Q3 2020 LivePerson Inc Earnings Call
[music].
My name is Gary and I will be your conference operator today.
At this time all participants are in a listen only mode. After.
After the prepared remarks, the management from Liveperson will conduct a question and answer session and conference participants will be given instructions at that time.
To give everyone the opportunity to participate please limit yourself to one question and one follow up.
As a reminder, this conference is being recorded.
Now, let's turn the conference over to Mr., Matthew Kempler, the company's senior Vice President of Investor Relations. Please go ahead Sir.
Thanks, very much Gary <unk>, joining me on the call today is Robert Catskill, Livepersons, founder and CEO and John Collins, Our Chief Financial Officer. Please note that during today's call. We will make forward looking statements, which are predictions projections and other statements about future results. These statements are based on our current expectations and assumptions as of today.
I'll get to risk and uncertainty.
Actual results may differ materially due to various factors, including those described in today's earnings press release and the comments made during this conference call and in 10, Ks 10, Qs and other reports we file from time to time with the FCC you assume no obligation to update any forward looking statements also.
Also during this call we will discuss certain non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is included in todays earnings press release.
This press release and supplemental slides, which include highlights for the quarter are available in the Investor Relations section a license website.
With that I will turn the call over to Rob.
Thanks, Matt.
Thank you for joining Liveperson Q3, 2020 earnings call.
In the third quarter like first and once again delivered peak performance in many key metrics, including setting records revenue.
Contract signings adjusted EBITDA.
Positive cash generation revenue Q3 outpaced guidance.
Climbing, 26% year over year to 95 million.
Killed by 29% growth in our BTB hosted software business.
Our focus on internal automation and employee productivity yielded another step function operational efficiency has record adjusted EBITDA of 15 million widely wildly outpaced guidance and generate a multiyear high profit margin of 16%.
Our cash position increased by 26 million court.
Quarter over quarter to 199 million as we pivoted the positive cash generation.
As we shared on recent calls consumers are driving a massive structural shift to remote digital engagement the weight coated pandemic website and app traffic have risen sharply EPS consumers go online rather than do that brick and mortar bags telcos retailers and food service establishment in fact, a recent Liveperson survey found that two out of.
Consumers are planning to do most of their 2020 holiday shopping online rather than in stores.
Brands are struggling to meet this increased digital demand consumers often faced frustratingly long hold times on 800 numbers due to the closing of physical contact centers and reduced global capacity of contact center agents, who can actually take calls no work from home environment during cobot.
Likewise, the typical 1% to 2% web site conversion rates means that most brands are failing to sufficiently monetize or increased online traffic.
Like parts of the leader in conversation <unk> benefiting from the powerful market dynamic.
In order to improve agent efficiency increased sales conversions and fuel higher customer satisfaction brands are turning to our conversational cloud and deploying personalized consumer care and sales journeys over mobile messaging endpoints.
All this being led by the ability to use AI automations instead of human agents as a result, we've seen volumes on our platform surge since the pandemic started in February now up nearly 50%.
Led by nearly 60% increase in <unk> based conversations.
We expect the strong tailwind to only intensify over the next five years as traditional retail shopping web and in App based ecommerce shifts to see commerce or conversational commerce.
The shift to conversational commerce requires a new set of technologies beyond web social and other traditional E. Commerce type platforms. The shift from E. Commerce to see Congress has arrived and because why person took an early but on this massive change four years ago. We're clearly the leader in transforming some of the largest brands in the world.
Conversational commerce is powered by consumers the ability to have an always on asynchronous connection which can be delivered over messaging platforms like what shop, Apple business shot Facebook messenger Instagram and SMS.
Over that messaging connection we run enriched conversations either automated abuse, an AI or live agent or both at the same time.
We started out with a focus on customer care use cases with.
With the goal of reducing contact center cost.
And we are now expanding into sales marketing and brick and mortar retail with the goal of driving sales and commerce.
In order to drive a better commerce journey for consumers. We're also introducing digital payments platform that enables users to conveniently make purchases with any brand or any messaging endpoint. For example, a consumer enters their credit card information to purchase a ticket from an airline and then we securely tokenized that credit card so that could be used.
At a later date.
With some other companies similarly consumers can make purchases across different end points. For example use the web site for one purchase and then use what's out for the next and that you know for another without reentering, the credit or debit cards.
Our first for your brands are now lives in steadily expand this program into 2021.
Adoption trends confirm that our vision of conversational commerce is resonating more clearly than ever nearly every single enterprise customers now using our AI capabilities within our platform Automations power two thirds of our messaging conversations today. Our goal is to automate over 80% of the conversations that scale are aaas have.
Eliminated the need for any human involvement in approximately half of all conversations where they are deployed and in other words, our customers can use the conversational cloud to power it virtually unlimited number of conversations at a fraction of the cost required by human agent based conversations.
Another testament to the transformational power of the conversational cloud.
It's the first of a kind of global strategic partnership we just signed with Infosys a world leader in next generation digital services and consulting this new strategic relationship will help white person keep pace with surging demand for conversational <unk>, joining our conversational cloud, but it puts his cobalt transformation cloud services.
And public cloud.
Emphasis will be creating a practice around our platform and we will Conversely have them manage are moved to the public cloud.
Our move to the public cloud will enable us to handle the increased demand for our services, but the ability to auto scale capacity and also enable us to enter new geographical markets quickly.
Infosys joined other T Y person partners, including I.B.M.T. Tech and Accenture and building a channel that is strengthening our go to market reach sales distribution in.
In fact, three of the age seven figure deals. We closed in Q3 came from our partners also noteworthy is that three of our eight seven figure deals were new logos.
Midstream like person's ability to win new customers, even with the change from physical to virtual marketing events.
Uh-huh like one of these new logo wins, we did with the multi million dollar jewelry retailer.
They were virtually.
Sold over a three month period.
And they moved very quickly because all the impact that has happened to their physical stores during cold it.
The stores, where they are open they now are adding QR codes next to the merchandise so that consumers can socially distance by chatting with AI and remote based human agent while shopping.
