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Thank you for joining us today. On the call are Rowan Trollope, CEO, Dan Burkland, President, and Barry Zwarenstein, CFO. Certain statements made during the course of this conference call that are not historical facts, including those regarding the future financial performance of the Company, industry trends, Company initiatives, and other future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are simply predictions, should not be unduly relied upon by investors. Actual events or results may differ materially, and the Company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties that could adversely affect Five9's future result and cause these forward-looking statements to be inaccurate, including the impact of the COVID-19 pandemic and the other risks discussed under the caption Risk Factors and elsewhere in Five9's annual and quarterly reports filed with the Securities and Exchange Commission.
In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is currently available in our press release issued earlier this afternoon as well as in the appendix of our investors deck and available in the Investor Relations section of Five9's website at investors.five9.com. And now I'd like to turn the call over to Five9 CEO, Rowan Trollope. Please go ahead.
Thanks, Lauren, and thanks all of you for joining our call this afternoon. I am very excited to be here today, and I'm pleased to report strong results for the third quarter. As you'll see, our teams haven't skipped a beat on execution. And following the decision to terminate the proposed acquisition by Zoom, our leadership team and the entire Company are excited to continue the momentum we've built, and driving industry-leading growth and transforming customer engagement. We are executing a great business strategy against a massive market opportunity. When Zoom approached us and we are excited to continue to execute on that strategy going forward. Under the numbers, I'm pleased to report third quarter revenue grew 38% year-over-year to a record $154.3 million. Revenue growth continues to be driven by our enterprise business, as demonstrated by LTM enterprise subscription revenue, which grew 51% year-over-year.
And Dan 's going to highlight the tremendous bookings success we are enjoying both in new logos and in expansion deals, later in the call. At the same time, our commercial business saw more than 30% growth this quarter, benefiting from us targeting commercial buyers who are more focused on enhancing their customer experience, as well as leverage from our channel expansion. Now, as these results illustrate, Five9's fundamentals remain strong and are driven by market momentum, continued product innovation, and our go-to-market machine. So I'm going to discuss each of these in turn, starting with the momentum we're seeing in the market. The contact center market continues to be driven by digital transformation. Enabled by the shift from on-premises to cloud, and by growing demand for AI and automation. We don't expect these immutable trends to abate for the foreseeable future. And with the increasing shifts towards digital and the increasing scale in customer interactions, the necessity for businesses to drive efficiency is paramount. We're helping customers do that with technologies like digital channels, which are easier to automate, self-service, and most recently, by deploying digital agents with our AI-powered intelligent virtual agents. The strength of the [Indiscernible] market and demand for our solutions was on full display at our annual CX Summit in September. This year CX Summit was our largest to date with over 3,000 customers, partners, and prospects.
AI and automation we're central themes. We also highlighted delivery of over 200 new features across our products, including WFO, digital channels, self-service, voice stream, hyperscale architecture, and most recently, enhancements to our IVA platform with the launch of Studio Seven, which leads into the next growth driver, our continued focus on product innovation. We've taken the lead in providing AI-powered solutions across live-end digital agents with our agent assist and IVA technologies. These, coupled with our focus on embedded automation, with workflow automation are making it easier to drive efficiencies than ever before.
And evidence of this as shown through the tremendous growth in adoption and usage of our intelligent virtual agents. As you are aware, last November we acquired inference solutions, a leader in the IVA segment. And since the acquisition, usage of IVAs amongst Five9 customers has increased a 180% and we processed more than 82 million calls on the Five9 inference studio platform. Penetration and adoption of these solutions have exceeded expectations and our IVAs now enable more than 750 customers to automate routine interactions over the phone, web chat, mobile messaging, and SMS. We believe automation is the key to managing digital and human capital.
And this is even more amplified right now with the tight labor market that we're seeing around the world. has mentioned earlier in July, we announced Five9 inference studio 7 as the latest release of our low-code IVA development environment. We redesigned and re - architected the platform to make it more powerful and optimize performance to better support enterprise-grade deployments. The platform is tightly integrated with the Five9 intelligent cloud contact center, allowing the seamless trends for context between IVAs and live agents. In omni-channel use cases, thus supporting the practical AI use-case that we've been talking about. Five9 is a leader in IVA, earning numerous industry and analysts awards, including Best Application of AI award at the recent industry event, Enterprise Connect.
We look forward to continuing to help businesses deploy an AI -powered digital workforce that can provide a more efficient and engaging customer experience alongside live contact center agents. And finally, I'd like to highlight the ongoing success of our go-to-market machine. We've continued to invest in our go-to-market strategy with additional focus up market into larger global enterprises, expansion of our channel's driven business, and acceleration of our international presence. First, we continue to see larger and larger enterprises, not only embracing cloud as part of their digital transformation, but also adopting automation solutions at record pace. Now more than 80% of new strategic enterprise customers are purchasing IVAs as part of their initial deployment. Second, our channel partners are leading with cloud solutions from Five9, as well as taken on more implementation and services business.
