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spk14: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's third quarter 2020 earnings conference call. My name is Gary, and I will be your conference operator today. At this time, all participants earn a listen-only mode. After the prepared remarks, the management from LivePerson 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 all over to Mr. Matthew Kempler, the company's Senior Vice President of Investor Relations. Please go ahead, sir.
spk01: Thanks very much, Gary. Joining me on the call today is Rob Lacascio, LivePerson's founder and CEO, and John Collins, our Chief Financial Officer. Please note that during today's call, we will make forward-looking statements, which are predictions, projections, and other statements about future results. These statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties. Actual results may differ materially due to various factors, including those described in today's earnings press release and the comments made during this conference call, and in 10-Ks, 10-Qs, and other reports we file from time to time with the SEC. We assume no obligation to update any forward-looking statements. Also, during this call, we will discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release. Both this press release and supplemental slides, which include highlights for the quarter, are available in the investor relations section of LivePerson's website. With that, I will turn the call over to Rob.
spk05: Thanks, Matt. Thank you for joining LivePerson's Q3 2020 earnings call. In the third quarter, LivePerson once again delivered peak performance in many key metrics, including setting records of revenue, contract signs, adjusted EBITDA, positive cash generation. Revenue in Q3 outpaced guidance, climbing 26% year-over-year to $95 million, fueled by 29% growth in our B2B-hosted software business. Our focus on internal automation and employee productivity yielded another step function in operational efficiency, as record-adjusted EBITDA of $15 million wildly outpaced guidance and generated a multi-year high profit margin of 16%. Our cash position increased by $26 million quarter-over-quarter to $199 million as we pivoted to positive cash generation. As we've shared on recent calls, consumers are driving a massive structural shift to remote digital engagement in the wake of COVID pandemic. Website and app traffic have risen sharply as consumers go online rather than visit brick-and-mortar banks, telcos, retailers, and food service establishments. In fact, a recent live-person survey found that two out of three consumers are planning to do most of their 2020 holiday shopping online rather than in stores. Brands are struggling to meet this increased digital demand. Consumers often face frustratingly long hours hold times on 800 numbers due to the closing of physical contact centers and reduced global capacity of contact center agents who can actually take calls in a work-from-home environment during COVID. Likewise, the typical 1% to 2% website conversion rates means that most brands are failing to sufficiently monetize their increased online traffic. LivePerson, the leader in conversational AI, benefiting from the powerful market dynamic In order to improve agent efficiency, increase sales conversions, and fuel higher customer satisfaction, brands are turning to our conversational cloud and deploying personalized consumer care and sales journeys over mobile messaging endpoints. All this being led by the ability to use AI automations instead of human agents. As a result, we've seen volumes on our platform surge since the pandemic started in February, now up nearly 50%. and led by a nearly 60% increase in AI-based conversations. We expect this strong tailwind to only intensify over the next five years as traditional retail shopping, web, and in-app-based e-commerce shifts to C-commerce or conversational commerce. The shift to conversational commerce requires a new set of technologies beyond web, social, and other traditional e-commerce-type platforms. The shift from e-commerce to C-commerce has arrived, and because LivePerson took an early bet on this massive change four years ago, we're clearly the leader in transforming some of the largest brands in the world. Conversational commerce is powered by a consumer's ability to have an always-on asynchronous connection, which can be delivered over messaging platforms like WhatsApp, Apple Business Chat, Facebook Messenger, Instagram, and SMS. Over that messaging connection, we run rich conversations, either automated with the use of AI or live agent, or both at the same time. We started out with a focus on customer care use cases with the goal of reducing contact center costs, and we are now expanding into sales, marketing, and brick-and-mortar retail with the goal of driving sales and commerce. In order to drive a better commerce journey for consumers, we're also introducing digital payments platform, that enables users to conveniently make purchases with any brand or any messaging endpoint. For example, a consumer enters their credit card information to purchase a ticket from an airline, and then we securely tokenize that credit card so that it can be used at a later date with some other company. Similarly, consumers can make purchases across different endpoints. For example, use a website for one purchase and then use WhatsApp for the next and then in-app for another without reentering their credit or debit cards. Our first few brands are now live and will steadily expand this program into 2021. Adoption trends confirm that our vision of conversational commerce is resonating more clearly than ever. Nearly every single enterprise customer is now using our AI capabilities within our platform. Automation has powered two-thirds of our messaging conversations today, and our goal is to automate over 80% of the conversations at scale. Our AIs have eliminated the need for any human involvement in approximately half of all conversations where they are deployed. And in other words, our customers can use the conversational cloud to power a virtually unlimited number of conversations at a fraction of the cost required by human agent-based conversations. Another testament to the transformational power of the conversational cloud is the first-of-a-kind global strategic partnership we just signed with Infosys. a world leader in next-generation digital services and consulting. This new strategic relationship will help a live person keep pace with surging demand for conversational AI by joining our conversational cloud with Infosys Cobalt Transformation Cloud Services and Public Cloud. Infosys will be creating a practice around our platform, and we will conversely have them manage our move to the public cloud. Our move to the public cloud will enable us to handle the increased demand for our services, with the ability to auto-scale capacity and also enable us to enter new geographical markets quickly. Infosys joins other TUI person partners, including IBM, T-Tech, and Accenture, in building a channel that is strengthening our go-to-market reach and sales distribution. In fact, three of the eight seven-figure deals we closed in Q3 came from our partners. Also noteworthy is that three of our eight seven-figure deals were new logos – demonstrating live persons' ability to win new customers, even with the change from physical to virtual marketing events. I'll highlight one of these new logo wins we did with a multimillion-dollar jewelry retailer. They were virtually sold over a three-month period, and they moved very quickly because all the impact that has happened to their physical stores during COVID. The stores where they are open, they now are adding QR codes next to the merchandise so that consumers can socially distance by chatting with AI and remote-based human agents while shopping. Human sales associates will have a special messaging app on their mobile devices that will enable them to maintain a continued connection with the consumer after they purchase and leave the store. And finally, the juror will offer appointment setting payments and curbside pickup over messaging. This example