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Edited Transcript of LPSN earnings conference call or presentation 1-Aug-18 9:00pm GMT

Q2 2018 LivePerson Inc Earnings Call

New York Aug 3, 2018 (Thomson StreetEvents) -- Edited Transcript of LivePerson Inc earnings conference call or presentation Wednesday, August 1, 2018 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher E. Greiner

LivePerson, Inc. - CFO

* Matthew Kempler

* Robert P. LoCascio

LivePerson, Inc. - Founder, Chairman & CEO

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Conference Call Participants

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* Jeffrey Lee Van Rhee

Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst

* Mark William Schappel

The Benchmark Company, LLC, Research Division - Equity Research Analyst

* Ryan Macdonald

* Tyler Page

* Zach Cummins

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Presentation

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Operator [1]

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Good afternoon. My name is Kathy, and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson Second Quarter 2018 Earnings Call. (Operator Instructions)

Matthew Kempler, you may begin your call.

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Matthew Kempler, [2]

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Thanks very much. This is Matthew Kempler, VP of Planning and Investor Relations. Joining me on the call today is Robert LoCascio, LivePerson's founder and CEO; and Chris Greiner, our Chief Financial Officer.

Please note that during today's call we will make forward-looking statements which are predictions, projections or other statements about future results. These statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties. Actual results may differ materially due to various factors, including those described in today's earnings release, press release and the comments made during this conference call and in the 10-Ks, 10-Qs and other reports we file from time to time with the SEC. We assume no obligation to update any forward-looking statements.

Also, during this call we will discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release. Both this press release and supplemental slides, which include highlights of the quarter, are available in the Investor Relations section of LivePerson's website.

With that, I will turn the call over to Rob.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [3]

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Thanks, Matt, and thank you for joining LivePerson's second quarter earnings call.

Revenue increased 14% year-over-year to a record $61.7 million in the second quarter. This marks our fifth consecutive quarter of sequential growth and the continuation of our double-digit year-over-year growth trajectory.

With a strong first half of the year and a robust pipeline of active opportunities, we are once again raising revenue guidance for 2018. We now forecast revenue in a range of $245.5 million to $247.5 million, up from previous guidance of $239 million to $243 million. Our updated guidance implies year-over-year growth of 13% at the midpoint, demonstrating continued acceleration towards our 20%-plus growth target.

I will now focus on 3 important elements that underpin our accelerated performance. Messaging is rapidly expanding our total addressable market by directly connecting brands to consumers and powering a diverse set of use cases, and we now have a great base of referenceable enterprise customers across each key geography and vertical. LivePerson is differentiated as one of the industry's only enterprise-grade offerings that orchestrates the use of machine- and human-based agents on a single platform.

The front end of conversational commerce are becoming pervasive, enabling consumers to connect with brands from whichever messaging app they prefer. For example, just today we announced that we are adding WhatsApp as a key participant in the LiveEngage ecosystem. With 1.5 billion active users, WhatsApp is an important messaging channel for consumers, which creates more opportunity for LivePerson to grow traffic on our platform.

Underpinning LivePerson's record revenue and accelerating growth is a transformation in how consumers communicate with brands. Messaging with human agents and bots is disrupting the traditional channels that businesses have relied upon, such as calling a 1-800 number or visiting a website or even downloading a brand's app. With messaging, LivePerson powers an ongoing connection that bridges virtually every conversation between a brand and a consumer across care, sales, marketing and also retail. By our estimate, this transformation has created a nearly $200 billion total addressable market, the vast amount of which is greenfield.

The biggest component of the TAM today is derived from offering messaging and bots as superior alternatives to the estimated 270 billion phone calls that are made each year to 1-800 numbers. Transforming these calls to messaging is the low-hanging fruit because most people don't want to call the 1-800 number anymore and be put on hold.

For the brand, LiveEngage typically increases agent productivity by 2x to 4x, while meaningfully increasing customer satisfaction. One customer, for example, quadrupled agent productivity in 30 days by using the capabilities of LiveEngage to merge human with automated intelligence.

More than 100 large enterprise customers are scaling messaging and bot deployments on LiveEngage. In fact, more than 1 dozen leading brands have already embedded our software into their interactive voice response systems, or what we call IVRs, so that when you dial the 1-800 number, instead of waiting on hold, now you can choose to hang up the voice call and switch to messaging instantly. Based on the success of this strategy, we expect to more than double the number of IVR deflection customers by year-end.

