Q3 2019 Earnings Call
Excuse me, ladies and gentlemen. This is your conference operator Your conference call is scheduled to begin momentarily until that time. Your line is the once again be placed on a musical.
Thank you for your patience and please do not disconnect.
Excuse me, ladies and gentlemen, this is your conference operator.
This call is scheduled to begin momentarily.
That time your line is once again be placed underneath the cold.
Thank you for your patience I'm pleased to not disconnect.
My name is Catherine and I'll be your conference operator today.
At this time, all participants are any listen only mode.
After the prepared remarks, the management from my personal will conduct a question and answer session and conference participants will be given instructions at that time.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to Mr., Matthew Kempler, The company's senior Vice President of Investor Relations and planning. Please go ahead Sir.
Thanks, very much Kathryn.
This is Matthew Kempler SVP of planning Investor Relations joining on the call today is Robert Locascio like persons founder and CEO increased Greiner, our Chief Financial Officer. Please note that during today's call. We will make forward looking statements, which our predictions projections and other statements about future results. These statements are based on our current expectations.
And 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. It 10-K's 10-Q's. Other reports we file from time to time with the FCC, 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 highlighted the quarter are available in the Investor Relations section of like persons website with that that will turn the call over to Ross.
Thanks, Matt. Thank you for joining Liveperson third quarter 2019 conference call. This was another milestone for the company as we deliver our second consecutive quarter revenue growth acceleration.
Revenue increased 17% year over year in the third quarter up from 15% growth in the second quarter.
14% growth in the first quarter, we expect this trend to continue as reflected in our guidance for acceleration the 17% to 22% growth in the fourth quarter at least 20% growth in 2020.
We're really excited to have this goal of 20% growth now within our site.
Like person third quarter activity metrics also reflect a positive growth inflection.
Why persantine seven seven figure deals in the quarter more than doubled we then a year ago.
The number of deals signed increased nearly 50% year over year.
The value of contract signed also continues to grow significantly faster paced than our overall revenue, which is a great leading indicator of future acceleration.
Half of our enterprise customers have now be gone the transformation and messaging from chat up from 35% a year ago.
More than 50% of those messaging conversations rely on automation.
We've always stay that AI was a key to scaling conversational commerce and we're now seeing this its adoption drive platform usage. In fact ARPU is for messaging brands with AI is nearly double that of customers without <unk>.
These trends reflect exactly how we expected the quarter to play out.
Demand for conversational commerce is important because consumers are seeking a better alternative to wasting time on hold with 800 numbers are searching around web sites to get answers to the questions. They have about the products and services they're interested in purchasing.
Brands are equally frustrated with inefficiency in poor outcomes on legacy voice and web channels as a result, they're increasingly turning to like person and our Liveengage conversational commerce platform to build convenient personalize and lasting relationships with consumers where people connect by a natural language using text messaging.
And also voice commands, let me share a few highlights from the third quarter of brands are making the shift.
The first is a new mid seven figure contract with one of the top five cable companies in North America why person, we come a turnkey partner for this leading brand helping to transform their entire customer care experience right transitioning expensive transactional voice calls and legacy chats the messaging.
Customer plans to drive powerful scale and efficiency by deploying liveengage seamlessly integrated with Automations fueled by our maven AI and conversational Bob builder platforms.
We also signed a seven figure annual expansion, what the global Fortune 100 financial institution.
The goal is to become the world's leading conversational bank and they have set a target ship, 50% of contracts contact center calls within next four years.
To achieve this call their worked with my personal expense, you're not messaging into new markets migrate to what messaging from chat watch what's happened deploy more bots developed with conversational builder.
This is a four year contract term a strong validation of our strategic alignment.
Other key wins include a new contract one of the five largest airlines in the world. This marks the third major airline signed in the past year, a clear indication of our emerging leadership and travel.
Person was also selected by a leading global furniture brand with more than 800 retail locations across the Americas.
This multi billion dollar retailer plans to leverage messaging and bots across multiple child, the drive an exceptional customer experience and transform how people shop for furniture haven't delivered and seek help.
One thing that should be evident from these wins is the payback, we're seeing on our product and go to market investments. We are successfully taking on the difficult challenge of creating the underlying technology platform and services stock that powers conversational commerce.
This new category is solving the complex problems a brand to consumer communications at the one 800 number ecommerce and branded apps to fell to address.
I believe that the best technology companies say like Apple and Amazon have tended to build versus buy and although it takes a lot more discipline in a real level engineering talent to deliver on building in the and the advantage is always outweigh the risks of technology and people integration.
So the valuations of most private companies they seem inflated tipping the cost of value equation, even further towards building versus buying.
Although both building in buying a car capital with building it flows through our operations as you know we raised over 200 million in Q1 to focus on these types of investments.
Under the leadership of our CTO ALC spin Ali we have built what we consider the leading AI powered conversational commerce platform in the world.
We've been able to recruit some of the industry's brightest data scientists machine learning engineers and automation experts to scale the platform to our reach our big vision. Likewise, we have built an incredible team of technical delivery experts were pioneers in deployment of these solutions, helping our customers a conversational design.
Tuning in implementation and Apiay integration.
Our Golden mode, though is our conversational data that only we have at such scale. If you want to truly create a massive conversational commerce business you need the hundreds of millions of conversations we have today to create the AI to automate those conversations at scale.
This unique acid enables us to achieve creating what we call customers as first.
We launched the first Apple business shot deployments in the world. The first agent facing bought the first conversational airlines the first mobile messaging food ordering experiences and many other AI powered conversational commerce first these first enable us to call ourselves the leader in the space and we will continue to invest in our customers to further increase our.