The crisis second involving Upsells as customers and all you can eat enterprise license agreements now are being moved to cost for interaction or usage based models.
When with one of the top 20 global banks is a great example of the shift this customer signed a seven figure upsell with us at the end of Q1, when the pandemic drove them to use messaging and automation.
Maintain business continuity as a contact centre agents and then store associates were sent home after seeing the successes of these expanded use cases, roughly tenex increase in messaging vine the bank double down on the long term commitment to the conversation O clock in Q3, only six months later, we signed another seven figure up sell with them.
<unk>.
Another example of increase usage driving growth as a whim with one of the largest online lenders in the U S. Like many of our customers a slender saw spike in volumes on our platform in the first half of 2025 purse initially recognized no revenue benefit from the spike as customers locked in under an E. L. A enterprise license agreement.
That changed in Q3, when the customer came up from new transition to a cost per interaction model and capture the value of those higher volumes by signing is seven figure up so that doubled our annual recurring revenue from customer.
We expect to repeat the successful formula when many of our customers come up for a new over the next two years.
Record contract signing accelerated revenue growth, a new landmark partnership with info says expanding customer use cases.
Brought adoption of or AI cloud are indisputable signals, a white person's leadership and conversational commerce.
We're executing with precision in this new remote work environment and once again are in a position of raised guidance for the year for.
We're now targeting 2020 revenue growth of 25%, achieving a longterm growth target one year ahead of plant.
They have also build a strong discipline around capturing operating efficiencies through internal automation and tightened controls.
Increasing scalable financial models now emerging where we can invest in key growth drivers, while still delivering bottomline improvements as a result, we are increasing our 2020 adjusted EBITDA guidance to arrange a $29 million to $31 million, which brings us back to Pete Stark profit levels.
Ah close with three key points.
Life persons third quarter results, which follow an equally strong second quarter reinforced that consumers are driving a permanent structural shift conversational I I as a preferred means of communicating with brands.
[noise] like first conversation cloud and setting the new standard for the technology required support the ship and we believe that unique combination of a platform expertise and services will extend our industry League.
As we execute on our vision or financial outlook as sharply improving with revenue growth now the power to accelerate to 25% in 2020 17.
17% in 2019 and 14% in 2018.
Just EBITDA margins have firmly moved into the double digits with that I'll turn the call over to John to provide an operational update and more color on our guidance John.
Thanks, Rob.
Two three we continue to capitalize on rising demand for Conversationally setting records across a range of chief financial metrics, you putting contract value.
Just an EBITDA and free cash flow.
With a strong dominion backdrop, and improving operational fishy weird once again raising guidance on the top and bottom line targeting our first 100 million revenue quarter.
Starting with demand generation after making strategic investments in or go to market and product organizations. In 2019, we continue to see meaningful returns are field organization generated record contract phones enclosed eight seven figure deals and Q3.
As expected following a focused effort to help existing customers navigate the pandemic, we began to rebuild momentum with new logos, specifically new logo annual contract values returned to pretend to make levels, which translated to an increase of more than 300% quarter over quarter, using a more even balance of deal values across existence.
[noise] customers and new logos.
Reflecting the strong demand capture are key metrics hit new highs in Q3 <unk>.
Revenue retention for example for enterprise Midmarket customers was well above the high end of our 105% to 115% target ranch.
Arthur growth for enterprise them in Mercury customers accelerating Q3, nearly 30% year over year to approximately 425000.
Total revenue of 95 million increased 26% year over year Martin the second consecutive quarter of 25 per cent plus revenue growth the.
The 3 million of upside relative to the mid point of previously issued guidance was driven primarily by favorable timing of contract signings overdose and modest over performance by our consumer segment.
Within total revenue Vida Burger B B, a grew 27% your beer led by 29% increase in hosted software.
Consumer revenue increased 18% year over year and gained sure. It was in line with expectations that nearly 15% of revenue.
From a geographic perspective, the U S grew 33% year over year and accounted for 62% of revenue.
International grew 17% year over year and accounted for 38% of revenue.
Significantly our execution enemies continues to improve following the appointment of new leadership in the region earlier. This year revenue anomia increase for the second consecutive quarter as did contract signings, which were up approximately 50% quarter over quarter.
These results are encouraging indicators of future growth in the region.
We also continue to gain leverage from our channel partners, which I've influenced more than 30% of contract signings over the past year and contributed three seven figure deals in Q3.
As emphasis investing integrations to build a global practice around our conversational cloud, we expect even greater returns from her partner model over the coming quarters ultimately our goals generate 50% of deals from channel partners, which will not only materially expand our reach into key vertical and geography's, but also drive significant scale ability for I'd go to Mark.
<unk> organization.
In terms of industry contributions all of articles posted higher conversation volumes in September than they did pre pandemic and year over year revenue growth was led by consumer in retail followed closely by financial services and technology.
Moving on to the bottom line two three adjusted EBITDA 15 million Mark an all time high for life person and exceeded the midpoint of our guidance range by $10 million or 74%.
Are adjusted EBITDA margin increased 24 percentage points year over year to a multiyear high of 16%.
The profit upside can be attributed to the following drivers each in about equal contribution higher.
Higher than dissipated revenue.
The continued deferral of hiring and non-core growth areas as internal automation cakes repetitive jobs and enhances employee productivity the deferral of infrastructure spend as we solidified our plans around the public cloud migration with emphasis.
And the one time impact from the right off of leases and the accelerated depreciation of fixed assets after officially transitioning to an asynchronous work from anywhere bottle.
Landing on the latter point for a moment back in many like many other companies, we felt forced to leave our fiscal offices, because landlords could not guarantee the safety of our people, which was our highest priority.
In addition, as a technology company specializing in AI and asynchronous communication or employees were prime for the new work model, allowing us to maintain our culture and high levels of productivity.
Note. There's some one time charges associated with leases that I'll talk about in a few moments.
In terms of cash we ended the third quarter with a cash balance of 199 million, which was 22 million greater than our twenty-twenty, beginning balance and $26 million increase quarter over quarter, we've generated positive free cash flow yoga date through two three which physicians us too greatly exceed our initial twenty-twenty golf cutting cashman huh.