shows how conversational commerce is deep, multidimensional integration that enables the merger of physical store operations with digital. Another new logo win was with one of the largest dental insurance providers in the country. And the vertical of insurance right now in health care is really becoming very active for us. We saw a couple of different logos in the quarter beyond this one. The driver of this deal was that the insurance company recently lost a deal with a potential customer who has thousands of employees because they only offer voice as a customer care channel. Think about it. Consumers were no longer except being forced to call 800 numbers as messaging and AI have become a must-have consumer offering. We were chosen over several competitors because we don't treat messaging as just another channel of communication. We're highly differentiated because of our comprehensive approach to conversational AI and our broad messaging capabilities, operational expertise, and ability to offer an unmatched six times 6X ROI in the first year alone. In addition to strong rebound and new logo activity, LivePerson also continued to expand with existing customers during the quarter. As highlighted on our last earnings call, we're seeing two key drivers of revenue uplift, first being strategic upsells following initial demand during the COVID crisis. and the second involving upsells as customers on an all-you-can-eat enterprise license agreements now are being moved to cost-per-interaction or usage-based models. A win with one of the top 20 global banks is a great example of this shift. This customer signed a seven-figure upsell with us at the end of Q1 when the pandemic drove them to use messaging and automation to maintain business continuity as their contact center agents and in-store associates were sent home. After seeing the successes of these expanded use cases, the roughly 10x increase in messaging volume, the bank doubled down on their long-term commitment to the conversational cloud. In Q3, only six months later, we signed another seven-figure upsell with them. Another example of increased usage drive and growth is a win with one of the largest online lenders in the U.S. Like many of our customers, lenders saw a spike in volumes on our platform in the first half of 2020. RIPERS initially recognized no revenue benefit from the spike as customers locked in under an ELA enterprise license agreement. That changed in Q3 when the customer came up from null. We transitioned to a cost per interaction model and captured the value of those higher volumes by signing a seven-figure upsell that doubled our annual recurring revenue from this customer. We expect to repeat this successful formula when many of our ELA customers come up for renewal over the next two years. Record contract signing, accelerated revenue growth, a new landmark partnership with Infosys, expanding customer use cases, and broad adoption of our AI cloud are indisputable signals of live person's leadership in conversational commerce. We're executing with precision in this new remote work environment and, once again, are in a position to raise guidance for the year. We're now targeting 2020 revenue growth of 25%, achieving our long-term growth target one year ahead of planned. We've also built a strong discipline around capturing operating efficiencies through internal automation and tightened controls. An increasing scalable financial model is now emerging where we can invest in key growth drivers while still delivering bottom-line improvements. As a result, we are increasing our 2020 adjusted EBITDA guidance to a range of $29 to $31 million, which brings us back to peak historic profit level. I'll close with three key points. LivePerson's third quarter results, which follow an equally strong second quarter, reinforce that consumers are driving a permanent structural shift to conversational AI as a preferred means of communicating with brands. LivePerson's conversational cloud is setting a new standard for the technology required to support the shift, and we believe that a neat combination of our platform expertise and services will extend our industry lead. As we execute on our vision, our financial outlook is sharply improving, with revenue growth now at a path to accelerate to 25% in 2020, from 17% in 2019, and 14% in 2018, while adjusted EBITDA margins have firmly moved into the double digits. With that, I'll turn the call over to John to provide an operational update and more color on our guidance. John?
spk02: Thanks, Rob. In Q3, we continue to capitalize on rising demand for conversational AI, setting records across a range of key financial metrics, including contract value, revenue, adjusted EBITDA, and free cash flow. With a strong demand backdrop and improving operational efficiency, we are once again raising guidance on the top and bottom lines and targeting our first 100 million revenue quarter. Starting with demand generation, after making strategic investments in our go-to-market and product organizations in 2019, we continued to see meaningful returns. Our field organization generated record contract values and closed eight seven-figure deals in Q3. As expected, following a focused effort to help existing customers navigate the pandemic, we began to rebuild momentum with new logos. Specifically, new logo annual contract values returned to pre-pandemic levels, which translated to an increase of more than 300% quarter over quarter, yielding a more even balance of deal values across existing customers and new logos. Reflecting this strong demand capture, our key metrics hit new highs in Q3. Revenue retention, for example, for enterprise and mid-market customers was well above the high end of our 105% to 115% target range. Our Q growth for enterprise and mid-market customers accelerated in Q3 up nearly 30% year-over-year to approximately 425,000. Total revenue of $95 million increased 26% year-over-year, marking the second consecutive quarter of 25%-plus revenue growth. The $3 million of upside relative to the midpoint of previously issued guidance was driven primarily by favorable timing of contract signings, overages, and modest overperformance by our consumer segment. Within total revenue, B2B grew 27% year-over-year, led by a 29% increase in hosted software. Consumer revenue increased 18% year-over-year, and gainshare was in line with expectations at nearly 15% of revenue. From a geographic perspective, the U.S. grew 33% year-over-year and accounted for 62% of revenue. International grew 17% year-over-year and accounted for 38% of revenue. Significantly, our execution in EMEA continues to improve following the appointment of new leadership in the region earlier this year. Revenue in EMEA increased for the second consecutive quarter, as did contract signings, which were up approximately 50% quarter over quarter. These results are encouraging indicators of future growth in the region. We also continue to gain leverage from our channel partners, which have influenced more than 30% of contract signings over the past year and contributed three seven-figure deals in Q3. As Emphasis invests in integrations to build a global practice around our conversational cloud, we expect even greater returns from our partner model, over the coming quarters. Ultimately, our goals generate 50% of deals from channel partners, which will not only materially expand our reach into key verticals and geographies, but also drive significant scalability for our go-to-market organization. In terms of industry contributions, all verticals posted higher conversation volumes in September than they did pre-pandemic, and year-over-year revenue growth was led by consumer and retail, followed closely by financial services and technology. Moving on to the bottom line, Q3 adjusted EBITDA of $15 million marked an all-time high for live person and exceeded the midpoint of our guidance range by $10 million, or 74%. Our adjusted EBITDA margin increased 24 percentage points year over year to a multi-year high of 16%. The profit upside can be attributed to the following drivers, each in about equal contribution. Higher than anticipated revenue, the continued deferral of