Q2 2021 LivePerson Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by.
Welcome to life person second quarter 2021 earnings conference call.
My name is Victoria and I'll be your operator today.
At this time all participants are in a listen only mode.
After the prepared remarks, the management from life personal will conduct a question answer session and conference participants will be given instructions at that time.
To give everyone the opportunity to participate please limit yourself to 1 question and 1 follow up on.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to Mr. Alan Katz, Vice President of Investor Relations.
Thank you joining me on the call today is Rob Locascio line persons 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 projections and other statements about future results. These statements are based on our current expectations and assumptions as of today August 3rd 2021 and are subject to risks and uncertainties actual results may differ materially due to various factors, including those described.
On today's earnings press release and in the comments made during this conference call as well as in 10, Ks 10, Qs and other reports we file from time to time with the SEC, we assume no obligation to update any forward looking statements.
Also during this call we will discuss certain non-GAAP financial measures.
Conciliation of non-GAAP.
GAAP to non-GAAP financial measures is included in today's earnings press release, both this press release and supplemental slides, which include highlights for the quarter are available in the Investor Relations section of life for US means website with that I will turn the call over to Robert.
Thanks Alan.
Thank you all for joining our second quarter earnings call today for the past few years have been proven our clear leadership in conversational AI and now conversational Commerce Q2 continues that trend line person once again delivered another very strong quarter.
Revenue grew by 36% year over year exceeding the top end of our guidance range overall volume on the conversational cloud increased by 15% and conversations with AI based automation also grew by 40% compared with Q2.
2020.
Our results reflect the conversational AI market continuing its strong momentum as youre crossing into a wider adoption phase brands are looking at conversational commerce on the next big opportunity in digital commerce as they recognize that conversational AI is a key to creating scale personalized unique digital experiences.
5 years ago, we made a big bet to go after the space on our first mover advantage puts us in a unique position to drive even greater growth. We're now looking to expand our go to market investments to capitalize on the massive opportunity. We see ahead of us.
Part of that investment is bringing on leaders that can drive the next phase of our growth Tony Owens 1 of the most senior sales leaders on the cloud software space recently joined line person as president of worldwide field operations.
Tony has a proven track record of leading sales on some of the largest high growth enterprise software companies for the world.
Most recently led the field operations for sales force in the Americas largest territory.
But Tony on board, we expect to ramp capacity to meet the next level of demand by aiming to more than double our quota carrying reps and other go to market resources over the next 6 months.
We believe that these investments will give us the capacity to capture an even greater share of the market.
He reps ramp up and begin to contribute we expect to see a meaningful impact for that.
And are now targeting revenue growth of at least 27% in 2022.
We expect these investments to help us continue to grow our base and customer care accelerate our move into marketing sales commerce and retail.
Strategically we're also doing something quite unique in how we are leveraging our conversational cloud platform to develop consumer facing services and very large dynamic markets.
1 of the biggest industries, there's going to be transformed by AI is health care.
Idea that we can truly personalized health care for consumers at the center of their own data will reshape the health care industry.
In a recent health Tech report Deloitte noted that for 2020 over $14 billion for venture funding was invested help health tech companies and more than 6 billion went into digital solutions for data and platform innovators remote monitoring solutions with AI or machine learning capabilities.
C N is table Stakes.
At the beginning of this year, we quickly entered into the AI health space for.
First half of the year, we developed and launched the diagnostics and testing platform called Bella health built on top of the conversational cloud.
We were able to move very quickly because 80% of this new offering was built using the power of our core platforms as we discussed last quarter.
The first contract for offering was related to rapid in home COVID-19 tests and Covid testing has become an overall catalyst for increased development of new offerings for the entire medical diagnostic industry.
Yeah.
We delivered the Bella health App in the first set of corresponding tests ahead of schedule and the timing of these deliveries led to some of the outperformance versus guidance. We achieved in Q2 the business model for Bell House as we charge each time. The App is used to administer test were paid from the partner tests diagnostic company.
Although this revenue was a little more variable than our core business model enables us to quickly cash more upside as we saw on Q2.
Given that we're still early in developing this business, we're going to see how volumes materialize over the next few quarters before we embed any potential upside from testing into our long term outlook.
<unk> platform will also be used to deliver other testing solutions for things like flu Strep HIV is we're partnering with a few global medical diagnostic companies on the <unk>.
Phase of other testing solutions.
Beyond testing, we also launched a messaging and AI automation solution for a number of global health care companies. We also signed a new logo deal and 1 of the largest urgent care provider networks in the U S to implement a fully automated customer interaction system to ensure they can schedule appointments and answer patient inquiries for moly.
It's still early but the medical diagnostic and health care markets generally represent a significant opportunity for us so more to come on this over the next few quarters.
Another vertical we are seeing tremendous opportunity and has a first and we have a first mover advantage in is the blockchain and crypto space.
This industry that has been expanding by 80% to 100% annually with over 100 million people now involved in buying crypto currency, we signed a contract with 1 of the world's largest crypto currency exchanges last quarter.
<unk> already signed and new expansion opportunities during the quarter with them.
Also signed an agreement with in Q2 with consensus a leading blockchain technology company to provide conversational AI support quartz blockchain and crypto communities.
Start we're going to start with their crypto wallet met a mask, which has over 8 million monthly active users providing them with a simple and convenient option to startup immediate conversation with an AI and access educational information on demand. This new AI powered conversational support will add on to existing extensive support for <unk>.