I think most significantly we achieved the rule of 43.
Three on both and adjusted EBITDA basis, and a free cash flow basis. The treatment of this long term goal is a testament to the adaptability and scalability of life person's operating model and our strategy to control the piano and Amanda that's conducive to both margin expansion and revenue growth acceleration.
In addition to heightened budgetary vigilance the successful execution of this strategy is significantly dependent on the AI and automation where to point across and turn of operations.
Building on the examples I've shared on the last quarterly call. We turned on a wide array of automation in Q3, ranging from algorithms for revenue in billing reconciliations two HR reporting and usage forecasting. We also built critical modules to power an automated rolling planning process that will provide more timely financial insight and free up weeks of work previously before.
But the financing each quarter.
In terms of topline impact we're also launching a new sales rep capacity model intended to compress sales cycles and increased quota attainment by optimizing the routing of leads to qualified reps with capacity finally, and perhaps most significantly we launch a modern day like architecture that provides a foundation of clean.
Connected data to automate nearly any business process.
Migrating our platform to the public cloud is another key milestone on our path to maximum efficiency.
In addition to enabling us to match global demand for conversational AI. We also expect meaningful cost savings in 2022, and beyond possibly impact gross margin and cash generation.
Finally, before talking about guidance I'll note that we recorded 28 million and non recurring charges.
Covering the right off of leases in fixed assets the public cloud migration employee home offices I T litigation in various legal expenses.
In terms of guidance, we're entering queue for with strong momentum platform conversation volumes continued to build month over month since the peak of the crisis contract values that Senator do record and a revenue run right is that a plant.
Considering these positive dynamics, we're raising guidance for 2022, a range of 262, and a half million dollars to 364, and a half million dollars or 24% to 25% year over year growth.
Up from previous guidance of $357 million to 361 million or 22% to 24% growth.
R. Q for guidance range of 98 million 200, and 400 million also implies 25% growth at the midpoint as Rob said, we're now on track to achieve our long term growth target of 25% one year ahead of plan.
As for profitability, we continue to anticipate strong year over year margin improvements as we maintain budgetary vigilance and benefit from rapid adoption of internal automation.
As a result, we are raising twenty-twenty adjusted EBITDA guidance to arrange a 29 million to $31 million, which is more than 70% higher than the mid point of our prior range of $16 million to $19 million.
R Q4, adjusted EBITDA guidance of $9.3 million to $11.3 million a year over year margin expansion of nearly 900 basis points.
And a continuation of a double digit margin trajectory.
Finally, I'll close with a few key points about the business like Christmas capitalizing on a global demand inflection for conversational AI, which is power in a sharp acceleration in both revenue and profit growth.
The investments we've made in our product and go to market organizations are yielding impressive returns key financial metrics or hitting record highs.
And we were driving strong demand generation across T. Geography's through our direct sales force and channel partners.
In less than one year's time, we pivoted from 100 million in cash burn to cash generation, which again is a testament to the adaptability of our operating model and the expenses that vigilance of our business leaders.
And the unique ability to leverage internal automation to enhance productivity, so with that I'll have to call back over to the operator to take your questions.
We will now begin the question and answer session.
To ask a question you May press star than one on your telephone keypad.
If you have anything later.
Yes, Sir.
I'll shift to the Skype cause my normal connection is not good saltiness switch over to Skype, It's Robert Okay. One I'll I'll switch open that up in a second thank you.
If you're using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then too at this time, we will pause momentarily to assemble our roster roster.
Hello, Our first question comes from arguing.
Yeah.
William Blair. Please go ahead [laughter].
Can you hear me all right.
Then I heard a Mecca.
Yeah.
Okay.
Perfect.
Thanks for taking my question I guess, they never did find let's start off if we just wanted to let all the new where it passes them or an existing real dynamic.
It seems like it seems like you know the the existing deals continue you guys might be able to continue to be strong in new deals are are down from last year can you may just maybe help us understand what's what's going on there and how you know what we can expect going into Q4 and 2021 on the new customer front.
Yeah, Hi, Hydrant, Uhm, I'd reiterate that from a a value perspective.
We're we're up significantly as described and it within the enterprise contract signings are actually up year over year as well. So we are seeing continued improvement and the ability to capture new logos and as we've previously signal that's an area that we continue to.
To build on through the pandemic.
Got it and then I I just wanted to maybe dig into the emphasis partnership a little bit more.
Can you just give.
Give us some give us some more details on what the growth opportunity to you that that partnership unlocks and maybe that's the size of the practice the emphasis is planning to.
Roll out with lack person and you know maybe any any thought on the cadence of when we should expect this partnership to start driving results that'd be great.
Sure. So generally I mean emphasis is a massive organization a systems integrator with a huge roster of fortune 500 companies. They also have a lot of prebuilt infrastructure for hiring E commerce in a range of other areas.
Areas, including financial services that are already we're working with so the ability to integrate the conversational cloud with those services is it really natural fit too.
Help us gain access to their customer roster.
And in terms of.
How quickly we can get moving we already have deals with emphasis that they have assistant with an addition to a really large pipeline of business that we expect to start closing in the fourth quarter.
And one example, there is an E commerce front emphasis has some technology that helps the the customer integrate too product catalogs. Another back in systems that smooth the path for the conversational cloud to integrate and begin delivering conversational commerce. So.
It's a it's a good example of it when it's already under our belt and one that showcases the the power and synergy of this relationship.
Awesome very helpful. Thank you very much.
The next question is from Sterling Audi with J P. Morgan. Please go ahead.
Yeah, Thanks, Hi, guys.
The last question in the beginning of it was a little hard to hear on my end. So hopefully this isn't a complete repeat but with the new customer. Some 48, new customers that you brought on board can you help us understand exactly the profile of these new deals versus what you've seen let's say, maybe a couple of quarters ago in terms of size.
Nope that they're looking to do and just as important how should we think about the revenue ramp in those new customers as we move forward.
I think as a as a general matter during the pandemic, we are seeing it for at least on the new the other side smaller sized entry points that then perhaps we saw in 2019, but I think that fits very well into our very successful strategy of landing.