And our channel bookings are starting to include some large million plus ACV deals. And third, we continue to expand our global presence, and our international momentum is increasing. To help our customers grow internationally, we've made significant investments. First, we stepped up hiring especially in EMEA, where our headcount has more than quadrupled of the last two years. Next, we set up a team headquartered in London to lead Global telco operations. We've also expanded and will continue to expand our international public cloud instances. Next, we invested in additional digital and outbound programs to increase awareness and key countries and grow our contact database so that we're able to better connect with the right people within target accounts. And finally, we've signed on additional. regionally focused partners in our various local markets. As a result of this focus on investment, international revenue from Company's headquarters outside the U.S.
in the third quarter, grew 49% year-over-year and mark ed the fourth quarter out of the last 5 where the growth rate exceeded 40%. Clearly our decision to increase our international investment is paying dividends. And before I wrap up, I'd like to crystallize our views of the market opportunity and landscape. We continue to see our growth led by enterprises, and these larger enterprises are embracing digital transformation enabled by the transition from on-premises to cloud. And they can afford to invest in automation technology to efficiently scale their contact centers. In this higher end of the market, the purchasing decision is made by the line of business leader who represent almost 90% of our buyers. In conclusion, our performance for the quarter underscores the strength of our platform. and the value we delivered a customers seeking to modernize and transform their contact centers.
We've differentiated our platform by building a leadership position in practical AI and automation driven customer experience. The combination of market momentum around digital transformation initiatives. Our product innovation strategy, and strong go-to-market execution, gives us confidence in the durability of our growth and the ability to continue to grow LTM, enterprise subscription revenue in the 30'. We look forward to sharing additional information on our plans to deliver continued industry out performance and profitable growth at our upcoming virtual financial analyst day on November 18th.
With that, I'd now like to turn it over to our President, Dan Burkland, to share some specific customer wins. But before doing so, I'd like to give a huge thanks to all of our employees and partners. Our progress and where we stand today is the result of their hard work and dedication. And I thank each and everyone of them. Dan, over to you.
Thank you, Rowan. As mentioned, we continue our strong momentum executing successfully upmarket in larger and larger enterprises, positioning our superior automation solutions and expanding our international presence while also leveraging our channels and partner ecosystem who once again influenced over two-thirds of our deals. This is reflected since our last earnings call by having two consecutive record bookings quarters. Q2 being the largest of any quarter in our history, and then backed up with Q3 setting that record even higher. And our pipeline continues to grow to record levels, both in size of deals and in quantity of opportunities. And now I'd like to share some key wins from new logos, as well as some significant expansions from existing Five9 customers.
The first new logo is from a health insurance provider in the Southeast who is using Avaya with no self-service offerings. We partnered with a reseller who had previously maintained their Avaya systems and helped position Five9 to modernize and automate the customer experience. They now have our full IVA for self-service, a full omni-channel solution along with our complete WFO suite, powered by variance. And they opted for our 24/7 hypercare, bringing help desk type services to all of their users. We anticipate this initial order to result in over $3.8 million in ARR to Five9. The second new logo example I'd like to share is a medical logistics and transportation Company. They were using an on-premises Genesys system, which lapped the innovation and automation requirements that they wanted to offer to the more than 5 million Medicaid enrolled recipients within the state.
They chose Five9 and have ordered nearly our entire portfolio of solutions. This includes platinum IVA to deliver self-service, intelligent-call steering, and voice biometrics to authenticate caller's ID. They also have the full omni-channel solution, including chat, e-mail, SMS, visual IVR, and the full suite of Five9 WFO, as well as agent assist to help their agents gaining valuable and timely information to reduce call handle times, as well as our workflow automation from Wendo (ph) to trigger appointment reminders, schedule changes, and provide status updates. We anticipate this initial order to results in over $2.2 million of ARR to Five9. The third new logo win I'd like to share is a great example of a Company re-imagining the customer experience. This global brand manufacturers and distributes automobiles through over 800 dealerships nationwide.
They we're using an older premises based Cisco and Avaya systems. With Five9, they'll be using the multilingual IVAs. AI to transcribe conversations and insert them into our CRM, reducing the call handle time and wrap up times significantly, performance dashboards, voice biometrics, and the full omni-channel suite of applications, as well as our WFO assumptions, including workforce management, QM, and speech analytics. We anticipate this initial order to result in over $1.4 million in ARR to Five9. And now as we normally do, I'd like to share some recent examples of existing customers that significantly expanded their business with Five9. You'll recall that global parcel delivery service Company, who placed an initial order of over $14 million in ARR to Five9 in Q1 of this year. They've now place subsequent orders with us to bring their anticipated total ARR so far with Five9 to over $23 million.
Also, you'll recall the large SI who spun off their outsourcing help desk function and placed an initial order with us of over $6 million in ARR in Q1 of this year, who have now placed additional expansion orders with Five9, which are anticipated to bring their total ARR with Five9 to over $12 million. We also have a medical device manufacturer who became a customer 2 years ago, that was generating approximately $2 million in ARR and now has expanded for all of their other divisions globally and added IVAs, which will bring their anticipated total ARR with Five9 to over $8.2 million. As you can see, these 3 customers combined, now represent over $43 million in anticipated ARR to Five9. As you can see, we continue to develop, execute, and deliver solutions, which are at the forefront of businesses goals to provide a re-imagined and innovative experience to their customers, and we're seeing the adoption of these technologies continue to gather momentum. And with that, I'll hand it over to Barry. Barry?
Thank you, Dan, before going into specifics, reminder that unless otherwise indicated, financial figures I will discuss are non-GAAP. Reconciliations from GAAP to non-GAAP results are included in the appendix of our investor presentation on our website. As Rowan mentioned earlier, we had a strong quarter with revenue growing 38% year-over-year, driven primarily by enterprise business, where our LTM subscription revenue increased 51% year-over-year. I'm also pleased to report 7% sequential revenue growth reflecting the ongoing revenue durability of the underlying business. Let me amplify on this a bit. Now that we have multiple quarters of trended data, we estimate that the previously disclosed mid-single-digit, one-time COVID benefit that we experienced in the second half of 2020, actually extended through Q1 '21. However, whereas before, we thought we would only retain low-single-digits of the one-time COVID benefit.
