Q4 2021 LivePerson Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by.
I'll come to life persons fourth quarter 2021 earnings conference call.
My name is Rob and I'll be your conference operator today.
At this time all participants are in a listen only mode.
After the prepared remarks, the management from life person will conduct a question and answer session and 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 Richard to Senior Vice President Investor Relations interesting Finance. Please go ahead.
Thank you operator.
Good afternoon, and thank you all for joining us today.
On the call with me are Rob Locascio life.
Life 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 and are subject to risks and uncertainties.
Actual results may differ materially.
Factors, including those described in today's earnings press release and.
And the comments made during this conference call and in 10-K, 10, Qs and other reports we file from time to time with the SEC.
We assume no obligation to update any forward looking statements.
Also during this call we will discuss non-GAAP financial measures.
Reconciliations of GAAP to non-GAAP financial measures are included in today's earnings press release, where applicable.
Both the press release and supplemental slides, which include highlights for the quarter are available in the Investor Relations section of my personal website.
And with that I'll turn over the call to Rob Rob.
Thanks, Richard Thank you for all for joining the life versus fourth quarter 2021 earnings call.
Really pleased with our fourth quarter performance, which capped a strong finish to the year Q4 revenue was within the upper half of our guidance range and grew 21% year over year to $123 8 million. Our full year 2021 revenue grew 28% to $469 6 million, which.
Which is a record high in our company's history and a major milestone for a live person. Our Q4 adjusted EBITDA loss of $4 4 million was much better than our midpoint of guidance of $19 5 million as we are very focused right now unprofitable and Leverages <unk> growth.
For the full year of 2021, we achieved an adjusted EBITDA of $29 1 million, which equates to six 2% adjusted EBITDA margin our performance.
This demonstrates the strength and momentum of our core conversational AI platform as we continue to execute our strategy of becoming one of the leading AI and automation companies in the world.
Covid was an unprecedented event, bringing on both opportunities and challenges for companies worldwide.
We took advantage of the demand surge during COVID-19 with our flexible gain share model as well as valuable learnings from our Covid testing business, which allowed us to make further inroads in the healthcare sector.
In the meantime, we're carefully navigating the nuance economic environment in 2022 by continually focusing on our core business and other growth areas by strategically deploying capital drive clear and profitable Leverages all growth and by working closely with our customers.
In Q4, we continued to see robust platform usage with conversational cloud volume growing 44% year over year for AI based conversations and 28% year over year for total messaging conversations throughout.
Throughout the quarter, we saw strong traction for land and expand and upsell deals amongst our enterprise installed base, especially in the U S.
In the U S. The top E Commerce platform signed an eight figure <unk> deal with live person.
This was an increase in IRR by seven times over the past three years. It makes this deal notable is voice space, which we recently acquired was also able to sign one of its largest deals with the same customer.
We're really optimistic that the synergies between our platforms will drive future incremental value.
One of our notable new logo wins during the quarter was that the credit card issuer that provides branded credit cards for approximately 150 retailers around the world.
Seven figure win will help improve the customer experience for their private label credit card clients. Our automation capabilities were key to this win as well as our ability to integrate messaging capabilities directly within their apps, rather than requiring them to run sensitive conversations through third party channels.
Some of our international markets gained momentum in Q4, I'm pleased with the progress we made in the UK and sign were the three largest utility companies in the country as a seven figure new logo deal for gain share which is also a partner led.
Virgin Media OTT continues to transform their entire digital footprint within their services and commerce business and is a testament to the power of our AI capabilities.
APAC saw new logos and the education telco verticals and we also signed a renewal with one of the largest retailers in the world through one of our channel partners in Latin America.
By working with live person they are leveraging AI and automation to reduce operating expenses and transition from voice to messaging.
This brand is on the forefront of innovation and improve their sales conversion rate by three to four <unk> by offering grocery shopping via Whatsapp and proactive messaging.
For tracking and delivering conversational AI technology in Q4, we expanded our relationship with one of the largest crypto current exchanges.
And this brand began their journey with live person by using our tool sets like intent manager conversation builder to ramp up automation and high volatility in the crypto space has driven increased usage of our platform.
Our solution enables agents to resolve customer questions quickly and efficiently and they're migrating volumes away from an incumbent CRM CRM provider that provides E mail and online ticketing.
Since we began working together last December this brand has increased their annual spend with us by nearly 400%, indicating their reliance upon and trust in our solution.
Reflecting on our product strategy, we originally launched messaging four and a half years ago. The first company to do that with a focus on customer engagement. The name of the platform originally was live engage.
And two years ago, we evolve live engage into the conversational cloud with a clear vision to power entire businesses around conversational AI and <unk>.
Conversational commerce beyond.
Customer engagement and care.
Last week launched our new branding and positioning called curiously human.
To reinforce the broader power of our platform in providing digital experiences that feel more human because they understand connect and deliver better outcomes for brands and consumers over the past four years, we've made tremendous progress in developing our conversational AI platform.
The end of the year, we should be at a place where our automation will have the ability to self heal which is our north star for any AI platform.
This will give us the ability to generate a large scale of interactions on our platform in both messaging and upcoming voice channels.
Over the past five years, we built a half a billion dollars business in the enterprise customer engagement space. However, the conversational cloud was really designed to be a powerful cloud platform for many different industries.
We expect 2020 due to the Mark the next leg of our strategy with the delivery of our voice AI capabilities across the entire platform.
