Q2 2020 LivePerson Inc Earnings Call
[music].
Conference call My name is Rachel and that will be your constraints operator today.
At this time, all participants are in listen only mode.
After their prepared remarks diminishment from widespread well conduct <unk> session.
And can French banks will be given instructions at that time.
Actually we mined during this conference is being recorded.
I would now like to turn the conference call over to Mr., Matthew Kempler, The Companys Senior Vice President Finance and Investor Relations. Please go ahead Sir.
Thanks very much.
Joining me on the call today is probably Castillo livepersons founder and CEO and John Collins, Our Chief Financial Officer. Please.
Please note the during today's call will make forward looking statements, which are predictions projections and other statements about future results. These statements are based on current expectations and assumptions about the today subject to risks and uncertainties.
You can really get a various factors, including those described in today's earnings press release in the comments Michelle.
And your 10-K can choose not to reports we file from time to time the FCC.
We assume no obligation to update any forward looking statements.
During this call we will discuss certain non-GAAP financial measures reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release.
This release and supplemental slides, which could highlights for the quarter are available in the Investor Relations section Liveperson is website with that ill turn the call over to Rob.
Thanks, Matt.
Thank you for joining why persons Q2, 2020 earnings call Q2 is one of the strongest some best executed quarters in our history.
Revenue was 92 million and why we outpaced our guidance on a sharp acceleration to 29% year over year growth.
Revenue upside flow directly to the bottom line as we generated adjusted EBITDA of 9 million and a 10% margin.
The sports not only a return to profitability, but also our first double digit margin three years.
Q2, 2020, because the outcome of a strategy that was put in place over three years ago around a vision a world shifting to conversational commerce.
Well, we experienced this quarter is not an anomaly is a clear beginning of a dynamic dramatic shift that's happening to the retail and care worlds that will be powered by digital AI based.
Conversations.
But like voice agent still in work from home mode, and overall capacity around 60% to 70% or what was available pretty cold. It there's a rush to the door to automate conversations at scale.
At scale, we will end up automating I think around 80%.
And conversations on our platform.
Today, we already have customers that are on this path.
If you take a step back and asked a question what is the advantage of speaking to a live agent over an automated agent.
There's really want to answer it.
If a brand that has legacy backend systems that for some reason cannot be accessed by a machine threep <unk> spend a human is need to manually access those systems.
Kobe has accelerated the brands need open those back end systems, because automation filling in for the reduce capacity that happened when agents were sent home it cannot take voice calls in their homes for technical or security reasons.
Strategically the market is coming to us and accelerated rate and over the next 24 months.
<unk>, a more pronounced shift from voice messaging and automation.
Already nearly 70% of messaging conversations are apart from alliance some form of automation.
Passing a power this type of AI automation upscale starts with.
The most competitive advantage, we have in the market, which is the accumulation of data our dataset with more than a billion conversations across verticals geographies and use cases.
We're now rapidly expanding that datasets.
Second quarter alone, we adjusted over 100 million individual messages a month into our intent analytics engine up from just a couple of million.
A month at the yearend 2019.
We use that data develop services and algorithms that automate conversations that scale in fact between December 2019 in June 2020 customers had doubled the number of monthly conversations on our platform that were powered by bots and automation.
Equally important nearly 50% of the conversations that we're powered by like person Bops fully autonomous meaning they required no human intervention and that is up from 25% at the start of 2019.
One of these automations are covering simple or complex use cases.
The fact is a matter is that they are providing an enormous benefit to our customers by eliminating wait times for their consumers and removing human capital costs from the contact center.
We believe it is going to win the day and the conversational commerce space.
We have built a powerful set of tools to lead this market.
Today, we're announcing the general availability of our newest platform called the conversational cloud.
Popped on combines all of our tools and will solidify our platform strategy me I space.
The conversation cloud has four core foundational components.
<unk> manager conversation builder.
Functions and it kind of analytics.
Let me do a deeper dive into a few of the key parts of the platform. The key to high is being able to identify what we call intense for the phrases from which the consumer expresses their goal. We recently developed a powerful tool called content manager, which enables the machine to recognize intense real time at every step in the conversation so they can be.
Classified and prepped for automation, we augment this with new capabilities in our lives Aegion workspace and enables agents to tag intense during life conversations once intense are identified there are moved to conversation builder, where bots are then create it conversation builder changed the paradigm for bought development by creating a.
Low code scripting environment that empowers technologies as well as non technical people like contact center agents to easily build deployed and manage automated conversations that scale.
Conversely, Chicago was a beta over the past several months and turn Kobe, we saw a dramatic increase and the use of intent manager the conversation builder buyer enterprise customers.
The other caliber to is called functions.
Since enables developers to connect third party systems and data sources and also enables custom development a real time actions between systems functions is at the core of scaling high quality automation because it enables complex backend transactions to tie into the conversation.
I would say from cloud platform was <unk> sports organically built on the ground up and all the components are seamlessly integrated and work with Liveengage, which as you all know is our leading messaging platform.
Our recent sales activity validates the undeniable march towards automation adoption and the need for the conversational cloud.
Q2 was among our strongest quarters ever for signed contract value.
Highlighted by the signing of seven seven figure deals and several instances where opportunities closed in weeks instead of months.
They also continued to see adoption curves compressed as customers first sought to treat the cobot 19 crisis, and then began shifting to more strategic view of how they want to operate in the new normal.
Prime example is a seven figure up sell we signed with one of the 25 largest banks in the world.
Like many customers this leading brand was overwhelmed when the crisis hit.
An agent capacity plunged and wait times on or 800 number sky rocketed.
