Q4 2020 LivePerson Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for standing by welcome to life Pearsons fourth quarter 'twenty 'twenty earnings Conference call. My name is Matt and I will be a conference operator today at this time all participants are in a listen only mode. After the prepared remarks, the management from life person will conduct a question and answer session and the 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 I would now like to turn the conference over to MS. Dahlia Rodriguez. Please go ahead.
Thank you Matt are joining me on the call today is Robert Locascio, My personal founder and CEO and John Collins, Chief Financial Officer.
Please note that during today's call, we will make forward looking statements, which are predictions protections and other statements about future results.
These statements are based on our current expectations and assumptions as of today and are subject to risk and on center 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-K, 10, Qs and other reports we file from time to time with the FCC.
We assume no obligation to update any forward looking statements.
Also during this call we will discuss certain non-GAAP financial measures and reconciliations on GAAP to non-GAAP financial measures is included in today's earnings press release.
This press release and supplemental slides, which include highlights for the quarter.
Our available in the investors relations Investor Relations section of life's personal website with that I.
We'll turn the call over to Robert Robert.
Thank you Dahlia.
You for joining life first since fourth quarter 2020 earnings call, we had awesome quarter.
With records across revenue profitability and customer wins life.
<unk> person delivered one of the strongest quarters in our history revenue for the quarter was $102 1 million, making Q4, our first $100 million quarter year over year growth for the quarter was 29%, which exceeded the high end of our guidance range and marked our third consecutive quarter of 25% plus revenue growth.
For the full year, we grew revenues, 26% year over year exceeding our long term growth of 25%.
One year ahead of plan.
Our continued focus on internal automation and enhanced financial discipline also increased our operating leverage Q4, adjusted EBITDA of $18 2 million or 18% margin exceeded the high end of our guidance range and translated to a second consecutive quarter of hitting the rule of 40.
We ended Q4 with 10 seven figure deals a new record four of which were new logo wins.
We have seen the return of momentum in new logo acquisitions with new logo annual contract value doubling year over year, which is complementing our strong growth within our existing customer base.
Before going deeper into the key wins in the quarter I'd like to take a step back and share a few thoughts on what is driving our success for years ago, we shifted our strategy to focus on conversational AI and automation.
The rise of the AI represents one of the greatest leaps forward in technology across all industries.
Cause of its contribution to our success and its central role on the strategies were executing against I'd like to unpack.
What AI really means to us.
When we speak about AI there are several dominic categories, there's robotics from companies like Boston dynamics.
GPU makers like Nvidia and software companies like Google, Microsoft Amazon that make AI technology and general purpose tool sets that can be applied to things like image processing to autonomous vehicles.
In simple terms AI enables the processing of outcomes and goals at scale beyond what its single or multitude of human brains can do at any normal capacity.
It starts with having a very large set of unique data.
Our dataset is unequivocally one of the largest for consumer engagement interactions in the world.
Analyzing that dataset, which in itself we had to develop a set of powerful tools allowed us to think exponentially about what big processes and challenge is can we saw that exist between our brand and consumers.
For example on average 30% of conversations that happen with a telco or a credit card issuer around bill pay therefore, we created an AI to automate bill pay which can deliver tens of millions of dollars in savings for our company.
And in order to deliver scaled automation flight. The Bill pay example across tens of millions of transactions a month that ride on our platform, we had to do things like build our own L. U.
Which is a process that interprets human language and a unique setting like customer care.
Then we had to build the tools to extract analyze and annotate the data to make the data rich.
As we just announced yesterday, we launched AIA annotator, which takes normal contact center agents. It puts them in the middle of AI automation by enabling them to enhance and tag conversational datasets.
Let me take all that data that rich data we.
We have the tools to create what we call you know consumer experiences or what's known as chat box and finally, we created a world class business messaging platform to deliver those automation to numerous endpoints overall nearly 70% of our messaging conversations rely on this AI technology stack.
For the past four years, we have built a lot of intellectual capital.
We have filed nearly 100 patents from a team that includes some of the best data science and engineering talent in the world.
Our four year lead Nique dataset talent intellectual property and vision.
It is definitely on matched against any competitors in the contact center space and also against the likes of Google Amazon and Microsoft when it comes to conversational AI.
Volume on the conversational cloud skyrocketed during black Friday, and cyber Monday with peak conversation volume growing 200% year over year. Our latest global survey in September of 2020 reveal that 85% of consumers worldwide want the ability to message with brands up from 60.
5% the previous year, and 75% say they are more likely to make purchases if they can browse and get answers over messaging.
The shift in consumer behavior as a tailwind that we expect will only intensify over the next few years driving a shift in traditional retail shopping web and in App based e-commerce to conversational commerce.
In fact, we're seeing a massive opportunity ahead with retail brands that want to use the conversational cloud to drive incremental sales and revenue on those.
Straight with a few examples of our big wins in the quarter.
One of our notable new logo wins is a multi year deal with one of the world's largest crypto currency exchanges, marking a strong entrance into this rapidly growing segment.
Their platform host millions of users with billions of trades globally as they ramp their business to use of human agents to answer questions has become untenable.
Previously customers were using a system from one of the leading CRM providers with a focus on using email and online ticketing as the primary communications channel.
The inefficiency of such a system create a ton of operational issues that created tremendous customer frustration.
Maybe became a customer because they are aligned with our vision of AI and are able to see how they can quickly ramp up automation is using our tool sets by content manager and conversation builder.
Another notable win during the past quarters strategic multiyear multimillion dollar agreement with William Hill Group, a global top five gaming company with millions of consumer interactions per year.
My first name William Hill will implement and expand the conversational cloud platform across the Companys key brands, including William Hill and Mr. Green.