And also we will now start expanding.
Into our third largest vertical which is health care.
In 2020, the U S spend approximately 20% of its GDP on healthcare the healthcare industry is going through a major technology change and we see conversational AI, playing a meaningful role in that change over.
Over the past two years, we have been going deeper into the health care space with the signing of some of the largest insurance providers.
We've also been working with one of our largest and longstanding U S banking customers, who asked us to build an AI that can deliver in home rapid antigen COVID-19 testing.
With the high efficacy as they were having major issues with business continuity.
We created that offering almost two years ago.
And we serviced over 30 35000 employees.
And administered nearly 4 million tests in two years.
One of the benefits of entering the Covid testing market was our work with many of the world's leading diagnostic diagnostic testing companies and also building relationships with scientific and medical experts we.
We believe there is a massive opportunity beyond COVID-19 testing and taking in home testing, specifically around genomics and combining it with AI analytics and conversational AI experiences to ultimately deliver precision medicine to a broad segment of the population.
We are starting the development of this health care offering with a recently signed eight figure deal to build a conversational AI service on the conversational cloud to deliver a series of consumer diagnostic testing experiences we're.
We're excited about this new opportunity and ability to go deeper into a vertical is already providing us with a lot of profitable and leverages <unk> growth.
There's plenty of room for growth in the enterprise segment, especially given our strength and relationships with our customer base. Our core enterprise business saw continued momentum in Q4 with seven seven figure deals as well as strong renewals and expansions revenue retention was once again within our target range of 105% to $115.
<unk>, making the 18th consecutive quarter that revenue retention was within or above our target range.
Average revenue per customer or <unk> was up 31% year over year, driven primarily by sustained installed base expansions for our business with our recent acquisitions of voice space, and tenfold, where even a greater opportunity to catalyze the upsells and cross sells as we stay focus on weaving voice into our AI offerings.
This year, we'll put a renewed focus on profitable and leverages <unk> growth by strengthening our balance sheet and sticking with the framework that has enabled us to navigate being public.
Company for over 20 years in Q4 alone our EBITDA number was 15 million $15 1 million better than our midpoint of our guidance as we controlled spending in the core business to align it with revenue growth rates.
When we started ramping up resources in Q3, we decide during Q4 that there was no need to reach 200 quota carrying reps and then narrow necessary supporting personnel to achieve our goals, we decided to return the global field operation to a path that we're on early last year around driving Leverages <unk> growth as a note the person who was running.
Our global field operation during that time and for the prior two years <unk> had to take an unexpected leave.
And last June Fortunately, mainly a return a few weeks ago and we feel that is a better fit to continue down the path that we're on and growing our revenues with real leverage as a reminder, underman Leo we had four consecutive quarters of the rule of 40 and he oversaw the exceptional growth rates for the prior three years.
In 2021, we achieved record top line growth of 28%, surpassing our previous record in 2020, we drove total messaging volume growth by nearly 50% all while maintaining solid EBITDA margins.
Looking ahead to 2022, we're going to take this time to focus on our foundation of strengthening our business model, while preparing for our next phase of exponential growth. Therefore, our focus for the year will be in the following three areas first we're going to focus on balancing growth with strong bottom line and build a deeper foundation for profit.
<unk> and Leverages <unk> growth second on the platform side deliver our new voice AI capabilities, which will expand our overall Tam will also deliver on our AI capabilities to get one step closer to our vision of an autonomous of automation is being curiously human.
And third expand into our next big vertical of AI based health care with this new eight figure deal and our vision around the conversation of cloud powering healthcare experiences.
Last but not least I'd like to thank all of our employees for their hard work in making 2021, a great year and for making 2022 are really important foundational year with that let me now turn the call over to John to discuss the financials and our guidance John .
Thanks, Rob Thanks by many measures the macro environment in 2021 was even more dynamic than in 2020, while macro forces had a derivative impact on our business, which I will elaborate on shortly our capacity to innovate and adapt presented us with novel opportunities, particularly in the demand Thats Commerce health care and financial services all in.
Revenue for the full year grew to $469 $6 million or 28% year over year, and adjusted EBITDA was $29 million or 6% margin in the fourth quarter revenue was up $123 8 million or 21% year over year and in line with the midpoint of our guidance.
Our fourth quarter adjusted EBITDA loss of $4 4 million was a meaningful improvement relative to the approximate $19 $5 million loss. We previously expected as we turned our focus to profitable and beverage growth.
The EBITDA improvement was a function of moderating the go to market investment strategy, we formulated in the second quarter of 2021 as Rob described the strategy was premised on the traditional view that a dramatic increase in quota carriers is necessary to accelerate revenue growth. After two quarters of aggressive hiring an increasingly expensive and physical market, we assessed that continuing at the same.
This would likely overextend, our P&L as a result, we tapered the hiring of quota carriers, reaching a total count of 144 as of February 5th 15, an increase of 30 since we last reported on the metric in the third quarter earnings call.
We see a more leveraged and scalable opportunity to accelerate growth that focuses on two key foundations of our business platform innovations and strategic partners.
We have already extended our platform to serve as the AI and communication rails for our new business lines beyond customer service, such as E Commerce and AI assist in health care. We're also gaining traction with expanding the strategic technology and go to market partnerships that tenfold in voice based previously established with leading CRM and customer experience platforms. The.