They turned to us for guidance and we quickly went into action, helping them more than tripled the number of agents on messaging and move towards a tenfold increase in platform volumes, but the crisis mitigated we announced strategic discussions that we expect will result in another seven figure up sell that's company adopts the plan to become a true conversational bank by expanding Automations.
Going wider on messaging.
Another Great example is a win with a leading Italian broadband provider, that's nearly tripled volumes on our part from during the crisis hasn't moved from voice and messaging in AI in order to better serve consumers.
This customer launched automations across both parents sales, citing that the combination of AI over messaging creates a new paradigm customer relationship management as or use cases expanded they noted a reduction in phone call volumes quicker response times for clients and the highest NPS scores you've seen in the last six months NPL.
This represents.
How well the customer feels about the brand.
And second quarter. We also opened up the government vertical working with one of our partners to sign it first state U.S. state contract faced with Unprecedent call volumes as unemployment Spike the state quickly moved to help it's constituent start deploying wed messaging and voice to messaging deflection.
And just the first weeks more than 30% of the volumes has shifted from their 800 number to messaging MSC agents were managed conversations at two to three times Protiviti a boyce agents now state is building out automations deploying practice vestings for direct outreach to impacted citizens.
Finally, I'd like to hide our groundbreaking work with food services, which balti one of the largest quick service restaurant chains. The world launch Pepper, a conversation <unk> take customer orders directly through Facebook messenger, we're seeing a lot of action from traditional or other traditional brick and mortar stores, where they want to provide contact contactless commerce.
Upside pickup and virtual storage UBS, it's actually an area that you know retail wasn't a core area for us, but we've seen tremendous amount of demand now in that area as consumers catwalk in stores, we're creating now the flows to create that experience at least they can come in and get stuff delivered today.
Their cars are curbside pickup in addition to successfully closing out opportunities in our pipeline in Q2.
We also created and progressed our sales pipeline at a rapid pace leveraging the powerful combination.
Matured direct sales force.
A new partner channel and effective digital marketing engine.
We're still testing and learning I can confidently state Senator go to market teams have adapted well to this new virtual selling world for example, and play some are in person customer marketing sometimes summit in Q2, we launched series a more targeted virtual events each hosted by flagship brand demonstrating thought leadership and Conversely.
Total commerce, where we had initially planned for one of these summits for brand the Gasless were oversubscribed, requiring us to host multiple encore events.
With record Q2 results in the background elevated platform volumes and a very healthy pipeline of opportunities to pursue we're entering the second half of 2020 in a strong position and a raising guidance. Accordingly, we're now targeting 2020 revenue in a range of $357 million to $361 million, which is.
22%, 24% year over year growth.
<unk> Likewise, our success in capturing operating efficiencies through internal audit automation and tighten controls is creating a more scalable financial model, where we can continue to invest in key growth drivers, while still enabling revenue upside flow to the bottom line.
As a result, we're increasing our adjusted EBITDA guidance to a range of $16 million to $19 million, which is a marked improvement from breakeven guidance at the start of the year.
To highlight the quarters key accomplishments.
Second quarter once again crew the out ability and strength of our business model and uncertain macro environment lie persons in a desirable position of raising revenue guidance and once again, increasing our profit target.
This improving outlook isn't simply fortuitous. It is the result of why person setting a long term strategy and vision around conversational commerce, an AI and then investing in executing honest strategy put our company in the right place at the right time with the right platforms.
Also firmly believed that the inflection where C and the shifts that are now happening in the contact center are going to be permanent.
Once brands capture the lower cost improved customer experienced an increase scalability of automation there are unlikely to backtrack too expensive inefficient physical labor.
And voice calls.
With that I'll turn the call over to John to provide an operational update more color on our guidance John.
Thanks, Rob.
Who couldn't be more pleased with how well like person adapted to the new environment and capitalize on a demand inflection for our conversational cloud.
Hi person sharply accelerated revenue growth and delivered better than planned profitability and cash generation as the company executed on all key facets of its business.
We don't even stronger relationships with their customers by expertly guiding them through the crisis and helping them to maintain business continuity through a combination.
Messaging the strategy drove the revenue retention rate above our target range of 105, 215%.
We increased in progress the sales pipeline by successfully adapting our go to market strategy to virtual selling and enhancing our partner channels.
As Rob said it contract you signed in the quarter were among our highest ever.
We enhance operational leverage through increased efficiencies from automation and healthy rigor around expense controls and we dropped the majority of incremental revenue straight to the bottom line.
This resulted in a $15 million year over year, increasing adjusted EBITDA in the second quarter.
We seem to be transition to work from home organization, maintaining strong productivity and alignment across regions and teach the adaptability of our people and business model helped us to capitalize on the opportunities that drove record results in second quarter.
As for those results accelerated adoption trends for messaging and Compositionally <unk> increased revenue to a record $91.6 million.
Which was nearly 8 million above the midpoint of our prior guidance range approximately 60% of the upside was fueled by our Gainshare models, which as a reminder are typically the first contract types to monetize increased usage of our platform.
The remaining 40% came from higher overages favorable timing of contract signings, the consumer business and various other revenue streams.
In terms of gross revenue accelerated 29% year over year nearly double the rate of the second quarter last year and up 17% sequentially.
B to B revenue grew 30% year over year and consumer grew 24 within B to B hosted suffer grew 35% well services grew 4%.
The U.S. grew 40% for 44% year over year and accounted for 65% of revenue.
National grew 8% year over year and accounted for 35% <unk>.
From an industry perspective, consumer and retail followed by technology financial services and telcos made the strongest contribution to year over year gross.
However, we saw increased demand across the board all of our verticals reporting higher monthly volumes agenda and Preqin done.