The deal was closed within three months the goal of Lai personal replacing a legacy <unk> platform and quickly re envisioning the consumer experience. They will take advantage of life persons customer service sales and marketing solutions, including our highly differentiated two active to weigh on proactive messaging capabilities with William Hill on Board.
Three of the top global sports booking and gaming companies are now live person customers.
Another exciting win in Q4 as with one of the world's top Covid rapid antigen in home testing companies.
We were introduced to this opportunity through one of our existing banking customers, who was seeking a scalable testing solution to safely bring back its employees its branch employees and.
And trading floor employees back to work, we developed an AI powered conversational experience on guides and employee to take the test and analyze the results and then generate a health pass. So the employee can go back to work with a high level of efficacy.
This was a seven figure deal secured within a record 11 day sales cycle as part of a number of offerings. We have created for COVID-19, including ones around vaccinations, which we are deploying with state governments and.
In addition to the robust momentum in new logos. We also signed multiple expansion deals with existing customers in the last quarter.
Top five U S Airlines signed an upsell and an effort to consolidate their tech stack and add our social media capabilities to their messaging agent repertoire.
This airline represents the first flagship brand to leverage our new platforms, social messaging capabilities to communicate with consumers across platforms like Twitter Facebook and Instagram.
Partners continue to be a key part of our go to market strategy, especially around new logos in 2021.
A highlight of our partnership expansion in Q4 was with IBM Global business services.
Live person and IBM will work to go to market and deliver on AI based solution to clients across industries strengthening our go to market reach.
Three of our key wins in 2020 were facilitated by this partner.
Infosys join life versus last quarter, and a first of its kind 360 degree channel partnership.
We're seeing great progress in during the quarter, we developed a strong pipeline for the conversation cloud with an emphasis as client base. We're working closely with key vertical groups within infosys, including consumer retail and logistics finance services and the TMT group.
Looking ahead to 2021, we'll be extending our focus to go after retail and commerce opportunities and we'll continue to build out a number of key areas of our platform, including payments social media proactive messaging and AI based consumer intelligence and targeting capabilities we.
We see the potential for sales and marketing use cases more than double as brands look to enhance traditional advertising shopping experiences.
Our latest estimate suggest the conversational cloud is already supporting our approximately $5 billion on annual transactional value and we're <unk>.
Just getting started.
And finally, given the success of gain share and our partner network and the renewed momentum in new logo acquisitions were making strategic investments to continue accelerating growth from these go to market channels.
And with that ill.
I'll turn the call over to John to provide an operational update and more color on our guidance John.
Thank you Rob we.
We closed 2020 with exceptional business and financial performance, surpassing previous records across several key metrics in the fourth quarter, including revenue profit the quantity of seven figure deals average revenue per customer and billable platform usage, we exceeded the high end of our guidance range for the top and bottom line once again, demonstrating our ability.
<unk> to enhance operating leverage while aggressively growing the business.
Overall these results reinforce our position as the clear market leader for conversational AI and demonstrate the ease with which our platform can be adapted to meet accelerating demand across the broad spectrum of use cases industries and geographies.
Building on the latter point the world has been undergoing a steady digital transformation for decades, but the pace of debt transformation as we've all observed accelerated significantly in 2020, including usage of the conversational club the agility of our platform and developer tools enabled our largest enterprise customers to expand from saving costs.
And enhancing customer service experiences to generating new revenue streams from conversational commerce and.
In total as Rob mentioned, we estimate that the gross value of commerce on our platform has increased from several hundred million dollars to approximately $5 billion in 2020.
With our long term vision, taking shape and significant forward momentum I'm excited to expand on our 2020 results and plans for the year ahead.
Before shifting to the fourth quarter numbers I think it would be helpful to put our 2020 results into perspective on.
The fourth quarter call one year ago, we issued guidance of 21% at the midpoint for full year 2020 revenue growth and reaffirmed our long term plan to reach 25% in 2021 with that context top of mind exceptional execution by teams across the company drove 2020 full year revenue to $367 million or 26% year over.
A year.
Passing even our long term growth expectations, one year in advance as I alluded to a moment ago customer expansions into conversational commerce drove the bulk of that upside.
In the fourth quarter total revenue grew 29% year over year to 102 million exceeding our previously issued guidance of $98 million to $100 million or 24% to 5% year over year as Rob mentioned, the fourth quarter marked our third consecutive quarter of revenue growth at 25% plus and.
And our first quarter to exceed $100 million on.
Unpacking the upside there continued momentum in new logo demand leveraged from our partner network gained share and over performance by our consumer segment all contributed materially to those results.
In terms of new logos annual contract value of approximately doubled across the board.
On a year over year basis, driven by a corresponding doubling and enterprise new logo accounts.
The success, we've had with new logos in the third and fourth quarters as strong evidence that we're seeing a resumption of normal new logo pipeline growth.
The continued success of our partner strategy also merits highlighting partners on materially enhanced our operating leverage by multiplying our feet on the street and establishing a robust ecosystem of systems integrators.
In the fourth quarter. This strategy contributed $2 seven figure deals, bringing the total to 10 and breaking the previous record for seven figure deals in a single quarter.
Within total revenue <unk> hosted software and consumer segments, all grew 29% year over year gain share performed inline with expectations at 15% of revenue.
From a geographic perspective U S revenue grew 37% year over year and represented 63% of total revenue international grew 18% year over year and represented 37% of revenue.
Significantly we continued to build momentum in EMEA with contract signings growing over 50% year over year in the fourth quarter.
Average revenue per customer grew 35% year over year, reaching a new record of 465000.
Revenue retention continued to surpass the high end of our target range of 105% to 115%.
In terms of industry trends year over year growth was led by retail and consumer followed closely by financial services and technology.
Retail and e-commerce are seven.
Industry within retail and consumer was also the fastest growing in terms of global platform usage, driven by demand for conversational commerce and the incremental revenue we generate for our customers.