Ask users and it aims to improve the speed in which support is delivered.
Brands in the crypto or blockchain space for fast moving with incredible technology, but there are generally, but they're generally not equipped to handle the customer engagement and communication needs of sophisticated consumer base that's tech savvy.
These consumers looking for 24, 7 immediate intelligent and asynchronous customer care from these brands.
Our platform allows them to be on device and always on leveraging messaging based AI first approach to meet consumer needs. Our early success is being driven by both our technology, our ability to scale quickly and effectively to match the fast growth of these brands.
We're also continued to see tremendous demand in traditional brick and mortar retail sector. As there is continued move to create personalized scaled digital commerce experiences over messaging using conversational AI and.
In Q2, we signed a 7 figure deal with a leading retail marketplace and are deploying our gain share model to manage both messaging and voice, we're seeing more opportunities to take over voice operations of our brand, which gives us greater control or transforming voice to messaging on the using conversational AI.
By working with us on voice as well as messaging. This brand is aiming to drive consumers to automated messaging interactions.
Increased self service and improve response times, they're using our platform for both care and commerce and we see this as a great long term relationship with the potential to expand in near future. This brand is also using our advanced AI powered analytics and management tools, including intent manager to build our traditional automation and ultimate.
Lee to drive strategic business decisions.
We also signed and implemented 1 of the largest brands in the paint and coating Coke manufacturing industry industry. We start with a tear use case focused on automate answers to common inquiries and driving transactions by engaging buyers and messaging, while they were shopping online.
Our messaging platform they have seen a 3.5 times, increasing conversion to sales compared with their prior self service approach and also an increase in local store sales.
They are also going to use our messaging platform for proactive marketing engagement additional integration with some of their other marketing tools.
When we originally looking at our Tam back 5 years ago, we did not have companies like this in it and what we're really seeing is messaging being used not only for communications, but as a framework for deploying a myriad of unique digital experiences.
In Q2, we also started to see increased demand from brands using our newly released social media integrations as we push into adjacent channels.
By adding social we are able to deliver a more seamless consumer experience enable brands to consolidate consumer connections into a single platform.
Social media communications market is estimated to be a $5 billion market and growing brands are coming to us for a fully integrated automated messaging solution, which can which can also incorporate social data trends into the intelligence of using AI for targeting consumers around specific and tenants.
Along the same trend imaging and user engagements for a single platform with several brands that are power users of social media move their social media communications to us.
1 of those brands is a leading us as the leader in streaming music they.
They had a very large social media implementation with a well known entrenched competitor and they decided to consolidate the social onto our conversational cloud.
This enables them to fully integrate it with all their other messaging communication channels that they do with us.
This is a big win on top of a handful of others in the space that we will leverage to accelerate our go to market and social.
We added vision 5 years ago that messaging would become more pervasive than web and apps, 1 day and delivering unique and powerful digital consumer experiences. We started out competing in the traditional voice contact center market and now we see a host of other opportunities in the consumer experience area. This quarter marked a new chat.
After and reaching our vision and we're excited about this new phase in our company's journey.
And with that I'll now turn the call over to our CFO, John Collins for an operational update and a discussion on our guidance John.
Thanks, Rob.
Impressive execution translated to another quarter of revenue and adjusted EBITDA significantly exceeding the top end of our guidance range.
In the second quarter, we also strategically built on the foundation required to continue accelerating growth.
First we continued signing new logos and expansions within fast growing verticals, such as health care and watching.
Second we extended our care on commerce capabilities through integrations, with Google and Adobe, the latter of which Leverages, our AI solutions to deliver personalized consumer experiences at scale.
We also rapidly delivered into and messaging services to manage voice operations and messaging operations through a danger of business.
And finally, we continued on boarding world class sales and marketing leaders to applaud our course to even greater growth.
In the second quarter.
It marked our fifth consecutive quarter of 25% plus revenue growth.
For the last 2 exceeding 30%.
And our fourth consecutive quarter of operation of the rule of 40.
While our strategy to enhance operating leverage clearly delivered the intended results.
We see rapidly increasing demand for conversational AI within both care and commerce is an opportunity to grow even faster.
According to research from BCG the market for conversational Commerce is expected to exceed 130 billion over the next 5 years and we believe we're uniquely positioned to benefit from this secular shift.
The breadth and extensibility of our platform, including the effectiveness of its AI solutions enables us to deliver personalized and trusted consumer experiences at scale, which is essential for mass adoption.
To drive that adoption, we're shifting our focus from enhancing operating leverage to aggressively expanding our go to market capacity.
Before discussing the key metrics and drivers of the quarter I'll first elaborate on the strategic investments, we're making to extend our leadership position in the market.
We will be accelerating our investments in direct.
On partner supporting go to market capacity in terms of quota carriers alone. We are targeting 200 in total over the next 6 months up from 81 at the end of the second quarter net.
Naturally an increase in quota carriers at that level requires a commensurate increase in marketing sales and customer support infrastructure and recruiting capacity.
To that end, we expect incremental investments of up to $24 million in the second half of 2020.1.
As we pursue a new phase of high growth, we will continue to evaluate opportunities for investment.
Considering the magnitude of these investments recruiting Tony Owens was a critical first step.
Tony is a world class leader, who has built and optimized SaaS sales machine that deliver growth many times our current scale.
Recognizing net new quota carriers typically be on converting pipeline. After 9 months, we expect a return on those investments to manifest primarily in 2022.