hiring in non-core growth areas, as internal automation takes over repetitive jobs and enhances employee productivity, the deferral of infrastructure spend as we solidified our plans around the public cloud migration with emphasis, and the one-time impact from the write-off of leases and the accelerated depreciation of fixed assets after officially transitioning to an asynchronous work-from-anywhere model. Extending on the latter point for a moment, back in May, like many other companies, we felt forced to leave our physical offices because landlords could not guarantee the safety of our people. which was our highest priority. In addition, as a technology company specializing in AI and asynchronous communication, our employees were primed for the new work model, allowing us to maintain our culture and high levels of productivity. Note there's some one-time charges associated with leases that I'll talk about in a few moments. In terms of cash, we ended the third quarter with a cash balance of $199 million, which was $22 million greater than our 2020 beginning balance and $26 million increased quarter over quarter. We generated positive free cash flow year-to-date through Q3, which positions us to greatly exceed our initial 2020 goal of cutting cash burden in half. I think most significantly, we achieved the rule of 40 in Q3 on both an adjusted EBITDA basis and a free cash flow basis. The achievement of this long-term goal is a testament to the adaptability and scalability of LifePerson's operating model and our strategy to control the P&L in a manner that's conducive to both margin expansion and revenue growth accelerations. In addition to heightened budgetary vigilance, the successful execution of this strategy is significantly dependent on the AI and automation we're deploying across internal operations. Going on the examples I shared on the last quarterly call, we turned on a wide array of automations in Q3, ranging from algorithms for revenue and billing reconciliations to HR reporting and usage forecasting. We also built critical modules to power an automated rolling planning process that will provide more timely financial insight and free up weeks of work previously performed by the finance team each quarter. In terms of top-line impact, we're also launching a new sales rep capacity model intended to compress sales cycles and increase quota attainment by optimizing the routing of leads to qualified reps with capacity. Finally, and perhaps most significantly, we launched a modern data lake architecture that provides the foundation of clean, connected data to automate nearly any business process. Migrating our platform to the public cloud is another key milestone on our path to maximum efficiency. In addition to enabling us to match global demand for conversational AI, we also expect meaningful cost savings in 2022 and beyond to positively impact gross margin and cash generation. Finally, before talking about guidance, I'll note that we recorded $28 million in non-recurring charges, covering the write-off of leases and fixed assets, the public cloud migration, employee home offices, IT litigation, and various legal expenses. In terms of guidance, we're entering Q4 with strong momentum. Platform conversation volumes continue to build month over month since the peak of the crisis. Contract values have set a new record, and our revenue run rate is ahead of plan. Considering these positive dynamics, we are raising guidance for 2020 to a range of $362.5 million to $364.5 million, or 24% to 25% year-over-year growth. up from previous guidance of $357 million to $361 million, or 22% to 24% growth. Our Q4 guidance range of $98 million to $100 million also implies 25% growth at the midpoint. As Rob said, we're now on track to achieve our long-term growth target of 25%, one year ahead of plan. As for profitability, we continue to anticipate strong year-over-year margin improvements as we maintain budgetary vigilance and benefit from rapid adoption of internal automation. As a result, we are raising 2020 adjusted EBITDA guidance to a range of $29 million to $31 million, which is more than 70% higher than the midpoint of our prior range of $16 to $19 million. Our Q4 adjusted EBITDA guidance of $9.3 million to $11.3 million targets a year-over-year margin expansion of nearly 900 basis points and a continuation of our double-digit margin trajectory Finally, I'll close with a few key points about the business. LivePerson is capitalizing on a global demand inflection from conversational AI, which is powering a sharp acceleration in both revenue and profit growth. The investments we've made in our product and go-to-market organizations are yielding impressive returns. Key financial metrics are hitting record highs, and we are driving strong demand generation across key geographies through our direct sales force and channel partners. In less than one year's time, we pivoted from $100 million in cash burns to cash generation, which, again, is a testament to the adaptability of our operating model and the expense vigilance of our business leaders and the unique ability to leverage internal automation to enhance productivity. So with that, I'll hand the call back over to the operator to take your questions.
spk14: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad.
spk08: If you are using it.
spk14: Yes, sir.
spk05: I'll shift to the Skype because my normal connection is not good, so I'm going to switch over to Skype. It's Robert.
spk14: Okay. I'll open that up in a second. Thank you. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press R, then 2. At this time, we will pause momentarily to assemble our roster.
spk05: Hello?
spk14: Our first question comes from Arjun Bhatia with William Blair. Please go ahead.
spk04: Can you hear me all right? I thought I heard an echo. We can hear you. Okay. Perfect. Thanks for taking my question. I just wanted to start off with a new customer and existing deal dynamic. It seems like the existing deals continue, existing customer deals continue to be strong and new deals are down from last year. Can you just maybe help us understand what's going on there and what we can expect going into Q4 and 2021 on the new customer front?
spk02: Yeah, hi, Adrian. I'd reiterate that from a value perspective, we're up significantly, as described. And within the enterprise, contract signings are actually up year-over-year as well. So we are seeing continued improvement in the ability to capture new logos. And as we previously signaled, that's an area that we continue to build on through the pandemic.
spk04: Got it. And then I just wanted to maybe dig into the Infosys partnership a little bit more. Can you just give us some more details on what the growth opportunity is that that partnership unlocks and maybe the size of the practice that Infosys is planning to roll out with LivePerson? And, you know, maybe any thought on the cadence of when we should expect this partnership to start driving results. That would be great. Sure.
spk02: So generally, I mean, Infosys is a massive organization organization, systems integrator with a huge roster of Fortune 500 companies. They also have a lot of pre-built infrastructure for powering e-commerce and a range of other areas, including financial services, that are already we're working with. So the ability to integrate the conversational cloud with those services is a really natural fit to help us gain access to their customer roster. In terms of how quickly we can get moving, we already have deals with Infosys that they've assisted with in addition to a really large pipeline of business that we expect to start closing in the fourth quarter. And one example there is on the e-commerce front, Infosys has some technology that helps the customer integrate to product catalogs and other back-end systems that smooths the path for the conversational cloud to integrate and begin delivering conversational commerce. So it's a good example of a win that's already under our belt and one that showcases the power and synergy of this relationship. Awesome. Very helpful. Thank you very much.
spk14: The next question is from Sterling Audie with J.P. Morgan. Please go ahead.