Another approach seeing strong adoption has been to embed our messaging software into brands' apps so when a consumer opens the app they see a “Message Us” button. In the second quarter, one of the largest banks in the world emailed more than 10 million of their consumers announcing that they can now message the bank through their app. Messaging volumes for the site have been doubling each month, and we expect them to soon be one of our top 10 customers by volume.

While shifting voice calls is our beachhead into the enterprise, over time we expect an increasing portion of our TAM to come from taking a greater share of the sales and marketing interactions that occur through ecommerce on websites and apps. Unless you're Amazon, your website never really lives up to the promise because, at best, only 5% of visitors will convert into paying customers. With messaging, we are seeing conversion rates up to 4x higher while once again driving high agent productivity and customer satisfaction.

For example, we built a bot for a major home improvement retailer that is now autonomously selling outdoor grills on their website and driving a meaningful contribution of revenue for the product category. Other customers are placing Apple Business Chat buttons on their website to shift consumers off the web and into messaging. Once a consumer engages through messaging, they have a secure 2-way connection with the brand and they never need to return back to the website or app.

The strength of our advanced platform and industry domain expertise are critical differentiators spanning all segments of our business, giving us a sizable lead in the market. I project today we're somewhere between 12 and 18 months ahead of where a competitor would be.

LiveEngage offers brands the power to connect with consumers through whatever messaging interfaces they prefer: SMS, Apple Business Chat, Facebook Messenger, Line, branded apps in the IVR system, on the desktop and mobile web. We are steadily expanding this reach. Over the last few months alone, we added connections to Google RBM, Alexa, Google Home and, as of today, WhatsApp.

LivePerson also has AI and bots front and center as core competencies of its platform. In fact, in June greater than 40% of messaging conversations on LiveEngage were handled by a bot, which is more than double the attach rate of a year ago.

This success is being fueled by the incredible roster of talent and technology that we are developing. In January, you may remember we acquired BotCentral, which provides strong bot offering tools, agent assist technology and the expertise to drive enterprise scale deployments.

In March we recruited Alex Spinelli, who ran the tech team behind Amazon Alexa to be our global CTO. Under Alex, we are building out an advanced technology center in Seattle, with seasoned engineering, machine learning and AI talent from world-class companies such as Amazon, eBay, Nike and Target joining us.

In addition to this heavy internal investment, we also work with leading third-party bot and AI companies, including Amazon, IBM, Google and Microsoft.

LiveEngage is a platform that is built on a set of standard application interfaces called APIs, in which the technology groups now at our customers can access conversational data and real-time operational services. When we first released the platform, we did not have many of our APIs exposed because we were still maturing many parts of the platform. We now have over 3 dozen APIs available, enabling greater integration into our customers' core back-end systems like analytics, contact center operations, billing and CRM. Use cases are now evolving with customers using our real-time data APIs to analyze customer sentiment on the fly and to even evaluate the health of their own core services.

This unique combination of robust platform and an open API stack was a key factor behind one of our existing customers signing a new $30 million multiyear agreement, the largest in the company's history. This customer is delivering messaging experiences through a diverse set of consumer front ends, and they're also using our rich set of APIs to manage real-time services within their own operations groups.

As an example, they're using our messaging API to monitor real-time messaging conversations with the agent and then flagging internal teams if key words start coming through about service quality on their network. These real-time conversation cues are providing even better data points than their normal network monitoring tools.

I had this really clear vision a few years back of how messaging and the conversational commerce space would evolve, and we built LiveEngage as the foundation to go after it at scale. Our execution has positioned LivePerson strategically at where the puck continues to go.

I'll wrap up by reinforcing a few key takeaways. First, LiveEngage is allowing us to access new markets and, with it, our TAM is rapidly expanding.

Second, AI and bots are core competencies of our platform, and we are seeing rapid customer adoption of these parts of our platform. We will continue to focus our investments here and accelerate our hiring of the industry's brightest talent to execute on our overall platform vision.

Third, the open nature of our APIs are attracting developers to build their own solutions on top of LiveEngage, which is getting us even deeper into the enterprise.

And last, we're just beginning to tap into the potential of this new market. In the fourth quarter of 2017, we announced the largest deal in our history, a $20 million-plus 3-year contract. Just 6 months later, we set a new record, with a $30 million-plus 3-year contract, and we are looking forward to what comes next.

I will now hand the call over to Chris, who will do a deeper dive on our overall financial outlook. Chris?

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Christopher E. Greiner, LivePerson, Inc. - CFO [4]

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Thank you, Rob, and good day to all of you.

