LivePerson, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's first quarter 2021 earnings conference call. My name is Matt and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management from LivePerson will conduct a question and answer session and the 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 over to Ms. Adalia Rodriguez. Please go ahead.

Thank you, Matt. And good afternoon, everyone. Joining me on the call today is Rob Locascio, LifePersons founder and CEO, and John Collins, Chief Financial Officer. Please note that during today's call, we will make forward-looking statements, which are predictions, projections, and other statements about future results. These statements are based on our current expectations and assumptions as of today and are subject to risk and uncertainty. 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 10Ks, thank yous, 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. The 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 LifePerson's website. With that, I would like to turn the call over to Ron. Ron?

Thanks, Adalia. Thank you all for joining LifePerson's first quarter 2021 earnings call. Over the past years, we've demonstrated LifePerson's clear leadership in conversational commerce. This quarter validates another data point showcasing the massive potential of conversational commerce and strength of our strategy and execution. Revenue increased 38% year-over-year to $107.9 million in the first quarter and grew approximately 6% quarter-over-quarter, exceeding the high end of our guidance. This acceleration on growth was fueled by a combination of growing wider and deeper with existing customers as well as adding new large brands. In Q1 2021, we signed eight deals of seven-figure annual contract value, four of which were new logos. We also expanded into target verticals such as healthcare and government. Total annual contract values signed in the quarter hit a record high, increasing more than 120% year over year. And the fact that this grew significantly faster than overall revenue is a great leading indicator for future acceleration. Volume on our conversational cloud in the first quarter reached an all-time high, even exceeding Q4 2020 peak volume during the holiday season. Overall platform volume at the end of March increased nearly 40% year over year, while automation volume accelerated by almost 50% year over year. Messaging volume that was partially or fully automated increased quarter over quarter and reaching more than 70% of the total messaging volume. A key highlight I'd like to share about Q1 was our focus on capturing massive opportunities, helping brands create conversational sales and marketing journeys for their customers. You may remember that we prioritized these revenue-generating use cases to own the entire customer lifecycle from marketing to sales to customer care, and Q1 showed strong execution around this strategy. Our gain-share business, driven largely by commerce, experienced a solid top line and robust pipeline for upcoming quarters across North America and EMEA. LivePerson's innovative marketing programs also contributed to this momentum. As we continue to adapt to the virtual selling environment, we've developed a new breed of top-notch remote marketing events. During the quarter, we added a large online event with expert-led educational masterclasses, community building activities, and peer-to-peer connection. In total, 119 executives across 79 leading brands joined the multi-day retreat. We plan to hold these events every quarter and anticipate they will continue to positively impact contract signings and pipelines. Now I'd like to highlight a few stories about brands leveraging live person's expertise and technology to drive digital transformation across care, commerce, and additional innovative use cases. The first is our win of a multi-year, seven-figure contract with huge potential for expansion with one of the top three healthcare companies in the world. This company generates hundreds of millions of calls across their key lines of business at the cost of billions of dollars each year. In the immediate future, we will assist the brand in reducing operating expenses and raising member satisfaction by shifting calls to messaging and introducing automation at scale. Over the long term, our proactive messaging and social messaging capabilities will help the brand build a stronger connection to its end customers by giving them the ability to more proactively self-manage their own health. Together, we'll unify the consumer experience across channels to develop a more intimate and long-term connection between the brand and its members. Live person's expertise in asynchronous messaging, our robust suite of conversational AI capabilities, and the fact that our platform is turnkey ready for transforming large enterprises were the key factors in winning this new logo. Another new logo win of the quarter was a seven-figure deal with one of the largest automotive manufacturers in the U.K. Like many other companies, the brand was challenged due to headcount churn as its contact center shut down and customer satisfaction ratings were hurt as well as revenue. LivePerson's conversational cloud will operate at the brand's central hub for messaging, creating a holistic experience for every stakeholder, including OEMs, over 3,000 global retail dealers, and the brand's employees and customers across channels. First, we'll transform their global contact centers to help them with customer care retention. They expand into commerce use cases with our highly differentiated two-way proactive messaging, which has generated a customer response rate as high as 35% for several brands already using it. For example, whenever a vehicle recognizes that its brakes need to be fixed, a proactive outbound message will be sent straight to its owner, enabling it to self-serve and book service from anywhere with a dealership. This kind of use case truly represents a large revenue-generating opportunity for the brand, especially when they have millions of connected vehicles globally. Key drivers include of this would include LivePerson E to navigate user