Overall billable platform usage continues to accelerate in 2021 nearing the high watermark set during the fourth quarter seasonal peak when volumes were up 200% year over year.
Turning to the bottom line fourth quarter, adjusted EBITDA was $18 million or 18% margin.
<unk> at the midpoint of our previously issued guidance by $8 million and marked the third consecutive quarter of double digit Margaret.
We also operate it the rule of 40 for a second consecutive quarter overall margin expansion was driven by top line performance increased budgetary discipline.
And in turn on automation, which reduced hiring requirements throughout internal operations.
Approximately half of the upside above our previous guidance was a function of delayed investments in R&D and go to market capacity that we are accelerating in early 2021 for the full year adjusted EBITDA.
In 2020 was 38 million translating to a 10% margin.
In terms of free cash flow, we improved cash burn by $98 million year over year burning on the $8 million for the full year.
Compare that to our original plan to cut cash burn by 50 million in 2020, we also materially strengthened our balance sheet by raising $518 million and zero interest convertible notes maturing in 2026.
Turning to the full year guidance.
We closed 2020 with exciting forward momentum, giving us confidence that we'll continue to accelerate growth.
As a result, our guidance range for 2021 revenue is 458 million to 466 million or 25% to 27% year over year.
Our guidance range for adjusted EBITDA is $33 5 million to $41 5 million or 7% to 9% margin.
Note that as we guided during the third quarter call. We expected full year margin in 2020 to be approximately 8% due to planned investments in go to market capacity and product development.
Those are key growth drivers and as such we are accelerating those investments in the first quarter.
And this is the key reason, we'd expect similar margin for the full year 2021.
In terms of go to market capacity, we are presently working to increase quota carriers from approximately 80 to 110.
As for the first quarter of 2021, our guidance range for revenue is $103 million to 104 million or <unk>, 32% to 33% year over year.
Our guidance range for first quarter, adjusted EBITDA was $5 million to $7 million or 5% to 7% Martin.
Before taking questions I'll briefly reiterate several key factors underpinning our success in 2020 and expectations for the year ahead.
Platform usage continues to accelerate with 'twenty 'twenty, one levels already approaching the fourth quarter seasonal peak.
We broke our previous record for seven figure contract signings in a single quarter.
New logo contract values doubled year over year and on once again materially contributing to our growth our.
Our strategy is to enhance operating leverage on the expense side through internal automation and on the go to market side through our partner network are both exceeding expectations and perhaps most importantly, our vision for conversational commerce has taken root across the market and we expect our platform sales and marketing capabilities to continue driving upside in 2021.
Operator, we're now ready to proceed with questions. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys. If at anytime you question. That's been addressed and you would like to withdraw. Your question. Please press Star then two to give everyone an opportunity to participate please.
Limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question will come from Richard Baldry with Roth Capital. Please go ahead.
Thanks.
Given your growth has accelerated or beyond and faster than you'd expected could you talk a bit about the status of your organic growth engines and I heard the 80 gross to 110 figure for our head count, but how do you feel about how mature that group. He has got in is you know do you feel like there is some catch up to do.
Because it sort of outperformed you faster than you thought is there something that would sort of gate early year growth.
Given the outperformance you had sorry on the second half of 2020. Thanks.
Okay.
Thanks, Richard Yeah.
Yeah, I mean, we feel good about the current team honestly they performed very well last year. If you remember we the year before we did a lot of hiring of that team and it takes.
Six months or so to get them, a little bit longer to get them up to the capacity. So the team. We have is I feel very strong in season, and now where we're ready to add another group.
To expand because of the demand in the market. As you know also we have partners. So we we got very focused on partners last year and that's also showing good results, especially on the new logo side. So I think we feel good about the current team the leadership is doing a great job and.
Did you see this demand out there right now that we want to be able to go out and and Landon and and sell.
In addition on that Richard I would add debt.
From a productivity perspective measured in terms of quota attainment per rep. We have seen that increase every quarter in 2020, and thats driven by automation is that a lot of reps to focus more on selling unless on data entry and pipeline analysis.
In addition, we have fully automated and accurate sort of bookings prediction model that allows management to course correct early in the quarter and optimize the playbook with machine prescribed actions that increase our win probabilities so with that machine starting to take shape, we have confidence to continue increasing.
On a go to market capacity.
Okay and.
Can you maybe look at the partnership side, a little deeper about how that works in terms of economics, maybe and how far the partners can take you through a sales cycle and or even an into an implementation deployment cycle sort of how much burden is on your guidance versus them and whats the rewards to kind of keep them motivated.
Thanks.
Yes, so in terms of the economics.
We typically will have a presale of credits to the partner that the partner receives a discount. They then resell those to their installed base in terms of the latter question on who does most of the work upfront.
Right now, we're putting most of our PS work through these partners and our goal is to put all of our P. S work, especially for those industries for which we have a well established playbook into the hands of our partners.
So right now there is a healthy balance of life person, helping with implementation and the partners running what that themselves. Our goal is for the partners to be fully self service on our platform in order to serve those end customers.
Great. Thanks, and congrats on a great close to the year.
Thanks Rich.
Our next question will come from Zach Cummins with B Riley. Please go ahead.
Hi, I was wondering this is Danny on for Zach I was wondering if you guys could comment on any changes you've seen in the messaging landscape, especially as peers like Zen desk are investing into your channel I know you guys mentioned that you guys.
Started investing pretty early on but I was wondering if you could comment on the competitive environment.
Yes, I mean, we we pioneered the business messaging platform on four years ago, We released it and so the pure messaging platform is the <unk>.
Best in the world the AI capabilities as I explain because as you scale conversations what the customers want is automation.
So if.