spk05: Yeah, thanks. Hi, guys. The last question at the beginning of it was a little hard to hear on my end, so hopefully this isn't a complete repeat. But with the new customers, the 48 new customers that you brought on board, can you help us understand exactly the profile of these new deals versus what you've seen, let's say, maybe a couple of quarters ago in terms of size, scope that they're looking to do, and just as important, how should we think about the revenue ramp in those new customers as we move forward?
spk02: I think as a general matter during the pandemic, we are seeing, at least on the new logo side, smaller sized entry points than perhaps we saw in 2019. But I think that fits very well into our very successful strategy of landing and expanding. And in terms of the expanding, I think that the process would proceed just as we've highlighted in previous calls, where We might start with one endpoint and add others that gradually grow volume, and it also works the same with perhaps one department or one segment and expand across segments within the enterprise to grow volume. So I think once landed, the expansion strategy is more or less consistent with what we've seen historically.
spk05: And then just as a follow-up, along those lines, is there a way to think about what maybe the average revenue performance per a new customer would start at initially and what maybe it ramps to, let's say, a year or two years later?
spk02: Well, we don't give specific numbers to that, you know, to that dynamic, but, you know, I would note our ARPU at 400 plus thousand and at all-time high, 30% up year over year as an indicator of how successful our expansion strategies are after we land a new order.
spk07: That makes sense. Thank you.
spk14: The next question is from Mohit Gojia with Barclays. Please go ahead.
spk06: Hey, guys. Thanks for taking my question. I was just wondering if you can comment on sort of like the close rates and how they have evolved over the last couple of quarters. And also, as you look to Q4, what are you sort of like modeling in? Is it sort of like a sequential improvement in terms of close rates? And any comment on the pipeline coverage for people would be helpful. And then I have a follow-up question.
spk02: Yeah, so in terms of close rates, I would say that we're on track to be consistent with the pace that we had in 2Q and 3Q moving forward, with the exception that As I previously highlighted, we're rebuilding demand on the new logo front and having success with that strategy. In terms of what we're modeling in, I mean, in terms of the pipeline, the overall pipeline is consistent with last quarter, and the in-quarter sort of generated pipeline so far is actually up quarter over quarter.
spk06: Understood. My follow-up question is on the payments platform. So I'm wondering if you can give us more follow-up, right? So some of the initial, I mean, I don't know if these are beta customers or these are actual paying customers, but can you give us some sort of like how the revenue sharing arrangement works? Like what is the monetization model and how do you think of wrapping the adoption up in the next few quarters? Thank you, guys.
spk05: Yeah, so they are testing right now, so they're actually testing live transactions on the platform. We haven't talked about the monetization strategy yet, but it would go, you know, align with our usage-based models. So, you know, every time you invoke and take a transaction, we are looking at some monetization for that. But right now we've launched the first handful of customers and they're using it, and so we're seeing good results. And once again, as I The reason we went into that is we're seeing more and more use cases around sales and marketing, which is, you know, the broader concept of commerce. And we need to have a unified way to handle a payment across messaging endpoints, across customers, because right now it's difficult. You have to go to a web flow out of messaging. So, you know, we're seeing some good results right now from our initial customers.
spk14: The next question is from Ryan McDonald with Needham & Company. Please go ahead.
spk12: Hi, Rob and John. Thanks for taking my question. Congrats on a great quarter. I wanted to start with on this conversion from sort of the ELA contract structure to the cost per interaction. Can you give us a sense of sort of what you'd expect the general cadence of those renewals would look like over the next 12 to 24 months and And what you're seeing in terms of number of interactions that are being adopted, are you seeing sort of an increase and perhaps a greater inclusion of AI-based interactions when you're making that conversion? And then I'll have one follow-up. Thanks.
spk02: Sure. So we've had really great success converting ELA's to CPI contract structures or volume-based contract structures. And I'd highlight one in particular from this year. One of the global top 20 banks we converted from ELA to CPI in the first quarter. And then a mere six months later, after being on that volume-based model and seeing the power of the conversational cloud and what it can do for their operation, we upsold them again seven figures because of that CPI structure. So it's a powerful example of future revenue growth, given the demand profile that we've been sharing with you. In terms of the cadence, we have approximately this year covered about 10%, and I expect that to accelerate into 2021. In terms of, I think you asked about interactions and AI-based conversations, all of this is is consistent with what we've signaled, that the 60% increase in automation since February is equally applicable to these ELA to CPI upsells.
spk12: Excellent. And then just as a follow-up, you know, John, I'm really impressed with the free cash flow generation in the quarter. Obviously, you know, a lot of the work has been done and pieces have been put in place to automate a lot of the back office functionality there. Given sort of the early gains you've seen there, how sustainable do you think that, you know, positive free cash flow is moving forward here?
spk02: Yeah, I would just say that while, you know, hitting the rule of 40 on a free cash flow basis this quarter is an amazing achievement and, again, a testament to our ability to control the P&L in strategic ways and really rapid ways. I don't see it right now as – a new run rate for us. However, as I've consistently said, my number one mandate is to move the company towards sustainable cash generation and profitability while simultaneously maintaining our ambitious growth goals for the top line. I don't see that changing anything.
spk14: The next question is from Kirk Maturne with Evercore. Please go ahead.
spk17: Hi, this is Peter Levine. Good quarter. Great to hear the partnership. You threw out targeting 50% of deals coming from partners. How should we be thinking about service revenue going forward, and what investments are you making internally to kind of support this kind of deal flow or perhaps any changes to your go-to-market motion?
spk02: Hey, Peter. So we, in the longer run, we certainly see our conversational cloud creating sort of a derivative market where these partners come in to participate, seeking profits. And in that world, we would want to push most of our PS work, especially for those verticals where we have a really established playbook already, and we've gone deep to create value in those verticals, we'd like to push the PS work for that profile to the partners. And that allows us, of course, to be more transactional as a business, which is a goal consistent with our desire to create enhanced operating leverage. So that's kind of a North Star for us with respect to PS work and the channel partner strategy. In terms of investments, One of the key areas of investment is to create the suite of self-service tools that enable our partners to work with, monitor, and assist the customers that they sell the conversational cloud to without human interaction on the live person side. So that's a key area of investment that we think will drive enhanced leverage on that model going forward.
