Q3 2021 LivePerson Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to live persons third quarter 2021 earnings Conference call. My name is Hector and I will be your conference operator today.
At this time all participants are in a listen only mode. After the prepared remarks, the management from live person will conduct a question and answer session and conference participants will be given instructions at that time to give everyone. The opportunity to participate please limit yourself to one question and one follow up as a reminder, this conference is.
Being recorded I would now like to turn the conference call over to MS. Dahlia Rodriguez. Please go ahead.
Thank you Hector.
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 with whom bank 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 and are subject to risk and uncertainties 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. Thank you.
And the other reports we file from time to time with the FCC, we assume no obligation to update any forward looking statements also during this call we will discuss certain non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release.
This press release and supplemental slides, which include highlights for the quarter are available in the Investor Relations section of life's persons website and with that.
Turn it over the call to Rob Rob.
<unk>. Thank you all for joining my person third quarter 2021 earnings call.
To report strong results for the third quarter revenue was in the top half of our gardens range and increased 25% year over year to $118 3 million.
Our adjusted EBITDA of $6 9 million or five eight.
8% margin was also in the upper half of our guidance range and reflects planned investments in the business.
And as I will discuss more in a moment during the quarter. We also signed the largest contract in my persons 20 year history of being public.
Reflecting on what we've achieved I'd like to note that in 2019, we put out a long term target to grow at 25% in 2021.
We exceeded that target in 2020, a full year ahead of schedule and now growing at 25% or greater.
Six quarter in a row.
We continue to focus on adding more quota carrying capacity and evolving our strategy for conversational AI and voice.
We're very focused on creating the next set of foundational layers that will enable us to become a multibillion dollar revenue company within the next several years.
What powers, our big ambitions, it's our singular focus on being one of the leading AI companies in the wall.
The raw material to AI leadership is a rich dataset. This provides a foundation to build a very powerful platform to deliver high quality automated conversations.
And this quarter, we hit a new milestone of $1 5 billion conversations on our platform.
Demonstrating the breadth and depth of our data assets and further strengthening our boat for delivering high quality conversational AI and.
In the world of AI, the Holy Grail is to have a machine learning and then correct itself without human intervention.
We are now about 12 months out from having self healing AI on our platform.
This is where the bok knows that it's not delivering a positive experience with the consumer.
And then we'll make some small talk and then take a different path to correct the conversation.
It's about using historical conversational data to learn and correct itself and this is why our massive dataset. It's so important to our platform vision.
As our innovation continues at a very high pace, we need to match that with sales and marketing capacity.
The hydro pandemic in 2020 and into the beginning of this year, we focused most of our field resources on demand of our installed base the.
The install base continues to take most of our capacity, which is a really good thing, but we must continue to ramp additional capacity. So we can go after new logos and opportunities.
We hired Tony ovens as a president of worldwide field operations at the beginning of Q3.
Was previously the president of Americas for Salesforce.
And he is building momentum in adding new hires and leaders.
We were tracking top leadership talent and skill focus roles across the company.
Like Mary.
Fratto Rowe, our new executive Vice President for customer success married previously held executive leadership roles at <unk> and <unk>.
Ellsworth and his proven track record in scaling businesses and customer facing operations supports the tone of your shares with married the experience of being a leader at Salesforce when they were growing at a very high rate.
Our field leaders stand alongside our outstanding Tech leadership, including Andrew Hamill, who joined US two years ago from Amazon, where he led the development of tier one services and tech initiatives relate to Amazon's core search platform and other machine learning powered experiences.
Past few years, a live person Andrew has worked closely with our technology and field teams on critical cross functional initiatives supported our ongoing build out a world class AI team and focused on key strategic and operational goals.
Andrew technology strength and focus on scaling operations and innovation. We're confident it was the right team to capture the go to market and innovation opportunities ahead of us.
Yeah.
He may have heard me speak about wanting to kill contact Center voice when we first launched our messaging platform four and a half years ago.
I still don't believe in traditional contact center voice platforms cloud or no cloud because they are perpetuating the old cast customer care model that is expensive and creates a poor consumer experience and.
In this day and age contact center agents are mostly use because the brand does not have an interface or API between the legacy backend system and the consumer intent.
Voice is the most natural interface for people to express their intent and our goal is to give every brand their own voice AI system to deliver beautiful high quality conversational automation.
High quality conversations require.
Sheen to have a real time understanding of consumer sentiment and other markers of conversational quality.
And also deep integration into legacy backend systems.
This is why we recently acquired voice space and tenfold.
These acquisitions will dramatically accelerate our vision to have our AI based services span across the channels customers care about inclusive of voice and messaging.
As we bring together the expertise and technology of our three organizations will create a unique unified deeply integrated voice conversational AI.
So our platform.
[noise] voice base of World Class voice analytics platform for the enterprise built on advanced speech recognition technology that transforms voice conversation into easily interpreted data and actionable insights.
A unifying it with life persons conversational AI, and we expect to give brands unparalleled visibility into customer intense sentiment frustration and successes for a much wider set of conversations across both messaging and voice channel.
As well as traditional third party contact center systems.
Connecting messaging and voice data insights makes a huge improve customer experience and cover sales opportunities.
Just understand agent productivity and utilization.
Tenfold is a leading enterprise grade customer experience integration platform, enabling enterprises to modernize customer experience tools without having to replace legacy backend system.
Beyond legacy integrations with 10 full life person's message will be available to agents embedded in their CRM with legacy voice agent desktops or even in the brand's proprietary contact center systems. This will provide unparalleled flexibility for brands to work with any voice Fender and complement like persons messaging by enhancing agent experience and <unk>.