It turns out that we have been able to retain virtually all of the pandemic benefit. This is evidenced by our strong sequential growth rates of 4% in the second quarter and the just mentioned, 7% in the third quarter, both of which came in at the high-end of pre -pandemic levels. Given that we do not have another one-time benefit like COVID, year-over-year growth rates will naturally be lower through Q1 of next year due to the tough compares. However, the true health of our business will continue to be reflected in the strength of our sequential growth rates compared to pre -pandemic levels. In terms of revenue composition, enterprise made up 84% of LTM revenue and our commercial business represented the remaining 16%.
Recurring revenue accounted for 92% of our revenue in the third quarter, and the 8% was comprised of professional services. Our LTM dollar-based retention rate remained at a 123%. As a reminder, our continued success in winning larger and larger enterprise customers is expected to cause fluctuations in our dollar-based retention rate. As I come onto the platform at different times and ramp at different rates, our time, despite the inevitable quarterly fluctuations, we expect DVRR to trend upwards due to a high mix of enterprise customers, especially larger ones, and higher ARPU from automation and other offerings. Third quarter adjusted gross margins were 64.1%, a decrease of approximately 130 basis points year-over-year, primarily driven.
By our ongoing investments in professional services to support the momentum of enterprise business. And investments in public cloud to more efficiently expand our global footprint. Third quarter adjusted EBITDA was $27.4 million. Representing a 17.8% margin. A decrease of approximately 370 basis points year-over-year, driven by both, the somewhat lower gross margins, and the increase investments in go-to-market and R&D strategic initiatives. Third quarter non-GAAP net income was $20 million or $0.28 per diluted share, a year-over-year increase of $1.5 million or a penny per diluted share. Our DSO performance continued strong coming in at 30 days. Our Q3 operating cash outflow was $4.8 million driven, in part, by $6.1million of transaction-related cash payments during the quarter.
We expect that LTM operating cash flow margin, currently at 7%, to increase meaningfully in the longer-term given our ability to expand gross margins, increase operating leverage, our substantial NLOLs, and our low DSOs. Before I share outlook for the remainder of the year and provide initial comments on 2022, I would like to highlight a few points about the financial model in the merger proxy. First of all, I would like to affirm that we are setting our new long-term targets in line with the 2026 model in the proxy at $2.4 billion in revenue and 23% EBITDA margin. During our Financial Analyst D ay on November 18th, we will provide additional details regarding the considerable market opportunities we see, our investment strategy, and our demonstrated ability to execute. All of which will drive us towards the new goals. Also with respect to the proxy numbers, please keep in mind that they were based on an extrapolated, long-term, top - down model with consistent linearity.
Whereas in reality, they will inevitably be quarterly and annual fluctuations, including in the near-term. Lastly, before sharing our guidance, I would like to make it clear distinction between our view on the attainability of the new long-term model versus the attainability of our quarterly and annual guidance. The extrapolated long-term model was a down the fairway model. For ease of communication, consider the proxy model as a 50-50 model, meaning that we have a 50% chance of making it but also a 50% chance of failing to do so.
On the other hand, the prudent annual and quarterly guidance philosophy that we have successfully followed for many years will definitely not change. With that, I'd like to finish today's prepared remarks with a discussion of our guidance for the fourth quarter and the full-year 2021, as well as providing high-level commentary on 2022. For the fourth quarter, we are guiding revenue to a midpoint of a $165 million, which represents our highest quarter-over-quarter and year-over-year growth rates we have guided to in any Q4 at 7% and 29% respectively.
For 2021, we're guiding annual revenue to a midpoint of $601 million, which represents a record year-over-year growth rate of 38%. As for the bottom line, we are guiding fourth-quarter non-GAAP net income per share to a midpoint of $0.36, representing an $0.08 quarter-over-quarter increase, which is the highest sequential increase we have ever guided to in any quarter, resulting in a midpoint annual non-GAAP net income per share guidance of a $1.09. I would now like to provide some preliminary high level commentary on our current thinking for 2022. Before doing so, however, I would like to share with you how we have been looking at our overall investment stands for the upcoming year. As Rowan and Dan have amply demonstrated, we are operating in a market which we believe is set to enjoy many years of sustained high growth.
This massive market opportunity warrants a temporary acceleration on investments in a number of areas, including in automation initiatives, the continuing much upmarket, and further global expansion. We believe now is the time to capitalize on both our leading position and these opportunities to drive growth and enhance our future returns. Let me emphasize, however, that this does not mean we're becoming a growth -at-all-cost Company. This is a responsible decision born of market conditions and growth. With this in mind for 2022 revenue, we are comfortable with the currency consensus of 24% year-over-year growth.
Revenue were once again, follow our typical pattern with slightly more than 50% of our revenue in a seasonally stronger second half. We expect 2022 non-GAAP net income per share to come in at approximately a $1.09 of the same level as the midpoint of our 2021 guidance, despite the accelerate investments we have embarked upon. In addition, we would like to provide an our job on the quarterly profile of our bottom line. If you look at our historical financials, non-GAAP net income per share is always amongst the weakest of the year in the first quarter. And we expect this to be especially the case this coming year.