More specifically, we estimate that revenue will grow by at least 27% year over year in 2022, including an exit run rate of 30% in the fourth quarter of that year.
In terms of technology investments. We also continued to build enterprise voice capabilities, we expect our AI based voice offering to hit the market next year and to benefit benefit from the voice operations. We're currently managing within the games for our portfolio.
After 2 large wins centered around our social media management tools. We're also allocating capital to extend our platform's capabilities in this domain.
In addition, with the acquisition of you bought southern and the continued investment in our marketplaces offering we expect to diversify our sources of revenue by bolstering our go to market motion and the low end of mid market and increasing our strength generally in Europe.
Finally, as Rob mentioned, we're also off to an incredible start with the AI assisted healthcare testing business.
And we're extending the platform to cover a wider range of uses.
So with that strategic context, I'll move on to the quarterly financial metrics in.
In the second quarter total revenue grew $119.6 million up 31% year over year exceed.
Exceeding the midpoint of our previously issued guidance by $6.6 million. Despite lapping the pandemic induced acceleration last year.
The upside was driven primarily by higher than expected demand for rapid at home COVID-19 testing, which pulled.
For some revenue in the second quarter that would've otherwise been recognized in the third as.
As Rob discussed.
We're excited by the growth prospects of this business, especially as we expand into new lines of testing give.
Given the variable nature of this testing revenue in the nascent phase of this business. We will continue building a track record before embedding potential growth into guidance.
Our day, ensuring consumer businesses also contributed upside in the second quarter with gain share reaching 16% of total revenue.
Note that gross margin was lower than we originally expected because of increased gained share in health care testing expenses, both of which were tied to revenue upside in the quarter.
The gain share business tends to have a lower margin profile than our core messaging platform and the initial ramp phase of our contract margin tends to improve over time over approximately 1 year as automation are deployed.
As for the health care testing business.
We've only just begun and we expect margins to improve as the business matures.
Turning to our reporting segments within total revenue <unk> and hosted software both grew at approximately 31% year over year.
Professional services revenue grew 26% year over year in the consumer segment grew 29%.
From a geographic perspective U S revenue grew 36% year over year and international revenue grew 21 drew.
Driven by growth in both EMEA and APAC.
We continue to both retain and grow with our existing brands average revenue per customer was 535000 up 35% year over year and.
And revenue retention was again above the high end of our target range of 105% to 115%.
In terms of revenue trends by vertical we continued to see significant revenue growth within the retail and e-commerce space driven.
Driven by Commerce related uses of the platform financial services also posted strong growth from care expansions.
Billable platform usage continued growth, increasing 15% year over year, while AI powered messaging volume increased 40% year over year and now accounts for nearly 75% of all messaging volume.
As for new contracts the dynamic in the second quarter was similar to what we saw on the first while new logo accounts were down year over year annual contract value for new logos doubled year over year.
This dynamic was driven primarily by the gains for our business.
And a continued pursuit of larger deals within our mid market segment.
The gain share offering continues to have strong traction with brands focused on conversational commerce and these deals tend to be significantly larger than the average mid market deal.
As discussed last quarter, we've refined our gain share go to market motion to enable rapid deployment of managed services for both messaging and voice operations.
We expect new logo counts to materially increase as our go to market investments begin generating returns.
Moving down the P&L adjusted EBITDA in the second quarter was $13.4 million or 11, 2% margin.
Exceeding the midpoint of our previously issued guidance by $7.2 million. The upside here was driven primarily by over performance on the top line.
As for cash we used $7.2 million in free cash and closed the quarter on $664 million of cash on the balance sheet a day, a decrease of $3.9 from last quarter.
In terms of full year revenue, we are raising guidance from our previous range of $460 million to $468 million or 25, 5% to 27, 5% year over year to a new range of 464 million to $471 million or 26, 5% to 28, 5% year over year. This range reflects increasing demand for converse.
<unk> II and balance expectations for additional revenue from our exciting, but Nathan health care testing business.
Considering the strategic investments primarily in quota carriers and field support that we're making in the second half.
We are revising down our full year guidance for adjusted EBITDA from our previous range of 33, and a half million to $41.5 million or 7.3 to 8.9% margin to a new range of $14.8 million to $22.8 million or 3.2 to 4.8% margin.
As for the third quarter of 2021 our guidance range for revenue was $117 million to $119 million or 23, 5% to 25, 5% year over year.
And the range for adjusted EBITDA is for 2.8 million for 3.5% to 6.8% Martin.
Before taking questions on emphasized several strategic themes that underscore our performance in the second quarter and expectations for growth over the next 18 months.
While we've demonstrated an ability to enhance operating leverage and growth, 25% plus we see an opportunity to substantially increase our market share secular demand for conversational AI is accelerating and our ability to deliver personalization at scale is extending our leadership position in the market. The versatility of the compensation of cloud has given rise to a broad spectrum to new users in every industry.
For example, we've been successful at rapidly deploying our commerce offering through end to end managed services and extending our reach within high growth verticals, such as healthcare and blockchain with.
With continuity and these trends and aggressive investment in our go to market capabilities again, we expect revenue growth in 2022 of at least 27% year over year.
With that operator, we're now ready to proceed with questions. Thank.
Thank you.
Thank you Bill.
We will now have our question and answer session.
If you would like to ask a question. Please press star 1 on your telephone keypad.
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You May also press star 2 if you'd like to remove your questions on queue.