We signed seven seven figure deals in the second quarter and 134 deals in total consistent with the strategy discussed in the protocol in the second quarter by person continued to prototypes, hoping existing customers successfully navigate dependent the focus on securing our base unit to high return on several key dimensions.
Decision going from Liveengage increased more than 40% since the end done it again in March with bought based conversations up greater than 50%.
Revenue retention for enterprise and Midmarket customers exceeded our target range of 105% 215%.
Trailing 12 month, ARPU increase greater than 25% year over year to a record 395000.
Existing customer deal counts increased nearly 30% year over year, driven by doubling in the number of enterprise deal side.
As for new logos, 35%. Your view decline includes deals was in line with our expectations.
Although we brought in a number of high profile, new logos, including a multi billion dollar beauty retailer a fortune 500, consumer packaged goods company and a top 10 automotive OEM our focus in the second quarter was on helping existing customers navigate the crisis looking ahead to the third quarter with our customer base confident and secure considering the strong pipeline gena.
Right in the second quarter, we anticipate a rebound in new customer activity.
Moving on to the bottom line as with revenue adjusted EBITDA of $9.3 million exceeded the midpoint of our guidance range by nearly.
I think the adaptability and scalability of life persons operating model.
The profit upside was fueled by the combination of strong revenue outperformance, along with rigorous expense discipline and efficiencies driven by internal automation.
The strong execution also carried through to cash generation and we ended the quarter with the cash balance of 173 million up to nine from the prior quarter.
As engagement closely with my colleagues across the business. It reinforces my confidence that there's meaningful room to build in this performance over the intermediate to long term.
As previously discussed rubber up me in two quarters ago to modernize to see a favorable by applying the lens for data scientists to operations.
My key focus areas are automating repetitive love any work and leveraging a I to enhance decision making under uncertainty.
We are steadily progressing with initiatives that will remove entire ARX <unk> production effort from internal teams in field support accounting and Athena.
For example, we recently delivered systems for financial Planning Commission calculations and product pricing in sales proposals that not only enable us to scale more efficiently, but also give people their time back to focus on creative in strategic work.
And in the case of our sales team more so.
As I have a byproduct of these new connected system is clean standardized and readily accessible operational data. This data feeds more sophisticated algorithms that enhance the quality and timeliness of actionable information, which supports decision, making and increases the predictability of our business. For example, we have built predictive algorithms that can forecast quarterly contract signings and for.
Reported attainment more accurately than our financing fields tools such as these this inability to plan and react and far more nimbly, then we have been able to in the past.
With this positive backdrop, let's turn to the outlook for the remainder of the year.
For the third quarter, we anticipate revenue in the range of 92 million to 93 million, representing 22% to 24% year over year growth for the full year 2020, we are raising guidance to a range of 357 million to 361 million were 22 to 4% to 24% growth.
From previous guidance of 340 million to 355 million or 17% to 22% growth.
The upward revision to revenue guidance reflects the combination of strong you did a contract signings better than expected conversational volumes on our platform and robust pipeline entering the second half of 2020.
We continue to balance our enthusiasm for what we see that's a demand inflection for our platform with a healthy respect for evolving macro uncertainties.
As for profitability, while most companies you investing in growth and driving higher margins as mutually exclusive I think we're in a position to do both we've made rapid a meaningful progress on the automation front and raised the bar for budgetary builder vigilance without reducing investments in core growth drivers, including <unk> product innovation go to market capacity in platform.
Structured.
As a result, we're guiding for third quarter adjusted EBITDA in a range of five to 6 million for the full year 2020, we anticipate adjusted EBITDA in a range of 16 to 19 million up from prior guidance of 3.5 to 10.5 million.
We also continue to target cutting cash burn and half from 20 point, an ending the year with a minimum of 135 million of cash on hand.
I'll close by summarizing a few key points about business Liveperson is benefiting from a demand inflection as leading brands leverage our platform and expertise to power remote agents in automation.
Our growth trajectory has improved we outperformed second quarter expectations and raise revenue guidance for 2020 due to the combination of a surgeon platform volumes compressed adoption curves for our technology and strong go to market execution.
We've also accelerate our path to profitability and sustainable cash generation. The early but impactful progress we've made on automating DNA and sales support functions. That's helped us scale efficiently raise profit guidance consecutively and part of them from course to reducing expenses to single digit percentage revenue with that on the call back over to the operator to take your questions.
Okay. So as a reminder.
The question you would need to press star one on their telephone.
It's all your questions wrested back.
Again that is far one on your telephone.
We do have the question some cities Moneygram <unk> you know lies.
Hi, this is going to prosper in person that's going to ask about themselves restroom wash their sort of almost doubled the number sales reps.
Let's talk about the capacity to ramp so far and what your expectations of the sales rep. So productivity as in the second there. Thank you.
Sure. So in terms of quota carriers, we are flat relative to last quarter in enterprise and expect to approximately remain around that number throughout the remainder of the year in terms of their ramped ability as we previously called out we'd have to about 80% of or the capacity, we got in 2019 ramped as.
At the end of second quarter.
Okay.
[noise] next one on the line has.
Our June but you from William Blair fewer no lives.
Hey, guys.
Thanks for taking my question and congrats on the on the great quarter, John maybe this one's for you the full year guidance calls for additional upside in second half of your wall since.
We bought in the range.
Also meaningfully narrowed can you, maybe just giving a sensible where you're seeing the most increased visibility that gives you confidence in that guide relative to what you need 90 days ago and how much of that is are you counting on the momentum of gainshare continuing versus some of the overages and upsells and contract.
Values are going to take licensing.
