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Edited Transcript of LPSN earnings conference call or presentation 3-May-18 9:00pm GMT

Q1 2018 LivePerson Inc Earnings Call

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

TEXT version of Transcript

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Corporate Participants

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* Christopher Greiner

* 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 - Associate

* Michael James Latimore

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

* Peter Marc Levine

Needham & Company, LLC, Research Division - Research Associate

* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Thank you for joining the LivePerson's First Quarter 2018 Earnings Call. On the call today are LivePerson's CEO and Founder, Rob LoCascio; LivePerson's CFO, Chris Greiner; and LivePerson's VP, Investor Relations, Matthew Kempler.

I would now like to turn the call over to Mr. Matthew Kempler. Sir, you may begin your conference.

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Matthew Kempler, [2]

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Thanks very much. Before we begin, please note that we will make forward-looking statements during today's call, 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, in 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, which is available in the Investor Relations section of our website.

I will now turn the meeting over to Robert LoCascio, CEO and Founder of LivePerson.

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

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Thank you for joining LivePerson's first quarter conference call. We entered 2018 with a really strong start, exceeding the high end of our first quarter guidance ranges for both revenue and adjusted EBITDA. We increased revenue sequentially for the fourth consecutive quarter and generated 14% year-over-year revenue growth.

Our return to mid-teens growth is a great testament to the momentum we are building around LiveEngage. It's also a key milestone for LivePerson as we continue along our targeted path of generating 20%-plus growth. The leading indicators for continuing to push along this path remained promising.

After closing our best quarter ever for contract signings in the fourth quarter and winning our largest deal ever, we once again saw strong demand in the first quarter. Mobile activity continues to fuel our growth, accounting for 45% of interactions in the first quarter, up from 35% a year ago. Our trailing 12-month average revenue per enterprise and mid-market customer continues to set new records, climbing nearly 20% year-over-year in the first quarter to more than $240,000.

The LiveEngage revenue retention rate once again exceeded 100% and hit its highest level since we began tracking the metric. With another strong quarter of achievement, we are raising the low end of our 2018 revenue guidance by $2 million. We now expect 2018 revenue in the range of $239 million to $243 million, up from $237 million to $243 million previously. We're also raising our 2018 adjusted EBITDA guidance to a range of $22 million to $25 million from $20 million to $23 million previously.

Updated adjusted EBITDA guidance reflects a favorable impact from the completion of our ASC 606 review, which is reducing our commission expense forecast for 2018. Chris will discuss this in more detail.

The investments we are making in sales, customer events, partners and product are the underlying drivers of our renewed growth trajectory. They are expanding our sales pipeline, increasing product differentiation and fueling adoption with new and existing customers. Case in point is a strong activity we generated in the first quarter, which included signing upsells and new contracts with some of the world's best known brands.

We discussed on the last call how early in the first quarter we signed a strategic 7-figure expansion with Sky, a leading European entertainment company. Sky is extending LiveEngage beyond IVR deflection and broadly deploying messaging and AI across multiple business endpoints. This is a prime example of how customers steadily expand with LivePerson across use cases and messaging channels.

Another example is a 2-year mid-6-figure expansion we signed with one of the world's top 20 largest financial institutions. This global bank is looking to boost agent productivity and build stronger relationships by letting consumers connect with them through conversational and messaging. This customer just went live on in-app messaging, and in subsequent plans, go live in Apple Business Chat and IVR deflection. There are also plans to introduce bots, enabling the brands to provide an even higher level of service by powering human- and bot-based conversations through one platform.

We also signed a 3-year mid-6-figure expansion with a North American-based Fortune 100 telecommunications provider. This company has plans to eliminate more than 100 million 800 number calls over the next few years and to double productivity in its contact center by shifting voice to messaging and leveraging bot automation. As part of this expansion, we are replacing 2 competitors across several internal lines of business. We anticipate steady growth from this customer over the coming years as we fuel continued adoption.

With LiveEngage, our opportunities are extending beyond even traditional care. A good example of this is we are starting a pilot at one of the Major League Baseball stadiums with one of the large food and beverage concession companies. In this example, people will be able to order their food and beverages directly from their seats through Apple Business Chat using a bot on the LiveEngage platform. It's a unique use case but really interesting when you think about how conversational commerce is going to be pervasive and how we connect and do commerce in the world.