interface, outstanding AI capabilities, and the ability to take payments and scale with automation across all channels. I'd like to share an example of an existing client, a global multi-billion dollar jewelry retailer that is taking full advantage of AI-powered messaging's potential drive to sales. We signed our first deal with the customer in Q3 2020 and expanded it this quarter. We started by launching both web messaging and a QR code experience that lets customers message with their jewelry consultants from any device. That basic start achieved 70 million messaging-driven sales in just $70 million in sales in just a few months. To date, over 900,000 messages, conversations have taken place with daily average sales conversion rate of 15%. With our new deal, we're expanding into new endpoints, proactive messaging and conversational ads. This expansion will also meet the retailer's demand for full NLU capabilities, payment within messaging, and direct IVR deflection. Incredible results the brand has achieved prove AI-powered messaging is not just about customer care, but also marketing and sales journeys that give customers the power to purchase when they want. Speaking of expansion, in Q1 2001, we signed one of the largest expansion deals in our history, with a multibillion-dollar North American satellite radio company. They started their journey with LivePerson in late 2019 with IVR deflection for their customer care operation. Over the year, they've massively expanded with their service with us multiple times through our gain share model, not only in customer care, but also by moving into commerce through in-app and proactive messaging. With this latest expansion, we will fully migrate their current technology onto LivePerson's platform, We envision the consumer experience with AI-powered messaging replacing costly voice calls. Live person exciting product roadmap combined with our AI expertise and scalability are key factors for us to expand the deal within a matter of weeks. One of my favorite product launches of the quarter is a loyalty program for Dunkin', one of the biggest fast food chains in the U.S. The brand was looking for new ways and new channels to build continuous connections with customers. They're adding QR codes on food packaging, giving customers the ability to easily scan the code, download their app, and sign up for the loyalty program via an automated SMS message sent from the bot, and a free donut. This program and packaging is starting to roll out in over 9,000 Dunkin' stores in the United States. We continue to innovate, not only in the AI sphere, but also in extending our platform to new channels, including social. We believe that social messaging will help meet the strong demand for from our customer care for a fully integrated messaging experience. Brands can now message social conversations, including public and private messages, at scale, increasing the surface area of automation touchpoints and the other capabilities within the conversational cloud, currently enabling brands to manage customer care and social within our platform, and our long-term vision is to provide an end-to-end social solution for care and marketing powered by AI and automation. Several of the world's largest brands have signed on to use our social capabilities or plan to use as part of joint roadmaps. Our partner ecosystem also continues to expand, both in terms of go-to-market and introducing new joint solutions with industry leaders. We recently announced that Tech Mahindra has joined other live person partners, including T-Tech, Infosys, and IBM Global Business Solutions, in strengthening our go-to-market reach and sales distribution. In fact, one of the seven-figure deals in our targeted government vertical was driven by a partner, Simultaneously, after a quarter of ramping and developing the pipeline, we closed important new logo deals with Infosys in Q1. We also announced a partnership with Medallia, offering brands the ability to seamlessly integrate conversations and customer engagement analytics to help them measure and respond to customer and employee signals in real time. We consider these collaborative partnerships significant indicators of our leadership position in conversational AI. Finally, in Q1... We were approached by Citi, one of our longstanding conversational cloud banking customers, to help bring an at-home rapid testing option for COVID to its employees. They asked us to build an app we call Bella that would take the power of our conversational AI that they use in their contact centers and see if we could apply it to at-home rapid testing. The goal was to have an AI solution that would take the employee through a conversational AI guided experience every day that could boost home testing confidence, create positive user experience, and provide the digital enablement that can help Citi create an additional level of mitigation in their offices, returning their employees back to office. Working closely with the Citi team, in a matter of weeks, we launched the Bella app on the conversational cloud. I'm really proud of what the team delivered and even proud to say our platform has been instrumental in providing additional measures to create a safe work environment for thousands of employees who would feel more comfortable getting back to physical workplace. We're looking at other opportunities within our corporate customers that will keep you updated on our progress with this COVID-19 testing program. Given all of the momentum and opportunity we continue to experience, we entered Q2 laser focused on retail, e-commerce, and sales and marketing use cases. while continuing to innovate in customer care. We're committed to bringing our complete vision for conversational commerce to life for our customers through our industry-leading AI and messaging capabilities. Our large and growing partner network, comprehensive revenue generating and gain share offerings, and compassionate and trusted conversational AI remain key pillars for our strategy as we lead conversational commerce in Q2 and beyond. And with that, I'll turn over the call to John to provide operational update and more color on our guidance. John?