A lot of them are treating messaging as a channel and yet the majority of the interactions they have on.
For instance on this crypto currency exchange one of the largest in the world.
They use what they actually use that one and we're replacing it because the they are predominantly strong with ticketing and email.
And then they've added messaging capabilities, but if you look at a customer like that that's once this has millions and millions of conversations they need to power the cat power them with humans doing messaging on some base level automation they want to create an asynchronous communication strategy with messaging, but they want all the power to automate those conversation.
At scale on that's really where we're winning.
The business and that's where we continue to be.
As I said in my opening remarks sort of unmatched because of our data sets and then all the IP now we have on that side, we continue to invest.
Tens of millions of dollars into it every year.
So we've got a strong leadership position right now there, but I expect a lot more to come in I mean messaging as Todd.
Now we knew that years ago, when we went into the business and we've made a big bet, but now it's like it's hard and there's a lot of people entering but its mostly I see small business mid market stopped SMS.
But doing the real scaled automation, where the real money is that.
We are owning that area right now.
Got it. Thank you and I was wondering if you could speak about some of the opportunities that you're seeing outside your core verticals.
Yeah, I mean, it's really interesting.
The focus so this year just I've mentioned in the remarks debt.
Retail sales and marketing is where we're going this year, where we definitely have laid a lot of ground in the care operations and we will continue doing that but we are seeing a lot of opportunity in the retail area.
And retail is definitely transform because of the changes and obviously stores and stuff like that but there's just a real focus on on digital and.
And where we.
We haven't on the biggest jewelry companies in the world and they're doing amazing things I saw their CEO on Cramer last quarter in talking about how the whole online business is booming we're powering that.
So.
We see a lot of opportunity on the retail side I talked about like we have the gaming side.
Even this crypto currency exchange the one of the largest COVID-19 testing in home one of our customers and one of the largest banks came to US and said we want to get our our branch employees back to work they were doing.
TCR tests, which are slow take three days to get they want it in home antigen tests, but they needed an AI.
The employee can be in their home open up the mobile device be instruct instructed how to take the test with high efficacy get a result report that result, and then get a health pass and we built all the connective tissue.
For that and that launched last week and so we're seeing we're bringing branch employees back to work.
So there's all these cool things going on right now that we can power because of the it's really AI and automation.
Some of its messaging, but that's really around all these different things. So it's interesting this year is going to be interesting, especially on the retail side.
Got it thanks for the color and congrats on the quarter.
Thank you very much.
Our next question will come from erosion Bhatia with William Blair. Please go ahead.
Hi, This is Chris on for origin, congrats on the quarter.
Wondering if you could share a little bit about some of the early success you may have seen with rolling out the payments offering.
And then if you can give any color on when we might expect to see that lay on revenue. Thanks.
Yeah, I mean, we're seeing some good usage of the platform right now.
We have not given any.
Bacon of how that's.
Impacting the revenues are shared there will be some up some of that I think next quarter, we'll talk a little bit more about it.
Give us some examples because we're seeing some good usage of the platform.
But yes, I mean, our whole strategy around commerce.
Starts with payments and the ability to take payments and that's why going after these retail opportunities.
Conversational commerce opportunities this year is predicated on that platform.
So as we once can sign more and more of those types of customers, who will talk about how the payment platform is driving that but we feel we feel really good about it.
Awesome. Thank you.
And then I just wanted to check and see if you could offer some color around where you stand on migrating customers to CPI contracts, if you've experienced any pushback on that so far.
Hey, Andrew.
Or Chris No no pushback in that front, we migrated about 15% on.
In 2020, which was ahead of what we expected and we have about two thirds up for renewal in that respect in 2021.
Yeah.
Awesome, Thank you and congrats again on the quarter. Thanks.
Thanks, a lot. Thank you.
Our next question will come from Mohit <unk> with Barclays. Please go ahead.
Hey, guys. Thanks for taking my questions and I'll offer my congrats on a really strong end to the year here.
So my question is on the land and expand motion.
It's great to see that the day.
The new local AD sales sort of like I think it was mentioned that it's back to pre pandemic levels and obviously, the new logo ACB doubling again.
Again, it's.
Quite a good.
Parameter.
Question was on the expansion. We're excited I think you have been coming in ahead of your target range here for the last few quarters right and if we look into 2021 and beyond I was wondering if you can talk about the sustainability here right I mean, obviously, we know that COVID-19.
Covid accelerated stickler adoption, but but it just customers up to the reality here right. So if you can speak to the sustainability of growing debt usage growing debt expansions.
Retention among the customers in 'twenty, one and beyond it will be very happy.
And then I have a follow up question.
Sure.
The way we see it is that the pandemic was kind of a forcing function for adopting digital solutions and because as we've discussed automation is so key to powering those digital solutions at scale. It really is very sticky so in a post pandemic world or years.
Years from now.
When you built the machine to solve a problem for a customer or a brand.
And it does so effectively at a high level of customer satisfaction youre not going to revert.
Put that problem back into the hands of human later, which is more expensive and less efficient for that debt problem that you've solved so from that standpoint our.
Our automation our increased usage is highly sticky and on top of that I would say that from.
From a from a expansion perspective.
We're only penetrated today lastly at the beginning of last year, we are penetrated into our base in terms of the fraction of total conversations across voice messaging chat that we service on the platform approximately 10%.
Our latest estimates have that number more in the range of 15% to 20% again on average across our entire base. So that leaves a lot of room for further expansion.
That's very helpful color and then the second question on I was just a follow up the CPI on a question also on your can you give us an idea of when you might get discussed on this award for the CPI contract like what what's the Ah.
Change you've seen in terms of the customer spend.
And Thats it for me it varies of course, but typically we see upsell.
There are some where there's an initial period of lighter revenue coming off in L. A and then as they ramp into.
