Q3 2024 LivePerson Inc Earnings Call
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Speaker Change: Greetings and welcome to LivePerson 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host, Mr. Jon Perachio, Senior Director, Inner Relations. Thank you, Mr. Perachio. You may begin.
Speaker Change: Thank you. Joining me on today's call is Jon Sabino, CEO, and John Collins, CFO and COO.
Speaker Change: Please note that during today's call we will make four looking statements, which are predictions, projections, and other statements about future results.
Speaker Change: These statements are based on our current expectations and assumptions as of today, November 7, 2024, and are subject to risks and uncertainties.
Speaker Change: 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-Ks, 10-Qs, and other reports we filed at the SEC.
We assume no obligation to update any forward-looking statements.
Also during this call, we'll discuss certain non-GAAP financial measures.
Speaker Change: A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release.
Speaker Change: With that, I'll turn the call over to LivePerson's CEO, Jon Sabino.
Speaker Change: Thank you so much, Jon, and thank you all for joining us today. Before getting into our results and strategy, let me share a high-level update on our business.
Speaker Change: Customers view LivePerson as a trusted partner to seamlessly orchestrate, automate, analyze, and personalize their digital conversations.
Speaker Change: This leads to significant return on investment and improvement in operational efficiency and stronger relationships with our end customers.
Speaker Change: Recently, at our SPARC customer conference, we unveiled a unified omni-channel solution that seamlessly integrates digital and voice interactions.
Speaker Change: These enhanced capabilities elevate LivePerson from a trusted digital partner to a strategic partner for all channels.
Speaker Change: Customers can now apply our best-in-class digital experience to their voice conversations with a consistent AI powered automation capability.
Speaker Change: This drives increasingly more value for our customers by bringing our capabilities and outcomes to a larger share of their conversational value.
Speaker Change: Furthermore, brands can innovate over the top of their existing infrastructure without reliance on a risky multi-year CCAP migration.
Speaker Change: With solutions now available, our strategic partnership with Avaya is beginning to translate into bookings and pipeline momentum.
Speaker Change: This includes a joint new logo win with a large retail bank.
Speaker Change: A direct new logo win with a Fortune 200 insurer and a large joint renewal with a Fortune 50 Logistics company.
Speaker Change: I will provide more detail on the momentum here later in my remarks.
Speaker Change: In addition, the strategic changes we have made to better serve customers are resonating. Many customers have shared that LivePerson has become much easier to do business with.
Speaker Change: We now offer simpler and more competitive pricing and packaging, as well as allowing customers to use LivePerson's leading digital capabilities within an integrated best-of-breed solution.
Speaker Change: I am confident that our customer-centric approach and ongoing commitment to enhancing our capabilities will position LivePerson as the preferred partner for enterprise digital transformation.
Speaker Change: While there are still early days in our turnaround, we are beginning to see improvement in sequential bookings that John Collins and I will discuss in greater detail.
Now let me discuss a high-level third-quarter result.
Speaker Change: Revenue in the third quarter was $74.2 million, above the high end of our guidance range, mainly driven by successful efforts and retention during the quarter. And adjusted EBITDA was $7.3 million, also above the high end of our guidance range.
Speaker Change: given by the actions we have taken thus far to right-size our cost structure.
Speaker Change: John Collins provides more detail about our financial results in his section, but I want to point out that these results and the maintenance of our full year guidance midpoints represent the third consecutive quarter of execution.
Speaker Change: Now I would like to provide additional detail on the progress of our transformation strategy.
First, let's discuss our product.
Speaker Change: At our recent Spark customer event, we announced several innovative solutions. We launched a unified omni-channel workspace.
Speaker Change: that integrates third party voice providers like Avaya into LivePerson's best-in-class agent workspace.
Speaker Change: By transcribing calls in real-time, brands benefit from our AI capabilities such as co-piloted skits and automated summaries for their voice conversations.
