Q3 2022 LivePerson Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen.
Thank you for standing by.
Welcome to life, Boston third quarter, 2022 earnings conference call.
My name is Ryan 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 team from like Boston 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.
To Mr. Chad Cooper Senior Vice President.
The relations. Please go ahead Sir.
Thank you Ryan.
Joining me on the call today is Rob Locascio, My person 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 November seven 2022 and are subject to risks and uncertainties.
Actual results may differ materially due to various factors, including those described in today's earnings press release and in the comments made during this conference call as well as in 10-K's 10-Q's, and other reports we file from time to time with the SEC.
We assume no obligation to update any forward looking statements.
Also during this call we will discuss certain non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, both the press release and the supplemental slides which include highlights for the quarter are available on the Investor Relations section of my persons website with that I will turn the call over to Rob.
Rob.
Thanks, Chad.
Thank you for joining life versus third quarter 2022 earnings call I'd like to start off with an overview of the quarter Q3 revenue grew nine 5% year over year to $129 6 million and adjusted EBITDA of 9 million $9 1 million moved into positive territory, our non-GAAP gross margins were 74%.
A 200 basis points year over year, a few weeks ago, we hosted one of our customer events in San Francisco or any of our largest brands and key prospects were in attendance.
Our partners and customers that Google Verizon Virgin Media Priceline element health gave a tendency of private view.
AI powered digital customer engagement journeys and strategies.
<unk> implemented a live person to date.
These events offer a clear lens into our customers' thinking and hoping for a product roadmap in the future.
There were three broad strategic themes that were validated by our largest brands at the event, but I want to share with you first I was struck by the fact that meeting after meeting our customers told us that they now consider a tier one provider.
The CTO of one of the largest airlines in the World told me that out of there are thousands of systems that they have in their company that there's only a small group that are considered tier one including the reservation system and we are now one of those systems.
Or are we now seeing enterprise customers shifting 30, 40, 50% of contact volume to US we're really validates what no. Other company has done in our space. We took something that for 50 years. It was ingrained in people that we need to pick up the phone call brand for customer care and we create a clear alternative to traditional voice.
Third a tier one provider serves as a validation of how we executed against our long term vision become the mission critical customer engagement partner for brands across a multitude of industries.
I don't trust their businesses to us more than ever before we expect this trend as well as conversational volumes to both continue to grow in the months and years ahead.
This new reality is an exciting opportunity that brings heightened responsibility and expectations. One highlight when we release our voice one highlight where at least our voices sure there'll be a voice AI, enabling consumers to converse with the machine through natural language.
So the human experience.
Second Brad.
<unk> have validate our vision for how the use of AI and automation in the enterprise our brands are adopting AI, thanks to our tools and expertise and continuing to build their teams and AI specialists to support the prominence of the functions across their business.
As discussions we had with one of our major banking brands exemplifies. This trend has seen increased value in our platform as they deploy additional automation for them, an increasing number of brands life's Hudson is much more than a chatbot company that helps them back to a multitude of channels are leading AI automation and product roadmaps are helping them innovate.
And operate the most sophisticated AI driven digital customer engagements in the markets today.
Finally brands want us to be the platform, where they integrate key systems that create a unique powerful customer engagement hub one of our largest telco customers is using our platform as a central hub, creating integrations with other digital legacy systems in order to deliver a rich consumer engagement experience.
The acquisition of 10 fold and boy space are part of this long term straight to move us into the central role.
Also wanted to note that Google joined US on the main stage of our conference to highlight our partnership around conversational Commerce use cases, which focus on the work we're doing together to unlock the opportunity for conversational ads and search.
We've already kicked off engagements with several of our enterprise customers are seeing really compelling results in conversion rates.
We expect to have more exciting updates with this partnerships as we move from beta to general availability with Google in the coming quarters.
So on all it was a terrific event and strong validation of our AI driven approach and the product roadmap for us to continue to build on as a tier one platform to serve as a central customer engagement hub with the world's leading brands.
Now, let's dive deeper into our results for the quarter as we outlined in our Q4 call with the changes in the market. We focused during fiscal year 2022 on three actions to optimize profitable revenue growth.
New logo growth expansions with existing customers and our strategic partnerships initiatives opening our AI. So it can be accessed on other platforms strengthening AI.
AI platform to drive enhanced value to customers.
While we cannot divulge bookings numbers I would like to highlight that we had a strong bookings quarter in Q3.
It's a newer quota carrying reps are starting to gain traction in fact, we achieved the highest bookings number since Q1 of 2021 after netting out the COVID-19 testing revenue.