We expect earnings to improve slightly in the second quarter and to improve meaningfully in the second half, especially in the fourth quarter. Please refer to the presentation posted on our Investor Relations website for additional estimate including share count, taxes, and capital expenditures. In summary, we're very pleased with our third quarter performance. We remain laser-focused on executing [Indiscernible] to deliver sustained, durable growth. Operator, please go ahead.
And at this time, I would like to ask all of the analysts to go ahead and turn on their cameras. Okay. We have our first question from DJ Hynes with Canaccord.
Hey, guys. Great to see everyone and congrats on the results. Dan, maybe I could start with one for you on the go-to-market. It's great to see that the massive expansion on these mega deals that you guys have closed in Q4 and Q1. Can you just talk about the pipeline for the mega deals going forward? Are there more of them out there and has the narrative that your competitors are using to sell against you changed at all, in light, of what's happened over the last 4 months?
Great. Thanks, DJ. I appreciate it. And the mega deals, from a pipeline perspective, absolutely continue to grow. We continue to go up market. Part of it is in the market opening up, right? They've now seen that the cloud can deliver on a global basis, the most complex innovative requirements that they want to re-imagine the customer experience. So the pipeline generally we shoot for a 5X multiple, meaning the 5X coverage over the anticipated quota. In our strategic teams, which handles the high end of the enterprise accounts, that number's closer to 10X. So we feel very fortunate about the future and more and more mega deals, so to speak.
Yeah. Great. And then maybe I can follow-up with one for Barry. Barry if I'm being honest, I didn't expect you to come out and confirm the 2026 long-term target. Understanding you said it's kind of a 50/50 target, can you just talk about what needs to go right in your view to get there?
Thanks, DJ. As you just alluded to, we did say it's down the fairway, 50/50 target that we will strive towards. And distinguishing it clearly from our typical prudent guidance, quarterly and annual guidance that we provide, which will remain conservative. So what is our confidence? Our confidence comes from the fact that this management team has repeatedly demonstrated in the past that we would hit every goal that we have committed to and our level of commitments on this particular one is exactly the same. There would inevitably be fluctuations in the near-term as we accelerate some of our investment. But that march towards that $2.4 billion will continue, there's no certainties, DJ and business obviously but we do take considerable confidence from the fact that this is a massive market. It's coming towards us a new front door is opened and is driven by mutable trends that Rowan talked about, and what we do is truly mission-critical. It's the sharp point of the spear, with customer engagement.
We have over 2,000 employees across the world, expert in all aspects of the contact center from design, sales, implementation, support and who love working at Five9 as witnessed by our low attrition rates and glass door rankings. And as I said before, we have leadership team under Rowan that has repeatedly year-in, year-out demonstrated the ability to execute.
Great. Thank you guys for the color. And I'm glad we're still doing this.
Next question is from Meta Marshall with Morgan Stanley.
Great, thanks. A couple of questions for me. First, on some of the 8-figure deals that you had won earlier in the year, you were noting it might take till year-end or kind of beginning of the year for some of those to roll out. But yet, you're already seen expansion of some of those deals. And so just wondering, is that implementation going faster or what's causing the upside so early? And then just second question for me. Just conversations with customers, maybe post to solution of the dealer or conversations with customers during that deal and just what the circle up process has been like post the solution of the [Indiscernible].
Yeah.
I'll take the first part of that, Rowan.
Yeah. Yeah, go ahead.
First part on the larger deals, they're absolutely right on track. I mean, as anticipated, they have much more complexity, many more groups that want to be involved. If you imagine, and in certain cases, these are large companies trying to revamp how they support their customers and they want to create a consistent yet new and innovative way of serving our customers, and there's lots of internal discussions. It's almost like hurting the caps within the customer is most of the delay. People ask this one, why is there such a long lead time before revenue, and it's a -- if we can get the customer to decide on exactly how to implement, I think it would be a lot faster. But that's primarily the reason, just pulling all of their groups together and making sure that they profitably designed what they want to launch at the outset.
Yeah. I think that sums it up really well. I think some -- look, some move actually fairly quick and some take a while. And so it's all over the map on that front. But on the second part of your question, Meta, a fairly balanced response mean there were some customers who were wanting to slow down and understand some of the security implications related to Zoom's -- relating to the Zoom acquisition. So there was some of that, especially on the large enterprise side. And so obviously, when we move beyond that deal, those questions got taken off the table. And then nothing really negative from customers, particularly, either way on the transaction itself or on the dissolution. So it's been relatively balanced, I would say, and not noticeable in one way or another.
I got it. I mean just to follow-up with Dan real quick. I mean, on the $14 million deal that was upsized, the $23 million. So is that kind of what Rowan was referring to as a customer -- like that customer had moved faster. And so was already starting to upsize or?
Part of it was decision-making across different theaters or regions of the world. Somewhere ready, prepared to process, negotiate our contracts in place, the orders and some of the other geographies weren't quite ready. I wouldn't tie that to implementation timing. It's just a matter of independently make their final decisions and final contract negotiations. And we were allowed to send the script, I mentioned that it was so far, so we're not done
Great. Thank you.
Next question is from Jackson Ader of JPMorgan.
Great. Thanks, guys. I'm on for Sterling Auty tonight. Good to see you. The first question from our side is did the Zoom merger or that period of time, did it impact any deals that people put things on hold while those discussions were being had? And if so, have we closed those since that deal has gone by the wayside?