Thank you, Rob. In the first quarter, we continued to build on the momentum we generated throughout 2020. We signed eight seven-figure deals, four of which were for new logos. Overall, seven-figure deal counts increased 400% year-over-year, and annual contract values across all market segments increased 120% year-over-year. We materially expanded our reach into large target verticals, including healthcare and government, where we're setting a foundation for future growth. Our international business continued to grow at an accelerating pace and is now on track to match U.S. growth on a year-over-year basis in the second quarter. As for strategic partners, we signed deals with Medallia and Technohindra, and we've only just begun closing opportunities within Infosys' growing pipeline. In terms of operating metrics, we once again exceeded the high end of our guidance range for both the top line and bottom line, continuing to enhance operating leverage while delivering the highest quarter growth in our history. We operated the rule of 40 for a third consecutive quarter and improved on a wide range of key metrics, which I'll discuss shortly. Significantly, billable platform volume also continued to accelerate, reaching a new high in March. All considered, the data clearly signals that we're capitalizing on a robust and rapidly growing market for conversational AI. In the first quarter, total revenue grew 38% year over year to 107.9 million, which exceeded the midpoint of our previously issued guidance by 4.4 million and marked our fourth consecutive quarter of revenue growth at 25% plus. The material sequential increase in revenue in the first quarter of 2021 underscores accelerating demand for conversational AI generally and expanding applications for conversational commerce in particular. The primary contributors to upside in the first quarter were overdue or demand-based revenue for CPI contracts, overperformance by our consumer segment, and the at-home COVID-19 testing solution that Rob described. Gainshare also performed above our internal plan. Note that the magnitude of year-over-year growth in the first quarter was heavily influenced by last year's relatively soft pre-pandemic comparable period. This dynamic also accounts for expected growth changes from the first quarter to the second, which I'll discuss with guidance. Further unpacking the first quarter results and beginning with new logos, annual contract values increased more than 100% year-over-year, and four new logos were seven-figure deals. While the new logo growth was led by enterprise, annual contract values were also up significantly year-over-year for new logos across mid-market and small businesses. As for the gainshare business, we signed a seven-figure expansion and a record number of new logos. Because we've optimized and proven the playbook for winning agent labor, deploying automation services, and guaranteeing financial results, each new logo win sets up a multimillion-dollar expansion opportunity. In the first quarter, GainShare was 13% of revenue. Our partner network contributed several new logos as well, including a seven-figure government win, which adds to our momentum in this large target vertical. The deal will help build the relationships and technology infrastructure that we expect to serve as the foundation for many other government-related applications in conversational AI. And as mentioned, Infosys also began closing deals in the first quarter and continues to build a significant pipeline. In terms of our reporting segments, within total revenue, B2B grew 38% year-over-year, and hosted software grew 37% year-over-year. Professional services revenue grew 41% year-over-year. And along with that momentum in the B2B our consumer segment posted record growth of 44% year over year. From a geographic perspective, U.S. revenue grew by 42% year over year and represented 64% of total revenue. International growth accelerated from 18% year over year in the fourth quarter to 32% year over year in the first, driven by growth in both EMEA and APAC. In total, international revenue represented 36% of revenue. Average revenue per customer grew approximately 34% year over year, reaching a new record of 490,000. The strong relationships we forged over the years helped