Starting with customer wins in our logo growth we signed seven.
Seven figure deals and achieved a total deal count of 86 deals in the quarter.
As brands look for a strategic partner for AI powered digital customer engagement. They are increasingly recognizing life person expanded value proposition.
This holds true even under the current economic conditions, because they recognize the cost savings they can achieve with our platform.
I turned to some of our top customers wins for the quarter. Some of which include the most innovative brands in the world.
Let's start with new logos to 129, new logos in the quarter.
While the number of new logo deals is down year over year. The dollar bookings on the new logos is up 20% year over year. Additionally, the number of enterprise, new logos up 14% year over year.
These new logo wins provide the foundation for the up sells them tomorrow.
And are excited to have these customers on board.
Spanned our presence in the market and bring us the opportunity to significant expansion dollars.
One of the largest new logo wins in the quarter was money market and operating unit momentum financial services group and an alternative lending provider operating across North America. In addition to being an amazing new brand for live person and just 59 days after signing with US money Mart was able to launch an entire digital service servicing strategy.
Included messaging automation and agent workspace call to messaging deflection and voice space.
For voice based AI analytics.
Another large new logo win was a three year seven figure TCP you deal with Uk's largest auto insurance provider.
They have over 14 million members they plan to use our software to offer messaging with automation and IV are deflection. So they can reduce costly phone calls and improve customer satisfaction.
This is a year long RFP process, where we beat a number of other vendors.
And the health care vertical we signed a new logo deal with a provider of public health care programs are 10 fold integration platform gives their sales and service reps the full context of each customer in real time. This is Neil as their ages to quickly identify who's calling members are providers to deliver the best customer experience, while also reducing our channel time quickly.
Creating new cases, and ensuring analytics are captured back into the ERP and CRM systems. It's also as you know that we partnered with one of our channel partners, which enabled us to avoid a lengthy procurement process.
Spec this new partner, who is heavy Cisco partner well open the door to jointly pitching a new set of logos and potential customers and partners.
We also had a strong quarter with Upsells and renewals are grocery flex the trends brands moving into us being a tier one provider chipotle.
The largest fast casual dining chain by sales in the U S renewed and expanded upon partnership with US. This deal highlights the power of life persons combination of best in class AI cloud platform and expertise in professional services faulty Leverages a comp shares bought named Pepper to support its 3000 U S restaurant locations, helping them deliver.
So human feeling and personalized experiences on a national scale.
I'm also happy to announce a two year renewal and expansion with a real real our second largest deal in the quarter the real renewed as an automation as a service customer as we continued to deliver an enormous amount of value in designing and executing the customer strategic roadmap for conversational AI and conversational commerce.
We achieved a renewal upsell with the top U S. Based insurance company. This insurance company has focused on digital customer journeys and expanding their current success and automation to new lines of business like roadside claims.
Also in the health care vertical we signed a seven figure multi year renewal with our largest fortune 20 payers in the U S.
We established a relationship about 18 months ago, and just one line of business via web messaging, we're now deploying our platform and the remaining six lines of business you do see additional messaging channels like in App, Apple business chat and Google can message.
And finally, we signed a renewal and the world's largest cosmetic company.
They are looking to expand their digital footprint invest deflection activities around voice to messaging and improved personalization on their brands websites.
Deployed in 16 of the company's 30, some brands and we'll continue to use us for both customer care and commerce.
As he discussed recently, we're working on a greater open platform strategy to address what we see as a larger incremental addressable market opportunity for us by our customers partners third party developers and internal teams. This will enable the acceleration of new areas within our customer base as an example, they are voice.
Space transcription product is currently available across several third party market places, including Twilio flex marketplace. While early in its development. We are encouraged by the fact that revenue from voice states product on Twilio has grown more than 100% in the past six months with no direct sales our marketing investment.
In Q1, we plan to launch range, although my person app marketplace and build on the pipeline momentum from slowness in affinity who jointly uncover nearly 20 opportunities for us in Q3, helping to contribute to our pipeline in Q4, as we I a formula Formula launch for the up market was.
The next two to four months, we have a strong pipeline of Rev share program partners Clooney, Telium medallion and quantum metric we.
We see partnerships as a major untapped growth lever for life person.
Dedicate appropriate resources to this very scalable opportunity.
Finally, I'd like to also take the opportunity to talk about our new Chief Marketing Officer Richie. It's Bruce is a three time enterprise software CMO. Most recently, serving as CMO of a chatbot company called Ada.
Her leadership helped transform the company to triple digit growth.
Life person routes priorities to grow scalable measurable predictable world class demand generation, while driving operational rigor. So we want to welcome our route to the team are really excited to have her here.