And expanding and in terms of the expanding I think that the process for procedures with highlighted in previous previous calls, where we might start with one point and add others that gradually grow volume and it also works the same with perhaps one department or one segment.
And expand across segments within the enterprise to grow volume. So I think once landed the expansion strategy is more or less consistent with what we've seen historically.
And then just as a follow up along those lines is there a way to think about like maybe the average revenue per a new customer would start out initially and what maybe it ramps to let's say a year or two years later.
Well, we we don't give specific numbers to that you know to that dynamic, but you know I would I would note our our through at 400 plus thousand at an all time high of 30 per cent up year over year has an indicator of how.
How expansion how successful our expansion strategies are actually Atlanta, new logo.
That makes sense. Thank you.
The next question is from Oh he'd go deal with Barclays. Please go ahead.
Hey, guys. Thanks for taking my question I was just wondering if you can comment on stuff like clothes away from the holiday World All over the last couple of quarters and also as they look 224.
What are you sort of like a modern again.
Is it this is sort of like a sequential when it comes to us Ah close weights and any comment on the pipeline coverage for people who have to listen and then I have a follow up question.
Yeah. So in terms of closer X I I I would say that we're we're on track.
Consistent with the pace that we had in two two and three Q moving forward with the exception that as I previously highlighted.
We're we're rebuilding demand in on the new logo front and having success with that strategy.
In terms of what we're modeling in I mean in.
In terms of the pipeline. The overall pipeline is consistent with with last quarter and the in quarter. So the generated pipeline. So far is actually up quarter over quarter.
Understood. My follow up question is on the image platform. So I'm wondering if you can give us some more color right to some of the initial I mean I don't mind. These upgrade I close the most of all of these are actually being customer, but can you give us some stuff like Ah well, it's sort of like how did have you shifting arrangement works like a headboard.
What is the monetization model and the Hollywood Tingle clapping that option up in the next two quarters. Thank you guys.
Yeah. So they are testing right now so they're they're actually testing live transactions on the platform, we haven't talked about the monetization strategy, yet, but it would go online with our usage based models.
So every time, you invoke and take a transaction we're looking at some monetization for that.
But right now where we have launched the first handful customers and they're using it and so we're seeing good results and once again as I. The reason we went into that is is we're seeing more and more use cases around.
Sales and marketing, which is the broader concept of commerce, and we need to have a unified way to handle a payment across messaging endpoints cross customers because right now it's <unk>.
Difficult and you have to go to a web flow out of messaging so.
We're seeing some good results right now from that from our initial customers.
The next question is from Ryan Mcdonald would need them a company. Please go ahead.
Hi, Robyn John Thanks for taking my question Congrats on a great quarter I wanted to start with on this conversion from sort of the E. L. A contract structure to to the cost per interaction can you give us a sense of sort of what the what you would expect a general cadence those.
<unk> would look like over the next 12, 24 months and and what you're seeing in terms of number of interactions that are being adopted are you seeing sort of an increase and perhaps a greater inclusion of AI based interactions when you're making that conversion now upon follow up.
Sure. So we've had really great success converting relates to CPI contract structures or volume base contract structures and I I'd I'd highlight one in particular from this year one of the global top 20 banks.
We converted from your latest CPI in in the first quarter and then a mere six months later after being on that volume based model and seeing the power of of the conversational cloud and what I can do for their operation. We have sold them again seven figures because of that CPI structure. So it's a it's a <unk>.
For example of.
Future revenue growth given the demand profile that we've been sharing with you in terms of the cadence we have approximately.
This year covered about 10% and I expect that to accelerate into 2021 in terms of I think you asked about interactions Nai base conversations.
All of this is is consistent with what we've signaled that the 60 per cent increase in automation since since February is equally applicable to these latest CPI upsells.
Excellent and then this is a follow up you know John I'm really impressed with the free cash flow generation and a quarter. Obviously you know a lot of the work has been done and pieces had been put in place to to automate a lot of the back office functionality.
Given sort of the early gains you've seen there and how sustainable do you think that positive free cash flow is moving forward here.
Yeah, I would just say that well you know hitting the rule of 40 on a free cash flow basis. This quarter is an amazing achievement and again, a testament to our ability to.
Control the piano in strategic ways.
And and really rapid ways I Don.
See it right now is a new run right for US However, as I've consistently said my number one mandate is to move the company towards sustainable cash generation and profitability, while simultaneously maintaining our ambitious.
Gross.
Goals for the top line I don't see that changing.
The next question is from Kirk Mottern with Evercore. Please go ahead.
I was Peter Levine.
Congrats on a good quarter.
To hear the partnership resident assess you mean, you figure out targeting 50% of deals coming from partners. How should we be thinking about service revenue going forward and what investments are you, making internally to kind of support this kind of deal flow or perhaps any changes to your go to market motion.
Hey theater.
So we in the longer run, we certainly see our conversational cloud, creating sort of a derivative market, where these partners come in to participate seeking profits and in that world. We would want to push most of our R. P. S work, especially.
For those verticals, where we have a really established playbook already and we've gone deep two tree value in those verticals, we'd like to push the P. S work for that profile to the partners and that allows us of course to be more transactional as a business, which is a goal consistent with art.
Desire to create enhanced operating leverage so that's that's kind of a norstar for us with respect to P. S work in the channel partner strategy in terms of investments one of the key areas of investment is to create the sweet of self service tools that enable our partners too.
Work with monitor in and assist the customers that they sell the conversational cloud too without human interaction on the live person side. So that's that's a key area of investment that we think will will drive enhance leverage on that model going for it.
That's great and then just to follow up with.
I guess, all the news, it's covid and the second rise despite care for customers that may be differing decisions, which should come as no surprise anyone at this point, but yeah.
Yeah, and maybe you're not seeing if I know how much of the pushed back his budget related birth is I guess more.
The broader economic uncertainty curious now here in queue for if if what's going on and we have an election injury of covid, if that's impacting any decisions or extending sales cycles. Just curious know if there's any color on that thank you.
