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Edited Transcript of LPSN earnings conference call or presentation 8-Nov-18 10:00pm GMT

Q3 2018 LivePerson Inc Earnings Call

New York Nov 9, 2018 (Thomson StreetEvents) -- Edited Transcript of LivePerson Inc earnings conference call or presentation Thursday, November 8, 2018 at 10:00:00pm 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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* Glenn George Mattson

Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research

* Jeffrey Lee Van Rhee

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

* Koji Ikeda

Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst

* Mark William Schappel

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

* Michael James Latimore

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Ryan Michael MacDonald

Needham & Company, LLC, Research Division - Senior Analyst

* Zachary Cummins

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Third Quarter 2018 Results Conference Call. My name is Deirdre, and I will be your conference operator today. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Mr. Matt Kempler, the company's Vice President of Investor Relations. Please go ahead, sir.

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Matthew Kempler, [2]

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Thanks very much. 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 press release and the comments made during this conference call and in 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. Thank you for joining LivePerson's third quarter earnings call. Revenue increased 14% year-over-year to a record $64.2 million in the third quarter. This marks our sixth consecutive quarter of sequential growth and the continuation of our mid-teens year-over-year growth trajectory. We are once again raising revenue guidance for 2018 and Chris will share those details shortly. The results reflect another strong quarter for demand generation, contract signings, increased 12% over the second quarter and nearly 40% year-over-year. We signed 3 7-figure contracts, one of which was with T-Mobile, which is the largest in our history. I wanted to take this quarter call to spend some time reflecting on the past 2 years of progress. As many of you know, T-Mobile's are our first messaging customers when we launched in 2016. At that time, messaging wasn't even on the radar of executives overseeing digital customer care. Strategically, we started with the idea that consumer behavior had shifted to platforms like messaging, that the days of calling were over. No more IVR. Then, T-Mobile went live and none of us knew what to expect. The results were phenomenal. Consumers love being able to message directly to T-Mobile agents instead being forced to call. And we realized it wasn't a simple communication channel. It was a new way to do all things digital. A few weeks ago, we hosted a conference with T-Mobile in Charleston, South Carolina with over 100 executives and some of the largest brands in the world. This event was T-Mobile's showcase for brands to see up close their un-carrier move, called "Team of Experts", which eliminates the need for voice IVR. Team of Experts is foundationally built on the power of the LiveEngage platform and the work we have done with T-Mobile over the past 24 months. It is rare in the world of B2B software and you have the chance to develop a partnership where the customer reaches a level, they're willing to acknowledge publicly with a nationwide advertising campaign the work you've done. It was really meaningful for myself and for the entire company. It was a recognition of all the great work we've done over the past 24 months. T-Mobile did it their way for customer care, but there are over 200 other businesses on the LiveEngage platform that have done it in a totally different way for customer care, sales, and even marketing. Seven of these companies presented at the conference in Charleston and each showed not only amazing operational results, but also unique digital conversational commerce experiences. Let me share some of those companies' stories. The CEO of buddybank, a subsidiary of one of Europe's largest banks, UniCredit, talked about how they made life easier for customers by launching a conversational, messaging-only bank that is built 100% on the LiveEngage platform. They offer a concierge service wrapped around checking accounts and credit cards and then create a unique consumer experience for banking. Aramark, one of the largest food service providers in the world, shared how they reinvented stadium concessions with an in-seat experience called Brew 2 You, which gave baseball fans the ability to order food and beverages via messaging in their seats using Apple Business Chat and Apple Pay. A final example was the Cosmopolitan Hotel in Las Vegas, which deployed an AI-powered bot called Rose, that rolls out the red carpet for guests when they check in, playfully helps them find restaurants, order unique cocktails, and even skip the line at the club at the hotel. Rose is changing the game in guest services driving higher wallet share and peak bookings for the Cosmopolitan. Also, since we launched T-Mobile, something really transformational happened. The leading consumer technology companies like Apple, Facebook and Google began reaching out to us about wiring LiveEngage into their messaging front ends. This gave us access to billions of consumers, and we also recently extended our reach to WhatsApp, Alexa, Google Home, a new ad format from Google called Google Ad Lingo, and Line, Japan's leading messaging platform. These are just some of the amazing changes that have been happening in our market, but there's a broader theme to what we are seeing in the overall market. 1995 is where we got started, and also Amazon, but we haven't had to ask ourselves, why only recently did Amazon becoming the largest companies in the world? I would say a lot of it has to do with the fact that in 1995 there were no digital natives. It was people like myself who grew up on phone calls and retail stores that had the buying power, but today, millennials are the largest population, and their influence on all consumers and the collective buying power is now driving a seismic change in the world. They grew up dating on an app versus going to a bar or club and shopping online versus going into a store, and more importantly, messaging their friends and family versus calling them. The massive change we are seeing in our business over the past 24 months is being driven by them. And it feels like we're just at the beginning of the demand cycle. There's some key metrics that are showing the momentum that we are building. By the end of 2018, we will have over 30% of our enterprise customers using messaging on LiveEngage, a very strong adoption curve is driving greater ARPU as we shift more voice calls to our platform within each of our customers. ARPU has grown from about $200,000 in 2016 to more than 270,000 in the third quarter. The ARPU for customers that've adopted messaging is more than $0.5 million, which is more than double what we're seeing with chat even after 20 years. And overall, when you segment our enterprise revenue, it's forecasted to grow more than 20% in 2018. Underlying our messaging adoption is a very powerful statistic that's nearly 50% of all interactions are automated in some fashion. AI and machine learning is not a feature of our platform. It is what powers it. At the conference, we introduced a new set of AI capabilities in our platform that include an AI-powered agent workspace called Conversational Builder, AI-powered intent analysis that enables a brand to better understand what are the key things that consumers are asking for and what conversations to automate. We're also introducing shortly out-of-the-box vertical-based AI solutions that will help customers successfully scale conversational commerce, with minimally -- minimal effort in expertise. This is all possible, because one of our most powerful assets, which I would venture to say is our moat, are the hundreds of millions of end-to-end, business-to-consumer conversations that we have access to on our platform. This is a priceless asset when developing AI and creating machine learning algorithms. Also at the conference, we launched LivePerson Studios. This is where we will do the highest form of conversational commerce, not only for our customers, but also for well-known personalities. We kicked it off by launching Deepak Chopra, a few weeks ago on Amazon Alexa. We developed to scale on Alexa, and by simply saying, "Alexa, open Deepak's reflections," you can hear a daily meditation that lasts about 30 seconds. We develop a portable way in which every day you can share an idea and upload to it LiveEngage and then to Alexa. We have a video on our website, if you're interested in hearing Deepak's perspective on what it is like to work with LivePerson and developing something like this. I've seen the company through many different cycles over the past 20 years and this feels very different than what I've ever experienced when we scaled even our chat business. The past 2 years were about doing the foundational work with our product, our people and our customers, so that we can prepare to really scale the business. We definitely have a poll position on conversational commerce today. And now we need to aggressively attack this market and this great opportunity. I will now hand the call over to Chris who will go deeper and do a deeper dive on our financial outlook. Chris?