As I mentioned at the top of the call. We continue to execute our profitable growth plan announced at the start of the year. We're on track to deliver double digit adjusted adjusted EBITDA margins in Q4 and sustain these margins with a focus on free cash flow in 2023 and beyond.
With that let me now turn the call over to John to discuss the detailed financial results John .
Thank you Rob.
In the third quarter, we continued to advance profitable growth plan. We launched just started this year to that end revenue grew nine 5% year over year, $229 6 million, which was an improvement relative to the expectations, we set last quarter.
Upside relative to prior guidance was primarily driven by well. It helps continued over performance and by the accelerated timing of Upsells and professional services deliverables.
The net effect of.
Of revenue upside and continued cost reductions translated to $9 1 million and adjusted EBITDA non-GAAP gross margins of 74% were at the top of our guidance range attributable to cost reductions and our focus on scalable high margin sources revenue.
In order to close out the year with a balanced approach to profitability and growth. We continued to optimize our cost structure in the third quarter restructuring during the third quarter is expected to reduce our expense run rate exiting the year significantly more than the actions. We've taken in the first half of the year advancing our goal of double digit adjusted EBITDA margin and positive free cash flow for <unk>.
23.
For perspective on the pace and magnitude of the P&L transformation year to date note that when we launched our profitable growth plan at the start of the year, we were burning well over $30 million and free cash flow pork for per quarter and forecasting that number to grow.
Over the medium to long term, we expect these cost reductions coupled with the emphasis on scalable high margin revenue sources to better align sales and marketing research and development and general and administrative expenses with best in class industry benchmarks.
Turning to our reporting segments for the third quarter within total revenue <unk> grew 10% year over year revenue from hosted software was down 4% year over year and professional services grew 92% year over year to elaborate on the underlying business drivers consistent with the expectations. We shared last quarter COVID-19 testing revenue from our long standing at.
This customer city dropped to zero in the third quarter, excluding the impact from COVID-19 testing revenue and pandemic driven variable revenue b to B grew 25% and hosted software grew 12% year over year.
As for professional services continued high growth was attributable to the eight figure health care deal. We signed in the first quarter, which is focused on automation as a service for health care delivery companies, we expect elevated P. S revenue to continue in the fourth quarter.
From a geographic perspective U S revenue grew 12% year over year and represented 69% of total revenue while international revenue grew four 5% year over year and represented 31% of total of them.
Finally revenue from our consumer segment increased three 7% year over year.
In the third quarter, we continued to build on our go to market momentum, our platform's ability to increase operational efficiency and reduce costs is resonating with both our customer base and new logos, especially in the present macro environment. In addition, as Rob described customers are increasingly viewing AI and automation is fundamental to delivering a seamless and personalized digital experience across.
The consumer journey from this perspective, our customers are looking to us as a strategic long term partner and tier one service provider, which we expect will drive growth and usage of our platform in the future.
Today, we facilitate and manage approximately 1 billion conversational interactions each month, making us one of the most skilled conversational AI platforms in the world.
And to this end.
In the third quarter, we signed seven seven figure deals for expansions and three new logos note that cross selling voice space was once again, a key part of the value proposition that landed one of the seven figure new logos well, while the aggregate number of new logo deals was down year over year aggregate new logo deal values were up 20% year over year driven by a <unk>.
14% increase in the number of enterprise new logos, considering our focus on the enterprise. We see these results as indicators that we continue to ramp reps and rebuild go to market momentum.
New logos typically result in a higher initial deal value and greater strategic expansion opportunities translating to significantly higher lifetime value relative to new logos down market more broadly in terms of aggregate deal value across both new logos and expansions in the base. The third quarter was our strongest since the first quarter of 2021 normalized.
For the impact of COVID-19 testing.
R. P O increased 16% year over year to $431 million driven by several large enterprise renewals and Upsells average revenue per customer improved 675000. This quarter, our improved to 675000 this quarter up 18% year over year.
Conversational cloud messaging volume grew 25% year over year and head of AI based messaging volume grew 11% year over year consistent with expectations. We shared last quarter net revenue retention was just below our target range of 105000, or 15% attributable primarily to lower pandemic driven variable revenue from gain share and lower revenue from cities.
COVID-19 testing program.
In terms of guidance, we expect continued outperformance by World Health and elevated professional services in the fourth quarter, considering those expectations, coupled with more upsells and early renewals in the third quarter than previously expected. We are raising revenue guidance for the full year. We now expect revenue in a range of $517 million.