Fifth of life person best in class platform for messaging and AI, driven automation is clear and compelling and unlocks the potential to materially increase the scalability of our partner network.
In terms of new business lines built on our platform we have.
Already made go to market traction in AI as it gets.
In health care as Rob just noted we closed the largest deal in my personal history to improve access to a wide range of health care testing unrelated to COVID-19.
This opportunity would not have impossible without the relationships and technology, we built to deliver COVID-19 testing, which itself was an opportunity we attribute to our innovation first philosophy and versatile platform.
Before providing a detailed financial update I'd like to take a moment to elaborate on a few macro themes that has altered our outlook for 2022 first as discussed in prior quarters. We previously expected gain share revenue, which is driven primarily by commerce use cases to hold at approximately 15% of total revenue.
In the fourth quarter, we observed a pandemic specific shopping trends began to normalize within the gain share portfolio, specifically in the home improvement space.
Including the type and frequency of purchases and a more balanced interest in physical in store experiences. We attribute these trends two vaccine effectiveness less severe COVID-19 variance and general societal acceptance of living in a pandemic.
As a result gain share revenue was only 11% of total revenue in the fourth quarter and we now expect it to be 10% to 12% of total revenue in 2022.
This change alone translates to a five to six percentage point reduction in 2022 revenue growth relative to prior expectations.
Despite the shift in consumer behavior gain share platform usage is still approximately two times its pre pandemic levels the clear value of the gateway strategy, particularly in the demand of automation has enabled us to convert 90% of gain share revenue into contractually committed recurring revenue and expand the business globally with several new logo wins in EMEA and APAC.
As I alluded to a few moments ago.
Government policies from managing dependent backup also shifted particularly as they relate to the responsibilities of employers to test employees.
In the second and third quarter mandatory testing in 2022 looked like a virtual certainty, but this view rapidly reversed in January when the U S. Supreme Court struck down oceans testing mandate as a result, we do not expect to close new logos for COVID-19 testing or renew the FSD deals that closed in 2021 other than our strategic relationship with Citi.
This new outlook translates to approximately a four percentage point reduction in 2022 revenue growth relative to prior expectations.
Note that we never viewed AI assisted testing is limited to COVID-19 use cases, while we would've preferred to avoid the negative impact in 2022 revenue growth, we view the impact of inherent in the short term. The technology. We develop is now serving as the foundation for our health care testing platform that is far broader in scope and scale and that is worthy figures and committed revenue over the next five years.
From our vantage point COVID-19 testing essentially funded the development of an exciting new vertical that sits on top of the conversation on cloud and that promises to revolutionize access to the data that's viable vital for scalable personalizing health care.
Turning to our reporting segments within total revenue fourth quarter <unk> revenue grew 21% year over year, while revenue from hosted software grew 17% year over year professional services grew 42% year over year in the consumer segment grew 21% from a geographic perspective U S revenue grew 27% year over year and international revenue.
Grew 12.
We continue to both retain and grow our relationships with existing brands as Rob shared earlier, a key theme in the fourth quarter was extending our partnerships with many longstanding customers. We signed 707 figure deals in the fourth quarter four of which were expansion consistent with this theme revenue retention was once again within our target range of 105% to 115%, marking the 18th consecutive.
Quarter net revenue retention was in or above this range.
Average revenue per customer was up six up to 610000 up 31% year over year, driven primarily by sustained expansion in our base.
Total billable volume in the conversational cloud increased 13% year over year.
Messaging was 28% on top of an exceptional base in 2020.
AI powered messaging volume increased 44% year over year in terms of usage and revenue trends, but vertical while growth in retail moderated we continue to see accelerating growth, especially in financial services and health care.
As for the contribution from new acquisitions voice spacing tenfold are opening the door to new strategic relationships for the delivery of messaging and out in addition to voice by wrapping these capabilities into a unified agent experience that brands can rapidly deployed thanks to deep integrations with the dominant CRM customer experience and it systems, we are well positioned to scalable.
Revenue growth in addition, with double digit new logo wins in the fourth quarter to about 17 is meaningfully expanding our market share in Germany are highly strategic territory for growth in EMEA.
Moving down the P&L adjusted EBITDA in the fourth quarter was a loss of $4 4 million, which again was a $15 $1 million improvement relative to the midpoint of our previous guidance. This improvement reflects the shift in our go to market investment strategies that I discussed earlier in terms of cash we closed the fourth quarter with $522 million of cash and cash equivalents on the balance.
A decrease of $111 million from the third quarter, which was driven primarily by M&A activities, followed by our go to market investments.
In terms of guidance, we expect the evolving macro environment, especially consumer shopping behavior in our <unk> business and government policy on COVID-19 testing to have a short term impact on our revenue growth in 2022, when coupled with fewer incremental quota carrying reps the aggregate impact on revenue growth in 2022 is approximately 10 percentage.
Relative to our prior expectation.
Accordingly for the full year 2022, our guidance range for revenue was $544 8 million to $563 3 million or 16% to 20% year over year growth in our range for adjusted EBITDA loss is $20 million to zero or a margin of negative three 7% to zero percent.
As for first quarter of 2022, our guidance range for revenue is $124 6 million to $126 8 million or 15, 5% to 17, 5% year over year growth.
And our guidance range for adjusted EBITDA in the first quarter is a loss of $26 1 million to $21 8 million or <unk>.