I'll start that nothing was really put on hold. We had several accounts for the one as Rowan alluded to earlier where they wanted to have more meetings and multiple discussions around whether it was security on changes, how we would support them, but all along, we had intended to operate as a separate entity and we explained that very clearly that these were very different swim lanes that our two companies were in, it would've been incremental business for us to be with Zoom, but we needed to maintain our focus on the line of business buyer and implementation and support the way we've always done it. And so I think they took great comfort in the fact that we were going to remain largely intact the way we have been. So nothing really got pushed or taken off the table. It was just a matter of extra meetings and longer discussions and just a few extra items there. But everything we remained on track, we didn't miss a beat. We, as I mentioned in the prepared remarks, we had our two largest bookings quarters ever both in Q2 and Q3. So onward and upward.
Gotcha. And then quick follow-up for you, Barry, the commentary on the pandemic tailwind and that flipping in the first quarter, maybe to a headwind. Could we just get a clarification of that as you're just talking about coming up against difficult comps or is there any reason why a reopening might impact the number of users or seats that you guys actually have live on the platform? Thanks.
Yeah. [Indiscernible] the COVID tailwind, that one-time tailwind, Jacksonville is -- you should consider it basically Q3 of '20, Q4 of '20, and Q1 of '21. And as I said in the prepared remarks, the incremental revenue that we've picked up 4 to 5 percentage points sequentially to the quarters in those recorders
Has it started to abate starting in the second -- started to abate starting in the second quarter. But the residual quarter-over-quarter increases in Q2 and now in Q3 are 4% and 7% respectively are at the high end of the pre -pandemic levels. So we're keeping all of that. But the way to look at our business through Q1 of next year is to look at the sequential growth rate. Because that's really is the true comparison until we lap those tough [Indiscernible].
All right, great. Thanks guys. good to see you again.
Next we have Ryan MacWilliams with Barclays.
Hey, good to see you guys. So pleased to hear that you're seeing more deals and larger deals in the pipeline. Now with the frequent addition of inference to your enterprise bookings, are you also seeing improved see pricing for new enterprise wins?
We're starting to see an uptick in ARPU, if you will. And that's primarily from the [Indiscernible] of applications that we have in our portfolio, right, where it's not just IVA that's the most prevalent that the enterprise buyers are opting in for, some of them they'll opt-in for a very small number so they can test and see what use cases are going to be most effective and deliver the best ROI, but when you add the workforce optimization and the workflow automation and the other applications that grow across all the seat, you get more uplift. So we're starting to see an uptick. We can talk more about that at the Financial Analyst Day when we dig into more detail.
There's two quick ones for Rowan and Barry. Rowan, we started to see contact centers returned to in person. And then Barry just for booking seasonality, as you move more and more enterprise, do you think you will see more booking seats and how the shift to the fourth quarter? Thanks guys.
Thanks Ryan. On in-person, I know Dan has more color. I only have anecdotal. We're seeing something similar to what we're seeing with office work, which it varies by country. In the Philippines, they just ordered 10% of their employees back into the office, I think, for example, by government mandate. So I think it's all over the map. And it's hard to say to generalize right now.
And I'm [Indiscernible] that you would ask me the question, but I'm going to actually -- on bookings. I'm actually going to differ Ryan to Dan to talk about whether or not the fourth quarter would be typically now, with enterprises are more stronger seasonal quarter.
Typically, your end, there's budgets to the stance. There's folks that want to get projects completed. Generally talk too much about the future, but Q4 started off very nicely and we see great optimism in reaching our numbers that we've put in place for you on.
Because you guys again. Congrats on the results.
Thanks [Indiscernible]
Next question is from Scott Berg with Needham.
Hi, everyone congrats on a good quarter and thanks for taking my questions. I wanted to go back to something that Rowan you'd said in your pre -scripted remarks, you made a couple of different comments around partner traction. In particular, both down-market a little bit, but specifically up at the higher end, you'd mentioned channel partners are certainly contributes to deals greater than $1 million in ACV. I guess as you ask -- as you look at those partners that are helping in the high-end of the market, is there any reason to think that those customers can help drive some of the same maybe high single million-dollar ACV deals that you have, or 8-figure deals in your pipelines?
Maybe Dan, you could take that one.
Yeah. Well, they are. Scott, are you referring to our resellers and partners bringing us million-dollar plus opportunities?
Yes.
Yeah, that's happening already, I think as Rowan mentioned. We've seen several of those that are coming through the channel now. The channel business is growing. Just resellers and referral partners alone make up over 40% of our bookings. So it's giving us great reach. If you think about it, we've got thousands of people now out in the market globally representing and endorsing Five9, and it just brings more opportunities to bear. And so we're seeing that regularly. And as I mentioned earlier about the very high-end of the market, we talked about this underpenetrated [Indiscernible] at the high end of the market, we're just getting started as an industry. They are the last folks to go and so when we talked about some with these mega deals, they really are the early adopters of the large enterprise. So we've got a whole -- when we talked about our pipeline growing and our strategic accounts, it's clearly our largest area of investment and our largest and most accelerating area of growth. So all positive, there.
Great. And then to follow-up, Barry on your comments. my guess is you're not going to take this or will defer this one as well. But you talked about reiterating your 26 revenue targets that was in the merger proxy. But how should we think about that? What's driving that growth rate over the next 3, 4, 5 years? Because it's certainly a step up function from what the Company is seen in general over the last 4 or 5 years. Is it more of a function of just more deals in the space because we'd hit that inflection point where everything's going cloud? Is the change of win rate assumptions in there, or maybe just a large deal environment that's driving select [Indiscernible]? Thank you.