drive both expansion and revenue retention, which once again significantly exceeded the high end of our target range of 105 to 115%. In terms of industry trends, year-over-year growth for retail and e-commerce was more than double the growth rate of our next fastest growing industry, FNIFT Services, driven by a compelling return on investment for conversational commerce applications. Billable platform usage continues to accelerate in 2021, increasing 40% year-over-year and suppressing the high watermark set during the fourth quarter's seasonal peak. In terms of the bottom line, first quarter adjusted EBITDA of $13.3 million, or 12.4% margin, exceeded the midpoint of our previously issued guidance by $7.3 million. These results marked our fourth consecutive quarter of double-digit margin and our third consecutive quarter of operation at the Rule of 40. More than half the upside was driven by overperformance on the top line, and the remainder was due to the pace at which we made investments. We continue to add go-to-market capacity through our partner network, and total quota carriers increased slightly relative to last quarter, and we continue to focus on increasing their numbers. As for cash, we generated $14.6 million in free cash flow in the first quarter, driven primarily by higher-than-expected adjusted EBITDA. We closed the quarter with $668 million of cash on the balance sheet, an increase of $14 million from the end of 2020. With continued strength in our business, we are raising guidance for 2021 revenue from our previous range of $458 million to $466 million to a new range of $460 million to $468 million, or 25.5% to 27.5% growth year over year. The guidance range for 2021 adjusted EBITDA remains $33.5 million to $41.5 million, or 7.3% to 8.9% margin. As for the second quarter of 2021, Our guidance range for revenue is $112 million to $114 million, or 22% to 24% year-over-year. And the range for adjusted EBITDA is $5.2 million to $7.2 million, or 4.5% to 6.5% margin. Note that the guidance for the second quarter is a function of lapping the pandemic-induced acceleration in our business that commenced one year ago and continuing to invest in a range of growth drivers, including go-to-market capacity. And on that note, I want to underscore the implications of our full-year guidance. That we expect to accelerate growth on top of such a transformative period last year is a strong testament to the staying power of our platform. Conversational AI is solving fundamental business problems that have a clear and recurring return on investment for our customers in terms of both cost savings and increasingly incremental revenue. Now, before taking questions, I want to touch on several key themes that were key to our success in the first quarter and that we expect to continue throughout 2021. The depth and breadth of our conversational cloud and the ease with which developers can adapt the platform's products and services to new use cases have enabled us to rapidly diversify and grow revenue streams. Conversational commerce, AI-assisted telehealth, innovations in customer care like social media management are all growing sources of revenue that reinforce our leadership position in the market for conversational AI. In addition, we've optimized our gain share offering and go-to-market motion, narrowing in on a repeatable model that resonates with brands and that we execute with machine-like precision. International revenue growth continues to accelerate and is on track to match U.S. growth within a quarter. Our expanding partner network helps extend our reach into new verticals and continues to build integrations with our platform. Annual contract values for new logos in all market segments, from small business to enterprise, grew more than 100% year-over-year. Considering all of those exciting trends, coupled with billable platform usage continuing to accelerate beyond the fourth quarter's seasonal peak, It's clear that we're at the center of a rapidly growing market for conversational AI, which is beginning to look a lot like our long-term vision. And with that, operator, we're now ready to proceed with questions. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question will come from Citi, Penigree with Mizuho. Please go ahead.

