[Audio Gap] Joining us today on the call are Mike Burkland, Chairman and CEO; Dan Burkland, President; and Barry Zwarenstein, CFO. Certain statements made during the course of this conference call that are not historical facts, including those regarding the future financial performance and cash position of the company, expected improvements in financial-related metrics, expected ARR from certain customers, certain expected revenue mix shift, customer growth, anticipated customer benefits from our solutions, including from AI, company growth, enhancements to and development of our solutions, market size and trends, our expectations regarding macroeconomic conditions, company market position initiatives and expectations, technology and product initiatives, including investment in R&D and other future events and results, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are simply predictions, should not be unduly relied upon by investors, actual events or results may differ materially, and the company undertakes no obligation to update information of such statements. These statements are subject to substantial risks and uncertainties that could adversely affect Five9's future results and cause these forward-looking statements to be inaccurate, including the impact of adverse economic conditions, including macroeconomic deterioration and uncertainties, including continuing increased inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates, lower growth rates within our installed base of customers and the other risks discussed under the caption Risk Factors and elsewhere in Five9's annual and quarterly reports filed with the Securities and Exchange Commission. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results and guidance is currently available in our press release issued earlier this afternoon as well as in the appendix of our investor deck that can be found in the Investor Relations section on Five9's website at investors.five9.com. Lastly, a reminder that unless otherwise indicated, financial figures discussed are non-GAAP. And now I'd like to turn the call over to Five9's Chairman and CEO, Mike Burkland.

Thanks, Emily, and thanks, everyone, for joining our call this afternoon. I'm pleased to report strong first quarter results with our subscription revenue growing 20% year-over-year and total revenue exceeding the midpoint of our guidance by 3 percentage points. As a reminder, our subscription revenue, which others in the industry refer to as cloud revenue accounts for nearly 80% of our total revenue. Also, this 20% growth in subscription revenue does not include any benefit whatsoever from customers converting from on-premise to cloud since we do not have any on-premise business, and this growth is all organic, except for an immaterial amount. Adjusted EBITDA margin for the first quarter was 15% of revenue, helping drive strong LTM operating cash flow of $128 million or 14% of revenue. As you all know, we take a balanced approach to delivering top line growth and bottom line profitability. I will begin today by discussing our broader market opportunity, which continues to be propelled by 3 ongoing trends. First, the migration to cloud contact center platforms continues to be a top priority for enterprises, particularly as many on-prem solutions are being end of life. With current cloud penetration standing at approximately 25% to 30%, we believe there's a multiyear durable growth opportunity ahead. Second, enterprises are laser-focused on improving customer experience, which has become a strategic initiative aimed at driving better business outcomes. With our intelligent CX platform and our passionate experts, we are changing the game for some of the largest brands in the world and helping them reimagine their customer experience. And third, AI is revolutionizing the way brands enhance customer experience. With our AI-infused and data-driven intelligent CX platform, we're helping enterprises deliver personalized, connected and effortless experiences for their customers. These 3 trends are driving a massive market opportunity, and…

Thank you, Mike, and good afternoon, everyone. I'm pleased to report that we had a record bookings quarter and our partner and channel momentum has never been better. Our market-leading platform, the expertise of our people and our relentless focus on helping customers achieve their CX business goals continue to propel us forward in this tremendous market opportunity. And now I'd like to share some examples of key wins for the quarter. As Mike mentioned, we are very excited to announce that we have contracted with one of the largest U.S. banks serving nearly 70 million customers worldwide. The bank has been using a variety of legacy systems and acquired directly as well as through M&A. I expect several years looking for a strategic partner who could help them transform and consolidate CX across their global footprint with a modern, innovative, secure and scalable CCaaS solution. A key part of this migration to Five9 will include our recently acquired ACS solution, allowing them to centralize and normalize all of their data from many different disparate systems. They chose Five9 arguably for one reason, trust. They trust that Five9 has the platform, the people and the partners to deliver an unparalleled CX solution. They purchased our full omnichannel solution, our IPAs, our WEM suite powered by Verint, an integration to over 2 dozen CRM systems, including Salesforce and ServiceNow. We anticipate this initial order will roll out and ramp over several years and will ultimately result in over $50 million in subscription ARR to Five9. The second one I'd like to highlight is a company that specializes in higher education, helping universities with recruitment, enrollment services, guidance counseling and [indiscernible] fundraising activities. They had been using another cloud vendor, which was not meeting their needs. They will be using Five9 for…

