Most folks are well below plus 50, and we maintain a plus 85 rating, and we want to maintain that. And we hold our partners accountable to that as well. And Mike alluded to that in the — in his comments earlier, but it’s something that is allowing us to increase the percentage that go through partners. Internationally, we’re over 50%, and domestically we’re tracking very nicely in the high-20s as far as the number of projects that are now being led by our partners.
Peter Levine: Thank you, guys.
Dan Burkland: Yes.
Barry Zwarenstein: Thanks, Peter.
Operator: Okay, our next question comes from Michael Turrin with Wells Fargo.
Michael Turrin: Hi, great. Nice to see everyone. Appreciate you taking the question. Just a quick multiparter. So I’m curious in Q4 if you saw any elongation tied to some of the M&A headlines, a lot of us on the investor side were focused on. And Barry, sorry, still a question for you. I know you’re fatigued but maybe expand on the precision you have behind that second-half reacceleration. Because you also mentioned in the prepared remarks that 4Q can be tougher to forecast. It seems important for the forecast we have coming into ’24. So maybe you can just add what gives you the confidence there as well. Thank you.
Mike Burkland: Michael, I’ll start with the first question. I’ll have Barry handle the second one. Dan, feel free to chime in, but there was no impact from some of those rumors that occurred relative to M&A. We set the record straight with a press release very quickly, and we did that for a reason. We definitely did not want customers and prospects and partners reacting to false news. So we were very clear with the press release. If you want to quantify it, it was a two-day delay in terms of potential sales cycle increase. But it wasn’t a big impact. That’s why we issued the press release. Barry?
Barry Zwarenstein: So in terms of the procedure, here it is. Again, think about new logo versus install base. In terms of the install base, we’ve made the assumption that the economy is going to use the same phrase that I used before remain somewhat soggy for the rest of the year. Nothing big down, nothing big up. And based upon that, we’ve looked pretty closely at the — you get an LTM dollar basis change rate. We of course get the spot. We’ve looked at it pretty closely. And we gave the guidance that we would have a positive inflection on the dollar-based retention rate during the course of 2024, just like we said, by the way, for Q4 of 2023. So we had $900 million, $910 million of revenue in 2023. If you use just the same dollar base retention rate, no increase for the year, you’ve got $90 million, round numbers, $91 million from the install base.
That’s the one part. The other part, the balance of, say $55 million, $54 million is what’s sitting in the backlog and what we have supreme confidence that Dan and his high-stepping sales team will be able to bring in before the end of May or end of June. And Andy and his high-stepping implementation team will implement by year end.
Michael Turrin: That’s very helpful. Thank you.
Mike Burkland: Thanks, Michael.
Operator: Our next question comes from Siti Panigrahi with Mizuho.
Siti Panigrahi: Thanks for taking my question. I think maybe a follow-up to that — your last answer. You talked about your cell cycle and implementation cycle, but as you look at your implementation pipeline or go live, how do you compare that this year versus last year, 2023? And also, can we get an update on some of the ramp of your large enterprise deals you guys talked about on large healthcare conglomerate or even Fortune 50 insurance companies?
Dan Burkland: Yes, great question. To answer your pipeline question, the pipeline is at an all-time record and that’s really across most all the sectors, particularly upmarket in our enterprise and strategic accounts area. As we’ve mentioned before, more and more of these large enterprises are now embarking on large projects, digital transformation, RFPs to replace and get out from under the legacy platforms that they’ve been living on for many, many years. They really have no choice. It’s not only that they’re being pushed off of those platforms by the legacy providers because they’re being either end-of-life or ending development, but they’re also being pulled away from those and into the cloud by the advent of AI and the automation solutions that they can take advantage of.
So that’s one, pipeline’s never been stronger. As far as the cycles to onboard new customers, yes, I mentioned that earlier, it’s one of those where we’ve got to work through that with each customer independently. We’ve got the best services organization in the world with those experts that Mike had mentioned in his prepared remarks, which is so key because we can go in and really consult with them and help them understand how they can most easily and most effectively make that transition to the Five9 cloud and do so with the right business outcomes that they’re trying to achieve. And that’s what we pride ourselves on. And we think we do it better than anyone. And it does give us the positive of having visibility into a backlog where we can see in the future revenue for several quarters.