Hi, this is Michael Berg on for Citi. Congrats on a fantastic quarter. So you mentioned the gainshare program is going strong. On a similar note, how can we think about the conversion trend from ELA to CPI contracts, and what's the percentage uplift you're seeing there?

So I'll take that. At the end of the fourth quarter, we converted about 15% of total ELA to CPI structures. And at the end of the first quarter, we grew that fraction to about 40%. So by the end of 2021, we're expecting approximately 70% to be converted to CPI structures.

Great. Okay, and then in terms of, I think you mentioned one of the customer examples that payments was involved in the messaging platform. Is that your payment solution that's built into messaging, or how can we think about the progress of your payment solution that you mentioned last year?

Yeah, that's ours. There was two... two examples I had of the payments. So that's our system in there right now that's taking the payments on the platform.

Our next question will come from Sterling Audie with JP Morgan. Please go ahead.

Hi, this is Maya on for Sterling. Could you just give us a sense of renewal rates in the quarter and how the revenue run rate changed from those renewals?

Yeah, renewal rates, in the quarter are on par with kind of seasonal expectations for renewals as you may recall the fourth quarter is typically uh where we see the most renewals occurring but um in the first quarter we're on par with what it looked like in similar periods last year okay great thank you our next question will come from drew foster with citigroup please go ahead

Hey, guys. Nice quarter. Thanks for taking the questions. John, can you unpack the assumptions you're making around the full year guidance set up? You know, you had close to $5 million revenue upside in Q1 and only raised the full year by less than that. So it didn't appear like any of that flowed through. It implies that either business was pulled forward or there were other things giving you caution around the back half of the year. Can you just help us parse through some of the puts and takes there?

Yeah, I would say we're obviously above the top end of our guidance by about 4 million. We are executing on the core strategies that we set forth last quarter, and we think it's still early in the year, naturally, but we're seeing the results that we expected from that execution. We also had some upside in the quarter driven by the AI-assisted telehealth experience that we launched with Citi, and some of that might have been pulled forward into the first quarter. But altogether, the actual results, the continuing trends in the second quarter, the core business all suggest and support a guidance increase. And we think the amount that we've put out is the right balance.

Okay, thanks. And then, you know, you mentioned social media management capabilities for one of your key customers. Could you just unpack specifically what you're doing for them? That sounds like a non-traditional sort of live person use case. I'm curious to get your thoughts on how you view that as a more repeatable use case that you could replicate within your install base and potentially open up new opportunities for you.

Yeah, our customers want us to take all the different communication channels onto our platform. And social is usually they have, you know, it's a handful agents to a couple hundred users. And so they wanted to bring those agents and all the capabilities of our platform to automate against all the social media, both direct messaging and then the public, the stuff that happens in the feeds. And so we've been building product for a little bit in there on our platform, and we've got a good set of features. We're going to continue to bring, you know, it's an opportunity. Some very large brands signed up to move their social media current implementations onto our platform. And then the next step is, you know, looking at voice and the digitization of voice. And that's kind of like the last channel, shall we say, that we're bringing in to digitize all those communication channels. So that's where we are with it.

Our next question will come from Arjun Bhatia with William Blair. Please go ahead.

Hi, yeah, this is Chris on for Arjun. So congrats on the quarter. I have a quick question about ARPU growth and, you know, solid growth in the quarter. So is this dynamic in part driven by some of the contract migration activity that you saw, or is that mostly volume-driven, or, you know, what are some of the kind of the factors at play there?

Yeah, the change in contract structures and expansions are clearly part of the growth in ARPU. I would also say that the intentional strategy we have to move up market in mid-market is another factor. So we're landing deals at a higher level than we have in the past. And as we've noted, there are fewer counts on a year-over-year basis in the mid-market, but values are up significantly there. So that's contributing to the ARPU growth.