Yeah, I'm happy to take a stab at that Scott. I'd be delighted too. And if Rowan and Dan will [Indiscernible] I'd appreciate it. But basically, it is more of the same boring story that Five9 has been talking about [Indiscernible] in public, it's 22% year-upon-year growth. The march-up market in strengthening environment is taking it now to 38 against the tough compare year-over-year. And it's only evidenced by the fact Scott that enterprise LTM subscription revenue, Rowan has been saying now for, I think, 3 years plus or minus, that will go with a 3 handle consistently, at least. And the confidence that comes around it is that every business in America, in the world, aside from an occasional mining Company or fishing Company needs to contact them.
And the contact center is becoming more important post-pandemic, it's the new front door. Think of, basically, a contact center agents becoming -- excuse me, retail sales growth becoming contact center agents. And we happen to be one of the leaders in this area, and have picked areas to focus on that can really help. And we've got all this international runway ahead of us. Or the automation increase in time ahead of us. And it's an [Indiscernible] if I can be. We've got 2 very well-respected and responsible competitors when it comes to taking away business from Avaya and Cisco, but our win rates against those 2 are very high. Well over 70% in each case. It's not an increase in win rates that we are selling.
Okay. Nice to see everyone again.
Thanks, Scott. Good to see you.
Next question is from Samad Samana with Jefferies.
Hi, good evening. I'll echo the congrats on executing in with a lot of noise in the background, which is I think what we all appreciate a lot of Five9. So maybe Rowan, once you start off for you, we talked about customers. Maybe we could talk about how partners, how that conversation has been with your other [Indiscernible] partners. Now that you're back on course to go it alone, just maybe how have your partners reacted and what does the conversation been like there?
Yeah. We continued the dialogue -- we continue to stay connected to all of our partners through the conversations with Zoom, really never backed off on that. And that's a good thing, right? And we've frankly seen further leaning in by some partners post the breakup announcements. And so that's been positive to see. And of course that's -- that was our strategy before was to kind of be Switzerland and support all of the vendors out there. So I think that's really does help us on that front, you know continue to see the momentum from the other YouCast partners who need great seek has offers. So it's been positive
Great. You can clearly see that in the numbers and then just from a Company recruiting perspective, it was great to hear about low attrition. I'm just curious, as far as the companies had count, if that was how recruiting wise, are you ahead of plan, at plan for kind of how you shape for the quarter would go for your own headcount and that would be helpful too.
Yeah. So we are at over 2,000 employees now and we've been, as Barry mentioned, we've really haven't been having a challenge with hiring and we think the culture of the Company is fairly renowned, at least in our little corner of the world, people want to come work for Five9 and we've also seen record low attrition. I think at a time when the headlines are filled with the Great Resignation and this [Indiscernible], our employees have really stuck with the Company, believe in the vision and the mission, and have been really the ones behind the results that you saw today. So that's just a reflection of the team's commitment and the deep gratitude I have for our team.
That's great. Barry, if could just slip sort of a quick in one for you. On the quarterly seasonality that you talked about, is that more comfort around the cadence of subscription revenue coming online from implementations or more around the usage trends now that you have enough evidence over the last several quarters?
No, they typically moving in tandem. Not always but sometimes the usage, as Dan [Indiscernible], precedes the seats because you don't hire an agent and get them into seats until you have the calls there. But they move pretty much in tandem. We call -- that's why we've call it the recurring revenue.
Great. As always, I really appreciate it and great quarter guys. Thank you so much.
Our next question is from Taylor McGinnis with UBS.
Yeah. Hi. Congrats on the quarter and thanks so much for taking my question. So you talked a lot about the drivers, I guess, to get to the $2.4 billion. But I guess on the flip side of that, maybe can you talk about what some of the risks are in achieving that guide, I guess, what's causing some of that split comfort and how does that compare to what you guys are seeing in the pipeline today?
Barry, you want to grab that please?
Yeah. So there's basically 3 ingredients and I'm over-simplifying for ease of communication, Taylor; there's the market, the competition, and the execution. And so it's self-evident that the market is there and we humbly submit that we were so good to execution. So it's really around potential competitors. In that regard, this [Indiscernible] in a phone, this is something that takes full 5 years to develop as witness what was done, for example, at Interactive Intelligence at the time before they were bought by Genesys. And a lot of money to do that, and you've got to have the software telephony [Indiscernible] combination to be able to do that. So if you look back and if you consider the part of the line-of-business buyer who is buying -- replacing the Avaya or Cisco Switch, there's really the three companies and especially, I'm talking about at the enterprise level. And that's being that way for more than a decade.
And so there's been no new entrants, in other words, of scale into the industry in years. So there may well be competition. We'll be arrogant to assume that there wouldn't be, but it's also not -- I'm going to conclude with this. It's also not just the product tailor. You've got to match that with all the complete services from the partners from ourselves across the world and from implantation and support, and that takes a long time to build. Competition may welcome, but we think we still pretty well-positioned to be able to do it over the next five years.
Got it. That's really helpful. And then my last question is, can you just maybe talk about what you guys are seeing today in terms of sales cycle than pace of migration activity. Growth obviously has been very strong these last several quarters, but maybe you could talk about some of the assumptions embedded in the first half of this year, maybe being lower growth, the low 20' – 2022 guide and how to kind of bridge that with the $2.4 billion out year guide. Is there any part of here where the pandemic could have caused some bumping activity, but as you look forward, growth might be more lower but more durable and high into the future?