spk17: That's great. And then just to follow up, you know, with, I guess, all the news with COVID and, you know, the second rise despite care, you know, for customers that may be deferring decisions, which it kind of has no surprise to anyone at this point, but Yeah, and maybe you're not seeing it, but how much of the pushback is budget-related versus, I guess, more of the broader economic uncertainty? Curious now here in Q4 if what's going on, we have an election, we have COVID, if that's impacting any decisions or extending sales cycles. Just curious to know if there's any color on that. Thank you.
spk02: Yeah, I don't have a value that's very precisely quantified. But clearly the pandemic and the election and just the macro uncertainties that have persisted throughout the year are a weighty factor, especially when it comes to a new logo making a large commitment to a new partner like LivePerson. But I don't have a specific value that I would quantify for you. Rob, were you going to jump in there as well?
spk05: Yeah, I was going to say, you know, as you can see, the demand and the services, I mean, COVID is driving a lot of our demand and the shift from, you know, offline retail to digital, the shift from contact centers, you know, being shut down and the agents are still at home. So there's still a lot of stuff going on. So I don't, you know, now our game share will start to pick up, obviously, and in Q4 around especially our large customers who are gearing up for the holiday season. So, I mean, right now we still see a lot of strength, and COVID is kind of giving us a lot of wind in the sail.
spk14: That's great. Thank you for the call, everybody. The next question is from Richard Baldry with Roth Capital. Please go ahead.
spk09: Thanks. When we look at your P&L being sort of well ahead of where we would have thought it would be, how do you sort of balance that against sales capacity? And by that I mean you have the ability to be hiring much faster if you want and still make the earnings estimates people are looking for. So how do you feel about the current capacity? When do you think you'll see some material increases to that? And maybe there's a discussion around that, around other automation things that you're putting in place that are helping you gain leverage there. Thanks.
spk02: Yeah, so from a productivity standpoint, we're seeing more productive reps now than we have in the past. And some of that is attributable to just the ramping of the sales force after sizable investments in 2019. And as you suggested, there's a portion of that productivity also attributable to the decision support tools and the automation that we've built for the global revenue organization. And, you know, I highlighted in the prepared remarks one of these projects that really, really tries to get very quantitative data-driven about how to smartly route leads and opportunities to those reps who are best suited to pursue them and who, importantly, have the capacity to do so, so nothing is lost in the mix there. So that's a system that we're building and testing as we speak and expect to drive additional productivity on a per-rep basis. In addition, I would say that we do have plans to continue to invest in core growth drivers one of which, of course, is our go-to-market capacity, and I think we could see increased quota carrier counts moving forward.
spk09: Ben, maybe also how far through sort of your internal automation efforts do you feel like you are, maybe with a backdrop to what types of further restructurings might we see throughout this year or maybe throughout 2021?
spk02: Yeah, the short answer there is we're really just getting started. Despite the high ROI that we've already seen in year, the team is still pretty lean and really only ramped about 10 engineers and data scientists in Q3. I think we hired 50% or 60% of our total team size in Q3. So the amount that we've delivered already this year is really just scratching the surface of what's possible. And as I suggested in the prepared remarks, the data lake that we just brought online is a really key instrument to provide the foundation for clean and connected data to rapidly automate and build decision support tools across the organization. The key barrier to getting that kind of leverage is not so much the code writing, but it's the access to data and clean data at that that slows everything down. So that's a really important milestone. While there's more to do there, it's already being leveraged by the automations that we're building internally. So, again, I think there's a lot more to come on those dimensions.
spk09: And lastly, you know, given the strong cash balances, what are your thoughts on, you know, sort of tuck in M&As maybe on a technology side? You know, do you feel like you can still do that even though it's, you know, hard to do deep due diligence or certainly in-person due diligence there? or do you think they sit on the sidelines until that gets to be a bit easier? Thanks.
spk08: No, I actually would.
spk09: Go ahead, Rob.
spk05: So I would, you know, we're obviously, we want to really accelerate what we're doing on the AI side. So, you know, we've looked out into the world, and if we find good technology that can accelerate our go-to-markets on the technology side, you know, we'll look at, We've built a lot of, I mean, I think from a shareholder perspective, you know, we spent a fair amount of money and resources on organically building the company to date. And we didn't really require too much to get here. We built it. And so that's why we see sort of a flip with margins and cash generation because, okay, we did a heavy investment on that side. Now we're flowing through just selling a lot of that technology. So, We'll continue organic development, and then if we see something that's kind of interesting, we'll consider it. But we've got a good team right now, and we're hiring great engineers and data scientists who want to join us because of the success we're having. And we're up competing with the Googles and Amazons and Microsofts on the data science side, and we're winning awards. And sometimes they win, but we're able to recruit and hire and get them here. So that allows us to really focus on organic as well.
spk09: Great. Thanks.
spk14: The next question is from Steve Enders with KeyBank.
spk10: Please go ahead. Hi, Greg. Thanks for taking the question. I just want to get a better sense of, you know, how you're thinking about the sustainability of the EBITDA margins that – that you put up in the quarter and guided to, you know, where would, I guess, potential opportunities for further investment be to see that, you know, decline from here?
spk02: Sure. So first I would say that we do intend to continue to expand margins going forward without putting a guide out for 2021. That's, again, a key mandate that I have as a CFO and the strategies that we devise will be consistent with that. In terms of investments, we obviously continue to invest in the core growth drivers. You know, I mentioned go-to-market earlier, which we're moving forward with in addition on the AI side. And then, importantly, on the infrastructure side. So the migration strategy, will require some investment. And for a small period of time, we'll need to maintain two stacks as well, which will require some investment.
spk10: Okay, great. And then I know you just rolled out a new opportunity to integrate with Instagram. And I know you talked about a social solution, I want to say, about a year ago. Just wondering how you're seeing kind of those new social channels progress and how you're thinking about that opportunity now.