Activity.
These two strategic acquisitions open up new horizons for us first and make it possible for brands to have complete visibility and intelligence across conversations.
Messaging and voice and deliver them with AI and automation.
It also brings voice intelligence and AI technologies to support live persons upcoming voice capabilities within our World class conversational cloud all told we expect voice space, a tenfold to accelerate our strategy and helping brands create high quality engagements within their customer conversations in every channel including voice.
We anticipate bringing AI powered voice offerings to the market in the first half of 2022.
Returning to our third quarter results the metrics reflect the very positive growth trajectory, we signed seven seven figure deals in the quarter as well as an eight figure expansion the long standing customer at one of the biggest telcos in the United States proudly say this renewal are forced with this customer is the largest contract in my personal history.
The spam was one of the first to share our vision for messaging.
We're excited to continue partnering with them.
Our vision of putting AI at the center of scaling conversational Commerce also continues to be validated as we saw customer adoption of AI continue to drive platform usage in the third quarter volume on our conversational cloud continues to rise, increasing 5% sequentially and 8%, 18% year over year due to a new high.
High watermark by <unk>.
Total AI enabled volume increased 50% year over year.
Messaging environments, particularly increased 40, particularly increased 40% year over year as we saw a group celebrated migrating customers away from traditional synchronous chat.
Into asynchronous messaging experiences better for today's customer preferences.
Among the many interesting items in Q3 I'd like to highlight some trends we saw in health care.
Back in 2019, we set our sights in health care as a key new vertical.
Today, we have partnerships with several big customers in the industry in Q3, we signed the first phase of a new contract for the 10 largest health care companies in the world.
Brand plans to improve consumer experience agent efficiency by using web messaging to serve its customers currently driving 250 million calls per year.
And two its call center.
They also plan to leap straight to automation, leveraging our conversational AI tools to create highly scalable self service journeys.
There's another trend in health care around testing.
Brands all across the industry are looking for solution to manage COVID-19.
With spreading variance in the buying illustrations vaccine and testing mandate testing is becoming an even more routine part of daily life. We continue to see a major opportunity for conversational AI in testing and opportunity that is already evident in telehealth.
My first one is helping brands deal with the challenges of bringing employees back to the office.
Through Belo health, which is already being used by 25000 employees and 750 locations around the U S.
Our turnkey technology testing solution, we can source deliver and help manage workplace rapid testing programs all powered by a very supportive conversational AI.
All of these trends in health care show our potential in this vertical.
Which has a very large Tam third party research estimates that American telehealth, Mark is expecting to grow to over 43 billion by 2026 at a CAGR of over 28%.
As evidenced by Bella Health AI is critical for any strategic initiatives to scale in the health care health care space, a live person that we have both the flexibility and AI experience expertise to quickly capture the massive opportunity here.
All came more technology and go to market resources in health care as a result.
I'd like to highlight a new customer in the retail vertical one of the largest sporting goods retailers in the world signed a seven figure multi year deal in Q3, and recently launched our conversational cloud to enhance the sales experience starting with web messaging and automation and plan to expand to additional messaging challenge channels as well as expanding further into commerce.
The spam will also be using our may even pay platform news our tech to make it easier secure and seamless for customers make payments directly within messaging conversations.
Pay contains conversational commerce within the conversation itself, rather than making customers go outside the messaging.
Interfaces to complete their transactions are.
Our success and experience with large retailers along with her innovation automation AI capabilities helped us seal the deal to transform their digital channels and accelerate growth.
In addition to exciting new customers in key verticals also seeing continued strength in our relationships with our longtime.
Customers, many of which expanded their partnerships with like person in Q3.
These deals also point to an important trend customers customer brand that signed with us for our strong customer care solutions are increasingly moving into commerce, because as well.
In a post pandemic world, we expect brands move away from just coping with the crisis toward long term planning for digital transformation shifting volume to messaging and automation as soon as possible. They will increasingly bring care and commerce journey together to let customers enjoying natural conversational experiences carrying context and continuity across all channels.
Let me shed some light on the screen with our existing customers.
Additional notable win in the quarter as our strategic multiyear expansion with another long term customer the home depot, the world's largest home improvement retailer over the course of our 10 year partnership we work together to continually increase the home depot's messaging volume on a conversational cloud.
This renewal was fueled by the growing volume and our proven ability to help drive revenue and reduce operational expense for the brand.
As our strategic partnership grows we plan to continue to support home to just focus on digital customer experiences using automation to drive more efficiency and scalability nurturing industry, leading shopping and customer service experiences on channels, including web messaging SMS, Apple business chat and Google business messages.
We also expanded in Q3 with one of the largest beauty and cosmetic companies in the world.
We have implemented automation is driving our conversion rate up to 22% on their website and are continually leveraging our AI tools and sales and marketing solutions to streamline the shopping experience for online and mobile consumers.
In another win for the quarter, we expanded our 10 year plus long relationship with one of the world's largest entertainment and media companies with a seven figure ACB multi year contract.
Helping them unify the consumer journey across channels by shifting calls to messaging and power their in App experience over the long term our predictive analytics are expected to help them diagnose the health of their conversations and our proactive messaging and embedded commerce capabilities are expected to help them reengage.
And take payments and seamless and App experiences.
Finally evidence of our strength of our long term relationships can also be found in our gain share offering.
Q3, we launched the strategic playbook for gain share customizing it around brands desired outcomes.