We delivered another strong quarter, underpinning our growing confidence and improved outlook for the year. The company delivered its second consecutive quarter of mid-teens revenue growth. We generated record average revenue per user of greater than $255,000, up more than 20% year-over-year and up from $240,000 last quarter. Revenue retention rates once again were well above our 100%-plus target. Mobile hit a critical milestone, accounting for approximately 50% of interactions in the second quarter. And the number of customers using more than one interaction type on LiveEngage continued to climb, reaching a record 37%.

My focus has been on improving operational excellence, and we're making great progress on many fronts in accordance with the priorities I outlined last quarter; namely, we're leveraging data to improve execution and decision making, unlocking insights in areas ranging from customer profitability to sales operations to investment strategies, and we're prioritizing for growth through a new organizational framework that invests in go-to-market and technology resources first, thereby strengthening quality, increasing speed and driving productivity.

You can see progress here playing out in our P&L, where excluding nonrecurring items our combined R&D and sales and marketing ratios are up 370 basis points year-over-year, while G&A is down 70 basis points. And finally, we're transforming the G&A function by using the same AI technology we provide our customers to generate greater leverage.

But overall, the strength of our results is directly correlated to customers adopting messaging and automation strategies in place of voice, websites and apps. This transformation in how people communicate with brands has opened up a significantly larger total addressable market.

Many exciting wins demonstrate our momentum on this front. As you heard from Rob, we recently signed a customer renewal that resulted in a mid-7-figure upsell and a record total contract value of greater than $30 million. We also signed a low-7-figure deal, multiyear contract with one of the 25 largest banks in the world and successfully expanded scope with an existing cable company customer in North America just 30 days into a pilot project.

Customers are selecting LivePerson due to our depth of expertise, our platform sophistication and security, our strong references, product vision, broad partner ecosystem and proven quantifiable ROI use cases.

But beyond our direct sale successes, we're seeing our partnerships yield investments -- yield strong results. In partnership with IBM, we won a 6-figure contract with one of Europe's largest Telcos. We also signed a formal partnership with Accenture in Europe and quickly secured a 6-figure contract with another large Telco in the U.K. This is especially gratifying because we won back a customer that had moved off our legacy chat offering a couple of years ago, but now saw great strategic value in the conversational commerce capabilities of LiveEngage.

With respect to small and midsize customers, in May we launched a new program geared specifically towards making it easier for managed service providers, value-added resellers and digital agencies to sell LiveEngage. We've seen great success in this effort, and year-to-date we have roughly tripled the number of SMB partners working with LiveEngage. LiveEngage's open architecture provides a broader distribution opportunity that allows us to vastly expand our pipeline with these partners and others.

In addition to a distribution ecosystem, LivePerson also continues to strengthen its technological ecosystem, which was most apparent during our second quarter customer summits, one of which was with Google in San Francisco. Together with Google, we hosted a private briefing to more than 80 customers and prospects and featured customer workshops with Facebook, WhatsApp, Microsoft, IBM Watson and Apple Business Chat.

Ultimately, though, our summits are about creating a stage for our customers and partners to, first, showcase their success utilizing our platform; second, be references, which helps us progress opportunities to closure; and third, serve as a vehicle for creating new pipeline. An illustration of this is the banking win I described earlier, which closed in the second quarter after attending our first quarter summit in London. In fact, in the second quarter alone nearly $18 million of pipeline was created or influenced on the back of our San Francisco event.

With that, I'll turn your attention to a more detailed review of our second quarter financial results.

As mentioned, in the second quarter revenue increased 14% year-over-year and 5.9% sequentially, to $61.7 million, exceeding our guidance range of $59 million to $60 million. Both of our segments delivered double-digit growth, with B2B revenue rising 14%, to $56.7 million, and consumer revenue rising 11%, to $5 million.

Total deals signed in the quarter once again increased, driven by the number of new customers added year-over-year. Increased market penetration combined with rising ARPU is a powerful combination, demonstrating our ability to tap into significant white space opportunities.

The telecommunications vertical continued to lead overall growth, increasing 45% year-over-year, to 20% of revenue, from 16% in the second quarter of last year. Financial services, at 20% of revenue, and consumer retail at 24% of revenue also delivered double-digit growth. Auto was 11% of revenue; technology, 6%; and other, 19%.

With respect to our geographic revenue distribution, our international operations posted another record, accelerating to 31% year-over-year growth in the second quarter and accounting for 42% of revenue. We made solid inroads in APAC, signing a 6-figure deal with one of the leading ecommerce companies in Japan.