Other key wins in the first quarter include a new 7-figure contract with one of the leading online gaming companies and mid- to high 6-figure deals with a top 10 automotive OEM, a leading European mortgage provider, several of the world's largest telecommunications companies, the credit arm of a Fortune 100 apparel retailer and a U.S. auto and home insurance provider.

The demand we are seeing stems from a need among large enterprise to transform how they communicate and connect with consumers. Brands are under intense pressure to improve the customer experience and build lifetime value while simultaneously reducing operating costs. The legacy platforms they've traditionally relied upon to solve these problems, the 800 number and websites, have just not lived up to their promises.

Voice calls to 800 numbers costs large enterprises hundreds of millions of dollars per year, and the end results have a frustrating experience for the consumer where they waste time on hold and often hang up feeling unhelped. Likewise, websites are delivering poor conversion rates, on average, less than 5%. Even more alarming, they are -- they have unintended consequences when it comes to creating call volumes to customer care. About 60% to 80% of calls to customer care originate from the website.

LivePerson offers brands and tools to overcome these challenges as LiveEngage platform powers conversational commerce, which enables consumers to conveniently and intelligently connect with brands through a combination of humans, bots and AI over messaging. Our solution works across any channels by which a consumer first to communicate, be it SMS, in a brand's app, on the desktop messaging, on the web, in IVR, Facebook Messenger, Apple Business Chat, LINE or in-home devices like Alexa and Google Home.

On March 29, we also participated in the beta launch of Apple Business Chat. This launch marks an incredibly important milestone in the evolution of conversational commerce as millions of iOS users are able to find and message brands directly on the device through Safari, Siri, Search and even Maps. We believe deeply in what Apple has created and are working to help our customers scale their service experiences using Apple Business Chat.

Our customers, such as Discover, Lowe's, The Home Depot and T-Mobile, are using Business Chat to connect with consumers for support and sales. Consumer business chat enables consumers to see product information, including images, prices and ratings, find a near store and items in that store, pay bills, apply for credit cards, schedule service appointments, all without leaving the messaging conversation.

We believe that it is precisely this domain expertise and competitive differentiation that position LivePerson to power more business chat launch brands than any other platform. And 2 out of the 3 featured brands on Apple's website were our customers.

We held several customer events and webinars in the first quarter around our differentiated ability to scale business chat -- Apple Business Chat alongside bots and other messaging channels. Attendance levels were very high as business leaders recognize that once consumers become accustomed to this high-level of service and engagement, they'll expect it from every brand.

We also held a major marketing event in London that centered on the work that we are doing with another technology provider that provides the OS for other mobile devices. Panelists from Liberty Global, HSBC, IBM and Accenture shared their views on how to leverage LiveEngage to improve conversational experiences through rich mobile messaging experiences.

The launch of business messaging with this technology partner will happen in a few months and will further advance conversational commerce native on mobile devices. With this launch, combined with Apple Business Chat, close to 100% of mobile devices will have the ability to have direct messaging experiences securely with brands. And this will obviously be a great catalyst in our space. Attendance at this event was double our initial target.

Brands are looking to LiveEngage as a technology catalyst for conversational commerce with their customers. In fact, the entire ecosystem is developing around this concept, and LivePerson is at the forefront of it.

To illustrate this, I just returned from Facebook's F8 Developer Conference this week, where I spoke on a panel with T-Mobile's Head of Product about the great successes we are having together powering their conversational commerce experiences on Facebook Messenger. This is just another example of how our ability to influence the future of conversational commerce continues to strengthen.

In March, it took another leap forward when Alex Spinelli, former Global Head of Alexa OS at Amazon, joined LivePerson as our Global Chief Technology Officer. Adding Alex to our team is helping us attract even more amazing talent, and we are excited to build out a tech hub now in Seattle that will capitalize on the heightened interest we are seeing for people to come here.

Before I hand the call over to Chris, I'd like to summarize the opportunity that lays ahead. First, the wave of momentum that took shape during 2017 is building as seen from our return to double-digit revenue growth in the first quarter. Second, we are deploying investments into areas of high rates of return. The advancements we are making expanding our capability and capacity in sales and technology are directly driving our results. We will continue to deploy our capital with that same mindset.

And third, we are leading a very dynamic shift in the market towards messaging, bots and AI. We have a clear lead today, but are moving very fast to extend our product capabilities, sales capacity and overall leadership in the company in order to focus on winning the conversational commerce space. This is a very exciting time to be at LivePerson.

