Q2 2023 LivePerson Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for standing by welcomed July 1st and second quarter 20 twenty-three earnings Conference call. My name is Molly and I will be your conference operator today.
At this time, all participants aren't a listen only mode. After the prepared remarks, the management team from my first and will conduct a question and answer session and conference participants will be given instructions at that time.
To give everyone the opportunity to participate you limit yourself to one question and one follow up.
This conference is being recorded I would now like to turn the conference call over to Mister <unk> Senior Vice President Investor Relations.
Thank you Smalley joining me on the call today is robbed the casio lack persons founder and John Collins C. E O N C. S L.
Please note that today during today's call, we will make forward looking statements, which are predictions projections and other statements about future results.
Statements are based on our current expectations and assumptions as of today August 8th 2023 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.
<unk> made during this conference call as well as in 10 keys tend to use another report the file from time to time with the S. C C.
Assume no obligation to update any forward looking statements.
Also during this call we will discuss certain non-GAAP financial measures reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, but the press release and the supplemental slides which include highlights for the quarter are available on the Investor Relations section <unk> persons website.
With that I will turn the call over to Iraq Rabbit.
Thank you Sir Thank you every one before.
So I'll discuss the results for the corner I'd like to speak to the leadership announces the company made today.
Where we announce it months ago I would be stepping down C. O a black person later this year after more than.
25 years at the helm since then search that's been underway to identify <unk>.
Searched progressive the board believes now is the right time to make that transition my role I C E O.
In light of this junk calls would take over as interim CEO .
You'll also get to serve as CFO and will benefit from the ongoing support of life persons finance team. During this time.
<unk> I will assume the role of special adviser to your end to help facilitate smooth transition.
Personal note I recruited John in 2019.
Sure you that he's the right person to step into <unk> on.
On an interim basis.
As you'll hear from John in just a moment.
Committed to ensuring the company continues to execute as we launch our new generally I products and platforms.
I'm confident John working alongside management with the board support and active oversight Vance the company's strategy to drive popple gross and enhance value for shareholders.
The standard lie person I'd also like to extend my gratitude to the exceptional team of employees, who made to what we do possible. Thanks for their outstanding work and passion. They display everyday life person is at the forefront of our industry and I know that continue to drive our success.
That I'll turn the call over to John go into more detail on the business and discuss our second quarter results John .
Thanks, Rob.
Before elaborating on the key themes and results of Dakota, I'd like to take a moment to acknowledge and thank God for then.
Medical company, he's still over nearly three decades.
I've worked alongside Rob for the last four years and personally he's been a friend and a mentor and I look forward to his continued support.
Turning to the quarter I'll begin with a business strategy updated followed by a discussion of the financials.
Last quarter, we launched an extensive set a generous a high-powered products across the conversational club.
These products provide a significant change in efficiency.
Automation to operate on the long tail a consumer intense.
Using generative area. We are also automating previously manually intensive labor to accelerate trying to value our customers.
We also launch voice, eh, which meaningfully extended life person automation products to the voice channel.
Opening the door to approximately 70 per cent of the conversations currently taking place between consumers and brands.
This significantly extend our service a whole market.
A voice here is not to compete we can come and voice solutions, which focus on the needs of the agents and synchronous contact center operations, but instead to ship the traditional voice calls, including those trapped in the I T R.
Hi, powered automation flow, which we see as the future of customer service.
And the second quarter 38 per cent of our top enterprise brands experimented with voice. They are which was the highest rate of usage for new product that we've seen in recent years.
24% of talking to price brands.
Using a wider range of automation products enhanced by general.
Overall. These early indicators of these are early indicators of expansion and are encouraging and draw.
Writing an increase in starting pipeline for the fourth quarter relative to where we started the third.
More generally now that we support voice interaction some leverage generally they added to address a virtually limitless range of checks.
Goes to the hand crafted automation for the top 10 or 20 in past years, our customers can efficiently automate up to an estimated 75 per cent of their aggregate conversational volume.
This is well above the estimated 25 per cent that we observed on the conversational club today.
So at a high level, that's a potential market opportunity for us that's three times today's recurring revenue dress from expanding within our existing customers.
After a customer wins, we find a total of 69 deals in the second quarter, including three seven figure deals all of which were new logos.
36 expansions and renewals and thirty-three new logos overall.
It's worth noting that new logo deal values were significantly up sequentially.
Highest value and the last four quarters.
<unk> the renewals included multiple southern trigger deals and one eight figure deal in our media hurdle.
