Q2 2023 LiveVox Holdings Inc Earnings Call
Okay.
Good afternoon, everyone and welcome to the Lightbox second quarter 2023 conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for operator assistance. This call is being recorded on Tuesday August eight 2023, I would now like to turn the conference over to Alexis Wallace Vice President head of Investor Relations. Please go ahead.
Good afternoon, and thank you for your participation today with me on the call today are John Dilullo CEO .
Executive Vice President and Chief Financial Officer, before we get started I would like to remind you that comments made during this conference call and webcast contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties any statements that refers to expectations projections.
Or other characterizations of future events, including financial projections or future market conditions is a forward looking statement.
The company's actual future results can differ materially from those expressed in such forward looking statements for any reason, including without limitation risks.
And the risk factors section of our SEC filings, including our 10-K filed with the SEC on March 2nd 2023, <unk> assumes no obligation to update any such forward looking statements. Please also note that past performance is not a guarantee of future results.
Information discussed on this conference call that is derived from third party sources and has not been independently verified and accordingly, the company makes no representation or warranty in respect of this information.
During this conference call the company will discuss non-GAAP financial measures as defined by SEC regulation G. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings press release, which is available on the Investor Relations website investors <unk> com a record.
A replay of this call together with related materials will be available on our Investor Relations website investors don't Lightbox Dotcom live access earnings release and Form 10-Q for the quarter ended June 32023 will also be available on the Companys website with that I'll turn the call over to John to begin.
Thanks, Alex and thanks to everyone for joining our quarterly earnings call. As you may have seen in our press release earlier. This afternoon <unk> delivered a strong second quarter, which broadly met or exceeded expectations on nearly every key metric. It was a quarter full of accomplishments of which we are extremely.
We proud, including most notably winning more than a dozen new customers growing our installed base sales, winning three meaningful international orders and exceeding the high end of our guidance for revenue gross margin and EBITDA.
For these achievements I'd like to thank our customers suppliers partners are supportive investors the Lightbox board of directors, and especially our dedicated <unk> employees.
In a few moments our CFO , Greg Clevinger is going to share with you more details about our financial results and provide guidance for the balance of the year and.
In the brief time that I have today I'd like to share with you color on our results and progress against our many initiatives.
Our successes in Q2 were punctuated by the achievement of important milestones against our 2023 strategic plan to accelerate growth and to reduce costs.
Despite continued uncertainty in the macroeconomic environment in Q2, our team grew.
At eight 3% year over year gross margin grew approximately 600 basis points year over year and adjusted EBITDA grew from a loss of $5 6 million.
Two a gain of $1 1 million.
An improvement of $6 7 million of quarterly adjusted EBITDA year over year.
As I alluded to above during the quarter, we won 15, new customers more than half of these wins were outside of our heritage verticals and arose from pronounced sales and marketing efforts to grow both emerging domestic and overseas channels.
<unk> in the quarter were stronger than expected and we are currently ahead of our internal bookings targets.
What's more our combination of aggressive performance management and excellent sales and marketing execution has seen our pipeline grow to record levels and sales attainment is substantially ahead of where it was this same time last year.
We entered 2023 with less than 2% of sales deriving from international markets over several quarters, our sales customer success and engineering teams have been working hard to support our international expansion plans.
As a result of these efforts our bookings internationally jumped dramatically last quarter, including winning a $2 million annual revenue contract in the United Kingdom for a large inbound MSP opportunity.
Our mixed use inbound and outbound solution in Dubai.
And the expansion of an existing U S based PPO customer into Monterrey, Mexico.
We also enjoyed several important wins from our newly established <unk>.
Channel organization I'm proud to report that we have now on boarded six value added resellers five cloud service brokers and have in recent weeks engaged our first third party distributor Jenny <unk>.
<unk> is one of Avaya as largest distributors and we believe that their extensive reseller network together with our recent admission into Avaya is deaf connect program will bring market momentum to our channel efforts.
The team has broadly embraced our strategy of opening the aperture.
And serving the needs of a growing number of prospects anxious to shed themselves of traditional contact center limitations, including costly upgrades difficult expansions are chain closed architectures and rigid old world pricing schemes.
We have been listening to our customers' attentively and now offer several new commercial models, including agent based pricing consumption based pricing and simple global contracts for enterprises, and <unk> alike that want to reap the performance and economic benefits of moving to.