Thank you, Dan. We are pleased to report that first quarter revenue reached a record $247 million, growing 13% year-over-year and exceeding the midpoint of our guidance by 3 percentage points. Subscription revenue was the strongest driver, growing 20% year-over-year in the first quarter and now makes up nearly 80% of total revenue. Quality and Enterprise subscription revenue grew 23% year-over-year. Our new logo deployments remained robust with CCaaS setting a Q1 record, demonstrating our focus on executing against a substantial backlog of [indiscernible]. On a geographic basis, our investments in EMEA are paying dividends. EMEA subscription revenue, which represents over 40% of international subscription revenue, grew 32% year-over-year in the quarter. Our enterprise business made up 88% of LTM revenue, and our commercial business, which represented the remaining 12% grew again in the single digits on an LTM basis. Recurring revenue made up 92% of total Q1 revenue. As a reminder, recurring revenue is made up of subscription revenue and usage revenue. Usage revenue grew slower than subscription revenue. As a result, each year, we see a mix shift within recurring revenue, approximately 1 to 3 percentage points from the share coming from usage revenue to the share contributed by subscription revenue. The main reason usage revenue growth is slow because as we move up market, our larger customers often use the existing carriers for usage. Additionally, our channel partners like BT and AT&T are also carriers, and we will not take business away from them. We see the continuing mix shift away from usage to subscription as a positive long-term trend for 2 reasons. First, given that subscription revenue consistently grows faster than usage revenue over time, this mix shift reduces the usage drag on total corporate revenue growth. Second, the mix shift [indiscernible] total corporate gross margins…

[Operator Instructions] And our first question is going to come from DJ Hynes With Canaccord.

Congrats on the mega deal. That's great to see. Barry, I'm going to start with you, one of the numbers, I'm going to break the rules right up front and that's a quick follow-up as well. So the last few years when you beat Q1, you've typically raised the full year outlook as well. This year, it was a beat and reiterate what you mentioned on the call. Should we read anything into that in terms of further deterioration of demand or activity in the space? Just any comments there would be helpful.

Absolutely, DJ. Let me just frame it for you a little bit. Where do we sit in? [indiscernible] coming off a quarter. We had record first quarter in terms of logo installed, a very strong backlog that gives us great visibility. We got to talk at some point in this quarter about the inflection in the [indiscernible] that we see in the second half and why we're seeing that and the [indiscernible] from our professional services as well. So overall, we feel pretty good. At the same time, we can't ignore the fact that we are talking about a very considerable reacceleration in the second half. The first half is based on our guidance, is 11.4%. We're basically doubling that in the second half per our guidance to 20.1%. That's pretty aggressive. And we want to be prudent. And so for that reason, for prudence, we are not going to be putting through -- we didn't put through the Q1 [indiscernible].

Okay. Fair enough. And then Dan, for you, maybe a more strategic question. Like do you vision a future in which the pricing model in the CCaaS space significantly evolve away from seat-based pricing and more towards kind of transactional or interaction-driven pricing models? I mean it feels like AI has the potential to move in that direction. But I would love to get your thoughts like how the next 3, 5 years...

Yes. Thanks, DJ. We absolutely are seeing that, and we're seeing it already. As you mentioned, with many of the AI applications, they're not really tied to a seat, and they're not really correlated to a seat. They can be like as an example, even IVA at the front end. We do that per port, which we kind of equate as offsetting a seat. But there's many other applications like Insights, pulling Insights across an enterprise and getting information to make valuable decisions and those are already being tracked, things like transcription and our voice stream application. Those are all priced based on either per minute or per gigabyte or some other consumption measurements. So we're seeing that evolve and take place as we speak. But there's still software that sits in front of the agent that helps the human agent. That's the most prevalent. That will remain to be typically a seat-based model. You're absolutely right. Over time, we'll see that evolve and have more consumption based.

Our next question will come from Terry Tillman with Truist.