Speaker Change: The voice conversations integrate seamlessly with Analytics Studio, unifying both speech and text-based conversations into rich, actionable data.
Speaker Change: Our customers can now analyze customer journeys and coach agents across all channels.
Speaker Change: Many contact centers do remain on premise due to the complexity and cost of migrating to cloud with legacy systems deeply embedded in their operations.
Speaker Change: By integrating with on-premise and cloud voice vendors, LivePerson enables brands to bring digital, AI, and advanced analytics to their contact center without disrupting their existing operations.
Speaker Change: This gives customers the flexibility and agility to move to the cloud on their own terms and timelines.
We also enhance the administrative experience for our co-pilot products.
Speaker Change: We launched a self-service portal for brands to test and tune their experiences.
Speaker Change: Now customers can quickly customize AI models to meet their unique business needs.
Speaker Change: Additionally, we enhance our reporting capabilities to connect these co-pilot experiences to outcomes. This enables customers to measure the real impact of specific generative AI use cases on their operations.
Speaker Change: These enhancements are critical as generative AI usage is growing rapidly across our customer base.
Speaker Change: In Q3, we saw a 14% sequential increase in the number of clients leveraging our generative AI capabilities, and a 40% sequential increase in conversations using our generative AI suite.
Now let me share a few examples of this.
Speaker Change: Let's start with Frost Bank, which is known for premium, union-first customer care.
Speaker Change: LivePerson's Copilot solution enables their human agents to respond in less than a minute to hundreds of thousands of conversations annually, resulting in a consistent 91% customer satisfaction score.
Speaker Change: And there's Stigma Jewelers, the world's largest retailer of diamond jewelry.
Speaker Change: RAI is trusted by Cigna to help their customers navigate one of their most stressful and expensive purchases in their lives.
Speaker Change: Using LivePerson's AI-powered Agent Assist, Smart Rewrite, and Simulization capabilities, Figment's sales agents orchestrate highly personalized buying experiences that increase the average order value while achieving a 90% customer satisfaction score along the way.
Next is Najem, a Saudi Arabian vehicle insurer.
Speaker Change: After years of using voice as their only support channel, the gym turned to live person to launch AI agents in WhatsApp.
Speaker Change: LivePerson's AI agents have reduced response times by 92% and enhanced personalization across millions of annual interactions, lowering the gym's cost by over 60% while improving retention rates.
Speaker Change: Finally, one of the world's largest health insurance providers is accelerating digital sales with live person. They use AI for external customer facing and internal agent facing use cases with a variety of AI agents assisting consumers and agents at various stages of the customer lifecycle.
Speaker Change: Over the next several quarters, Live Persons Innovations will remain focused on these core areas. We plan to expand our voice partnerships, increase generative AI use cases, and enhance our digital channel capabilities, and double down on unified analytics.
Speaker Change: These investments will further enable brands to analyze, orchestrate, automate, and personalize conversations at scale across any channel.
Speaker Change: Now I'd like to update you on our progress in going to market.
Speaker Change: We're beginning to see momentum in our bronze, silver, and gold pricing and packaging strategy.
Speaker Change: In Q3, we saw a significant increase in deals closed with our new pricing and expect that to increase into Q4.
Speaker Change: In fact, the majority of our new robo-pipeline has already moved to new pricing and packaging.
Speaker Change: We are starting to see the intended results with larger deals and shorter sales cycles.
Speaker Change: For example, a leading sports goods retailer adopted our gold package based on a successful pilot of our generative AI suite. This resulted in a significant renewal in upsell.
Speaker Change: As mentioned earlier, our expanding partnership with Avaya has already resulted in our first new logo one together.
Speaker Change: One of the largest privately held banks in the U.S. chose our integrated solution. It helps them accurate, it helps them accelerate value and innovation while avoiding the risks and costs and delays associated with a full migration of mission-critical systems. This is our key to our value proposition.