Our public cloud based <unk> platform.
Momentum in our go to market efforts is building Q2 was another record quarter for sales excepted leads and pipeline opportunity creation.
Closely watched marketing metrics, such as organic website traffic and social engagement also hit new records year over year.
In June we set a record for billable minutes on our live box platform.
And our first half new logo bookings in 2023 have already exceeded the new logo bookings from all of fiscal year 2022.
As we head into the second half of 2023, we look forward to normal second half seasonality tailwind and the potential for a recovery in the consumer credit cycle.
We are excited by the energy and our order flow and customer interactions.
However, it is a structural reality of our business model that bookings acceleration takes a long time to manifest itself in revenue growth.
We understand this process well and continue to be prudent in our investments carefully matching spending with actual revenues.
Improving cogs and controlling expenses have both been a major focus for the team.
I have noticed that in Q2, we successfully hurdle this 70% non-GAAP gross margin milestone for the first time in the company's history.
Similarly, we enjoyed a dramatic improvement in our adjusted EBITDA margin, which surged from negative 17% of revenue in the second quarter of last year to positive 3% of revenues this quarter.
Last quarter I reported that we had retired version 13 of our product.
I am happy to say that we are equally close to retiring version 15 of our product as well.
Each time, we retire a platform it has a profound impact on Cogs and support costs, maintaining fewer re leases has been a centerpiece of the efforts that brought us nearly 1000 basis points of margin improvement in the last five quarters.
As I detailed in last quarter's call in the early days of Q2, one of our SMS text Aggregators unexpectedly notified us of their decision to significantly reduce delivery of messages originating on the live box platform.
Although this issue did have a meaningful impact on our Q2 results most of our customers have now been migrated to other carriers or aggregators.
<unk> traffic modestly improved in both May and June .
And the business disruption from this unexpected event appears to be stabilizing.
Lastly, we continue to enjoy a brisk tailwind and pipeline growth from inquiries related to our newly introduced AI.
<unk> and have been characterized as an AI beneficiary by several industry analysts.
Our recent platform upgrade to release 19 introduced to our base new transcription capabilities automated call wrap services real time sentiment analysis virtual agents and proactive agent assist features.
Many of our customers continue to struggle from persistent staffing shortages.
Hi boxes usage based AI pricing model hardened API integrations and auto scaling cloud infrastructure provides purpose bill easy access to these transformational AI technologies.
It is virtually impossible to leverage AI tools in legacy on premises contact centers and we believe that the popularity of chat GPT.
Large language models and other similar tools will only serve to accelerate migrations to our public cloud based solution.
The macro trends that live ox enjoys are powerful and enduring.
Innovations NII, the market's acceptance of our new leading capabilities.
And our commercial flexibility have created a catalyst for success and the potential migration of more than $10 million competitively held legacy contact center seats.
Together with our committed employees and our obsession for customer success, we believe the future for <unk> is very bright.
Thanks again for your time today, it's my pleasure now to introduce Greg Clevinger, Our Chief Financial Officer, who will walk us through the numbers.
<unk>.
Thank you John and good afternoon, everyone.
I want to remind you that all non-GAAP financial figures that I discussed on the call today are reconciled in a presentation posted on the Investor Relations section on our website and our press release issued just prior to this call and in our 10-Q.
Start off with a recap of a very solid second quarter before moving on to guidance for the third quarter and the full year 2023.
Revenue for the second quarter was $35 4 million, 7% higher than the second quarter of last year and $400000 above the high end of our guided range of 34% to $35 million.
<unk>, which is annualized total revenue for the quarter minus all nonrecurring revenue was $140 3 million eight 3% higher than a $129 $6 million of IRR in the second quarter of 2022.
Net revenue retention stayed steady at 111% versus 112% last quarter and improved from 108% in the second quarter of last year.
Adjusted gross margin for the second quarter was 70% an increase of 170 basis points versus last quarter, and nearly 600 basis points better than the second quarter of last year.
Adjusted EBITDA for the quarter was a positive $1 1 million also well above the high end of our guided range.
GAAP earnings per share for the quarter were a negative <unk> on both a basic and diluted basis versus negative <unk> 11 per share last quarter and a negative <unk> 12.