Momentum.
With that said must also looked to be as efficient as we can in our delivery and overall operations in order to take all of this creativity and innovation implanted honest strong operational and financial Foundation.
We have a long history and being operationally strong and I believe over time, we'll be able to achieve both high growth and strong operating margins and this will ultimately make us the winner of the conversational commerce space.
But the products, we're now bringing to market I never been more confident in this possibility.
These new solutions will significantly increase our platforms reach into more conversations and enhance the consumers' ability to discover messaging, let me elaborate on some.
Products that we released in the last few months.
First we released a protocol social connect.
Behind that email connect and then proactive campaigns for messaging and customers are already start to use these new products, a leading European Telecommunications Company, then online travel agency are actively monitoring Twitter and Facebook feeds now on Liveengage.
And empowering agents to publicly or directly message consumers when they have questions or complaints likewise, our customers can now ingest.
Customer care emails directly into Liveengage and automatic replied with <unk> dynamically that moves that conversation from an inefficient email to a messaging conversation. So we can literally moved those conversations from an old technology to what consumers want to use.
And with proactive messaging, we now have a health care insurer and it education network actively managing marketing campaigns over messaging.
In other customers are transforming crucial one way messing notifications for use cases, such as flight delays.
Fraud, notifications and flash sales into two way conversations that drive better outcomes.
So this is really helping us extend all the places we can reach in the world where conversations are happening whether it's on social email, we're now bringing ingesting all that onto a single platform.
I want to also highlight a really important an announcement.
By Apple.
Which is called shot suggests which is currently rolling out globally on all iOS devices.
We chat suggests brands can choose to offer consumers now a messaging option and redirect them.
To Apple business chat right from the device when they go to make a phone call.
I imagine that you go to dial a phone number and now it so just making the call. It offers you would you like the message this brand.
We're already have more than 30 brands live on chats is it just suggests across the globe and we estimate that Liveperson launched four times more brands than any other providers are partners with Apple. Moreover, the early data is very encouraging as we're seeing customers would that suggest doubled their apple does shot volumes within the first several weeks of launch.
This is a powerful statement for how messing discoverability can now drive much higher volume volumes.
In closing I wanted to rate two key themes. The first centers on our vision for how conversational commerce profoundly changed the way leading brands deliver care sales and marketing experiences to consumers.
Impressive breadth of use cases that our customers signed up for in the third quarter and the new solutions. We are launching highlights how rapidly. This vision is becoming a reality.
In turn where exposing our platform to millions of conversations that we previously couldn't reach like on social and email and we're driving increased awareness of messaging with consumers around the world.
Second theme is around our position of industry leadership, we've long held that Liveperson has established Elisa 12 to 18 month competitive lead centered around a unique vision platform and value proposition, but the recent product introductions and our advancements in AI powered conversation, we continue to maintain our unique competitive position.
And with that I'll now turn the call, but Chris will do a deeper dive on our financial outlook, Chris Thanks, Rob.
We accelerated revenue growth for the second consecutive quarter, highlighting another period of strong execution.
The back of this momentum.
We're increasing our revenue guidance and adjusting our profit forecast to account for increased investments tied to a market inflection toward conversational commerce and associated sales pipeline demand.
Before we dive into those details I'll first discuss a number of third quarter highlights.
On a year over year basis revenue increased 17% in the third quarter up from 15% in the second quarter and 14% in the first quarter.
The sequential basis similar to last quarter, we grew 6% from Twoq to Threeq, you demonstrating strong layering a recurring revenue driven by our second strongest contract signings quarter ever top only by the second quarter of 2019.
Deal volume once again rose considerably with total deal counts growing 47% year to year fueled by 33% growth in new customers and 64% growth from existing customers.
Our wins are also getting larger.
The average signings value increased 38% year over year, reflecting our depth in AI capabilities and the breadth of use cases customers are adopting.
These catalysts are also reflected in our enterprise and Midmarket ARPU.
Which continued to trend of greater than 20% growth.
And hit a record 330 Kay.
Revenue retention for that business also remained strong and within our target range of 105, 215%.
From a geographic revenue perspective, the U.S. continued to accelerate in fuel growth up 19% year over year with our international business up 14%.
As you stated on past calls the U.S. is the region, where we first invested in go to market and therefore ahead and scaling.
In 2019, we began duplicating that blueprint in EMEA and APAC and anticipate a similar pay back in 2020 in those markets.
Looking at our industry vertical financial services, telecommunications and technology led the way each climbing more than 30% year to year.
Drilling down into our go to market partnership influenced more than 40% of contracts in the third quarter and encouraging signals that the investments we discussed at our Investor Day May are beginning to bear fruit.
In fact, we formalized several new partnerships in the third quarter, including one with T. Tech, a leading digital customer experience technology and services company and another with DMR, leading digital transformation company.
And lastly, our sales pipeline continues to hit New records supporting our outlook for continued acceleration based upon the investments we've made in expanding our sales force.
In the setting of our pipeline, you'll recall that we highlighted at our investor day or investment in sales capacity as a vehicle to capitalize on rising demand.
I'm pleased to report and we continue to execute well in this important front.
We ended the third quarter with approximately 95 quota carriers up from 89 at the end of the second quarter and up from 50 at the end of 2018.
Putting us tightly within the range of our expected hiring goal of 100 total quota carriers by year end.
In terms of the break down approximately 60% of our quota carriers are an enterprise and the remainder in mid market and small business.
You recall, our productivity metrics show it takes 12 months for enterprise reps to reach productivity, meaning we'll have the full complement of our salesforce beginning to contribute in 2020.
A key element of our confidence in the continued rate of topline acceleration next year.