On the high end of the usage that we've contracted with them.
We see better results in the form of upsell on overdose, but in general these are upsells that take place and to cite an example from last year.
Rapidly we converted a top bank from any latest CPI contract and within just a couple of months.
We had a seven figure upsell because of how much volume day.
The route into our platform and of course because of the CPI structure. So in general.
It's a very good tool for us.
Thanks, guys.
Our next question will come from city Pantry with Mizuho. Please go ahead.
Thank you congratulation, that's a great quarter, but also I just wanted to dig into the guidance very impressive guidance for 'twenty 'twenty. One so you talked about elas converting to a C. P. A contract, but what are your other items SUNS in terms of debt when you guided 25% to 27% mainly.
Gain share do you expect that to be at this 15% level and then what sort of trends are you seeing on the CPA contract that coming up for renewal.
In terms of growth coming from there.
Sure. So as you pointed out gain share is certainly part of the equation.
Variable source of revenue, we don't have as much visibility into it as we do with recurring revenue, but nonetheless, we have a large pipeline that we're chasing right now another core factor here are all the new use cases that have been driving revenue for us in 2020, we're expanding.
On those use cases and in almost every industry, which again is a major factor and then overlaying that is commerce conversational commerce and our vision for that as I said is truly taken root in the market and the demand for our solutions the demand that consumers have to simply have a car.
Recession with brand before they purchase product is driving adoption of the platform and in part it's driven by the consumer and in part it's driven by the revenue the incremental revenue that we're generating for our customers so because of those trends.
We have confidence that we will continue to accelerate from where we were.
Okay, and and then on the investment side, you talked about the go to market investment. So are you planning to add more head count on in our quota carrying sales rep or are there any other areas you are investing.
I mean, where we are well go ahead Rob.
So yeah, we obviously, we've got partners, we have our direct sales quota carrying reps we have.
Part of our business called where would start call marketplaces, where.
We are working with partners that already have.
Bunch of merchants a bunch of.
Small businesses and we've put an overlay on top of that and we can fire up thousands of these small businesses on too.
Our our platform so theres some theres areas that we're investing in those key areas today, but those are kind of the three areas that we're looking at on John If you want to expand on that.
Sure.
Say that.
As we highlighted throughout the remarks, there is certainly a focus on AI and we're making some significant investments there not to get too technical but probabilistic dilute management is an area of focus for us as it is natural language generation, which we think collectively will dramatically enhance the consumer experience and our overall automation capabilities were.
We're also focused on making implementation faster and easier both for us and for our partner network and that includes where necessitates. The addition of many more out of the box integrations for the enterprise.
Yeah, that's great and just want to clarify also that.
What sort of efficiency, you're seeing in terms of so on your initially of ease on leveraging data and mainly a million on the back of the site and also any any kind of benefit from now that you are working from remote working permanently.
You mean, yes, so us being efficient.
From working from home I mean, we're obviously.
Not traveling.
Yeah.
That was a strategy around sales, but things have changed so you see some sales cycles have come down because you don't need to see somebody face to face on all of that I mean, so I think we're obviously seeing a lot of efficiencies on marketing and travel and all of that.
And we're also just rethinking how we're selling and there's some things we're doing with video like all of our reps are using video and there's a lot of stuff that we are rethinking because we've got to continue having a certain level engagement with prospects and customers, but obviously the old model gone on.
The big conferences in <unk>.
Direct sales folks flying on planes, and obviously I think this year, it's going to be like that and it just may be the way it is for the future.
And obviously, we're doing more on our platform to make it self serviceable that our customers can use the platform that they don't need people.
Go on and sell them more important and we can do everything remote as we've shown and scale the business quite nicely. So right now we're in a good place with and we're going to stay like this where we're not going to go back to offices.
Given up our offices, we're in the middle of it. So we're building a new way to work, but it's definitely not back in offices.
Great. Thank you.
Okay.
Our next question will come from Sterling Auty with J P. Morgan. Please go ahead.
Hey, guys. This is drew on for Sterling I was wondering if you could clarify the commentary around that 5 billion.
Annual transactional value is that the G. M D equivalents moving across the platform or what is that exactly.
That's correct Jim day.
That's correct Jim.
Yeah.
Okay.
Yep.
The GMP.
Got it thank you.
Okay.
Our next question will come from Ryan Macdonald with Needham and company. Please go ahead.
Yeah. Good evening gentlemen, thanks for taking my questions and congrats on an excellent quarter, Rob I'd be curious you mentioned, how sales cycles have continued to come down.
I'd Love to know do you think that's driven more by sort of increased demand in the end market or improved sales productivity I guess as you're looking between the mix and I noticed the success that youre seeing seeming to have more outside of the core customer service use case do you feel like we're hitting an inflection point in terms of the.
Net of knowledge and understanding of the end market.
On a different different applications for conversational AI.
Yeah. So on the sales cycle one yeah, we had some very short sales cycles.
It's just it's really companies that want to do very scaled automation.
And.
I mentioned, a couple of them but.
That's where they just they come in and then like I Gotta go and obviously there was some COVID-19 stuff, but we're kind of past that and now it's just.
They've got we'd go back to the crypto currency exchange, it's one of the biggest ones.
Theyre scaling massively right now and they are suffering.
So they just got to go and they got to get the automation quickly.
So the messaging the messaging parts are very important as a delivery mechanism.
And there's definitely a maturity and thinking I can say that remember we launched four years ago in like T. Mobile is the only customer in the world. When we launched that actually did business messaging and now that's that's radically changed so it's definitely in People's minds that this should be the way that.
Rand can communicate with their consumers so that kind of checks that box and then next level is how you're going to do that at scale and what tools are you going to use and automation and we've gotten much better at.
On the set of tools, we have a really rich around.
How we can even bring it we just announced this.