In terms of trends, it's clear that life person, who has become the platform of choice for conversational banking.
Within financial services, we've consistently renewed and expanded our base and one large new logos across the U S and internationally for the past few quarters, including one of the largest banks in the world and the second quarter.
All new logo wins in financial services represent multiyear contracts.
And suggest a clear trend that retail banking is rapidly becoming digital first and conversation.
These customers need solutions to deliver messaging that complies with onerous information security requirements. In addition, they leverage arrange a differentiated lypressin products, including social proactive messaging and of course, yeah I powered automation.
Almost every case these companies have large pre existing commitments.
[noise] solutions from Salesforce, Amazon Genesis, Microsoft and others, but they see our platform.
Security and compliance framework and most importantly, our expertise and demonstrated business outcomes.
The trusted best in class partner to deliver true digital and automation transformation that scale.
Specific financial services wins included one of the largest things in the world as I mentioned, a fortune twenty-five company. That's selected lie person to power automation and digital transformation, even with a large preexisting and doesn't it and both Genesis and Salesforce.
A major European digital first bank also shows like person among a long list of competitors web.
Web and social messaging based on our track record of delivering better business outcomes.
Other leading digital first banks.
As mentioned earlier renewals and Upsells Internet services for strong in future.
Representing six of our top 10 renewals for the quarter, including Honda Capital America, one of the largest captive auto finance companies.
Other notable expansion, including.
Global 500, Canadian racer Bank, the largest retail bank in Australia, and a fortune 100 life insurance company again, all multi year with meaningful revenue extension.
Other notable deals in the second quarter included an eight figure ACB renewal with a leading audio entertainment company in North America, and a large health care win for automated patient scheduling an engagement.
We were selected ever Salesforce based on our ability to drive tangible business outcomes.
Care industry is accelerating adoption of conversational AI and we're well positioned.
Have similar needs to financial services for a trusted secure and proven platform and a highly regulated industry.
We also recently announced the launch of light person marketplace.
Hum for cutting edge integrations that extend the capabilities apply for some conversational club.
And a red apps built by law.
<unk> person and our trusted partners life person marketplace empowers businesses to unlock the full potential.
Our conversations escape.
The debut of Lypressin marketplace represents a major milestone in our commitment to an open platform.
Sure is better digital conversations for the world's top brands.
We're excited to introduce this dynamic ecosystem to even more powerful integrations for businesses working with us and our trusty partners, which include Adobe Cisco medallions and many others.
Turning to the corner and our financial results.
With the expectations that we set last quarter, the right sizing of our cost structure divestiture and wind down of non core business lines and a renewed focus on the BTB core led to an inflection point for life person standing up.
And the second quarter, we generated 12.8 million.
Of adjusted EBITDA and positive free cash flow flipping from a loss to a profit and surpassing our prior guidance.
The upside and profitability relative to guidance with the result of an accelerated reduction in danger labor expenses better than expected execution of the restructuring plan and the timing of certain variable expenses, primarily marketing and clouds fan.
Still expect to occur in the second half of 2023.
Total revenue in the second quarter was 97.5 million.
Which was just about the mid point of guidance.
Before a recurring revenue was 89% of the total revenue, which was also ahead of our expectations.
non-GAAP gross margin improve 600 basis points sequentially to 74% driven primarily by reduction and Gainshare labor expenses.
Significantly we also improved our financial position by eliminating a multi year 120 million dollar contingent turn out a payment for a while now.
40 million of which was previously accrued for potential payment in 2023.
And we did this in exchange for an immediate payment of 12 million and certain rights if a sale of wild health wore to occur in the future.
Turning to our standard reporting segments within total revenue for the second quarter revenue from B B segment declined 21% year over year in revenue from posted software declined 14% year over year.
As discussed last quarter. The primary drivers of these declines are the <unk>.
Wind down a non core business lines, including COVID-19 testing Gainshare labor and pandemic driven gainshare variable revenue no.
Normalising for these business changes.
Total be to be called revenue declined 1% will be to be called recurring revenue within hosted grew with 3% year over year.
Professional services declined 43% year over year, driven by the completion of the engagement with declared J V, which consistent with expectations discuss last quarter did not contribute professional services revenue in the second quarter.
Excluding revenue from the clarity I D. In both periods professional services revenue grew 5% a year over year.
From a geographic perspective U S revenue declined 24% year over year and international Rudner declined 13% year over year again, the primary driver for these declines was the wind down of non core business lines on a normalized basis, we would've seen the U S closer to your flat here a year with slight declines in international.