Speaker Change: Additionally, we secured a new logo win with a Fortune 200 insurer looking to leverage the same integrated collusion.
Speaker Change: and a renewal through our Viya relationship with a Fortune 50 logistics company for an ACV of nearly a million dollars.
Speaker Change: We're also seeing strong pipeline in the early access program for a unified workspace from a number of additional Fortune 500 companies.
Speaker Change: Looking ahead, we plan to integrate with more on-premise and cloud voice platforms like Cisco and Amazon Connect.
Speaker Change: We're seeing the start of real momentum, but I want to be clear, this is just the beginning of our omni-channel journey, and that it will take time for this to become a material source of revenue.
Speaker Change: To conclude, I want to reiterate that we delivered on our expectations we set in the last earnings call. We have continued to innovate on our product by adding unified experiences for voice and messaging, enhancing our current analytics suite, and growing our enterprise-generated AI adoption.
Speaker Change: We have also continued to make strides in our go-to-market by setting the foundations to reignite growth and increase adoption of our new pricing and packaging options.
Speaker Change: And finally, driven by our product innovation and key partnerships, we have continued to advance our omni-channel strategy with our solutions now deployed and failed momentum building.
Speaker Change: These positive developments in both product and go-to-market show our continued progress on our strategy. That being said, there is still progress to be made to get us back to profitable growth.
Speaker Change: Before I turn the call over to our CFO and COO John Collins to discuss our financials in detail and guidance for the remainder of the year, I would like to provide an early view of our expectations for bookings and churn in 2025.
Speaker Change: As we discussed in the past two quarters, aligning our operations and industry best practices has translated to sequential improvement in bookings and greater visibility into addressable churn risks.
Speaker Change: Our expectations for retention rates continue to steadily improve as we look forward to future renewal cycles. We do see heightened risk for the remainder of the current renewal cycle with customers who are likely making their renewal decisions before we install our new customer success motion.
Speaker Change: The last of these customers are slated to renew in the fourth quarter of this year and the first quarter of next year. As a result, we currently expect attrition to continue into the first half of 2025, offsetting expected revenue gains from sequential bookings improvement.
Speaker Change: with the transition towards positive net new AAR expected in the second half of 2025.
Speaker Change: That said, I believe this near-term churn is largely the result of the legacy issues in the business that I have been focused on since the day I joined LivePerson.
Speaker Change: Regarding new bookings trends, we expect to see eight-figure bookings in the fourth quarter, and early indications suggest that we should be able to maintain that bookings level through the first quarter of 2025.
Speaker Change: We'll provide a more detailed update on our 2025 expectations on the next earnings call, but we felt it was important to provide you with this improved visibility today. So now let me hand over the call to John Collins. John?
John Collins: Thanks, Jon. I'll begin with a brief update on customer wins, followed by a discussion of our financial performance and guidance.
John Collins: In terms of deals and significant customer wins in the third quarter, we delivered another quarter of sequential improvement. We signed 44 deals, including 9 new logos and 35 expansions and renewals.
John Collins: The total number of deals was at 19% from the second quarter, and total deal value was at 22%.
John Collins: Significant renewals and expansions included a seven-figure deal with a large Australian financial services company, a seven-figure deal with one of the world's largest health insurance providers, and a high six-figure deal with another large health insurance provider.
John Collins: As for our third quarter financial results total revenue was $74 2 million above the high end of our guidance range. The improvement over expectations was due to the timing of appeals and lower than expected customer churn in the quarter.
John Collins: Adjusted EBITDA for the third quarter.
John Collins: It was above the high end of our guidance range of $7 3 million driven primarily by the same factors contributing to higher revenue.
John Collins: Revenue from BBB hosted services was $62 7 million.
John Collins: Down 27% year over year PDP core recurring revenue was $68 8 million.
John Collins: We're at 93% of total revenue.
John Collins: Down 21% year over year.
John Collins: We discuss these year over year declines were driven primarily by customer cancellations and downturn this year.
