Five9 (NASDAQ:FIVN) reported third-quarter revenue above its guidance range as artificial intelligence deployments accelerated, and said it had agreed to acquire Level AI for $325 million in cash to expand its standalone AI offerings.
The contact center software company raised its full-year revenue outlook but lowered its non-GAAP earnings forecast, citing the timing of planned organizational changes and a higher diluted share count.
Revenue rose 13% year over year to $323 million in the third quarter of 2026. Subscription revenue increased 16%, with contact center as a service, or CCaaS, revenue up 8% and AI revenue up 91%.
AI deployments drive growth
AI revenue reached approximately $45 million, representing 17% of subscription revenue, up from 10% a year earlier, Chief Financial Officer Bryan Lee said. Some customers deployed AI products earlier and at a larger scale than expected, benefiting revenue in the quarter.
Five9 now expects AI revenue growth of at least 75% for 2026, up from its previous outlook of at least 60%. Lee cautioned that the strong deployment ramps would create difficult year-over-year comparisons in 2027.
Chief Executive Officer Amit Mathradas said much of the AI growth came from existing customers adding products and use cases. He said some customers in regulated industries were maintaining or adding human agents while deploying AI more broadly.
The company’s last-12-month subscription dollar-based retention rate rose to 109% from 107% in the prior quarter, helped by seat additions and AI deployments from backlog. Five9 expects the measure to remain flat or rise by one percentage point in the fourth quarter.
Third-quarter adjusted EBITDA margin was 25%, unchanged from a year earlier, while non-GAAP earnings rose to $0.82 per diluted share from $0.78. Free cash flow was $43 million, or 13% of revenue.
Level AI deal broadens product reach
Five9 expects the Level AI transaction to close during the fourth quarter. Level AI offers applications including customer insights, agent assistance and automated quality management, as well as AI automation across voice and digital channels.
Mathradas said the acquisition would give Five9 a way to sell standalone AI products to businesses using other contact center platforms, including those not yet ready to move from on-premises systems to the cloud. Five9 has worked with Level AI since 2022, and its applications are already integrated with Five9’s platform.
Level AI had approximately $20 million in standalone annual recurring revenue as of Oct. 31, up about 50% year over year. Five9 expects similar ARR growth over the next 12 months, excluding potential synergies. Lee noted that revenue recognition would lag ARR.
Preliminary estimates indicate the acquisition could dilute Five9’s adjusted EBITDA margin by approximately one percentage point in 2027. Lee said the company plans to bring Level AI’s EBITDA dollars to break-even in approximately six months and expects the deal to be accretive to EBITDA margin in 2028.
Mathradas said there is some product overlap, with decisions still to be made about how to address it. He also said Five9 would remain an open ecosystem and continue to use partnerships for some specialized needs.
Revenue outlook rises as earnings forecast falls
For the fourth quarter, Five9 forecast revenue of $328 million to $334 million and non-GAAP earnings of $0.88 to $0.92 per diluted share. Its guidance excludes Level AI’s revenue and operating contribution.
For full-year 2026, the company expects revenue of $1.269 billion to $1.275 billion. The $1.272 billion midpoint is $6 million above its previous forecast, reflecting third-quarter outperformance and a higher implied fourth-quarter outlook.
Five9 lowered the midpoint of its annual non-GAAP earnings forecast to $3.19 per share from $3.26, with a new range of $3.17 to $3.21. Lee attributed the reduction primarily to revised timing for planned organizational changes and a higher diluted share count resulting from a higher-than-expected share price. He said the company expects to execute the organizational initiative in the earlier part of 2027.
The company maintained its expectation for a full-year adjusted EBITDA margin of at least 24% and approximately $175 million in annual free cash flow. Lee declined to provide formal 2027 guidance but said analyst consensus of $1.39 billion in organic revenue was a reasonable starting point.
Five9 ended the quarter with approximately $698 million in cash, cash equivalents and short-term investments. It completed a $90 million accelerated share repurchase on Sept. 30 and has $200 million remaining under its authorization.
About Five9 (NASDAQ:FIVN)
Five9, Inc is a cloud-based software company that provides customer experience and contact center solutions. Its platform enables organizations to manage customer interactions across voice, chat, email, social media and other digital channels without relying on traditional on-premises contact center infrastructure.
The company’s Intelligent CX Platform includes tools for inbound and outbound communications, digital engagement, workforce optimization, workflow automation, analytics and reporting.
