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Edited Transcript of LPSN.OQ earnings conference call or presentation 29-Oct-20 9:00pm GMT

·61 min read

Q3 2020 LivePerson Inc Earnings Call New York Nov 2, 2020 (Thomson StreetEvents) -- Edited Transcript of LivePerson Inc earnings conference call or presentation Thursday, October 29, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John Deneen Collins LivePerson, Inc. - Executive VP & CFO * Matthew J. Kempler LivePerson, Inc. - VP of IR * Robert P. LoCascio LivePerson, Inc. - Founder, Chairman of the Board & CEO ================================================================================ Conference Call Participants ================================================================================ * Arjun Rohit Bhatia William Blair & Company L.L.C., Research Division - Analyst * Brett Anthony Knoblauch Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst * Brian Jeffrey Schwartz Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst * Jeffrey Lee Van Rhee Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst * Michael James Latimore Northland Capital Markets, Research Division - MD & Senior Research Analyst * Mohit Gogia Barclays Bank PLC, Research Division - Research Analyst * Peter Marc Levine Evercore ISI Institutional Equities, Research Division - Analyst * Richard Kenneth Baldry ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst * Ryan Michael MacDonald Needham & Company, LLC, Research Division - Senior Analyst * Samad Saleem Samana Jefferies LLC, Research Division - Equity Analyst * Sitikantha Panigrahi Mizuho Securities USA LLC, Research Division - MD * Sterling Auty JPMorgan Chase & Co, Research Division - Senior Analyst * Steven Lester Enders KeyBanc Capital Markets Inc., Research Division - Associate * Zachary Cummins B. Riley Securities, Inc., Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Third Quarter 2020 Earnings Conference Call. My name is Gary, and I will be your conference operator today. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Matthew Kempler, the company's Senior Vice President of Investor Relations. Please go ahead, sir. -------------------------------------------------------------------------------- Matthew J. Kempler, LivePerson, Inc. - VP of IR [2] -------------------------------------------------------------------------------- Thanks very much, Gary. Joining me on the call today is Rob LoCascio, LivePerson's Founder and CEO; and John Collins, our Chief Financial Officer. Please note that during today's call, we will make forward-looking statements, which are predictions, projections and other statements about future results. These statements are based on our current expectations and assumptions as of today and are subject to risk 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 for the quarter, are available in the Investor Relations section of LivePerson's website. With that, I will turn the call over to Rob. -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [3] -------------------------------------------------------------------------------- Thanks, Matt. Thank you for joining LivePerson's Q3 2020 Earnings Call. In the third quarter, LivePerson once again delivered peak performance in many key metrics, including setting records of revenue, contracts signed, adjusted EBITDA, positive cash generation. Revenue in Q3 outpaced guidance, climbing 26% year-over-year to $95 million, fueled by 29% growth in our B2B-hosted software business. Our focus on internal automation and employee productivity yielded another step function of operational efficiency as record adjusted EBITDA of $15 million widely -- wildly outpaced guidance and generated a multiyear high profit margin of 16%. Our cash position increased by $26 million quarter-over-quarter to $199 million as we pivoted to positive cash generation. As we've shared on recent calls, consumers are driving a massive structural shift to remote digital engagement in the wake of COVID pandemic. Website and app traffic have risen sharply as consumers go online rather than visit brick-and-mortar banks, telcos, retailers and food service establishments. In fact, a recent LivePerson survey found that 2 out of 3 consumers are planning to do most of their 2020 holiday shopping online rather than in stores. Brands are struggling to meet this increased digital demand. Consumers often face frustratingly long hold times on 800 numbers due to the closing of physical contact centers and reduced global capacity of contact center agents who can actually take calls in a work-from-home environment during COVID. Likewise, the typical 1% to 2% website conversion rates means that most brands are failing to sufficiently monetize their increased online traffic. LivePerson, a leader in conversational AI, benefiting from the powerful market dynamic. In order to improve agent efficiency, increased sales conversions and fuel higher customer satisfaction, brands are turning to our Conversational Cloud and deploying personalized consumer care and sales journeys over mobile messaging endpoints. All this being led by the ability to use AI automation instead of human agents. As a result, we've seen volumes on our platform surge since the pandemic started in February, now up nearly 50% and led by a nearly 60% increase in AI-based conversations. We expect this strong tailwind to only intensify over the next 5 years as traditional retail shopping, web and in-app-based e-commerce shift to c-commerce or conversational commerce. The shift to conversational commerce requires a new set of technologies beyond web, social and other traditional e-commerce type platforms. The shift from e-commerce to c-commerce has arrived. And because LivePerson took an early bet on this massive change 4 years ago, we're clearly the leader in transforming some of the largest brands in the world. Conversational commerce is powered by a consumer's ability to have an always-on asynchronous connection, which can be delivered over messaging platforms like WhatsApp, Apple Business Chat, Facebook Messenger, Instagram and SMS. Over that messaging connection, we run rich conversations, either automated with the use of AI or live agent or both at the same time. We started out with a focus on customer care use cases with the goal of reducing contact center cost, and we are now expanding into sales, marketing in brick-and-mortar retail with the goal of driving sales and commerce. In order to drive a better commerce journey for consumers, we're also introducing a digital payments platform that enables users to conveniently make purchases with any brand or any messaging endpoint. For example, a consumer enters their credit card information to purchase a ticket from an airline, and then we securely tokenize that credit card so that it can be used at a later date with some other company. Similarly, consumers can make purchases across different endpoints, for example, use a website for one purchase and then use WhatsApp for the next and then in-app for another without re-entering their credit or debit card. Our first few brands are now live, and we'll steadily expand this program into 2021. Adoption trends confirm that our vision of conversational commerce is resonating more clearly than ever. Nearly every single enterprise customer is now using our AI capabilities within our platform. Automations power 2/3 of our messaging conversations today, and our goal is to automate over 80% of the conversations at scale. Our AIs have eliminated the need for any human involvement in approximately half of all conversations where they are deployed. And in other words, our customers can use the Conversational Cloud to power a virtually unlimited number of conversations at a fraction of the costs required by human agent-based conversations. Another testament to the transformational power of the conversational cloud is the first of a kind global strategic partnership we just signed with Infosys, a world leader in next-generation digital services and consulting. This new strategic relationship will help LivePerson keep pace with surging demand for Conversational AI by joining our Conversational Cloud with Infosys Cobalt transformation cloud services and public cloud. Infosys will be creating a practice around our platform, and we will conversely have them manage our move to the public cloud. Our move to the public cloud will enable us to handle the increased demand for our services with the ability to auto scale capacity and also enable us to enter new geographical markets quickly. Infosys joins other key LivePerson partners, including IBM, TTECH and Accenture, in building a channel that is strengthening our go-to-market reach and sales distribution. In fact, 3 of the 8 seven-figure deals we closed in Q3 came from our partners. Also noteworthy is that 3 of our 8 seven-figure deals were new logos, demonstrating LivePerson's ability to win new customers, even with the change from physical to virtual marketing events. I'll highlight one of these new logo wins we did with a multimillion-dollar jewelry retailer. They were virtually sold over a 3-month period, and they moved very quickly because all the impact that has happened to their physical stores during COVID. The stores where they are open, they now are adding QR codes next to the merchandise so that consumers can socially distance by chatting with AI and remote-based human agents while shopping. Human sales associates will have a special messaging app on their mobile devices that will enable them to maintain a continued connection with the consumer after they purchase and leave the store. And finally, the jeweller will offer appointment-setting, payments and curbside pickup over messaging. This