Margin of negative 21% to negative 17, 2%.
Before taking questions I'd like to summarize several strategic themes for 2022, we are focused on leverage and scalable opportunities that will enable us to more optimally balanced profit generation with growth acceleration.
And we've built an integrated health care vertical on top of the conversational cloud and signed our largest deal in our history for scale personalized health care without.
Through recent acquisitions, we've combined voice messaging and AI into a unified agent experience and widened the aperture for the data capture necessary to deliver curiously human digital experiences.
These acquisitions have also diversified our go to market strategy through strategic partnerships that we can leverage.
Deep existing integrations to deliver messaging and AI. In addition to voice with rapid expansion of new verticals and use cases long standing top tier brands driving usage growth year over year and the integration of new platform capabilities, such as voice, we have a solid foundation to sustainably reach our long term goals for growth and profit.
And with that operator, we're ready to proceed with your questions.
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To give everyone the opportunity to participate please limit yourself to one question and one follow up.
One moment, please while we poll for questions.
Thank you and our first question coming from the line of Peter Levine with Evercore. Please proceed with your questions.
Great. Thanks for taking my questions. So three months ago, you gave US an initial guide for 'twenty, 227%.
Growth confidently with an exit growth rate of 30%.
You kind of highlighted some of the kind of headwinds that I will now 10% are choppy about $45 million of the guide.
So just curious to know what when did this all start coming to a head.
And then second I mean did you close rate from opportunities you had or did the grid rates against competitors changed at all over the past couple of months.
Hey, Peter.
Start first with some context.
I would say during the third and fourth quarter, we began to re assess our quota carrying hiring plan it became clear to us during that time that.
Many new quota carriers wouldn't be conducive to scalable and profitable growth.
Throwing bodies that problems as traditional approach that tends not to scale very well.
Today's market, especially it's also an extremely expensive path to growth.
We didn't want to lose sight of the value of profit and scalability, especially when evaluating the best path to our long term ambition and to recap there were three primary factors impacting.
Our our guidance and outlook for 2022 part of that is pure quota carriers as we described the big the big.
Contributors there are really the change in consumer behavior shopping behavior, and the gain share portfolio and the COVID-19 testing, which we didn't expect to suddenly be cut off through government policy and collectively these factors as you rightly restarted were 10 percentage points.
<unk> reduction to our year over year outlook.
But I want to emphasize that we do see more scalable and leverage opportunities for growth and I want to reiterate what those are.
The COVID-19 business wasn't one of them done we transformed that business into our long term health care plants are.
Built on AI system testing that extends well beyond COVID-19 to enable precision medicine at scale. This deal itself brings more sustainable revenue growth and better margins going forward.
We're also just beginning to effectively cross sell with voice based intangible including exciting an eight figure deal with a mutual customers.
And we think expanding the technology and go to market partnerships as I described in the prepared remarks will give us more leverage on our go to market motion.
And then maybe just one quick follow up is obviously slowing down the quota carrying rep hiring is that an indication that there's just not enough demand to go around or customers, perhaps may be going with the C pass <unk> paas vendors I don't know somewhat providing more of a platform with voice digital chat just curious to know.
Kind of your take on that in the numbers.
No I don't think its sort of address.
Go ahead Ron.
I don't think its about that I think we just looked at us.
The expense of that and the environment. We're working in today, we just we would burn a lot of cash this year with the hope that by the end of the year all of that would ramp and be scalp and we felt getting to where we are at the 144 is a good place to kind of like.
Stop and look at where we're going we also have some other opportunities like the health care opportunity came out we were hoping to close that it closed and it opens up a big opportunity for us with the deal behind it. So we just want to be measured in how we run the company in this environment.
We would have this will be our trough in EBITDA EBITDA right now because we did do a bunch of hiring and we had the acquisitions at the end of last year, but we're going to start to then move the EBITDA number up and we just feel like we're where we are right now we'd rather focus on being more measured about how we run the company versus just.
Filling it with a lot of people and then the expense of that hits and so it's not as much the demand although new logos is still something that we definitely have to do better at the base is doing really well I mean, we're expanding they love the products. So we're not seeing a shift in the competition.
We definitely have to get our get back into the new logo motion.
And especially what we're doing with marketing with face to face events really propelled us here. So that's really what's happening today, but we just felt as a leadership team its better to just be prudent with what everything thats happening in the market.
That's right Robin I would just.
Underlying and risk.
In response to a question you had a peer.
Peter that the close rates renewal rates and expansion within the base were all in line with what we'd seen throughout 2021 again I'd point to.
The solid net retention.
Figure that we sided 18th consecutive quarter in our target range there.
Okay.
Thank you for taking my questions.
Thank you.
Our next question is from the line of Steve Enders with Keybanc. Please proceed with your question.
Alright, great. Thanks, Ron Thanks for taking the question I guess I just want to clarify it sounds like if I'm interpreting this right. It seems like there was a more difficult hiring environment than maybe you had expected.
Happening in <unk> and that is kind of what led to the to the slowdown there is that kind of the right way to frame it.
Yes.
It's definitely.
We have people who.
This is crazy things going on right now on hiring and there is an inflation in salaries and we would rather focus on the people that are at the company.
<unk>.
No basically focus on make them successful.
So that's really the that's really what we're trying to do here.
And we got 144, we feel like Thats enough right now and let's focus on making them successful.