Congrats on the record transaction. Kind of like DJ, I'm going to have one question, but it might actually slightly be 2 parts. In terms of the AI and automation, what I'm curious about is what kind of impact is it having -- and not to be myopic, but on a seat or kind of an MRR basis per user? And then the second part is, because you have these interesting tools in the GenAI side, I think you'll have had some efforts more recently to kind of programmatically go back to the base to really have them discover these tools. And what are you seeing in terms of uptake there?

Yes. So if I look first at the question regarding the seats and how much is being impacted or how much that's being affected by AI and automation, what we're seeing is an uplift. We've talked for many quarters about the fact that our AI applications, when you start to automate interactions, we actually collect more revenue for those, whether it's a like-for-like or you're taking calls that are 100% self-served through an IVA that used to be handled through an agent. We're getting twice the revenue, think of it as per interaction, but it's really on a per seat basis, But on a per port basis. But we're collecting rather than the just north of $200 per seat for the human agent software. As we talked, we would get nearly double in the $400 range when we automate those interactions. And then you talk about the rest of the AI portfolio, that's incremental add-on revenue that we achieved. So the wallet share that we achieved from our customers as they increase the automation and move more towards AI, goes up, not down. And we're seeing our customer base from a seat perspective when they do adopt AI and automation, it's additive. It's usually giving customer added convenience, one more choice to interact with that brand, driving more and more time that an individual spend with that brand, not taking it as a cannibalization of the human seats.

And Terry, I'll pile on. Our GenAI Studio is an industry first, as I mentioned in my remarks. And again, we're going to continue to out-innovate the competition, deliver more and more AI products across our platform, and most of those are upsell opportunities to our base, as you mentioned in your question.

We'll now move on to Taylor McGinnis with UBS.

It's Seth Gilbert on for Taylor. We'd love to know maybe a little bit about the vertical seasonality, as you mentioned before, Barry, the guide still assumes a recovery to growth of about 20% for the year. So how do verticals like consumer kind of influence the second half acceleration?

Yes. It influences it moderately in the sense that we don't have this deterioration taking place like we saw in the fourth quarter of 2023 when the first time ever a subset of the consumer vertical in any consumer discretionary contracted for the first time ever, as I said. So we're going into more normal compares, and we've got an installed base that is being extremely well managed that would also help. And yes, as far as the verticals are concerned, it really comes down to the overall macro economy. And we're seeing an economy that's -- we're not macro economist, but -- we're not blind to the fact that there are challenges out there, but we've allowed for that to the best of our ability in our book.

Maybe just a quick follow-up then. Are there any verticals that are outperforming or underperforming conversely that you would call out if it's not consumer?

So if I can -- I can't speak about the end of the year, Seth, take Q1 2024, the third biggest namely consumer was expected to be somewhat weaker than it was. And that's confirmed so closely by this [indiscernible]. If I can just take a moment, this is a consumer of that economy, maybe 2/3 to a bit higher is consumer and people use cash. Occasionally, they use Bitcoin, but most of that is credit and debit card data. And we see even by month that attracts JPMorgan, the largest issue that can pick UBS as well. They've got credit cards, and you also see similar data. And so the consumer [indiscernible] somewhat weaker as expected. The rest of the vertical were similar to prior quarters, mainly slightly up in the first quarter. [indiscernible].

Our next question will come from Ryan MacWilliams with Barclays.

So despite the changes in technology and some of these new AI solutions being introduced, Five9 has now seen some of its largest deal wins over the last 2 years. So given what these technology changes, what do you think these large enterprise customers are choosing to move to the cloud now, and does this increase contact center complexity? Does that benefit Five9 given your track record of pulling these larger deals? Like are you seeing these customers want to have a one-stop shop for your one source of truth for data for all of these AI solutions?