1 moment, please only now poll for questions.
Our first question comes from drew Foster with Citigroup. Please proceed with your question.
Hey, guys, a nice quarter and thanks for taking the questions first 1 is on he bought 7 the recent acquisition you just announced could you just give us some basic info on the company and maybe the size and growth rate number of customers in and John.
How much if any contribution to your 'twenty 2 guide.
Isn't there and then just just more broadly kind of strategic rationale.
Was there a certain vertical exposure technology or maybe a language locality maybe just on a double click there. Thanks.
Sure Yeah. The the about 17 is really talented and innovative team that extends our go to market capabilities in the region. They have about 100 employees today 40 of which are in R&D.
And they built a self service automation engine for sales marketing and care conversations that has very strong traction in the mid market, we expect to grow our mid market capabilities in partnership with the team and apply that success globally.
Globally, not just in Europe, but we start with Europe.
Great and then.
You talked a little bit about leaning into the sales and marketing investments, but just wanted to focus there for a second I mean with Tony on now as the president of worldwide.
I'd field ops I mean can you just maybe on appeal, what some other things kind of underpinning this next level of <unk>.
Variable growth are for you maybe you know what what are the pressure points that Tony will be focused on.
Through the end of this year and through next year kind of focused on that direct channel maybe from a sales infrastructure standpoint.
Yeah.
On.
When I look at the demand in the market.
It's you know it's.
It's definitely at a novel another level are coming through what we experienced last year and we continue to see growth on the platform. So we're behind right now I feel like we're behind on.
On the quota carrying reps.
Definitely in that area I think we're leaving the mid market open and we're gonna go heavy at that area. Obviously, you can see on.
Our you know our ARPA with where we are doing very well on the enterprise, but there is a lot of action in the mid market and Tony can bring a lot of skills, there and people to really go at that and he bought 7 I think also can be part of that but right. Now just we have so much more demand that.
Or not picking up and that's why Joni Tony joined the company is Theres a lot of opportunity and then we're seeing obviously expansion beyond care right now and there's a lot of use cases coming around commerce and marketing and so that's adding a whole other level of access to.
Budgets at our current base and then beyond that and into new logos. So it's just it's a time, where we need someone who has another level of operational excellence. He ran about 7000 people over there AD sales force. So he's run a very big operation and so.
We're really excited to have Tony here to take us from here to you now.
Multi billions in revenue that's kind of the goal.
Great appreciate the color thanks, guys.
Thanks.
Operator, I think for the next question.
Victor.
Can you please.
Next question.
Wherever we can tighten up difficulties here.
Operator can you hear us.
Yeah.
Yeah.
Okay.
Well, if we may have lost the connection here.
Can you let them in the color zone.
I don't have access to to let him ask for it.
Unfortunately.
The operator has to has to do that.
Okay.
But if you can give us just a minute we will we'll reach out for the team here.
Okay.
Hey, John.
Ladies and gentlemen, we apologize for the technical difficulties.
The Q&A is now back up.
And on.
What drew finished asking a question.
Yes drew with finished I believe.
The next person up was.
Raimo <unk> from Barclays, Yes, Okay, 1 moment.
Yeah.
Yes, I see it now.
So our next question is from Raimo.
On shop.
We have already won.
Yeah.
Do we lose her.
Hey, John are you there anyway.
Yes.
So why don't I ask you a question John.
[laughter].
Tahira.
Because debt errors.
Well less than fix it up so much you tell me about deal.
I'll do the LP as good as I can as analysts I can doing this for 21 years. So tell me about the deal count on.
On what happened in the quarter.
Yes, so again much like in the first quarter, our deal counts were down year over year about flat quarter to quarter. However.
In.
As planned our.
Move upmarket within mid market and even kind of the high end of small business has resulted in substantially higher ACD is in fact, our ACD growth was over 100%.
For new logos in the quarter overall.
We saw a slight bump up in expansions.
And again as signaled in our prepared remarks, the investments, we're making are designed to accelerate not only the growth we've seen in atvs, but also the new logo accounts moving forward. So as our reps ramp again, we'd expect about 9 months for new reps to.
To become productive we would expect not only growth in suvs, but growth year over year, and new logos from account perspective, which would be a turn from the trends we've seen over the last handful of quarters.
Would you like I mean, with the hiring of Tony and everything like that for you guys are going to start to build out beyond I'll see you're focused on the enterprise.
It would seem like Theres something opportunity beyond that you guys kind of is that part of the spend that you're going to make for the rest of the year.
Yes, so as we think about the investments there's 2 primary categories. We've talked mostly so far about our go to market capacity of the spend we've highlighted about 75% will be dedicated to go to market capacity.
And if I were to break that down we're looking at about 45% of it going directly into quota carriers.
20% in marketing spend and then the remainder would be focused on debt sales and customer support infrastructure. So.
Managers, SCR csm's et cetera.
On the other piece of the investment, though as we discussed is focused on our technology. So we have seen a lot of traction with so for me in a minute social media management tools, and we're extending our capabilities there as invoice in terms of our go to market motion clearly theres.
<unk> in the enterprise that we've delivered on quarter after quarter, but the real opportunity that we're.
On a leaving on the table right now is in the mid market and we see an opportunity to take our go to market resources and adapt our our platform to really go after growth in the mid market.
So my next question would be.
Once again, putting my analyst hat on.
What was the driver of the revenue upside compared to guidance because there was obviously real upside there, but what really drove that when you're on packet.