And now with that, let me turn the call over to Chris. Chris?

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Christopher Greiner, [4]

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Thank you, Rob, and good afternoon to all of you. Before we delve into the quarter and discuss our updated view of the year, I want to take a brief moment to convey my excitement for what LivePerson is building.

What attracted me to LivePerson and what has been reinforced since joining is the mission-driven culture of the company and its obsession over innovation and customer success. I'm very impressed by the depths and breadths of technical and industry expertise at all levels in the organization, and highly motivated by the opportunity in front of us to be a transformative leader in conversational commerce. In short, as a CFO, there simply is no better set of ingredients from which to drive long-term shareholder value.

In that setting, I'm directing my attention to 3 primary areas in support of the company achieving its long-term targets of greater than 20% revenue growth and adjusted EBITDA margins in excess of 20%. First, we will more broadly utilize data-driven insights to strengthen quality, increase speed and improve productivity at global scale. These are the building blocks of sustainable growth and margin expansion. Second, we will evolve to an organizational framework that is designed to accelerate growth by becoming even more nimble in delivering innovation and servicing customer demand. And third, by becoming leaner operationally, we will scale margins while freeing up additional capital that could be deployed to areas of our business with proven ROI characteristics, namely customer summits, partnerships, go-to-market resources and technical expertise.

In fact, we're already seeing momentum build across a number of notable leading indicators, due in large part to these investments over the last several quarters. illustrations of this are as follows: we returned to double-digit growth in the first quarter. We had record contract signing activity over the trailing 6 months and a seasonal high for a first quarter. We saw record LiveEngage revenue retention rates, once again, over our 100%-plus target.

We generated record ARPU, up nearly 20% year-over-year in the first quarter, deferred revenue at 68% year-to-year, up to $55 million and we experienced record 36% of full-service customers now using more than one interaction type.

With these as a precursor to our discussion, let me now review our first quarter operating results and full year outlook in more detail. In the first quarter, revenue increased 14.4% year-over-year and 1.5% sequentially over the seasonally strong fourth quarter to $58.2 million, exceeding our guidance range of $56.75 million to $57.75 million. Both of our segments delivered double-digit growth, with B2B revenue rising 15% to $53.6 million and consumer revenue rising 12% to $4.7 million.

The revenue upside was due to a combination of strong contract activity and better-than-anticipated retention as attrition reached a multiyear low. In terms of deal metrics, we're seeing a powerful combination of rising ARPU and increased wins with new and existing clients. We signed 98 deals in the first quarter, up 32% as compared to 74 in the year-ago period. Wins with new customers increased from 25 last year to 35 this year, reflecting strong market penetration. Likewise, cross-sell and upsell with existing customers also extended, supporting our belief that we have significant untapped whitespace expansion opportunity across the portfolio.

We are also making great inroads in each of our target verticals, especially in telecommunications, which rose to 20% of revenue in the first quarter, up from 17% a year ago. These companies are quickest to adopt their platform because they see first-hand data showing how consumers prefer messaging over voice. Consumer retail was 24% of revenue in the first quarter; financial services, 19%; auto, 12%; technology, 7%; and other, 18%.

With respect to our geographic distribution, our international operations had an excellent quarter, accelerating to 26% year-over-year growth in the first quarter and accounting for a record 41% of revenue. Additionally, our pipeline in Europe is very robust, and we feel we are just scratching the surface in terms of our opportunity in Asia Pacific.

U.S. revenue growth also accelerated and grew 8% in the first quarter, up from 2% year-over-year growth in the fourth quarter of 2017. We will continue to invest in sales capacity in each of our geographies by deepening our client -- our industry expertise to delight existing clients, by aggressively building out our partner ecosystem globally and by even further expanding our capacity to capture significant new logo opportunities.

In terms of profit, gross margin increased 290 basis points to 76% in the first quarter from 73.1% a year ago, excluding nonrecurring items. This improvement reflects our more efficient next-generation LiveEngage operations and data center leverage.

Investments in R&D and sales and marketing as a percentage of revenue were up a combined 200 basis points year-to-year, reflecting continued investment. While G&A as a percentage of revenue, excluding nonrecurring items, decreased 40 basis points year-over-year.