$121 million or 10% to 11% year over year growth and improvement to the midpoint of approximately $6 million.
For the full year adjusted EBITDA, we are reaffirming our previous guidance range of 1 million to $10 million the wide adjusted EBITDA range at this time in the year reflects the potential for continued revenue upside from Marvell and elevated professional services.
And the potential for lowering operating expenses from additional P&L optimizations.
The implication for revenue in the fourth quarter is a range of $124 5 million $228 7 million or approximately one 4% year over year.
The expected sequential decline in revenue is primarily attributable to early upsells with one time components that were pulled forward into the third quarter from the fourth quarter and attributable to the less the lesson predictability of the magnitude of continued upside from wild health and accelerated professional services deliverables in the fourth quarter.
As for adjusted EBITDA in the fourth quarter, we expect a range of $14 9 million to $24 million or.
Our 12% to 19% margin.
Did the midpoint of revenue guidance.
Finally, we are expecting non-GAAP gross margins to be in a range of 72% 74%.
Before taking questions I'd like to emphasize several key themes for 2022, and how solid execution on our profitable growth strategy is positioning us for 2023.
In the third quarter, we continued to observe indicators of increasing sales momentum, including 14% year over year increase in enterprise, new logos and a 20% year over year increase in aggregate new logo deal values. We also expanded within our customer base, which increasingly regards us as a long term strategic partner in tier one service provider on a level, we haven't seen in the past four quarters.
Critical inputs to those results were increased traction with strategic sales and technology partnerships and robust cross selling of products within our installed base from newly acquired assets.
This sales momentum coupled with the optimization of our cost structure and a focus on scalable high margin sources of revenue reflect durable changes to our operating model that position us to generate double digit adjusted EBITDA margins and positive free cash flow in 2023.
Operator, we can proceed to Q&A.
Thank you.
Ladies and gentlemen at this time, we will be conducting a question and answer session. If.
If you would 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 would 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 stock east.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of Ryan Macdonald from Needham. Please.
Go ahead.
My questions and congrats on a nice quarter here maybe.
Maybe we start with just the guidance and just can you provide a bit more color and help us understand the the one time components. He discussed from some of the early pull forwards are that that came into Q3 that we won't see repeated in <unk> and in <unk>.
Hi, Brian Yeah, those onetime components relate to an acceleration of recognition of revenue for usage true ups. So in other words, the customers, who we renewed and up sold early in the third quarter well ahead of it.
Usage that was contractually committed and so needed to essentially raised the overall cap and that was the nature of the up sell going forward and the accelerated recognition in the third quarter.
Got it makes complete sense all right. Thanks, Thanks for clarifying that for me and then yeah. It's great to continue to see some of the early I guess performance from Wild Health can you just sort of us understand as you know where that's coming from whether it's sort of on the BDC side or in the B to B initiatives and then as that business continues to grow as it.
It makes it a revenue yeah, I think you called out sort of over performance there could create some wider variability on the adjusted EBITDA performance can you help us sort of think of what success in wild health translates to in terms of adjusted EBITDAR or could we see downward pressure I guess.
On the right thing.
Go ahead John .
I was just going to make a comment on adjusted EBITDA just on that specific financial point.
I think broadly as we've discussed previously wild health has a lower overall gross margin, but we have now greater insight into ways. We can expand that gross margin to be more consistent with our life pearsons target over time. So we don't expect it to necessarily get worse, but to improve over time.
And then we're seeing we're seeing good traction on the BDC side, right now and some b to b, but there are a number of people signing up for the service and then also we're onboarding a medical.
Medical professionals on the Alder all platforms. So it's a sort of a combination of both right now.
Excellent and just one more for me just on broader rep productivity, it's good to see some of the gains there and improvements.
Despite sort of a uncertain macro environment I'm curious as you're as you're looking out into <unk> and planning for 2023 can you talk about how you're feeling about sort of sales quota capacity at the moment and quota coverage and how we should think about sort of incremental investments on the sales head count.
Yeah, Ryan I think that where we stand today, we we do continue to see progress on ramping the reps. We have we have more ramping to go as we exit the year and think about 2023.
Big picture, we started 2022 with mid fifties numbers and until in terms of total ramped reps and we think that number will be mid eighties.
As we start the year in 2023 with a healthy number who are on ramp shortly thereafter.
And I'm, sorry, what kind of sort of investments.
Yeah.
Go ahead John .
Okay.
No I just think it investments will will flow.
And in 2023.
And in light of a broader overall profitable growth framework right, we have certain targets for our overall free cash flow generation and EBITDA margins.
And we'll make investments accordingly.