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

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Thanks, Rob, and good afternoon to all of you. I, too, couldn't be more pleased with the pace of which we are bringing leading technological capabilities to our customers. I'm also excited by our consistent execution, especially as we build the go-to-market engine that scalably addresses our rapidly expanding opportunity. I'll focus my commentary on the leading indicators continuing to guide our investment decisions. These are the same ones that also underpin the strong results we delivered in the quarter and support our continued growth outlook for the business. Specifically, in the third quarter, we generated record revenue of $64.2 billion, up 14% year-to-year and 4% sequentially. Both of our segments delivered double-digit, year-over-year growth with B2B rising 14% and consumer 12%. Our industry expertise in telecommunications and financial services, once again, translated into strong growth contribution, with both of those verticals generating greater than 30% and 15%, respectively. Let me highlight 2 of the many key wins in these industries, where we continue to win share. The first was a 7-figure expansion with a Fortune 100 multinational financial institution. This customer will be deploying Apple Business Chat, as they seek to modernize consumer interactions to new engagement methods. The second was another 7-figure win with the leading telco in Germany. They began working with us under the accelerator pilot program in the first quarter. And after seeing strong consumer preference for messaging, they signed an expanded contract with us to add many new consumer endpoints, including Apple Business Chat, WhatsApp, and active Web Messaging. From a geographic perspective, our international markets once again delivered an excellent quarter posting year-over-year growth of 30% and accounting for 42% of revenue. Overall, our U.S. revenue grew 4% year-over-year, which was in line with our expectations and worth breaking down further as a market. First, U.S. Enterprise business is already growing faster than the overall company's growth rate, as we've made this our main focus over the past 24 months. This quarter, we even had one of the largest telcos return that had left us during the transition a few years back. We're now going to add capacity to this market where we see growing demand and leverage a great base of reference-able customers. The SMB group wasn't a strategic compared to 24 months ago, and naturally, we didn't see growth, which put a lag on overall U.S. growth rates. With that said, in January, we started to invest in this group as we also believed there'd be demand by SMB's for messaging. We are also seeing good traction now. And we expect this quarter to be a record in contract signings. We are also looking at increasing capacity into this market segment. The combination of these results translate into great deal flow this quarter, with total deals signed increasing nearly 40% to over 105 wins. This is a good illustration of the momentum we're seeing from our investments to expand our channel ecosystem and the early success of our accelerator pilot programs. You'll recall that these accelerator packs are designed entirely around making it easier for our customers to deploy LiveEngage and immediately realize the benefits of our platform. Recent wins in the U.S. include one of the leading telcos, a top 10 bank, and a Fortune 500 insurance company. On the back of its early successes in the U.S., we began expanding the strategy globally. In fact, since the first quarter, we've gone from 25 of these accelerator opportunities to more than 65 today, and growing. In terms of revenue retention, for the 7th straight quarter of mid-market Enterprise customers, generated retention rates over our 100% target. Another metric that you heard from Rob that we're encouraged by is ARPU, which accelerated to a record $270,000 up 25% year-over-year. In terms of profit, we saw solid gross profit leverage accompanying our growth in the third quarter with gross margins increasing 130 basis points year-over-year to 75.6%. On a per-share basis, GAAP net loss of $0.12, adjusted net income of $0.02 and adjusted EBITDA of $0.09 were all within our issued guidance ranges. And at the end of the quarter cash on hand was $66.4 million or approximately $1.06 per share. All in, we delivered another very strong quarter and we're seeing compelling proof points and of healthy returns to which we are reinvesting our profits. With that, I'd like to take a moment here to give a shout-out to the sales organization. We placed a lot on that team's shoulders, mostly in the form of executing on a rapidly increasing demand environment where total quota-carrying headcount is actually below 2016 levels. So they've really just done an awesome job of executing. Now you'll recall at the beginning of the year, I conveyed our intention to direct investment in 2 primary areas: the first in advancing our platform capabilities. Think of these in 2 principal areas of globalizing our technology capacity and advancing our leadership and automation. And the second, increasing our go-to-market capabilities and