LivePerson, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's first quarter 2022 earnings conference call. My name is Kyle, and I'll 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 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 call over to Ms. Jamie Goldstein.

Thank you, Operator. Good afternoon, and thank you all for joining us today. On the call with me are Rob Lacascio, LivePerson's 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 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 non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures are included in today's earnings press release, where applicable. Both the press release and supplemental slides, which include highlights for the quarter, are available in the investor relations section of LivePerson's website. Finally, I'd like to remind everyone that we are here today to talk about our first quarter of fiscal year 2022. As you may be aware, a shareholder has announced its intent to nominate candidates for election as directors at the company's 2022 annual meeting of stockholders. The company intends to file definitive proxy materials relating to the 2022 annual meeting in due course. Stockholders of the company are strongly encouraged to read the company's definitive proxy statement, the accompanying proxy card, and all other documents filed with the SEC carefully and in their entirety as they contain important information. Information regarding the identity of the company's participants and their direct or indirect interests by security holdings or otherwise. will be set forth in the definitive proxy statement and other materials filed by the company with the SEC. Stockholders may obtain copies of these documents for free through the company's website or through the SEC's website at www.sec.gov. We will not comment further on this matter on this call. We appreciate you keeping your questions focused on my person's performance and results. And with that, I'll turn the call over to Rob. Rob?

Thanks, Jamie. Thank you for joining Y-Person's first quarter 2020 earnings call. We had a very strong quarter, and what you will hear from John and myself will reinforce the progress and improvements we are making to the overall business and our focus on profitable growth goals and our continued leadership in the AI space. We beat both top and bottom line guidance for the first quarter. Revenue and adjusted EBITDA exceeded the high end of the guidance range, with revenue growing 21% year-over-year to $130.2 million, and adjusted EBITDA loss of $17.6 million, $4.2 million better than the top end of our guidance range. These strong results were driven by both higher revenue and greater operational efficiencies. We signed five seven-figure ACV deals plus two additional eight-figure TCV deals. Overall deal count was solid, up slightly year-over-year. Many of these deals were very large upsells with existing customers, driving ARPU to increase 32% year-over-year as we continue to execute on our successful land and expand strategy. These achievements illustrate strength across the business and clear proof points of execution on the key strategic and operational priorities we announced heading into 2022, including our profitable growth plan, which we've been focused on since the beginning of the year. We are confident that our laser focus on these priorities will help us maintain our industry-leading position, strategically deploying capital to generate shareholder value and get more leverage on the business model. As John will cover in his remarks, we're also improving our Q2 and full-year 2022 guidance for adjusted EBITDA to reflect operating cost realignment. And we now have line of sight to generate free cash flow by Q4 2022. John and I are excited to share more details about the progress on our Q1 priorities and our plans to continue executing on them through 2022 and beyond. We continue to see robust platform usage during the quarter with conversational cloud volume growing 34% year-over-year for AI-based messaging conversations and 27% year-over-year for total messaging conversations. As platform usage grew, so did our brand relationships. As noted at the beginning of the call, the first quarter's strong execution reflects the great progress we're making as we focus on the key strategic and operational priorities we talked about on the previous earnings call. One of these initiatives is our continued focus on evolving and adapting our go-to-market strategy to align with our goal of profitable growth. We spent the last few quarters focused on building and ramping an extraordinary sales team, and I think in the next few quarters, we'll see an increase in traction as the team's capacity starts to grow. Our land and expand strategy continued to bear fruit as we renewed contracts and some of our longstanding brands and leveraged existing relationships with new logos. We closed an eight-figure TCV renewal for care and commerce with a multi-billion dollar North American satellite radio entertainment company during the quarter. In 2019, we began our partnership with this brand by providing them with IVR deflection capabilities to help manage the 24 million calls they receive each year. Since then, we've become an integrated partner, leveraging our platform and gain share model to support them in their mission to offer frictionless experience through the entire customer journey, whether a customer is signing up for a free trial or transferring an ongoing subscription to a new device. This deal represents an expansion with the brand across multiple core conversational cloud capabilities, including, in addition, our voice analytics products. It's a great example of the product synergies and market traction we're already seeing as we execute our strategy for the voice assets we acquired towards the end of last year. We also expanded our partner-led relationships with one of the largest automotive manufacturers in the UK. This brand has been leveraging the conversational cloud to enable a high-quality messaging experience through almost every channel to manage conversations among brands, its retailers, and its customers. In Q1, we added an AI virtual assistant to assist retail technicians by suggesting methods to resolve vehicle issues immediately, rather than involving human agents from the