U.S. revenue grew 4% year-over-year and is anticipated to accelerate over the next 12 months as our recently added new logo hunters ramp in productivity. In fact, we are seeing strong leading indicators of their anticipated impact, with newly created pipeline in the second quarter up 140% compared to 1 year ago. In addition, nearly half of the attendees at the Google event in San Francisco were prospects, a record mix of new versus existing customers attending our summits.

In terms of profit, gross margin increased 200 basis points, to 74%, in the second quarter, from 72% a year ago, meeting our mid-70% long-range target.

Adjusted net income, adjusted EBITDA are non-GAAP measures that exclude $3.7 million, or $0.06 per share, of expenses in the second quarter of 2018 tied primarily to nonrecurring litigation, severance, organizational consulting as we fine tune the organization around our closer-to-code and closer-to-customer framework that I spoke to earlier. You can refer to today's press release for a full reconciliation of GAAP to non-GAAP measures.

At the end of the second quarter, our cash on hand, including restricted cash, was $70 million, or approximately $1.15 per share. LivePerson used cash from operations of $1.3 million in the second quarter and spent $5.1 million on capital expenditures.

Now let me transition to our improved 2018 outlook. With strong first half results and a robust pipeline of second half opportunities in place, we are raising our revenue guidance for the year to a range of $245.5 million to $247.5 million, up from $239 million to $243 million. At the midpoint of revenue guidance, growth for the year is now 13%, an increase from our previous view of 10%.

We're maintaining our adjusted EBITDA range of $22 million to $25 million, as we are seeing a clear payback on our growth investments. And we will continue to prioritize for growth, directing capital towards marketing programs, partners, sales capacity and capability and product resources that enhance our market position.

For the third quarter we expect revenue of $62 million to $63 million; GAAP net loss per share of $0.12 to $0.10; adjusted net income per share of $0.02 to $0.03; adjusted EBITDA of $5.1 million to $6.1 million, or $0.08 to $0.10 per share.

For the full year our expectations are as follows: revenue of $245.5 million to $247.5 million; GAAP net loss per share of $0.38 to $0.32; net income per share of $0.10 to $0.14; and adjusted EBITDA of $22 million to $25 million, or $0.36 to $0.41 per share. You can refer to LivePerson's earnings release issued earlier today for additional details on our full year 2018 assumptions.

In summary, we are winning the conversational commerce market with scaled customers and groundbreaking use cases, and we are investing in go-to-market and technology resources to capture the expanding TAM. We are also building the industry's most robust ecosystem, where our technology is the connective tissue for brands to strike new and meaningful relationships with their consumers. Whether it's through Apple Business Chat, Google, WhatsApp, IBM, Accenture and others, our integrations make it seamless for customers to rapidly pivot and leverage conversational commerce as a competitive differentiator.

With that, I'll hand the call back to the Operator to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question is from Mark Schappel, from Benchmark.

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Mark William Schappel, The Benchmark Company, LLC, Research Division - Equity Research Analyst [2]

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So Rob, just starting off with the large $30 million multiyear deal, I was wondering if you could just give us maybe a few more -- just a little bit more color around that deal, maybe who you competed with in that engagement, a little bit more details on the term of the engagement. And I don't recall the sector it was in.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [3]

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So it's a U.S. company in the Telco area. It's the third contract with this specific company. So there was an original contract 3 years ago and then a second one, and then this is a long-term multiyear, 3-year deal. So that's pretty much it. It's an exciting one, obviously. A lot of opportunity there, and it's good to (inaudible). Like I said, it's the third one that we've done with them.

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Mark William Schappel, The Benchmark Company, LLC, Research Division - Equity Research Analyst [4]

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Okay. Great. And then also just a little bit more color on the win-back customer. That seemed like a particularly interesting deal.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [5]

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It's the second one that we've had in the U.K. region. If you remember, we had Sky that left us a couple of years ago for chat, and then they came back. And we've done great things with them on the messaging side.

There's another Telco there that we had a similar situation, and they then have come back now to get on the messaging on LiveEngage. And so it's very similar to what we saw with Sky opportunity. So it's exciting. They were a great customer when they were a chat customer, and then they went to a cheaper vendor. And then, like I said, they've come back and it's a good start. And we've done it through a partner, which is also I think really important Accenture was part of that. Because we're shaping a bigger digital transformation deal and we're part of that transformation.