Yeah, I I don't have a value that's very precisely quantified, but it clearly clearly dependent neck in the election, and and just the macro uncertainties that it persisted throughout the year are weighty factor, especially when it comes to our new logo, making a large commitment to.
A new a new partner like like life first thing, but I don't have a specific value that that I would quantify for you Rob or you're gonna jump in there as well.
Yeah, I was going to say.
You can see the demand and the services I.
I mean, covid driving a lot of our demand and the ship from offline retail two digital the ship from contact centers being shut down in the agents are still at home. So there is there is still a lot of.
Stuff going on so I don't know.
Now our gain sure star will start to pick up obviously in the queue for around specially are large customers, who are gearing up for the holiday season, So I'm in right now.
We still see a lot of strength.
And.
<unk>, it's kind of health is giving us a lot of women sale.
That's great. Thank you for the color.
The next question is from Richard Baldry with Roth Capital. Please go ahead.
Thanks, when we look at your P&L being sort of well ahead of where we would have thought it'd be how do you sort of balance that against sales capacity and by that I mean, you you.
Have the ability to be hiring much faster, if you want and still make the the earnings estimates people are looking for so.
How do you feel about the current capacity when do you think you'll see some material increases to that.
There was a discussion around that around you know other automation things that you're putting in place that are helping you gain leverage there. Thanks.
Yeah. So.
From a from a productivity standpoint.
What we're seeing more productive reps now than than we have in the past and some of that is attributable to just the the ramping of the sales force after sizable investments in 2019 and as you suggested it there's a there's a portion of that productivity also attributable to the the decision support.
Tools and the automation that we've built for the global revenue organization and you know I highlighted in the prepared remarks, one of these projects that really really tries to get very quantitative data driven about how to smartly route leads and opportunities to those reps who are best suit.
To pursue them and two importantly have the capacity to do so so it's nothing is lost and you know in the mix, though so that's that's a system that we're we're building and testing as we speak and expect to drive additional productivity on a <unk> basis. In addition, I would say that.
We do have plans to continue to invest in core growth drivers one of which of course is I'll go to mirc capacity and I think we could see increased quota carrier counts moving forward.
Then.
Also how far through sort of your internal automation efforts do you feel like you are maybe with a backdrop to you know what types of further restructuring so I might we see you know throughout this year maybe throughout 2020.
21.
Yeah. The the short answer there is we're really just getting started despite the high RLI that we've already seen and year. The team is still pretty lean and and really only ramp to about 10 engineers and data scientists and Q3, I think we hired 50 or 60%.
[noise] of our total team size and two three and so the amount that we've delivered already this year is is really just scratching the surface of what's possible and as I as I suggested in that prepared remarks. The data like that we've just brought online is really key instrument to provide the foundation for clean and connected.
Two rapidly automate and build decision support tools across the organization the key barrier to getting that kind of leverage is not so much. The the code writing, but it's the access to data and clean data at that that slows everything down so that's a.
Really important milestone one of those more to do there.
It's already being leveraged by the automation that we're building internally. So again I think there's there's a lot more to come on those dimensions.
And last the you know given this crying cash balances what what are your thoughts on and then I'll start tuck in M&a's, maybe on the technology side. How do you feel like you can still do that even though it's hard to do deep due diligence are certainly in person due diligence or do you think they sit on the sidelines until that gets to be a bit easier.
No I actually really good.
Oh go ahead Rob.
Yeah, So I would wear obviously, we wanna.
Really accelerate what we're doing on the AI side so.
Well, we are we looked out into the world and we can find good technology can accelerate or go to markets.
The technology side will look at.
At at companies, we built a lot of I mean, I think from a shareholder perspective.
We spent a fair amount of.
Money and resources on organically building the company to date.
And we didn't really acquired too much to get here, we built it.
And so that's why he seems sort of a flip with margins in cash generation because okay. We did a heavy investment on that side an hour flowing through just selling a lot of that technology. So we'll continue organic development and then we'll if we see something that's kind of interesting well well.
Well consider it but.
We've got a good team right now and we're hiring great engineers and data scientists want to join US because of the success, we're having and we're we're getting we're up competing with the googles and.
Amazon and Microsoft's.
On the data science side, and we're we're winning and sometimes they went by where we're able to recruit higher and get them here. So that's.
That allows us to really focus on organic as well.
Alright. Thanks.
The next question is from Steve Enders was Keybanc. Please go ahead.
Hi, great. Thanks for thanks for taking the question I just wanted to get a better sense of how you're thinking about the sustainability of the the EBITDA margins that.
That you put up in the corner and guided too where would I guess potential opportunities for further investment b to the could see that you know declined from here.
Sure. So first I would say that we do intend to continue to expand margins going forward without putting a guide out for 2021.
That's a again a key mandate that I have as a CFO and the strategies that <unk> will be consistent with with that in terms of investments. We obviously are continue to invest in the core growth drivers you know what I mentioned go to market earlier, which we're moving forward with an addition.
On the on the AISI.
And then importantly on the infrastructure side. So the the migration will require some investment and for a small period of time, we'll need to maintain two stacks as well which will require some endorsement.
Okay, Great and then and then you just rolled out a a new opportunity that 10 agree with with Instagram and I know you talked about a a social solution Oh, I'd say about a year ago. Just wondering how you are seeing kind of kind of this new social channels progress and how you're thinking about that opportunity.
Now.
Yeah I mean.
Instagram Who's Gonna drive a fair amount of volume because obviously, there's a lot of engagement and commerce going on so so I think we're all pretty bullish about Instagram whatsapp still seems to be the biggest driver outside the U S. And then Apple business chat is the biggest driver within the U S.
And they're all going very strong I mean, they're they're all increasing there's a lot of demand as we enter new markets like Brazil and stuff like that they are massive demand for these types of things so.
All of those front ends just drive volume for us and drive more interactions, which drives growth in revenues. So I think we feel very good about.
What we're seeing in where we are good but obviously very good partnerships, because we drive a lot of volume for them, especially from an enterprise customer standpoint, we're driving I have like a significant amount of volume for all those end points.