In contrast, mid market in small business quota carriers typically ramp to productivity in six to nine months.
As a result, roughly two thirds of these reps are now approaching maturity.
We plan for this and entered the you're guiding that mid market and small business revenue would return to growth.
And now we're delivering on that commitment.
As you wrap up our highlights of third quarter revenue I'd like to call out our consumer segment, which generated 37% growth in the third quarter and deliberate its fifth consecutive quarter of acceleration.
This achievement is due to our growing expertise in acquiring customers digitally.
And exemplifies consumer adoption the messaging for conversational commerce.
Ultimately, we expect the insights from this experience to inform any future consumer offerings.
We continue to see ourselves in a rapidly evolving in favorable demand environment.
Compelling as to operate with more agility, while maintaining strong cost controls.
Toward that end during the quarter, we capitalized on the continuing favorable demand environment and consciously decided to increase investment in marketing.
Technical delivery expertise and customer success.
Each guided by strong ROI visibility.
I'll briefly touch upon each.
Yes.
And so over the past two years clearly demonstrates that our enterprise marketing summits create a differentiated an immersive customer experience.
We pointed to greater than 40% contract win rates from the summit because they connect customers to a trusted community of references and provide a clear roadmap to a conversational commerce transformation.
The third quarter, our summits delivered once again.
And stronger than anticipated customer interest contributed to approximately 2 million of investment above our initial expectations.
In Q3, we conducted over 20 events globally twice as many as last year, three which were major events held in San Francisco, London in Singapore.
Notable highlights included a co hosted events with the consumer messaging partner tied to the launch of Apple chat suggest.
This event was highly successful leading to lie person launching out of the gate with an estimated four time more brands than any appear.
We attracted over 100 C suite executives to our first event in Singapore.
We recently established in Ozzy on regional sales have been Singapore and this event was key to building initial momentum in the region.
Our event in London focused on conversational marketing, which we highlighted as a growing proportion of our sales pipeline.
From a threeq you would then outcomes perspective, we created an influence nearly 12 million a pipeline.
At least 3 million a border forms and sign to customers in Q3 tied to customer events.
Due to rapid growth in contract activity strong AI adoption and a host of new developed products coming to market. We're experiencing increased demand for expertise in conversational design and bought tuning endpoint deployment and customization of HP eyes in function as a service.
This expertise as a key differentiator for liveperson, enabling smoother implementations and a faster customer return on investment then in turn increases platform usage.
The third quarter, we spent an incremental 2 million to build out these delivery teams.
This strategy also mirrors a key finding from this year's enterprise net promoter score survey, which was up 30% year to year. Following our response to feedback in this area ultimately, though our goals to transform the labor component of these delivery services in the prototype software.
The final area of incremental investment focused on accelerating mid market and small business growth.
As I shared earlier reinvesting in our Midmarket and small business go to market engine is proven successful.
And the back of increased quota carriers in small business in mid market revenue is now back to growth.
The old by a 50% increase in year to date contract signings and now we see an opportunity to compound that success with even higher revenue retention rates.
To do so we decided to place customer management and renewals in our own hands versus our historical reliance on third parties.
As a result during Threeq Q, we built up internal teams that ran concurrently with third parties in order to minimize customer disruption during the transition.
This increased our expenses in the quarter by approximately 2 million, but we expect these overlap cost to be immaterial by Q1 of next year.
These three incremental investments were the primary contributors to the variance between our third quarter guidance and reported GAAP net loss of 25.9 million in adjusted EBITDA loss of 6.3 million.
From a balance sheet perspective, we ended the third quarter, but 205 million of cash and equivalents.
Deferred revenue reached a record 73 million an increased 33% on a trailing 12 month average.
With third quarter results as a backdrop of momentum in our decision to invest from a position of strength.
We are raising 2019 revenue guidance to a range of to 89.5 million.
To to 92.5 million and anticipate continued acceleration in the fourth quarter.
Implying an exit revenue growth rate between 17% and 22% year to year.
Taking into account the aforementioned third quarter incremental investments of approximately 6 million.
Carrying forward the full impact of technical delivery and customer success resources into the fourth quarter, we anticipate a full year adjusted EBITDA loss of 14.8 million to 11.8 million in fourth quarter adjusted EBITDA between zero and a positive 3 million.
You can refer to our earnings release for additional details on our fourth quarter and full year 2019 assumptions.
Now, let me wrap up with a few final remarks.
First.
We entered 2019, the right strategy at the right time.
Scaling sales capacity and increasing product velocity underpin our growth acceleration plan and we're executing with precision on both fronts.
Second.
We're bringing in even sharper focus on effectively onboarding and ramping customers and employees, which should magnify paybacks on our sales and product investments.
And third we believe we can disproportionally win share in conversational commerce.
The creation of any new market category is highly dynamic, making an imperative that we remain agile in our investment decision making.
While maintaining strong cost control and continued investment rigor.
We're operating to that principle daily.
With that we'll hand, the call back to the operator to take your questions.
Operator.
Thank you ladies and gentlemen at at this time he would like to ask a question. Please press star and then the number one on your telephone keypad.
We ask that you limit your questions to one question and one follow up once again that is star and then the number one.
Your first question comes from the line of Ryan Macdonald with Needham.
Yes, Hi, Rob and Chris Thanks for taking my questions and congrats on a good quarter.
I guess just digging into the increased levels of investment in the quarter I.
I guess as we look at sort of the cadence of of customer summits in sort of large increase we saw in third quarter, what sort of visibility you have in this or that the schedule and cadence of that as we look into the end of the year in and perhaps into the early parts of fiscal 20, just to get a better sense of what may be levels of spend will be like.