John Collins: Further segmenting revenue professional services revenue was $11 6 million down 26% year over year from a geographic perspective U S revenue was $49 4 million and international revenue was 25 24.9.
John Collins: Or 67% and 33% of total revenue respectively.
John Collins: Average revenue per customer was 630000 up.
John Collins: 6% year over year, driven in part by expansions with our largest customers and in part by customer sure.
<unk> declined to $256 million consistent with the same factors driving the declines in revenue.
John Collins: Net revenue retention was 79% in the third quarter compared to 83% in the second quarter.
John Collins: Again, given the size and timing of customer cancellations in 'twenty 'twenty four we expect revenue to decline sequentially through the fourth quarter and into 2025, a trend that will elaborate on shortly.
John Collins: Finally in terms of cash we ended the third quarter with 143 minus cash on the balance sheet inclusive of the proceeds previously from the previously closed transaction with Lin Rock Lake.
John Collins: In terms of revenue guidance for the full year 2024, we are maintaining the midpoint, but tightening our range to 305 million to $310 million.
John Collins: As for BTB core recurring revenue, we continue to expect it to be approximately 92% of total revenue for the full year.
John Collins: We are also maintaining our midpoint for adjusted EBITDA guidance, but narrowing the range to 18 million to $23 million.
John Collins: Consistent with prior commentary. We also continue to expect the <unk> business to be free cash flow positive for the full year.
John Collins: The implication for revenue in the fourth quarter is a range of $65 7 million to $70 seven months.
John Collins: We expect BT before recurring revenue to equal approximately 93% of total revenue.
John Collins: As for adjusted EBITDA in the fourth quarter, we expect a range of $2 1 million to $7 1 million.
John Collins: Before leaving the topic of guidance.
John Collins: I'd like to build on John's earlier remarks on 2020 five.
John Collins: While we do not typically provide commentary on our next fiscal year without the benefit of the fourth quarter close and the first quarter trends given the importance of growth to our turnaround strategy.
John Collins: We want to provide a few comments on key trends, where we're currently sitting in the business.
John Collins: We now expect annualized bookings to exceed annualized churn beginning in the second half of 2025.
John Collins: It follows that revenue is also expected to continue declining sequentially, but at a slower and slower rate before reaching a growth inflection point by the end of 2025.
John Collins: This expected timing for positive net new era is driven by two primary factors.
John Collins: First based on today's information, we expect newly our newly installed customer success motion to have a greater impact on future renewal cycles, reflecting customer renewal decisions that we are actively influencing today.
John Collins: Comparatively we believe we have a limited ability to influence the remainder of our current renewal cycle, which reflects decisions customers likely made well in advance of the renewal events that are occurring this quarter and in the first quarter of next year as.
John Collins: As a result, we continue to expect two different risk of customer attrition in the fourth quarter and the first quarter as we complete the current renewal cycle.
John Collins: On the upside and the second factor driving this updated view is the building momentum in our sales motion.
John Collins: Consistent with our expectations, we have sequentially improved bookings every quarter this year.
John Collins: And the first and fourth quarter is currently tracking to double digits, which again would be a first in 2020 for.
John Collins: Importantly, leading indicators such as pipeline generation and rep productivity.
John Collins: We are also currently talking to double digits in the first quarter of 2020 five.
John Collins: Before taking questions I'd like to briefly summarize a few points.
John Collins: We have restructured the business to focus on its core products and customers and we continue to right size the cost structure to generate positive free cash flow. Despite the anticipated near term decline in revenue.
John Collins: We continue to work through a challenging renewal cycle driven by customer decisions made during a period of significant corporate instability and prior to the leadership and operational changes implemented this year.
John Collins: Thanks to which we now have line of sight to renewal rates that should approach industry norms in the second half of 2025.
John Collins: At the same time sequential growth in bookings each quarter, including trucking to double digits. This quarter index implies both continued demand for our products and that we now have a sales motion to consistently address that demand.