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Mark William Schappel, The Benchmark Company, LLC, Research Division - Equity Research Analyst [6]

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Okay. Great. And then despite the good quarter (inaudible), if I recall correctly from what Chris said, U.S. revenue only grew 4% in the quarter. And if I heard that correctly, if you could just talk a little bit about your prospect for the back half of the year for the U.S.

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Christopher E. Greiner, LivePerson, Inc. - CFO [7]

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U.S. revenue up 4%. I tell you that if we -- you kind of span the globe and you looked at where we're most excited about the opportunity, North America, U.S. would be top of the list. And it's been an area where we've been continuing to invest. New investments have been placed in that area. I think what we're seeing is just the ramping of those resources.

Now you look at what are the right leading indicators for when we're projecting that growth to accelerate. We said that will happen in the next 12 months. Pipeline is a great leading indicator. We tried to give you more color on this call related to the pipeline associated with summits. And in North America we've seen, as you saw, just a significant growth in the amount of pipeline opportunities. And that's being sourced not only from the hunters that we've put in place recently, but really focusing on where the white space expansion opportunity is in a lot of our blue chip accounts. And that's untapped opportunity. We've got really powerful proven use cases, and we've got to go to work with those customers and partner with them closely. And that's our focus. But we'll get accelerated growth back in the U.S.

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Matthew Kempler, [8]

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Just adding in, we're leading in North America also with a lot more pilots in our approach. And so you're not necessarily seeing an immediate lift when we go into the customers with a pilot, but then as they convert you'll see a subsequent upsell tied to it. And we highlighted in the call one of those. That was the North American Telco that started with a pilot with us. Within 30 days, they shifted into an upsell and we got a 6-figure contract out of it.

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Mark William Schappel, The Benchmark Company, LLC, Research Division - Equity Research Analyst [9]

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Great. And then just one final question, and that has to do with cash flow from operations. Historically or traditionally in the last couple of years, the second quarter has been a very strong cash flow from ops quarter. That wasn't the case this quarter. Chris, if you could just address what was going on there with cash flow?

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Christopher E. Greiner, LivePerson, Inc. - CFO [10]

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Sure. I think different than history, what you see in play largely is the globalization of our global product and technology groups and, specifically, the build-out of our Seattle location and the associated investments there. That's primarily where the cash is being deployed right now, and that's different than history. And that will continue through the remainder of this year.

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Operator [11]

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Your next question is from Jeff Van Rhee.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [12]

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A number of questions from me. Just maybe circling back to the bookings. Obviously, this $30 million 3-year deal is notable, as you said, following on the heels of the $20 million. Can you talk beyond that, though, about the breadth and depth? I know you've had a number of comments in past few quarters, record all-time record Q1, giving a sense of the depth and breadth of the pipeline. So certainly impressive this large deal. Talk about the remainder of the bookings and how the quarter fared.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [13]

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So the bookings were strong in Q2. Actually, that deal that I mentioned is going to fall in Q3. It closes, like, a week after the quarter. There was another 6-figure deal in Q2. But yes, we had very strong bookings and continue to see good bookings going into Q3 right now on the heels of that $30-million deal.

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Christopher E. Greiner, LivePerson, Inc. - CFO [14]

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Jeff, to give kind of an industry color and some geographic color, we continue to be white hot in Telco. Financial services has a very strong pipeline and is executing and progressing well.

International markets was awesome: 31% growth, really strong bookings. We're seeing terrific partner leverage also in Europe. And APAC, which is still in its early, early, early days of investment and scale-out had a really exciting win for us in Japan.

So I think color-wise it continued to have the right mix of international and industry exposure. Europe stood out as a highlight. North America, we talked about, but we like where the pipeline is in North America in terms of what it projects for future bookings quarters.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [15]

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Okay. And then I guess on the deal count I think you had referenced -- I caught a few pieces where there were some records, but do you have the actual, the new deals? I think you usually give historically new and deals to existing.

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Christopher E. Greiner, LivePerson, Inc. - CFO [16]

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So in total, the number of deals that we signed this quarter was 94. That compares to 91 a quarter ago. What was lumpy in this quarter was the existing. New, the amount of new customers we signed, was up for the second straight quarter over 40%. Our existing customers was down this quarter, but in terms of the first half is still up. But if you look historically, kind of the sheet I'm looking at, the existing is more lumpy in nature.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [17]

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Okay. And then it sounds like from an investment standpoint, clearly, Alex and team have been building out, and you commented a couple of times on the spend, both there and in sales. Can you just quantify or maybe dial that in a little more to the extent of expansion in development capacity and expansion in sales capacity, just sort of to get us in the ballpark of what kind of capacity in both areas you're adding?