First quarter GAAP net loss per share of $0.06 was ahead of guidance, while adjusted net income per share of $0.01 was at the high end of our guidance range. Adjusted EBITDA of $4.1 million exceeded our guidance range and increased 26% year-over-year.

Adjusted net income and adjusted EBITDA are non-GAAP measures that exclude $1.4 million or $0.03 per share of expenses in the first quarter of 2018, tied primarily to nonrecurring litigation costs. Please refer to today's press release for a full reconciliation of GAAP to non-GAAP measures.

At the end of the first quarter, cash on hand, including restricted cash, was $57.7 million or approximately $1 per share. LivePerson used cash from operations of $700,000 in the first quarter and spent $4.6 million on capital expenditures. The company also repurchased $1.3 million of stock and had $17.1 million remaining on its share repurchase authorization program.

Now let me transition to our updated 2018 outlook. We are increasing guidance for both revenue and adjusted EBITDA, following our strong start to the year. Specifically, we are raising the midpoints of revenue guidance to $241 million from $240 million and now expect a range of $239 million to $243 million.

At the midpoint of revenue guidance, growth for the year is 10%. We are also raising adjusted EBITDA, taking up our guidance range by $2 million to $22 million to $25 million from $20 million to $23 million previously. The midpoint now equates to a 9.8% margin, which is 140 basis points higher than 2017.

Our updated profit guidance incorporates the company's final view on ASC 606, which is immaterial to revenue but should benefit commission expenses due to a shift in the amortization period over the contract life toward the average customer life, which we model as 3 to 5 years. The resulting benefit for 2018 is forecasted in the mid- to high-7 figures, with the range largely dependent upon revenue growth and in-year contract signings.

We anticipate that a portion of the commission savings will flow through to adjusted EBITDA, while the majority will be reinvested back into the business. As conveyed in the past, we believe LivePerson has a 12- to 18-month lead in a greenfield market that presents a multibillion-dollar revenue opportunity. We do not intend to sit on that lead. Instead, we plan to expand it, and we're going -- and we are directing our investments to proven areas of ROI: technology innovation, demand generation, sales capability and capacity expansion.

With the payback on these investments increasingly evident, we view this decision as the best option for fueling accelerated growth while also delivering profit improvement.

I will now review our detailed financial expectations. For the second quarter of 2018, we expect revenue of $59 million to $60 million; GAAP net loss per share of $0.13 to $0.11; adjusted net income per share of breakeven to $0.01; adjusted EBITDA of $3.5 million to $4.1 million or $0.06 to $0.07 per share.

For the full year 2018, our expectations are as follows: revenue of $239 million to $243 million; GAAP net loss per share of $0.29 to $0.23; adjusted net income per share of $0.11 to $0.15; and adjusted EBITDA of $22 million to $25 million or $0.37 to $0.42 per share.

Furthermore, as a percentage of revenue for the year, we anticipate gross profit to be approximately 76%; sales and marketing, 41%; R&D, 23%; and G&A, excluding nonrecurring litigation, at 14.5%. As a reminder, due to changes under the Trump administration Tax Cut and Jobs Act, we are applying a 25% tax rate to our non-GAAP income in 2018 as compared to 35% last year. And we estimate that this more closely aligns with the expected long-term tax rate of the company. We expect to pay cash taxes in 2018 of $2 million to $4 million.

Please refer to LivePerson's earnings release issued earlier today for additional details on our full year 2018 assumptions. We have also published a supplemental presentation that reviews key points from the earnings call on the Investor Relations section of the website.

Now as we conclude and prepare to open up for Q&A, I'll briefly a wrap up. First, we have a clear, aligned vision that guides our capital deployment decisions in a conversational market that's accelerating in size and scope. Second, we're attracting the industry's best talent and repositioning the company to be more nimble in accelerating software development cycles and capturing customer demand. And third, we're building toward a financial business model that we believe will sustain our double-digit revenue growth while generating greater operating leverage.

In summary, LivePerson is executing well on its strategy. With that, I'll hand the call back to the operator for us 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 comes from Koji Ikeda from -- with Oppenheimer.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Associate [2]

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Welcome to the team, Chris. My first question is for Rob. That new customer or the new enterprise and mid-market deal metric of 100% in the first quarter, I think that's the best first quarter absolute number we've seen in a long time. And based on the ARPU metric, too, it looks like much bigger customers. So I guess my question is, thinking about the new customers that are coming in the platform, and I guess in aggregate, what sort of initial penetration are you seeing at the customers to start? And what I'm really trying to get at, I guess, is that I'm trying to understand the motion of the potential to expand opportunities in these new deals.