Yeah in the quarter, obviously, we had.
Strong growth in the core business and even without the additional testing revenue, we would've been around our the top end of our guidance and of course, the the boost above most of the boost above guidance was driven by the.
At home rapid COVID-19 testing business.
Gained share also continued to outperform.
It went from around 13% of revenue last quarter to 16% of revenue in the second quarter. So that was another key contributor of upside as was our consumer business, which significantly.
We outperformed its internal plan.
But do you think the testing beyond the mid <unk>.
Mike.
Do you have it back.
Laurie keep playing analyst not yet, but I was going on I was going to see Jeff at the analyst on the email me any.
Any questions I can I can answer those questions as well.
Give me your email at your email.
It's a it's a K a T V at like person Dot com.
Oh, I don't mind being an analyst here for a little bit so.
While we go through this but I believe.
I believe the analysts may may be able to ask questions now.
Operator are we open again.
Our next question is from Raimo <unk> with Barclays.
Thank you.
But do you think raimo.
Hey, this is Ravi on for Raimo can you hear me okay.
Yeah sure.
Yes, you did a great job.
<unk> asked a lot of other questions I'm sure you're gonna get otherwise, but I just wanted to dig into that last point, a little more if possible.
Really nice quarter, and you beat estimates by about 6 million.
But the guidance raise was only $3 million to $4 million I know you mentioned being conservative around health.
Are there any other puts and takes on investors should consider as we look for the second half and even for.
Thank you.
No I think that the guidance range. We put out was was strong and reflects continued momentum in the core business and again, the nascent phase of the health care testing business, which was the bulk of the upside in the second quarter. So.
What we're excited about that business and the potential for continued growth there, but given the lack of track record, we're reluctant to embed more upside into our guidance at this time.
There's about 88000 people around 8000 people today, who wake up every morning and are using this platform. These are consumers to take these test.
And today their rapid Covid tests. So they can go back to work. The second part of that is obviously, where we're working with these testing companies to develop beyond that so even on a contract we signed during the quarter to develop a platform beyond that to do other testing and the testing businesses.
Really hot market.
Because of Covid testing drove a lot of investment.
Into the market I know if you guys saw but even Goldman Sachs I saw was putting a bid in for 1 of these companies and so I think.
Pete the private equity part of their business going on they want to buy 1 of these companies. So there's a lot of investment going in it because the in home testing market got a lot of infusion of capital and they are not very good at software and they need conversational AI platform. So once again, we came out of the chute pretty hard on this.
And we're excited about it and we were able to swarm it and go after but we we got it's a new it's like we built a startup within months and launched it and generate millions in revenue. So we're feeling good but we don't want to over promise on what it is until we get our legs behind it.
Awesome that completely makes sense. Thank you. Thanks a lot.
Thank you.
Our next question comes from Richard Baldry with Roth Capital. Please proceed with your question.
Thanks can you hear me.
Yes, yes.
Okay.
Congrats on getting us through the call.
Period there.
How tough it is to actually double the reps in 2 quarters, obviously, given macro challenges delta challenges, bringing people on virtually it seems like it's a pretty high hurdle to do and then maybe add to that any backdrop youre willing to offer about the sort of existing sales.
Utilization quota achievement to kind of give us a view for how capacity starved for you.
Like the field force is thanks.
Okay.
Yes.
They're on.
Alright.
I'll start.
So right.
We're really what we're pulling other stops to get boots on the ground here with this strategic round of investments. So yes, it's a tough hiring market, but with with Tony on board and our focus to really bring on front line managers first to each of whom can.
Then bring on.
<unk> underneath will help to accelerate our path to the target.
And on top of that the investment is.
Aggressive in that we're going to use many different channels too.
<unk> hit our targets for the year and it's an estimate of course, but given the demand we see in the market.
There is.
Not a lot we won't do too.
Get the right people on board to go after that opportunity.
Maybe follow up do you feel like any of the.
Backdrop M&A activities, whether it's on the voice side.
Are they is.
Is it easier to hire than we might think because of the specific things that happened around your vertical or.
Yes.
Or are you really looking to find these people from is it does it vary.
Very tailored with backdrops that or narrowly tied to where you are at or can you cast a broader net.
CRM type areas.
Yeah.
We can cap, we're definitely casting a broader than that we we have a very good story to hire the best talent in the world.
AI is a very obviously big area conversational AI is even more specific than people think okay. This is a hot area. So if you are in the software industry right now we're in a good place.
And.
If youre a technician you get to work on some of the best brands in the world with some of the largest data sets in the world conversational data sets and if you're someone in the fields themselves. There's a great opportunity to really drive large deals here and I'll be midmarket will expand so.
We just have a good story right now we want to capitalize on it and I feel like you know if we got very caught up last year and just the growth in the business and we probably shouldn't start turning on the jets in September with hiring it's like easy to look backwards because.
Because I look at the demand right now, but we came through last year with what was the low demand in the business. We saw continue into this year. It wasn't like on an anomaly through the pandemic, we were probably will conservative but now we can we can open it up and once again, I think hiring Tony and other people into.
For the company will help drive.
2 the goal to really take those growth levels the growth rates to a different level.
I would I would add also that the <unk>.
Access we've had in winning talent.
Over Big Tech, Google Amazon, Facebook, Twitter et cetera has been phenomenal and due in large part to the story, Rob described to our innovative platform and the growth prospects. We have ahead of us and I think we'll be able to leverage those dynamics too.