This whole agent annotator that if you have agents instead of them taking messages. They annotate data. So there are like data annotators.
And they can make that data and preparing to be in a place to be automated. So I think as our tool set has gotten richer and it's easier and you can do more with it it's opened up more use cases like the antigen in home test I mean, we brought that to market.
Pretty quickly in a matter of weeks.
Because we have these really robust tool sets that we put together and then we can give a solution. So that's really what's happening in the market and I think this year, there's going to be a lot of other interesting use cases.
As automation and AI take hold in many different industries.
Excellent and as a follow up more of a more general housekeeping I think.
Historically as we've looked over the past few quarters, you've talked about total deal counts and mix between new versus existing obviously you saw some very strong metrics on the seven figure deals, but could you provide the total deal counts on the mix between new and existing.
Yes, I'll provide maybe some higher level color in that regard. So I think one while deal counts overall, we're down I think it's important to take a step back and consider our broader results right a significant beat that we had on the top and bottom line.
On the deals that we did close on more smaller a number of those deals were far greater than value. So for example, as I think we've mentioned already we closed 10 seven figure deals in the fourth quarter and four of those were new logos.
Overall average new logo contract values doubled on a year over year basis, and I think that's exactly the kind of trend and we want to see.
Our new logo business and business in general.
Within enterprise However, new logo accounts also double on a year over year basis. So we're seeing a lot of positive indicators.
Demand from from that perspective, as well as of course, the top line metrics that we've reported.
Excellent clearly some great momentum in the business Congrats again.
Thank you.
Okay.
Our next question will come from Jeff Van <unk> with Craig Hallum. Please go ahead.
Oh, Hey, guys. So a couple for me I am maybe Rob just to start with you I'm curious.
She was a higher level of competitive landscape issue as you move down market.
On the smaller enterprises it at what point is.
Is the messaging capability from somebody like a Zen desk enough or you know you see some of the <unk>.
Guys bring to varying degrees messaging and you know I guess the question is at what point is the customer just say you know what this is a platform. We've gotta do super innovative things here and this has got to be very robust and we gotta go for best in breed versus <unk>.
It's good enough if its part of a suite. So embedded in there. Obviously is are you are you because your deal sizes rising do you find yourself, just seeing bigger better win rates at the high end on these very complex deals and the further down market you get when rates go down or customer interest goes down.
No I don't think so it's a matter of fact, we introduced this marketplace.
Platform that allows us to go after firing up thousands of companies for instance, we have.
There's a company in the U K.
Yellow pages of the UK the largest but they have all of these day of a digital property, where there's tens of thousands of small businesses on there and because they've transformed to digital over the years and we built this platform to enable all of those businesses to create conversational experiences with automation. So this isn't a plumber taking our message.
This is I can message into that plumber and it gives me like where are they what are they opened it gives like basic information and it's worked quite well. Then then it goes to a live person from there.
I don't see it as any different.
Obviously, it's the automation capabilities, even in the smaller businesses they want to automate and that's where these companies kind of fall down, but they are messaging platforms, they're not that good.
They're not a synchronous they don't scale very well took a long time you know EBIT on this for a while it took a long time to build that.
So.
We feel we feel like we still got a world class messaging platform and then we've got these really powerful tools on top of it. So we're going after that space and.
We're going to expand different product features and we went after social some of the social guys are Stein, though I want to get into messaging. So we added the social capabilities and we're going to continue we have a full group on it.
And there we're taking.
Social platform business away from those guys to get into a single platform. All I have to do is add voice, but that's the last horizon and.
You know that's that's it's basically we've got all everything else covered except I need the voice platform and so we just may head in that direction and create more of an Alexa style voice <unk>.
Just to bring that onto our platform and Thats something I E. I wouldn't be surprised if you saw something like that from us because I'm just kind of what I would like to take that volume and automated I really want to automate that stuff. So that's kind of where we're at so that we kind of finish off the care and then we get all the sales and marketing coupons and.
All of that stuff.
And would that be with respect to that the voice capability something you've you're in process on developing is that a bill by I guess is the question.
No I think well talk more of it and put it in the prepared remarks.
But.
We're looking at different alternatives, we already so obviously connections the voice platforms that are out there.
So even Amazon.
Amazon connect and all of that we have integrations, but I think there's more we want to do that.
We are an engineering team and Alex our CTO was these are the core engineering team from Alexa. So when I brought Alex on three years ago. The concept was one day, we're going to power like these types of things.
I think we're at a place where we want to start looking at it and as we get more I'll talk more about it in the future.
Sir if I could just I want to sneak a couple of other quick in the deal counts then robin that are in that context.
You know, obviously, great quarter, great guidance, So no no shadow over any of that but the deal counts being down how would you think they behave in 'twenty. One should we should we start to see growth in both you know expansions as well as new logos total deal count starting to pick up how do you think about that.
Yes.
We got very focused on the enterprise.
And.
I would expect.
The accounts to go up but we don't really we don't really focus on it per se and focus on our the our overall revenue in our mix.
And if I take the marketplace concept that counted as one customer, but actually there's 10000 businesses that are now powered on our platform, but we count that as one.
So we so I don't the way we look at the business as we look at it from whats the bookings and the revenue impact of that and then we look at on an overall mix, obviously, where we are still skewed towards high end mid market and enterprise, that's our sweet spot because that's where the volume is but I think these.
Marketplace concepts will really far up eventually if we turn to reporting on the individuals businesses that are part of those marketplaces like yell or or we'll do something else. So so we'll see but but I feel I feel good about where we on the revenue mix.
And last I guess, just can you put a little finer point on the bookings I mean, you know our appeals are somewhat helpful. Deferred is not so much I mean, you know nothing really tells a holistic you talked about new contract value up to action deal counts up but it's not a holistic bookings number can you tell us something more about the total value of bookings in the quarter, either give us a percentage year over year or maybe a.