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

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Yes. I mean, it's -- this is a huge opportunity. I mean, it's -- when you start out, we'll start out usually in a single channel like IVR deflection, in-app, could be something with Apple Business Chat. And when I look at what -- where we can go with these customers, it's even stuff I didn't envision 100% over a year ago when we launched the platform, which is we're doing retail for one customer where you can message back to people who are in retail operations. Apple Business Chat opens up a whole bunch of stuff that we're going to be able to do on selling. I was just at the Facebook conference. There's a whole push for -- there's now a messaging ad unit on Facebook that you can advertise messaging, and you click on it and gives you right to Messenger. So we're -- really, even if we look at the calls we're trying to deflect out of care, we'll start out getting -- trying to target 5%, 10% of them, and we're ultimately trying to get the 80% of them. So we're really at day 1. And then all these other opportunities are opening as Apple Business Chat, Facebook. Now Google is coming out with their messaging product. So it's sort of a -- very much day 1.

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Christopher Greiner, [4]

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I think in -- just in terms of the metrics, we actually closed a bit over 100% in the fourth quarter. But that growth rate pales in comparison to where we are now at 32%. And just for a bit of color, the new deals signed with new clients, new logos, was up 40% with the cross-sell and upsell up 29%, so it's really pretty broad-based.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Associate [5]

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Great. And, I guess, one question for Chris here. Looking at the balance sheet

(technical difficulty)

and the prepayments (inaudible) deals? I just -- just trying to think about that long-term deferred on there.

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Christopher Greiner, [6]

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Yes. You broke up a bit, so if we -- if I don't fully answer your question, just you can go ahead and repeat it. But yes, I mean, deferred revenues is quite strong. I think what you're seeing there is the success of stringing together multiple quarters of really good contract performance. But also more upfront payments in some of the longer-term deals that we're making, that we're striking.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division - Associate [7]

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Okay, I think that kind of addresses the long-term deferred revenue on there, right? You had some multi-year prepayments this quarter?

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Christopher Greiner, [8]

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No that's -- the payments reflect the cash in advance, [typically] our annual contract value, not on multiple year.

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Operator [9]

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And your next question comes from Richard Baldry with Roth Capital.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [10]

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In the past at times or sporadically, you've talked about the growth in cohort usage, sort of on a year-over-year basis, of people that are on the LiveEngage platform. Sort of curious if that's still a positive or a tailwind for your revenue growth on the usage side.

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Christopher Greiner, [11]

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So if you're talking about customers that have moved over and what their trends are after they moved to LiveEngage, Rich?

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [12]

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Right.

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Christopher Greiner, [13]

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Yes. So actually, we've seen customer usage growth is greater than 10%. It's been consistently greater than 10% since we've been reporting that metric. And as you can see, the mobile side of the business, with mobile interactions reaching a record 45% is one of the key drivers of that. But I think you'll see that translate into the ARPU that we've been reporting, which is increasing sequentially for the last several quarters being driven by customers who would come on to the platform, expanding usage as well as the larger new deals we're signing.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [14]

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And with the record bookings you've had in the last 2 quarters or seasonally and combined, can you talk a bit about how you feel the sales team is in terms of maturity, tenure, how much you think this still sort of -- has a lot of room to kind of grow into their quotas to give us a feel for the capacity.

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

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In the U.S. operations, we just added a hunter team last quarter. So they're getting up to speed on pure new logos. So there's a lot of capacity there. In Europe, we have a very seasoned team but there's just a tremendous amount of opportunity. So I -- in -- same with Asia, what we're doing in Asia Pac. So just -- there's a lot of demand in the market for this technology. I think once again, the acceleration are also the Apples, the Googles, the Facebooks. Now Alexa, we integrate with all those front-ends out there. So there's just a lot of demand, and I think there's a lot more capacity we have left in the salesforce and we're growing. We did add some more headcount to the salesforce this quarter. I think we're up to about 48, which is our -- I think a high for us. So we're starting to add back into that area because we see the demand in the market.