One of our biggest gained share customers is one of the world's largest home improvement retailers.
And we've been leveraging the program and our expertise for primarily for everything from automation to deployment to agent training within the year, we've seen the automation rate go up to 60% of all conversations.
We trained 600 messaging agents during the pandemic sports brand saving their retail an estimated $100 million of expenses simultaneously, we built and scaled personalized connections with consumers.
Their average online shopping card value and generating more than $520 million in incremental revenue in the year.
<unk> I believe has tremendous success can be replicated across other brands.
Notable gained share deal in Q3 was our expansion with ANZ Bank one of the three largest banks in Australia ANZ aims to drive a higher percentage of digital transactions over the next 12 months and our team plans to help manage mobile app messaging accelerate automation across the banking platform.
As a long standing customer antitrust law person for our comprehensive conversational AI capabilities, our ability to provide the right talent and our expertise to help upskill their workforce, enabling them to transform to a digital focus first on customer care moving forward.
In closing life person is very well positioned for continued strong growth with great execution. Our team continues to focus on go to market initiatives and capitalize on the demand in the market.
We have a tremendous market opportunity with only 20%.
Messaging penetration to date. Moreover, we see the opportunity to expand our current Tam through the appointment of voice AI and automation technologies within our platform.
Our acquisition of 10 fold and boy space as a first step to realize this massive opportunity.
And given our proven ability to execute we believe that we will continue to achieve strong results in Q4 and meet our 'twenty 'twenty growth target.
That.
I'll turn the call over to John to provide more color.
On our financial and guidance.
John.
Thank you Rob the third quarter.
The second quarter.
25, or greater revenue growth with both revenue and adjusted EBITDA exceeding the midpoint of our prior guidance range. While we continued to deliver results. The central theme of the third quarter was executing on the investment strategy that we expect to unlock new vectors of growth in 2022 and beyond first we deployed some of the capital we raised last year to acquire voice based in central which represent.
Strategic assets that will accelerate our technology and go to market roadmap.
We built both the recruiting machine necessary to accelerate hiring in our go to market organization and the support infrastructure and people processes that will guarantee meaningful returns on our investments.
And third we deepen our relationships with strategic partners in health care to advance our vision for AI and automation to transform the industry.
In terms of progress on our go to market investments. We ended the third quarter with 96 quota carriers and as of November one we had 115 quota carriers.
While the organic increase was late in the third quarter, we did not expect a linear trajectory to our target of 200 quota carriers by the end of the first quarter of 2022.
During the quarter, our primary focus was on increasing recruiting capacity and processes necessary to achieve our targets.
To build on Rob's description of our strategic acquisitions note that we estimate the addressable market for automated speech recognition or ASR and speech analytics alone could be at least 5 billion and growing at a 30% compound annual growth rate further we estimate that most of our installed base of brands, which employs approximately 500000 voice Asians users or is it in the mark.
But for ASR and speech analytics, which creates glide path to near term revenue synergies.
Our Korean space and 10 fold was also central to our AI strategy, ASR and speech analytics and a broad spectrum of voice integrations enable.
Automated intent resolution and novel AI capabilities by leveraging what is currently the largest depository customer service data for us.
In addition, deep out of the box API integrations into CRM business intelligence systems, and a range of service and customer support systems allows us to capture contextual data and deliver a seamless workflow automation generally robust data capture and access to rich back ends like this are the bedrock of great here.
In terms of market dynamics, while brands are broadly migrating to cloud offerings. The motion is complicated by legacy infrastructure and compliance as.
As well as high switching costs as a result brands are looking for plug in solutions that drive improvements to the consumer experience and offer cost savings and greater ROI without ripping and replacing their legacy telephony systems in combination voice based in 10 photo responsive to these market dynamics and increased demand by brands.
For consolidation and the single pane of glass.
AI and messaging, coupled with robust data capture and.
API integrations throughout the communication and service Tech stacks.
Enable the compression of different workflows into a unified agent experience.
These embedded agent experiences and third party systems, such as CRM service systems, and other proprietary applications or an expected capability for omnichannel seek us and increasingly pure play messaging yeah Kiva.
Anders offer robust offerings to the.
Strategically these dimensions of value, where we see the most immediate and disruptive opportunity with the combination of life person voice based in central and from an economic perspective seamlessly integrating with all voice systems opens the revenue aperture to the full range of customer interactions.
In terms of inorganic revenue in 2021.
It's fourth quarter transactions, we expect the positive impact from voice based in central to be significantly less than 1% of black person solar revenue note that we will provide additional financial details and 'twenty two 2022 guidance on our fourth quarter filings.
With that strategic overview, I'll transition to our quarterly financial metrics.
In the third quarter total revenue grew $118 3 million up approximately 25% year over year and within the top half of our guidance range outside in the quarter was driven primarily by professional services and continued demand for rapid at home COVID-19 testing both of which were partially offset by expected seasonality in danger, which was 13, 2% of total revenue.
Note that these revenue sources, namely AI assisted health care testing professional services and gain share tend to exert pressure on gross margins. While we were in line with our expectations for the third quarter, we expect slight but continued margin compression for the full year driven primarily by continued COVID-19 testing and frontloaded investments across our insured portfolio.
On the latter point note that we expect to ramp costs faster than revenue in the initial phase of a new contract for existing customer expansion due to the need for infrastructure infrastructure integration and agent training overtime accelerating rates of automation have proven to expand margins.
Turning to our reporting segments within total revenue <unk> business grew 26% year over year, while the hosted software segment grew 25%.
Professional services revenue grew 27% year over year in the consumer segment grew 16.