Got it. Thank you. And this is a quick follow-up. You might have pushed on this earlier, but Can you give us a sense for what the average percent ACV uplift looks like on those contract conversions?

Yeah, I will say more generally, we haven't provided that level of granularity, but on average, we certainly have upsells when we do the conversion.

Our next question will come from Zach Cummins with B Reilly. Please go ahead.

Hey, guys. So as the easing of COVID restrictions has, you know, progressed, has that had any impact on the consumer-oriented verticals, like retail in particular?

No, I mean, you know, there was obviously a major shift, but we're very focused on the retail and marketing use cases, sales use cases. you know, they're not going back. They're still doing really well. Like I talked about, one of the largest jewelry, it's a public company. They have 3,000 stores, but we've created a whole digital experience that, you know, rivals the store and consumers love it. And they're buying diamond rings and high-end jewelry and all that. So we continue to see a push and everyone's asking about it now, even though once COVID, you know, we're vaccinated and people get back, but consumers like it and brands really like it. So I don't, I don't see it going back. It seems to be, it's just consumer behavior that continues forward. And we were really surprised is post the holidays. You know, we always like, if I look at 20 years of traffic, we get this big bump in, in Q4 and then we come down off of it and we didn't come off of it again. So we, we, you know, we bumped up and we're continuing, we're higher now than we were at the holidays. So that tells us it's really the consumer behavior has changed and they're just using these, you know, this way of commerce than what they were doing in the past.

Got it. And I guess like going back to one of the earlier questions about the guidance, I guess we're a little surprised that the EBITDA guidance was you guys kind of blew it out of the water this quarter. I guess we might've expected the guidance to move up as well. And I guess, is that a function of the investment cadence or you guys mentioned the revenue earlier, but I guess like why wasn't the HSE moved up significantly?

It's indeed because of the investment cadence and the growth opportunities we see on the horizon. We expected to invest more in the first quarter. So a big part of the upside on the bottom line was just due to the pace at which we could deploy capital. And part of that impacts the number of quota carriers that we brought on board. We certainly intend to continue focusing investments in that regard in the second quarter and beyond. So we think we will still spend what we expected during the remainder of the year.

Our next question will come from Mike Latimore with Northland Capital Markets. Please go ahead. Great, thanks.

Yeah, great quarter. Just on that sales headcount, are you – I think you would expect it to get set to about 110 by year end. I guess is that still the goal? I think there was also some thought you would invest a little more heavily in the mid-market, and is that still the idea? Yeah.

Yeah, both are still the goal. Most of the additional quota carriers we intend to bring on and up to that 110 marker throughout the year would be in the mid-market.

And why focus on mid-market when enterprise is going so well here?

Well, we have a good engine for enterprise right now. We have a lot of support from the partner network, and, of course, we've refined our The playbook for GainShare, which is also landing deals in the enterprise. We see an opportunity to move up market within mid-market, and that's what we're pursuing.

Our next question will come from Steve Enders with KeyBank.

Please go ahead. Hey, this is Jack. I'm for Steve. What kind of adoption are you seeing on the payments opportunity within your customers so far, and how do you plan to monetize these capabilities?

Yeah, as I mentioned, I gave two examples of it. So, yeah, so we're rolling it out. And on the pure monetization, it's tied right now to an interaction for our CPI pricing. So it's just driving more usage on the platform. And it's also just a great experience, like, for the consumer and the brand. It used to be these clunky, secure forms. And now it's a very integrated way to take a payment within the messaging platform. But it's going to burn down dollars on the CPI pricing.

Okay, great. And then one follow-up. How are your recent channel initiatives with Emphasis and Tech Mahindra progressing? And how do they evolve these types of customers that you can target?

We feel good about it.

As we noted – go ahead, Rob.

