 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. Our solution is designed to be deployed quickly and seamlessly with minimal disruption to a client’s operations. The pre-built integrations with leading CRM and other enterprise applications reduce the complexity and burden-of-effort of integrating with the client’s business applications. Our solution is designed to be seamlessly updated so that clients are always operating on the latest version of the software, while maintaining their existing configurations, ensuring minimal disruption to the client’s contact center operations. • Highly flexible platform. Our solution provides easy administration, configuration and role-based functionalities for agents, supervisors and administrators enabling the rapid adjustment of contact center resources to meet a changing mix of contact channels and peaks-and-troughs in contact volumes. • Scalable, secure and reliable multi-tenant architecture. Our solution provides organizations of all sizes with the robust contact center functionality, scalability, flexibility and security required in the most sophisticated and distributed environments. Our solution provides the following key benefits to clients: • Higher agent productivity. Our solution empowers agent productivity and effectiveness by allowing agents to handle both inbound and outbound calls and interact with customers across multiple digital engagement channels, including voice, chat, email, web, social media and mobile. 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 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. Using the rich contact history and additional context through integrations with CRM applications, agents have immediate access to the most current, relevant and accurate information about the customer, resulting in increased first contact resolutions and a more satisfying experience for the customer. • Enhanced end-to-end visibility. Our solution provides clients’ operations staff, quality team and leadership with a complete view of contact center performance through a comprehensive set of historical reports, real-time dashboards, and quality and performance management tools. Clients can also extract reporting data from our solution for further analysis using a spreadsheet application or using the sophistication of an enterprise business intelligence application. This insight provides an organization-wide view of customer engagement performance and allows clients to quickly determine the appropriate actions required to address changing circumstances. • Greater operational efficiency. Our solution provides contact center managers and supervisors with significant visibility into their agents’ productivity and effectiveness and the performance of their inbound queues and outbound campaigns. Our solution has robust intelligence and analytics capabilities to help supervisors optimize operations and campaigns in real-time to drive increased efficiency. Our role-based interfaces deliver specific functionality to both desktops and mobile devices to meet the unique needs of agents, supervisors and administrators. • Compelling value proposition. We provide a unified cloud-based software and telephony platform for contact center operations, including software applications, technology infrastructure, maintenance, monitoring, storage, security, client support and upgrades, which enables our clients to simplify their technology infrastructure and streamline IT costs. We manage upgrades and deployments remotely, resulting in lower total cost of operations relative to legacy on-premise contact center systems that often require in-house technical support staff. Our Competitive Strengths We believe that our position as a leading provider of cloud contact center software results from several key competitive strengths, including: • 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 6 Table of Contents 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. • Rapid deployment and support of our comprehensive solution. Our high-touch engagement model for larger implementations leverages a proven lifecycle approach including detailed discovery, design, testing, training and optimization. This not only accelerates agent activation, but also targets desired business outcomes. Through the use of tools and processes that have been refined over thousands of customers, we can also efficiently meet the needs of our smaller clients. We offer flexibility and integrate with a number of leading CRM vendors, including: salesforce.com, Inc., or Salesforce, Oracle Corporation, or Oracle, Zendesk, Inc., or Zendesk, Microsoft Corporation, or Microsoft, ServiceNow, Inc., or ServiceNow, and others. 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. • Reliable, secure, compliant and scalable platform. Our pla tform delivers what we believe is industry leading reliability utilizing public and private cloud technology; cybersecurity using a defense-in-depth approach; 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. • Proven, repeatable and scalable go-to-market model. We engage with our clients through a highly scalable and metrics-driven sales and marketing organization that effectively identifies, qualifies and closes sales opportunities. 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, 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. • Established market presence and a large, diverse client base. We have a large, diverse client base of over 2,000 organizations across multiple industries. We believe our clients view us as a key strategic solutions provider. The performance, reliability, ease-of-use and comprehensive nature of our solution has resulted in high client retention. • Extensive partner ecosystem. We have cultivated a robust ecosystem of partners including a variety of leading CRM software vendors such as Salesforce, Oracle, Zendesk, Microsoft and ServiceNow; 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 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. • Focus on innovation and thought leadership. Since our inception, we have been an innovator of intelligent cloud contact center software. Our investment in research and development has driven our growth and enabled us to deliver a cloud contact center software solution with the features and functionality to power the most complex contact centers. Our extensive domain expertise enables us to enhance our solution and serves as a critical competitive differentiator. We strive to be a thought leader in our industry, identifying and developing cloud capabilities to transform traditional contact center operations into customer engagement centers of excellence. One of the newest transformational technologies is AI, which relies on vast volumes of data. 