OEM. Going forward, we're also working to help increase engagement with the efficiency of their HR processes, as we evolve their HR FAQ chatbot into an AI-powered virtual agent, providing 24-7 assistance to their employees. This expansion is a great example of execution on a strategy to drive greater leverage in our go-to-market model, with continued focus on our indirect distribution channels. We also secured a renewal with one of the largest and biggest standing game share customers of the quarter. Renewal, which converts about 90% of the customer spending into recurring revenue for live person, was driven by the volume messaging we support for the brand, the strong customer satisfaction they're seeing using our platform, and our automation capabilities. We continue to make headway in the growing Web3 space and have quickly become the go-to messaging provider for customer care in this vertical. including having one of the largest Web3 exchanges and also one of the largest Web3 wallet providers as a customer. During the quarter, we closed a three-year renewal with ConsenSys and are powering their customer engagement offering for their MetaMask wallet. As their MetaMask wallet grew from 5 million monthly active users to over 30 in just one year, they're looking to accelerate customer support capabilities to meet consumer needs. We started with a consumer support bot to help users quickly access content to help resolve their needs faster without back and forth on email. The live person and consensus teams continue to collaborate on optimizing the AI automation, which now reduces support wait times by 93%. Consensus is quickly expanding to use our entire product suite into some of their lines like NFT platforms and leveraging other bots beyond what they're doing with the wallet. We also expanded our relationship with one of the largest crypto exchanges during Q1. They are now expanding to new international markets, and we should see continued growth from them over the next few years. Some of our international markets, especially in LATAM and APAC, are also seeing more traction with new logos. In LATAM, with a distribution partner, we closed an exciting new win with a government agency in Argentina. The government agency built an online portal to help its citizens access education and reduce the country's unemployment rate to increase traffic on the portal. They've been using our messaging capabilities to send 300,000 proactive outbound messages per month via WhatsApp and enable citizens to continue the conversation over WhatsApp to register for educational courses. As of now, close to 60% of the proactive messages are reaching their target audience, a number which government considers to be a huge success. This story, along with many others, highlights on this call represents an incredibly wide span of use cases and projects that can be built on the conversational cloud. In addition to these wins, I want to highlight that we were thrilled to have hosted the return of our popular in-person executive community events last week in New York City. We had close to 100 participants from many of the leading consumer brands in North America, of which approximately two-thirds were new prospects and one-third existing customers. Several of our top brands in the healthcare retail software industry hospitality spaces presented on stage about their successes in working with live person, and how they're leveraging our AI platform to drive automations across many different powerful use cases. It was our first large customer event since 2019, and these events in the past have proven to drive meaningful deal flow. We're hosting another one in London in a few weeks, and we'll add events during the year in alignment with the impact in sales pipelines. Beyond our achievements and strength in our core messaging business, we're focused on two main areas of platform expansion. The first is extending our platform to include voice and voice AI. As you know, brand-to-consumer conversations take place today across both messaging and voice channels. We're executing on our strategy of bringing a powerful, unified AI-based consumer experience across both voice and messaging. We've been organically building the foundations of voice natively into our platform, and then made the acquisition of VoiceBase to accelerate high-quality voice analytics and natural language understanding, or NLU, within our platform. The power of the combined live-person voice-based solution is demonstrated by a global technology and business services client that uses VoiceBase conversational insights to increase conversion rates by 104% and inform real-time agent assist and coaching that reduces agent attrition by 39% in just four months across both voice and messaging. The second area of focus is extending our platform so that it can be fully integrated into critical third party systems that exist in the enterprise today. With the acquisition of Tenfold and our integration hub, we can now help companies connect with the conversational cloud with hundreds of integrations. And we're leveraging Tenfold's flexible user interface to extend our core messaging capabilities into other agent workspace and CRM platforms like Salesforce and Microsoft Dynamics. The focus of this acquisition is to integrate across a myriad of technology applications so we can greatly expand the amount of use cases we can automate for brands. A good example is a Fortune 100 software company that leveraged Tenfold across their global services operations to integrate Genesys, Microsoft Dynamics 365, and ServiceNow. By connecting customer communications into their consumer data and case management systems, They eliminated 30 to 57% of manual steps across dozens of common call scenarios for thousands of agents, leveraging Tenfold's contextual UI and workflow automation capabilities. Another benefit of the Tenfold acquisition is that we have strengthened our team's expertise in developing a strong technology partner ecosystem. And the founder of Tenfold, or co-founder of Tenfold, is now heading up this team globally. This is important to us as we execute on our strategy to empower brands and partners to extend the conversational cloud with integrations and interoperability with a broader care and commerce systems. We are starting to see demand generation