Going into next year. Thanks.
Hey, Ryan Thanks.
As you'd imagine we have good visibility into the locations is theres a great deal planning that goes into the process, but the unless mentor to sign up of customers can be fluid and with the success that we've had and the campaigns that we're running that wrap around these large summits, we saw very high interest in the quarter for non.
Only those large scale summit that we held in San Francisco in London, Singapore, but as I mentioned in the prepared remarks, we held 20 overall, which is double we had last year and those can be more micro events that we we take line person to a customer or we do something in between the level of one of those micro events in a large scale. So a good.
I'd to where the fluidity is how much signup, we get and what's been I think powerful about those some it's evolved from creating awareness and creating new pipe to now we put this in our prepared remarks directly it's much about creating new opportunities, but the great progression tools good indicator that.
Was the distribution of 3 million a border forms and two contracts that actually close on the back of our event. So.
Pretty good visibility to wrap up but we've seen really high interest in that drove the expansion of cost in the quarter.
Excellent and then just a quick follow up in terms of the the metric you gave about a 38% increase in average deal sizes.
Can you quantify her talk about sort of what's driving that more whether its customers actually signing up for more interactions or more channels that there are adopting at the initial point of sale. Thank you.
The combination of both and it was also this quarter driven by both new customers existing customer and partner led sales.
So is it was really pretty broad based across the the sales that we saw this quarter.
Thank you very much.
Your next question comes from the line and Peter on the fine with Evercore.
Great great. Thanks for taking my question. So what's the incremental Sixmillion. This quarter made is just into the $10 million you called out.
Into Q, how should we think about investments going into Q4, and perhaps maybe into calendar 2000.
Yes, the so kind of just tracing back rate the marketing events were incremental to what we had talked about last quarter. What we didnt have in frame last quarter was the addition of technical resources and the shift we were going to make to bring in house customer management and renewals in the mid market. So we saw.
Currently hold some spend into the third quarter that with planned, but the technical delivery resources and the customer management resources were net new and you see that then flowing through into the fourth quarter I think on a macro basis. Those the kind of really zoom out for the investments that we've made this year, we're thinking about them as being in two buckets first we wanted to make.
Sure that we put capacity in the system to develop the products that we wanted to bring the market and to be able to execute on the pipeline that we had from a go to market perspective, so check the box I think we've done a really good job, we're now up to 95 quota carriers.
Second bucket that I'd characterize this this third quarter and fourth quarter invest now flowing into is how do you service that demand and we've received very clear feedback in our net promoter score surveys and we're fortunate to have great customers that take the time to complete them, what they're asking for his depth in industry in depth in our technology platform.
And they're willing to pay for it.
So we're reacting to that and then on the Midmarket small business side, we talked about wanting to bring that business back to growth and it began to return to growth last quarter accelerated this quarter, it's being driven by really outstanding contract bookings now we want to marry that execution up with great.
Contract management and customer service and we think the best way to do that do it ourselves.
Right.
I think one of the objectives here is to kind of lower the number of.
Concurrent deals I think reps carry so I think for you I mean, you called out I believe it was like high to mid teens, where I think the industry averages like four to five.
But.
Where we today in terms of how many deals reps are carrying where do you want to end the year and kind of if you think about the building of these pipelines.
Confidence that the investments you're making today.
Your service.
Can kind of support these deals going into calendar 2000.
We definitely do.
If you look at where reps what reps are carrying today.
We talked last it was around 15 for new logo hunters each in around eight for partners.
We've I think we've made a dent in that but what we're getting better at now as a company in kudos to our sales leaders.
We're starting to get smarter on when we pick up the deal right when that deal gets handed off between the SDR and the count wrapper. The CP. So that we're chasing deals when they reach the right stage a maturity.
I think we'd be bit chasing our tail. If we kept trying to keep up with how fast are pipelines are growing with having to continuing to throw bodies at it. So we're trying to get better now and smarter now on handing them off when they're at the right stage of progression and be more efficient that way. We're looking at every single sales Rep every single client partner everything less.
You are on the company their time to first deal trying to get really smart on what we can do to make them be more successful and ramp quicker.
Great. Thank you again for taking my questions.
Thanks, Dave.
Your next question comes from the line of Koji Ikeda with Oppenheimer.
Thanks for taking my question guys and congrats on nice quarter I wanted to touch upon the deal metrics. Some of the best we've seen in awhile and the trailing 12 month ARPU increase again, so congratulations there, but billings even coming on a tough comp there was single digits and even looking on a trailing 12 month billings.
Perspective, it decelerated so could you help us bridge the gap between that really good deal commentary and then the deferred revenue and billings built thank you.
Yes, Hey, Koji.
So again, we talked about repeatedly on past calls that internally billings is not a metric that we used to guide her business. It's not a metric that we that we talked to externally as a view on a quarter by quarter basis.
The timing of invoicing the maturity of customer terms, meaning they extend their terms are they the terms narrow.
Ken effect that we do look at deferred revenue obviously in deferred revenue on a trailing 12 month average is up 33% year.
Year over year, so again seeing good overall growth there, but again, we're just not managing business on the quarter by quarter basis, and we don't think that metric.
Is something that's that's relevant to how the how we're delivering our growth because it's Chris let me and let's let's kind of go back into the metrics that you talked about in and what gives us the confidence in the visibility that we can continue to accelerate not just in the fourth quarter, but as we said at least 20% in all 2020. So as you as you point out right. We've now strung together.
Really to Bang out quarters of signings last quarter was an all time high this quarter was second only to that.
And it was pretty impressive quarter in terms of deal counts, new logos up existing customers up bigger deals.