capacity to ramping our top-of-funnel activities in building out a channel ecosystem. Starting with our investment in top of the funnel, over the past few months, we've seen the pace of pipeline creation double on the back of powerful sales use cases, marketing programs, investments in demand generation teams and globally scaled customer summits. Further, the increased diversity from where these opportunities are being generated, has also expanded. We believe this is a clear reflection of the significant opportunity, our unique platform capabilities and our strategy for creating demand. Second, our conversion rates from our hosted customer summits in which nearly 250 unique brands have participated in over the last 2 years, has been over 40%. In fact, as you heard from Rob, we just concluded one of our most successful events in our history with T-Mobile. More than a 100 of our customers and prospects spread over an entire week, learned firsthand how they can leverage LiveEngage to connect with consumers conversationally through messaging. These customer summits are a critical component of our industry creation strategy, providing LivePerson the opportunity to showcase its leadership and differentiation. Third, since investing in our channel capabilities, which really up until recently, was largely exclusive to EMEA, we've seen a growing pipeline contribution from a diverse mix of strategic partners. In all, we've created more than $30 million of partner-influenced pipeline this year and it's ramping. The volume of partner-created pipeline in the third quarter was nearly 3x higher than in the first quarter. In fact, in the third quarter, a partner helped us secure a mid- 6-figure deal in Europe with one of the largest insurance companies in the world. And we also signed our first partner-related deals in Japan, and Singapore. And fourth, from a product perspective, in July, we opened our Advanced Technology Center in Seattle. And they've ramped up quickly to over 70 engineers and counting. With that investment, we further globalized R&D across key development hubs, and with it, bolstered our technical infrastructure, as well. This added capacity, as you just heard from Rob, is enabling us to release new AI technologies that we can aggressively bring to market. I think in recapping this, it's worth reiterating that these investments have been pointed towards advancing our product leadership, along with the creation of a new market that is now seeing pipeline opportunity increase rapidly. All this translates to updated guidance in the following ways. We're, once again, raising guidance for 2018. We now forecast revenue in a range of $248 million to $250 million up from our previous guidance of $245.5 million to $247.5 million. Updated guidance implies year-over-year growth of 14% at the midpoint demonstrating continued acceleration towards our 20% plus growth target. We're also updating 2018 adjusted EBITDA guidance to a range of $18 million to $20 million from $22 million to $25 million. This update reflects 3 new investments not previously in our guidance. The first 2 account for the acquisitions of Conversable and AdvantageTec. Although these acquisitions will impact EBITDA near term and they don't contribute materially to revenue this year, they do offer tremendous strategic value. Conversable added a team of highly skilled, AI and bot developers, brought deep vertical expertise in the quick service restaurant industry, as well as social marketing capabilities. We also made an investment in the automotive space with the acquisition of AdvantageTec bringing us the only industry solution that supports the entire automotive life cycle. From research to sales, to aftermarket service and parts. AdvantageTec doubles our TAM in the automotive space and provides significant cross selling opportunity to our roughly 14,000 automotive dealer customers. The balance relates to the costs associated with the significant upsizing of our customer event with T-Mobile in Charleston, which we did not have in our original plan because it was driven by T-Mobile's August launch of their un-carrier move. It was well worth the investment, and as I just discussed, these customer summits are a proven method of driving higher conversion rates and creating market momentum. You can refer to our earnings release for additional details in our full year 2018 assumptions. As we close our comments and move to take your questions, I'll quickly wrap up with a few summarizing points. First, our execution remains really strong, as evidenced by both our operational and financial results in the quarter. Second, we're here to expand our lead and to win the conversational commerce market, not just participate in it. As Rob discussed, in just the past 24 months, we've transformed how brands communicate with consumers, and we've just begun to scratch the surface of the opportunity in front of us. And third, we have strong conviction in the areas with which we've been investing and the early results demonstrate the opportunity for significant returns. With that, I'll turn the call back to the operator to take your questions. Deidre?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Ryan MacDonald with Needham & Company.

