Five9 (FIVN) Q2 2025: Enterprise AI Revenue Jumps 42% as Platform Shift Accelerates
Enterprise AI adoption drove Five9’s best bookings in two years, with AI now a clear revenue engine and margin tailwind. The quarter marked a strategic pivot with CEO transition, deep AI suite expansion, and partner momentum, setting the stage for a new leadership era. Investors should watch for continued AI mix shift, evolving go-to-market execution, and the durability of margin expansion into 2026.
Summary
- AI-Led Transformation: AI now exceeds 20% of enterprise bookings, fueling a major revenue and margin mix shift.
- Leadership Realignment: CEO transition and executive reshuffle signal a focus on AI innovation and operational scale.
- Margin Expansion Focus: Structural changes and subscription mix are driving record profitability, with more upside targeted.
Performance Analysis
Five9 delivered a quarter of broad-based outperformance, with AI the standout growth lever. Subscription revenue, now 81% of the top line, accelerated on the back of enterprise AI revenue growth, which surged 42% year over year and now accounts for 10% of enterprise subscription revenue. This mix shift is critical—AI bookings comprised over 20% of new enterprise annual contract value (ACV), and both new logo and install base AI bookings saw triple- and quadruple-digit growth, respectively.
Profitability sharply improved, with adjusted EBITDA margin reaching a record 24%, up 740 basis points YoY, underpinned by higher-margin subscription revenue and operational discipline. Free cash flow also hit a new high, even after absorbing restructuring costs and the full retirement of 2025 convertible notes. Non-AI subscription growth also accelerated, highlighting that core platform adoption remains healthy even as AI becomes the headline driver.
- AI Bookings Mix Shift: Over 20% of enterprise bookings now attach AI, indicating durable demand and future revenue visibility.
- Subscription Revenue Dominance: At 81% of total revenue, the recurring model is now the primary profit engine.
- Cash Flow Inflection: Operating and free cash flow both set records, with net cash positive status in sight.
Five9’s strategy to de-emphasize lower-margin telecom usage and professional services is structurally uplifting margins and focusing resources on enterprise software expansion. The commercial segment, now just 10% of mix, is intentionally deprioritized as the company doubles down on large, sticky enterprise relationships.
Executive Commentary
"Subscription revenue, which now makes up 81% of total revenue, accelerated to 16% year-over-year growth. This was primarily driven by enterprise AI revenue growth accelerating to 42% year-over-year in the second quarter, now representing 10% of enterprise subscription revenue."
Mike Berklins, Chairman and CEO
"Q2 adjusted EBITDA margin increased approximately 740 basis points year-over-year and 520 basis points quarter-to-quarter to 24%, which is an all-time record. Second quarter non-GAAP EPS grew 45% year-over-year to $0.76 per diluted share."
Brian Lee, Chief Financial Officer
Strategic Positioning
1. AI-First Product and Go-to-Market Shift
AI is now the core of Five9’s customer experience (CX) platform strategy, with new agentic AI agents, agent assist, and workflow automation products forming the backbone of recent large enterprise wins. The company’s Genius AI suite and AgentOps, AI deployment management, are designed to make AI adoption seamless and safe, with features like AI Trust and Governance for enterprise-grade guardrails.
2. Subscription and Revenue Mix Realignment
Five9 is intentionally reducing reliance on telecom usage and professional services, steering customers and partners toward higher-margin, recurring subscription software. This shift is both a margin driver and a defensive moat, as larger customers increasingly bring their own telephony and channel partners take on more deployments.
3. Partner Ecosystem Deepening
Strategic alliances with Salesforce, Google Cloud, ServiceNow, and Epic are accelerating pipeline and deal flow, especially in healthcare and data-rich verticals. The Salesforce and ServiceNow co-selling and integration efforts are translating into larger, stickier deals, while Epic integration is opening new healthcare use cases.
4. Leadership and Organizational Realignment
The CEO transition and executive promotions reflect a pivot toward innovation, AI expertise, and operational scale. Realigning sales and marketing under a single chief revenue officer and consolidating legal and HR functions signal a drive for efficiency and clear ownership as Five9 targets its next phase of growth.
Key Considerations
This quarter marks a clear inflection in Five9’s business model, with AI adoption, margin expansion, and leadership change all converging. The sustainability of AI growth and the operationalization of new products will be critical to watch heading into 2026.
Key Considerations:
- AI Revenue Durability: With AI at 10% of enterprise subscription revenue but over 20% of bookings, the mix shift will likely accelerate, but customer data readiness remains a gating factor for broader adoption.
- Margin Expansion Levers: Subscription mix, partner-led deployments, and product innovation are driving gross and EBITDA margin gains, but reinvestment in AI and go-to-market could temper near-term upside.
- CEO Transition Risk: The search for a new CEO with deep AI and operational experience introduces uncertainty, but also the potential for fresh strategic direction.
- Vertical Momentum: Healthcare, financial services, and retail are leading in AI adoption, aided by robust data infrastructure, while commercial and international remain secondary priorities.
Risks
Macro uncertainty, especially among seasonal customers, is prompting conservative guidance and muted expectations for second-half seasonality. The CEO transition poses execution and cultural risks, while the rapid pace of AI innovation requires ongoing investment and could expose Five9 to competitive disruption if product leadership is not maintained. Customer data integration and organizational readiness remain hurdles for scaling AI revenue beyond early adopters.
Forward Outlook
For Q3, Five9 guided to:
- Revenue midpoint of $284.5 million
- Non-GAAP EPS midpoint of $0.73, reflecting lower interest income and increased AI investment
For full-year 2025, management raised guidance:
- Revenue midpoint increased by $5 million to $1,146.5 million
- Non-GAAP EPS midpoint raised by $0.12 to $2.88
- Adjusted EBITDA margin target now at least 22%
Management highlighted that minimal seasonality is assumed for the rest of the year, and that the record install base bookings in Q2 will layer into revenue in Q4 and 2026. The company reaffirmed its commitment to the Rule of 40 in 2027, combining double-digit growth and continued margin expansion.
- Install base bookings will convert to revenue with a lag, supporting growth into next year
- AI and go-to-market reinvestment will moderate short-term EPS upside
Takeaways
Five9’s Q2 was a defining quarter for its AI-led platform transition, with clear signals of sustainable growth, operational discipline, and evolving leadership priorities.
- AI Mix Shift Will Accelerate: With AI already over 20% of bookings, the path to a much larger AI revenue share is clear, provided customer data integration continues to improve.
- Margin Leverage Is Structural: Subscription and partner mix changes are not one-offs, but reflect a durable margin expansion engine, even as reinvestment in AI ramps up.
- Leadership Transition Is a Double-Edged Sword: The new CEO search brings both execution risk and the potential for renewed strategic energy, especially around AI innovation and scaling.
Conclusion
Five9’s Q2 2025 results mark a decisive pivot toward an AI-first, high-margin, enterprise SaaS model, with strong bookings, record profitability, and a leadership transition that could shape the next phase of growth. Investors should track the pace of AI adoption, margin sustainability, and leadership execution as the company navigates a rapidly evolving CX market.
Industry Read-Through
Five9’s results reinforce that AI is now table stakes in cloud contact center (CCaaS) and enterprise CX software, with customer data readiness and integration the key gating factors for adoption. The company’s success with partner-led sales, rapid AI productization, and margin expansion offers a blueprint for other enterprise SaaS providers. The muted outlook on seasonality and macro caution are sector-wide, while the CEO transition and focus on operational scale highlight the importance of leadership alignment as AI-driven transformation accelerates across the industry.