Excellent thanks for the color.
Yeah.
Thank you.
Our next question comes from the line of Mark Chappell from Loop capital. Please go ahead.
Alright. Thank you for taking my question and nice job on the quarter.
John given the strong <unk> performance I was surprised to see that the profitability guidance. It looks like it remains pretty much unchanged here could you just went through some.
Some of the puts and takes there and why that is.
Yes, some of the upside relates to the one time components I described at the top of this call and then other components relate to our sort of.
The expectation for continued outperformance going forward, but less predictability in terms of what health and also in terms of our ability to accelerate certain professional services deliverables and I think the other component on the cost side is that as.
As we continue to assess the business, we felt that there would be greater impact on our long term profitable growth strategy by staying the course and delivering on certain product roadmap deliverables on on time with our customer base than simply cutting costs and dropping those to the bottom line. So it's the <unk>.
The approach, we're taking here with respect to taking costs out of the business, but not harming our growth opportunities as we look forward.
Okay, great. Thank you and then I believe your international business, which is mainly Europe . It was up about four 5% if I recall correctly could you just talk about some of the dynamics youre seeing there it seems to continue to underperform.
And in the U S.
Yeah. We are you know looking at sort of.
Thinking the investment in there and how we make some changes to accelerate the growth.
You know obviously, we feel the markets are still very strong for our products.
But you know we feel like the European market is just has a lot of it.
We have a lot of opportunity there, but we think we need to.
Do you have a little bit better of a focused approach I don't have anything specific to talk about it right now unless you get a lot of it is around the execution leadership.
But.
So we're basically.
Are we thinking match and how we how we grow it at the same rates that we'd see in the U S. But there's definitely demand there so.
Great. Thank you that's all for me.
Yeah.
Okay.
Thank you.
Our next question comes from the line of C. D E.
<unk> from Mizuho. Please go ahead.
Thank you and thanks for taking my question Rob Mam.
Some of your peers, saying even come in at decent Black Crown contact center, they talked about a macro pressure. So wondering what are you seeing and long ago at enterprise base order yet among get installed base are you seeing any sort of macro pressure.
Any kind of impact to your business.
Yeah.
Not right now I think I think this quarter and what I talked about as being coming a tier one provider tells the story. We've wanted to tell which is that it's not about the channel communication, we're not like messaging as a channel to replace voice, it's about being an AI automation.
Company and when you look at what the value of our platform as you know as we said about 75% of the billion conversations we carry have some form of automation in it and even when I was talking about that have sat down with that CTO from one of the largest airlines in the world.
You know what the he talked about the automation capabilities and your critical because we're automating at a very high scale things that normally neither human agents. So it's not it wasn't about moving voice calls to messaging yeah that was the kind of inning. One many years ago. It was moving that to automation. So we can get them scale to have more conversations so I think what it should show.
Is that were starting to diverge from.
The concept that we're channels or messaging or chat.
<unk>, sometimes that we're really moving into you know very high quality AI and there's more we're going to do in that area and I think that's what we're seeing in the market caps I feel very good about.
The demand in the market, because we're driving costs out of the businesses.
Oh, that's great and then how would you characterize the competition landscape right now.
It's really is you still have like the child the voice providers.
That are out there and then you've got the CRM players like Salesforce and once again, you know, we're integrating with them one of our one of our strategies now where we've been sort of a walled garden, although our platform's open you can on the Reais can live in it we're very integrated into things I think we're really thinking about now is how do we take our AI and <unk>.
Run it over a Genesis platform, how do we run it over a five nines, how do we run it over these voice platforms, because maybe they've got relationships there and instead, we got to take them out why don't we you know run over those platforms.
So we see them, we're going to see the more cooperative like I give an example, and twilio, which obviously they've got a contact center product flex where in their marketplace now with a voice based product and people are integrating that into some of the twilio flows. So so we are starting to evolve ourselves.
Beyond the walled garden into more of a platform for AI and then do it on a platform you can do it off of our platform and that's really where we're moving now.
That's great. Thanks for the color.
Thank you.
Yeah.
Thank you.
Our next question comes from the line of Zach Cummings from B Riley Securities. Please go ahead.
Yes, hi, good afternoon, Congrats again on the quarter and then thanks for taking my questions.
First question for me is is there really any sort of change into the go to market focus for your enterprise sales force at this point.
Is there more of an incentive to focus on these larger customers just given the higher pay off to begin with and the potential upsells over time, just curious if theres been any sort of involvement in that and that strategy just given the current macro conditions.