Okay, great. Thanks.
The next question is from Mike Lattimore with Northland Capital markets. Please go ahead.
Great Yeah. Thank you great Carter, Okay. Thank you gave a sales source productivity kind of per cent number last quarter do you have that for this quota.
Yeah, so that that productivity number was really a function of time.
Medium, we expected 80% of our sales force to be ramped by the end of the second quarter and we really would expect that given you know attrition rates.
[noise] hover around 80, or so percent going forward.
Rather than you know moving that productivity number up to 100 per cent.
Okay got it.
And then on [noise] gain chair are some of the sort of big new deals or even upsells, I guess and that kind of game sure amount.
Yeah. So it was certainly a game sure continues to to deliver although at 15% of revenue is consistent with this last quarter HM.
And then.
At the at a while back you gave a investment amount for digital payments I guess, how far of the way through that are ya it sounds like you're almost done.
Yeah, we're we're on track.
For that and then some other innovations that were that rebuilt. So we're we're pretty much on track on the study we didn't exceeded we're a little under it will.
What we thought we'd spend for the year, but but yeah right on that we run on tractor.
Oh, okay. Thanks.
[laughter].
Next question is from Koji Ikeda with Oppenheimer. Please go ahead.
Yeah, Hi, this is Brian Schwartz sitting in for co J a cat. Thank you for taking my questions and congratulations on a on a very strong topline guide here.
I thought I'd ask I thought I'd ask a different question hasn't been I asked so far I don't know, if it's Robert or John to take it just a question on the competition and you know from your perspective, you know who are the main competitors that you're saying for the big conversational AI vision.
[noise] Your project and then in the market in those three new customer big deals that are done in the corner and and the new logos that you're winning you know who you're competing against most often.
We see on one side sales forces and a lot of accounts and on another side Genesis Coupe contact center.
They they're treating.
This as a like messaging as a channel.
So it's just like another child like email and so we obviously messaging is just the connective tissue for asynchronous communication and then on top of that we ride all the AI and automation and that's why we get these big deals done.
So we're able to if you're an enterprise you're not gonna get there using.
<unk>. The other thing is they don't really have messaging.
As a real technology.
To chat and then tried to make it a synchronous which I can tell you doesn't work very well that's why we built a whole new platform. So where we were doing just we're just crushing it on the enterprise side I, we've been looking at like our competitive said and more of the there's a lot of funding going in right now on the startup side.
In messaging, just like pure messaging and most companies are doing they're like 10 to 25.
5 million dollar businesses.
<unk>.
We're booking more than a quarter than they have in.
You're too of revenue. So it's we're just because we went early actus.
And we have a big vision of it.
And we were able to put now it's a couple of hundred million dollars worth of investment into the Tech stock. We're clearly just.
Really far ahead of everybody and we're gonna continue and we've got a lot of innovation coming down the pipe.
And so I think right now we're just leading the market we've defined the market we lead the market Republic cream the pricing structure for the market, we're paying the right partnerships to the market and and we're setting the high Mark the high watermark for the market.
Thanks, Rob and then a follow up for John and then I just have one maybe longer term class John John a couple of questions I I think it came up on the call I guess, we're just trying to figure out that those leasing changes on the restructuring caused by you talked about and in your introductory comments are you expecting those to continue next quarter or where.
They mostly one time and nature of this quarter.
They were one time in nature.
Great and then last question just bring it back to the rule of 440 vision.
You've talked about it you you know you're showing adhere. This corridor and then you know for the yeah. The the guidance here is for twenty-five percent top line growth. While I was wondering if the assumption is that that growth rate is sustainable even on higher numbers and then the cash generation can flow through on the sales pro.
Activity in the operational efficiency gains or you don't could growth go even faster than 25% based on what you're saying in the pipelines and the retention from your lens. Thanks.
So I'll I'll stop short of providing.
You know.
Guide to 2021, but I will reiterate what we've said on prior calls which was that 25% and 20 2021 is still on the table and in terms of whether that can be accelerated I think we'll we'll have to wait for the four to call.
Thank you for taking my questions. This afternoon.
Okay.
Okay. Thanks.
The next question comes from Zach Cummins would be Riley Securities. Please go ahead.
Yeah. Thanks for taking my questions and congrats on strong corner I guess in terms of your approach to real estate I mean can you kind of dig into that now that you've gone through these office lease terminations and and what's really going to be the approach over the next few years.
Yeah. So we we made a early decision is mei too.
Not go back into offices and do a work from anywhere.
Type of operational.
Uhm.
The way, we are going to work or build our company. So we don't have any plans to go back to offices. The first part is the.
You know the people who are leasing our offices to us cannot make the offices safe. So there's no point in even thinking about going back the second part is we.
We are finding that our employees are finding this type of work mode pretty good there there's a tremendous amount of energy around we have a small group right. Now there was actually about 50 people in the company of volunteer to create a whole new operating structure, we call beehive.
Around how do we how do we create a model around working from anywhere.
How do we do communications well our culture, we're talking about things like education of kids. So that this is a very complex thing, but it's not about the offices anymore. It's about I think the realisation that there's a better way to work and I've seen a lot of some Ceos.
Oh, we gotta get back to offices, and blah blah blah blah and.
And in our case, we have the ability now to hire people in any corner of the world and we're doing that we hired about 90 people in the quarter and some of them, we've never met but but we have a way to bring them on and they're excited to be here. So I think it's a great opportunity we are taking a different approach with our landlords we're fighting.
We will we will fight them I see that like Pinterest I think just wrote a giant check. They you know I just don't believe that they've got a bad product and paying them doesn't make sense unless they give us a product that will be safe for our employees, which they're not willing to do because they don't want to spend the money.
So we're taking the approach that we will fight them and you know, we'll see what happens in the end with that but but the energy we're putting in right now is making work from anywhere Ah model to expand the company and the demand and the company right now we have on our product sad and everything we need we just need employees and so it's interesting.
It's a it's an interesting time.
We call it working a synchronously.
Kind of fits with our motto asynchronous. So we're seeing I'd like to get good energy around it with our employees right now.