example shows how conversational commerce's deep multidimensional integration enables the merger of physical store operations with digital. Another new logo win was with one of the largest dental insurance providers in the country. And the vertical of insurance right now in health care is really becoming very active for us. And we saw a couple of different logos in the quarter beyond this one. The driver of this deal was that the insurance company recently lost a deal with a potential customer who has thousands of employees because they only offered voice as a customer care channel. Think about it. Consumers will no longer accept being forced to call 800 numbers as messaging and AI have become a must-have consumer offering. We were chosen over several competitors because we don't treat messaging as just another channel of communication. We're highly differentiated because of our comprehensive approach to Conversational AI, our broad messaging capabilities, operational expertise and ability to offer an unmatched 6x ROI in the first year alone. In addition to strong rebound in new logo activity, LivePerson also continued to expand with existing customers during the quarter. As highlighted on our last earnings call, we're seeing 2 key drivers of revenue uplift, first being strategic up-sell following initial demand during the COVID crisis; the second, involving up-sells as customers on an all-you-can-eat enterprise license agreements now are being moved to cost-per-interaction or usage-based models. A win with one of the top-20 global banks is a great example of the shift. This customer signed a 7-figure up-sell with us at the end of Q1 when the pandemic drove them to use messaging and automation to maintain business continuity as their contact center agents and in-store associates were sent home. After seeing the successes of these expanding use cases, and roughly 10x increase in messaging volume, the bank doubled down on their long-term commitment to the Conversational Cloud. In Q3, only 6 months later, we signed another 7-figure up-sell with them. Another example of increased usage driving growth is a win with one of the largest online lenders in the U.S. Like many of our customers this lender saw spike in volumes on our platform in the first half of 2020. LivePerson initially recognized no revenue benefit from the spike as customer was locked in under an ELA, enterprise license agreement. That changed in Q3 when the customer came up for renewal. We transitioned them to a cost-per-interaction model and captured the value of those higher volumes by signing the 7-figure up-sell that doubled our annual recurring revenue from this customer. We expect to repeat this successful formula when many of our ELA customers come up for renewal over the next 2 years. Record contracts signed, accelerated revenue growth, a new landmark partnership with Infosys, expanding customer use cases and broad adoption of our AI cloud are indisputable signals of LivePerson's leadership in conversational commerce. We're executing with precision in this new remote work environment and, once again, are in a position to raise guidance for the year. We're now targeting 2020 revenue growth of 25%, achieving our long-term growth target 1 year ahead of plan. We've also built a strong discipline around capturing operating efficiencies through internal automation and tightened controls. Increasing scalable financial model is now emerging where we can invest in key growth drivers while still delivering bottom line improvements. As a result, we are increasing our 2020 adjusted EBITDA guidance to a range of $29 million to $31 million, which brings us back to peak historic profit levels. I'll close with 3 key points. LivePerson's third quarter results, which follow an equally strong second quarter, reinforced that consumers are driving a permanent structural shift to Conversational AI as the preferred means of communicating with brands. LivePerson's Conversation Cloud is setting a new standard for the technology required to support the shift. And we believe that the unique combination of our platform, expertise and services will extend our industry lead. As we execute on our vision, our financial outlook is sharply improving with revenue growth now on a path to accelerate to 25% in 2020 from 17% in 2019 and 14% in 2018, while adjusted EBITDA margins have firmly moved into the double digits. With that, I'll turn the call over to John to provide an operational update and more color on our guidance. John? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Rob. In Q3, we continue to capitalize on rising demand for our Conversational AI, setting records across a range of key financial metrics, including contract value, revenue, adjusted EBITDA and free cash flow. With the strong demand backdrop and improving operational efficiency, we are once again raising guidance on the top and bottom line and targeting our first $100 million revenue quarter. Starting with demand generation. After making strategic investments in our go-to-market and product organizations in 2019, we continue to see meaningful returns. Our field organization generated record contract values and closed 8 seven-figure deals in Q3. As expected, following a focused effort to help existing customers navigate the pandemic, we began to rebuild momentum with new logos. Specifically, new logo annual contract values returned to pre-pandemic levels, which translated to an increase of more than 300% quarter-over-quarter, yielding a more even balance of deal values across existing customers and new logos. Reflecting this strong demand capture, our key metrics hit new highs in Q3. Revenue retention, for example, for enterprise and mid-market customers, was well above the high end of our 105% to 115% target range. ARPU growth for enterprise and mid-market customers accelerated in Q3, up nearly 30% year-over-year to approximately $425,000. Total revenue of $95 million increased 26% year-over-year, marking the second consecutive quarter of 25%-plus revenue growth. The $3 million of upside, relative to the midpoint of previously issued guidance, was driven primarily by favorable timing of contract signings, overages and modest overperformance by our consumer segment. Within total revenue, B2B grew 27% year-over-year, led by a 29% increase in hosted software. Consumer revenue increased 18% year-over-year, and gain share was in line with expectations at nearly 15% of revenue. From a geographic perspective, the U.S. grew 33% year-over-year and accounted for 62% of revenue. International grew 17% year-over-year and accounted for 38% of revenue. Significantly, our execution in EMEA continues to improve following the appointment of new leadership in the region earlier this year. Revenue in EMEA increased for the second consecutive quarter as did contract signings, which were up approximately 50% quarter-over-quarter. These results are encouraging indicators of future growth in the region. We also continue to gain leverage from our channel partners, which have influenced more than 30% contract signings over the past year and contributed 3 seven-figure deals in Q3. As Infosys invests in integrations to build a global practice around our Conversational Cloud, we expect even greater returns from our partner model over the coming quarters. Ultimately, our goal is to generate 50% of deals from channel partners, which will not only materially expand our reach into key verticals and geographies but also drive significant scalability for our go-to-market organization. In terms of industry contributions, all verticals posted higher conversation volumes in September than they did pre-pandemic, and year-over-year revenue growth was led by consumer and retail, followed closely by financial services and technology. Moving on to the bottom line. Q3 adjusted EBITDA of $15 million marked an all-time high for LivePerson and exceeded the midpoint of our guidance range by $10 million or 74%. Our adjusted EBITDA margin increased 24 percentage points year-over-year to a multiyear high of 16%. The profit upside can be attributed to the following drivers, each an about equal contribution: Higher-than-anticipated revenue, the continued deferral of hiring in noncore growth areas as internal automation takes over repetitive jobs and enhances employee productivity; the deferral of infrastructure spend as we solidified our plans around the public cloud migration with Infosys; and the onetime impact from the writeoff of leases; and the accelerated depreciation of fixed assets after officially transitioning to an asynchronous work-from-anywhere model. Expanding on the latter point for a moment. Back in May, like many other companies, we felt forced to leave our physical offices because landlords could not guarantee the safety of our people, which was our highest priority. In addition, as a technology company specializing in AI and asynchronous communication, our employees were primed for the new work model, allowing us to maintain our culture and high levels of productivity. Note there's some onetime charges associated with leases that I'll talk about in a few moments. In terms of cash, we ended the third quarter with a cash balance of $199 million, which was $22 million greater than our 2020 beginning balance and $26 million increase quarter-over-quarter. We generated positive free cash flow year-to-date through Q3, which positions us to greatly exceed our initial 2020 goal of cutting cash burn in half. I think most significantly, we achieved the rule of 40 in Q3 on both an adjusted EBITDA basis and a free cash flow basis. The achievement of this long-term goal is a testament to the adaptability and scalability of LivePerson's operating model and