Net revenue attention was below our target range of 105% to 115%, but up sequentially consistent with expectations.
We continue to expect sequential improvement and that retention in the third quarter.
R. P. A decreased 20 per cent year over year to 326 million due primarily to the completion of professional services for the Claridge I'd.
Due to the wind down of non core business lines and their impact on key operating metrics average revenue per customer based on total revenue declined 4% year over year to 635000.
In order to provide a more consistent and meaningful measure of air Pepsi, we expect to calculate this metric using only be core recurring revenue going forward, which is consistent with the revenue base for calculating net revenue retention as we discussed last quarter.
So for the second quarter. They are P. C based on D. V Corps recurring revenue grew 14% year over year, two 575 K.
Before providing an update on guidance and wants to address the change to the expected revenue mix in the third quarter.
As you May recall, we deferred revenue recognition of certain revenue attributable to what health in the fourth quarter of 2022, because Medicare reimbursement for services rendered was suspended pending further review we now expect that the review will be completed and that we were recognized the corresponding revenue in the second half of the year likely and the third call.
<unk>.
In terms of full year 2000 twenty-three guidance for total revenue, we're maintaining the midpoint of 390 for a minute.
But narrowing the range to $388 million to $400 million.
Note that this range excludes $7.2 million contribution from Kusama in the first quarter of this year.
I was supposed to be to be cool, we expect recurring revenue to be approximately 86% of total.
Which remains consistent with what we discussed last quarter.
Inclusive of the Cassandra contribution in the first quarter.
New range for total revenue was 395 to 479.
For adjusted EBITDA, and full year twenty-three, we're raising guidance to arrange a $19 million to $32 million or 25, and a half million at the midpoint, which represents a 2 million dollar increase over the prior guidance men point of 23 and a half million.
As for the third quarter were guiding revenue to a range of 97, two 101 million and.
And we expect BTB core recurring revenue, which would be approximately 85 per cent of total rubbish.
Sequential decline in the percentage of BTB court recurring revenue relates to the anticipated revenue related to Medicare reimbursements that I mentioned, just a moment ago.
Asked for adjusted EBITDA.
And the third quarter, we are guiding to arrange a 5.9 to 12.94, a midpoint of 9.4 million.
To conclude we have right size, our cost structure and.
Launched generally very high enhancements across the conversational cloud.
Which are showing early indications of robust adoption.
With voice Eh life person has become an omnichannel platform for customer service automation and gained access to approximately 70 per cent of conversations taking place between brands that consumers.
Access to traditional voice conversations significantly expand our service full market at a time when our air power automation. He's can address a virtually limitless range of consumer intense.
These significant developments coupled with our extensive enterprise customer base puts us in a position of strength to accelerate automation of the contact center.
Delivering better business outcomes unprofitable growth.
And with that operator, let's open the line for Q&A.
Thank you at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please fresh star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You may 1st Star too if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before passing this darkies again to gave everyone the opportunity to participate please limit yourself.
It's only one question and one follow up.
Our first question comes from the line of Daniel Language Mizuho Securities. Please proceed with your question.
Hey, Thanks for taking my question can you just provide some color about.
How you're thinking about the wild health business going forward and perhaps some detail around the conversations and restructuring that are not provision. Thanks.
Sure we shared last quarter that we expect strong growth and wild out and we continue to expect strong growth keep in mind, though when you have observed some increased timeline for certain wild health business lines, owing to the highly regulated nature of health care. However, again, we expect a strong growth.
Business in 2023.
As it relates to the.
Structuring.
In past quarters that we consolidated redundant organizations within go to market, mainly customer success, and our representing account organization and so we now have a more streamlined flow. There. In addition, we were able to with the new janitor.
I capabilities, and and where we saw the product going wind down some of our legacy products, we are supporting which allowed us to reduce costs on that side of the house as well.
And of course, there was a large amount of cost savings tied to the reduction of Gainshare labor that was necessary expense to support the gainshare business. As you know we have wound down the majority of that business line.
Okay.
And just I guess on can you talk a little bit more on voice AI and maybe what makes it unique relative to some of the other existing conversational isolation is out there.
Yep Voisey I for US again is opening up a new channels for the first time to lie person to deploy automation, where the vast majority of conversations are taking place to that and I think what differentiates life person does this enterprise readiness Ah it's existing backing integrations the the flows for.
Sure the contact center operation that I had been honed over decades, and installing the voice AI within that wider ecosystem is what makes it a powerful solution a much more powerful than simply tapping an F. B I promoted coping AI without all of that other infrastructure behind it.