Understood and then just one final question for me with the surgeon COVID-19 cases, again coming upon us and and the potential for additional lockdowns in all the regions around the world I mean, how how are you thinking about this for your business I know the initial upsurge did cause some disruption, but also drove a big surge in demand.
And for you as well so just kind of curious how you're approaching this over the next couple of quarters.
It just it will still keep playing into our our strategy Uhm remember the number one thing is contact centers. So we've said for a long time that we didn't believe in traditional voice contact centers and they're got so.
Didn't think they would go this way you know I thought we'd just kind of like get rid of voice calls, which we're doing a pretty good job at but the guy. They don't exist. Some customers are trying to get them back running but employees are working from home. It's a challenge and conversations are getting automated and.
So the number one thing is those contact centres and that's they have been impaired and so we are working too.
Fill the gap of the demand of conversations and digitizing with AI. The second the second part is retail like we're seeing retail was not really a big thing for us because they don't have been contact centers, but what happened during covid is obviously with the shutdown of stores and now the opening and shutting down an opening and shutting down just make it.
On for another year.
The retailers need to digitize their relationship with their with their consumers and they want to have conversations like this jeweler, we spoke about the the largest seller.
Seller diamond jewelry in the world.
You're buying a ring.
Engagement ring, you want to talk to somebody and you want to do it in a digital format and so so we're able to power those things to to pull. The example last quarter, where you can use the pepper bought and configure a burrito and pick it up at the door you know the stuff we're doing it lows massive amount of.
Retail volume and conversational AI with them. So there's just a lot of stuff that's playing into Covid and the more continues the more drives demand for our our platforms.
The next question is from Brett now block with Bahrenburg capital markets. Please go ahead.
Hi, guys. Thanks for taking my question. So I guess, it's looking across your your customer base in respect to the the E. L. A N C. P ideals, what percentage of customers, having a deal and does it transition from one to the other have any impact on deferred revenues. Thank you.
Hey, Brad so.
Less than half of our customers have BLA deals and the.
The the question on deferred revenue I mean, it it's really a function of whether we get annual upfront payments.
As to whether you'll see deferred revenue move and quarter M B, a reasonable indicator or not and.
In this quarter, if you're looking at at differed.
I mean, I think it's helpful to note that we did have large deals sign that we're not.
That didn't come with upfront annual payments. So it's from an R. P. O perspective, mainly performance obligations I think you'd see a check up because of capture stuff.
Perfect. Thank you.
The next question is from city pennant dry with Mizuno. Please go ahead.
Thanks for taking my question and the last two quarters unimpressive and in fact, 20th tornadoes tired of it like 2021 for sound good kind of hit your twenty-five percent go go. This year, maybe you have benefited from this COVID-19 crisis, but I do look.
For the next two one or two years what are the key drivers for you know discuss 10. This is kind of gross.
You know the the the drivers are we keep opening up more vertical plays and so like health care right now remember last year. It was travel and entertainment travel and hospitality with big for Us actually with ginseng, they're still doing well are.
Airlines are are hotels, they're they're still doing a lot of volume with us which is kind of interesting, but we see more vertical is opening up like health care Uhm I know the government will be a big vertical.
Coming up and and so there's there's that play there's international expansion when we look at Southeast Asia and Asia as a whole South America like we're just starting to get these regions going and then it's just the proliferation of more and more things like Instagram.
These front end.
And points for the consumer they're they're all opening up and they need platforms like us to drive.
The volume so that that's really where we're seeing you know I feel like we're still at the beginning of the of.
Of the speaker of.
It's like eating too here because even in our base today. There's so much stuff. We can do with our just base of customers, which is which is also obviously a focus of ours. So so that's what we see where there's there's also on the innovation side. There's just a lot on me AI. When you think about what it's gonna do its going to free up capacity.
It's gonna allow us to augment work for humans were doing with agents today in some cases, we replaced conversations in other cases, we augment their work and then we're going to deliver more and more that will delivered inside the enterprise.
Hi, John and he's doing great work around our our enterprise in automating it but we're looking at tools such that he's building to put into the conversational cloud. So no things conversations you're having with HR departments internally legal departments should finance departments. All that we see is something that will come into the conversational cloud so.
So like so we're kind of in the second inning first thing was messaging seconding AI and now we're expanding across these different these different things I talked about.
Thanks for that color and then you'll get talked about some of this transfer my smaller projects like dealer Dot com already been vagility wanting to talk to about how how does the pipeline looked like for such kind of project.
They look good. We also are are we have a we didn't we haven't spoken too much about it but we have a marketplace.
Offering and we are working with a very big company in the U K, which has like a yellow pages.
Type of product and we are we created a a way to create thousands of automation like we were setting up thousands of small businesses and then we're simultaneously when they're setup automation or automatically set up so so small business can go live with pre packaged automation, but we.
It's thousands of thousands of small business, we can set up at a time. So there's a whole marketplace thing that where we've been working on for the last couple of months and and then where I see some big opportunities with that.
And with the payments platform honestly uhm, we're testing some stuff on the banking vertical we've we've created a vertical play around banking that we are starting to roll out and test. So there's some vertical plays around a full stack and and conversational vertical so Ah bank doesn't have to do.
Anything that could just kind of plug in to a full you I have full middleware, so where we have some stuff going on with that right. Now that was part of our investment we did for 2020. So there's a lot of lot of.
Some parts to this beyond just setting up big brands.
Thank you.
Thank you and the next question is from some odd Tomatoe with Jeffries. Please go ahead.
I get evening, Thanks for taking my questions submit.
Maybe just said <unk> <unk> as a starting point <unk>.
I I wanted to I wanted to touch on maybe the the a C V commentary in a in a sequential rebound could you maybe just help us understand <unk>.
How if we were to look at it on a on a nine month over nine months face S. Right. So kind of normalizing four two Q being a shallow period for a new customer bookings verses three Q may be seeing some pent up demand how does that compare somewhere because that's 300 per cent numbers really big right. So we're just trying to <unk> to triangle triangulate maybe.
Year to date versus year to date do last year.