So that’s the comfort side of it, if you will. But, yes, we’re working always on tooling and making things more and more efficient and helping our customers get onboarded more and more quickly. But there are certain things. You’ve got integrations into lots of different platforms to be able to really extract the value from our AI and automation solutions. One of the biggest keys there is integrating to those data sources so that we can have more data feeding the engine that can then make the intelligent decisions that it needs to make. And that’s the key is building in all those integrations before you flip the switch and go live. And once we do that, then it’s a matter of ramping them up and bringing them on board.
Siti Panigrahi: Thank you.
Dan Burkland: Yes.
Operator: Our next question comes from Matthew Niknam with Deloitte Bank.
Matthew Niknam: Hi, it’s Matt Niknam from Deutsche Bank.
Operator: Sorry about that.
Matthew Niknam: The question — no worries. So we talked a lot about retail and consumer discretionary. I’m just curious, how — any color you can give on healthcare and financials and how they did in the fourth quarter relative to typical seasonality. And have you baked in any abnormal softness in 1Q for those two verticals? Thanks.
Barry Zwarenstein: So the healthcare and the financials are the biggest and second biggest vertical, consumer being the third. If you look at all the others aside from consumer, so the vast majority being financial and healthcare, they were pretty much in line in the fourth quarter in terms of sequential growth as they were the prior year. And we’ve not baked in any major headwind in those two verticals in Q1. Okay, Matthew?
Matthew Niknam: Thank you.
Barry Zwarenstein: Thank you.
Dan Burkland: Thanks.
Operator: Okay. Our next question comes from Mike Latimore with Northland.
Michael Latimore: Great. Hi, folks. So on the DB&E number you talked about, Barry, are you — did you say you expect it to be 110% for the year or do you expect it to improve by the second half of the year?
Barry Zwarenstein: That’s correct. So it’s currently 110%. We not giving Q1, Q2. I think all we said very explicitly is that they — we expect an inflection in the second half of the year. We have the breakout between Enterprise and Commercial. We have the spot rate. We have, within Enterprise, the breakout between the bigger customers, which have demonstratively and consistently higher the elevation retention rate versus those that the smaller Enterprise customers. And there is some art to it. There’s no question. Our customers don’t know exactly what they’re going to be doing this quarter, a little early in the second half. But based upon the best analysis we can do, we feel comfortable in saying what we said.
Michael Latimore: Got it. Okay, thanks.
Barry Zwarenstein: Sure.
Operator: Our next question comes from Catharine Trebnick with Rosenblatt.
Catharine Trebnick: Thank you for taking my question. So, Dan, this is for you. Are you seeing — they’re giving you a break. So what are you seeing in the RFPs from your large Enterprise customers that you would say is different today than it was a year ago? And I know it’s AI and automation, but are there other factors in these digital transformation that are look — that are asking you to pull these feeds in for you?
Dan Burkland: Yes. So awesome question. Thank you, Catharine. And I’ll give two answers instead of three because you wouldn’t let me answer with AI and automation, which obviously isn’t in all of these. But the two biggest changes are, one, Genesis made their announcement that they’re end of lifing their legacy on-prem and their multi-cloud solutions, which really resulted in a whole new set of customers that came to market with, we’ve got to embark on a process. That’s just starting. Some of these big enterprises, it takes them several quarters to assemble a team, write an RFP, establish what they’re going to ask for in that RFP, and launch. So we mentioned that we saw a doubling of the number of RFPs year-over-year, especially outmarket.
So that’s one. And primarily due to that Genesis base to go along with what’s always been the case, which is the legacy Avaya and Cisco solutions. As I mentioned in my prepared remarks, I think of the three net new examples, one was Avaya, one was Cisco, and one was a combination of Avaya and Cisco. So that’s kind of the first. The second to your question is the services. What we’re finding is companies are recognizing and realizing it’s not just a platform that they’re purchasing. They can’t just plug this into their enterprise and have it create the value that they’re looking for. They’ve got to work and really partner with somebody who has the expertise and has the resources that have been there, done that. Many of our field professional services resources were formerly customers or they came from the large — the largest enterprises and worked on the largest enterprises to help them with their previous platforms.
So it’s having those level of experts. We talk about the power of the technology and the power of the people, that’s coming out more and more in the RFPs. When we look at the reasons why people choose Five9, they’re coming back to us and saying — and I explained this in some of the prepared remarks I made about the examples, they’re saying, it’s because you came in and when you demonstrated to us, you tailored the demo to our requirements and our pain points and came in with the professional services team in many cases up-front before the sale was closed to show them what we could be capable of and give them a feel for our business consulting as well as our solution architects to be able to show them what’s capable. And that often times is underestimated in our industry.