In the second quarter of last year.
Capex for the quarter totaled only $50000, reflecting the capital light nature of our 100% public cloud product platform and.
Lastly, we ended the quarter with $53 $9 million of debt and $61 $4 million of cash and cash equivalents in marketable securities.
So, let's turn now to forward looking guidance, we expect third quarter revenue to be between 35, 5% and $36 $5 million, 1% to 4% growth over the third quarter of 2022.
We expect our adjusted gross margin in the third quarter to be at least 70% and we expect our adjusted EBITDA to be between one and $1 $5 million.
In terms of full year revenue guidance for 2023, we are increasing our previously provided revenue guidance to $145 to $148 million for the full year, which implies that our fourth quarter revenue growth rate is expected to accelerate to 4% to 10% year over year versus the 1% to 4% growth in our third quarter revenue.
Guidance.
And lastly, we are increasing our previously provided adjusted EBITDA guidance to $5 million to $7 million for the full year.
With that operator can you. Please open the line for Q&A.
Thank you ladies and gentlemen, we'll now begin the question and answer session.
Yes.
If you'd like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to withdraw. Your question. Please press star followed by two if you're using a speaker phone. Please lift the handset before pressing any keys one moment for your first question.
Okay and your first question comes from Kash Rangan from Goldman Sachs cash. Please go ahead.
Hey, guys. This is Jacob on for Kash. Thank you for taking the question a couple of questions first very good quarter.
Wanted to touch on IRR I noticed that it was up 8% year over year, but it was down sequentially roughly 2% is there anything to call out around that.
Yes, Jacob as Greg.
That's the impact of the SMS issue that we talked about last quarter, where.
Where we guided that we were going to have an impact of $3 million to $4 million.
Of revenue over the remainder of the year and obviously, that's going to have an impact on our.
In our <unk> as well.
Okay understood and then can you maybe touch on.
How youre seeing the macro and maybe sales cycles.
In Q3, thus far versus what you saw in Q2.
And any additional color you can provide around that.
Sure Jacob as John Dilullo here.
We're off to a pretty good start I would say in Q3 and it does feel to US like there is good energy in the business I mentioned.
Last.
Last quarter that we had seen.
Slight.
Slight improvement in the sales cycle times, I think we've seen that persist into this into this quarter as well and we're seeing generally.
Good energy and momentum in the business I would say it's.
Similar to prior quarters, but there doesn't seem to be anything.
Terrific, we broken and customers continue to buy and we're continuing to develop nice momentum and expansion in our pipeline and our and on our order volume.
Awesome. Thank you so much I appreciate the I appreciate the color on the top guys.
Thank you.
Your next.
Question comes from Parker Lane from Stifel. Parker. Please go ahead.
Hey, guys. Good afternoon, thanks for taking the questions John really interesting to see the three international deals here in the UK, Dubai, and Mexico, I know Thats an area has been leaning in on since you became CEO here, what do you think.
Driving force between behind those three particular deals this quarter, where are we in terms of brand recognition and just how is the go to market team structured on an international basis, so far thanks.
Hey, Parker is great great to hear from you. Thanks for the question each of those each of those transactions is a snowflake and so they're all a little bit different but I would say one thing that they had in common was we didn't do them with a lot of in country.
Sales support so we really haven't started to build out our international sales support teams. Although we are doing some sales support now in Latin America, and Colombia, some sales support in in India as well. These are mostly the migration of either existing relationships or existing customers that knew our product that wanted to embrace it.
And in the past, we just weren't ready to support.
You may remember that I announced in Q1 that we had.
Had launched our EU one.
Our cloud platform and this is I think.
The recognition of that from our customer base and getting access to.
Two the workloads so.
<unk>.
Theres just a lot of interest internationally from our installed base and that's going to be the springboard then as needed we will make on the ground investments.
Got it got it and then maybe it's a slight follow up to last question, but I think you cited something like 30 customers last year. Your $1 15. This quarter. It seems like there's a decent pickup in sales momentum mirrors that just a testament to some of the sort of internal changes you've made in the organization are you finding that theres more receptiveness out in the market right now.
I would say Parker.
Parker I'd say, it's both I do think there is a lot of energy there is our.
Abilities.
Our consumption based model our pricing.