Okay got it that's helpful. And then just on the the shift in the go to market strategy and areas of investment for <unk>.
For 2002.
I guess I just want to get a better sense of how is the go to market changing to go. After this new AI associated health care opportunity that you're talking about in terms of building out the partner strategy in some of those.
Channel, how does that kind of shift and then also I guess on top of that as you think about.
The other or investments with the with the with.
But the cross sell of some of those newer voice solutions. How is that also kind of changing the go to market and partner strategy.
Yes.
First I'll start with the voice the acquisitions that we did are really great and they.
Especially there's 110 full which is a very much a partner so and they are weak.
We can embed ourselves in CRM, we can bet our agent consoles in our technology area inside of CRM systems and all of this in a very deep way. So they have really a partner strategy even stronger than we did.
And with like CRM players and things like that so so we're seeing some really good traction there.
And then we've had cross sell opportunities with them. So I feel like we did good acquisitions now we're integrating them technically.
And it's going well once again.
A fair amount of money on those guys and we want to make sure that we're going to integrate them in a way that we can get the power of our vision, which is voice AI and changing the game on voice AI.
The second part of the health carriers.
Covid testing business enabled us to build this platform and from that we can now we have a broader vision around delivering testing and a more comprehensive way and just maybe probably most people don't know billions and billions of dollars went into the testing world in the last two years and all.
These COVID-19 testing companies also have a bunch of other tests.
We're about to get all of us access to all sorts of tests to check cancer and all sorts of things in our lives. What we found is that these companies don't have a really good way to deliver that software they're not good at that and so what we build for our Covid testing platform, we saw could really be applied to a wider healthcare.
Opportunity and we were able to sign an eight figure deal a very large one which is a five year deal to deliver on something broader.
So we're really excited about that and I think this vertical can be as big as the customer engagement vertical and we're going after it very aggressively obviously with revenue behind it. So so we're very excited about and I think what's important is that.
I don't know.
Our platform wasn't built just for customer engagement and that is a really big.
Part of our business, we're going to continue focusing on it even though we're not happy with some of the things on the macro side, but.
It's a platform to do conversational AI and we comply to other things and we always had a vision of applying it to other things and this is our our second thing and it is an exciting thing because it has real revenue behind it. So I think for shareholders. It's an opportunity to have like a core business, that's very strong and now an option on the <unk>.
Business actually has real revenue behind it.
Okay. That's helpful and just a quick quick clarification for John just RPI was down quarter over quarter.
Is there any dynamic with gain share that that's had.
And here what is leading to a.
Hi, there.
Yeah.
Yes.
Rps slightly down I think it's about 2% quarter to quarter, its up 27% year over year.
This is in part a function of just extended renewal processes with several large customers. So that signing those deals coupled with eight figure deal that we've just done in it.
In the quarter would definitely expand or improve upon that metric going forward.
Okay perfect. Thanks for taking the questions.
Thank you. Our next question is from the line of Jeff Van <unk> with Craig Hallum. Please proceed with your question.
Okay. So for me I guess on the voice space and 10 fold what did they contribute in Q4 and what are you assuming for the 'twenty two numbers.
Yes, Jeff.
In Q4, low single digits in terms of contribution percentage points and then with regard to full year 2022, what we're looking at mid to low single digit contribution for those assets.
I want to emphasize though that the.
We're only really just beginning in terms of integrating the technology and turning on those partnership capabilities. As we highlighted we signed an eight figure deal with a mutual customer and I think the real leverage point that we get with those newly acquired assets is that they can help bring the value of life.
Anywhere messaging AI automation should be consumable within the desktop experience of choice for our customer whether that's the Salesforce service now, Microsoft et cetera, which add leverage to our go to market motion by not limiting the value of our platform telling me those who work within the life Lypressin workspace. So we think this opens up new opportunities for joint distribution product innovation.
General scale, we're only just beginning there.
Let me just make sure I got that right low singles for Q4, but mid to low single for the year for all of 'twenty two.
Correct.
Maybe you could just expand on that I mean, the combination of the two I believe it was about $250 million purchase price and Youre talking.
Im assuming im hearing you right $5 million for the for 'twenty two.
No so.
Essentially point contribution to our total revenue base and then with regard to the purchase price remember that a substantial sum is contingent consideration tied to revenue.
Okay, Alright, so call. It 25 was shot on I can do the math there okay. That's.
That's helpful. So if I take that out then we're looking at roughly I don't know, 13% organic embedded in the 'twenty two guide and the Rep counts going from 81 I think in August of 144, now So I guess help me understand how 13.
Is happening and when I get to sort of get the changing shopping behavior sort of get the COVID-19 testing, but.
Virtually every data point around messaging is dramatic growth. So just kind of goes to some of the other questions is this is there a competitive loss going on I guess, just more clarity there is desperately needed here.
No again renewal rates are strong expansions are strong close rates are strong and by that I mean in line with 2021 I think there is an element of conservatism here. We don't have a lot of good reasons not to be conservative at the moment.
And then of course, we hired a lot of heads and we need to ramp.
And so that will take place. This year, we're focused on integration and again scalable sources of revenue growth profitable sources of revenue growth and that's that's really.
We will take some time this year to build out but I think holds a lot of promise for this year and the years to come.
On the sales side, just revisit I think you mentioned manley.
Just a little more clarity I mean, obviously, you're part of the east come back what does that mean, what does it mean for Tony Owens, just what does that mean for the direction of the sales organization.