Catharine Trebnick: All right, thank you very much.
Operator: Our next question comes from Samad Samana with Jefferies.
Samad Samana: Hi there. Good evening. Thanks for taking my question. So maybe first, Dan, I’ll stick with you so Barry can have a nice long break here. If I just think about subscription revenue dollars added for each year for the last several years versus what you’re spending in sales and marketing annually, it’s — you basically have that ratio increasing, right, where you’re spending — sales and marketing is remaining elevated, but you’re adding kind of less dollars each year. So is it getting more expensive to either acquire customers? Are you investing more — are you building out sales headcount somewhere where we’re waiting for the payoff? Just maybe help me understand kind of that sales and marketing investment versus what you’re seeing in dollars and what that means for the go-to-market organization.
Dan Burkland: Yes, I know you directed that question to me to give Barry a break, but he’s chomping at the bit to take it because you’ll be surprised by some of the numbers that are a result of that. Barry?
Barry Zwarenstein: Yes, no, Samad, you’ve got to keep into account that there’s really two businesses under the hood, and where Dan and them are spending the money is to bring in the new logos. When you’re looking at those subscription numbers that you correctly cited, that includes the somewhat weaker install base. And it’s real. I mean, I’ve given you — I’m not going to repeat what I said earlier. And when you’ve got dollar-based retention rate declining from 120s to the 110s, the approximately half of our business. And by the way, this is not logo churn. Enterprise logo. But I say we spring loaded to take advantage of when the economy inevitably turns around is that the logo retention rates on an Enterprise business has been consistently in the mid-90s.
So they’re there. They’ve got less transactions, but they’re there. And that’s the reason. There’s a second auxiliary reason, not the dominant reason, and that is that the healthcare companies of the world and cost of delivery companies of the world are disproportionate. We don’t pay dollar for dollar on every single last dollar on these big companies you can imagine. Otherwise we’d have people driving around in Lamborghinis all the time. And so we have — those are lumpy. They’ll remain lumpy, but they help bookings. And then..
Mike Burkland: And I’m going to pile on one more time, Samad, on the sales and marketing efficiency, right, we have lots of internal metrics that we don’t disclose. And one is that I look at every single quarter, I’ve looked at it for 16 years, it’s the cost of a dollar of ACV bookings by net new. So that’s sales and marketing compared to, again, bookings, which again, we’re not disclosing that number. I can tell you it has been very consistent for a long, long time. It is very, very consistent and it’s — I would say it’s best in class.
Samad Samana: Great. Maybe, Barry, just a housekeeping question. I apologize if I missed this, but I just want to make sure, on the guidance, when I think about you’re citing kind of third-party public data and how there’s at least some directional correlation there, right? So is it fair to assume if that trend is a good proxy for what is — what will happen — like let’s say we get that before you guys report, right? So if that keeps moving in a direction, for better or for worse, is that fair for us to look at that? And what have you assumed for the rest of this year, looking forward that it stays at the levels we’ve seen so far in January and February, or that it gets worse or better?
Barry Zwarenstein: Very fair question. And that first part of the question, the answer is yes. We thought about we point you towards it because it’s an external open referenceable indication. And in fact, in some quarters it tracks even by monthly alone by quarter. Now, with respect to going forward, I’ve already said that the number — the JPMorgan, the UBS may be different. Well, I’m not going to try and mention all the different bank as wells as Bank of America, all might be different. Using the one that we use each time, it was negative in January. On a nominal basis, let alone a transaction basis. So we’ve taken that into account. We’re not assuming that the world’s coming to an end. There’s enough positive comments around there.
There’s just simply pockets of weakness that are reflected in those overarching numbers. And that’s what we’ve allowed for. Now you’re going to have to — we’ve given our guidance and we content with it. You’re going to have to draw your own conclusions that when you see January and February and we’re in our quiet period, that whether or not it’s positive, negative or neutral.
Samad Samana: Understood. Appreciate the time as always. Thank you.
Barry Zwarenstein: Thank you.
Mike Burkland: Thanks, Samad.
Operator: Our next question comes from Matt VanVliet with BTIG.
Matt VanVliet: Hi, great. Thanks for taking the question. Good afternoon. I guess when you’re looking at the nearly doubling of the RFP activity on the upmarket customers you talked about, curious on what you’re seeing in terms of sales cycles. How are those RFPs sort of processing along on a normal timeframe relative to in the past? And then, how are you feeling about your ability to execute on those deals relative to where the macro is today?