Sure So with regard to Gainshare, it's definitely a key component about 60% of the upside is due to our denture models and as discussed last quarter. The gainshare models enable us to recognize revenue almost immediately as volume increases. So we kind of expected some of that as volumes continue to increase during the second quarter.
Overtime of course, though we expect elevated volumes to translate into upsells for other contract types.
With regard to the remaining balance.
The 40% of upside is really tied to a variety of different dimensions, including overages and other contract sites the timing of bookings in the quarter, the consumer business and other revenue streams.
Got it thanks, and then Rob maybe this one's for you, but you know the launch of the conversational cloud.
Can you just maybe give us kind of the objectives of that is it to democratized. A also the customer service agents can use it.
And introduce more automation into into messaging volumes when there's today, obviously, but the sense were for what's different and what are what the main objective naked watching this.
[music].
Yes, so when we look at Liveengage Liveengage is really about messaging in the messaging endpoints like Facebook messenger, and Apple business chat and voice to messaging. So we have that but what we're seeing is there's a lot of a lot of focus on how do we automate conversation. So we've built.
A set of services and put them together and the conversational cloud which include intent manager, which is a new service to ingest transcript data and then they see automate looking for intense some goals of consumers and then once again you can tomorrow, we talk about.
Democratizing bought building with conversation builder so.
And then there is the functions capability to integrate into the back end systems and that pretty much gives you a what you need to really scale automations, whether you're a technology group or you're an agent group and so we put it together.
In one single platform with one single.
You know unified experience. So you can create an intent and then can you know flow straight into conversation builder and then its launch and then you can analyze that in conversation the automation of it. So the idea was to really take a harder position on AI and automation.
And then separate out a live agent tool set which is really a lot about liveengage.
Perfect. Thank you and congrats again.
Thank you.
Okay.
Next one on the line is Peter Levine from Evercore fewer and all lives.
Great. Thank you for taking my questions and congrats every quarter. So just a two for me. So the seven seven figure deals upgrades you had in the quarter. How did those deals talked about how long do they must be how long was the sales cycle meeting your how long would do these deals really into the pipeline and what's it worth upgrades.
Towards higher usage or was this kind of these companies deploying messaging across other business units.
Sure. So it's kind of a mix of all the above certainly you know our strategy is to to land and expand these big accounts answer for the seven figure deals within the existing base. That's that's precisely what's happening in some cases, we're renewing at higher baselines a volume in other cases were adding additional.
Products from the conversational cloud and as you said expanding into new departments in verticals within the enterprise.
Great and then maybe just to piggyback off the last question can you maybe just.
Talk about how you're going to monetize.
Covers cloud or is it is the per rep seat charge, just curious to know how that differs from some customers on luggage. Thank you and congrats.
So currently we have certainly room to move with our pricing structure, but at the moment, it's not it's not a per seat sort of structure, it's more of a cost per interaction structure.
So it's driven by increased usage right and we have.
Obviously, there is great demand among the customers to tap into a various databases, if you're right to use our functions as a service product feature and do you.
Have a have a charge associated with those as well so it's really usage based model not to see baseball.
Thank you.
Next one on the line is Richard fall GE from roast coffee, though at least theme. It's only one question and one follow up.
You know knives.
Hi, Thanks, one to to note that.
It took you seven and a half years from your IPO. It increased revenues. The same amount you did in the last 90 days.
Phil against that backdrop as her curious what are the challenge is to rapidly scaling in a remote working environment.
You know, there's not as much face to face as their challenges to hiring.
Educating.
Can you talk about what you see in that given him, but looks like a pretty strong acceleration to your girls.
So no I unfold that a little bit first is we are we're not going to return to offices.
So we have decided as a company to change how we're working and obviously, it's working quite well for us.
So you know when we look at sales activity in marketing activity on the last quarter's call I said I wasn't sure how things would play out our marketing events face to face that mean, a lot and then they drive a lot of deals closed, but we're seeing is that the demand for our products and platforms. It's just.
Outweighing, the need to be face to face and.
And we have such good referenceable customers in our base.
As you know that they're doing you know, they're doing webinars for us and stuff like that so we feel very good about where we aren't and this concept of I don't want say distributed work forces because we've been distributed we've been globalize. Since 2000, let you know Israel was our tick up a one point, but.
No. We're just thinking of working at different way. We can go after a different set of employees. We can go after a different set of customers I don't know things are just moving quite well for us. So we figured let's continue operating in this mode and I think you're going to see a lot more innovation on the marketing side.
Also moving forward because we don't have been say space. We're learning a lot about how we can really engage our prospects and as you remember we at the end of last year. We went into a partner focused strategy and that's played very well because our partners have their customer bases were able to access them. So we I think strategically we just.
Kinda nailed it on a go to market with partners and you know the right product mix launched the conversational cloud.
That's all kind of playing out so.
[noise], maybe a follow up on sorry that change in how things have to be done when you look into the pipeline have you seen any noticeable names that might have been people you wanted to get into but maybe resistant prior but recognizing that things are changing are willing to opened their doors like have you seen some early indicator.
With that success. Thanks.
Yeah. The thing that's just been very exciting is retail and retail was never really a place for us to play because it's usually low margin products.
And they don't want to put labor in it so now that we come to the table with automation and people can't don't go to stores they can enter stores as much.
It's like a whole transformation of the.
The retail world, we've been piloting with one of our big box home improvement companies one of our customers.
Virtualization other stores. So there's a store in New York now you can walk into every product as a QR code you hit the QR codes your phone and you start messaging and automation or remote agent, whose offshore who's actually in the Dominican Republic.
And there are servicing a store in New York So.
We've got and we've been running it for a couple of months and it's been running very it's been doing very well consumers love. It. They don't have to go face to face with somebody works in the store.