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Christopher Greiner, [16]

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And I'd just add, it's not just the scaling of the direct sales force, which is -- obviously speaks to the 48. But if you look at what we're doing globally as well, there's a tremendous focus on expanding the indirect and the channel relationships that we have.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [17]

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Yes. Yes.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [18]

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So Q1s are typically pretty seasonally tough for you, but you grew sequentially pretty solidly. If we look back to last year, your sequential growth dollars in the second quarter or third quarter were very strong. Is there anything unusual in the seasonal patterning, either last year or even in this quarter, that we should be careful about when we're rebuilding our models?

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Christopher Greiner, [19]

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Yes. Rich, I think when you look at last year, we had a trough, right, when we're approaching end-of-life on the legacy solutions. You saw -- we had our fourth quarter call and we talked about that final $15 million and that wasn't going to come along for the rides. You saw that flush out, which set us up for, I think, toward some stronger sequential compares. Then we talked about in the second quarter last year, some onetime revenue that came through, which helped us. And then we also had some in the third quarter, some PFP revenue that was in advance of our expectations. So that's some of the pieces on the sequential side last year.

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Operator [20]

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

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

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So a couple of -- can you hear me?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [22]

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Yes. You broke up a little bit, but go ahead, yes.

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

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Okay, hopefully you can hear me. The ASC 606 change and the benefit you're seeing on the S&M line, if I heard it, mid- to -- mid-single-digit millions benefit there, I guess. You're flowing through 2 of it -- of the incremental portion you're keeping. Just spend maybe a minute longer, specifically where you're putting that and how you're prioritizing, where you're spending that.

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Christopher Greiner, [24]

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Yes, certainly. Thanks, Jeff, this Chris. Great question. So just to kind of recap what we said, mid- to high-7-digits. You can assume that, that's roughly spread evenly across the year, but it's obviously largely dependent upon the revenue and the contract signings during the year. In terms of what's getting passed down to the bottom line, you're correct, it's about $2 million. Where the reinvestment is going to go, think about it really in 2 categories. There's an element of what we're planning to do that we've now accelerated, hit the accelerated button on, if you will, and that's really around a lot of the hires that we've made, both in technology and in sales. These are just incredibly impressive people from premier brands that want to come -- do what we're doing. I think Rob talked about that with the fact that Alex is here and the type of talent that he's attracting. So that's kind of the acceleration component, hiring faster and sooner than we were counting on. The second category I'd characterize is really doubling down. A good example of this is what we did in the first quarter when it became apparent that we were going to have this benefit. We took what was typically a regional customer event in London, we made it Global. We doubled it in size. And I think as we commented on the past, those are expensive ventures with high ROI and they're a million-dollar event. So it's going to be in those same categories, more summits, bigger summits, more partnerships expansions like we have with IBM and looking to extend that with others. Certainly, sales capacity and expansion, particularly in Asia and North America as well as building out our technical expertise.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [25]

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Got it. And then on the telco side, you referenced the deal where you replaced 2 vendors. Who did you replace? Maybe just talk a bit more about that deal.

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

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You want to take that?

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Christopher Greiner, [27]

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Yes. So one of them was a large ERP provider. They also participate in the contact center. And the other was a small solution that the company had bought, thinking they could solve the problem.

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

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Chat providers.

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Christopher Greiner, [29]

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Yes, some are chat providers.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [30]

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They were chat providers that we took out with messaging.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [31]

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Okay. All right. And then just last for me on the revenue retention. You've commented that it's over 100%, but you did say it was a record. Can you just fill in maybe a bit more about the magnitude of the upside or the record, if you will?

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Christopher Greiner, [32]

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Yes. I think we'll stick to just characterizing it as a greater than 100%. But attrition hit a multiyear low. It's -- I think it's just a testament to the stickiness now of the new platform and the adoption rate that we're seeing with our clients. Very strong.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [33]

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Yes.

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Operator [34]

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And your next question comes from Peter Levine with Needham.

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Peter Marc Levine, Needham & Company, LLC, Research Division - Research Associate [35]

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I think you've kind of alluded to it earlier, but a lot of the checks from this quarter seemed to kind of come back more prevalent on the fact that a lot of brands and retailers are now using messaging and chat more in the front line for sales reps. And a lot of these brands came back and said they're really seeing an improvement in their kind of customer acquisition costs. As you sell it as more of a sales channel, how does that change the sales process? And how do you look at the upsell, cross-sell opportunity into your other departments, but once you kind of land within an organization there?