Yeah. So the the way that I would think about that somebody is that we have brought new logo contract values ups are pretty banged up in levels. So.
The pre pandemic level thinking you know back in February January and December Uhm is what we've achieved in the third quarter. Obviously, the the growth rate uhm is only as meaningful hasn't space.
But I think the the former commentary I gave is really what I would.
Think is more more instructive.
Okay. Okay. That's helpful. And then you know I I guess as I think about <unk> for <unk> for companies that are you know better new logos, yes. As soon as you think about that the new contract signings in so, let's just a completely new to live person.
Given that they're trying to solve for a problem. That's ongoing is there <unk> is there a difference in how quickly customers are trying to get online are they changing maybe their ramp cadence as in Hey, let me solve for for problem acts or get my first hundred agents on sooner.
I guess, just how are they handling the implementation schedules given that the crime that they have a surgeon customer issues right now.
Yeah.
No. My retail example, I gave about the jeweler. It was a three months sales cycle to go lie and then go live very quickly because of the demand right now and they inherently the impact on stores.
During a physical stores during covid. So we're seeing a lot of movement. There very very large brands. There's a process you go through with them. There's some health care companies, where we're trying to close right now that are just so massive and there's a there's a process. We just got certified for high trust by the.
A way that allows us to go after the health care sector I was like the highest level of security and and with that they require so so that that takes maybe a little longer go after but the retail sector is moving quickly everything seems to be moving quickly house, it's showing up at the numbers.
Where what kind of a year ahead I don't know if people realize that we're gonna have $100 million quarter coming up in Q4, and if you look at your models.
That wasn't going to happen until somewhere probably towards third quarter next year or mid year. So can we hit our 25% will hit or 25% growth rate this year. So.
All of that is about speed and need people want to move fast and want to get on this stuff and get going so.
Great I appreciate the color and good to see the the strong results. Thanks again for taking my questions.
Thank you.
The next question is from Jeff Van read with Craig Hallum. Please go ahead.
Great. Thank you, Okay uhm, congrats looks it looks really good.
<unk>, how do you balance yeah, how critical is making a product easier to deploy out of the box and consume how how do you balance that need to make it easy to consume with adding all the bells and whistles you know obviously looking towards how do you accelerate the adoption just talk to me about how how where do you think you sit at this point in terms of.
Ease of consumption versus having the full feature set if you will.
Yeah, I mean, it's definitely Jeff.
It's definitely a balance b the enterprise I mean, we have initiative that's been going on for since the beginning of the year too.
Make the platform. So we can landed and then it can even in our our businesses and the people entirely could could use it and expanded without us having to do a sales or implementation process, which is which is happening today.
Where you if you really want to attack the mid market.
Let's call. It the small business you, we would want the platform to be at a different place, which is which we're working towards fairly quickly like we're we're pretty close to delivering put your credit card and go preset intense automation.
So we have all of that coming out fairly shortly uhm, but it's definitely about.
Where where where we.
Are doing very well.
The deep deep.
Intent based learning.
At the big brands need two automated a very high rates. So we can ingest now large datasets that they have and then our intent manager analyze that and then basically groups intense and then tells them which automation to create so they can.
Have the most impact that too along that that's a lot of technology that that towards driven a lot of business with and growth in the enterprise. So it makes sense of balance I think we we handle it very well. This. This example, I talked about the enter this marketplace that we set up is there.
The customer who runs this marketplace literally presses, a button and a thousand of their customers go live on a conversational front N and they have automation is automatically created at the same time.
And so that that marketplace, we're going to spend more money on that because that allows the scale. Other other things like like if we can take shopify and do an overlay on shopify and you press the button and every shopify customer could have a conversational commerce experience those are the things that were work.
Going on.
Cause that's where I see the real scale.
Helpful. When you think about the efficiency you sort of the flow the structure.
<unk> of sales Legion at this point what are the top couple pinpoints again kind of thinking to that how do you accelerate and and get the machine even more sort of friction free if you will what what are your key pinpoints. When you think about that Legion sales flow that that structure right now.
Hey, Jeff I think one dimension here that we've discussed before is the the lack of are sort of in person marketing events and.
We've addressed that to a large extent this year with with digital events and we've seen both the demand for those events and the pipe generated from those events increase throughout the year, including quarter over quarter and Q3.
So that's a positive sign that we're we're adapting to this new normal and finding ways to grow despite not having that that same option for in person marketing as we did last year.
Is it I mean, just wanted to be follow up there is a cost of you know the sort of the acquisition costs with customer.
Come down are coming down dramatically then I know there's those events you did were real high in.
Serious V. I P events is gone fully digital does that does it a radical transformation and the cost of customer acquisition here.
Certainly there are cost savings and efficiencies there, but I think that there. There is also learnings for optimizing the digital channels. So I think there's there's more work to be done there to fully optimized them, but the short answer to your question is yes, there are efficiencies game.
Got it okay, great. Thanks, that's congrats.
Okay. Thanks.
We had reached the end of our call today I would like to turn the call back to Rob a K C O for any closing remarks.
Thank you operator, yeah, I just want to end the call to reemphasize a few key points, we've had two consecutive quarters of sharply accelerating revenue growth highlighting how corona virus has exposed the inadequate of legacy voice contact centers and helping to compress adoption curves.
Customers want to get on the conversational clouds now we believe conversational commerce is going to replace not only voice calls, but a lot on traditional E commerce and we're seeing that started that today. So the voice calls already that that obviously the horse left the gate on that one a couple of.
Years ago, when we started but the E commerce be replaced by C. Commerce cause just starting and that's very exciting for US Uhm. We're also focusing on.
Internal automation and the the reason we brought John on and he's doing a great job. There you can see some of that is falling through to our increased EBITDA margins and will continue to.
<unk> put a focus on that and then you know I just wanna. Thank.
Every employee company working with a work from anywhere in and delivering these types of results and you know meet meeting the increased demands of our customers in the market they've just done an exceptional job and so I just Wanna think all of that.
What they've done so we'll look forward to having another strong quarter and Q4 and continuing to execute on our vision as leader in the conversational commerce space. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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