We are doing pickup at the curbside with a with this technology to so I think the retail for US is something that is really exciting obviously tripled pay we announced what we're doing with them. So there's a lot of action in there right now more than we've had in the past because of the.
Dislocation of that business and they're looking for something to could change the game.
Thanks, Congrats <unk>.
Thanks, a lot thanks.
Again, if you would like to ask the questions. Please press star one in limits on the one question and one follow up next one underlying it's Steve Anders from Keybanc you know lies.
Hi, great. Thanks, guys.
I just wanted to get better understanding of what you're seeing on on the Gainshare said the business and.
You know how your incentivizing.
Rach the to push more him why these agreements as it seems like there accelerating.
A lot in revenue for you.
Yes, so maybe I can break out gain share a little bit it used to be something different in the past than what it is president and I think it's good to unfold, but.
The Gainshare business really way for us to go into a customer and say look we have we have aging capacity. So we bring a partner who has lived agents.
But and we will handle messages right off the bat. So we can get up very quickly and we use our platform the best but actually what's very interesting is we're not competing as like a BPL or trying to get labor business. Our goal is to take that labor and this is very specialized labor that we've trained and they work on automation.
So if you look at all the Gainshare programs, we have the goal when we welcome doors like look we're going to automate 80% of these flows but it starts with human agents, taking the messages and learning about the intense and then using tool set to automate. So we have a huge competitive edge, we start out let's say at a an equal rate of a BPL on our cost per message.
But will drive the cost down over 24 months to half that price and then over 36 months a quarter of the price because we'll automated and then we're getting more volume and so that's what's exciting about it because it fits to our strategy. We're not looking for live agent said, there are only being used to create automated.
Invitations.
Okay, Great. That's that's helpful.
And then just wanted to get a better sense of you know it does sound like you guys are saying quite an uptick in usage I'm, just trying to get a better sense of.
What you're saying from customers coming back to the table and beginning to renegotiate some of those contracts and better handle some of that uptick in usage that you have a you've seen and let me start seeing that flow through to more revenue.
So we highlighted a couple of I think key wins in the prior quarter and general trend has continued and that is we've historically had you know enterprise license agreements that are essentially all you can be contracts for me you should standpoint, and we've been rolling those over into cost per interaction contract.
In over the course of Upselling those customers and so given the increase baseline in volumes. We've had a lot of success in that particular strategy on top of that of course, we have many into base on CP I contracts today and they are renewing it at higher.
Baselines of volume as you might expect considering the volume increases that we've telegraphs.
Okay, great. Thanks, Thats really helpful.
Next one on the line is Jeff Van Rhee from Craig Hallum fewer no lives.
Great. Thanks, I'll add my congrats a couple from me guys. The to the new deal flow I think you had message.
Kind of hit your head down on on dealing with existing customers migrating existing existing customers can you dive into that just a little more precisely kind of how it progressed month by month from from sort of pre told we don't read on through to where we are now in terms of just exactly what was going on in those new deals with the deals you know moving at normal pace.
Was it just a function of you looking elsewhere in now refocusing back on those deals just trying to better understand the underpinnings of your expectations for those deal counts to come back.
Hi, Jeff So the the story is really.
What we described in the prior call and that is that we had an intentional strategy to focus on the base as I described in my prepared remarks, we needed there was a need for us to help guide them through the crisis to maintain business continuity in high levels of customer service and I think it's important to note that that strategy really.
Drove a 30% or sort of like 25%, increasing in ARPU and higher revenue retention.
Then our target range of around 550% so.
I'd also add that existing customer deals worth 30% year over year as a result of that strategy.
So there were really I would say a strong quarter on a lot of dimensions related to you accounts with regard to new logos, we had some strength in various verticals and retail I would say is clearly one of those for the reasons that that Rob as described in.
In the prepared remarks, and an answer to a prior question I think considering the.
The sort of secure base, we have now and the amount of ground. We've covered already in addition to the pipeline we generated in the second quarter and the amount of movement. There has been in that pipeline.
We would expect new look of activity to pick up meaningfully in the third quarter.
As to your question on whether things were slow I would say certainly there's there were slow but not camping and some some in some new logo deals were certainly pushed into the third quarter, which is another reason why we have increased confidence that you look at activity would pick up.
Huh.
Okay and one just brief follow up the biggies here, where is it now as a percent of revenues and just have a sense of magnitude roughly how many customers are on those kinds of programs gauge your programs.
It's about 15% of revenue at the moment.
And I would say generally.
Dozens of customers.
Got it okay. Thanks for taking my questions.
Excellent on the Q is Mike Latimore from Northland Capital, you and all lines.
[noise], except awesome quarter, I guess two things one is can you quantify maybe how much the pipelines have grown since the start of the year and then two you've mentioned partners a few times, maybe give a little more color on how partners are contributing to the bookings in.
Fine now.
Yeah, So <unk> pipeline growth entering the second quarter was as we as we previously described close to two to a record and we've continued to develop you're really strong pipe throughout the quarter. In addition to progressing quite as a as previously described so we're really happy with the health.
Of the pipeline.
At the moment.
Great and then on partners.
Hi, how are they contributing to bookings in the corner in the pilot.
Yes, they're really contributing on two different dimensions. So one would be we have obviously a lot more boots on the ground through the partner network, and that's allowing us to tap into those partners existing base of customers. They're also helping us importantly on professional services work today. So that's part of the strategy.
She that we have to get leverage on the model through partners, both additional reps in the field and.
Support for the low margin professional services work that we've historically had to do ourselves.
Do they drive any of the big deals not quarter.
There are definitely driving deals.