spk05: Yeah, I mean, Instagram is going to drive a fair amount of volume because obviously there's a lot of engagement and commerce going on. So I think we're all pretty bullish about Instagram. WhatsApp still seems to be the biggest driver outside the U.S., and then Apple Business Chat is the biggest driver within the U.S., and they're all going very strong. I mean, they're all increasing. There's a lot of demand. As we enter new markets like Brazil and stuff like that, they have massive demand for these types of things. So, you know, all those front ends just drive volume for us and drive more interactions, which drives growth and revenue. So I think we feel very good about what we're seeing. We're obviously very good partnerships because we drive a lot of volume for them, especially from an enterprise customer standpoint. We're driving a significant amount of volume for all those endpoints.
spk14: Okay, great. Thanks. The next question is from Mike Latimore with Northland Capital Markets. Please go ahead. Great. Yeah, thank you.
spk18: Great quarter. I think you gave a sales force productivity kind of percent number last quarter. Do you have that for this quarter?
spk02: Yeah, so that productivity number was really a function of time, meaning we expected 80% of our sales force to be ramped by the end of the second quarter. And we really would expect that given, you know, attrition rates to hover around 80 or so percent going forward rather than, you know, moving that productivity number up to 100%. Okay, I got it.
spk18: And then on gain share, are some of the sort of big new deals or even upsells, I guess, in that kind of gain share model?
spk02: So certainly game share continues to deliver, although, you know, at 15% of revenue is consistent with last quarter.
spk18: And then a while back you gave an investment amount for digital payments. I guess how far of the way through that are you? It sounds like you're almost done.
spk05: Yeah, we're on track for – and then some other innovations that we built. So we're pretty much on track on spending. We didn't exceed it. We're a little under what we thought we would spend for the year. But, yeah, we're right on track there. Okay.
spk14: Thanks. The next question is from Koji Ikeda with Oppenheimer. Please go ahead.
spk16: Yeah, hi, this is Brian Schwartz sitting in for Coach Jaketa. Thank you for taking my questions, and congratulations on a very strong top-line guide here. I thought I'd ask a different question that hasn't been asked so far. I don't know if it's Rob or John to take it, but just the question on the competition. And, you know, from your perspective, you know, who are the main competitors that you're seeing for the big conversational AI vision here? that you're projecting in the market and those three new customer big deals that are done in the quarter and, and the new logos that you're winning, you know, who are you competing against most often?
spk05: We see on one side, Salesforce is in a lot of accounts and on another side, Genesis, the contact center, you know, they, they're treating this as a, like messaging as a channel. So, It's just like another channel like email. And so we obviously messaging is just the connective tissue for asynchronous communication. And then on top of that, we ride all the AI and automations. And that's why we get these big deals done. So if you're an enterprise, you're not going to get there using messaging as a channel. The other thing is they don't really have messaging as a real technology. They took chat. and then tried to make it asynchronous, which I can tell you doesn't work very well. That's why we built a whole new platform. So we're, you know, we're doing just, we're just crushing it on the enterprise side. We've been looking at, like our competitors said, in more of the, there's a lot of funding going in right now on the startup side in messaging, just like pure messaging. And most companies are doing, they're like 10 to 20 million, $5 million businesses. You know, we're looking more in a quarter than they have in, you know, a year or two of revenue. So it's... We're just... Because we went early at this and we have a big vision of it and we were able to put... Now it's a couple hundred million dollars worth of investment into the tech stack. We're clearly just really far ahead of everybody. And we're going to continue and we've got a lot of innovation coming down the pipe. And so... You know, I think right now we're just leading the market. We've defined the market. We lead the market. We're creating the pricing structure for the market. We're creating the right partnerships for the market. And we're setting the high watermark for the market.
spk16: Thanks, Rob. And then a follow-up for John, and then I just have one maybe longer-term plus, John. John, a couple questions. I think it came up on the call. I guess we're just trying to figure out those leasing changes, restructuring costs that you talked about in your introductory comments, are you expecting those to continue next quarter, or were they mostly one time in nature this quarter?
spk02: They were one time in nature.
spk16: Great. And then last question, just bringing it back to the Rule of 40 vision. You've talked about it. You're showing it here this quarter. And then for the year, the guidance here is for 25% top-line growth. I was wondering if the assumption is that that growth rate is sustainable, even on higher numbers, and then the cash generation can flow through on the sales productivity and the operational efficiency gains or – You know, could growth go even faster than 25% based on what you're seeing in the pipelines and the retention from your lens? Thanks.
spk02: So I'll stop short of providing, you know, a guide to 2021. But I will reiterate what we've said on prior calls, which was that 25% in 2021 is still on the table. And in terms of whether that can be accelerated, yes, I think we'll have to wait for the fourth call.
spk16: Thank you for taking my questions this afternoon.
spk14: Thanks. The next question comes from Zach Cummins with B. Reilly Securities. Please go ahead.
spk11: Thanks for taking my questions, and congrats on the strong quarter. I guess in terms of your approach to real estate, I mean, can you kind of dig into that now that you've gone through these office lease terminations and what's really going to be the approach over the next few years?
spk05: Yeah, so we made an early decision in May to not go back into offices and do a work from anywhere type of operational, you know, where we're going to work or build our company. So we don't have any plans to go back to offices. The first part is the, you know, the people who are leasing our offices to us cannot make the offices safe So there's no point in even thinking about going back. The second part is we are finding that our employees are finding this type of work mode pretty good. There's a tremendous amount of energy around. We have a small group right now. There's actually about 50 people in the company who volunteered to create a whole new operating structure we call Beehive around how do we create a model around working from anywhere. How do we do communications well, our culture? We're talking about things like education of kids. So this is a very complex thing, but it's not about the offices anymore. It's about, I think, the realization that there's a better way to work. And I've seen a lot of some CEOs are like, oh, we've got to get back to offices and blah, blah, blah. And in our case, we have the ability now to hire people in any corner of the world, and we're doing that. We hired about 90 people in the quarter. And some of them we've never met, but we have a way to bring them on, and they're excited to be here. So I think it's a great opportunity. We are taking a different approach with our landlords. We're fighting them. We will fight them. I see that, like, Pinterest, I think, just wrote a giant check. They, you know, I just don't believe that they've got a bad product, and us paying them doesn't make sense unless they give us a product that will be safe for our employees, which they're not willing to do because they don't want to spend the money. So we're taking the approach that we will fight them and, you know, we'll see what happens in the end with that. But the energy we're putting in right now is making work from anywhere a model to expand the company. And, you know, the demand in the company right now we have on our product set and everything, we just need employees. So it's interesting. You know, it's an interesting time. We call it working asynchronously. You know, it kind of fits with our model of asynchronous. So We're seeing a good energy around it with our employees right now.