Speaker Change: And with that operator, we can now move to Q&A.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on the telephone keypad.
Speaker Change: Permission tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to move your questions from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east one moment, please pull for questions.
Speaker Change: The first question comes from the line of Jeff Van <unk> with Craig Hallum Capital Group. Please go ahead.
Speaker Change: Great. Thanks, Thanks for taking my questions Hey, guys. So several maybe to John as John.
Speaker Change: Obviously pretty substantial push here in terms of.
Speaker Change: The expectations around here are bottoming and it sounds like in the renewals.
Speaker Change: Engagement with customers.
Speaker Change: I believe it was just less ability to offset churn than you suspected maybe 90 days or 180 days ago.
Speaker Change: Just talk a little bit more about that like you know you. Obviously at that point had visited 120 550 I forget the number of your or you know the top customers, but it sounds like since then something got a little more challenging just expand a bit there if you would.
Yeah, So a lot of this.
Speaker Change: The first step and Jeff a lot of this came with <unk>.
Speaker Change: Some uncertainty of how far we can see out into future quarters, and I think we've really dialed in our health scoring.
Speaker Change: At adoption, scoring and that's giving greater insight into the risk that's out there.
Speaker Change: In the case of what were seeing ahead of US there, there's one or two renewals that we were seeing that we.
Speaker Change: We were hoping that we could turn around and ultimately we don't think that we're going to be able to but a lot of that had to do with some of the instability issues. We've had in the past.
Speaker Change: So.
Speaker Change: It's I think us being able to refine what we're seeing and you know after interacting with the customer substantially realizing that we're probably not going to be enabled to influence their decision as they're coming up. So I don't think it's anything that the material change.
Speaker Change: I think this is based on best available data now about finding what we're saying and lastly, you know as I said before it was going to take.
Speaker Change: Quarters to turn this around.
Speaker Change: Still in that renewal cycle, I think maybe you and I've actually spoken about this in the past.
Speaker Change: We have to get through a full renewal cycle before I think we've.
Speaker Change: Most of the risk out of the system, but that's what we're seeing and we should be through that by the end of Q1 going into the end of Q2 next year.
Uh huh.
Speaker Change: Okay, and then and then on the new sales motion just talk about the.
Speaker Change: The progress there I guess relative to two expectations I mean, it does sound like.
Speaker Change: John the other Johns commentary, you know you're going to get to double digit book Oh bookings are bookings growth I think is what he commented the next few quarters, but how does that compare to your expectations again.
Speaker Change: Yeah, a quarter or two ago is that is it ramping as fast as you expected.
It's ramping as fast as I expected, if not a little bit faster. So again you know this is that offset between the what you would call some of the churn up there in your bookings that you are trying to speed up but I will say sandy has hit the ground running the pricing and packaging is actually shrinking deal cycle times and expanding the size of the deals that were.
Speaker Change: So things are moving in the right direction and I think that the leadership that we brought in the changes that we've made are starting to bear fruit that in addition to.
Speaker Change: The Avaya partnership is moving forward in a steady fashion.
Speaker Change: This is at least where we expected it.
Speaker Change: Thank you.
Speaker Change: Mr. Reid, please fall back in the queue for more questions.
Speaker Change: Next question comes from the line of Mike Latimore.
Mike Latimore: With Northland capital markets. Please go ahead.
Speaker Change: Yeah, Vijay there are four Mike Lattimore.
Speaker Change: Couple of questions from my side first one on the on the new logo wins.
Speaker Change: Could you talk about what are the main use cases, you're seeing.
Speaker Change: There are a number a J.
John Collins: ACL I'll jump in I'm sure I'm not going to get started.
John Collins: Great.
John Collins: Sorry, John.
John Collins: Would you like me to get started here.
Speaker Change: Yeah go ahead, Jason I'm fighting each other.