From a geographic perspective U S revenue grew 37% year over year and international revenue grew 5% note that international growth was impacted by heart comparable in the third quarter of 2020, upsells that rolled over volume into 12 months plus contract periods and a large delay deal in EMEA that we expect to close this month.
Standing on.
Go to market capacity and our international theaters as a key strategic focus within our broader go to market investments and was also one of the primary motivations for the about seven acquisition.
We see a significant opportunity to take market share in the region, particularly in the mid market and its inaugural quarter as part of the Lypressin family be about 17 delivered double digit mid market SMB new logos.
We expect material revenue synergies from this acquisition to continue as we continue.
Continued training would be about 17.
Well the conversational cloud to its enterprise customers. Further we're also extending the about seven products suite to deliver instant automation for downstream customers of our partner marketplaces.
We continue to both retain and grow relationships with it with our existing brands as ruptured earlier, a key theme at the third quarter was the extended partnership with many longstanding customers six of the seven seven figure deals this quarter were multiyear expansions with existing customers, which we see as a strong testament to the staying power of our platform consistent with this theme revenue retention was one.
Again within our target range of 105% to 115%, marking the 17th consecutive quarter that revenue retention was within or above this range.
Average revenue per customer was 570000 up 34, 34% year over year, driven primarily by continued expansion from care to commerce, which translates to increased platform usage for both our CPI in danger of business models.
Total billable volume on the conversational cloud increased 18% year over year, and 5% sequentially in the third quarter, reaching a new record high in advance of our seasonal peak later this quarter.
AI powered messaging volume increased 60% year over year and accounted for 75% of all messaging.
We have also seen significant growth from large existing accounts over the past 24 months for example volume for our top 20 brands increased 25% year over year and 175% over the third quarter of 2019.
With the majority of our top 20, now on CPI or gain share pricing models, we are benefiting from a tighter connection between usage and revenue.
While we are pursuing many new sources of growth, we continue to capitalize on opportunities within our installed base of brands a trend, we expect to accelerate with west coast and central now on board.
In terms of usage and revenue trends by vertical we continue to see significant growth within retail financial services and increasingly health care.
As for new logos, while we saw a slight sequential increase over the second quarter, new logos are lower year over year. Once again the go to market investments. We've made in the third quarter, which will continue into 2022 are laying the foundation for materially accelerating new logo acquisition.
Moving down the P&L adjusted EBITDA in the third quarter was $6 9 million or five 8% margin, which reflects the sizeable go to market investments we made during the quarter.
As for the balance sheet and cash flow highlights we closed the quarter with 633 million of cash and cash equivalents, a decrease of $32 million from the second quarter, which was driven by the use of cash for plant investments and about seven transaction.
In terms of guidance with the third quarter results landing in the upper end of our range and solid execution on our strategy. We are raising 2021 revenue guidance to a range of 468 million to 471 million or 27, 7% year over year to 28, 5% year over year.
Relative to previously issued guidance of 464 million to $471 million or 26, 5% to 28, 5% year over year.
Our revenue guidance range for the fourth quarter. It was $122 2 million to $125 2 million or $19 six to $22 six year over year.
We are also updating our 2021 adjusted EBIT guidance to a range of $11 9 million.
$16 3 million or two six to three 5% margin.
This is from a range of $14 8 million to $22 8 million or three 2% to 448% margin. The revision primarily reflects incremental operating expenses for voice based in central and acceleration of our go to market investments.
Fourth quarter adjusted EBITDA loss is expected to be in a range of negative 21.79 to 17 negative $17 3 million or negative 17, 8% margin to a negative 13, 8% margin.
Before taking questions I'll summarize several key themes of the quarter and our strategic positioning for future growth.
In the near term the acquisitions of voice based in central critical Ipass to new logo acquisition and expansion within the base. They seamlessly integrate voice messaging and back end systems to deliver a unified agent experience and the generally extend or AI or AI platform's ability to deliver personalization at scale.
<unk> go to market investments, we initiated in the third quarter will continue through the first of next year.
And set us up to accelerate new logo acquisition with a focus on the mid market.
And commerce are now viewed as two sides of the same coin and our goal is not to sell one without the other.
Further diverse and rapidly expanding uses of the platform driven by advances in AI and automation of minutes stickier than ever which is.
A key factor in securing the largest eight figure deal in our history and six seven figure multiyear expansions within our base.
These use cases are also extending our reach within high growth verticals, especially health care, where we strengthened our relationships with key partners, who share our vision for AI to transform the industry with these new growth vectors are 2022 targets are well within reach and represent only the beginning of a new phase of growth.
Operator with that we're now ready to take questions.
Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Yeah.
Our first question comes from the line of Sterling Auty with J P. Morgan. Please proceed with your question.
Yeah.
Yeah. Thanks, Hi, guys. So you covered a lot in a short amount of time and thank you for that but I just want to make sure I have a really good understanding so the voice AI solutions that you were looking for.
First half.
What are the use cases is it customer support is it sales what are the initial use cases, you're going to start with.
It'll be customer support and sales I mean, it's it's riding off the same rails as the messaging platform.
So the same AI capabilities. So we can go after both.
So we're not we're not big on if we can do while they have a lot of our volume right now, it's still customer care and the messaging side and we've been going into commerce over the last couple of quarters, So I would probably move or flex that.
That makes sense and my one follow up would be still on this topic. Just you know after you made the acquisition when you had some initial contact with your customers. What was the initial reaction do you think youre going to have interest in terms of getting those first couple of lighthouse accounts that youll need to be able to drive traction.