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Christopher E. Greiner, LivePerson, Inc. - CFO [18]

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Sure. Alex's area, I think -- by the way, if we had it our way, it would go faster. It's just the talent that we are looking to bring onboard is of the highest caliber and it's scarce. So I think on a run rate basis you would expect to see our hiring in technology -- Matt, correct me if I'm wrong. I want to say if all went according to plan, around $2 million on a run rate basis? Is that -- we can verify that for you, Jeff, after the call, but I think that's in the neighborhood.

In terms of sales and marketing, where we're adding right now is the same areas that we commented on last quarter. In fact, I think you'll see -- because of the payback we're getting on our marketing programs and our summits, you may see more directed towards programs than people. But in general, right now it's going towards hunters. It's going towards elements of building out our solution teams. That covers IVR, that covers Apple Business Chat, WhatsAPp now through the announcement. And then looking at more micro-level programs. I don't think we'll do more large customer summits than we had planned, but we might be more micro-focused and selective in certain markets where we see opportunity and go do those, as well.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [19]

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Okay. Great. And last one from me then, I guess, just Rob, just if I could take you back to that large deal, just in terms of -- I think the way it was described it sounded like there were a number of unique aspects to this deal versus the prior iterations, but I was unclear. It sounded like they're using it in a lot of ways very different maybe than what other customers are using or what they were using your technology before. Could you just talk a little bit more about the use cases now versus what you were doing for that Telco prior?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [20]

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It's their advancement. So if I look at them as a customer, they were one of the first out of the gate. Like I said, it's the third contract. So they're -- obviously, they're in many different front ends, from Apple Business Chat to other ones, their app, web, many that they're pretty much very aggressive on the front end where they're getting traffic.

The second part is, as I mentioned, they're using the APIs that are on the platform to power businesses' operations. So they're doing a deeper level of development on the platform and building their own platforms on the platform to use the real-time data sets that come off of it to generate intelligence and to get a sense of, like, (inaudible) network outages or issues with things that are happening with products that they're selling.

So they definitely are at an advanced stage. We have a lot more to go beyond care. So care was sort of the beachhead. There's retail. There's sales. There's many different opportunities. So that's why that contract got to that place, because of the work we've done over the last 3 years.

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Operator [21]

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You have a question from Ryan MacDonald, of Needham & Company.

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Ryan Macdonald, [22]

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I guess one question around the U.S. business, and I think it was Matt's comment around sort of leading with pilots in that market. Given that focus in starting that and some of the success you talked about in the quarter with quick conversions, can you quantify at all the number of pilots? Or maybe directionally talk about how that number of pilots has grown over time or recently this year?

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Christopher E. Greiner, LivePerson, Inc. - CFO [23]

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We're not in a position to give specifics on it, but what I'll tell you is this really was born out of an acknowledgment that we want to put our technology against what's in place today. And the best way to do that is to get a sample of the population and put it against a control group and then prove out the ROI use case.

And what we're finding is that when we're doing that, we're successful. We're making a very easy tracking process. These are short-term contracts. We're making the pricing attractive. But it's all engineered to lead towards a longer-term relationship.

And then as that client of ours goes along the journey of conversational commerce, you imagine getting into longer-term, more arrangements tied closer to the value that's being created. So that's the design. It's working. It's going to continue to be a strategy of ours where it makes sense. But I think it was a really good innovative approach that the enterprise team came up with.

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Matthew Kempler, [24]

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Just to repeat one of the comments that Chris made earlier, we talked about the pipeline that's being created behind our approach to the market, and we said our pipeline's newly created opportunities by our hunters in North America was up 140% year-over-year.

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Ryan Macdonald, [25]

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And then just one quick follow-up. In regards to the WhatsApp announcement today, can you talk a little bit about how you would compare that opportunity with this integration to what you've seen thus far on Apple Business Chat, Facebook, et cetera, and how this might expand your opportunity from a geographic perspective given the larger number of users internationally on the product?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [26]

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That's really where you're going to see it is internationally, India, Europe. There's -- the Caribbean actually has a lot. We're rolling out a broadband provider right now; one of the Caribbean countries uses WhatsApp a lot. So internationally it's going to allow us to do a lot of, I think, a lot of things with that. You'll see the launch customers. They'll be predominantly international customers is the ones that we'll take live shortly. And so that's really -- and South America, also. Brazil is a big user of WhatsApp. So there's some stuff down there. But that's going to expand that.