He said the ARPU is climbing revenue retention was right in the range that we wanted to be between 105 and 115.
But I think.
When Matt and I look at it in detail. We then start to look at Okay are you layering revenue quarter to quarter and I think there's some really interesting metrics to US is obviously second straight quarter of 6% sequential growth and when you dig one layer beneath that you look at the hosting of the software revenue that grew 4% sequentially last quarter and accelerated 8% this quarter. So.
We're confident we have the visibility to continue with our accelerating growth trajectory.
Thanks for that Christian Matt and then just <unk> just a quick follow up here on the increased spend profile for the fourth quarter I I guess, what we're wondering out there is the opportunity looks really really good and.
Is there a potential even in the fourth quarter for more pool, Florida spend or.
Increasing the spending environment, if that that overall end market demand still remains really really hot out there and then back at the analyst Day I know you gave a 2020 EBITDA guidance, 7% to 10% margin I mean, what's the right way to think about that any sort of health or the really helpful. Thank you.
For sure.
The answer is no that I don't see us pulling more spend from 2020 into the fourth quarter.
And let's kind of go back to.
In earlier seem to be made you know, we're really trying to strike a balance of.
Creating a new market being dynamic and agile and how we invest but at the same time, keeping the right spending controls and investment rigor in place, we think we're doing that well.
But at the same time Weve added a lot of capacity in the last 12 months and Theres, a point, where you kind of move off the dinner table and you just digest a little bit and you assess what you have and you look at the productivity that those resources are able to drive and I think we're at that point right now.
Obviously 2020 is not that far off but we're at that point as a management team and as a board evaluating what we've done.
Watching them in trying to enable them to be productive that informs us on how to best go forward with 2020.
Thanks for taking my question guys great quarter.
Thanks, so thanks.
Your next question comes from the line, Jeff Van Rhee with Craig Hallum.
Great. Thanks, guys I appreciate it so number number questions from me maybe along those lines of the prior question just with respect to sales and sales capacity, obviously made great progress in these first three quarters, just an update on where you think it sounds like you're going to maybe take a pause in Q4 and think about how this how does this lines up for 20, but just any updates on where you think will end this year.
And then Chris maybe just spend a minute on on the hard and fast match around.
Kakar LTV related ratios or other ways to look at.
To give a go no go decision on incremental sales heads maybe in 20.
Great question.
I think we'll land right around 100, Jeff. So we're at 95 quota carriers at the end of and where we ended the third quarter.
I think will be within two on either side of that right. So I think it's a pretty tight range and I think as you point out as we've said we want to now look at that capacity. We're now measuring on sales rep basis, how long they've been here. We're now looking at the effectiveness of our enabled and programs their time to their first deal.
How their pipeline is progressing through the system those the metrics right now that we're looking at to be able to evaluate.
What is their future productivity going to be and are there scenarios, where we need to hire ahead of where we don't think someone is going to make it.
So we're trying to be balanced in that way, we havent talked externally about tax and Ltvs, it's something that we're doing internally now something we certainly want to step up and do more of that can't commented on externally, but the metric that we're looking at most right now for the productivity of the Salesforce is how each rep is working through their funnel.
With the type of granularity all the way down to how many meetings are setting up and.
The health that they need to get deals done and surrounding them with the right expertise to be able to close deals quickly.
Okay helpful and then.
On the Capex, if I have a right I think you'd guided 42 was at 32 prior and if it was what was the incremental.
Decision increased sir.
Yes, Thats correct, Jeff there's there's two pieces to it.
On the peony side.
We're making an investment in more servers tied to production we have customers that are driving very high volumes and we're catching up to that firm capacity standpoint, obviously also would the head count that's come on how does a little bit more on the facility side that we're spending the other component of is the capitalized software that is a little bit higher than we were than we had guided to quarter, though.
With all the new products coming out and what we're delivering to the market and what we have in our pipeline. There is a little bit what is being capitalized there.
Okay.
Competitively you commented on the leadership position and certainly bears out I think in our field work from what we've heard but I'm curious if you talk about.
You'll bake offs, what that looks like who is ultimately there and at least considered relevant by your customer base.
I mean, we're still obviously, we're attacking the voice providers so.
Those are the companies that their legacy accompanies there's there they've been saying the last couple of course that they have messaging and we don't messaging is just a delivery mechanism. It's all the AI behind it and everything but.
They don't even have that they're taking their job platforms and sort of trying to make them something that is not messaging, but that's what we see today still there's really not a change or shift in the competitive set.
Just just last.
Okay.
Now please go ahead.
I was just guessing then on the Apple Apple suggest I mean, I think you comment about the impact there I'm curious to the extent you think the cross carrier the connect initiatives some of the a major carriers came out with on the Google Rcs side.
You know just any thoughts there.
Yes, I mean, where were directly wired into the Google infrastructure right now so the Google gas cloud, which is the Rcs sort of overlay and then we are connecting directly into all of the carriers, where they're not connected devices for Android devices, which is about 3 billion Android devices.
So I mean, it's sort of at the beginning we have to see how it shakes out.
But where we've been working with the carriers because there are customers and wiring in and then also we were wired into Google and were already in the UK, where they launched and then we in the U.S., we launched a year ago with.
Our first brand on there which is a big.
Financial services company.
Okay, great. Thank you.
Thanks, Jeff.
Your next question comes from the line of Zach Cummins with B. Riley.
Good afternoon, Mr. circus in for Zack Thanks for taking my question here.
Can you discuss your recent strategic partnership announcement to Tech is there much in terms of maybe customer overlap and what do you view as the total addressable market with that customer base. Thank you.
Yes, I mean, where we're very excited about this partnership I've known can their CEO for.