our strategy to control the P&L in a manner that's conducive to both margin expansion and revenue growth acceleration. In addition to heightened budgetary vigilance, the successful execution of this strategy is significantly dependent on the AI and automation we're deploying across internal operations. Building on the examples I shared on the last quarterly call, we turned on a wide array of automations in Q3, ranging from algorithms for revenue and billing reconciliations to HR reporting and usage forecasting. We also built critical modules to power an automated rolling planning process that will provide more timely financial insight and free up weeks of work previously performed by the finance team each quarter. In terms of top-line impact, we're also launching a new sales rep capacity model intended to compress sales cycles and increased quota attainment by optimizing the routing of leads to qualified reps with capacity. Finally, and perhaps most significantly, we launched a modern data lake architecture that provides the foundation of clean connected data to automate nearly any business process. Migrating our platform to the public cloud is another key milestone on our path to maximum efficiency. In addition to enabling us to match global demand for conversational AI, we also expect meaningful cost savings in 2022 and beyond to positively impact gross margin and cash generation. Finally, before talking about guidance, I'll note that we recorded $28 million in nonrecurring charges, covering the writeoff of leases and fixed assets, the public cloud migration, employee home offices, IP litigation and various legal expense. In terms of guidance, we're entering Q4 with strong momentum. Platform conversation volumes continue to build month-over-month since the peak of the crisis. Contract sizes have set a new record, and our revenue run rate is ahead of plan. Considering these positive dynamics, we are raising guidance for 2020 to a range of $362.5 million to $364.5 million or 24% to 25% year-over-year growth, up from previous guidance of $357 million to $361 million or 22% to 24% growth. Our Q4 guidance range of $98 million to $100 million also implies 25% growth at the midpoint. As Rob said, we're now on track to achieve our long-term growth target of 25%, 1 year ahead of plan. As for profitability, we continue to anticipate strong year-over-year margin improvements as we maintain budgetary vigilance and benefit from rapid adoption of internal automation. As a result, we are raising 2020 adjusted EBITDA guidance to a range of $29 million to $31 million, which is more than 70% higher than the midpoint of our prior range of $16 million to $19 million. Our Q4 adjusted EBITDA guidance of $9.3 million to $11.3 million targets a year-over-year margin expansion of nearly 900 basis points and a continuation of our double-digit margin trajectory. Finally, I'll close with a few key points about the business. LivePerson is capitalizing on a global demand inflection for conversational AI, which is powering a sharp acceleration in both revenue and profit growth. The investments we've made in our product and go-to-market organizations are yielding impressive returns, key financial metrics are hitting record highs, and we are driving strong demand generation across key geographies through our direct sales force and channel partners. In less than 1 year's time, we've pivoted from $100 million cash burn to cash generation, which again, is a testament to the adaptability of our operating model and the extensive vigilance of our business leaders and the unique ability to leverage internal automation to enhance productivity. So with that, I'll hand the call back over to the operator to take your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [2] -------------------------------------------------------------------------------- I'll shift to the Skype because my normal connection is not good. So I'll switch over to Skype. It's Robert. -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- I'll open that up in a second. (Operator Instructions) Our first question is from Arjun Bhatia with William Blair. -------------------------------------------------------------------------------- Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division - Analyst [4] -------------------------------------------------------------------------------- Can you hear me all right? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [5] -------------------------------------------------------------------------------- We can hear you. -------------------------------------------------------------------------------- Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division - Analyst [6] -------------------------------------------------------------------------------- Perfect. Maybe I just want to start off with the new IT customers, the existing field dynamic. It seems like the existing deals continue -- existing customer deals continue to be strong and new deals are down from last year. Can you maybe just maybe help us understand what's going on there? And how -- what we can expect going into Q4 and 2021 on the new customer front? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [7] -------------------------------------------------------------------------------- Arjun, I'd reiterate that, from a value perspective, we're up significantly, as described. And within the enterprise, contract signings are actually up year-over-year as well. So we're seeing continued improvement in the ability to capture new logos. And as we've previously signaled, that's an area that we continue to build on through the pandemic. -------------------------------------------------------------------------------- Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division - Analyst [8] -------------------------------------------------------------------------------- Got it. And then I just want to maybe dig into the Infosys partnership a little bit more. Can you just give us some more details on what the growth opportunity is that, that partnership unlocks and maybe the size of the practice that Infosys is planning to roll out with LivePerson and maybe any thoughts on the cadence of when we should expect this partnership to start driving the results? That would be great. -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [9] -------------------------------------------------------------------------------- Sure. So generally, I mean, Infosys is a massive organization systems integrator with a huge roster of Fortune 500 companies. They also have a lot of pre-built infrastructure for powering e-commerce in a range of other areas, including financial services, that are already -- we're working with. So the ability to integrate the Conversational Cloud with those services is a really natural fit to help us gain access to their customer roster. And in terms of how quickly we can get moving, we already have deals with Infosys that they've assisted with in addition to a really large pipeline of business that we expect to start closing in the fourth quarter. And one example there is, on the e-commerce front, Infosys has some technology that helps the customer integrate to product catalogs and other back-end systems that smooths the path for the Conversational Cloud to integrate and begin delivering conversational commerce. So it's a good example of a win that's already under our belt and one that showcases the power and synergy of this relationship. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- The next question is from Sterling Auty with JPMorgan. -------------------------------------------------------------------------------- Sterling Auty, JPMorgan Chase & Co, Research Division - Senior Analyst [11] -------------------------------------------------------------------------------- The last question, the beginning of it was a little hard to hear on my end. So hopefully, this isn't a complete repeat. But with the new customers, the 48 new customers that you brought on board, can you help us understand exactly the profile of these new deals versus what you've seen, let's say, maybe a couple of quarters ago in terms of size, scope that they're looking to do? And just as important, how should we think about the revenue ramp in those new customers as we move forward? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [12] -------------------------------------------------------------------------------- I think as a general matter, during the pandemic, we are seeing, at least on the new logo side, smaller-sized entry points that -- than perhaps we saw in 2019. But I think that fits very well into our very successful strategy of landing and expanding. And in terms of the expanding, I think that the process will proceed just as we've highlighted in previous calls where we might start with one endpoint and add others that gradually grow volume. And it also works the same with perhaps one department or one segment and expand across segments within the enterprise to grow volume. So I think, once landed, the expansion strategy is more or less consistent with what we've seen historically. -------------------------------------------------------------------------------- Sterling Auty, JPMorgan Chase & Co, Research Division - Senior Analyst [13] -------------------------------------------------------------------------------- And then just as a follow-up, along those lines, is there a way to think about what maybe the average revenue per a new customer would start at initially and what maybe it ramps to, let's say, a year or 2 years later? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [14] -------------------------------------------------------------------------------- Well, we don't give specific numbers to that dynamic. But I would note our ARPU at 400,000-plus and at all-time high, 30% up year-over-year as an indicator of how expansion -- how successful our expansion strategies are actually land a new logo. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- The next question is from Mohit Gogia with Barclays. -------------------------------------------------------------------------------- Mohit Gogia, Barclays Bank PLC, Research Division - Research Analyst [16] -------------------------------------------------------------------------------- I was just wondering if you can comment on sort of like the close rates and how they have evolved over the last couple of quarters. And also, as you look to Q4, what are you sort of like modeling in? Is it sort of like a sequential when in terms of close rate? And any comment on the pipeline coverage for people will be helpful please. And then I have a follow-up question. -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [17] -------------------------------------------------------------------------------- Yes. So in terms of close rates, I would say that we're on track to be consistent with the pace that we had in 2Q and 3Q moving forward with the exception that, as I previously highlighted, we're rebuilding demand on the new logo front and having success with that strategy. In terms of what we're modeling in, I mean, in terms of the pipeline, the overall pipeline is consistent with last quarter and the end quarter. So the generated pipeline so far is actually up quarter-over-quarter. -------------------------------------------------------------------------------- Mohit Gogia, Barclays Bank PLC, Research Division - Research Analyst [18] -------------------------------------------------------------------------------- Understood. My follow-up question is on the payments platform. So wondering if you can give us some more color, right? So some of the initial -- I mean I don't know if these are data customers or these are actually paying customers, but can you give us some sort of like how the revenue-sharing arrangement works? Like what is the monetization model? And how do you think of wrapping the adoption up in the next few quarters? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [19] -------------------------------------------------------------------------------- Yes. So they are testing right now. So they're actually testing live transactions on the platform. We haven't talked about the monetization strategy yet, but it would go align with our usage-based models. So every time you invoke and take a transaction, you're looking at some monetization for that. But right now, we've launched the first handful of customers, and they're using it. And so we're seeing good results. Once again, as I -- the reason we went into that is we're seeing more and more use cases around sales and marketing, which is the broader concept of commerce. And we need to have a unified way to handle a payment across messaging endpoints, across customers because right now, it's difficult, and you have to go to a web flow out of messaging. So we're seeing some good results right now from that -- from our initial customers. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- The next question is from Ryan MacDonald with Needham & Company. -------------------------------------------------------------------------------- Ryan Michael MacDonald, Needham & Company, LLC, Research Division - Senior Analyst [21] -------------------------------------------------------------------------------- Congrats on a great quarter. I wanted to start with -- on this conversion from sort of the ELA contract structure to the cost per interaction. Can you give us a sense of sort of what the -- what you'd expect the general cadence of those renewals would look like over the next 12, 24 months and what you're seeing in terms of number of interactions that are being adopted. Are you seeing sort of an increase and perhaps a greater inclusion of AI-based interactions when you're making that conversion? And then I'll have 1 follow-up. -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [22] -------------------------------------------------------------------------------- Sure. So we've had really great success, converting ELAs to CPI contract structures, the volume-based contract structures. And I'd highlight one in particular from this year, 1 of the global top-20 banks we converted from ELA to CPI in the first quarter. And then a mere 6 months later, after being on that volume-based model, and seeing the power of the Conversational Cloud and what it can do for their operation, we up-sold them again 7 figures because of that CPI structure. So it's a powerful example of future revenue growth, given the demand profile that we've been sharing with you. In terms of the cadence, we have approximately, this year, covered about 10%, and I expect that to accelerate into 2021. In terms of -- I think you asked about interactions and AI-based conversations. All of this is consistent with what we've signaled that the 60% increase in automation since February is equally applicable to these ELA to CPI up-sells. -------------------------------------------------------------------------------- Ryan Michael MacDonald, Needham & Company, LLC, Research Division - Senior Analyst [23] -------------------------------------------------------------------------------- Excellent. And then just as a follow-up, John, I'm really impressed with the free cash flow generation in the quarter. Obviously, a lot of the work has been done and pieces have been put in place to automate a lot of the back-office functionality. Given sort of the early gains you've seen there, how sustainable do you think that the positive free cash flow is moving forward here? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [24] -------------------------------------------------------------------------------- Yes. I would just say that while hitting the rule of 40 on a free cash flow basis this quarter is an amazing achievement, and again, a testament to our ability to control the P&L in strategic ways and really rapid ways, I don't see it right now as a new run rate for us. However, as I've consistently said, my #1 mandate is to move the company towards sustainable cash generation and profitability while simultaneously maintaining our ambitious growth goals for the top line, and I don't see that changing. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- The next question is from Kirk Materne with Evercore. -------------------------------------------------------------------------------- Peter Marc Levine, Evercore ISI Institutional Equities, Research Division - Analyst [26] -------------------------------------------------------------------------------- It's Peter Levine. Congrats on a good quarter. Great to hear the partnership with Infosys. If you are targeting 50% of deals coming from partners, how should we be thinking about service revenue going forward? And what investments are you making internally to kind of support this kind of deal flow or perhaps any changes to your go-to-market notion? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [27] -------------------------------------------------------------------------------- Peter, so we -- in the longer run, we certainly see our Conversational Cloud creating sort of a derivative market where these partners come in to participate seeking profits. And in that world, we would want to push most of our PS work, especially for those verticals where we have a really established playbook already, and we've gone deep to create value in those verticals. We'd like to push the PS work for that profile to the partners. And that allows us, of course, to be more transactional as a business, which is a goal consistent with our desire to create enhanced operating leverage. So that's kind of a North Star for us with respect to PS work and the channel partner strategy. In terms of investments, one of the key areas of investment is to create the suite of self-service tools that enable our partners to work with, monitor and assist the customers that they sell the Conversational Cloud to without human interaction on the LivePerson side. So that's a key area of investment that we think will drive enhanced leverage on that model going forward. -------------------------------------------------------------------------------- Peter Marc Levine, Evercore ISI Institutional Equities, Research Division - Analyst [28] -------------------------------------------------------------------------------- That's great. And then just a follow-up. With, I guess, all the news of COVID and the second rounds of spike here, for customers that may be deferring decisions, which should come as no surprise to anyone at this point, but -- yeah, and maybe you're not seeing it, but how much of a pushback is budget related versus, I guess, more of the broader economic uncertainty? Curious now here in Q4, if what's going on. We have an election. We have COVID. If that's impacting any decisions or extending sales cycles. Just curious to know if there's any color on that. -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [29] -------------------------------------------------------------------------------- Yes. I don't have a value that's very precisely quantified. But clearly, the pandemic and the election and just the macro uncertainties that have persisted throughout the year are a weighty factor, especially when it comes to a new logo, making a large commitment to a new partner like LivePerson. But I don't have a specific value that I would quantify for you. Rob, were you going to jump in there as well? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [30] -------------------------------------------------------------------------------- Yes. I was going to say, as you can see, the demand in the services, I mean, COVID's driving a lot of our demand and the shift from off-line retail to digital, the shift from contact centers being shut down and the agents are still at home. So there's still a lot of stuff going on. So I don't -- now our gain share start will start to pick up, obviously, in Q4 around especially our large customers who are gearing up for the holiday season. So I mean, right now, you still see a lot of strength, and could COVID kind of helping, is giving us a lot of wind in the sails. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- The next question is from Richard Baldry with Roth Capital. -------------------------------------------------------------------------------- Richard Kenneth Baldry, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [32] -------------------------------------------------------------------------------- When we look at your P&L being sort of well ahead of where we would have thought it'd be, how do you sort of balance that against sales capacity? And by that, I mean, you have the ability to be hiring much faster if you want and still make the earnings estimates people are looking for. So do you -- how do you feel about the current capacity? When do you think you'll see some material increases to that? And maybe if there's a discussion around that around other automation things that you're putting in place that are helping you gain leverage there. -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [33] -------------------------------------------------------------------------------- Yes. So from a productivity standpoint, we're seeing more productive reps now than we have in the past. And some of that is attributable to just the ramping of the sales force after sizable investments in 2019. And as you suggested, there's a portion of that productivity also attributable to the decision support tools and the automation that we've built for the global revenue organization. And I highlighted in the prepared remarks one of these projects that really tries to get very quantitative and data-driven about how to smartly route leads and opportunities to those reps who are best suited to pursue them and who importantly have the capacity to do so, so nothing is lost in the mix there. So that's a system that we're building and testing as we speak and expect to drive additional productivity on a per-rep basis. In addition, I would say that we do have plans to continue to invest in core growth drivers, one of which, of course, is our go-to-market capacity. And I think we can see increased quota carrier counts moving forward. -------------------------------------------------------------------------------- Richard Kenneth Baldry, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [34] -------------------------------------------------------------------------------- And also, how far through sort of your internal automation sort of efforts do you feel like you are maybe with a backdrop to what types of further restructuring might we see throughout this year or maybe throughout 2021? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [35] -------------------------------------------------------------------------------- Yes. The short answer there is we're really just getting started. Despite the high ROI that we've already seen in the year, the team is still pretty lean and really only ramped about 10 engineers and data scientists in Q3. I think we hired 50% or 60% of our total team size in Q3. And so the amount that we've delivered already this year is really just scratching the surface of what's possible. And as I suggested in the prepared remarks, the data lake that we've just brought online is a really key instrument to provide the foundation for clean and connected data to rapidly automate and build efficient support tools across the organization. The key barrier to getting that kind of leverage is not so much the code writing, but it's the access to data and clean data at that, that slows everything down. So that's a really important milestone. While there's more to do there, it's already being leveraged by the automations that we're building internally. So again, I think there's a lot more to come on those dimensions. -------------------------------------------------------------------------------- Richard Kenneth Baldry, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [36] -------------------------------------------------------------------------------- Lastly, given the strong cash balances, what are your thoughts on any sort of tuck-in M&As maybe on the technology side? Do you feel like you can still do that even though it's hard to do deep due diligence or certainly in-person due diligence? Or do you think you may sit on the sidelines until that gets to be a bit easier? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [37] -------------------------------------------------------------------------------- Actually -- go ahead, Rob. -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [38] -------------------------------------------------------------------------------- So I would -- obviously -- we want to really accelerate what we're doing on the AI side. So we are -- we've looked out into the world. And if we find good technology, it can accelerate our go-to-markets on the technology side, we'll look at companies. We've built a lot of -- I think from a shareholder perspective, we spent a fair amount of money and resources on organically building the company to-date. And we didn't really acquire too much to get here. We built it. And so that's why you see sort of a flip with margins and cash generation because, okay, we did a heavy investment on that side. Now we're flowing through just selling a lot of that technology. So we'll continue organic development. And then we'll -- if we see something that's kind of interesting, we'll consider it. But we've got a good team right now, and we're hiring great engineers and data scientists who want to join us because of the success we're having. And we're getting -- we're up competing with the Googles and Amazons and Microsofts on the data science side, and we're winning. And sometimes they win, but we're able to recruit and hire and get them here. So that allows us to really focus on organic as well. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- The next question is from Steve Enders with KeyBanc. -------------------------------------------------------------------------------- Steven Lester Enders, KeyBanc Capital Markets Inc., Research Division - Associate [40] -------------------------------------------------------------------------------- I just want to get a better sense of how you're thinking about the sustainability of the EBITDA margins that you put up in the quarter and guided to. Where would I guess potential opportunities for further investment be to continue that decline from here? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [41] -------------------------------------------------------------------------------- Sure. So first, I would say that we do intend to continue to expand margins going forward. Without putting a guide out for 2021, that's, again, a key mandate that I have as CFO, and the strategies that we devised will be consistent with that. In terms of investments, we obviously are -- continue to invest in the core growth drivers. I mentioned go-to-market earlier, which we're moving forward with, in addition, on the AI side. And then importantly, on the infrastructure side. So the migration will require some investment. And for a small period of time, we'll need to maintain 2 stacks as well, which will require some investment. -------------------------------------------------------------------------------- Steven Lester Enders, KeyBanc Capital Markets Inc., Research Division - Associate [42] -------------------------------------------------------------------------------- Okay. Great. And then I know you just rolled out a new opportunity that can integrate with Instagram. And I know you talked about a social solution, let's say, about a year ago. Just wondering how you're seeing kind of this new social channels progress and how you're thinking about that opportunity now? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [43] -------------------------------------------------------------------------------- Yes. I mean, Instagram is going to drive a fair amount of volume because, obviously, there's a lot of engagement and commerce going on. So I think we're all pretty bullish about Instagram. WhatsApp still seems to be the biggest driver outside the U.S., and then Apple Business Chat is the biggest driver within the U.S., and they're all going very strong. I mean, they're all increasing. There's a lot of demand. As we enter new markets like Brazil and stuff like that, they have massive demand for these types of things. So all those front ends just drive volume for us and drive more interactions, which drives growth in revenue. So I think we feel very good about what we're seeing. We have good -- obviously very good partnerships because we drive a lot of volume for them. Especially from an enterprise customer standpoint, we're driving a significant amount of volume for all those endpoints. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- The next question is from Mike Latimore with Northland Capital Markets. -------------------------------------------------------------------------------- Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [45] -------------------------------------------------------------------------------- Great. Great quarter. I think you gave a sales force productivity kind of percent number last quarter. Do you have that for this quarter? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [46] -------------------------------------------------------------------------------- Yes. So that productivity number was really a function of time, meaning we expected 80% of our sales force to be ramped by the end of the second quarter. And we really would expect the given attrition rates to hover around 80-or-so percent going forward rather than moving that productivity number up to 100%. -------------------------------------------------------------------------------- Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [47] -------------------------------------------------------------------------------- Okay. Got it. And then on gain share, are some of the sort of big new deals or even up-sells, I guess, in that kind of gain share amount? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [48] -------------------------------------------------------------------------------- Yes. So certainly, gain share continues to deliver, although at 15% of revenue, it's consistent with last quarter. -------------------------------------------------------------------------------- Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [49] -------------------------------------------------------------------------------- Got it. And then a while back, you gave an investment amount for digital payments. I guess, how far of the way through that are you? It sounds like you're almost done. -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [50] -------------------------------------------------------------------------------- Yes. We're on track for that, and then some other innovations that we built. So we're pretty much on track on the spending. We didn't exceed it. We were a little under it what we thought we would spend for the year. But yes, we're right on track there. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- The next question is from Koji Ikeda with Oppenheimer. -------------------------------------------------------------------------------- Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [52] -------------------------------------------------------------------------------- This is Brian Schwartz sitting in for Koji Ikeda. Congratulations on a very strong top line guide here. I thought I'd ask -- I thought I'd ask a different question that hasn't been asked so far. I don't know if it's Rob or John to take it, but just a question on the competition. And from your perspective, who are the main competitors that you're seeing for the big Conversational AI vision that you're projecting in the market? And those 3 new customer big deals that are done in the quarter and the new logos that you're winning, who are you competing against most often? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [53] -------------------------------------------------------------------------------- We see, on one side, Salesforce is in a lot of accounts, and on another side, Genesis or contact center. They're treating this as like messaging as a channel. So it's just like another channel like e-mail. And so we obviously -- messaging is the connected tissue for asynchronous communication. And then on top of that, we ride all the AI and automations, and that's why we get these big deals done. So we're able to -- if you're an enterprise, you're not going to get there using messaging channels. The other thing they don't really have messaging as a real technology. They took chat and then tried to make it asynchronous, which I can tell you, doesn't work very well. That's why we built a whole new platform. So we're doing -- we're just crushing it on the enterprise side. We've been looking at, like our competitors said anymore that there's a lot of funding going in right now on the start-up side in messaging just like pure messaging. And most companies are doing -- they're like $10 million to $20 million, $5 million businesses. We're booking more in a quarter than they have in a year or 2 of revenue. So it's -- we're just -- because we went early at this and we have a big vision of it and we were able to put -- now it's a couple hundred million dollars worth of investment into the tech stack, we're clearly just really far ahead of everybody. And we're going to continue, and we've got a lot of innovation coming down the pipe. And so I think right now, we're just leading the market. We've defined the market. We lead the market. We're probably creating the pricing structure for the market. We're creating the right partnerships for the market. And we're setting the high watermark for the market. -------------------------------------------------------------------------------- Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [54] -------------------------------------------------------------------------------- And then a follow-up for John, and then I just have one maybe longer-term question. John, couple questions that I think it came up on the call. I guess we're just trying to figure out that those leasing changes restructuring costs that you talked about in your introductory comments, are you expecting those to continue next quarter? Or were they mostly onetime in nature this quarter? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [55] -------------------------------------------------------------------------------- They were onetime in nature. -------------------------------------------------------------------------------- Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [56] -------------------------------------------------------------------------------- Great. And then last question, just bringing it back to the Rule of 40 vision. You've talked about -- you're showing it here this quarter. And then for the year, the guidance here is for 25% top-line growth. I was wondering if the assumption is that, that growth rate is sustainable even on higher numbers and then the cash generation can flow through on the sales productivity and the operational efficiency gains? Or could growth go even faster than 25% based on what you're seeing in the pipelines and the retention from your lines? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [57] -------------------------------------------------------------------------------- So I'll stop short of providing a guide to 2021. But I will reiterate what we've said on prior calls, which was that 25% in 2021 is still on the table. And in terms of whether that can be accelerated, I think we'll have to wait for the 4Q call. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- The next question comes from Zach Cummins with B. Riley Securities. -------------------------------------------------------------------------------- Zachary Cummins, B. Riley Securities, Inc., Research Division - Analyst [59] -------------------------------------------------------------------------------- Congrats on a strong quarter. I guess in terms of your approach to real estate, I mean, can you kind of dig into that now that you've gone through these office lease terminations? And what's really going to be the approach over the next few years? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [60] -------------------------------------------------------------------------------- Yes. So we made an early decision about this May to not go back into offices and do our work from anywhere type of operational -- the way we're going to build our company. So we don't have any plans to go back to offices. The first part is the people who are leasing our offices to us cannot make the offices safe. So there's no point in even thinking about going back. The second part is we are finding that our employees are finding this type of work mode pretty good. There's a tremendous amount of energy around. We have a small group right now. There was actually about 50 people in the company that volunteered to create a whole new operating structure. We call it beehive around how do we create a model around working from anywhere. How do we do communications well, our culture. We're talking about things like education of kids. So this is a very complex thing. But it's not about the offices anymore. It's about, I think, the realization that there's a better way to work. And I've seen a lot of -- some CEOs are like, oh, we got to get back to offices and blah, blah, blah. And in our case, we have the ability now to hire people in any corner of the world, and we're doing that. We hired about 90 people in the quarter, and some of them we've never met, but we have a way to bring them on, and they're excited to be here. So I think it's a great opportunity. We are taking a different approach with our landlords. We're fighting them. We will fight them. I see that Pinterest, I think, just wrote a giant check. They -- I just don't believe that they've got a bad product. And us paying them doesn't make sense unless they give us a product that will be safe for our employees, which they're not willing to do because they don't want to spend the money. So we're taking the approach that we will fight them and we'll see what happens in the end with that. But the energy we're putting in right now is making work from anywhere a model to expand the company. And the demand in the company right now we have on our product set and everything, we just need employees. So it's interesting. It's an interesting time. We call it working asynchronously. It kind of fits with the model asynchronous. So we're seeing like good energy around it with our employees right now. -------------------------------------------------------------------------------- Zachary Cummins, B. Riley Securities, Inc., Research Division - Analyst [61] -------------------------------------------------------------------------------- Understood. And then just one final question for me. With the surge on COVID-19 cases again coming upon us and the potential for additional lockdowns in all the regions around the world, I mean, how are you thinking about this for your business? I know the initial surge did cause some disruption but also drove a big surge in demand for you as well. So just kind of curious as how you're approaching this over the next couple of quarters? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [62] -------------------------------------------------------------------------------- We just -- it'll keep playing into our strategy. Remember, the #1 thing is contact centers. So we've said for a long time that we didn't believe in traditional voice contact centers, and they're gone. So I didn't think they would go this way. I thought we'd just kind of like get rid of voice calls, which we're doing a pretty good job at. But they're gone. They don't exist. Some customers are trying to get them back running, but employees are working from home. It's a challenge. And conversations are getting automated. And so the #1 thing is those contact centers, and that's -- they've been impaired. And so we are working to fill the gap of the demand of conversations and digitizing with AI. The second part is retail. Like we're seeing, retail was not really a big thing for us because they don't have big contact centers. But what happened during COVID is, obviously, with the shutdown of stores and now the opening and shutting down and opening and shutting down, this may go on for another year, the retailers need to digitize their relationship with their consumers, and they want to have conversations. Like this jeweller we spoke about. They're the largest seller of diamond jewelry in the world. You're buying a ring, an engagement ring, you want to talk to somebody, and you want to do it in a digital format. And so we're able to power those things. The Chipotle example last quarter where you can use the pepper pot and can figure a burrito and pick it up at the door. The stuff we're doing at Lowe's massive amount of retail volume and Conversational AI with them. So there's just a lot of stuff that's playing into COVID. And the more it continues, the more it drives demand for our platforms. -------------------------------------------------------------------------------- Operator [63] -------------------------------------------------------------------------------- The next question is from Brett Knoblauch with Berenberg Capital Markets. -------------------------------------------------------------------------------- Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [64] -------------------------------------------------------------------------------- I guess just looking across your customer base in respect to the ELA and CPI deals. What percentage of customers have an ELA deal? And does the transition from one to the other have any impact on deferred revenues? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [65] -------------------------------------------------------------------------------- Brett, so less than half of our customers have ELA deal. And the question on deferred revenue, I mean, it's really a function of whether we get annual upfront payments as to whether you'll see deferred revenue move in quarter and be a reasonable indicator or not. And in this quarter, if you're looking at deferred, I mean, I think it's helpful to note that we did have large deals signed that were not -- that didn't come with upfront annual payments. So from an RPO perspective, meaning performance obligations, I think you'd see it tick up because it captures that. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- Next question is from Siti Panigrahi with Mizuho. -------------------------------------------------------------------------------- Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [67] -------------------------------------------------------------------------------- And the last 2 quarters are impressive. And in fact, 2020, you started with like 20%, 21% growth, kind of future 25% growth goal this year. Maybe you benefited from this COVID-19 prices. But Rob, as you look forward to the next 1 or 2 years, what are the key drivers for -- to sustain this kind of growth? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [68] -------------------------------------------------------------------------------- The drivers are -- we keep opening up more vertical plays. And so like health care right now, you remember last year, it was travel and -- travel and hospitality were big for us. Actually, what's interesting is they're still doing well. Our airlines, our hotels, they're still doing a lot of volume with us, which is kind of interesting. But we see more verticals opening up like health care. I know the government will be a big vertical coming up. And so there's that play. There's international expansion. When you look at Southeast Asia and Asia as a whole, South America, like we're just starting to get these regions going. And then it's just the proliferation of more and more things like Instagram. These front-end endpoints for the consumer, they're all opening up, and they need platforms like us to drive the volume. So that's really where we're seeing. I feel like we're still at the beginning of the -- inning two here, because even in our base today, there's so much stuff we can do with our just base of customers, which is also obviously a focus of ours. So that's what we see. We're -- there's also on the innovation side, there's just a lot on the -- AI, when you think about what it's going to do, it's going to free up capacity. It's going to allow us to augment work for humans we're doing with agents today. In some cases, we replace conversations. In other cases, we augment their work. And we're going to deliver it more and more and we'll deliver it inside the enterprise. I hired John, and he's doing great work around our enterprise and automating it, but we're looking at tool sets that he's building to put into the Conversational Cloud. So things -- conversations you're having with HR departments internally, legal departments, your finance department, all that we see is something that will come into the Conversational Cloud. So like I said, we're kind of in the second inning. First inning was messaging, second inning AI, and now we're expanding here across these different things I talked about. -------------------------------------------------------------------------------- Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division - MD [69] -------------------------------------------------------------------------------- And then you guys talked about some of the transformational projects like dealer.com or even the jewelry one you had talked about. How does the pipeline look like for such kind of projects? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [70] -------------------------------------------------------------------------------- They look good. We also are -- we haven't spoken too much about it, but we have a marketplace offering, and we are working with a very big company in the U.K. which has like a Yellow Pages type of product. And we are -- we created a way to create thousands of automations, like we were setting up thousands of small businesses, and then we're -- simultaneously, when they're set up, automations are automatically set up. So sellers can go live with prepackaged automation, but we can -- it's thousands and thousands of small businesses we can set up at a time. So there's a whole marketplace thing that we've been working on for the last couple months. And then we're -- I see some big opportunities with that. The payments platform, obviously, we're testing some stuff on the banking vertical. We've created a vertical play around banking that we are starting to roll out and test so there's some vertical plays around the full-stack, end-to-end conversational vertical. So a bank doesn't have to do anything. They could just kind of plug in to a full UI, a full middleware. So here we have some stuff going on with that right now. That was part of our investment we did for 2020. So there's a lot of different parts to this beyond just setting up big brand. -------------------------------------------------------------------------------- Operator [71] -------------------------------------------------------------------------------- The next question is from Samad Samana with Jefferies. -------------------------------------------------------------------------------- Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [72] -------------------------------------------------------------------------------- So maybe just as a starting point, I wanted to touch on maybe the ACV commentary and the sequential rebound. Could you maybe just help us understand how -- if we were to look at it on a 9-month over 9-month basis, right, so kind of normalizing for 2Q being a shallow period for new customer bookings versus 3Q maybe seeing some pent-up demand. How does that comparison look? Because that 300% number is really big, right? So we're just trying to triangulate maybe year-to-date versus year-to-date through last year. -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [73] -------------------------------------------------------------------------------- Yes. So the way that I would think about that, Samad, is that we have brought new logo contract values up to pre-pandemic levels. So that pre-pandemic level thinking back in February, January and December, is what we've achieved in the third quarter. Obviously, the growth rate is only as meaningful as its base. But I think the former commentary I gave is really what I would think is more instructive. -------------------------------------------------------------------------------- Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [74] -------------------------------------------------------------------------------- Okay. Okay. That's helpful. And then, I guess, as I think about for companies that are new logos, especially as you think about the new contract signings, and so let's just say a completely new to LivePerson. Given that they're trying to solve for a problem that's ongoing, is there a difference in how quickly customers are trying to get online? Or are they changing maybe their ramp cadence, as in, hey, let me solve for problem x or get my first 100 agents on sooner. I guess, just how are they handling the implementation schedules, given that -- that they have a surge in customer issues right now? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [75] -------------------------------------------------------------------------------- Yes. On my retail example I gave about the jeweller, it was a 3-month sales cycle to go live and then go live very quickly because of the demand right now and the impact on stores during -- physical stores during COVID. So we're seeing a lot of movement there. With very, very large brands. There's a process you go through with them. There's some health-care companies we're trying to close right now that are just so massive. And there's a process. We just got certified for Hitrust, by the way, that allows us to go after the health-care sector. It's like the highest level of security and -- that they require. So that takes maybe a little longer to go after. But the retail sector is moving quickly. Everything seems to be a little bit quicker. It's showing up in the numbers. We're kind of a year ahead. I don't know if people realize that. We're going to have $100 million quarter coming up in Q4. And if you look at your models, that wasn't going to happen until somewhere probably towards the third quarter next year or a year or so. We hit our 25% growth rate this year. So all of that is about speed and need. People want to move fast and want to get on the stuff and get going. So... -------------------------------------------------------------------------------- Samad Saleem Samana, Jefferies LLC, Research Division - Equity Analyst [76] -------------------------------------------------------------------------------- Great. I appreciate the color, and good to see the strong results. -------------------------------------------------------------------------------- Operator [77] -------------------------------------------------------------------------------- The next question is from Jeff Van Rhee with Craig-Hallum. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [78] -------------------------------------------------------------------------------- Congrats. Looks really good. Rob, how do you balance -- how critical is making the product easier to deploy out of the box and consume? How do you balance that need to make it easy to consume with adding all the bells and whistles. Obviously, looking towards how do you accelerate adoption. Just talk to me about how -- where you think you sit at this point in terms of ease of consumption versus having the full feature set, if you will? -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [79] -------------------------------------------------------------------------------- Yes. I mean, it's definitely, Jeff, a balance. The enterprise -- I mean, we have initiatives that's going on for -- since we gave a year or 2 to make the platform so we can land it, and then it can even, in our businesses and the people in charge could use it and expand it without us having to do a sales or implementation process, which is happening today. If you really want to attack the mid-market, let's call it, the small business, we would want the platform to be at a different place, which is -- which we're working towards fairly quickly. Like we're pretty close to delivering, put your credit card and you go. Preset intense automation. So we have all that coming out fairly shortly. But it's roughly balanced. We're -- where we are doing very well is the deep, deep intent-based learning that the big brands need to automate at a very high rate. So we can adjust now large datasets that they have. And then our intent manager analyzes that and then basically groups intent and then tells them which automations to create so they can have the most impact. That tool alone, that's a lot of technology. That tool has driven a lot of business with -- and growth in the enterprise. So as I said, it's a balance. I think we've handled it fairly well. This example I talked about, this marketplace that we set up is the customer who runs this marketplace literally presses the button, and 1,000 of their customers go live on a conversational front end, and they have automations automatically created at the same time. And so that marketplace, we're going to spend more money on that because that allows us to scale other things. Like if we take Shopify and do an overlay on Shopify and you press a button, and every Shopify customer could have a conversational commerce experience, those are things that we're working on, because that's where I see the real scale. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [80] -------------------------------------------------------------------------------- Helpful. When you think about the efficiency, you sort of flow the structure of sales lead gen at this point. What are the top couple pain points? Again, kind of thinking to that, how do you accelerate and sort of get the machine even more sort of friction free, if you will. What are your key pain points when you think about that lead gen, sales flow, that structure right now? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [81] -------------------------------------------------------------------------------- Jeff, I think one dimension here that we've discussed before is the lack of our sort of in-person marketing events. And we've addressed that, to a large extent this year, with digital events. And we've seen both the demand for those events and the pipe generated from those events increased throughout the year, including quarter-over-quarter in Q3. So that's a positive sign that we're adapting to this new normal and finding ways to grow despite not having that same option for in-person marketing as we did last year. -------------------------------------------------------------------------------- Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [82] -------------------------------------------------------------------------------- Is it -- I mean, just one 1 follow-up there. Is the cost sort of the acquisition cost to the customer going to come down or coming down dramatically, then I know those events you did were a real high end, serious VIP events as you've gone fully digital. It's a radical transformation in the cost of customer acquisition here? -------------------------------------------------------------------------------- John Deneen Collins, LivePerson, Inc. - Executive VP & CFO [83] -------------------------------------------------------------------------------- Certainly, there are cost savings and efficiencies there, but I think that there's also learnings for optimizing the digital channels. So I think there's more work to be done there to fully optimize them. But the short answer to your question is, yes, there are efficiencies gained. -------------------------------------------------------------------------------- Operator [84] -------------------------------------------------------------------------------- We have reached the end of our call today. I would like to turn the call back to Rob LoCascio for any closing remarks. -------------------------------------------------------------------------------- Robert P. LoCascio, LivePerson, Inc. - Founder, Chairman of the Board & CEO [85] -------------------------------------------------------------------------------- Thank you, operator. I just want to end the call to reemphasize a few key points. We've had 2 consecutive quarters of sharply accelerated revenue growth, highlighting how coronavirus has exposed the inadequacy of legacy voice contact centers and helping to compress adoption curves of customers who want to get on the Conversational Cloud. We believe conversational commerce is going to replace, not only voice calls but a lot on traditional e-commerce, and we're seeing that start of that today. So the voice calls already that obviously the horse left the gate on that one a couple of years ago when we started. But the e-commerce being replaced by c-commerce is just starting, and that's very exciting for us. We're also focusing on internal automation, and the reason we brought John on, and he's doing a great job there. You can see some of that is falling through to our increased EBITDA margins, and we'll continue to put a focus on that. And I just want to thank every employee at the company, working with the work from anywhere and delivering these types of results and meeting the increased demands of our customers in the market. They've just done an exceptional job. And so I just want to thank all of them for what they've done. So we look forward to having another strong quarter in Q4 and continuing to execute on our vision as the leader in the conversational commerce space. Thank you. -------------------------------------------------------------------------------- Operator [86] -------------------------------------------------------------------------------- The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.