Yes, so <unk> is taking over the organization Tony's turning into a consultant to the company.
<unk>.
He had a real personal.
Issue back last year and that caused us to go out and find someone else, but he was the one are architected all the marketing and sales activity in all of the growth that you've seen and Luckily you. He was able to come back for three weeks ago. He came back and he is culturally aligned and he did such a great job. We didn't think we would get them back for.
From personal issues, but everything is fine he is back.
He just stepped in and he knows the team and we're excited to have him. He is very focused on leverages will growth and it's not about hiring a ton of people overstaffing in a traditional model. He has a different way of of executing which we showed over the last couple of years and we're excited to have like I said, Tony will continue while he's got a consulting.
<unk> is continuing on as a consultant to the company, where we need them to help us.
Okay, one last if I could sneak it in COVID-19 testing for 'twenty one.
Is it as a percent of revenues or dollars.
In terms of Covid testing for the full year Jeff.
Yes.
Yes.
Would have been kind of low to mid single digit percentage point again.
Okay, great. Thank you for taking my questions.
Thanks, Jeff.
Thank you. Our next question comes from the line of semis Savannah with Jefferies. Please proceed with your question.
Hi, good evening.
I have a couple of follow ups to some of the questions I'm asked I mean, I don't want to maybe zoom out a few years ago. The company said that they wanted to double headcount and quota carrying reps to 200 that was in 2019 and it didn't happen then and now you guys announced on the earnings call for QQ. So late.
August and between late August and now you've decided that the traditional model of 200 reps are ramping reps significantly doesn't work I guess, where I am confused it as.
When you were making the original decision, but in 2019 and now again, just it's not that long ago I was just in August .
Who made the decision at the time to go to 200, and what about that industrial logic broke down.
Well it was the previous Menlo it came back and we looked at it and we just didn't like what we would want to do there I just think that the cost of that right now it would be extraordinary and in the risk of that on the business is just not worth it we have other.
Other opportunities, especially in the mid market, we ended up developing a.
New offering to the mid market that doesn't require a bunch of humans and originally the previous plan.
We're going to hire a mid market team and do all that we actually built a platform that connects to shopify and it can take small business the mid markets and automate conversational commerce experiences with one click it's not a it's not a human based system. That's we actually built it over a year. So there was a fair amount of head count going into mid market, we don't need that head.
Right now we've built actually a platform to go after that.
So that's a big part of that even though we're at $140 that would've been a fair amount of mid market reps in small business reps, but we don't need to do that we're going to service that with the platform. We only have about 700 customers on this platform and its call Maven and.
And it's in the market already for the last couple of months. So we felt that's a better way to do it. If we went ahead and did everything that was going to be planned by the previous <unk>.
Person, who was here, we would we could burn of $100 million in cash and we just don't think thats prudent.
Environment, we're looking at today I don't think shareholders want that immediately so we have a better way to service markets, we'd like to use technology services and then healthcare play also enables us to do something in a market that we feel is also a good use of resources, so why double triple down on.
In one area and put the risk of burning that type of money. When we can invest that capital in a different way that we think can get better returns we have a portfolio that we're looking at as we run the business. So that's really it so yes.
In 2019 same thing we looked at the head count but today. It's also just an expensive environment to two <unk>.
Into so we're going to we're going to deploy that capital in other areas.
Understood and then maybe a follow up if I just go back and kind of think about the last few quarters. It seemed much more about investing for growth and I think it clearly resonated this quarter that profitable growth is is kind of a pivot point. So could you I know you've given EBITDA guidance for 2022.
But can you maybe expand on what profitable growth is and should we start to think about free cash flow becoming positive. This year are growing are positive in the next couple of years, just how should we maybe measure the company against the profitable growth that you're that you are talking about.
Yeah, I'll take that some mud and maybe provide just a little context on how the quarter. How we expect the quarter end, meaning first quarter and the rest of 'twenty two to progress given the fully loaded cost of the acquisitions, we made in the fourth quarter.
And the hiring that we did do despite the slowdown there we will expect.
You know a large loss in the first quarter that will improve each quarter thereafter turning.
Significantly positive in the third quarter and fourth quarter in terms of cash flow generation of free cash generation I don't expect a large number in 2022, but that is.
And intention of ours as we look forward into 2023.
Thank you and thank you of course.
I would just add that were also part of this analysis that we did on our go to market investments.
As with the rule of 40 quarters that we've put up over 2020 in the first half of 2021, we think that's just a a cleaner more scalable way to manage the business.
Thank you I appreciate you taking my questions.
Our next question comes from the line of Ryan Macdonald with Needham <unk> Company. Please proceed with your questions.
Hi, Thanks for taking my question and Rob can you just help us understand the AI for health care opportunity a little bit more obviously, we've seen sort of this.
The emergence of.
Precision medicine that our vendors that are using AI and taking patient data to combine that with testing data to.
It drives better outcomes are you intending to offer the test yourself or are you intending to sell the platform.
In Q the testing for providers.
And then trying to add the value there and then.
It's obviously, a very new vertical are you confident in sort of the updated outlook for profitability that youre appropriately sort of.
Accounting for the R&D, but to then to go to market investments that are going to go into this sort of a completely new area.
I think we're definitely covering the investments for this year.
We built.
Kind of got free funding out of it through our COVID-19.