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Ryan Michael MacDonald, Needham & Company, LLC, Research Division - Senior Analyst [2]

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Just quickly, I guess, first question on the acquisitions you made with AdvantageTec and Conversable. Is this sort of a, I guess, a shift in strategy as we're seeing -- as we are driving towards that 20% growth target that you're going to kind of continue to look for some of these additional acquisitions that can add value or help accelerate you toward that target?

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

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It's not really a shift. It's just, we're adding in with the car automotive vertical. Right now, we had all the parts to discover -- do discovery search for cars and then actually buy them through messaging. This gives us the next, the last part of the process, which is all the servicing: post-sales, oil changes and all that. And they have about 500 customers. We've got north of 10,000. So it gives us an area to really sell into that, but it creates an end-to-end journey, in that vertical. Conversable on the other side, we -- they have some very good technology and they're very focused on the quick, casual restaurant vertical. We have OnStar, so they have retailers, so it gives us a foothold in that area. They have outbound targeting capabilities from marketing and that will accelerate some development on our platform versus us building it organically. So we picked up about a little over 20 engineers in Austin, and that gives us a hub in Austin now for our developers. So it's not really a shift. It just is an acceleration that we're trying to get more technology, and then it creates an end-to-end vertical. You should start to see more, and I said it in my speech, which is we are getting very focused on filling out verticals when it comes to the consumer experience. So we're looking at areas to invest in, to organically and not organically to sort of fill that out.

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Ryan Michael MacDonald, Needham & Company, LLC, Research Division - Senior Analyst [4]

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And then just a quick follow-up on sort of the Apple Business Chat and the updates we saw during the quarter. It seems like, obviously, there's some really nice and strong success here in signing up additional customers. Do you think longer term, I guess, strategically as customers look at this, that this would be an area where Apple Business Chat is add -- adding incremental chat lines or do you think it's more replacing volumes from other channels?

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

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The -- if you look at Apple's strategy from a year ago, when they launched it, it was really about what aligned to ours, which is replacing the phone call. So to customer care operations and sales. So I think we have a -- we're very aligned in that area. The ability to on-device securely, and this is an encrypted communication channel to message to our platform to a brand, is a very powerful thing. We also have Google with RC ads and Google Rich Business Messaging, which is the other obviously big device and big operating system. So these 2, I think will drive a tremendous amount of adoption. This 7-figure deal is like predicated on Apple Business Chat. So we, right now, I think it's little north of 50% of the customers on Apple Business Chat are riding on our platform, and we're obviously doing very big deals and we're doing, more importantly, great consumer experiences. And so like I said, even the Aramark deal that we did with the Brew 2 You experience, was purely on Apple Business Chat, and so we see it as just -- it's another way to drive consumer demand, which then drives business adoption.