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 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. 7 Table of Contents Clients 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 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. 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. We have established, and continue to increase, our network of master sales agents, which provide sales leads, and resellers, which sell our solution to new clients. This network has helped us attract additional clients. Professional Services We offer comprehensive professional services to our clients to assist in the successful implementation and optimization of our solution. 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 these 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. 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. 8 Table of Contents Technology and Operations Our highly scalable and flexible VCC cloud platform is the result of our extensive research, development, client engagement and operational experience. Our platform is comprised of in-house developed intellectual property, open source products and commercially available hardware and software. 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 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. Our infrastructure, including our third-party co-location facilities, is designed to support real-time mission-critical telecommunications, applications and operational support systems. Our infrastructure is built with redundant, fault-tolerant components divided into distinct security zones forming protective layers for our applications and customer data. We have designed and maintain an operations, capacity and security program to monitor and maintain our platform, ensure efficient utilization of the platform capacity and protect against security threats or data breaches. Our operations team monitors our data centers for potential performance issues, unauthorized attempts to access secure data or applications and the overall integrity of the platform. Competition The market for contact center software is fragmented, highly competitive and evolving rapidly in response to shifting consumer behavior, especially the rapid adoption of mobile devices and social media. The proliferation of each is driving change in contact center technology, as customers expect companies to give them the option of seamless communication across any channel according to their preference and needs. 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 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. In addition, Amazon.com, Inc., or Amazon, and Twilio Inc., or Twilio, have introduced solutions aimed at companies who wish to build their own contact centers with in-house developers. In addition, CRM vendors are increasingly offering features and functionality that were traditionally provided by contact center service providers. CRM vendors also continue to partner with contact center service providers to provide integrated solutions and may, in the future, acquire competitive contact center service providers. These factors could cause CRM vendors to reduce or terminate their partnerships with us, and could result in increased competition. Because CRM integration and partnerships are critical to the success of our solution, these factors could harm our revenue and results of operations. Our actual and potential competitors may enjoy competitive advantages over us, including greater name recognition, longer operating histories and larger marketing budgets, as well as greater financial and technical resources. With the introduction of new technologies and market entrants, we expect competition to continue to intensify in the future. Our recent, and any future, acquisitions will subject us to new competitors and cause us to face additional and different competition in the markets served by these businesses. We believe the principal competitive factors in our market include: • breadth and depth of solution features; • reliability, scalability and quality of the platform; • ease and speed of deployment; • ease of application administration and use; • level of client satisfaction; • domain expertise in contact center operations; • integration with third-party applications; 9 Table of Contents • ability to quickly adapt and upgrade to new and evolving technologies, including AI; • pricing; • ability to quickly adjust agent seats based on business requirements; • breadth and domain expertise of the sales, marketing and support organization; • ability to keep pace with client requirements; • extent and efficiency of professional services; • ability to offer multiple channels of engagement; and • size and financial stability of operations. We believe we currently compete effectively with respect to each of the factors identified above. Intellectual Property We rely on a combination of patent, copyright, and trade secret laws in the U.S. and other jurisdictions, as well as license agreements, confidentiality agreements and other contractual protections, to protect our proprietary technology. We also rely on a number of registered and unregistered trademarks to protect our brand. 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, 2020, our intellectual property portfolio included three registered U.S. trademarks, 11 issued U.S. patents, four pending U.S. patent application and one registered U.S. copyright. As of December 31, 2020, outside the U.S. we also had five issued patents and nine trademark registrations. The expiration dates of our issued patents range from 2030 to 2038. In general, our patents and patent applications apply to aspects of our VCC cloud platform. 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. Any of these third parties might make a claim of infringement against us at any time. Seasonality 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. 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: 1. Always do the right thing for the customer. 