There's a lot of interest in moving off of legacy infrastructure right now and that's been a great tailwind for us and a lot of those are new logos.
But I would also say that we've and I use the.
I use the phrase in the earnings.
Narrative open the aperture, but we are opening the aperture to new types of customers obviously.
Two of the three international customers were net new logos.
But we've also we continued to enjoy just just by inviting more people to come in and enjoy the and explore the product and being more open to the types of customers, we're engaging and investing a little bit differently in marketing, where we're getting a lot more looks as people getting experience with our product that's resulting in <unk>.
More sales than what I would say is I really do think this is something persistent if I look at the.
If I look at the pipeline if I look at the funnel if I look at the <unk>.
Transaction volume I think this is an area, where we could continue to win new logos for quite a while yet.
Makes sense appreciate you guys, taking the questions. Thanks.
Your next question comes from Jim Fish from Piper Sandler Stanley Jim. Please go ahead.
Yes. This is clinton on for Jim Thanks for taking my question guys.
Maybe following up on the last one the pipeline sounds about as good as it's ever been actively talked about record levels. Here can you talk about who you are seeing the most from the competitive side.
What's really driving some of it is it that theyre seeing and wanting the AI products that you're offering and they want to move to the cloud is it some of the kind of compliance offerings that youre, bringing maybe just give us an idea of what is wanted one or two of the biggest reasons. Why this pipeline is so much bigger than what we've seen in the past.
That's great great to hear from you and thanks for thanks for the question.
I would say a lot of the interest that people that we're seeing are generally the legacy on premises.
Customers that are that are.
<unk> deployed not leveraging cloud now what they want to do and what they are I think theres a lot of hype right now around around AI and that is driving those customers to explore what they can do with AI. There's also a lot of pressure on people right now from just just staffing challenges in turnover.
<unk>.
Wage cost and all of that is driving the legacy customers the on premises customers to explore what their what their options are I think they very quickly realized that the old world players can't really bring AI solutions to bear with with.
Quite the nimbleness.
That we can and that's a that's a big differentiator I would also say if you look at the the continue almost somebody that we want to be on cloud, we want to leverage AI, we like your consumption based model and we have very unique.
Inbound and outbound care and may be different sales applications are different different.
Different types of customer support requirements, we really.
We offer solutions across that entire gamut. So I think it's I think it's a couple of things.
AI is certainly fanning the flames people want to leverage our products there they realize they need to move their workloads to the public cloud to take advantage of that and then also the completeness of our product and the flexibility of our commercial offer seems to be helping us to win as many deals as we are.
Yes that makes a lot of sense and then maybe more looking at the collections and the usage side.
Friends all seem like we're moving in the right direction and default rates are our balances are out saying rates are well more looking at a timing perspective is there a level here where your customers have told you get this triggers kind of some of our usage needs to come back or should we think about this more of.
A slow build as we work through some of this consumer credit cycle. Thank you.
Thanks Quinn.
Don't think we've seen.
A C change with <unk>.
A group of customers that all of a sudden want to consume a lot more I think we're seeing gradual movements in that direction where were seeing the.
The jump ups and backlog and the jump ups in bookings and.
And in new logo acquisition seem to be.
The majority are in emerging use cases or in a lot of care and customer.
<unk> support use cases, and it does not seem for instance that there is a.
A huge amount of building momentum just yet around normalization of the credit cycle and all of the consumer credit companies that I think we.
We have relationships with their business is doing well, but it's.
Certainly it doesn't feel quite yet like it's back to pre pandemic levels, but I think we've engineered for for growth and sustainability in other ways and in fact, if that comes back.
Even more power to us but.
It's a good good quarter on its own on its own merits in the second half as I as I telegraphed in the calls looking.
Looking also very energetic.
All makes sense. Thank you.
Your next question comes from Mike Latimore from Northland Securities. Mike. Please go ahead.
Hi, This is Logan on for Mike. Thanks for taking my question.
Could you guys talk about kind of initial deal size is that what youre seeing is they're growing shrinking or staying the same and do you anticipate any changes in deal sizes in Florida.
Thank you.
Hi, Hello, good to hear from you and Mike as well of course, I think it's about the same.
About the same as in prior periods of course, it seems like every quarter, we have one or two anchor deals.