Almost 20 years and they've made a big shift.
Obviously getting into doing technology, and strategic technology and digital consulting for contact centers.
And so now it's really an opportunity for us to work together.
To deliver on the conversational commerce promise and so we're very excited about it there's we're working on deals right now.
So we feel like it could be a really great.
Partner for Us and we're very focused on it. So so it's good I don't know it you know we we we have internal numbers and we haven't put those out yet somewhere we'll probably talk about it a little bit more as we get some momentum because we just announced it but you know that one of the largest.
Providers of technology, and the contact centers, obviously, they run large contact centers, we have a lot of overlap with our enterprise customers because they're pretty much in every enterprise in the world and some capacity. So this is really an opportunity we're closer with them.
On on implementing our our our platform and also looking at the Gainshare, where we have all the gainshare business.
That we do which had previous call pay for performance. There's also an opportunity to have them service that Gainshare and then transform live messaging agents into BOP builders in automation engineers, and that's really I think the trend the transformation, we can do with a partner like that so we're we're quite excited.
Thank you.
Thanks, Ricky thanks.
Your next question comes from the line of Raimo Lenschow with Barclays.
Hi, good it's more head on for Raimo. Thanks for taking my question I'll offer my congrats on the on a solid quarter.
So with.
Mission for you in terms of so in Q3 or other in Q2, you discussed you had alluded to some incremental formed investments.
And I was wondering if you can give US 100, then how do those are things like on driving an ROI and also.
So you mentioned it was 18 month for us.
And I'm, assuming the competitors to find got choppy.
In the market is obviously getting a lot affection to maintain that lead how do you think about.
For the next two significant on that for us.
So I'll take the second part which is the competitive advantage.
There's two parts.
To the platform that are really important.
The core core is the automation the AI engine.
Which we call Maven, which enables these conversations get automate even either consumer facing or we help the agent to be more efficient by automating what the agents doing on on the in the console. So that we continue to.
Provide more and more technology, we just provided some technology around how do you look at an intent.
How do you process that intent how do you get smarter on how you answer a question to the intent. So theres a lot of technology it goes into that and as I talked about on.
In my prepared remarks are mode is really the data that we have and our.
The data sizes engineering teams were able to take that data and do many things a bit that gives us a massive competitive advantage on the AI and automation side, because we have hundreds of millions of these these digital transcripts.
I can part is where we're pretty much almost finished with all the endpoints that we have 13 now endpoints that a consumer can come through whether doubt social all the messaging endpoints in App web in the IDR.
You know where weve provided now a bunch of those in this quarter. So that gives us our reach and so when we look at our Flywheels reach its the amount of use cases, we can do to that reach sales service and marketing as we mentioned again on this call. We now can do outbound campaigning. So it's not all about inbound we do like outbound marketing campaigns and.
Targeting on the platform and then the quality of those conversations automation versus human and that that drives our flywheel. So I think that just give us a massive advantage in the market is because we also have many scaled customers now after being about two and a half years out in the market or so.
We now are we take so much as the platform. So we are years ahead. When we launched and then we continue to be ahead and what we're doing so I feel really good and we dropped a lot of product in the last two months.
So we're pretty excited about on outside.
And the first part of the question no. It I think we mentioned in this area when were you asking about the return on the R&D investment.
Was it something.
Yes.
Do you disclose some incremental R&D investments. So just wondering as to how those if maybe we can go some of them how those are funding.
Yes, they are trending well, it's basically correlated to what I, just said, we dropped a tremendous amount of product into the market.
In this quarter.
So we're we're very excited about the investments are making the speed in which.
The products are coming out onto the platform and obviously, we ever of future roadmap coming.
So it is so we feel good right now about our level investment in the return that investments going to make and that will just drive ARPU I mean ultimately this all it when you see ARPU numbers go up.
While this has to do it like what are the other things that they're using we know as I mentioned also in the prepared remarks, if a customer starts with automation. It can be double ARPU the size of the ARPU versus someone's doing live interactions. So these are all things that we go the Apple chats, a desktop and preparing for that back to drive a tremendous.
Amount of volume that'll drive ARPU. So this is all the things that are.
Driving so we feel good about the investment right now.
Thanks, guys and if we're going to ask a follow up I know the.
You mean, not ready to talk about like the next few years sort of like leverage and margins, but but high level, if I'd think about the key.
Okay, Im sorry, SMG NN R&D.
The vigil those areas you thing will be more profitable to see any leverage on next year I'm, assuming you still want to sort of like keep your competitive lead in fall of two sort of like music healthy growth and expensive there.
Quota carrier capacity I think you disclose that you all you're thinking about that from a LTV to CAC bdcs and other cpis, but just any high level view on which of those three you asked me you might see some nobody's next year would be great. Thanks, guys.
Yes, I mean, I look we did a tremendous amount of investment this year.
Capacity into the system and that has to do on the product side and that has to do on the quota carrying reps side and then the support and field organizations that support our customers.
So.
I think right now we need to see how that.
Those investments start to ramp.
The trainings with our reps all the products, we built we've got to bring them to market sell them and so I think as a leadership team.
We're looking at why don't we just look at how things go now so I would expect to see some leverage DNA I definitely think we're going to see leverage there.
But in the other areas, where we're looking out but right now we're just really look at all that capacity, we sort of.
Frontloaded it, but we loaded it this year and we want to see the knock on effect.
Into next year, so personally I'd like to see how that comes through before we keep fighting more and more apples down on it. So thats kind of where we are yes, I think it some it's worth emphasizing when when we look at our all of our quota carriers right now than the 95 that we have and as absolutely thrilled as we are with how this year's signings are playing out.
