Mike Burkland : Yes, Peter great questions. I’ll go first on the — what we call project pull-through as you mentioned. That is enabling our third-party partners to do implementations for us. And that was a strategic initiative that I kicked off about a year ago. And it’s going amazingly well. Internationally a majority of our deals are being implemented by third parties. And even domestically we’ve seen a dramatic increase in the percentage. We haven’t disclosed that yet but we will in the future. But it’s a growing percentage and right on track in terms of what our KPI objectives were when I rolled this out. So I’m thrilled to see the progress of again third parties being trained enabled and actually doing deployments. And we’ve solved for one of the critical success factors is NPS scores.
As you know we deliver with our own professional services team NPS scores in the mid- to high 80s consistently year in, year out. We’re holding our partners to that same NPS score and they’re delivering on it. But again we’ve been very strategic and very stepwise in terms of who we sign up how we trend them up and helping them be successful.
Barry Zwarenstein: And Peter in order to explain how the gross margins we believe are going to get to this — into the 70-plus you have to understand the revenue breakdown, because each have different drivers and different amounts. So the revenue breakdown is 75% subscription. By the way two-thirds of that is enterprise but the rest of that is commercial. 17% is usage and 8% is the professional services. I’ll start with the less important ones and then move to the most important one. The less important 1 because it’s a relatively small part of the total equation is the professional services, which is now in the low double digits negative. We don’t mind that too much. It makes — a happier customer brings up the software quicker.
And there is potential like many other companies through better efficiencies and not having to scale for every single mega deal that then brings into the door. Because that’s what we’ve been doing over there. So that can get into the single digits high single digits. But that’s not our driver. It’s helpful. The second area is usage. And there we’re in the 50 solidly in the 50s. That’s not going to — internationally we have some opportunities. We’ve also got the incentives there, but that’s not going to something dramatically improve. What is happening is that, there’s a shift in the mix from usage to subscription every year one to three percentage points. And just to illustrate that completely we went public in April 2014. Usage was about 35% of the total.
It’s now half of that and that’s going to continue. So we’ve got a mix shift there. Now, we come to the subscription. And there it comes down to a very straight point. The basic juice over there, which is certainly worth the squeeze is the fact that we’ve got fixed costs, incentive fixed costs and we just — we have the revenue growing faster. That’s why if you look individually at each fourth quarter the subscription gross margin is always the highest because that’s when the revenue is highest. Plus we’ve got some additional initiatives. I’ll make just one quickly. So when we were guiding international being dragged there to some extent by these bigger accounts, we went fast and furious with GCB. The indications are operating strongly that if we do it in our own data centers.
we can actually do it for certain tasks cheaper. And that remigration is something I talked about in the call, but these things take time. In the meantime, we’re investing further in international in India, South Africa, other places and also in professional services for these mega deals. And we always — yes I’ll leave it at that.
Peter Levine: Thanks guys.
Barry Zwarenstein: Thanks, Peter.
Operator: Siti Panigrahi with Mizuho. Please go ahead with your question.
Siti Panigrahi: Thanks for taking my question. It’s good to hear about the large deals and a strong pipeline, but I just want to ask about [Indiscernible] you’re seeing in this kind of environment? Are you seeing more deals scrutiny? Are you seeing more rate customer looking at more in better AI strategy before signing the deal? Any color would be helpful.
Dan Burkland: Yes. As far as deals getting extended, there’s a natural — when you bring something new to the market and you bring something that they haven’t seen before, it’s not a replacement. It takes a little longer. But as I mentioned earlier, it’s insignificant. It’s not something that keeps us up at night or even as a concern during the sales process. It’s just make sure you have that extra meeting. In some cases, you have to go to the data security folks and legal to make sure that we have the right documentation there to protect their data. Because in some cases we’re taking data from a transcription of a conversation and moving it to a third party to have that summary. As an example when we use GPT to summarize our transcriptions, we’re having a third party do that obviously.
So there’s just extra steps in the process, but we make sure we’re aligned to those and have our sales teams directed to those. So, it’s — it’s great. I mean the interest is there and everyone’s gotten through it. I think we’re past the times of having to create those documents. And so now it’s just a matter of having the templates and moving forward.
Siti Panigrahi: Are you seeing customers evaluating their AI strategy, so that as part of that they’re delaying anything? Or do you think that that’s a separate process altogether?
Dan Burkland: Thank you for asking that question. They absolutely are using our AI strategy as a key criteria and evaluating it extensively. And it’s oftentimes the thing that wins business for Five9. We believe, we’re actually pioneering and leading the market when it comes to AI that Baird study nets that out. Our customers are explaining that to us as well. We’ve made a couple of strategic acquisitions that allowed us to kind of hit the ground running and not have to develop from scratch ourselves. So, we believe we’re leading the market in this area. And we’re excited that even the deals that happen that may not have a big revenue component tied to the AI, their decision criteria was precisely because of our AI strategy and our AI portfolio and road map and the way that we’re going about it they said, we want to do business with, you you’re future-proofing us, you’re giving us what we want in the direction we want it.
Siti Panigrahi: Great. Thank you.
Operator: Matt VanVliet with BTIG has the next question.
Matt VanVliet: Good afternoon, guy. Thanks for taking the question. I guess, staying on the theme of AI and some of the automation features you mentioned 80% of new deals had that. But I guess, the next level question that we’re wondering is one how much additive to the deal value do you think that’s bringing on new deals? And then second part, maybe more importantly of the installed base what is the penetration rate on that? And how much are you adding there knowing that — so earlier in the year there was a lot of concern it would be cannibalizing your normal seats. But how much of an uplift on sort of a net dollar retention are you seeing as customers add that today?
Dan Burkland: Yes. Thank you for that question. So we messaged a few quarters ago in and around 10% of the net new bookings were the AI and automation suite and it remains that. A slight uptick to that is what we’re seeing. But keep in mind that’s just the initial order. That’s the customer that says, great I’m going to migrate off my on-premise legacy system into your cloud. And yes let’s start with an IBA or an Agent Assist app. Once we get in there and I alluded to it earlier the PS group gets in there and starts talking to the people on the floor not the buyer the people on the floor that are running the contact center and the types of calls that they’re getting and how we can help their agents be more effective. We start putting in things and that’s where we’re seeing increased momentum.