Yes, I mean it to.
Two interesting things one is actually.
The company's voice based and tenfold got calls from their existing customers about each other's products like Oh, you're going to integrate these two which was kind of interesting and then also we.
Ben you know starting to talk to our customers about adding voice in the platform and have been talk about why these will accelerate.
The go to market and the product depth, so yeah, but actually the interesting one was actually we heard from the the the companies themselves about their existing base. What this allows us to do as you know the rich conversations Rick.
Squire backend integration since what we do it with our messaging today. So this tenfold gives us an ability to do that and and get into CRM systems and everything else in a much deeper way. We can also take our capabilities and put them inside their current.
M systems, and radar messaging and voice platforms inside those so that's that one and then voice spaces about understand really what's going on in the conversation in real time, so that the automation can know if it's doing a good job or a bad job and all the analytics around that so it really allows us to complete what we know at Te.
To create rich.
Conversations most conversations we're used to in what are called voice AI is not conversational, it's more command based or it's linear structures press one press to press three which are IV ours, where we're really building a true conversational AI system, which I think is unique in the market.
Excellent. Thank you.
Okay.
Our next question comes from line of Arjun Bhatia with William Blair. Please proceed with your question.
Hi, This is Chris on for origin.
You mentioned you know the hiring is it linear in terms of hiring new reps. So.
So far you've hired that little over 30.
Where are these reps coming from and you know what gives you confidence in your ability to hit the 200 target on time.
Yeah that the reps are coming from a wide range of SaaS.
SaaS companies today in the open market. In addition to third parties that we've partnered with some of whom have dedicated practices just provide person to scale up our recruiting machinery.
Great. Thank you.
And then in terms of acquisitions that you had to choose this quarter. The one last quarter you know it seems like most of the kind of technology and tuck ins, but you start over.
A 600 billion on the balance sheet or 600 million on the balance sheet. How are you thinking about your approach to M&A going forward.
As a long term growth driver.
I.
We see it as a means to execute on the strategy in a shorter distance. So in the case of voice space and 10 calls we get a technology acquisitions that will accelerate or are you now going into the voice AI space.
He bought seven is more about we want more feet on the street and capacity in Europe, and we know it's a big market. So we keep looking at sort of those two continuum of technology and feet on the street.
You know I don't I wouldn't expect a giant acquisition, we don't need we built everything ourselves that we need and we're filling in some of the pieces to accelerate our go to market, but we're not looking to do anything like a big step change in acquisitions, but we're using it to just accelerate what we already are doing organically.
Great. Thank you very much.
Our next question comes from the line of Peter Levine with Evercore. Please proceed with your question.
Great. Thanks for taking my questions. So the first question is your bookings and pipeline commentary sound bullish Arbuzov question I look at deal count metrics are trending down and I look at that with the current rep count you have them today.
I guess, if you look out call. It 12 months from today like how do you get leverage I mean, what is the leverage come from work. How are you tracking rep productivity I'm, just trying to kind of bridge the gap between I think your commentary and then looking at the deal count metrics.
Yeah.
Yeah, Hi, Peter.
I think with regard to rep productivity, there's there's a lot of packaging and pricing that we're working on internally.
So that we have playbooks repeatable processes that are existing reps and the new ones that we're onboarding can just go out and execute against and we think that that repeatable sort of playbook will allow us to bring reps productivity faster.
And also.
Ensure that our products are hitting the market.
At the same way every time with customers, we have very strong value propositions that are resonating with existing customers and a lot of surface area in the platform.
Platform today, but we need to package and price it and in a way that.
Is resonates with customers and that's something that we're working on as we speak in addition to of course to ramping.
Capacity.
And then I apologize if I missed it I jumped on later is revenue was down sequentially and it was like 1% just curious to know what the dynamics there. Thank you.
Yeah, I mean, what were we had a couple of them, but a couple of large deals that were slated for the third quarter that pushed into the fourth and then we had some seasonal expected seasonal headwinds with with danger.
That will reverse course into tier ones in the fourth quarter.
Can you quantify the deals that got pushed out.
I'm, sorry say again.
Can you quantify the.
The deals that got pushed out meaning hey, if they closed in Q3. This is what we would have looked at.
Yeah, there are both large seven figure deals.
Thank you for the questions.
Our next question comes from the line of Ryan Macdonald with Needham <unk> Company. Please proceed with your question.
Hi, This is Alex on for Ryan and I was hoping you'd give us some.
Information on how the migration of the EI E. L. A contracts to C. P. T contracts are going I remember last quarter. The migration looked like it was around 45% with an end goal being around 70 or where are you at in the process.
In the third quarter, we reached about 58%.
Yeah.
So we're on it.
What we had previously guided to being in the ballpark of 70% by the end of the year.
Okay, great. Thank you and then could you give us a little bit more color on.
Any sort of things you want to point out international.
Sure I mean I think.
In my in my script, we talked about.
Some headwinds in the EMEA region, one of the large deals I mentioned, a moment ago. It was in that region. We also had overages. If you recall with our within our CPI contracts. When the ceiling is it customers go into Overages, we had overage revenue roll into a longer dated.
Upsells and so that's good for us long term, but in the quarter. It means less revenue, but that was another another headwind.
During the quarter.
Great. Thank you I would say, though generally well we had some headwinds in EMEA the APAC region.
It was well above our internal expectations.
Thank you.
Our next question comes from line of City panicked Groggy with Mizuho. Please proceed with your question.