Yes, I'll start and Dan, you can chime in. Ryan, great question. We've talked about this before. The shift to the cloud is happening for many reasons, the strategic nature of CX, the end of life of these on-premise legacy solutions, AI and the opportunities that provides these large brands to change the game and reimagine their CX, right? So yes, it's way more complex. And that helps us. That's a huge tailwind for us over the next 10 years as complexity almost always accrues to the platform players. And again, you have to have the breadth of platform to not just deliver the applications across that platform, but again, the end-to-end visibility that powers the AI. And we talked about GenAI Studio in my prepared remarks, I talked about it, it is a unique differentiator that allows us to leverage the most advanced engines, whether LLMs or small language models, whatever they are, we're engine-agnostic, but it's the combination of combining those engines, the best in the world, the best of the time, and those are going to continue to advance with contextual data. And the only way you get to all the contextual data across an enterprise and a brand is by having the platform. So this GenAI Studio is a game changer. It is putting us out ahead of our competition. And by the way, again, we don't spend a lot of time talking about competition. I'll just say this. We talked about it in my prepared remarks, the generative AI revolution validating our decision long ago to be engine-agnostic. A lot of our competitors didn't take that approach. They've built their own engines. And guess what? They're having to throw away all that investment they made and pivot and play catch up to Five9.

Moving on to Matt VanVliet with BTIG.

I wanted to check in on sort of where you're at on the FedRAMP process? And maybe more importantly, how that's helping you win new deals, both in the federal market, but also the trickle down into the state and local, maybe even higher end as well. Just kind of what you're seeing in those verticals?

Yes. Matt, we're very, very early in that process. We're aiming at the end of 2025 to be FedRAMP certified. We haven't really begun a go-to-market motion in earnest yet. We're still doing a state and local government business. We've been doing that for quite a while. But again, it's going to be another 1.5 years or so by the time we're truly in that market.

Having said that, it does help us in a go-to-market perspective where we have some of these large financial institutions and others that want to make sure that we're on a path to get that authorization in FedRAMP because they serve clients that are federal-based clients and agencies that they want to make sure we're on the path for that. So it's played a role in us securing that business. But we -- as Mike says, we haven't really gone to the market yet. We'll be in what's considered in process at the end of this year. And that process once you get it in process with a sponsor, then it's typically about a 12-month period before you get authorization to proceeding.

And I would like to add one thing because we are going, at some point, talk about -- we are watched with investment opportunities, which we're taking advantage of, and I believe this management team has demonstrated [indiscernible] in some ways to be able to pick the right investments, its clearly FedRAMP, but it's a lot of money, a lot of money. And we will give you a quarterly track on what it is. And starting now with Q1 2024, the cost was $1.9 million with 77 basis points of EBITDA.

[indiscernible] has the next question.

I know you guys talked about Q4 as a record booking, and you were expecting some of those go-live that's embedded in your guidance in the second half. So wondering, how is the go-live going? And do you have visibility into their go-live? And have you baked in any kind of conservatism in terms of in case that any go-live [indiscernible].

Yes, I'll start, and feel free to chime in, Barry, but the go-lives are going great. We turned up a record number of seats in Q1. And again, we manage that backlog of product, seats, subscriptions and other AI products included. We manage it like a pipeline. It's -- once we book that business, our PS team, our implementation team is very, very metrics-driven, and our turn-ups, we track them very closely. In fact, we just presented at our board meeting recently. So we're very -- it has -- we have great visibility on it.

And if I could just add 2 things to that. What you're asking about is very important in the sense that it's key to the dollar-based retention rate inflection. So in terms of spot rate, we give you the LTM rate, but it's been flat for the last -- the spot rate for the last 3 quarters. But it would take it up is the ramping of our bigger customers, and the go-live is so key in that. And we've got a really high stepping team every quarter, quarter in, quarter out, they at least meet, but typically beat the number of seats that they said they will bring up. And they're not dealing with wishes and hopes. It's actually they go in the back office. Now of course, customer thinks and in truth, but most of the times, the customers are pretty motivating.

Thomas Blakey with KeyBanc has the next question.

Congratulations on the mega deal. I have a 2-part question. Dan, for you, just if you could highlight one or 2 keys for winning this deal. I know you talked about trust and whatnot, but just trying to view how this could impact future wins down the road where we're seeing deals get larger and larger here. And then, Barry, for you on backlog, you mentioned that, I think, in your preamble, maybe talk about any type of cushion you might have there as it relates to the sharp uptick in growth into the second half, that would be helpful.