Obviously, Apple Business Chat and Google Rich Business Messaging are device-level, Android and iOS devices. So you're covering most devices on Earth. Those have I think a broader implication on adoption in the market. And then you have Facebook and WhatsApp and Line and WeChat and others that are apps that are downloadable.

But these -- I think still Apple Business Chat and Google Rich Business Messaging are going to have a significant adoption rate in the market because they're on-device. You don't have to do anything. You don't have to download anything. And they're global.

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Operator [27]

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And you have a question from Kevin Liu, from B. Riley FBR.

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Zach Cummins, [28]

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This is actually Zach Cummins on for Kevin today. Sticking with the Apple Business Chat theme, can you give us any indication of how many of your customers are live on Apple Business Chat right now? And of the thousands of brands and retailers that have registered for an Apple Business Chat account, what's your sense on how many of those are choosing LivePerson as their launch partner?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [29]

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Today we have -- there are still just a handful of brands that are on Apple Business Chat. We have about 40% of them are ours. And so like you said, there's a lineup to get on there. I think -- I (inaudible) talk so much about it because it's Apple. But they're keeping it pretty controlled so we get the quality, and we're learning as we get the quality with them. And so -- but I think we'll definitely have more brands than anyone else on the platform, and my goal is to continue that. And we'll see how it shakes out.

But obviously I think what's important is that we're backending that with a pure messaging, asynchronous platform. And if you look at what other people are backending it with, they're backending it predominantly with synchronous chat systems. And so even if you look at the experience of those customers that are on competitive platforms, it's a very different experience. It's session-based, as in if you stop messaging, you go back, you start over again. With ours, you don't do that. There's no session. It's just an ongoing connection.

So I think working with Apple, we're providing a pure platform to support the enterprise, and small businesses are going to live shortly also. But I think we're in a strong position there.

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Zach Cummins, [30]

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Great. That's helpful. And for customers like T-Mobile that were already using messaging prior to the launch of Apple Business Chat, has the addition of Apple Business Chat as another channel to engage with consumers had a meaningful increase on the number of interactions? Or has it been more of a shift in interactions from, say, their own app to the [iMessage] interface?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [31]

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I can comment a little bit on it. They're actually -- it's a new customer. So it's like a new channel. They've had some really good successes with taking consumers off the web. Apple Business Chat has an extension that goes onto your website and then when you click on it with your mobile device. So if you show up, you have an iOS device, on their website you'll be offered a messaging button. You click on it, and then it opens up with Business Chat. And they're seeing some very good success there.

It's still at its infancy, because to get to a brand, T-Mobile or anyone else, you have to put in the brand name when you're searching on Siri or spotlight search. So you can, yes, find a brand by intent. Like, I want to buy a phone. Okay. Here's T-Mobile. So there's a lot of opportunity, and today it's really you find the brand. So they're finding other unique ways. Obviously, their apps, their website, other things we're doing can generate a lot more volume, but it's a strong start.

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Operator [32]

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And you have a question from Mike Latimore, of Northland Capital.

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Unidentified Analyst, [33]

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This is [Vijay] here for Mike Latimore. If you look at the pipeline, the current pipeline, do you sense yet any prospect for even larger contracts? What kind of confidence do you have of winning such larger contracts, even larger?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [34]

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I think we're -- I think I said this many quarters ago. Somewhere out there there's a $100 million deal, and I'm not saying it's tomorrow. But if you look at the impact we're having on these organizations in the work we're doing and the transformation we can do, some of these organizations spend over $1 billion a year on calls in their contact centers. So you could think about if we can reduce that volume, the cost of that, by 50%, there's huge savings.

So I think we're really at the beginning. When you think about it, we're, like, 2 years into this, and we're doing this size deal because we've built a platform that allows us to provide that type of value to our customers.

But I think there's bigger deals out there, and the deals we're working on there's definitely deals in the pipeline that are big deals that we're working on.

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Unidentified Analyst, [35]

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Okay. And [with] such a large win, how does the deployment time frame look like?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [36]

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The good thing is this is a customer going on their third year. So they're deployed. There's many more use cases that we will deploy with them. So we have a full team, a big team that's on that account and working with their internal resources. But it's a big opportunity, a transformative opportunity for sales, care, retail and operations. So I think that's really the opportunity with them.

And once again, they're leading the pack I think in many ways, but there's other brands we have that are right behind them on what they want to use the system for.