Like we did it did this quarter, but that's pretty common for us. So I haven't really noticed a big change as I as I mentioned earlier, though I am noticing.
The energy coming.
From all the excitement around AI.
The acceleration of workloads and people moving off off of their traditional on premises into the public cloud and it does feel I guess, our brand is getting out there as our name is getting bigger as our customer list is growing.
People are more quickly quickly closing transactions.
And.
Working with the teams very constructively on implementation plans and we're just getting better and better as a company every day on that.
Optimistic that not only do we continue to see bookings velocity, but I think we'll also.
Just get better and better at implementing these customers and bringing them to.
Bring them to revenue faster as well.
Is the people and so when you think about like the average customer's success Rep for instance, or a customer service rep or technical support rep. They may spend as much as 30% of their time wrapping up the call.
Leveraging large large language models as we have in our agent assist product, which is out and released 19. You can you can see that we can reduce wrap in some cases by.
By 50% and so if an agent is spending 30% of their time.
Wrapping up calls and you can reduce that by 50% or more you've given back time to the contact center, which essentially you've given back costs or you have made them more productive or you have required them to hire less people for burst times and so we think AI is is is.
It's a very broad brush and theres a lot of noise around it in general right now, but it is just going to help us immensely.
In and help our operators the people that are running the contact centers to be much more efficient with their people and also to make the jobs a lot more fun.
And hopefully that will drive was less turnover better training all of these all of these great things. We just think there is an.
An incredible.
Virtuous connection between AI and the task that we have in providing technology solutions for contact center operators and so it's all it's all good and it is just getting better every day.
Alright, thanks for taking my questions.
Ladies and gentlemen, as a reminder, should you wish to ask a question. Please press star followed by one. Your next question comes from Matthew Harrigan Matthew. Please go ahead.
Okay.
Hi, Matthew Youre on the line now.
Oh I'm sorry.
Mute button.
Could you update us on that.
Process, the timeline and the benefits and also I know much of this is the province of AWS, which is what youre seeing in the cyber security environment. Thank you.
Matthew would you the second part of your question would you mind repeating that.
I know AWS is responsible for much of your security, but which is what are you seeing with the cyber security environment right now particular interest of ours.
Okay excellent those are data those are great questions.
I didn't talk about fed ramp in my prepared comments, but it is a very interesting segment for us as you know there are very large government agencies for instance.
Different.
Departments Department of Commerce Department of Treasury all of these they have gigantic contact centers and Thats, a big opportunity, but you need to be February fed ramp compliance. This is a journey that we started a while back and we've made substantial progress on it and in fact I'll commit today to giving you a good update a quarter from now, but we're making.
A lot of progress there.
And are optimistic that we'll be able to submit soon for fed ramp for fed ramp approval I do think that we do expect from that.
Such a hardened environment and if so diligent about updating operating systems and patching infirmities when Theyre discovered now in addition to that I would say as you know we have a large number of customers major enterprises that are in the in the finance.
And they have also been quite demanding.
And our security posture, and making sure that we embraces zero trust.
Security architecture, and we have and this is one of the strongest selling points of our product. When we introduced this to our customers that we encrypt all of our API traffic. We encrypt every single voice communication think about our legacy contact center, where in the old days you could just Jack in and listened to what was happening in the contact center all of our voice.
Communications are encrypted all of our data at rest is encrypted all of our data and motion is encrypted.
All of our API are encrypted and all of our API traffic between micro services within the AWS infrastructure is also encrypted. So many of our API calls are doubly encrypted so I feel like we have.
Heralded or I should say hurdled our level of <unk>.
We've advanced to the <unk> to the <unk> agree our zero Trust architecture.
And we think that we're providing among the most secure platforms available for for deploying contact center solutions with the way that with the way that we've approached.
I can't tell you how much I appreciate the question because people don't ask about it a lot it may not be.
Top of mind, but it is top of mind for us and for our customers and so I think.
Working together with AWS, we have a very secure product.
Thanks nice quarter.
Thank you.
There are no further questions at this time I'll turn it back to John for closing remarks.
Thank you very much and I do want to thank I want to thank everybody for the great questions. Thanks for continuing to.
To stay with us as partners and investors and genuinely appreciate your time here. This afternoon and look forward to talking to you more over the coming days.
Days weeks and months, thank you very much.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Alright.
Yes.