No I mean, it's it's been the same I mean, if you remember we kind of we went up to the enterprise and we kind of abandoned the small business market. So we've got the mid market and in the enterprise that we're focused on we do our best work, though it's it's very hard.
As you know sell seven eight figure deals into those customers do we do it well, we're renewing them well we're become a critical like the tier one for them. So I think as a company we get most excited when you know.
The largest banks in the world and Telcos and airlines are like your critical now Youre carrying 40 50, 60% of all of our customer engagement. We want you guys to be like something even better and they're pushing us now.
As a company to be a better company, which is exciting. So I just think as a company. We really are people even the people work here, we get excited by working on that the other thing is from an AI perspective. They are these large data sets I mean, so we generate a lot of conversations there are a lot of internal data and the ability to sort of cracked the nut on how do you automate all of that.
Scale.
That's exciting so I think for us for now that's where our focus is it's been our focus we're trying to get more streamlined into 'twenty three we just wanna be operationally better.
And going after that and that'll be our focus for the near to medium term.
Understood. That's helpful and final question for me are geared towards John in terms of the double digit adjusted EBITDA margin target that you've put out there for 2023.
Is there any sort of needed growth to achieve that sort of target or what are some of the puts and takes that gave me the confidence around that double digit adjusted EBITDA margin target.
Sure, there's certainly a revenue component, but as we think about the range of double digits that are possible.
Even in a lower growth scenario, we'd still be able to achieve that goal that we've set for ourselves.
Understood well, thanks for taking my questions and congrats again on the quarter.
Thank you.
Thank you.
Yeah.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Tom Blake.
Ricky from Keybanc. Please go ahead.
Hey, guys. Thanks for taking my question and congratulations on the results.
I might have missed this so I apologize if it was already discussed but just wondering about the installed base in expansionary growth I know that's all new.
New bookings growth.
Just wondering specifically if there's any.
During the pandemic there was some pull in from other of your peers in terms of spend there.
Any type of like maybe shelf ware.
The old term.
Term, there right, but that you're worrying about our kind of monitoring as we go into 2023 and I have a follow up.
No I wouldn't say, we have anything other than the sources of revenue that we've discussed previously.
From the pandemic, namely the COVID-19 testing, primarily one particular customer citigroup and that the pandemic accelerated variable revenue and our gain share portfolio, which has both of which have largely rolled off the P&L in the first half of 2020 two.
And as John said, we sell or we accelerate we accelerated some pull into the Q3 because of customer usage. So theres not really any shelf theres no shelf, where in the customer base per se if anything we're pulling stuff in where we have they hit their they are hitting the top of their range on their usage they'll go into overages.
We've restructured the deal.
Two.
Moving to another tier so.
That's a great great great follow up thanks, Rob for the clarification.
Solid.
New bookings and installed base growth heading into the out year would be the same great and my second last question is just on the defensibility of live persons technology I mean there.
I think this is tenfold led but you are adding.
Adding five person to these larger platforms I'm just wondering.
This is for Rob if you could just add maybe a car.
A comment or two about the defensibility of the technology is maybe hedging off of a long term risk type of question of consolidated technology or consolidated spend.
Of the life personal functionality.
Pat yourself to these larger strategic mandates.
Yeah, I think there's there's kind of two parts to it one is the one you outlined which is you know how do we become more of a platform in the past our partners like BTL partners and.
Like the Tech Mahindra is in the Infosys and people like that where we're seeing you know the greatest opportunity as you know the Salesforce and Twilio is in technology integrations, because our customers want us to be more of this hub, we were controlling the front end experience to the consumer we've got the AI rails to automate behind that.
A lot of systems that need to get integrated to make that a high quality automated experience. So I think our role becomes more important as we become this hub in the.
The system of our customers' business the second part is.
We've got some of the best AI technology in the World like I know that you know it's like.
No.
And she owes you may drink your own Kool aid, but we just had this conference and I've been out with customers I was in South Africa with a new customer a canpotex. So their launch and I've met a bunch of other customers will be like we're opening up the south African market like with all these new companies and they just they look at everyone. They look at all the potential.
Competitors say, they've got AI, and they're choosing us and so I just think there's a lot of opportunity. There just because we had a head start and we've got some of the best people in the world to build this type of technology and we see it as they are we're not trying to build a contact center company.
That's better than voice, we're trying to build a truly an AI company that can automate business processes and I think we've gotten a good lead there right now it's about execution, we got a new head of marketing I think our marketing needed a lot of help and we have a new head of marketing, where we definitely have streamlined the sales force and so we just got to get our our sales execution.
<unk> like solid and but I feel like we don't have a market issue nor a product challenge we've really got strength. There. It's just now just executing into the into the global markets.