Barry you want to take the latter part of that?
Yeah. So in terms of COVID bumps, [Indiscernible] will show most evidence of that. Show that that ended basically in the first quarter of this year. It's still reasonably strong, but not as strong as the 3 COVID quarters. In terms of the pattern for 2022, we have a pretty consistent pattern that normally, if you exclude the pandemic benefit -- I always hesitate when I say pandemic benefit. It sounds cruel. But if you exclude that, the second half is clearly stronger, especially on the second quarter, but also the first quarter and the fourth quarter is always the strongest. And then we're going up to as you saw us about 2026. As I said, there's going to be fluctuations, but we'll continue on our way to that number. And with respect, if I could just add, I was talking about the top-line with respect to the bottom line, as I mentioned, and stressed on the open call, the first quarter is always one of our weakest quarters and that will be prominently the case is coming quarter.
Got it. Thanks.
Next question is from Joe Mirrors with Truist.
Hey guys, this is Joe Mirrors on for Terry. Thanks for taking the question. Obviously, you guys have had really strong growth in international markets, so I'm just wondering if that's mostly being caused by customers landing larger, are they expanding more quickly, just give us some details on what the underlying trends are there?
Yeah. I'll take that, Joe. As far as the international markets, we've staffed up. Not only our presales, sales folks, and SCs, but also our channels teams. And signing up local entities that those companies are used to buying from and half brand awareness in the local market. That makes a big differences as well. But it's clearly from landing new logos and bringing on new customers. Some expansions like always, but it's primarily just landing new accounts. And that's been primarily in the EMEA region. We set up our hub in the UK, just outside London. And then we have operations throughout the surrounding mostly Western Europe countries. And then we have a big prominence in Latin America as well. So those are our two main international markets, excluding North America. We obviously have Canada as a big market as well.
That's it for me. Thanks, guys. Appreciate it.
Thanks guy.
Next question is from Jim Fish with Piper Sandler
Hi guys. Enjoy keeping it going here with Five9. Just actually wanted to touch upon some news recently with Microsoft Dynamics 365 voice getting announced as a [Indiscernible] solution while you guys, also about a month ago, announced that integration with teams. I guess, how does this relationship really shake out and how will that change the landscape from your view, especially for kind of that low-to-mid and where you're starting to see a desire for [Indiscernible] together?
Yeah, I'll take that one, Fish. Good to see you. It's pretty straightforward. What they announced is very similar to what, at least the way I read it, was very similar to what I think Zendesk had done sometime ago with Zendesk Talk or Zendesk Voice. I'm not sure what they call it. And also frankly, what Salesforce did with their partnership with Amazon, but much more similar to Zendesk. They added the voice channel. So dynamics already had the digital channels, but they didn't have any capability for voice. So they added that. They added that. And I think they said they're using Azure voice services API. I think it's in keeping with that kind of activity and it's interesting that it wasn't the teams -- Microsoft Teams group that did this, but it was the Dynamics group that did this. So Dynamics are really the ones who we've had a partnership with for a long time. They -- I think they also said in the second -- in the same sentence as their announcement, but we're going to continue our relationships with Five9 etc. And I think the recognition there is, look, you need some sort of light -- they need some sort of lightweight built-in talk capability. But for a full contact center solution, there's still going to be leveraging partners, at least that's the way I read it.
Makes sense. And maybe I know we touched upon IVA having a really strong quarter with enterprise. Maybe -- can we talk a little bit about the attach of AI Assist this quarter and how that momentum has really been, not just in the last quarter, but the last 6 months, especially post Enterprise Connect, where you guys were talked about as the best AI product? Thanks, guys.
Yeah, thanks. So we've won a couple of words on that front and frankly, we're seeing most of the traction is around IVA, but [Indiscernible] are seeing quite strong interest. I think in terms of -- especially in larger enterprises they want to see that you're playing in these various parts because I think nobody sees a one size fits all in any one technology -- there's no silver bullet here, like one of the technologies can solve all the problems. So what they're really looking for is a complete solution that they can buy, and we're seeing much more traction on IVA just because it's a little easier to see direct line of sight to the return -- from the return on the investment from a customer perspective. That's where we're saying agent assist, we've had very, very strong bookings. We continue to work on that and we're actually going to share more details on this in our Financial Analyst Day, so stay tuned on that front.
Thanks, guys.
Thanks.
Next question is from Peter Levine with Evercore ISI.
Thanks for taking my questions [Indiscernible] some good quarter. I mentioned the first one in. Can we get an update on the Mitel relationship, just trying to gauge if there are any hiccups or delays that came up during the Zoom transaction and what are you baking in or expectations for the Mitel deal going into '22 to perhaps into '23?
And we really don't have any expectations baked in from that. There's upside there. We've signed. So I would say about early progress has been good. We've signed up a few of their bigger partners. And so we've already seen some transactions on that front, but still very early days. And candidly, during the Zoom conversations, I think that conversation took a bit of a backseat. But yeah, we'll give you more actually at Financial Analyst Day on this one and others.
Maybe one more for you, Rowan is just I guess I'm longer-term it's just that there were ability of maintaining your current pricing per seat if you obviously have a lot to go back to your customers on today, drive higher up sales, but I would assume, as you move further up market, I [Indiscernible] seen the deals you have today or you want today, there's some discounting so how do we kind of balance that?