Go after go to market talent.
In the same way.
Alright. Thanks.
Yeah.
Okay.
Yes.
Okay.
Hello, everyone.
Okay.
Yeah.
Thank you. Our next question comes from Mike Latimore with Northland Capital markets. Please proceed with your question.
Yeah.
Okay, great. Thanks, a lot.
I guess, it's 2 here 1 would be it looks like you're guiding effectively to negative EBITDA in the fourth quarter I guess any thoughts on whether you'd be EBIT positive in fiscal 'twenty 2.
Yes, I would expect that as we.
Succeed with our hiring plan.
The Blitz, we're on right now would normalize.
In 2022.
Perhaps the end of the first half or second half of 2022.
Got it.
And then the.
The AI and volume growth I think it was 40% this quarter.
It was 50% last quarter I guess any any thought just on the change there.
No. It's a typical sort of dynamics in the business Theres theres, some seasonality with regard to.
The gain share business that obviously is a contributing factor there.
And.
Overall volumes continue to rise.
And so on a year over year basis with regard to total billable volume and automation, which has fluctuated with different types of of intense in different industries.
Saw that manifest in travel and hospitality in a big way during the pandemic and then coming out of or not coming out of the pandemic, but when travel opens up in the rate of automation has changed based on the types of intense that are.
Most most in demand or most asked about from are the consumers entering the pipeline.
So in general I would say to recap, it's still strong growth across our total volumes and automated volumes.
Alright. Thanks.
Thank you.
Our next question comes from city pending Grant <unk> with Mizuho. Please proceed with your question.
Hi, This is Alex Kim on for City, you guys previously talked about converting elas to CPI is for a contract.
I just want to know how has it been trending so far and what assumptions do you have low growth rates coming from conversions versus new logos and you could gain share business and to add to that how much growth do you expect to be driven from this contract conversion in Brussels, new logos and I have a follow up after.
Yeah.
L. A to CPI, that's our enterprise license agreements or cost per interaction agreements, where we're on track with what we had described in the previous quarter last quarter. We had converted approximately 40% of those contracts, where we're up around 45% at the end of the second quarter, we still expect to be.
Nearly 70% converted by December 31 of this year.
And in terms of growth.
That conversion from Elas CPI is taking place at the time of renewal when total volumes for these customers are typically many are far in excess of what they were when the law was initially signed so those almost always result in upsells upon conversion so.
That contributes to ARPA and contributes to growth in general.
Okay. Thanks, and you guys talked about launching other payment solution last year can you provide an update on your payment solution and when do you think it will be a material revenue contributor.
It's implemented and it's out in the market.
With a bunch of enterprise customers, we havent really given any guidance yet on <unk>.
Doing transactions right now as a service on the platform. So we took an EIS the card and the consumer doesn't have to go outside the messaging flow is adding to starz.
Our CPI. So that's helped built in today, it's it's a it's growing but we haven't put anything on it yet on we arent, giving any numbers yet around it but it's in it's in the revenue right now.
Sure.
Thank you.
Our next question comes from Sterling Auty with Jpmorgan. Please proceed with your question.
Hi, it's nigh on for Sterling.
Could you just give a little bit more color.
For the core business during the quarter sitting on.
Any thoughts on it.
Both cash on healthcare.
How much of the credit for stripping.
Yes.
Yes, as I mentioned earlier in response to kind of Rob's analysts' questions.
Without the COVID-19 testing, we still would have been in excess of our.
Previous guidance range.
Just with the core business again, a lot of growth there coming from.
The gain for your business as well as our consumer business.
Okay.
Okay. Thank you.
Thank you.
Our next question comes from Ryan Macdonald with Needham <unk> Company. Please proceed with your question.
Hello. This is Alex on for Ryan and congratulations on the quarter. Just have 1 question for me here can you give us an update on the progress you're making on the indirect sales initiatives and what was the mix of bookings versus direct and indirect channels this quarter.
Sure we continue to add to our partner network I mentioned, 2 integration partners Adobe on Google and in terms of total.
Total contracts that were influenced by the partner network, we were around 27% of bookings in the quarter.
We are influenced by that network and that's consistent with the first quarter. Our goal is to move that number up closer to 50%.
Great. Thank you.
Yeah.
Thank you.
Our next question comes from Steve Enders with Keybanc. Please proceed with your question.
Alright, great. Thanks for thanks for taking my question I, just wanted to get a better sense for how you are thinking about the go to market investments in.
What gives you the confidence to more than double on the Rep head count over the next the next few months or the next 6 months here.
Yes.
Go ahead Rob.
So on the demand side I mean, once again, we see demand and we're seeing that our current rep reps are at their targets.
And there is more left on the table right now so we feel very good about.
Adding that type of capacity into the into the system. Once again, we hired Tony.
To go ahead and drive the next level of running that investment and bringing people in and doing all of that.
We have a good story for reps you can make money here so.
This is what reps want where on a hot space.
There is large deals you can do here like very large deals and you can we can open up mid market also so I just think right now we're just so there's just such a dynamic happening in the market every day, there's another article about messaging and conversational AI and conversational commerce.
And we were very early out of the gate with it as all you know we kind of pioneered this whole market and we wanted to maintain that leadership position and accelerate and we're leaving some areas open.
That we don't want to leave open and we think theres more verticals to go after and there's just more use cases, even beyond care. So this is really on opportunity now to to double down on what we're doing and take the company to the next level.