Is there if I could follow up Rob sorry on that front there are specific.
Are there specific pools of spending.
When you say, they're choosing us for AI it sounds like there could be some bake off component to that and and Relatedly to your prior comment about.
Life person, possibly becoming a hub in that context of AI is.
Today or in the future we can consider live person a system of record that kind of key software term.
In terms of this digital customer engagement strategic motion.
Yeah, I mean that that that's that's what we say, we say you know digital customer engagement powered by AI and AR and the advances by the way in the last 24 months and AI is pretty amazing from a model perspective, and what we can do with our technology going into the future and so you're right that that that I believe AI and converse.
Actually I, especially will become the focus point for everything for instance, you know even content management.
Theres the ability today to on.
On the fly generate content based on AI based on patterns of consumers you can build an image now on the fly and rendered in pixels without a JPEG you can do all these things that we could tell her to a conversation based on our consumer intent and so our AI machine ultimately will be you know about our business.
I wanted to do something with consumers a group of consumers and we want to target them and we want to provide the right content in conversations with them and that's really what we're trying to go after so I do think we're in the driver's seat to execute on that just because of how we approach this strategically and it's not.
No I understand I've been out with the customers in the last two or three months really focused on what their needs are and I just feel like we're in a really good place just got to execute.
Excellent. Thanks for the answers thanks, guys.
Yeah.
Okay.
Thank you.
Our next question comes from the line of Ryan Macwilliams from Barclays. Please go ahead.
Hey, guys. Thanks for taking the questions just a few for John .
Investors are pretty happy to see the big operating leverage improvement in the quarter with sales and marketing and R&D spend declining.
Are there any cost actions taken in the third quarter, if that weren't fully reflected in the quarter that could also further benefit for Q.
Hi, Brian Yeah, there are certainly some that were.
Late in the quarter or that have been action, but will have P&L impact in the fourth quarter. So that that dynamic holds true although most of the actions in the third quarter, we'll translate and be reflecting.
And of course since we as I said in the prepared remarks, we have.
Some additional P&L.
P&L optimizations that we're working through as we speak.
Perfect.
And just thinking about kind of the differences between EBITDA margins and free cash margin at this point like is there any like puts and takes given some of the changes in the quarter and we've got these two to converge over time.
Overtime as you May know.
There is a large software capitalization component after just EBITDA so to get to free cash flow. In addition to a variety of capex needed to support our private cloud.
So there's those become.
Hmm.
Less overtime, and we are reducing software capitalization looking forward then.
Then we will see them start to converge I wouldn't expect them to ever fully converged. However.
But they'll get closer overtime.
Perfect.
More kind of like let's talk about.
You mentioned it I might have missed this in the prepared remarks, the contribution from while it helped in the quarter and maybe what we could think about it back in for Q4 the guide.
Yes, I think we see continued strength and I think the upside that we already saw in the third quarter and the growth we're seeing.
Serves as kind of a baseline for what we can expect in the fourth quarter and.
The contribution to the increased guidance.
But because it's a newer business and we have less predictability at this point in time, where you know we're being conservative we're not sure exactly where that will land.
Excellent appreciate the color crossing the result, I guess.
Thank you.
Thank you.
Okay.
Thank you.
Our next question comes from the line of Jeff Landry from Craig Hallum. Please go ahead.
Yeah, great. Thanks, so several from that I guess.
From a guidance standpoint.
I realize you're not giving 'twenty three but can you at least give us a framework of how to think about it either at a high level growth rate or and in probably preferably you got the hosted versus PFS versus consumer segments, and just you know puts and takes as to how we think about 'twenty. Three if you can at least give us some bounds around them.
Hi, Jeff Yeah, where we're clearly focused first and foremost on generating profits and specifically generating cash next year and as I described in response to another question.
That framework will dictate kind of how how and where we can make investments.
As we think about growth I mean, we had a great third quarter as we noted bookings were.
Significant improvement over the last four quarters, even normalizing for COVID-19 impact.
We are expecting continued strength and b to be consistent with the prior guide that we put out but I think before we give more color on 2020 three we want to see where things land and in the fourth quarter.
Yes, I mean, so to answer your specific question on P. S.
Again in the prepared remarks, we said, we expect fees to continue to be elevated in the fourth I think it will start to moderate.
But we'll still have more P S.
In historical years.
In 2023.
And just to round it out and thoughts on consumer.
Yeah, I don't have expectations for consumer different from how it's playing out this year at this point in time.