spk11: Understood. And then just one final question for me. With the surge in COVID-19 cases again coming upon us and the potential for additional lockdowns in all the regions around the world, I mean, how are you thinking about this for your business? I know the initial surge did cause some disruption, but also drove a big surge in demand for you as well. So just kind of curious as how you're approaching this over the next couple of quarters.
spk05: You know, it'll keep playing into our strategies. Remember, the number one thing is contact centers. So we've said for a long time that we didn't believe in traditional voice contact centers, and they're gone. So, I mean, I didn't think they would go this way. You know, I thought we would just kind of like get rid of voice calls, which we're doing a pretty good job at, but they're gone. They don't exist. Some customers are trying to get them back running, but employees are working from home. It's a challenge. And conversations are getting automated. And so the number one thing is those contact centers, and that's they've been impaired. And so we are, you know, working to fill the gap of the demand of conversations and digitize them with AI. The second part is retail. You know, like we're seeing, you know, retail was not really a big thing for us because they don't have big contact centers. But what happened during COVID is obviously with the shutdown of stores, And now the opening and shutting down and opening and shutting down, this may go on for another year. The retailers need to digitize their relationship with their consumers, and they want to have conversations. Like this jeweler we spoke about, they're the largest seller of diamond jewelry in the world. You know, you're buying a ring, an engagement ring, you want to talk to somebody, and you want to do it in a digital format. And so... So we're able to power those things. The Chipotle example last quarter where you can use the Pepperbot and configure a burrito and pick it up at the door. You know, the stuff we're doing at Lowe's, massive amount of retail volume and conversational AI with them. So there's just a lot of stuff that's playing into COVID. And the more it continues, the more it drives demand for our platforms.
spk13: The next question is from Brett Nelblock with Berenberg Capital Markets.
spk14: Please go ahead.
spk03: Hi, guys. Thanks for taking my question. I guess just looking across your customer base in respect to the ELA and CPI deals, what percentage of customers have an ELA deal, and does a transition from one to the other have any impact on deferred revenues? Thank you.
spk02: Hey, Brett. So less than half of our customers have ELA deals. And the question on deferred revenue, I mean, it's really a function of whether we get annual upfront payments as to whether you'll see deferred revenue move in quarter and be a reasonable indicator or not. And In this quarter, if you're looking at deferred, I mean, I think it's helpful to note that we did have large deals signed that were not – that didn't come with upfront annual payments. So from an RPO perspective, main performance obligations, I think you'd see it tick up because it captures that.
spk13: Perfect. Thank you.
spk14: The next question is from Siti Panigrai with Mizuho. Please go ahead.
spk07: Thanks for taking my question. And the last two quarters are impressive. And, in fact, 2020 you started with like 20, 21% growth, kind of hit your 25% growth, you know, goal this year. Maybe you benefited from the COVID-19 crisis. But, Rob, as you look forward to the next one or two years, what are the key drivers for, you know, to sustain this kind of growth?
spk05: You know, the drivers are, you know, we keep opening up more vertical plays. And so like health care right now, remember last year it was travel and hospitality were big for us. Actually, it's interesting, they're still doing well. Our airlines, our hotels, they're still doing a lot of volume with us, which is kind of interesting. But we've seen more verticals opening up, like healthcare. I know the government will be a big vertical coming up. And so there's that play. There's international expansion. When we look at Southeast Asia and Asia as a whole, South America, like we're just starting to get these regions going. And then It's just the proliferation of more and more things like Instagram. You know, these front-end, you know, endpoints for the consumer, they're all opening up, and they need platforms like ours to drive, you know, the volume. So that's really where we're seeing, you know, I feel like we're still at the beginning of inning two here, Because even in our base today, there's so much stuff we can do with our just base of customers, which is also obviously a focus of ours. So that's what we see. You know, there's also on the innovation side, there's just a lot on the AI when you think about what it's going to do. It's going to free up capacity. It's going to allow us to augment work for humans. We're doing it with agents today. In some cases, we replace conversations. In other cases, we augment their work. And we're going to do more and more of that. We're delivered inside the enterprise. I hired John, and he's doing great work around our enterprise and automating it. But, you know, we're looking at tool sets that he's struggling to put into the conversational cloud. So, you know, conversations you're having with HR departments internally, legal departments, your finance department, all that we see is something that will come into the conversational cloud. So we're kind of in the second inning. First inning was messaging. Second inning, AI. and now we're expanding it across these different things I talked about.
spk07: Thanks for that, Tyler. And then you guys talked about some of these transformational projects, like dealer.com or even the jewelry one you talked about. How does the pipeline look like for such kind of projects?
spk05: It looks good. You know, we also are – We haven't spoken too much about it, but we have a marketplace offering, and we are working with a very big company in the U.K. which has like a Yellow Pages type of product, and we created a way to create thousands of automations. Like we're setting up thousands of small businesses, And then simultaneously when they're set up, automations are automatically set up. So a small business can go live with prepackaged automations, but we can – thousands and thousands of small businesses we can set up at a time. So there's a whole marketplace thing that we've been working on for the last couple of months, and then I see some big opportunities with that. And with the payments platform, obviously, we're testing some stuff on the banking vertical. Um, we've, we've created a vertical play around banking that we are starting to roll out and test. So there's some vertical plays around a full stack and, and conversational vertical. So a bank doesn't have to do anything. They could just kind of plug in to a full UI, a full middleware. So where we have some stuff going on with that right now, that was part of our investment we did for 2020. So there's a lot of, a lot of, uh, different parts to this beyond just setting up big brands.
spk14: Thank you, Rob. Thank you. The next question is from Samad Samana with Jefferies. Please go ahead.
spk00: Hi, good evening. Thanks for taking my questions. So maybe just as a starting point – I wanted to touch on maybe the ACB commentary and the sequential rebound. Could you maybe just help us understand how, if we were to look at it on a nine-month, over nine-month basis, right, so kind of normalizing for QQ being a shallow period for new customer bookings versus, 3Q maybe seeing some pent-up demand. How does that comparison look? Because that 300% number is really big, right? So we're just trying to triangulate maybe year-to-date versus year-to-date through last year.