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Operator [6]

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And our next question comes from Mark Schappel with the Benchmark Company.

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Mark William Schappel, The Benchmark Company, LLC, Research Division - Equity Research Analyst [7]

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Chris, starting with your -- I appreciate your comments about your channel programs in your prepared remarks. So I was just wondering if you could just provide us some additional details around maybe some of the initiatives that, that are taking place or that are underway at the company, regarding building up your channel ecosystem and your building up that pipeline?

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Christopher E. Greiner, LivePerson, Inc. - CFO [8]

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Sure, Mark and thanks for the kind words. So let's start with how channels are evolving at the company. So our channel prowess was really isolated to Europe, where about, on average, 50% of our bookings had been partner generated. So what that's given us, we believe, is a very good blueprint for how to replicate it in North America and Asia Pacific. The results you're seeing right now and the newly created pipeline is heavily in North America. We have not yet started with the same level of capacity in Asia. What we've done is, we've brought in a terrific team of partner leadership, and if you look at how we're partnering with very valuable strategics like IBM and Accenture, we're not just pushing LivePerson, we're increasingly being pulled. And I think it's a combination of the capacity in North America, a really good blueprint from Europe and as Rob mentioned, this theme of conversational commerce is pulling us towards those engagements rather than us having to push and emphasize our capability.

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

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And then also in your prepared remarks, you noted, if I recall correctly, a telco customer that left the company years ago, but has kind of now returned to the LivePerson fold. I was wondering if you could just give us some details around how that deal progressed. Obviously, I'm sure your sales -- one of your sales reps or even sales teams have been calling on that customer for a while, but maybe just give us a few more details on that?

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

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Yes. I'll -- Rob can give some color, but this is all about creating an opportunity for the customer to take a bite at the capabilities in an easy way. We went direct with it. It had been a, as you correctly point out, a pretty long engagement cycle, but for good reasons, right? This is a large telco, but they're already on the platform and we're excited about the opportunity to grow it.

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Operator [11]

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And your next question comes from Koji Ikeda with Oppenheimer.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [12]

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Question on the EBITDA guidance here going forward. I know the guidance, you're taking it down for the 2 acquisitions here in the upsizing of the T-Mobile event, which makes complete sense. And I know you're not giving out any 2019 guidance today, but just thinking about some of the commentary that you've had with the investments and you're making in the go-to-market strategy and the technology, too. Curious if you could talk real high-level on how to think about EBITDA margin expansion, going forward here as we set our models.

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Christopher E. Greiner, LivePerson, Inc. - CFO [13]

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Hey, Koji. Thanks. Hope things are going well with new one. Let me start with, we thought it was really important and you've seen us add it to the last 2 scripts that we have obviously increased our rate of investments as we've seen the market continue to expand with opportunity. But it's been important for us that to be very clear and transparent as to where that investment is going, and as you saw on this call, point directly back to the proof points as to why we believe they continue to be the right places to put our reinvested profit. If you think back for the year, all these rough numbers, for the year, we will have reinvested about 8 points of adjusted EBITDA margin. If you go back to the initial growth rates on the top line that we expected this year right around 10% of the midpoint, we currently see ourselves at 14%. So already within the course of a year, from a ramping set of investments, and 8 points in margin, we've gotten back already 4 points of incremental growth. And most of those investments, at this point, have been directed towards enhancing our product capabilities and building out our top of the funnel. There is a logical next step now to, as we have a great pipeline, to go close the heck out of it and progress the heck out of it. That will require some capacity. I think you're going to continue to see the company in an investment mode. The demand in the market right there -- right now compels that we do that. Not ready to, obviously, give future guidance on margins, but the theme of growth and market demand outstretching our current capacity right now will continue for the foreseeable future and it's organic to make that point. It's organic capabilities we're going to deliver on.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [14]

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Next question for either Rob or Chris, just real high-level here, question on the work that you're doing with Google, and it's Rich Communication Service initiatives. How is that progressing? And at a very high level, I'm not too familiar with it, so how does it compare to, say, Apple iMessage or Facebook Messenger and what does that potentially mean for increased interactions for LiveEngage?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [15]