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

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So this is sort of a magic of messaging, and this is what makes it quite powerful is that when we start out, although we may go into one area like customer care, predominately where we're beachheading in, we actually align all the groups before we get started because messaging is -- because it's asynchronous and the consumer's always connected to the brand. There's no break in the action. So a consumer who goes to a care flow then comes back and asks to buy something, and we see this today. So it's a natural -- it's just a natural part of it and it becomes this mesh of the pieces of the business like one of the big telcos in the U.S. We've got the retail folks in there now. We got the care folks, obviously, we started there, their sales. But it's just one continuous conversation with the consumer. So it's a natural thing and it allows the organization to align with that also. So it's like we need to -- we do a lot of work upfront working with these enterprises to make sure the right people in the room so that when we go ahead and lock down a deal, and these are obviously becoming much larger deals, there's a hope and promise that we're going to deliver on a unified connection with the consumer, a unified way to sell, market it and service with them, and that's what we see today. We're also seeing the beginnings of something that's also very unique to messaging, which is productivity. We have brands that are using it to go outbound to the consumer for some of that. So we had one of the big broadband providers in the U.K., they use it to promote a fight that was going on. They also did outbound for care when there were services outage so the consumers would get a notification. So we did a retail case here in the U.S. where we took dormant customers of a telco and they -- these customers, they're customers but they just don't -- they're not buying stuff. We did outbound to them on SMS and we got a very high conversion rate back to getting people into the stores. So that's kind of the other hidden part of messaging, which you don't get in chat, which you don't get in -- and, obviously, you do outbound telemarketing on phones but mostly we don't want to get telemarketed to. But we find when a consumer gets a message, they're like, "Oh, this is cool", and I'll come back and I'll answer that. So we're seeing some good results there.

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Peter Marc Levine, Needham & Company, LLC, Research Division - Research Associate [37]

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Great. And then I guess finally longer term, you're investing in sales and marketing this year as well as in R&D. But can you talk about where you think messaging can go in the next, say, 2 years, right? And kind of products could we expect that you guys could launch, if not acquire, but just technology wise, right? A lot of checks, well, this quarter came back as knowledge management, experience management, really helping the customer engage but also on the back end. So just curious to know what we can expect in terms of functionality over the next 2 years.

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

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There's a couple of pieces, obviously. There's -- I think we're getting to a place where we've got almost all the front ends taken care of. So whether you have voice, the voice in-home virtual systems like Alexa connecting with that, all the way to the Facebooks to in-app to SMS to IVR. So we're kind of -- we're doing -- there's a lot of -- I don't know how much more we're going to need on the front end especially when Google launches chat and we've got Apple Business Chat. So that's those parts. The second part is when a consumer comes in, we have automation that happens. So we're doing routing bots and concierge bots to figure intent from the consumer. Then we're going to route that intent either to a live agent or to another specialized bot. So you have to build those bots and we're doing conversational design around those areas. But I think there's some specialization in those technologies that we see that you need. Our acquisition of BotCentral is actually giving us some good tools to design those, I'll call them, bespoke bots. And the next level down is, I'll call it, the consistent use cases that run across every brand. For instance, bill pay, track my package, things like that, and those are connected to back ends. And so those are things that we want to build, we want to unify across all of our customers so there's like one way to pay a bill between telcos, all the telcos, and the consumer has a great experience. So those are the areas. And I actually think, and I don't really love the word CRM, but it's going to shift, I think, because the conversation becomes the knowledge of the consumer. And so the concept of CRM we're you save some data into a database, it changes dramatically when we're looking at a real -- a conversion that happened, what do we get out of that conversation, so we use technology to look at the insights. And then we're going to look at next best actions. So an event happened in the business, it says sell somebody something or give them something proactively. And that can all happen on the platform proactively and through the conversation. So I actually think there'll be a shift in CRM that will happen in the next 24 months but it's exciting. I was just at F8 Conference and I did a panel there with the Head of Product from T-Mobile, and we talked about the results they're getting on conversion rates on Facebook Messenger far outweighed their website. And so the -- what I put out last quarter is I said -- I think there's an opportunity here. There are a lot of websites and functionality of websites get consumed or -- into the messaging framework. So we have that, we have phone calls. So we're really at day 1 and it's exciting. But it's just every week, there's a different opportunity.