It's been done with the partial team barely partial team. So next year. When you look at the charts. We're looking at when people have been hired where they are and they're ramping.
The full complement of the Salesforce will now be contributing in 2020.
That's exciting to us and we want to see that translate.
Sounds good thanks bye.
Thank you.
Your next question comes from the line of some odd Semana from Jefferies.
Hi, This is mason on for smart.
As you talked about ARPU was up nicely, but they continued to decelerate as you continue to sign larger deals and onboard then should we expect the ARPU deceleration to continue at the same rate.
As we think about 20 to 20.
I think there's probably.
With with the volume of deals picking up and with Midmarket and SMB really starting to accelerate as they have that will bring pressure on the ARPU.
So it is that's a if that's a bigger force than the momentum we have an enterprise in the type of deals, they're signing that would bring downward pressure to it.
But.
Thats kind of at AMAG, Tom thinking about it yeah I agree if ARPU is coming down it should only be happening if you'll counts are going up and because we're signing more new business and more mid market in small business, which come in at lower than the traditional enterprise ARPU.
So hopefully that's positive trend for us the combination of unit volumes and ARPU should still drive the overall growth measure.
Great. Thank you.
Thanks, Nick.
Your next question comes from the line of right now Buck with Berenberg capital.
Hi, guys. Thanks for taking my question.
Maybe if you just look at your top five largest customers what percent would you say you are penetrated in this accounts.
If I look at all we use cases sales service marketing and all the potential endpoints, it's somewhere in between.
Three and 7% of what we think we can get out of our customer on the messaging side.
Okay. That's helpful. And then maybe as you're thinking about proactive and reactive interactions is there a mix you see that falling to.
And maybe others different pricing points between a proactive or reactive message right interaction.
Yes, I mean, it's.
We know the proactive gets us into those sales and marketing budgets.
So they tend to be a lot bigger than the potential to care budgets, which are potentially inbound.
So.
Aspect on a unit basis that.
The revenue we would we would make per unit would be higher and also the volume would be far greater at some scale today, our entry points still is.
You know beach heading into care and then fanning out the other thing is that the proactive capabilities also slab intelligence even for care to go back out proactively.
And say like if were on pharma telco, maybe we're having service issues in an area. We can be proactive with a lot of intelligence back to a certain customer base. So there's a lot of there's a lot of technology. We've built the gilson called fast function as a service also you can you can actually do develop code within our platform and it could connect up your into.
Journal CR, we already have CRM, but certain but action on it. So you could trigger that there is network outage that on the platform. It goes it looks and dips into all the messaging clients that are in that area and then send out a proactive message. So that's all part of the capabilities now with the proactive capabilities, we put in there, but the sales marketing and retail also.
So we see as much bigger opportunities than the all than the care opportunities, but were beach heading still in on care.
Okay. Thank you then maybe just one more on gross margins.
A little bit a downtick this quarter I guess is there any one particular thing driving that.
The gross margins is really related to that's where those technical delivery experts are residing and we'll make some unique is there there the type of candidates that can toggle between R&D and delivery, but in their most recent utilization there more focus on scaling and making the implement.
Patients go very quickly, which obviously drives faster time for the customers see value on the platform, which therefore drives more usage. So that's what's driving the margin trends right now.
Alright, great. Thanks, guys.
Your next question comes from the line of Mark Schappel with benchmark.
Hi, Thanks for taking my questions.
Most of my questions have been answered so Robert just.
A follow up you're finished with a product related question with respect to the other Chester just product that you talked about I believe you mentioned that there is currently for customers using the solution.
Wondering if you just.
It was at 40 or from starting.
About 30, yes, what we said is that we had we've launched with four times more times more.
There is about 30 on it okay. Thank you for the clarification, but sort of you just provide a couple of examples are specific examples of how customers are actually using.
Your solution.
Yes so.
If you.
If you want to use us for say.
If you do us, let's say a search on the web for Liveperson and you'll see a phone number on our website or you see a phone number on Google My business whatever it is.
When you go to click on that foam number previously would pop up a little dialog box on the iPhone says call or cancel right now it has message call capital. So you hit message and then you'll be brought right into the.
Apple business, which as I message and then your connecting right with the brand.
So the brands decide okay, I'm going to enable certain phone numbers to be chat to be deflected.
And then they can also throttle the volume so they get inside lets shows only to 1% of people, who are making phone calls or certain box. So they can they can throttle it and that gives them control over it but we the statistics, we have a pretty startling.
An exciting about like we're seeing how many people are clicking and then interacting so it's I think it's the the power of it is that we've been very focused on getting getting rid of deflecting 800 calls from the IDR.
At this.
Never goes to the Ivy are.
Call never made it to the I've yard me, it's straight into messaging and then we're using a bought two.
Asked the question Mike are do you want to sales what would you like to ask a question of so that that's the way it's being used to I think it's quite powerful because it cuts off the call from getting into the I VR.
Thank you that's that's helpful. Thanks.
Okay.
Your next question comes from mine as Steve Anderson with Keybanc.
Hi, Thanks for taking the question.
Taking a little bit more on the on the product side and some of the new initiatives that you're rolling out just wondering.
You got to customers and you talking about various social initiatives and email initiatives.
And without just came out with what is driving the Miss interest and where do you see the biggest potential.
To drive growth over the next few years.
Yes. So this really came from our customers, which is they have social groups they've got the email groups, obviously, they've got voice groups messaging groups chat groups.
We've obviously consolidated the messaging and chat groups, who got they get consolidated our platform.
The the social care, one actually we've had direct messaging that if you do a direct message with the Brad It would it came on Liveengage that's been out for few quarters.