Thanks for taking my question just a follow up to your earlier comments on the deal slip did you said that you're already close that.
One closed one to be closed this month.
Okay, and then when you look at your guidance and.
Kind of midpoint implies 21% for Q4.
What are the some of that do you see any kind of gains had further slowing down or any other factors. There are factoring in in your guidance.
So certainly being variable source of revenue and to some extent campaign driven during the seasonal peak there'll be some variance and gained share, but we expect as I said upside there as we as we move forward relative to Q3.
Okay, and then Oh.
Question on competition, if you see like now this multichannel communication kind of picking up like you see to you're trying to get into this space.
So Microsoft talking about that as well there that also have that contact center. So how do you see this a complicated landscape evolving.
Post pandemic.
Yeah, I mean, the way I see it is that we still have the best.
Asynchronous messaging platform, because we built it out as far and a half years of technology, and let's consider that surface area, which is.
We want everyone in the world have that platform.
And then on top of that we're riding our AI automation capabilities, our connective tissue to other third party endpoints social.
Outbound now we have outbound marketing campaigns payments and so the way I look at it is I think we're gonna be much more aggressive in the market on our on the messaging platform now we're kind of crossing the chasm shall we say from early adopter to general demand and so I think we can be more aggressive and just see that see that.
Into also the mid market, where we haven't really played.
Because we have so many demands in the enterprise, where we see like Twilio is more of a it's more for the engineering side of of a company where they take a P is crafting together ours is always delivering outcomes.
We don't just delivery technology stack with delivery and outcome of a sale or reduction in service costs through automation and our AI capabilities is really where were very very different from everyone. In the market. So I think there's going to be a lot more aggressive bill.
Behavior on our side on a pure messaging on the asynchronous and synchronous side, while we capture value.
Continuing value in our capabilities and all the capabilities that ride on top of the messaging platform and now voice will also become surface area of communication that we're going to out there and you know we don't have a voice platform in the market, but we're gonna and we're going to we're attacking it from a very different perspective than the normal cloud.
This offerings or traditional voice enterprise company. So obviously theres a lot of movement in our market, but once again, we're playing to our strength of AI and automation wishes makes us unique.
Yeah.
Great. Thank you.
Our next question comes from the line of Mike Latimore with Northland Capital markets. Please proceed with your question.
Yeah, great. Thank you can you just think of the two separate volume growth numbers, you had 18% growth on the platform then 40% in them and messaging I guess I would.
Those would be a little closer together.
Yeah.
The the volume so as you May know right chat volume is is continuously declining and being replaced by messaging volume.
The numbers that we called out in the prepared remarks concern primarily automation of that volume in other words AI driven conversation.
Which were up 60% year over year.
Yeah.
Okay.
And then with regard to voice technology.
As you think about the opportunity in voice.
How much of the voice platform does is voice based search you versus something else. He may want to add overtime.
Okay.
I mean, we've been building the core of the voice platform organically internally, so that it's a kit.
Native to our automation capabilities.
So that's one part the voice space.
Gives us another level of what we need is analytics and real time insight into what's happening in the voice channel. So that the automation performs at a very high rate.
Tenfold gives us integrations into traditional legacy systems. So that we can make the conversation handle things like if someone says I want to pay a bill it's kind of hit a billing system and then they're going to have a conversation around the bill we need to get data out of that third out of that legacy system.
So it really it's it's.
It's sort of finishes maker.
Making giving us the capabilities to have very very rich conversations and then they're riding on on our platform and they are using all of our AI technology to create bots and all of that and that's the stuff that we do very well. So I mean, we're pretty excited about this the goal of the voice platform is.
Sticking in front of IV Arts.
And basically be there before you hit a traditional IV are we do have agent capabilities in it. So if in a live agent needed you can route on the platform to a live agent and they'll take a voice call. We're also delivering it as.
Y O C, which is bring your own carrier. So if you look at Amazon connect like today, you have to use them as a carrier and even telcos have to use like their carrier service and they pay for that so all of our telco customers. All someone has their own carrier service. They can wired in so and we're gonna be very aggressive on the voice side.
Once again, we look at our surface area.
And then we have all our automation capabilities versus its our core.
And so I think you'll see a different dynamic in the market as we and we're investing a lot of money in this so it's not a add on for us its surface area like messaging.
Yeah, yeah, okay. Thanks.
Okay.
Our next question comes from the line of Jeff Van <unk> with Craig Hallum. Please proceed with your question.
Great. Thanks for taking my questions. A couple first I'm going to take them forward, you're going pretty quick I missed what you were expecting in terms of the contribution on revenue and EBITDA for.
For Q4, and then can you put just put it in broader context, how big they are how many heads and what you're thinking in the out years.
Yeah, Hey, Jeff the in the prepared remarks, I said that the contribution to 2021 would be significantly less than 1% of total revenue. So think like low single digit millions across both assets in terms of size.
<unk> voice base is around 40.
People and tenfold closer to 80.
Okay, and what were they growing what was the trajectory they were gone.
They're both pretty high growth startups, so kind of a high double digits.
Okay.
Fair enough yeah, it accretive accretive because I personally in terms of growth.
Sure.
And so again just to repeat on the on the Rep. Count did you say 200 by Q2 was the target.
Correct end of Q1.
Okay, and and what are you assuming in terms of ramp of productivity for those reps.
The strategy to ramp productivity.
No I mean the timeline.
From hiring to productivity.
Yeah nine to nine months as the target could be as much as 12, but nine months as our target.
And then we're firing up and they just work we're gonna be firing and we're gonna be firing up a mid market group now and.