Built so the last two years I mean, we all the money we made we piled back into building this platform on top of the conversational cloud, but you're absolutely right.
What's happening is that we're about to enter a world of health care in which we're going to uncover our body and the data that comes off of our body through testing.
And so one part of this is creating a unified way to get the testing data up so we're not going to make tests. Obviously, we're partnering with test companies, but that testing data has to get onto a single platform and then theres got to be a way that people take those tests and Thats really what we did with Belo health.
And so we have real expertise that we gained over 24 months there youre right. The next step is that who uses that testing and thats called precision medicine, which is going to see something in that area too for us is that in.
In precision medicine right now is about.
Obviously being able to look at the data of each individual and then providing guidance to genomics and blood testing to tell people how to improve their lives based on an individual basis. The biggest problem with that is humans. It doesn't scale, because and it's very expensive, mostly for athletes and Ceos and people who have money.
And but we believe there is a way to scale that to.
Conversational AI experiences.
So we're seeing those two parts together the ability to do the testing bring the testing data onto a single platform. So people can really own their body and the data that their bodies froze off and secondly is what are the recommendations to moving forward.
As a person.
Its right to.
Really disrupt.
The market like I said, we spent two years building and getting to know the testing companies I've spent personal time with many of them.
<unk> learned a lot and I felt okay, we did really well with the Covid testing business. We've got this technology, it's time to kind of move beyond Covid, because I think it's very up and down as we showed with the revenues.
And now we're going to go onto something very sustainable, which is which I think has real legs into it. So this year I think it's mostly a build there is revenue associated in that build with our partner in doing this.
And there'll be some revenue associated with patients and bringing patients on the platform.
And then we'll see how it goes from there but.
It is a potential very very big opportunity for us.
I guess not.
One last thing with it is that.
I believe also that there is an offering we can go back to our corporates with.
The same way that we've worked with this large bank and they relied on us.
Develop this whole platform to bring there.
Employees back to work.
We see also a way to drive this into the corporate world and and work with our clients on this so I also think it will have some real benefit there.
Helpful.
Maybe just a follow up for John on the on the gain share commentary you said for 2022 and here you're expecting between 10 and 12% of revenue.
You cited shifting revolving consumer purchasing patterns.
Should we take that to mean that volumes are just naturally lighter, but customer retention has remained strong or you're actually seeing customers churn off because they don't need to.
Sort of push excess traffic inbound traffic to life person moving forward.
No it is.
The former we have very strong customer retention within against your portfolio.
We have one.
Large customer and the gain share portfolio, that's a home improvement retailer the shopping trends I cited are predominantly affecting that space and I would note, though that even this customer still.
Still has two times, it's pretty condemning usage.
The platform so while the these trends would cause growth to slow down clearly.
It's not the case that the customer trading or that.
There's not still value add and the gain share offering I would also say that against your business. Aside from this customer continues to grow.
Given the strong value proposition of automation, we transform the majority of the variable revenue into recurring revenue and signed new logos internationally for the first time. So we're actually the business is very strong and getting stronger given the shift to recurring revenue.
Despite the headwind with the specific area of commerce.
Thanks for the color.
Okay.
Thank you.
Next question is from the line of our June <unk> with William Blair. Please proceed with your question.
Hi, This is Chris entourage and thanks for taking the question.
Just to dig in a little bit on some of the <unk> growth that you've seen over the last year, just kind of wanted to.
To get a sense of the composition between.
That primarily coming from volume expansion or is it driven by a shift.
From chat and messaging so.
It's kind of a follow up understand that messaging is premium price relative to chat so.
Could you give us a sense for what the pricing difference is there.
Sure.
So <unk> is definitely a function of volume expansions with our largest customers.
New use cases automation are sort of the key drivers of those volume expansion.
And the main reason for the continued increase in <unk> in terms of chat.
Theres very little chat still on the platform.
And we've shifted over 90% of it into messaging, so theres little effect from that.
Area of of the platform on our crude today.
Got it thank you.
And then just to shift gears, a little bit just to touch on the voice offering.
You mentioned something kind of coming more into the market. Later this year have you got any sort.
Curious what youre hearing from your beta customers so far.
And if you come around on a strategy for monetizing that it'll be a unit of volume.
And then if there's any assumption of contribution to revenue in 2022 from voice. Thank you.
Yes, so we're not up on beta yet it will be coming shortly.
Where there's.
Theres very low contribution because we're going to be delivering towards the second half of the year.
The platform, but we see there is definitely demand I mean, we went into it because we automating voice calls like we ought to automate messages at high quality plus it's an integrated it's an integrated experience between messaging and voice and an integrated agent desktop.
We know it's going to have a lot of value and then having 10 fold in voice space.
Also gives us the.
The product build out to do the integrations at the backend and the quality to really look at the quality of voice around voice analytics and Thats voice space. So we just haven't put a lot of contribution in there as a potential upside there.
But we're just being conservative same thing, it's like what we're doing with our reps, even though we have a lot more reps right now.
Just don't need to overextend ourselves and we feel like it will be conservative we're going to ramp them in.
There is some upside there, but we figured out where we are today is just.
Be tempered about what we put out at the start of the year.
We have a lot of opportunities, but we just want to be.
Just be focused on how we're going to run the company.
Great. Thank you for taking my questions.
Our next question comes from the line of Zach Cummins with B Riley. Please proceed with your questions.