Great questions. So regarding the large bank, as I mentioned in the prepared remarks, the trust. But if you look at the process that they went through, they're looking at -- when you look across all of their different divisions and the global footprint that they have, they did a very thorough inspection and audit of us and our competitors. And I mean like no other. I'll say that spending days here with us at our corporate offices and inspecting not just the product, the platform but really understanding our ability to deliver and our ability to support an operation of their size and complexity. And so while we talk about product and we talk about the innovation, absolutely, those things are critically important, but they really wanted to understand how would we help them deliver the business outcomes that they were wanting to achieve and you have to demonstrate that. You can't just put up slides and talk about what you've done before or what you're going to do for them. You've got to get into the trenches. And so we have dozens -- literally dozens of people, technical folks from the bank that spent several consecutive days here on multiple occasions to really understand that and to understand, as I mentioned the partnerships, can we leverage the partners that we have. When you look at the AI and automation solutions, as we talked earlier about why are these larger organizations moving to the cloud now. A big part of it, when you look at the AI functionality is, it's cloud-to-cloud integration, you're taking data and shooting it over to hypescaler to get some underlying engine that they have and be able to get back data that can then be leveraged and utilized to deliver an experience that hasn't…

And then, Tom, thanks, and to answer the second part of the question. So for that reacceleration taking now 3 quarters, not just the second half just [indiscernible]. We need $116 million extra year-over-year growth. That $116 million is bifurcated. As we've talked about in the past, we were talking about the full year between the DBRR at $64 million of that $116 million and the remaining part $52 million comes from new logo deployments that you're asking about. So the majority is the DBRR -- and that, by the way, is prior to the inflection. I'm using $110 million. The $52 million is largely in backlog, not totally, they are what we referred to in the past [indiscernible] in the next month or 2 that we still need to complement that to some extent. But largely, it's all in backlog. And we talked earlier about the expertise and competence of our professional services team.

Meta Marshall with Morgan Stanley has the next question. I think Meta might be joining us audio-only today.

Yes. Apologies. Nobody is better than frozen video. So I guess the question is, tie-into migration, obviously, as you get these longer and longer -- or larger and larger deals is a consideration. And obviously, Aceyus helped with that. I just wanted to get a sense of, is there any way to quantify like how Aceyus can shorten those migration cycles -- or -- and just on the service provider channel service integrator channel, did you use those guys to kind of help with migrations. Are there -- is the pace of those migrations kind of the same as you've seen with your own channel? Just trying to get a sense of what trends are on pace of migration.

Yes, I'll take last part of the first. Thanks, Meta. When you look at the migration, it's very much in sync, whether there's a systems integrator involved or not, they tend to help them take and offload a lot of the project management and program management and help work with the customer through a large-scale migration. But most of the actual work of the configuration and of the integration effort is done by our professional services team. Now we're in the process of enabling those SIs to get certified and really get their skill set to where ours is. We have a very, very high bar that we set for what we require and demand. And we're starting to get leverage from those. The goal is to ultimately move more and more to that off our personnel and on to theirs for obvious reasons. But that's something that it's really hard to shorten it too much. Yes, the tools help, like I said, in that last example like Aceyus. But for the most part, it's a matter of going as quickly as the customer can. We'd like to obviously move as quickly as they're able so that we can get to revenue sooner. But there's a lot of planning and oftentimes, there's a lot of changes that they're doing. And so they have to have a lot of internal meetings themselves in order to make some important decisions.

I'll move on to Jim Fish with Piper Sandler.

Nice to get the win on the board here, and I'm sure you're sick of answering the question about stagecoaches, Barry. So actually building off of that last question, you guys mentioned incentivizing these SIs to lead with Five9 through, I think you called it project pull-through. Can you just walk us through what you're changing in terms of these incentives and any go-to-market changes outside of this that you're planning on this year. And with that SI aspect, kind of how we should think about SI contribution today in terms of how much is pulling you guys in versus where you expect it could be over the next couple of years?

Yes, Fish, I'll start, and Dan, feel free to chime in, but we kicked off project pull-through, boy, close to 18 months ago. And that was really designed to lean into a lot of the SIs and other resellers that want the services revenue as part of this equation. And -- if you look at our business and you look at our -- we talked about subscription revenue and subscription revenue is the key metric that everybody should be paying attention to. And as we offload some of these services to SIs and other partners, we're not going to get that revenue. And that's why there's a disproportionate growth rate in our PS revenue and our usage revenue compared to subscription. But that is our strategy. It's part of our business model, we think is a very good thing from a margin perspective, but it's also the reason we named it project pull-through was because we know that there's an incentive on these SIs and other resellers, if they've got the services revenue in a deal, they're more likely to bring us into a deal. And we were, quite frankly, missing out on that opportunity 18 months ago. So that's why we kicked it off. It's been a very nice impact upmarket. And again, it's still somewhat early days, but they're -- we're getting third parties are doing a very good proportion of our implementations these days, especially internationally and a very good growth in our U.S. implementations as well.