And so the the.
Time to market will be shorter for the mid market reps and we will have mid market product and then we will take our platform.
Greenberg preparing it for that so that'll have a little bit of a shorter distance in the enterprise wins.
Okay and one last for me then.
The Covid testing I think you called it out last quarter as an unusual got a big chunk of revenue how did the COVID-19 testing French sequential.
Sequentially. It was it was similar to the third quarter.
And definitely a component of our upside this quarter.
Okay, great. Thank you.
Thanks, Jeff.
Our next question comes from the line of Steve Enders with Keybanc. Please proceed with your question.
Okay, great. Thanks, Ron Thanks for taking my question.
I guess, maybe just to start with Andrew coming on as our CTO and is there any kind of change in and the focus of the.
The product or the tech stack going forward that he will be a still having a greater and greater focus on here.
Yeah, I think I think it's really about Ah, Tony and Andrew working together, we have a lot of.
Capabilities and the platform now.
So if you know we've been selling it as sort of a call it up flat menu, where you get access to the entire platform and you're paying customer interaction.
But we have so much in the platform now that we're gonna be.
Packaging, it a little differently and sort of called bite sizes for use cases are entry points into sales service or marketing or retail.
And then Andrew is aligning to that because that's a focus area to also followed that packaging and how we want to bring it to market. So we can get greater scale.
Scale on usage of the platform. So that's one part where obviously we're migrating the G. C. P. Because we we run our own clouds right now board for scale, where we're migrating so he's focused on that.
On scale and stability and so those are the key areas that he's in and then the last part is as I mentioned.
It's not insignificant and that's why I want to talk about is we're about 12 months out from self here the Bakken self heal.
And the AI capabilities around that is as we all talk about machine learning.
But we actually are going to be in a place we can see it that the machine will heal itself it'll no. It's Matt answering questions correctly that came out in Q4, we have a measurement called Max It can do like small talk hey, hang on a second and we have that coming out in Q4, and then it will go ahead and based on previous data.
We'll we'll then correct itself and bring the conversation somewhere else.
And the goal here is our biggest.
You know bottleneck lets say as humans humans, making bots and humans bots. So we want to basically get the machines to do as much as we can and making the bot tuning it and scaling and so he'll be focused on bringing that in and the focus focus of that.
Okay, Great really really helpful. I think you mentioned in there that there are some new packaging come in and you know kind of right sizing or.
Right sizing some of those initiatives I guess, how does that kind of augment in the Indiana market as you think about it is new.
It really higher.
These new reps in the next six months or so.
Did you give the new reps, a a dependable and repeatable playbook right for certain customer profiles, so they're able to have.
I have kind of a purpose driven approach to produce outcomes for customers.
And that's a little bit distinguished from the selling motion today, which is predominantly in the enterprise.
And there's there's just oh.
A lot of capabilities to bring to market.
And there is because it's the enterprise, there's a desire to kind of put it all out there where we're taking a more methodical approach more purpose driven approach to deliver outcomes for the specific size companies in the mid market that are in a certain sort of phase of their.
Of their customer service or in the case of commerce that that just gives our reps a faster path to productivity when pricing and packaging align with customer needs.
Okay perfect.
Great to hear thanks for taking my questions.
Yeah, it's a it's a natural progression because over the last four and a half years we.
We sold a lot into I'll call. The early adopter, which is a very much its a missionary sell it's it's these are people who have the vision like we had like you remember T. Mobile was our first customer out of the gate four and a half years ago and they had a vision that we did have to transform customer care.
So when you have visionaries buying it's a different sale than when you have just you know rank and file marketers and heads of care they need things in a much more simple way because they're not buying on vision, they're buying on outcomes. So they want to see hey, if I'm a marketer I don't want to see the whole platforms. Just give me everything that's going to help me as a marketer make better marketing.
Outcomes and so that's why we're we're gonna be packaging down in the.
Platform does do retail marketing sales and service. So it has got a lot in it right now and then all the channels. So so theres just a we produced a lot of tech and so it'll just make it easier for our reps. Then we also can vertical wise the reps.
A lot more we can do with them as we go to market.
Our next question comes from the line of Samad Samana with Jefferies. Please proceed with your question.
Hi, Good evening day for taking my questions I guess.
I'm going to ask zoom out here, a little bit and ask maybe a high level question I guess I'm trying to reconcile you know the benefits of something like Covid.
Covid testing and elevated messaging volumes et cetera, but then but then growth kind of also flowing back into the mid twenty's and I understand that the headwinds related to gain share, but I guess I'm just trying to understand like industry demand and the tailwind we're seeing on the messaging side and yet grow it.
You know slowed again for the second consecutive quarter in this time actually had a slightly easier comp. So I'm just trying to maybe reconcile those two about like how we should unpack the parks that have slowed down and why beyond just gained share because if I took out the COVID-19 testing it would seem like.
That's something that it would be even slower. So just maybe help me think about that.
Yeah, it's not.
If you recall from the first quarter in the second quarter, we had one in the first quarter easy comps and sort of growth was quite high in the second quarter. We had pulled in some revenue actually and that was related to the AI assisted health care testing business and so given that unexpected revenue and again.
Well in excess of our original guidance from the first quarter.
It's kind of inevitable that we would eventually decelerates, we pulled in some of that health care related revenue.
Relative to the second quarter as I said health care testing.
It was approximately the same but obviously bigger.
Bigger base of revenue alright, and so that's really the dynamics that are in play in terms of the deceleration coming off of the second quarter into the third.
And then I would add that.