<unk>.
This quarter or not.
They're not responsible for the seven seven figure deals that we discussed.
Yeah. Thanks.
Next went on to choose thoroughly Oh Gee from JP Morgan fewer no lies.
Hi, guys. This is Matt on for Sterling. Thanks for taking the question.
So in terms of the cost savings.
And EBITDA margin, how much of the cost savings from lower expenses do you think you're going to reinvest in the business and really asking in context of the the previous 7% to 10% EBITDA or you know margin guide how do you think about the no.
The next couple of years out in terms of the EBITDA from from where it finished this quarter.
Well I Oh, we won't be commenting on on a couple of years out or or 2021. During this call, but I think it's implied in our guidance that theres some reinvestment back into the business that we're contemplating the third quarter, given the step down and just keep though relative to the second quarter.
And as I had previously suggested some of that is going to support our infrastructure. After all we have record volumes on the platform and those continue to to be strong and so there's a need to reinvest to ensure stability.
And that you know we have a high level of service for our customers. We're also investing and kind of the core growth drivers of the business, which include engineering science and go to market capacity, but again I would say that the magnitude of that investment is reflected in the guidance.
Got it and then one one follow up for me in terms of the 50% of conversations that are now.
You know fully automated how much of the ARPU increases it's coming from customers.
Adopting more automation.
So in terms of.
In terms of ARPU of its its obviously driven by the basin as we've said that the base is adopting automation at really unprecedented levels relative to our history. So.
Clearly that is driving increased ARPU.
Got it thanks guys.
Next one on the line is Koji Ikeda from open Heimer you weren't all lives.
Hey, guys. Congratulations on a really really great quarter I, just wanted to ask a little bit on the back office automation strategies.
It sounds like there really beginning to take hold out there, especially India Finance Department automation and with our sales Department automation too I was wondering if you could provide any high level commentary on how we should be thinking about the ability to to product types. Those back office automation technology and when we could start seeing those being introduced to the market.
Hey, Koji, So I would love to give you an answer on that and it's certainly on our radar, but it's not something we're prepared to put a timeline on at the moment.
Okay got it and then just one follow up from me during the quarter you did talk about some contract renegotiations.
I was wondering.
Put a magnitude on the upside of the contract renegotiations in the quarter due to customers that were maybe coming off a bumpy bumping up against the overage threshold you know this quarter versus maybe years. Thanks for taking my question.
Yeah. The short answer to that question is that there's there's a there's a distribution right and some are falling throughout the distribution this quarter and that would include in the seven figure range.
<unk>.
Next question is from Jonathan Kees from Summit insights group fewer and all lives.
Hello can you hear me.
Yeah, Okay Super Uh Huh.
Good for second I'll add my kudos to the results a onto the great quarter I wanted to ask first I'm kind of a I guess a follow up it last quarter, you talked about your SMB business well about 15% of your revenues there that was afflicted by the a cool bid I guess.
With this quarter, you're seeing your sinks or strength across all verticals all industries here I wonder if I can give some more color in terms that especially for the afflicted industries.
They are back to normal or they have they normalize in terms of their spending patterns.
Soon that they've rebounded and that the bottom has been reach in that it's been improving every month, but.
But just some more color in terms of the the impacted industries from cobot.
Yeah. So I think the one thing that we recognizes we didn't have to talk about.
Customers not paying us or you know customers defaulting or the going out of business and.
MS maybe bold statement <unk>, it's there on our platform.
Means they're in the future of trying to transform their business anyway. So I think.
Even the airlines that we have on our platform.
They're doing a lot of work on the part from nine to automate and change the game. So.
Unlike other platforms, where I think they're kind of the past of how you engage a consumer.
The ones that on our platform, they're paying us and even if they're SMB. They want to have this relationship and create these conversations upscale.
Some scale and have a deeper relationship and if were even we're investing in some more.
Platform capabilities in a SMB area, because we see you know this group really Wanna get close to their customers, especially if they have stores and stuff and people not walking into the local store. They they want to have a conversation with them and stay connected.
On the website and a physical store so.
So I just think were seeing you know good stuff up right now across the board and people on our platform or just they're transitioning their businesses are transforming so.
Okay all right. Thank you.
That was helpful. When you said, they're not asking for payment deferrals like in previous quarters. So.
That's great My follow up question I guess is also.
Released last quarter.
You brought in a new one EMEA head from Salesforce.
And you talked about for this quarter.
Another 8% year over year I'm, just wondering like when.
You expect international just start picking up has been kind of decrease last quarter.
Injured or year over year growth when do you see the impact in terms of the and.
The new EMEA head and the efforts there.
I mean, they did a very good job I'm.
Sorry, John Oh God Rupp.
No John you [laughter] [laughter], yes.
Well.
Correct.
[laughter].
Bookings were actually ahead of schedule in EMEA well, while there was a slight stepped down in revenue we expect that given.
Changes in the new leader is making some additional capacity weve on boarded there that we're going to see the results of that investment play out over the next couple of quarters.
Okay, Great that said that that was helpful. Alright, thanks gentlemen.
Thank you.
Thank you.
Excellent on a few years SEC comments from B. Riley the S youre fewer no lives.
Hi, good afternoon, congrats on a strong quarter. Thanks for taking my question.
Chosen focusing on the uptick you've seen in conversational volume up 40% since the onset of pandemic, Eric can you give us some insight into expectations for conversational volume as we go into the second half a year and Rob can you talk about maybe investments needed to be made in hosting capacity for for this uptick in volume.
Yes, so we the so we continue see growth so growth continues a week over week.
Month over month, so we have that massive than 40% and then where we're continuing to grow not at that rate, but still going up quite nicely a we are.