2. Good enough isn’t good enough. 3. We value diversity. 4. We are relentless learners. 5. We bias toward action, “kick the bolt”. 10 Table of Contents 6. We treat it like we own it. 7. A spirit of service guides us. 8. We believe in the servant leader. 9. We act with integrity and humility and as a team. 10. 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. 11 Table of Contents 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. Regulatory The following summarizes important, but not all, federal, state and foreign regulations that could impact our operations. Federal and state regulations are subject to judicial review, administrative revision and statutory changes through legislation that could materially affect how we and others in this industry operate. The Telecommunications Act of 1996 vests the Federal Communications Commission, or FCC, with jurisdiction over interstate telecommunications services, while preserving state and local jurisdiction over many aspects of these services. As a result, telecommunications services are regulated at both the federal and state levels in the United States. We are classified as a telecommunications service provider for federal regulatory purposes. Since our business is regulated by the FCC, we are subject to existing or potential FCC regulations relating to privacy, disability access, porting of numbers, automatic number dialing, contributions to the federal Universal Service Fund and related funds, or USF, and other requirements. If we do not comply with FCC rules and regulations, we could be subject to FCC enforcement actions, fines and possibly restrictions on our ability to operate or offer certain of our services. Any enforcement action by the FCC, which may be a public process, would hurt our reputation in the industry, possibly impair our ability to sell our services to clients and could harm our business and results of operations. The FTC also has jurisdiction over some of our business practices, including advertising, trade practices, privacy and telemarketing. If we do not comply with FTC rules and regulations, we could be subject to an FTC enforcement action, fines or restrictions on our business practices. We must comply with numerous federal regulations, including: • 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; 12 Table of Contents • 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; • payment of annual FCC regulatory fees based on our interstate and international revenues; • rules pertaining to access to our services by people with disabilities and contributions to the Telecommunications Relay Services fund; • FCC rules regarding Customer Proprietary Network Information, or CPNI, which require that we not use certain information received from customers as a result of a service provider/customer relationship without customer approval, subject to certain exceptions; • Federal Trade Commission Act and rules promulgated thereunder, which generally relate to avoiding unfair and deceptive trade practices, our advertising, and privacy practices; and. • 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. The tax and fee structure for communications services such as ours is complex, ambiguous and subject to interpretation. If taxing and regulatory authorities enact new rules or regulations or expand their interpretations of existing rules and regulations, we could incur additional liabilities. 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. See Note 10 of the notes to consolidated financial statements under ITEM 8 of this Form 10-K for a discussion of our liabilities related to USF matters. As we expand internationally, we will be subject to laws and regulations in the countries in which we offer our services. Regulation of the solutions we provide outside the U.S. varies from country to country, is often unclear, and may be more onerous than those imposed on our services in the U.S. For example, the European Union adopted a law governing data protection and privacy called the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The law requires companies to meet new and extended requirements regarding the processing of personal data. Non-compliance with the GDPR can trigger steep fines of up to €20 million or 4% of total worldwide annual turnover, whichever is higher. In addition, we are subject to Canada’s Personal Information Protection and Electronic Documents Act, or PIPEDA, and the analogous provincial laws, which similarly impose data privacy and security obligations on our processing of personal data. Our regulatory obligations in foreign jurisdictions could harm the use or cost of our solution in international locations as data protection and privacy laws and regulations around the world continue to evolve. The legislative and regulatory scheme for telecommunications service providers and other solutions we provide will continue to evolve and can be expected to change the competitive environment for these services. It is not possible to predict how such evolution and changes will affect our business or our industry. If we do not comply with current or future rules or regulations that apply to our business, we could be subject to substantial additional fines and penalties, we may have to restructure our service offerings, exit certain markets, accept lower margins or raise the price of our services, any of which could harm our business and results of operations. See “Risk Factors — Risks Related to Regulatory Matters” under ITEM 1A of this Form 10-K for more information. Company Information We were incorporated in Delaware in 2001. We operate in a single reportable segment. 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. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this annual report on Form 10-K. We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and domain names. 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, 13 Table of Contents but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks and trade names. Available Information Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports are filed with, or furnished to, the United States Securities and Exchange Commission, or SEC, pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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 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.