A little more qualitative.
I'll take that Jeff.
So one I would say you're right.
<unk> is not an optimal proxy here for bookings or demand generally because of variance and contract structures.
Timing of invoicing and the like we had a lot of which several I should say the large deals in the fourth quarter for which we didnt receive cash advance rate. So that means there's a direct impact to deferred our view I think is a better metric than we did increased 21% sequentially.
From that perspective, but even that Jeff doesn't Inc.
Including the benefit from interest because of that variable source of revenue so.
When you think about it from that perspective, we havent really strong indicators for the demand that we're generating and the momentum we're entering the year with.
Yeah, well great job guys.
Thanks, a lot Jeff.
Our next question will come from Brett Knoblauch with Bahrenburg capital markets. Please go ahead.
Hi, guys. Thanks for taking my question on maybe just one for Rob as you look out maybe three four years.
Do you envision I guess my first being more of a conversational AI as a service provider, where you have coal business is being built on top of your AI and I think what youre doing in the Fintech space is a great example, with body bank, but do you think that is gonna be a meaningful driver or development.
Three to five years, I guess, how should we think about that.
Yeah, I mean I I.
I would like to see one day and this is more of a five five years.
We plan pretty long term, but yes.
I'd like to put something one day in People's homes that are on.
AI that people can trust.
And they can get things processed intense in their life.
And obviously talked to it like on Alexa, but that's something that they actually trust and caring.
You mentioned like Repowering.
Bella, which as a bank and we built that platform, we built that off of our platform to show. How you can build on this sort of compassionate loving and trustful AI and we manifested into a bank, which also by the way helps payments in it. So if you look at Bella loves Dot knee.
As shareholders you can see how we we built this business on its doing quite interesting things, we're learning a lot, but yeah I see these markets health care.
Banking insurance.
As big market spaces for us to build a business on top of it and then ultimately we have this general purpose AI that you can really get your most important intense fulfilled I want to buy a car to I need to check my health too.
I want to again alone for a buy a house and the interesting thing is because we have this data.
We have this extraordinary dataset, which is just hard to quantify the shareholders.
That is so powerful because we understand how humans how people ask for questions. How they how they asked to get alone and that so and we've got millions of those things so.
Around that one use case, so that's where I want to go with the company and I think ultimately I've said this for conversational commerce will have a brand.
And.
Amazon's got Alexa and you've got Facebook with their messaging platforms, you have siri, you've got Google home, but ultimately.
Why can't we take a shot at it and we have this dataset and so we're taking our time and we build things step by step, but we have a big vision and we raised a ton of capital I mean, we raised $500 million because we know this is a multibillion dollar opportunity. We don't we didn't raise that type of <unk>.
Capital because we think Oh. This is small and we are going to just signed one enterprise deal at a time.
Although that's important we see something broader and bigger.
As the years go on.
Aleve youll start to see the fruits of that of all of these investments but we're.
But we're excited and we're definitely a leader.
We put a lot of time and energy into this over the last four years, but are definitely leading in this area and we can compete with the biggies were hiring against Google and Facebook, sometimes they hire against us, but we're actually able to hire talent at that level, because we have a great business model and we can get the best in the world and that's what makes a great company. So I'm excited.
After being here 25 years I feel like we're just getting started.
I also am excited and maybe just one on question for John.
When you look at your I guess your 2019 Investor Day, you guys said 2018 revenues about 60 some percent of it.
What's coming from large enterprise.
Could you maybe provide an update on that I guess, how should we be thinking of the mix now given you guys have tended to gravitate towards the <unk>.
Higher ends of the spectrum.
But we're a little above that figure now, but it's not it's not.
It's maybe 10 points above that figure five to 10, so we're still predominantly <unk>.
Enterprise, but it's not overwhelming we have a large a large base and the small business segment, which is still remains about 15% of revenue.
The mid market, which is another 15 or so.
So we're we're approaching about 70% for enterprise.
Perfect. Thanks, so much guidance.
Thanks Robert.
Our next question will come from Peter Levine with Evercore. Please go ahead.
Pardon me Peter your line might be muted.
Sorry about that great. Thanks for taking my question.
Maybe just one for me.
Are you guys going after new buyers within an organization meaning.
Think about the use cases with messaging across the company you would think it opens up more wallet share for you guys to go after so just curious to know how much.
The enterprise deals that you won.
In Q4 and throughout calendar 'twenty was kind of a department driven versus how can make a mandate from the C suite and curious to know how that mix shift has trended the past 12 months. Thanks.
Yes, I mean, we I guess, there's been some shifts it was originally care a couple of years ago, and we are focused in those areas.
We definitely seen a shift to it because we have this AI tool set and they want to use the tool set to look at data to build automation to deploy the automation.
So that's that's the it buyer developers sitting on our platform using that tool set we're seeing a lot of activity there and now you know in the CMO areas in the marketing and digital areas, we're seeing more and more opportunity in that area and then this year.
We had a lot on just the digital heads who are running the web sites and running sales.
So it's definitely been a mix, we're definitely putting a massive focus this year.
Our plan is to get very heavy in the sales retail.
Marketing use cases, and so there's going to be a big push for us on the product side there.
But it is become definitely a major player in our purchases because of the nature of the.
It's a technology platform that they can use to do a lot around AI and automation.
Great Congrats on the quarter.
Thanks, a lot.
Thanks Peter.
Our next question will come from Steve Enders with Keybanc capital markets. Please go ahead.
Hi, great. Thanks for taking my question I just wanted to check on I know you gave a little preview a few questions ago, but how youre thinking about the cash that you you raised and potential uses of that going forward.
Well the interesting thing is obviously, where we're an acquisitive, we're looking out in the world and especially on the AI science side.