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So, we took one of the first banks live here in the U.S. Was it announced at the banks or not? Oh, yes. It was one of the big banks not announced yet publicly, but we did that with them. We've done some other launches with them. So when you look at RCS globally, there are basically 2 parts to it: one is they've got a upgrade all the carriers to the RCS service, and then they've got a client that sits on the mobile device, which they've gotten Samsung now to commit to, and they've got Rich Business Messaging, which is a business part of that. So they are definitely -- have to do a little bit more work to scale it, but the bottom line is every telco around the world wants to increase SMS. SMS is an old technology. They want to use RCS because it makes it very much in parity if not better than WhatsApp or Facebook Messenger. So they're very aggressively pursuing this and we're seeing them as a great partner. Obviously with Apple and iMessage, you just get it. They don't have to go to a carrier. It's there. It's closed system. So Google has to do a lot more work, but the bottom line is more people are on SMS today. There are 5.3 billion people who use it. It's 60 billion messages a day. It's larger than any single OTT over-the-top messaging service like WhatsApp or Facebook Messenger. So once that thing hits, it's going to create a tremendous amount of impact on the world. And so we are just working with our customers and we're creating services around RCS, and obviously, doing that with Google's version and also working on other versions. Like in Japan, they don't use Google's version and we have KDDI. They have their own version of RCS that the Japanese provided, and so we're integrating into these services. So that's how it's playing out today.

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Operator [16]

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And your next question comes from Jeff Van Rhee with the Craig-Hallum Capital Group.

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Christopher E. Greiner, LivePerson, Inc. - CFO [17]

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Jeff.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [18]

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Jeff, we can't hear you if you're there. Are you on mute?

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

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Yes, try it again. How's that?

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

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There you are. We can hear you.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [21]

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There we go. The old mute button. All right. So, sorry about that. So a couple quick ones from me. So as I look at the $4 million EBITDA reduction for Q4, can you dial that in at least a little bit more so we have a sense of what is Conversable and Advantage (sic) [AdvantageTec] versus the T-Mobile event? I mean, we're not getting forward guidance. I think it's important to understand what's really driving that?

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Christopher E. Greiner, LivePerson, Inc. - CFO [22]

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Yes, Jeff, I'll take that one. Obviously, we didn't go into the specifics of it. Both Conversable and AdvantageTec are very early-stage subscale companies so as a result, you can imagine what the P&L profile of it looks like. And then the T-Mobile event, as you've heard us say in the past, we typically spend on these events in the neighborhood of $1 million. That's over a day and a half, then all at 50 to 70 of our customers and prospects. We did this one over a week. We included a heavy presence of our technologies and a demonstration of them, and the increased size of it to well over 100. So I'll let you deduct the math from there, but roughly speaking, the change in EBITDA is pretty evenly associated with the combination of Conversable and AdvantageTec and the significantly upsized T-Mobile event.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [23]

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Got it. That's helpful. And then you talked about the couple things on pipeline. I just want to make sure I got this right. So I think you said signings were 12% sequential, 40% year-over-year. Is that count or value, and is there a meaningful difference between them both?

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Christopher E. Greiner, LivePerson, Inc. - CFO [24]

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That's value. So what Rob spoke to in his prepared remarks was the dollar representation of growth. What I spoke to in my remarks in terms of deal count, so we did a 105 deals this quarter, which was up almost 40% year-over-year.

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Operator [25]

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And your next question comes from Glenn Mattson with Ladenburg Thalmann.

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

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Glenn. You may be on mute.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [27]

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Sorry, I heard the last caller do that and I said I won't make that same mistake and there it is. So interesting about Rob's comments on ARPU and the guys using messaging on LiveEngage, and what a significant difference that was. I missed, though, the figure as to when you'll get the 30%. I'm just curious about the growth rate of that, I guess, just over the next few years where you can get bigger in that and that to drive that number higher?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [28]

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Yes. So by year end, we'll be over 30% of the Enterprise customers that are on LiveEngage will be using messaging. So we're already going to be at 30% or we're actually -- we're already at 30%. We're going above it by year-end, and so what that tells us is a couple of things. One is we still have a lot of room. We've got a lot of customers out there, large customers that we can move to messaging and obviously upsell, cross-sell. The other thing is, we can go very deep with them. So once we get them on, then we spend a lot of time just kind of getting very deep, which drives the ARPU number. And so as Chris said, we didn't really add capacity in the last couple years of headcount because we kind of were focused on the last 2 years of doing it right, spending time with our customers to get at T-Mobile where they were. To do this big launch a couple of weeks ago, it took us going very deep with them. Now with those learnings, we can really focus on bringing new people onto the platform taking that 70% that's not there, accelerating that and with that we'll add additional capacity into the field group because now we have sort of good -- we have good frameworks for growing and expanding the business.