Baird's Will Power has the next question.

I come back to the Fortune-50 win. Great to see that. Congratulations. I mean it sounds like professional services and your ability to execute are big pieces of that. But I'd love to get some color as to how important AI was and how focused were they on the IVAs and the capabilities you have there? And what kind of stood out in your platform on that front, perhaps versus others? And I guess kind of tied to this kind of mega deal thought process. I mean any qualitative color as to how the pipeline is building for other dolphins and whales, I guess, as you look forward?

Yes. Thanks, Will. When you look -- I'll start with that on the dolphins and whales, when you take that large bank out of the equation, the pipeline is a record. We're still at record if we take that out of the equation. Obviously, that came in, so it dropped the pipeline down pretty significantly because of the size of the deal. But otherwise, very, very healthy pipeline is driving towards that. But if you look at AI, it was very key front and center for them in their decision. In fact, if you think about it, most banks, including this one, have a lot of automation and self-service already on their legacy platforms. And it just isn't as good, right? It doesn't have the accuracy rate. When you have speech-enabled, I call it, speech-enabled IVR from 10 or 15 years ago, you can do some basic things, you can call in and do some banking by phone and check your balance and see if your checks cleared, but it's just not as robust and not what you can get in today's technology. And so a big, big, big part of it was how they would replace that with today's next-generation IVAs. And thank goodness, we have inference in that acquisition and the enhancements we've made to that platform to be able to deliver what they felt was the market-leading IVA solution for not just self-service but for -- and then when you combine -- when you take the IVA for self-service of course, but then you combine that with our Agent Assist and our ability, like I said, with that Google partnership to be able to take real-time conversational data and be able to interpret it and then fetch the right data from the right source. If you think about a large bank with dozens of CRM systems. We've got to go fetch the right data to be able to answer that customer's question. And those types of functions are way down in the weeds technically. But we came out very superior compared to our competition because of some of the things Mike said, the engine-agnostic, the speed at which we've been able to work with these other engines and then the flexibility, they actually were able to come to us and say, in this particular use case, we want to use this engine and in that particular use case, we want to use another one. And oh, by the way, in this one, we may want to build our own with just our data because it's faster at getting to the data. You don't want to go search 23 databases. But you -- if you know you have a specific use case, you want to build one that's very personalized and customer-specific so that you can get the data very quickly.

We'll now here from Scott Berg with Needham.

Everyone, a really nice quarter. Mike, you'd made a comment on the Summit Status with Salesforce. I think that's an interesting comment because they effectively partner with all your competitors in the space as well, whether they be in investments or they really partnered supposedly tightly if you're a company based in Seattle. If you're the first one on the status, I think that's kind of interesting. Help us understand a little bit more maybe what this can give you outside of an early look on technologies, et cetera. My guess is there's some other commercial opportunities. But I just would like to understand that better.

Yes, Scott. I think it's visibility. It's technology, as we mentioned in the prepared remarks, and Summit Status is very objective. It's based on business we've done together. -- frankly. So at the end of the day, that's how they measure that, and that's who gets that status and was it haven't. It's essentially a good metric to kind of guess for how much business we've done together with Salesforce, it's a big deal. It's a real big deal. It's a big deal to them, it's a big deal to us.

Moving on to Michael Turrin with Wells Fargo.

Some encouraging commentary throughout here. I want to go back to the key metrics, Barry, and what needs to happen for those to trough. It sounded like flat to slightly down in terms of retention for Q2. You've been talking about the second half move up. I mean how much do you still need to execute to get there? And maybe you and Dan can just speak through confidence, visibility, how that's progressed from when you initially framed the '24 outlook to where we currently sit?