Is there some technologies, we would want to buy and get talent. So that's definitely an area for us to look at.
We we basically.
On the voice stuff is kind of interesting.
Some interesting like I said more of the Alexa style.
Voice now ceased.
Bleed that over in the contact center the interesting thing about voices.
Not to get too deep in it but we already have an agent console. It does everything that you would need as an agent and we can.
Put in another channel, but then run it with all of our AI capabilities. So that's what makes voice kind of an interesting thing.
So there's potentially some opportunities there and then organically theres just a lot to do like we are we're very innovative company.
We have a lot of things we want to build we keep it within reason, obviously, but but theres just a lot organically that we can do with those markets. We want to open there is more technology, we want to build so I think I think that's you know that's we haven't quite.
Dialed in 100% on the on what we'll do with the cash but it's in those buckets is kind of where we're looking at.
Okay, great. Thanks, very helpful and then just on the.
You called out a social media win in the quarter.
Just kind of wondering what was the differentiator of a live person platform. There that are that won against an incumbent and social.
But the big thing is that we have a lot more we would have a lot more volume than the social media player would have in the customer.
And with that they want to integrate and they want to move all of that volume.
Into a single consumer agent experience. So they have a set of agents how that may be on the social platforms and they've got a set of agents, usually where we're like 10 times the amount of agents on ours and they're like can you can you bring that can you bring that over and that's what we did so we got to see.
Airline there's another a big music company one of them one of the digital music.
Platform streaming platform. So so we're moving pretty hard into that area and I think there's just a lot of low hanging fruit there because a lot of those guys. They got they got acquired by private equity and there wasn't a lot of innovation and they don't have a lot of volume. So we think there's an opportunity we put real focus on product on it and we have a team focused on so we.
To pick them up more and more of that as we go forward.
Okay, great. Thanks for taking my question.
Our next question will come from Ryan Koontz with Rosenblatt Securities. Please go ahead.
Great. Thanks for the question guys.
Could you update us on your your public cloud migration thoughts there with with kind of a sales surging as that or is that a lower priority for you and how should we think about the impact of that on on gross margins kind of over the over the medium term. Thank you.
Hey, Ryan.
Definitely not a lower priority we're full steam ahead, there and in fact some of.
The investment that we're making early in 'twenty, one is related to that migration on the infrastructure side in terms of margin will have.
Some hit to margin and the early chips.
On medium term as a result of managing to stocks, but I would say once we finish that migration.
On the end of 'twenty, one and going into 'twenty, two we should start to see some ex.
In that respect.
Super helpful. Thank you.
Our next question will come from Jonathan Kees with Summit insights group. Please go ahead.
Great. Thanks for squeezing me in and taking my questions I just have to make some quick Rob you talked about at the beginning.
It means to them like person and.
And I heard what you said I guess them.
You guys made a couple of impressive executive hires in Q4, including one from Amazon his operations, an AI background. According news reports he cancel some of the AI projects that you guys were working on for some time I guess.
How does would.
Would you use what you said during your prepared remarks was tweaked from before he came in and also the stuff that he cancelled was it material in terms of the projects they are projects. Thanks.
I have no clue, what you are talking about.
Okay.
Yeah, I'm not to be confrontational I know, you're talking about Andrew Hamill, who came in who is running a lot of AI, but I have actually interest.
So interesting I mean, I really don't.
He actually we have increased.
He came aboard because we're expanding all we're doing he was Alex as boss over at Amazon.
But no.
I have no idea, what you're talking about well.
I can send you the news articles that I read.
I think it was from fortunate I don't think it's fake news or anything like that but.
Yes.
I mean honestly, we're investing so heavy in all of that does nothing so it's just.
Kind of on so I just think you can send it to me I will take a look but there's nothing on the press nor I said, that's just the weirdest thing I've ever heard because of all the investment we're doing so well it's worth I think one of the things that was mentioned in the article was not so much.
Decrease in the investment, but just making sure. It's following the ethical aspect of AI, making sure it's relying heavily on the privacy.
Focusing more on the natural language would you guys talked about it during your prepared remarks.
Or is that bias and theres been companies out there.
Debt have said you know, we're not going to do a yard in this aspect because of the inherent.
<unk> with with AI with like bias or a more privacy and in that kind of stuff. So.
We started on patient called equal I think it's a good thing to bring up.
We start an organization called equal AI, which is what you're talking about so we funded it I think over two and a half two years ago and Marion Vogel, who worked under Obama in the Justice Department is the head of that and we're really proud of that so yes, that's something we actually start a whole organization around it and.
It's a great board of directors now.
Who are part of that but but we've always prescribed to that obviously Andrew.
Prescribes to it but.
Yes, that's that's pretty much where maybe that's about right.
Didn't get the connection between that and.
Discontinuing projects, but.
Sure Matt.
Yeah.
So.
Okay.
We have reached the end of the call today I would like to turn the call over to Rob.
Rob Locascio for closing remarks.
Yes so.
Obviously, the rapid changes in everything that's happened globally has really accelerated.
Our work on the conversational cloud and obviously, we have an amazing 2020 I want to thank everyone in the company.
Who just really delivered against a tough year in the middle of Covid rapid changes the amount of volume that hit our platform and keeping our platform scaling.
Delivering all the results in all of the implementations.
It just was awesome. So I'm really proud of what everyone has done.
2021, I think is going to be in a really great year for us.
Not only the continued momentum, but the vision, we had four years ago. It was actually seven years go on we delivered the platform four years ago, we were kind of waiting for when is this thing going on really really take off and we can see going into 2021.
The demand will continue but the connection to our vision and how we see AI in the world and how that can drive.
Real change and businesses is happening so I'm looking forward to this year and everything we're doing and we'll catch you on the next call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.