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Christopher E. Greiner, LivePerson, Inc. - CFO [29]

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Yes, and we're motivated by how much more broadly our customers use the platform once they get on messaging. I think there were some good data points that Rob provided. So at a total mid-market enterprise level, average portfolio ARPU right now is $270,000. We see ARPU greater than $0.5 million, when we have customers on messaging, and as we conveyed in the past, as we bring our customers more and more endpoints, which, again, part of the strategy is the expansion to Apple Business Chat, WhatsApp, Google Rich Messaging and Facebook Messenger. The list will go on as clients go from just messaging. And then they expand with more and more endpoints, there's actually an exponential change in the revenue per customer, to the point where when we have customers on 3 or more endpoints, so now you start to picture in your mind's eye how does the company continue to penetrate the white space in our accounts. When customers are on 3 or more endpoints, that average ARPU can be as high as $2.9 million compared to the today average of $270,000. So our capacity is stretched between how do you go cross-sell and up-sell the base. We'll also -- acquiring new logos and -- but we're motivated on both fronts. There's nice leverage with each.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [30]

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That's good color. And then I guess, curious on the other -- there were comments about the fact that there was less capacity added in the SMB space in the past, but maybe that's changing now as far as on the domestic side and helping to boost growth there. Can you give us, could you remind us the breakdown as I guess between enterprise and SMB, and I guess, like the size of those to help us understand what it's going to take to change the trajectory of the U.S. growth rate, overall.

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

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We don't break it out today, but we would want to highlight is -- because actually last call, when we said 4%, people are like, "What's going on with the Enterprise?" and they kind of related that to the Enterprise. And I wanted to break it out to just explain that obviously, our strategy with Enterprise care and that's still our focal point and we've grown that, which will be over 20% this year. The growth rate. So that's our focus. We kind of didn't put any investment into the SMB space because it's just dollars. We wanted to invest and make a bet and focus that bet. As of January, we started to reinvest. As a matter of fact, we took a leader who did the migrations and now -- he's now running that SMB business, and so now he's focused on accelerating that. And we're actually -- we're going to have one of our biggest bookings quarter coming up. So where we see now demand in that area and we made -- we started those investments in January, and we should start to see them forward. And that should start to pick up the overall North American growth rate going into 2019. But if you look at Enterprise, it's pretty amazing. It went from like 0 obviously, because we are migrating to 20%. And so I wanted to break that out for you guys. So obviously that business is flat to negative. It was flat to negative in the year and now it will start to pick up.

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Operator [32]

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And your next question comes from Mike Latimore with Northland Capital Markets.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [33]

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Just wanted to clarify, so the deal count growth, is that a decent proxy for bookings growth?

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Christopher E. Greiner, LivePerson, Inc. - CFO [34]

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It's mixed, right. Because the deal sizes are going to be a mixed bag, right, and what we specifically highlighted in the deal counts was just how impressed we were with the contribution of our channels and our accelerator packs, right? So these accelerator packs were something that we launched very early in the year. We had 25 opportunities that's tripled in size and we are having great success in this type of an offering. Making it very easy is the bottom line for customers to get on the platform and allow us to prove what our customers say at our events, that we can drive real value for them.

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Matthew Kempler, [35]

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This is Matt. I mean, I agree with what Chris is saying. In this quarter, they were pretty closely related, but doesn't necessarily always tie together. We actually had very strong deal value coming from existing customers. We had a lot of volume coming from new customers tied to the accelerator in our partner programs.

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

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And we built out, if you guys remember, we started to build out a hunter team a few months ago. So that hunter team, which is new logo only has started to produce -- you're going to see logos, this (inaudible) logo count, probably move up because we got a team focused on it and they're expanding themselves too, because there's opportunities out there.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [37]

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All right. And then, Rob did you say that 50% of all Apple Chat and volume is going across the LiveEngage platform?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [38]

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Yes, close to it. It's going -- the -- not volume, it's the customer count is riding on. It's those customers are using the LiveEngage platform. Yes.

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Operator [39]

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And your next question comes from Zach Cummins with B.Riley.