Looking to add public cloud.
Capacity as you know, we run our own clouds around the world because.
Security of data and all that.
But we need to supplement our clouds, where public clouds and will be choosing one of the big pub public cloud providers. Shortly and then we'll get more capacity there because we two to two ramp at the level that we're seeing.
You know ordering hardware and putting it into cages and everything it's just not official.
And we want more flexibility to handle the spikes, we're seeing what's very interesting in the spikes, we're seeing no or very different than the past and this goes back to automation.
You mean basically a customer in the past would sign up and say I'm going to put a thousand agents on your platform. We know it's all stages can generate X volume.
But today, they they get our platform.
I mean I saw this though because it was a customer down in South America, whose logistics company I don't even I don't know who they are we just.
They're not a no name to us, but there are a mid sized level logistics company in South America and their volume is in the top 10, or so of our volume because they they're running a tremendous amount of automation is around shipping.
And so they don't have a live agent pool. This have all been bought agent pool, and it's driving so much volume on our platform. So what's happening now is whether it's a large telco or mid market doesn't matter. They drive these huge spikes in traffic and we don't have a lot of ways to control it and we don't want to obviously put a cap on it.
So where I'm focused on be able to spike capacity, a with that so well in the next quarter or so we'll be talking about what we want to do with public cloud capacity and adding in and then we'll add it in and then I don't know where I can do a massive migration put everyone I'm not all had it in and then start migrating.
Customers onto that.
Pieces of their business onto that.
As we move court.
Understood. That's helpful. And then just the other question for me is can you talk about some of the opportunities into these newer verticals I mean, specifically on the government side with you breaking into their they knew statewide contract.
Yeah, I mean, it's you know that obviously between unemployment insurance and there's a there's a lot going on with cobot still testing in government.
And they had to fire up these contact centers and we tried to do with human labor and they just can't they can't hire people quick enough.
So with one of our Big partners, we fired up with one of the states on the northeast a their whole response to unemployment benefits and so I think what we're going to be well be doing a lot more with this partner in that area and we're seeing more demand around use cases like.
So that's that's quite exciting like I said, the retail vertical is going quite well right. Now you know telco verticals. The telcos are really doing quite amazing work on.
Transitioning a lot of the volume in taught a nation. So we're seeing that with all large telco customers, but that sort of across the board. There's lot of interesting use cases that were doing right now around different verticals.
Great well, thanks, again, and congrats on strong quarter.
Thanks, a lot.
Next one on acuteness marched capital from benchmark you know lies.
Hi, good afternoon, nice job on the quarter.
Thank you.
Question for you following up in the prior question on your International business is the slower growth are sitting overseas due to just internal operational issues, you're having or is your interest behind the curve on messaging and automations.
[noise] <unk>, we just felt there was a leadership issue and things got a little.
Slow over there, but it's not the demand in that market over in Europe or Asia. Now we also have feet on the ground in South America, but the new head over there they exceeded their bookings.
Numbers for Q2, so you came in and I think he's gonna have isn't impact player.
But no the Europe's not behind it in some cases Europe's way ahead of us because there's a lot more competition in markets like telcos in Europe is a lot more telcos competing versus we've got now three in the U.S. So there's a lot of like they always want to beat each other out in the last five years I've seen a few chip. So we should we should start seeing in the upcoming.
Quarters, you know a return to growth there and obviously the U.S.U.S. market's growing about 40% and they're doing very very well, but we should see the same sort of growth you know I'd like to same growth over in Europe and and beyond.
Okay, Great and then shifting gears, a little bit with respect to the conversational a cloud platform, but that was announced.
It sounds like there were some meaningful customer benefits in the right and the solution, but what are the benefits to life person per se.
Okay.
The benefits are though the when the when and.
Conversation conversational commerce, which is our strategy, which is we believe that commerce will transition from E commerce to see commerce or conversation commerce that will be driven by automation.
And the scale of automation will not be driven by human agents messaging and chatting.
And so for US it allows us to tap the volume that's out there I can talk about retail like we're tapping volumes of conversations in retail.
We weren't really after before but that will move from E. Commerce to conversation Commerce. So you know that that's what's gonna do it's going to this is what we saw in the quarter and drove really the results. We saw in this quarter and it's going to drive the feature of our strategy. So it's it's it's basically.
So is the foundation her games to be a multibillion dollar business in revenues.
Great. Thank you appreciate it.
For your next question, we view the Ryan Macdonald from Needham and company you know lives.
Hi, This is Alex on for Ryan a few weeks ago. The company discuss moving away from office centric workplace. He mentioned that it costs approximately $10000 per employee per year to mean Attritional office. So what percent of the workforce do you expect to remain all working from home and then how should we think about those costs.
<unk> savings going forward.
Yeah, So just to put some more color around it out of our 1200 or sell employees half already working in their home before pretty cold. It these are field facing people.
And so there's about 600 double working in offices and we spent about 10 million a year on a 10 to 12 million year on office space.
We are we're now working through with <unk> as a group internally.
Of employees.
That are working to create the frameworks for operating in this environment without physical off Stakes now, we'll probably we're going to pushed out a certain amount of money into employees hand, and then let them to decide what they want do like they may as a group maybe six them want to get together and for the next six months, they're going to.
I have an office that we work or something like this or maybe one person says I want to work three days, a week and some sort of physical location in that I want to be in my home.
And that's where I think it's gonna be it's much more of a flexible environment for people to work that we're working on that right. Now. So I don't think 100% of the cost savings will come back right now we want to take that budget and put in the hands of all employees to you know he just operate the best they can be in its challenging stuff.
Personally people have families with kids are at home single people, who are in small apartments.