Sorry, John. You know, we feel very good about what's going on with them. We also, like, we opened up some consumer packaged goods companies, which is not traditional for us, but is traditional for them. There's some internal help desk stuff that, once again, is not traditional for us, is traditional for them. So we're seeing some good traction out of the gate with them. It's a little bit more than out of the gate, and we're focused on it. So we feel good about where we are with them. But they're opening up different than the normal ones we are traditionally going after, which is really good. And as I kind of outlined the Duncan stuff, and what's happening now is conversational AI is being adopted beyond care, and it's being brought into many different use cases, even stuff that we didn't really envision back four and a half years ago when we launched it for the first company out of the gate. So it's kind of interesting. And they've got all these other different mix of companies that we don't that they are going after and they're doing really well with and then also outside the U.S. So it's quite – I see it as quite impactful over the mid and long term.

Our next question will come from Jeff Van Ree with Greg Hallam. Please go ahead. Thank you.

Yeah, two for me real briefly. Rob, in terms of the competitive landscape, just how has it changed? And I'm particularly interested in the fundamental differentiators when you get to the finalists, the final, final stage of the bake-off. You've got to boil it down to one key feature function of the platform. What is it that gets you over the threshold and gives you the win?

It's automation. It's the AI capabilities and automation. That's what brings value. Obviously, we still have the best messaging platform in the world, and it connects to every messaging front end and It's truly asynchronous, but it's really the ability to automate conversations because most of the engagements we're doing right now, they're all AI-led. They all want to automate conversations. They just don't want to do human-to-human conversations.

Got it. And then on the deal counts, I mean, obviously the ARPUs are surging, and your customers that are getting on board absolutely seem to love the platform from your numbers and from our checks. The offset to that is the deal counts are down. I know the prior marketing model was the big weekend events at a referral-based customer, and I think you mentioned some of the new initiatives starting to kick in. How do you balance the rise in the ARPU and drop in the customer counts? What's fundamentally driving that? Is it that change in lead gen that you have yet to mature to drive more leads in that mid-market? Is it a conscious focus really to stay at those Fewer deal counts but much larger deals. What's the balance there?

Hey, Jeff. It's really driven by strategic changes to our go-to-market motion for mid-market and small businesses. Within mid-market, we're seeking higher entry points, as I mentioned earlier, and that's resulting in higher annual contract values but also lower deal counts. And so that dynamic would increase ARPU, increasing the numerator and reducing the denominator. For small businesses, as we discussed last quarter, We launched the marketplace strategy to efficiently deliver the conversational cloud to literally tens of thousands of small businesses at scale, and that's taking place today. And when we sign these deals, it's really with a single marketplace entity, not the tens of thousands of businesses that are actually getting value from the conversational cloud. And it's a similar dynamic with our partner network. You know, the deal counts generally will reflect the agreement with the partner rather than all the end customers that they sign up. So all of these factors are contributing to the ARPU dynamic as well as the counts versus the total annual contract values.

I will add that I do think we're leaving money on the table in the small business. And so we're seeing such demand for large scale, you know, and it's exciting for us, these messy implementations in AI that we want to do you know, hundreds of millions of volume, you know, on our platform in the years. And so I think we're leaving money in the small business. And so, I mean, I think we're going to start to look there. There's definitely, there's a lot of demand everywhere right now, especially like messaging. So, you know, I think we're going to get a little bit more aggressive there, but right now we're optimizing for growth and big slugs of revenue and big, big implementations that have an impact on our customers in the world at large. And, you know, that's kind of our focus. But I will say there's definitely opportunity down in the small business. We moved our mid-market up. I mean, our mid-markets could be a million-dollar deal. You know, so our mid-markets are not, you know, $10,000 a year or 100 grand a year. There are some of them. But we've moved it up because they're good sellers. They're really good sales folks. And they're able to go after these larger opportunities. but they're still mid-market to us because then the enterprise went up even bigger. So everyone's just sort of moving up, but I think there's money on the table on the small business that we should go after.

Our next question will come from Ryan McDonald with Needham & Company. Please go ahead.