Yes, hi, Thanks for taking my questions and then just following up on kind of your last commentary in terms of the reps that you've recently on boarded.
Is there really any sort of expectation that youre going to get contribution from them even towards the back half of this year.
I mean, there was the original plan that that would be the back in the back of the year. So as we thought about that and we're like okay. Let's just let's it's a lot by the way it's not just the reps to supporting group of people have to support those reps for enablement for lead flow, there's a huge amount of people that support them. So.
We are trying to accelerate that we our goal is to make those reps successful. We want every one of them being successful we don't want to spend more time hiring people. It's just it takes time and focus out of leadership team and we felt that let's take the ones, we have and see if we can accelerate them and if we can get them to their quota is faster than <unk>.
We're going to be heroes.
And so we just said, let's just put a little bit of pause on there once again the mid market. We have a product line now in the mid market, we don't need humans to sell in the mid market small business we have.
A product now to go after that that's more automated but with the enterprise reps.
But the enterprise reps will just.
Focus on making the one successful we don't want to lose them, we want to make them really work.
Understood and John can you give an update on the progress that you've made with with transitioning from enterprise licenses to CPI type of contracts.
Yes, we have essentially reached our goal for 2021, we converted 64% I think are very original grow was 70, and we brought that down to 66% given later in the year. So we're right in line with the original target one of these I would note was the eight figure expansion with the joint voice based customer.
Again.
The ability to upsell. During these conversions remains very strong most of the remainder to give you a sense for what's to come.
These renewals will be in 2022, we're still some to come in 2023.
Understood and final question for me is just around the partner side of this I mean with leaning into more profitable growth now and not just completely hiring direct sales rep, saying how are you thinking about relationships with partners and an ability to kind of expand upon some of those more major partnerships.
I think especially with tenfold.
It's one of the reasons, we really wanted to bring them into the company as most of their selling is is that and they've got good leadership over there.
To do that so we got the system integrators and people like that doing stuff for us in the gain share business also has a bunch of bto providers.
But with 10 full they actually have a lot more like they've got all the major CRM players and I think there'll be some interesting announcements, we will make in the next quarter or so about real integrations with them.
And.
And so I think they've got a different they've got more platform strategy, we had more.
We had more size and bps.
So we should see more.
Acceleration there or are you seeing it because they're part of our company. So.
Understood well, thanks for taking my questions.
Thank you.
Thank you My last question is from the line of city country with Mizuho. Please proceed with your question.
Hi, yes. Thanks.
Thank you for taking my question. This is Alex Kim on behalf of city panicked right.
Wanted to ask on what's been the feedback for your payment solution from an enterprise customer base has been gaining traction and what are things that can be improved about your current payment solution and do you plan on implementing any new features to those payments question and then I have a follow up as well.
Yes, so it's out it's out of the market actually the mid market product line.
It's really interesting this maven platform that we have for the mid market, it's tightly integrated into for Shopify, and Big Commerce merchants and one click you automatically get all the conversational commerce rails, including.
You get catalog search.
Payment is all in there and we're <unk> the payment and everything so that's all in that offering.
So there's going to be a lot of volume I think coming through it there and then our enterprise customers. It just it's a unit of like sits inside the messaging channel and then we get a usage fee for it which is also going well, it's harder than the enterprise a little bit because we have to integrate it so really integrates with their payment.
Gateways.
What's great about the shopify stuff is that its using the shopify payment rails.
Once you go ahead, and say you want to be a maven.
Sure.
Customer.
It automatically just integrates all the payment and everything are payment system with shopify.
And so we're quite.
Excited about but that's where we're going to see a lot of volume I think come through it.
And how much <unk> is there today for payments question.
I don't have the data on that.
Have the data right.
And regarding your voice be sent 10 full product how much ASP uplift do you see when you cross sell those products versus your current life person product and what are the gross margins of those products versus the core life person product.
Okay.
Hey, this is John .
It's too early to provide such specific metrics given the very.
Early stages of cross selling within.
The worst patient tenfold install base.
But.
That's something that I think we will be able to expand upon as we progress through the year.
Got it and what are the gross margins of those products like <unk>.
First is the current life person product.
Core lypressin product.
Yeah, they're very leverage businesses like ours.
Comparable to our gross margin.
Got it Okay got it thank you for answering.
Yeah.
Thank you at this time, we've reached the end of our question and answer session for today and I'll now hand, the call back to Rob Locascio for closing remarks.
Thank you operator.
So I just wanted to just.
Summarize again, what we're thinking about in 2022, which is.
We really want to look at how do we get the leverage off of our overall core business.
We've got to do the integrations of voice space.
And tenfold, but more importantly, bringing our voice AI capabilities.
And then last is really about this health care vertical that we've been in now as the third largest vertical we have but the ability to go deeper in and I think it's definitely an option to do something quite big even beyond what we're doing in the core. So we look obviously there has been some changes have been thinking about the business like everybody.
The environment has changed but we think it's just prudent at this point to drive towards profitability and leverage when it comes to growth and don't over extend ourselves and.
And have this be a very strong year foundational year to prepare for the next level of growth that we're going to see so with that I don't want to thank everyone and thank all the employees for all the work and all.
All the hard work, we did last year and all the hard work, we are going to do this year and obviously theres a lot of uncertainty in the world. So with that just everyone be safe and thank you see you next quarter bye.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.