But we're seeing a migration right now because we made a commitment and she is what I think support we made a commitment not to go back to the office I'll tell you why we did that.
I don't I don't like.
False hope.
And.
Telling our employees to hang on for you know until September then January but we're not allowing them to make the choice that's best for their life and we found there are people living in cities.
I would move out of a city and go live somewhere else in the world.
If they weren't thinking we were going to open the often again and we're not no. There's no way to get back unless we have a vaccine.
And we're not we're not kidding ourselves about social distancing. So it's opened up a whole world thought about also recruiting you can find the best people from different places in the world.
And so I'm I'm pretty excited about it and it's not really a cost savings measure right now it's more about will probably put up a fair amount of that money back into the employees to make this work and so that's how cool that's how I'd shareholders, we should look at it to that.
Okay that makes sense and then well will that result in any one time charges for early lease termination.
Oh, you know potentially.
We're negotiating with our landlords. The good thing is we don't have first of all just to put out the all landlords cannot make our offices safe.
And that's the problem that they have built these offices that are not allowing us to come back to work and be safe.
And they're not willing to put money into offices to make them safe and they will figure it out one day, but today, they just want us to pay and go back and potentially harm our employees, which were not going to do.
So you know, we're negotiating with them, but one of things is.
Like I personally we got back in 2001, we were long on real estate and almost hurt the comp almost bankrupt at the company and we never went long on real estate since 2001. So we don't have some big tower.
We don't have a lot of exposure you know was something we built as John I think we we don't have that's we're negotiating out of our leases.
As we speak but like I said, our Oh landlords cannot provide is same space and we're forced to go and now no take alternative measures. So.
Okay. Thank you.
Next one on the Q is Brad I hope that's for bear.
Sure No line.
Hi, Thanks for taking my call Hope you guys are all well maybe one for John.
Did about the mix and I've missed it looks like a b to b cloud hosting really accelerated in quarter relative to services that dynamic something you would expect to continue for the remainder of the year.
Hey, Yeah. It is because of the strategy, we have to to get more leverage in the model through partners, we expect that.
They will they will handle.
Increasing size of our professional surface work going forward.
Okay. Perfect then maybe one just on the payment related investments you guys highlighted February yes, maybe an update their hows that progressing and need what percentage of those investments have been completed in the first half the so.
Yeah. So we have began some testing with large customers with the payments products and you know we'll be able to release more information as we previously discussed after the third quarter.
Okay perfect. Thanks, so much.
Next one on a few is some at Symantec from Jefferies you weren't all lies.
Hi, Good afternoon. Thanks for taking my question, Oh, I've got a strong quarter comments. Most my questions. The basket, maybe just a housekeeping one I just curious if.
If you guys should give us to break out of hosted services business revenue growth I'm not sure I saw that in a in the materials or or heard on the call and then.
So just a question kind of similar on the Geo side, but slightly different for for the geography is that has started to experience reopening in where people have maybe gone back to work outside of the U.S. In other countries are you seeing any change in customer behavior or moving in and out of the pipeline. Thanks again for taking my questions.
With regard to the latter question.
I think in general the answer is no as we've said previously there's there's been some friction with with new logos that I think where overcoming now and you know as discussed the type that we built in the second quarter and the progress we've seen gives us confidence that.
You know threeq here will overcome those frictions, we saw earlier.
And in regards to hosted nurses professional services a hosted services were up 35% year over year professional services were up 4% earlier in the second quarter.
Great. Thank you.
There are no further question on the Q you may continue.
Thank you operator, so and the call by Reemphasizing, a few key points.
Our models Inflecting as leader brands in the World turned to life person to navigate.
But the massive changes have happened.
Our revenue growth is expanding.
With that change.
See I think the krona virus has really exposed the inadequacies of legacy voice contact centers and I've talked about this before.
There are like factories.
Where people said two feet from each other and get a widget of a call in their your every five minutes and they're expected to work under those conditions and now they can't and they've been sent home. So I think obviously you know our stuff is now the must have and the AI capabilities to automate that is also part of that must.
Yep.
We believe that conversation only I is really what's going to win in the market and obviously, we put out our platform now the conversational cloud to take all of our AI components, it's interesting because ultimately that platform.
Well not just to be about our dataset and stuff that's generated off of liveengage, our customers be able to use the conversational cloud.
As toolsets to power guys in many different conversations they maybe even using one day at a different messaging platform.
You know and they are you going to ingest that into our conversational cloud and then they can build the odds around that so we it's a much more open system and we had a bigger vision about how is going to play in the enterprise.
You know I'm very.
Excited about the impact that John's had in a very short period of time, maybe knows it was a sort of a risk putting a someone who didnt have a CFO background in you know to that role, but I think he has done a phenomenal job and if you want to ends.
With.
On the on the web site.
Wrote an article about you know the CFO role and the changes that are happening and I mean, it's called the CFO and crisis.
And that's the title and they talk a lot about what that role will be and how it will be data science, driven and analytics, driven I think jobs done a great job, so far and being impact player with his team on the Automations and many business processes.
And then finally, we charted through.
We definitely have charted through a very difficult macro environment and I want to thank all the employees for working hard and staying focused even in work from home and there's massive shift, but staying very focused on delivering our vision.
And delivering on our lofty goal of one day owning the conversational commerce space, which as I've said is as I think one of the greatest shifts from E commerce to see commerce or conversational commerce, which we are definitely just doing an extraordinary job and I'm proud of everyone, who who just executed this quarter so with that.
Thank you for your time, and we will see each of you and hopefully in the Q3. Thank you.
Ladies and gentlemen, this enthused todays conference call you may now disconnect.
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