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Operator [39]

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And your next question comes from Glenn Mattson with Ladenburg.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [40]

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Most of my questions have been answered. Curious, Chris, you mentioned some of your initiatives as you take the helm here. I think one thing you said was a framework designed to support growth. So I'm just curious, do you need to do, as you kind of made your initial assessments, do you see a major investment that you need to make at any level to either support your department or the sales function beyond what's already been put in place?

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Christopher Greiner, [41]

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Got it. Look, I think kudos to Dan. Dan really did a superb job in building a really solid infrastructure to support the company. So it -- there's always fine-tuning and personal preference that someone has, but there's nothing structural that needs to change. But what we did observe -- what I did observe is that we have an opportunity as a company to take the center of gravity and push it even farther out to where software development is happening and where sales and client interactions are happening. So if you can picture it, you’re kind of just pushing that weight out to the side and that's where we're going to direct investment. We believe that, that will improve quality. We believe that will improve our speed of execution, not just internally but our clients, and both those yield productivity. At least in my experience, it's the combination of those forces that lead to sustained growth and real powerful operating leverage. It's just not kind of ripping cost out and doing it one time. I think those are the ingredients that allow it to last for a while. So that's going to be the focus and there's a lot of buy-in from the company. I couldn't be happier with the leadership's openness to thinking about it this way. I mean, we're investing with them rather than taking away. So it's exciting time, but we think there's too much opportunity right now to let it go by.

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Glenn George Mattson, Ladenburg Thalmann & Co. Inc., Research Division - VP of Equity Research [42]

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Great. And Rob, this might not be fair, but I'll ask it anyway. You had the biggest deal, I think, in the company history last quarter. Obviously, average deal size are going up clearly from the results. But could you talk about the pipeline for other kind of large megadeals as it matures and develops further over the course of the year?

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

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Yes, I mean, honestly, we're -- the enterprise is doing big game hunting and we have a model to get large deals and to show return on investment for our customers when they remove those voice calls. So most of these large deals we're working on, it's a commitment of the organization to transform to digital, and that digital experience happens through messaging, and especially bots and AI, obviously. So these deals, I think, could get bigger. There are deals one day that will be $100 million deals and very large deals because like a large telco or a bank, will have a $1 billion worth of costs in taking phone calls. And if we can cut those down by 60%, 70% and think of the savings and what we can gather in value for our company, so that's what we're playing for right now. So I don't know what the cap is on the deal size. I know they keep staying large. That was our largest. But I would think somewhere through this year, we'll have something that becomes the next largest.

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Operator [44]

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(Operator Instructions) Your next question comes from Mike Latimore with Northland Capital.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [45]

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Just to clarify, did you say that the bookings in the first quarter were a record high for a fourth -- first quarter, is that what you said?

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Christopher Greiner, [46]

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Yes, that's correct.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [47]

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Great. And then T-Mobile is one of your bigger customers. They're merging with Sprint. Is that sort of an opportunity there or non-event?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [48]

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Yes, I mean, I can't obviously comment on the merger but they're acquiring them. If you -- I read the press releases and they're talking about their care model, and their care model is a real leverage point for them. So we view it as an opportunity. Obviously, it's going to take a while but that's as far as we know today because it just happened.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [49]

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Got it. And then you mentioned adding that hunter team earlier in the year. How many people are in that group?

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Christopher Greiner, [50]

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So we haven't disclosed specifically the number of people in the hunter group. But we added -- I think we added anywhere between 5 to 6 to the group in the first quarter, so good size addition to the team.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [51]

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Got it. And then are you seeing any of your current customers, as they add messaging, does the messaging tend to be incremental to kind of what they're paying you for or does it tend to replace the chat volumes?

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [52]

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You mean on the base?

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [53]

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Yes. Base, yes.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [54]

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Right now, I mean, it's pretty incremental because chat was the reason we pivoted the business. And our best customer in chat was 10% of all volumes. So we have 90% still stuck on voice. So if you look at chat really is web and we actually end up flipping web synchronous chat into web messaging. And then we go into the IVR or their app, we'll pick up incremental volume today, and so that's what's happening today.

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Operator [55]

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(Operator Instructions) And we have no more questions at this time.

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Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman & CEO [56]

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Thanks, everybody, for being on the call. And we will see you at the beginning of August for the next call. Have a good day. Bye.

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Operator [57]

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Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for your participation.