And our next question comes from the lineup, Jeff angry with Craig Hallum Capital Group. Please proceed with your question.
Oh, great have several John just on the refresh the whole wild health, what's the revenue impact expected. There then for the second half the catch up revenue.
We haven't put a number out Jeff, but I would say relative to the commentary in the prior quarter, where we said there was a likely doubling in whitehouse core business.
Alright that expectation, it's still possible, but there's there's work to do and as I said, some timelines I've been elongated.
Maybe maybe I didn't phrase it real well you you had mentioned that some of the revenue recognition round Medicare was delayed and it was gonna come in the second half and I. Just I think you did sure how much Medicare revenue was delayed last year I'm, just asking for a refresher there.
Yeah, we didn't show the exact value last time. However, we did say it was a high single digit millions.
Hi single, Okay helpful and then.
In terms of the sales work you where are we now in terms of sales reps in and just in terms of retention of reps specifically that the you know the the churned versus involuntary churning. The sales team just give us a sort of a state of affairs with the sales work.
Yeah, we've we've come down from Q1, which was approximately.
Nine two closer to 68 now and we're standing study at that level and I would also add though that the 60, we have today approximately are fully ramped rats.
Our next question comes from the line of Zang comments would be writing Securities. Please proceed with your question.
Yep Hi, good afternoon. Thanks for taking my question John can you walk me through it kind of puts and takes from kind of your updated <unk> adjusted EBITDA kind of where where there is some expenses that were kind of delayed unexpected to appear now in the second half of the year.
Yeah sure. His act if we if we just look at the numbers, we we'd be the first half by roughly 11 12 million and of course to have that is flowing through to the new guide about four of that made it a little more relates to the timing of marketing and cloud stand and then we have a range of.
More miscellaneous increased expenses, including target investments and product and engineering and some tied to the D. C. Though transition so when when I factor all that and we ended up with what I think is a reasonable and guide for Jesse but for the remainder of the year.
Understood and then just one quick follow up around kind of the voice AI product I mean can you talk about.
Just like go to market strategy in terms of how you're looking to get into the door with customers is it really just approaching some of your major existing enterprises, and and trying to expand channels, there or what's really the strategy to drive adoption of voice AI.
Yeah, certainly there is as I said in a prepared remarks the.
It has the largest fastest adoption that we've seen in recent years of a new product launch and I think that there's there's a trend in the industry shifting towards channel consolidation, where customers are seeking more unified interface and comforting voice messaging and social channels for efficient consumer.
Engagement and my person has I think the best in class messaging and automation products and demand for voice AI and social a certain accelerating and again, our our value proposition is not to compete with the incumbent solutions, but to shift the mindset. So what we think is the future and that's a more automated flow then all the tooling. That's currently available by the.
Bad score more C crash course operation. So we think that's really the advantage. In addition to that enterprise readiness that that I described earlier.
And as a reminder, if anyone has any questions you May press star one to join the question in here. Thank you.
Our next question comes from the line of origin Battier with William Blair. Please proceed with your questions.
Hi, This is Chris entourage and thanks for taking my question. So it's good to hear that N. D. R had I'm from sequentially in the corner do you think this is an inflection point to this metric and if so what's what's behind the change.
Sorry, you're you're referring to net revenue et cetera.
That's right yeah yeah.
Yeah, I I I I think there's there's a lot of increased momentum coming off of the product launch. An addition to as I've described a strong trends in our financial services vertical that are showing through and then of course. It's also tied to you know we we just came out of a restructuring.
We we were restructuring for a lot of 2022, that's a distraction and of course to one was was the main event now that we're on the other side of the where where we're focused on an execution and I think that's gonna show through in the results.
Got it and it's kind of a nice segue into my next question. So it's also a bit of basketball success, you've been seeing in financial services is this.
Due to a specific.
Go to market initiative or focus for your sales team or you just kind of naturally finding a good date and some of the more highly regulated industries.
Of course, we have many go to market strategy plays that we're executing against but I think the traction we're seeing what's natural services is the one that it's very organic into financial services has been a mainstay of of our customer base for many many years. So it's it's among the largest Ah Ah.
Cross the industry is that we service so a lot of ripe opportunity there and I think it's also as we've described the focus on enterprise readiness on ensuring that you know we take information security seriously and that there is sufficient guard rails for the kinds of products.
Highly regulated industry wants to deploy.
And we have reached the end of the question and answer session and there's also a conclusive East conference call.
You May now thank you for your participation you may now disconnect. Your line at this time.
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