If I could go back in time, which obviously I can't.
We would have opened up.
Hiring and opening up our investments in September of last year.
We were heads down on just satisfying our base and there was a lot of demand the basis as you know and that actually continued into Q1. It continues now our growth in usage keeps going up.
And so it would have been smart to open up our marketing spend and our sales head count we have some more marketing spend in sales head count going back to 19.
Hey.
So that's you know that now we've opened it up obviously, we're doing everything we can now and so if you think about the opposite way if we start to add a ton of new logos and business, which we will on top of what we're just doing on selling predominantly debates with upsells.
You've got a different profile. So I think look in the business over 25 years like it's a series of S. Curves like you have the demand happening and then you kind of hit this place where you're like Oh, we've got to make another change to create the second is S curve.
And I think we've written the S curve of messaging quite well and now we're doing things like adding capacity packaging all the things we need to do to sort of create the next S curve to take us on the next level of growth, but think about it if we had new logos right. Now you can see there is still anemic.
The growth rates would be significantly different than even the mid twenties.
And some of it I would also add that you know.
We are predominantly an enterprise business and with the enterprise. There's lumpy revenue. We've also opened up a few new verticals and really big ways, and we've had more growth than expected and so that that will come into a quarter unexpectedly and you see that manifest in these in.
The deceleration from the first half into the second half, but you know taking a step back from there you know we're still we're still guiding acceleration from last year and the type of and top end of our guidance as you know, 25%, so even though it's coming in a little lumpy across the quarters, it's still a really solid year of growth.
Understood and then maybe John just a housekeeping question why did he bought added to <unk> I think the deal closed in July if I remember correctly I don't know if I heard that the cod by Joseph it's already been asked.
Yeah, I mean, very very tiny amount of revenue.
We're not talking seven figures here.
Okay. Okay, and then maybe just one more question apologize for slipping in a third one just yeah as I think about the existing sales head count and obviously debate ramp that's coming on can you just remind us maybe or how should we think about is there going to be.
Incentive distractions around me, Rob just mentioned new logos in that they were anemic and how should we think about maybe incentives around driving new logo growth and is that something that.
It's already in place for the existing sales reps and how should we think about kind of the priorities as you add new reps as well.
Yeah, it's it there'll be predominantly focused in that but we also know that within our base. There's a lot more we can do with our largest customers because in the account coverage model will change for us.
Because we need some more head count and in in our in our base too so.
Incentive structure most of these people will come in will be hunting, new logos and new areas.
The other thing is that we are you know we're upping our marketing so marketing has been fairly flat, it's going up considerably in Q4.
Because the frontline pipeline needs to grow we can't just have reps and then they need the pipeline to go. We're also starting to reinstate if you remember.
Face to face events, where really our weapon and marketing and and especially early adopter people want to see Hey, This is a new technology I'm seeing big brands, having successes there talking in a room. They seem really excited is a great I want to be a part of that.
So we are bringing back as COVID-19 sort of dissipates.
One of our key weapons, which is the live events and we've been doing these small dinners.
So that's starting to pick up too so I hopefully going into next year, we have that.
Is it continuing to grow the marketing side.
Yeah.
Great. Thanks for taking my questions I appreciate it.
Yeah.
Our next question comes from the line of Zach Cummins with B Riley. Please proceed with your question.
Yeah, Hi, good afternoon. Thanks for taking my questions. John you touched on this a little bit in the script, but.
Can you just go through some of the drivers for the lower gross margin performance that you're guiding to in Q4, I'm, assuming that's partially driven by M&A, but just giving a little more insight into that would be helpful.
Yeah, maybe maybe a little from M&A, but I think that the bigger sources. There are the AI assisted health care testing business professional services and gained share all three of those business lines have lower margin profiles and you know that the on the health care side, It's just a new business right and so we're trying to take.
Sure.
The economics will improve as that business matures in terms of gain share we're investing in our current customers and anytime we have a new contract or an expansion, there's a need to onboard additional agents train those agents and often you know.
Deliver integrations in order to stand.
Stand up the customer or execute on that expansion. So all of those are our reasons that gross margins were compressed.
On the interest side of course, that's temporary it's the upfront costs and then over time as <unk>.
As automation accelerate we've proven right the ability for that business to expand margins and very meaningful west.
Understood and just a final question for me in terms of your 2022 growth targets. I mean can you just give us a little more insight into what's baked into those.
Do you have to hit your I guess pace of hiring for new sales and marketing reps and in order to hit that FY 'twenty two growth guidance.
No we don't have to hit our target exactly in order to hit the 27% that we'd put out there in the third quarter. There, there's a large number of factor.
Factors that go into that guide and.
Some of them are in health care for example, where we continue to make expansions and deepen relationships with strategic partners that see our vision.
Our partner network continues to ramp in.
It is helping to accelerate deals obviously, they go to market capacity as part of it but so is the packaging and pricing. So we have a lot of vectors of growth that.
Or are going to contribute to that as well.
Understood. Thanks for taking my questions.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Robert Locascio for closing remarks.
Thank you in closing I just wanted to also mentioned we were recently named one of the top 100, most loved workplaces in the U S.
Newsweek and today, we were named to Inc. Magazine's best led companies list.
I think everyone on the team at life person for all their hard work and for being recognized as one of the best places in the world to work.
And we have so much more to do and it's great to be on this journey with everyone is the shareholder myself, obviously I'm really proud of.
The work, we're doing here and the future that we're creating.
So with that thank you.
The holidays, we wont see until next year and thank you.
Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
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Okay.
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