Hey, this is Alex Naram on for Ryan McDonald. Thanks for taking my question, and congratulations on the quarter. Could you talk a little bit more about the mix of bookings that came from direct versus indirect channels?

Yeah, so there are clearly some big drivers coming from our channels. As we mentioned, Emphasis started to close deals within a growing pipeline for the first time this quarter. We also landed a seven-figure deal through our partner network. And on the direct side, obviously the balance of those seven-figure deals, so that can give you an indication by direct and partners. So we've got eight seven-figure deals for the quarter.

Okay. And then could you talk a little bit more about the strength that you saw internationally?

Yeah. So as I mentioned, international growth was contributed to both by APAC and EMEA, APAC-led growth in that regard. Within EMEA, though, we continue to accelerate beyond the fourth quarter. We also closed two seven-figure deals in that region, one expansion and one new logo.

Our next question will come from Peter Levine with Evercore ISI. Please go ahead.

Hi, this is Rod Red on for Peter. Congratulations on the quarter, and I appreciate you taking the question. I wanted to loop back to the first topic on payment, are you able to touch more broadly on any updates on the product, any initial feedback from beta customers, and something about your go-to-market strategy that you're able to share?

Yeah, as I mentioned before, it's in the market now, and I talked about two use cases when I was doing my initial script. So, yeah, so we're out there with it. We're going to charge a DAR for it as the business model. We're now working with more customers. We're actually now expanding the voice payments so we can do in a voice conversation, take a payment. So we're expanding into outside the messaging channel into that channel. So, yeah, we're continuing to drive that capabilities. We've also, as some of you know, is we launched a digital bank called Bella. which is also an extension, it's more than an extension of this platform. So we actually have a credit card in the market right now, a Visa card, and that's connected to a conversational bank that we built. And then the connectivity to payments overall. So we have a vision here that these customers who end up using their credit cards on our platform it'd be also great to have them become a banking customer to us and use our credit cards. So we built more than just a payment system, which is running. We also built the banking platform to support the use of our own credit cards, our own savings accounts, our own checking accounts. And so that's also in the market now too. It's been in the market for 90 days, well over 90 days.

All right, thank you.

We've reached the end of our call today. I'd like to turn the call to Rob Lacastia for closing remarks.

Thank you. And, you know, just to give you a few perspectives, as we executed on our vision, our financial outlook is obviously sharply improving. We've had now four consecutive quarters of 25% plus growth, four consecutive quarters of double-digit margin, and three consecutive quarters of reaching the rule of 40. And I think all this demonstrates our ability to enhance operating leverage while aggressively growing the business. We're now seeing also an expansion of use cases outside of our beachhead in customer care, from Dunkin' to automotive to healthcare to even in-home rapid COVID testing, which is a testament to the conversational cloud being the leading conversational AI platform in the world. And I want to thank the team for just having an exceptional quarter. Obviously, this is 38% growth is the highest growth quarter we've had in the history of the company. And, you know, it's not just that we have an awesome platform, which the engineering team has done a great job with and they continue to do. We also have a great go to market and our grow organization is really executing quite well and working with our customers. There's just so much opportunity right now. It's like every quarter is like a new adventure for the company. Like there's just, like this city thing that popped up. And they were like, look, we want to get our employees back to work. Can you help us? And you do such a good job with our customers. Can you get our employees to test and bring them back to work and take these tests using a conversational AI? And we did it within weeks. We have our conversational bank out there. So as a company, we're not this one-trick pony, just in care. Care was our beachhead. But we really now are at this inflection point. of seeing this type of technology go everywhere. And our ultimate goal is one day to put something in the home, something that will rival an Alexa. And we're starting, you know, working on voice and working on how we can create some innovations to make voice automation something really cool and powerful. So with that, we'll see you in Q2, and thank you for all your support. Thank you.

The conference has now concluded. Thank you for attending today's presentation.