Okay, and then from a from a product standpoint, you know I know the platform, particularly around AI and automation just use the competitive strength of help me reconcile the messaging growth I think you said conversational messaging was up 25% the automation.
We're up 11% and it seems like it probably should be the inverse unless I'm thinking about that incorrectly.
Yeah.
No. It depends on you know do you.
Use of the automation and new new logos, and where do we go live with agents first or or the automation. So we don't see anything.
Different than what we expect in the pattern right now so there's nothing more I can get back to you on it but there's nothing that we see that's not.
Not not.
Not normal for for growing our our new customers and stuff like that.
Got it okay. Thank you.
Okay.
Thank you.
Next question comes from the line of Arjun Bhatia from William Blair. Please go ahead.
Hi, Thanks. This is Chris one thing okay. Thanks for taking my question.
But wanted to unpack the number of new logos are being down a little bit year over year, while the bookings dollar amount with it sounds like this is primarily from better traction in the enterprise market can you discuss whether this is the result of kind of intentional go to market changes are you changing your message to fit the current macro backdrop, where.
Yeah is there any way that you are landing with customers that changing at all.
No I think it's just because we were doing big game hunting on the enterprise side, it kind of fluctuates quarter by quarter. So like last quarter, we had a great new logos. This quarter, we're expanding in bigger deals the sales reps sort of optimize to deal size.
So, but obviously, we're where we want to get as many new logos. We can so we can generate a future value for the company, but it sort of because you get big game hunting.
Quarter by quarter up and down it's not really a trend we know it we'll see what happens next quarter.
Okay.
Yeah.
Thank you that's helpful.
And then wanted to touch on.
Bringing third party platforms onto the conversational crowd.
Just wondering how does this kind of fits in with the theme of <unk>.
Customers using you as a hub and then how youre thinking about the revenue opportunity that this generates going into 2023.
Yeah, I mean, basically what we're looking to do is always drive usage and where we see is we get great. Because there's two things that drive scale. It's obviously the quality of the automation and then the endpoints that rock, so like where or when deployed on web and App Apple business chat.
The more place that consumers can get to us that gets them into the system sales service and marketing use cases, and then automation versus human.
And what drives a lot of that when you look at the cross sell services marketing is our ability to get into more and more systems. So there are there are billing systems there are marketing systems.
And when we're integrate into those systems, when you're when you're communicating with and automation with AI.
When it comes back and does the full process and it takes a sale.
Handle the service inquiry and to and that's when we do our best but that needs back end integrations. So we see this as really.
Integral if we're really going to scale to even a higher level.
Automation, so where we cross 50 or 60% of volume gum storm platform, we may have automated.
Only 30% of that and there's still a fair amount on human agents. The only reason human agents or are still around in contact centers is because the back end systems that are not API enabled and our ability to interact with and interact with us our tenfold acquisition gives us more ability to integrate with us. So so that's really key second party, sometimes they bought.
On a on a voice platform like addresses and they've spent money on it and its capitalized maybe it's an enterprise system and so on seating that is one thing, but riding over that if we can put our AI onto that platform. Then we have a better way to get more volume. So all of that whether theyre doing voice calls.
We automate the voice calls on their legacy platforms, whether we bring that traffic on our platform we do intend.
Automation with hitting the backend systems that all drives volume, which will drive more revenue for us. So that's how we align everything with our partnerships.
That's helpful color. Thank you congrats on the quarter.
Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of our call today I will now turn the call to Rob Locascio for closing remarks.
Thank you so much for your time today, and I want to iterate, our focus on leading in the AI and automation space and also delivering profitable growth is obviously a focus of ours. It's we put that out I think it was February .
Where we said we were going to head towards that we were burning over $30 million a quarter at that time and now we're heading into obviously generating cash positive.
EBITDA, which was our goal and we did it very fast as we can see a lot of other people in the space are starting their restructuring now and they're going to have to go through all of that into 'twenty. Three our goal was to get it all done in 'twenty two it gives us a fresh P&L and our focus in 'twenty three to drive growth and profitable growth.
Once again I want to thank everybody in the company a lot of hard work in Q3, we did a lot of restructuring.
It ultimately drove the results we have today and very excited that.
You know to become a tier one provider.
Something that we jumped on four and a half years ago five years ago, and we're now doing something that no ones ever done we've created an alternative to traditional voice and that's a that's a testament to the hard work.
Everybody in the company even in these very difficult times, so looking forward to next quarter and thank everybody our shareholders and all of our employees for all the great work see you next quarter.
Yeah.
Thank you.
The conference of lifeboats and has now concluded. Thank you for your participation you may now disconnect your lines.
[music].