Definitely have moved out of the early adopter phase and were definitely in there is just it's like.
Just all these different industries and people are adopting it was very early adopter thing for the first couple of years, but we definitely have transition into more mass adoption and especially retail.
They got sort of a taste of what it's like to shut down your stores in and they definitely want more digital connections meaningful connections with their consumers and we can provide that on our platform.
And then even the social side.
Opening up socially and other there are public companies or social media.
And there we know we can take that business, where we're reactive we have done that over the last 2 quarters. So we also know there's some activity in those areas. So is this just a water overall activity in the business day.
Okay.
That's great to hear and then just I was just kind of wondering how youre thinking about kind of the upsell.
Opportunity and be able to push more of these incremental use cases that you are talking about.
Into the into the rest of the customer base today.
How do you drive more than 1 use case outside of kind of core customer care into E Commerce and marketing.
In social on kind of where are we on that on that journey.
It's really I mean, we are marketing motion right now is very focused on commerce and we called warm Congress. We are in talking to our customers about how to create this does this is called warm connection with your consumers and ongoing connection with the consumers and.
Especially in selling.
The brands just want to have this different relationship on what's happened now is.
I would say our platform is sort of self actualizing in many ways, which it started as messaging as a communication channel then as we start to get a lot of volume from our customers and maybe 30 or 40% of their voice volume transitioned to messaging and then they want to automate it at scale because they don't want to add human agents. So they want to automate that.
We built a lot of great automation capabilities and continue to and now above that is how do we create how.
How do we deliver has our platform deliver these these very intimate.
High valued.
Connections between consumer and brand and then what do you ride over that framework. So people are putting videos over that they're running different use running different content over it it's not just messaging as a communication channel, they're using as a digital channel to deliver things they would on.
On on our website and so these are the things that are really changing the business.
Definitely is changing what's happened as competitors are still back trying to compete with messaging and we do have a very strong messaging platform and.
And we're up to the place now where we're creating these very special connections between consumer brannen and they want to bring branded connections to that how do you think is the special.
Engagement.
And that's why even things like Adobe, we're partnering with Adobe because they're very involved with engagement engagement management with web, but they don't do anything on the messaging sides, where we combine forces of how do we bring an engagement strategy.
2 selling and marketing.
And that's really what we're seeing so so.
We're just selling it right now we're positioning it and we're working with different partners in that area. So it's starting to take off.
Okay perfect I appreciate the response there.
Thanks.
Thank you.
Our next question comes from Jeff Van <unk> with Craig Hallum Capital Group. Please proceed with your question.
Great. Thanks for taking my question. It's 2.2 categories for kind of areas I wanted to focus on if I could Robert.
Robert on the gain share business why is it you think consumers are gravitating to that over a non gains for your model kind of how do you think about where that's going I mean, given it comes in with lower gross margin, maybe a little more complexity in terms of the implementation.
It seems like it's taking off and I guess just frame that for US why is that the preferred channel.
Where does it go and what are the gross margins on that initially.
Yes, so its preferred because we take over there's a budget right now they have for outsourced labor and taking phone calls and even maybe that youre doing chaps.
We get that entire budget in that entire operation and it comes under us now.
And there was always a.
Not always but there are times, a friction point with the outsourced provider because they want to increase people they make money by increasing head count.
And the brands are like we don't want to increase head count, but there's that friction we come in and say look we're going to take that labor, we're going to manage it as human labor to start.
But we're very very quickly going to automate and our goals to reduce that human labor and so what happens at the beginning is we do take that entire operation and we even in the court took a voice operation and we're running those voice agents.
And AC transitioning that voice volume to messaging and then we're automating it so what happens over time as the margins go up nicely because we start to reduce the labor, but we still fixed the budget. We have that original budget. They are he gave to the labor providers, we keep that budget, but we start taking on head count faster than they ever can.
And so it's just a great solution versus like China transform.
Their own contact centers, where we take it over and we own the transformation and that's why they are very excited to work with us on that and it's really booming and it's a great way to move the business along it just has speed to market.
Because we control everything.
And what's your thinking on where that could go as a percentage of revenue.
I mean, it could yes.
Right now.
I'd say right now we're at 16% and that's up from around 13 last quarter, we see it kind of staying in the 15% to 16% range right now.
Certainly there is potential for more acceleration, but from where we sit at this moment.
We would guide that range for danger I'm.
I'm sorry, you broke up just a little there did you say 15 to 18 is where do you think about it 15.15 to 16.15 to 16, Okay. Great and then my last question.
On the move to mid market I mean, certainly my sense from our field work.
The full feature nature of your platform dominates in the in the large enterprise space and mid market and my sense is has not been your strength and I think youre the move down market. What do you have to do there to succeed is it simply just a matter of taking the product you have and just putting more sales resources after that market.
Or is it more of a pivot that's needed on the product set to make it easier to consume how do you think about what's different mid market versus enterprise.
I mean, there's obviously more self service ability.
That you would that we want to create and we've been working on that so we already had with.
A team that's focused on on that area. They still need help with like Bot building in all of this all of the platforms even ones that are mid market focused.
They can be sort of self service, but that means a very basic like <unk> box and we've all seen box as I say boxes with like a 4 letter word it's a very not a very good thing and a truly AI automation is having a conversation with the person. So we can give the power of our tool set to the mid market I still think there is.
On any training, there's things are going to need hand, holding on we may do that with partners more of agency smaller agencies that can help out there, but we.