Now what we can do is in a public in the public feeds where consumer just post something into a news feed we can track. It we can reply back and then we can take someone into a direct message. So we have the monitoring capabilities and then the ability to take that in so what we see is that in the care organizations, let's say they don't want to.
Have that group on a separate platform.
They want to bring that all into a conversational commerce platform and then email we've never built in email system and our life I never wanted one here at nor did we build one now we tried to solve the problem of email. We know is not a great weighted communicate but obviously a lot of emails are going back and forth between brands and consumers.
So now we have a way to take that email we injected into liveengage.
We then turn it into a conversation that we can send back out so the first the reply emails I click here and let's start on messaging conversation that's asynchronous around that email and then a cases built so we have the capabilities to keep that email track it but you take it off of email now and it's once again sitting in that that play.
Form and we can then have a goal view of a consumer.
So now there I got them travel business shot, but they sent an email now that now I put them back on occupancy now I can be proactive with them. They went through social they posted something on Facebook or Twitter I'm, having a problem with your product now I brought them through the message out. So it gets them to have that single view of the consumer.
On the messaging perspective.
And then they can do the AI and all the proactive stuff and the react and stuff.
Okay got it and that's really helpful. I guess just last one for me just wondering again, you're saying the current hiring environment.
The ability to add to bring rats.
Until liveperson.
We feel good I mean, it's we have a good story.
If you are on the field side, you can make a fair amount of money a lot of money, if you're a quota carrying reps because we have a unique product offering and in a way to bring it to market on the engineering side.
We've we've got a great leadership team where global now.
Okay, great job Globalizing operations. It's amazing is that we opened up an office in Seattle is about less than a year ago and were almost up to 200 engineers. There. So that's what's been recruit and that's a tough environment and so I think our story there too that we have this technology. We have this data set that is very unique.
I think people are excited to come here, so it's a tough environment, but.
We were in a very good place and obviously.
The power of our company is based on the power of our people and how good they are and so we've been very fortunate to recruit some great people. We've also recently recruited some very good field.
Senior senior field people out of some of our our call center competitors and I think we've taken some of their big sales.
People out.
And so.
They are coming here now to fight the battle. So I think that that's also been a good indicator of our of of what we have to offer in the market.
Okay, great. Thanks again guys.
Thank you.
Your next question comes from the line of Mike Latimore with Northland capital.
Great. Thanks, Congrats on the deal deal growth you're.
Just two quick questions one is you've given a.
Enterprise growth rate for North American the past I Wonder if you have that and then second.
Consumers really accelerated.
Does that continue to accelerate or is that sort of level out here.
Just on a go reverse order on the consumer business.
Obviously really excited about the five straight quarters of acceleration 37 is awesome I think it's best to think about the model there at least how we are right now in high teens low twentys.
And then we'll we'll see if we can exceed those expectations in terms of the enterprise growth rate, just didnt want to getting to the habit, but that trajectory hasn't changed.
Okay, great. Thanks.
Your next question comes from the line of Jonathan Kees with.
Hi.
Great. Thanks for taking my questions I'll start with him to those.
I'll have Mike It was also for the quarter.
I'll start with the follow up question first.
You guided for Q4 of.
Topline, 17% to 22%.
And for 2019 62020 of at least 20%.
Assuming you're still reaffirming your long term revenue growth of 20% actually 25% and.
And it sounds like you may not be that long term from that given the growth rates here.
Yes, we.
The 2020 were reaffirming and the longer term model. We're also reaffirming.
Okay Alright.
And then in terms of.
I guess more of a deep question here the.
Do you talked about.
The.
Particular verticals, especially financial services had like 30% plus growth for the quarter.
Just curious why a financial services drop in terms of the percentage of revenue contribution for the quarter. Even if it was especially was one of the fastest growing for the quarter.
Yes guided here.
I guess is 22% of revenue in the first quarter, 24% in the second quarter, 21% answer I don't think there's anything really to it.
In fact it was.
Got a great pipeline of financial services had good success there in growth has over 30% so I'm not sure there's anything.
At least not on our radar anyway.
Okay fair enough. Thank you.
Okay.
Thank you, ladies and gentlemen, I'd now like to turn the call back over to Robert Locascio for closing remarks.
Thank you operator so.
I'll end the call just re upsizing a few key points, we entered 2019, which stated guidance that we would accelerate revenue growth. We are delivering on that goal with two consecutive quarters of acceleration. We're now introducing meaningfully new product catalysts that will enhance our competitive position raise awareness of messing expose our platform to millions of.
Conversation, we previously couldn't touch.
More importantly, we're exiting 2019, what we believe it is the definitive AI platform for conversational Commerce, we believe that automation will be future business. Our goal is to be the world's leading conversational AI company.
Now we have a tremendous opportunity in front of us and we'll get to keep focusing on execution return on investment in order to accelerate the momentum and capture the full demand of this dynamic market.
And with that we will see you.
In Q1, and as I say on this quarter on November 26.
We do this program since 911 call feeding am I see where we feed like over 4000 families in New York and if you get an opportunity we've all had a good year.
But he is doing great stocks up and all that but giving back to the communities. We serve is important and we've been doing since 911 that over 75000 families in the city in the shelters and it's great.
Things so if you're in New York or you want to come to New York with your families. On November 26, we packed turkeys and take them out and we deliver on door to door.
To all these families who won't have normally Thanksgiving meal, and if you can donate.
If you want to take some of your gains this year and put them back into feeding on why Si Dot Award go there make it donation.
We want to feed tens of thousands of families next year and we've got big goals not only about the company, but serving our communities. So if you can do that I really appreciate it and with that enjoy.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.