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Operator [37]

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(Operator Instructions) And you have a question from Koji Ikeda, of Oppenheimer.

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Tyler Page, [38]

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This is actually Tyler Page on for Koji. Over the last few quarters, the business has clearly shown some improving fundamentals and you can see that in deal commentary, the ARPU gains, your mobile usage and really in the top line growth. Can you maybe call out 1 or 2 key drivers there and then where you see those key drivers going behind this fundamental strength?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [39]

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I think the biggest driver is in the minds of enterprises today. I don't care if they're a CEO or a CMO or a Chief Digital Officer or a Chief Care Officer, everyone is thinking about bots, AI, messaging. They're thinking about the transformation of the ways in which they are communicating, connecting with their customers.

And so things like even Amazon Alexa, it's out there and that's part of conversational commerce. And so just in the zeitgeist is conversational commerce and then how do we power that. Obviously, bots and AI captures the imagination every day of how can we automate and automate those conversations. So I think that alone is just driving brands to put their hands up and say, “I'm interested about that.”

Now the second thing is tack on that Apple with Apple Business Chat and Google with Google Rich Business Messaging. You've got WhatsApp now. You have Facebook Messenger. Then you've got Google Home. You've got Alexa, Amazon Alexa. Line. WhatsApp, because you can integrate with them. It's basically all those big companies are out there, too, saying, “We think the future of communicating with your customer is through messaging and we've opened up our systems to securely provide that to you.” So I think that's the second part.

And the third part is, and I think the most important part, is we have customers that we can prove value, that are at scale. And in the world right now we are one of the only companies that has that. We're not taking customers live that are doing small little things. They're trying to transform their business, and they trust us because we have referenceable customers. We have over 100 enterprises right now that are live and that are scaling at some real rate.

And when you can show that you can remove 40% or 50% of calls out of a contact center and move it on to something else like messaging and then you can reduce the cost of that by at least 50%, if not more, with automation, you've got sort of a winning formula.

So I think it's that whole vision of the world and bots and we're talking to our cars and talking to our homes and our home devices, and then the idea that we can change the way we're communicating and connecting with our customers, and then the ability to show true ROI, that combination is helping us grow our company today.

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Tyler Page, [40]

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That's some great color. Pivoting a little bit to the pipeline, if I can dig in a bit there. When you look at your pipeline, do you still see a lot of low-hanging fruit within the installed base to be harvested? Or is this majority of future growth coming from new business at this point?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [41]

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We're still -- if you look at our by numbers, the majority of the people on LiveEngage are chat customers. It's funny. It's like we have a lot in the base. So there's a lot of activity to move that base, and I think there's a lot of opportunity there.

There's also -- we've been looking at -- we have a slide here of, like, all the verticals and then all the players in, like, the top 100 companies in each vertical. And we have 5 or 10 --

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Christopher E. Greiner, LivePerson, Inc. - CFO [42]

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Fraction.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [43]

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Fraction. And we look at that on the greenfield side. And so that is really an opportunity on both sides of the business. And so that's really what we're focused on, is how do we really get the market shaking.

I feel like if everyone knew about what we are doing, I can only wonder what our growth rates would go to, and that's our goal. And that's what Chris was saying. The marketing events are working quite well. Can we do 1 a month? Can we do these big things 1 a month? So there's a lot of investment we're looking at to really drive the demand that we know is out in the market today.

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Christopher E. Greiner, LivePerson, Inc. - CFO [44]

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And I think, Tyler, I think there's a really important point of color, and I should have maybe mentioned this even more thoroughly. I don't want to give the impression that we're throwing sales people in the field just to go sell on their own. If anything, we've been very focused recently on building a robust repeatable training and enablement program for them.

We're actually increasing the sophistication of how we look at our accounts. So what Rob was speaking of, we've got if you could picture it in your mind's eye a grid of every customer the company has and then what they're buying and what they're not buying. They're not buying is what capabilities exist that the company can offer on our platform.

And it being so prescriptive with our installed teams on here's the opportunity, here's how you specifically go build a template to prove the use case, and pointing them in the direction and helping them along the way in that journey. And we're excited about that. And most of that is in North America right now, which is why we're so optimistic on why we'll see really great growth from North America.

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Operator [45]

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And you have no other questions in queue.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [46]

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Okay. Thank you for being on the Q2 call, and we'll see you next quarter. Have a good night.

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Christopher E. Greiner, LivePerson, Inc. - CFO [47]

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Thanks, everybody.

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Operator [48]

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This concludes today's conference call. You may now disconnect.

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