We have a lot in the area of the product. It's just really team. What happened was we had we have a mid market team or.
Have 1, but theyre getting pulled up market every quarter. So we just have demand more demand in even the we'll call. It the mid market the high end of mid market.
Is where they end up crowding, because it's big dollars and the reps want those dollars. So it's obviously how you compensate the types of reps you hire younger group of reps.
So it's just a group we've got to get focused on an and and not have them drift up market with the demand we're seeing in the enterprise.
Okay, great. Thanks for taking my questions.
Thanks, Jeff.
Thank you.
Our next question comes from Zach Cummins with B Riley FBR. Please proceed with your question.
Yeah, Hi, John and Rob Congrats on quarter on and thanks for taking my questions. John I think you kind of touched on this a little bit in your prepared remarks, but can you give us a little more insight into kind of what's kind of temporarily impacting the gross margin profile for the business.
And kind of what you think that could look like once it starts to normalize a little bit more.
Yeah, So gross margins.
Impacted by gained share.
As we discussed but that's more of a temporary impact we over over time approximately a year. After first signing a large contract we would expect those margins to expand.
And in the quarter the healthcare testing expenses lower margin profile also contributed to what we saw and then we have some additional hosting expenses tied to the public cloud migration that again will be temporary.
But impact impacted the quarter and will impact the year.
Understood and Rob just kind of building upon current momentum you're seeing on the gain share side of the business.
And then interesting dynamic to see that Youre actually taking over some of the voice operations and I think John in his commentary hinted towards maybe even an AI enabled voice solution in this coming year. So can you just talk about kind of your overall strategy on that side of the business and why it makes sense to take over that entire process.
Yes, I mean, obviously my talk track for the last couple of years about getting rid of voice and so.
If he can own it and control it.
For a better chance of transforming it so.
We're actually running voice cloud platforms.
And that gives us a lot of I think.
Preparedness for what we will deliver on the voice side, because we are working on our voice automation on.
And.
Obviously, most of you know Alex Spinelli as our CTO ran Alexa engineering team. So we have a lot of engineering talent and build the Alexa.
Total exit so we're bringing that dose.
Those skills to bear.
We will do it our way we have it it's about commerce, it's about the brand being able to build their own consumer experiences.
On that are very on brand versus like an Amazon Alexa.
But.
We're going to go pretty hard at it and I think obviously the more we control of it we're preparing to transform it and replace it and so that's really what the gain share is working on we hired a very senior guy out of talk desk.
Not ive talked desk out of John whereas you from I've talked to us.
From 1 of the other big voice for provider brings on running for the for example.
For a ring central who's running are running the team and he's doing a great job on you hired a handful of people already and we're starting we have started the development on so we're moving very quick to get into the voice automation arena.
And from a tactical perspective, just to kind of frame the strategy.
Near term if we look at the performance of our IV our deflection debt.
Exists today, we see that 30% to 50% of those consumers who are already in the IV are up to exit and message and so that kind of forms a soft lower bound for the level of volume, we would expect that we could actually transfer.
<unk> from voice to messaging, if we owned and to end the voice and messaging operations. So there's a lot of upside from that perspective as well.
Our next question is on margin.
William Blair. Please state your question.
Yes, thank you very much.
John maybe just 1 first 1 is for you, but I did notice that messaging volumes may have.
The decline quarter over quarter, just looking at some of the presentation materials on you had put out and I am curious.
Those expectations are impacting your Q3 guidance at all.
Or if it's primarily the.
Health care and gained share for them.
That are that are driving your Q3 guidance.
Yes, primarily the ladder and in terms of volumes again total billable volume is up about 15% year over year for the quarter, our messaging volumes up 40% as automated volumes.
<unk> to quarter as you noted it's.
Less growth are flattish.
It's not impacting our view of the third quarter.
Okay got it.
And maybe just 1 for you given all the traction that youre seeing in healthcare and the COVID-19 testing market can you maybe just explain to us what the role live person is playing in that in that at home.
COVID-19 task and why that's lower gross margin than our typical.
Messaging conversation on our typical CPI contract.
Yes, so we built a technology platform. So theres a lot of investment that went into technology platform and we then deliver that platform with the test to a BBB customer and then they're bringing that to their employees and we deliver the whole entire.
Offering together and so it has a little bit lower margin in it.
For some other testing revenue that's in there and the software revenue because we're just starting on <unk>.
Investment and there's been some heavy investment in services and delivery to start so we have base.
Basically it's a pretty heavy lift to do we did in a very short period of time. So those are the main drivers to margin right now on the testing side.
Okay got it got it thank you very much.
Okay. Thanks.
Thank you.
We have reached the end of our call today I would like to turn the call back to Rob Locascio for closing remarks.
In closing growing organically and it was about making long term bets and having the best teams to deliver them.
Great team, we will continue to hire the best we can in the industry. We have a very powerful AI platform that can serve the most scaled and impactful use cases, and we have a lot of cash on the balance sheet to go after accelerated growth.
We tend to capture as much of the market as possible as we accelerate our investments into adding more people capabilities to our platform and opening new markets.
I want to thank the team for another great quarter for hitting the rule of 40 for the fourth consecutive quarter and for delivering our second quarter of 30% plus growth.
Thanks, and we will see all of you on the next call. Thank you haven't Goodnight.
Ladies and gentlemen. This concludes today's webcast you may now disconnect.
Yeah.
Yes.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day.