Five9 Subscription Revenue Grows 16% in Q3 Despite Margin Declines
Key Facts
Five9 reported 16% year-over-year growth in subscription revenue in the third quarter of 2026, a result Chief Executive Amit Mathuradas said featured accelerating growth in that line and a notable increase in AI revenue growth. Mathuradas said the quarter was "another strong quarter, marked by accelerating subscription revenue growth, with a significant increase in AI revenue growth." The company's results showed a divergence between revenue growth and some profitability measures, as margins and net income under generally accepted accounting principles declined from the same period last year. By contrast, adjusted net income and adjusted earnings per share increased year over year. The company provided guidance ranges for the fourth quarter and fiscal 2026, saying its outlook does not include any contribution from its pending acquisition of Level AI.
Gross margin under generally accepted accounting principles was 53.4% in the third quarter, compared with 55.0% in the same period of 2025. Adjusted gross margin also declined to 61.7% from 62.8% a year earlier. Five9 recorded net income of about $14.5 million, or $0.19 per diluted share, compared with $18.0 million and $0.21 per share in the third quarter of 2025. By contrast, non-GAAP net income was $63.7 million, or $0.82 per diluted share, compared with $60.6 million and $0.78 per share a year earlier. The figures reflect higher adjusted earnings as GAAP earnings and gross margins fell from their year-earlier levels.
GAAP operating cash flow was $58.4 million in the third quarter of 2026, compared with $59.2 million in the corresponding period of 2025. Subscription revenue retention, calculated on a trailing 12-month basis, was 109% as of September 30, 2026. This came alongside 16% subscription revenue growth during the quarter, according to company data. Mathuradas said AI revenue growth increased "significantly," linking his description of the quarter to accelerating subscription revenue. In a company statement, he said the results reflected the success of its strategy.
Five9 raised its fiscal 2026 revenue outlook to a range of $1.269 billion to $1.275 billion. It also set a range for non-GAAP net income of $3.17 to $3.21 per share. For the fourth quarter of 2026, the company expects revenue of $328.0 million to $334.0 million. It also expects non-GAAP net income of $0.88 to $0.92 per share for the quarter. These ranges constitute the financial guidance the company announced for the coming period.
Five9 said its financial outlook does not include any contribution from its pending acquisition of Level AI. The company expects to complete the deal in the fourth quarter of 2026, subject to customary closing conditions. The acquisition therefore remains outside the revenue and earnings contribution included in current guidance. The deal announcement is tied to the company's expansion of its AI capabilities, as the chief executive said growth in revenue from that area increased significantly during the quarter. The transaction is expected to close in the fourth quarter, according to the timeline cited by the company.