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Zachary Cummins, B. Riley FBR, Inc., Research Division - Analyst [40]

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In terms of Apple Business Chat, you had a press release out earlier talking about a new wave of customers coming on and going live with that messaging service. Do you anticipate that the adoption and the amount of customers going live is going to accelerate here over these next couple of quarters?

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

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Yes. I mean, it's definitely, if you are a business in the world, and you have the ability to be wired into an iOS device, it makes sense to wire it and so I believe that it's going to drive tremendous traction. It's really -- it's at Stage I, because there's so much more discoverability that Apple, I believe, will do on-device. Right now to find a brand, you have to search them and put them in, but I think they're on Maps and there's some other areas, but I think there's going to be a lot more that even they are going to do in the future. So Apple is very committed to it, and obviously now Google with RBM and RCS and so there's going to be a lot of demand in the market for this type of stuff and they're driving it. They drive adoption and then they're recommending partners to work with. And I believe we are preferred in many ways because we do a very good job and we're focused on this, but they're a great partner of ours.

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Zachary Cummins, B. Riley FBR, Inc., Research Division - Analyst [42]

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Great. That's helpful. And then last question for me is just around the new Google Ad Lingo opportunity, I know it's pretty early days, but have you seen any sort of indication of interest or potential demand for a lot of your customers to potentially be able to communicate directly with consumers through display ads?

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

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It's definitely, I don't want to give any steps and I don't have any data. It's definitely on our (inaudible). We've got a handful of customers or a hand of customers, I'd say, not full. Just 1 hand, but it's really interesting display ad -- from the display ad, you can message. And so you can think about the possibilities. I really feel like -- and this is some stuff even with the Conversable acquisition, if you sort of knit it together, there's an edge in advertising through messaging. We have seen much higher conversion rates so if you take an ad unit on Facebook and you drive it to Facebook Messenger for Business, we see a much higher conversion rate than you would if you clicked and went to -- sent it to a landing page. And so all those messaging front ends and the ability to drive advertising -- use advertising to drive to them, it's going to create a whole set of business opportunities. And I can feel it, like there's going to be brands that will just use it to build a business like you can get such an edge if you can do it right now. The flip side is it's -- it's a very, very very creative process today. There's -- we don't -- you can't stamp it out. So when we're using it and we've got to -- how do you create the ad? What does that look like? How do you get people to click? It's very different in setting expectations, but I think it's a pretty major step on the conversational commerce side to drive adoption.

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Operator [44]

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(Operator Instructions) We have reached the end of our call today. I will now turn the call over to Mr. Rob LoCascio for closing remarks.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [45]

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Thank you, operator. I'd like to end the call by reemphasizing a few key points. LivePerson's strengthening outlook is directly proportional to our execution on the goal of being one of the biggest and most recognized companies in the world of conversational commerce. And as I've said many times, I fundamentally believe that conversational commerce is going to be one of the biggest transformations in digital. It'll assume obviously, voice calls. We can see it assume parts of the web and especially apps. These are things that are going to get pulled in, if you can simply go on an Apple device and say, "I want to buy a car." And you get shown the car you want to buy and then you buy it, and then it comes to your house. And then you want to get your oil changed. You say, "I want to get my oil changed," and then you get it. That's what we're talking about. And so it's simple and it's powerful. We also, I think we have a very, very clear roadmap on how we can go after this multibillion dollar industry. And we have, I think, hired a tremendous group of people in the last year, and then we have all the people who have been here to get here. And so we've got a platform that's powerful and we've got people behind it to deliver on that. And we have this unique asset, which is every month, 50 to 60 million new conversations happen on our platform: end-to-end business conversations. And if you're creating AI, using AI or trying to create a machine learning algorithm, when you look at a conversation, like we could take a vertical like telco, and we have biggest telcos around the world and we look how do you bill pay right? And we'll be at -- I know we're going to be able to automate bill pay, which is like 30% of all voice calls on -- in telcos. It's hundreds of millions, billions and billions of dollars a year globally spent on "how can I pay my bill," and we're going to automate that. So that gives us a real edge in the market. So I'm very excited and very bullish about where we are, and now I feel like we just have this opportunity to bet down on it, because we have the metrics. We know what makes a successful customer. We know how to take it AE and get them to sell. And now we just want to bet down for the next level. So I look forward to the next quarter and taking this journey with you as we build the business to the next level. Thank you.

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Operator [46]

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This does conclude today's conference call. Thank you for your participation. You may now disconnect.