Accounting [Indiscernible] this -- your thesis is finally wrap this discounting on the core offer. But what you find them, these enterprises is that they buy the full portfolio. So those specialty strategics, they have a real need to drive efficiency in their labor spend. And so that's where you see the IVA add-ons and the rest of the additional portfolio add-ons that we've added are actually maintaining that $200, $205 ARPU. And frankly, there's an upward bias there where it's starting to go up. It's actually being driven by the larger customer. So it's a -- there's a lot more that we can do for these companies. Digitalization is not driven -- this spend is not a cost-savings activity primarily for businesses. When we talk to customers, it's not about grinding us on price because they're just looking to get a lower proceed price. It's actually the conversation is all about how can you help us improve our customer service, and our outbound sales efficiency, and all the different things that we do for customers, and so the price pressure hasn't really been exceeding evident in our base even up into the larger enterprise.
Thank you.
Next question is from Steve Enders with KeyBanc.
Great, thanks. Thanks for taking my question here. I guess I just want to touch a little bit more on the investments you're making into next year that is keeping EPS flat versus the guidance. Just wondering what's the biggest areas are of incremental investment [Indiscernible] that you're making and where those dollars are going to be primarily focused on.
Barry, do you want to take that one?
Yeah. So Steve, it's a macro level. It's 3 things, the automation, international and the march of markets are taking them in turn. There's still -- in terms of automation, a fair amount both in terms of the incremental R&D and our product is ever completely finished. But on top of that, it's expanding the capacity given the explosive volumes that we're seeing that go inside in these remarks. We need to keep ahead of that and that takes people and hardware and maintenance. The second one then is the march-up market. That's actually more of the same but we need extra channels and extra features and capabilities to satisfy some of that, especially the global requirements. And lastly and importantly -- and by the way, also in terms of [Indiscernible] of market, is that building out the professional services team. It is a different kettle of fish handling a Company the size of some of the ones that we've recently talking about versus the moment -- the smaller companies.
And then lastly, international. Going into a new country involves a host of startup expenses, recruiting, legal, admin, and then you've got to be able to find the right people, that takes time. You might don't always get the right people the first time around. All of those things across the world for these global make a deals takes money.
Okay. Perfect. Thank you. Proceed the questions.
We only have time for one more question. Our next and last question is from Will Power with Baird.
Right. Good afternoon. Great to see you all on here again. So I guess probably Rowan or Dan, one of the reasons you all had pursued or agreed to the Zoom transaction, I guess it wasn't hard because you were seeing some increased interest and bundled UC and CC efforts. I wondered if you could comment just qualitatively as you look at the pipeline, which seems like it's at record levels, how much of that now is still line of business? I assume that's still the bulk of it. What are you seeing in terms of UC, CC interest or UC CC interest, and how do you make sure you still capture that piece like solidify those relationships? And I guess a kind of a third of a piece of that, any interest in some Ucast solution, longer-term as something that might fit?
Barry, I'll take that one and I'll cherry pick one of the things you said about the LOB buyers in our base. LOB buyers in our base and in our pipe are really almost 90% of the buyers. So they are very much -- [Indiscernible] of the vast majority, almost 90% are LOB based, and the opportunity with Zoom was really an offensive opportunity to grab a new buyer and that was the IT buyer and it was mainly, if you look at the Zoom presentation on the rationale for why they were interested in Five9, it was all about the fact that they were selling UC and they can bundle a contact center solution to their buyer. And there the buyer of UC solution is typically IT. It's a different swim lane than ours. And so it's not -- we're not seeing those buyers drive our business and they don't see a lot of business buyers drive their business. In fact that's pretty well reflected when you see the way that we talked about the Company -- the integration, the conversations that I had with Eric.
We're really about -- we had to keep Five9 separate because it was a very, very different go-to-market, and so that is real benefit for us as we walked away from that because nothing really happened to our go-to-market. We were going to keep it completely separate anyways, and as we move forward here, we still got an incredible opportunity. Frankly, I think that we're seeing more. We're seeing growth in the line of business and tech savvy kind of business leader who's driving a standalone or a digitization effort to upgrade your CX, customer experience. And that results in a CRM upgrade often and then a contact center upgrade. And Ucast is not any part of that conversation. So good for us.
And we're going to continue to drive incredible momentum here as we shared and the confidence in the long-term model I think reflects that. And there's no stepping into the UC market, by the way, baked into that long-term model, at all. That market, as a headline, is going down, right? I mean, the UC space as a total market is declining. Voice-over IP telephones are not the end-all-be-all. It's not the next generation thing. It's a replacement cycle for a legacy platform.
Thank you.
Thanks, Will.
Before we close our call, I'd like to pass it back to Rowan for our closing remarks.
Great. Well, thanks to everybody for joining our call this afternoon and supporting Five9. We really appreciate it. And we have an upcoming Financial Analyst D ay as we reiterated numerous times. Please join us for that. That's going to be on November 18th. Barry, correct me if I'm wrong. I'm very excited to be able to share more about the long-term prospects of the Company, the market, and where Five9 is heading. And with that, I'd just like to close by thanking all of our employees and partners. The real heroes of all of our execution and the crisp delivery that we have been so well-known for on Wall Street is as a result of our employee base. And so I just want to close it out by saying thanks to all of our employees and partners. So thank you all very much. See you on financial analyst day. Bye bye now.