Yes. So it's easiest to bring it into 3 buckets: new, established and PS, installed base PS. In terms of new, it's -- the backlog was largely there. It's been added to somewhat [indiscernible] 3 months. Nothing dramatic change. Also, with respect, Michael, to the inflection that we've been referring to in the dollar based retention rate, yes, it is as expected gone down 1 percentage point this last quarter. And that is simply a fact that while the spot rates have been flat for the last 3 quarters, we now dropped off one of the higher ones and we've not had a higher one than we had to compare with, and now we are down slightly. And -- but we can see now clearly that we've -- the flow we expect can't guarantee is in. And just by the way, the last time that we had an increase in the dollar based retention rate was all the way back to the second quarter of 2021. So a long time ago, really, really looking forward and hoping that the economy cooperates, because it really does tie very closely to that. So -- but that's not all. What our analysis shows is that we've got a number, not just 5, 10 but more of big companies, enterprises that came into the base starting in Q2 of 2023 that are ramping. And I'm not just talking about the health care companies and so on, a lot of them. And those mechanically will also help [indiscernible] spot rate, if you see what I mean. Then the last one is the tail breeze that we have from professional services. We will get a moderate amount from this major Fortune 50 institution finance service company and that will help as well.

Samad Samana with Jefferies has the next question.

Barry, I have a question for you. Just thinking about the monetization of AI, I think someone earlier had asked about maybe a pricing model shift. And when I think about maybe gross profit dollars per $1 of AI revenue versus maybe what you would get for core subscription, if it's obviously double the revenue, you should get more gross profit dollars that when you factor in maybe WFO as well. I guess what I'm trying to figure out is, should we think about AI being a gross profit dollar tailwind as well and maybe just on the top line? And how should we think about that flowing through maybe over the next year or 2?

Yes. So I'm going to resist the temptation to talk about it for the next year. And the reason I'm going to resist that temptation is that -- we've got 5 reasons why gross margins are going to go up. They're going to go up over time. And the biggest of those is not what you've just been referring to, that's number two. It is the fact that revenue growth against fixed and semi-fixed cost is by far away the big one. And we actually [indiscernible] but we're pretty happy with the fact that we've maintained the gross margins where we have despite somewhat [indiscernible] revenue growth currently. And so I'm not going to get into -- I don't want us to get into a corner with the revenue. But in terms of that number 2 is the upsell and the cross-sell and the attach rates from these AI and automation solutions, and they clearly, clearly have higher gross margins. And these attach rates, both in the new bookings and in the installed base are nontrivial. I'm not talking about 1%, 2% increases, it's more than that. And then just in case of with [indiscernible], you're wondering what the other items are, it's what we talked about in the prepared remarks and then the mix shift over time from both usage [indiscernible] and professional services, which had negative gross margins. Thirdly, the levers, the number 3 one. We've also got onetime investments [indiscernible] those are transitory. India is another one. The cost is there, the revenue is not there. And then we have a number of initiatives in the professional service organization because there's no need why that needs to run at a negative gross margin.

We have time for one additional question. So our final question is going to come from Peter Levine with Evercore.

This is Bill on for Peter. With the health care expansion story going from $2.3 million to $6 million of ARR, how often will this kind of increase to be the norm? Or should we think of this kind of uplift as an every now and then?

It's at that amount, I would say it's an every now and then. That's why I highlighted it. But we get our installed base customer, we talked about, I think, last quarter about the folks that are focused on our installed base, we had individuals that were wearing both hats of CSM and seller. So they were taking care of day-to-day issues with the customers and then putting their sales hat on and trying to do cross-sell, upsell. We've actually taken that team and divided it into separate individuals for each customer. So they now have a CSM that's responsible for the day to day and they have a seller that's there to upsell, cross-sell that carries bookings quota. And they're primarily focused on these applications, the cross-sell and upsell applications. And so -- that will take effect and show itself over time. But that's what typical most software companies about our size go with that mix of hunter and farmer even in the installed base. And that should contribute nicely to it. And we're seeing software being sold to our installed base at good rate and that will only increase as we roll out more and more of these.

And again, this does conclude our Q&A session. So I'll turn it back to you, Mike, for closing comments.

Yes. Thank you very much for joining us today. As I said in my prepared remarks, it's been an amazing journey, 10 years as a public company. I am really looking forward to the next 10 years and seeing what we are able to achieve as a team. I want to thank all the Five9ers one more time, and thanks again for joining the call.