Speaker Change: Yes sure.
In terms of some of the new logos that we mentioned, but clearly one of the themes is the integration with voice and so providing unified analytics across both of those channels.
Speaker Change: And in the case of a logistics company that we highlighted there as you know ticketing involved case management.
Speaker Change: <unk> outreach and the like and.
Speaker Change: As John highlighted in his prepared remarks with respect to some of the.
Speaker Change: Expansions and wins within existing accounts, particularly with health care.
Speaker Change: We are both increasing.
Speaker Change: The rate of service as well as adding a sales used case that allows agents at the customer too.
Win more business increased revenue through the utilization of our platform and of course you are there.
Speaker Change: As highlighted as a key thread across all customer wins and the usage of generated on the platform has been increasing significantly on a sequential basis and I'd like to add a little bit specifically, highlighting what we're seeing which is expanded use cases supporting the customer journey just beyond customer care will also.
Speaker Change: We're starting to see customers use our capabilities in generative AI.
Speaker Change: And co pilot and summarization capabilities to drive commercial opportunities. Additionally.
Speaker Change: The Avaya partnership is allowing us to expand conversations.
Speaker Change: With <unk> and other partners.
Speaker Change: That are looking to go beyond just the momentum of being a call center with customer care, but also looking at how you can turn some of these customer care capabilities into possible revenue revenue generating opportunities. So we're seeing not only the use case expansion in <unk>.
Speaker Change: The use of our product, we're also targeting other providers and partners.
Speaker Change: If they can offer more value to their end customers the services they provide.
Speaker Change: Great.
Speaker Change: On the seven figure deals some of them.
Speaker Change: Could you talk a little bit deeper into.
Speaker Change: Who are the main competitors and what are the key value adds that materially.
Speaker Change: Insured.
Speaker Change: You're one of those deals.
Speaker Change: I'm sorry can you repeat the question I'm, just having trouble understanding it.
Speaker Change: Uh huh.
Speaker Change: Seven figure deals.
Speaker Change: One thing that you can expand a little further in terms of what were the main competitors and.
Speaker Change: One of the key value adds that we need them.
Speaker Change: Enable.
Speaker Change: Clients cannot choose life personal what anybody else yeah.
Speaker Change: So.
The jump in really quick on that archon.
Our competitor base has not shifted we see in most rfps. The same type of competitors, we see unified see cash providers, we see a sales automation and cloud.
Speaker Change: Cloud platform players.
Coming into the space and we also see a social platform.
Speaker Change: Lenders in the space, So it's been well argue or competitive basis relatively consistent.
Speaker Change: And I will say quarter over quarter, we have not lost.
Speaker Change: Loss rate.
Speaker Change: Change against these competitors, if anything we're seeing them stabilize and move in our favor.
Speaker Change: Now as far as the.
Speaker Change:
Speaker Change: Commentary around the larger $1 million.
Speaker Change: Customers and JC pleased to add additional data here, if I got it right.
Speaker Change: The we're seeing our partnership allowing customers the value prop that we're bringing forward is that they don't have to go through the <unk> migration and we're able to offer them more capability essentially disruption innovation without disruption. So it's the value prop is that they can add our copilot and best in breed agent workspace.
Speaker Change: And digital capabilities.
Speaker Change: Two there their current architectural footprint without having to go through delays the delays of the <unk> migration.
Speaker Change: And it did.
Speaker Change: Again, you see the similar players over and over again and I will say that we have been able to compete successfully against some of them, which is genesis and sales force.
Speaker Change: Yeah, and I would say just to add that in the context of the two seven figure deals that we highlighted in the prepared remarks, both Genesis and Salesforce we're involved.
Speaker Change: And any potential options for the customer.
Speaker Change: Yes.
Speaker Change: Thank you Jay.
Speaker Change: Thank you.
Speaker Change: Ladies alright, we have reached the end of our call. Thank you for joining us today. Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
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