spk02: Yeah, so the way that I would think about that, Samad, is that we have brought new logo contract values up to pre-pandemic levels. So that – That pre-pandemic level of thinking, you know, back in February, January, and December is what we've achieved in the third quarter. Obviously, the growth rate is only as meaningful as its base. But I think the former commentary I gave is really what I would think is more instructive.
spk00: Okay, okay, that's helpful. And then, you know, I guess as I think about for companies that are, you know, that are new logos, you know, especially as you think about the new contract signings, and so let's just say completely new to live person. given that they're trying to solve for a problem that's ongoing, is there a difference in how quickly customers are trying to get online or are they changing maybe their ramp cadence as in, hey, let me solve for problem X or get my first 100 agents on sooner? I guess just how are they handling the implementation schedules given that they have a surge in customer issues right now?
spk05: Yeah, on my retail example I gave about the jewelry, it was a three-month sales cycle to go live and then go live very quickly because of the demand right now and the impact on stores during – physical stores during COVID. So we're seeing, you know, a lot of movement there. You know, very, very large brands, there's a process you go through. with them. There's some healthcare companies we're trying to close right now that are just so massive. And there's a process. We just got certified for high trust, by the way, that allows us to go after the healthcare sector. It's like the highest level of security that they require. So that takes maybe a little longer to go after. But the retail sector is moving quickly. Everything seems to be moving quickly. Honestly, it's showing up in the numbers. I mean, we're kind of a year ahead. I don't know if people realize that. We're going to have a $100 million quarter coming up in Q4. And if you look at your models, you know, that wasn't going to happen until somewhere probably towards third quarter next year or mid-year. So we hit our 25% growth rate this year. So, you know, all of that is about speed and need. People want to move fast and fast. want to get on this stuff and get going. Great.
spk00: I appreciate the caller and good to see the strong results. Thanks again for taking my question.
spk13: Thank you.
spk14: The next question is from Jeff Van Ree with Craig Hallam. Please go ahead.
spk15: Great. There we go, guys. Congrats. Looks really good. Rob, how do you balance how critical is making the product easier to deploy out of the box and consume? How do you balance that need to make it easy to consume with adding all the bells and whistles, obviously looking towards how do you accelerate adoption? Just talk to me about where you think you sit at this point in terms of ease of consumption versus having the full feature set, if you will.
spk05: Yeah, I mean, it's definitely, Jeff, it's definitely a balance. The enterprise, I mean, we have an initiative that's been going on since the beginning of the year to make the platform so we can land it and then it can even in our businesses and the people entirely could use it and expand it without us having to do a sales or implementation process, which is happening today. If you really want to attack the mid-market, let's call it the small business, we would want the platform to be at a different place, which we're working towards fairly quickly. We're pretty close to delivering put your credit card in and go, preset intense automations. So we have all that coming out fairly shortly. But it's definitely a balance. You know, where we are doing very well is the deep, deep intent-based learning that the big brands need to automate at a very high rate. So we can ingest now large data sets that they have, and then our intent manager analyzes that and then – basically groups intents and then tells them which automations to create so they can have the most impact. That tool alone, that's a lot of technology. That tool has driven a lot of business and growth in the enterprise. So it sets a balance. I think we've handled it very well. This example I talked about, this marketplace that we set up is the customer who runs this marketplace literally presses a button and 1,000 of their customers go live on a conversational front end and they have automations automatically created at the same time. And so that marketplace, we're going to spend more money on that because that allows us to scale other things. Like if we take Shopify and do an overlay on Shopify and you press a button and every Shopify customer could have a conversational commerce experience Those are the things that we're working on because that's where I see the real scale.
spk15: Helpful. When you think about the efficiency, the sort of flow, the structure of sales and lead gen at this point, you know, what are the top couple pain points? Again, kind of thinking to that, how do you accelerate and sort of get the machine even more sort of friction-free, if you will. What are your key pain points when you think about that lead gen thing? sales flow, that structure right now?
spk02: Hey, Jeff. I think one dimension here that we've discussed before is the lack of our in-person marketing events. And we've addressed that to a large extent this year with digital events. And we've seen both the demand for those events and the pipe generated from those events increase significantly. throughout the year, including quarter over quarter in Q3. So that's a positive sign that we're adapting to this new normal and finding ways to grow despite not having that same option for in-person marketing as we did last year.
spk15: Is it – I mean, just one brief follow-up there. Is the cost of – you know, sort of the acquisition cost of the customer – going to come down or coming down dramatically, then I know the events you did were real high-end, you know, serious VIP events as you've gone fully digital. Is it a radical transformation in the cost of customer acquisition here?
spk02: Certainly there are cost savings and efficiencies there, but I think that there's also learnings for optimizing the digital channels. So I think there's more work to be done there to fully optimize them. But the short answer to your question is yes, their efficiency is gained. Got it. Okay, great. Thanks, guys. Congrats.
spk07: Thanks, Joe.
spk14: We have reached the end of our call today. I would like to turn the call back to Rob Locasio for any closing remarks.
spk05: Thank you, Operator. I just want to end the call to reemphasize a few key points. We've had two consecutive quarters of sharply accelerated revenue growth, highlighting how coronavirus has exposed the inadequate of legacy voice contact centers and helping to compress adoption curves of customers who want to get on the conversational cloud. We believe conversational commerce is going to replace not only voice calls but a lot on traditional e-commerce, and we're seeing that start of that today. So the voice calls are a fact that obviously – The horse left the gate on that one a couple of years ago when we started, but the e-commerce being replaced by C-commerce is just starting, and that's very exciting for us. We're also focusing on internal automations, and the reason we brought John on, and he's doing a great job there. You can see some of that is falling through to our increased EBITDA margins, and we'll continue to put a focus on that. And then I just want to thank every employee at the company, you know, working with their work from anywhere and delivering these types of results and, you know, meeting the increased demands of our customers in the market. They've just done an exceptional job. And so I just want to thank all of them for what they've done. So we'll look forward to having another strong quarter in Q4 and continuing to execute on our vision. as the leader in the conversational commerce space. Thank you.
spk14: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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