momentum with strategic technology partners, a new source of opportunity for live person consistent with the strategy we discussed previously to drive more leverage in our go-to-market motion through distribution and technology partners. As we announced last year, we have executed our strategy to bring together the expertise and technology of VoiceBase and Tenfold with our own voice offering. We're creating a uniquely unified, deeply integrated voice and conversational AI platform. We successfully launched the comprehensive global sales and name for Tenfold and VoiceBase, which expect to accelerate pipeline growth in Q2 and beyond. A key voice win for the quarter is a seven-figure multi-year deal with Atelco there's already expansion discussions with us to include other parts of their business. There's widespread demand for unified consumer experiences with a clear preference for brands that connect across channels and connect the history of their interactions. 87% of consumers prefer brands that connect voice and messaging together. We've already been leveraging voice-based and tenfold to help brands gain complete ownership and visibility over engagements across all these channels and drive scalable profitable growth for live person as we are cross-selling and up-selling into these opportunities. Now I want to turn to healthcare. Another strategic priority has been continuing to build out the healthcare vertical on our conversational cloud. As of today, it's our third-largest vertical behind banking and telco. Third-party research estimates that American telehealth market expected to grow to over 43 billion by 2026, at a CAGR of over 28% for software. and services. And just like customer care and commerce, we view the application of conversational AI to the healthcare vertical as a natural extension of our core platform. We've been expanding our position in this space over the past two years, signing four of the five largest health insurance providers in the US and the leading consumer health solutions company to build conversational AI services. And we continue to see a substantial opportunity to dive deeper into healthcare vertical, given the strong relationships with our customer base, increasing demand for conversational AI. In order to accelerate our healthcare offerings, we acquired a company called WildHealth during Q1. WildHealth was founded by a group of medical professionals and technologists who built an underlying AI-based medical data platform called Clarity, which uses machine learning algorithms in a secure and compliant way to gather consumer health insights. This platform is intended to underpin our overall healthcare offering so that insurance companies and other medical professionals who are key clients and prospects for us in the B2B healthcare vertical can use our core conversational AI platform to scale patient interactions. We see huge growth potential in this business and are excited to play a part in what we believe is the scalable technology-driven platform for the future of the healthcare space. In order to service the healthcare space, I cannot overstate the importance of having a leadership team with vertical IP expertise like Wild Health has today. I believe it will give us a path in becoming the best AI platform both for healthcare providers and insurance carriers so that they can use AI to drive a fundamental change in the broken flows of patient engagement. In line with this broader vision, our continued focus on the healthcare vertical during the quarter led us to expansion with a major online marketplace for health insurance in the U.S., as well as one of the top three health insurance providers in the UK. We're helping Bupa Global cut costs by converting some of the 430,000 customer service calls they receive each year related to referrals, medical guidance, and claim information to messaging conversations via their website and mobile apps. This expansion was driven by the excellent messaging experience reported by other brands in the Bupa family, particularly in the Australia region. In closing, the strength of our company can be found in our culture and the people who work here each day. I'm really proud to announce that LivePerson was recently named Fast Company's number one most innovative AI company in the world, as well as its number 21 most innovative company across all industries. LivePerson was also recently ranked as leader out of 19 vendors in Quadrant Spark Matrix for digital first customer care solutions. We were ranked number one. We also kicked off 2020 with the Golden Stevie Award for Best Contact Center Solution, and we were honored to once again be recognized on BuiltIn's 2020 Best Place to Work list, earning eight awards countrywide for our hub locations in New York City and Seattle. These are incredible accomplishments and testaments to the work that we have done to maintain our industry-leading position, pushing the cutting edge of conversational AI, and empowering brands to build entire businesses on the conversational cloud. These awards are also on the back of us winning Newsweek's top 100 places to work last year, reinforcing the strength of our company's culture and representing another proof point in our ability and agility to focus our investments in our people and our products. We continue to make progress and improvements in the overall execution of the company. I'm very excited about what happened in Q1 and what we're seeing coming up in the next couple of quarters. And with that, I'll now turn the call over to John, who can do a deeper dive on the financials and our guidance.

John? Thank you, Rob. In the first quarter, we executed on the plans we previously announced to adopt a balanced approach to growth and profitability. To that end, we delivered $130.2 million in revenue, or 21% growth year over year, which was $3.4 million better than the top end of our guidance range. As for profit, Adjust the EBITDA was $4.2 million better than the top end of our guidance range, despite absorbing the fully loaded costs of our fourth quarter acquisitions and go-to-market investments. The improvement in Adjust the EBITDA was driven by both revenue overperformance and optimization of our cost structure, including realizing post-acquisition cost efficiencies and narrowing the focus of R&D to prioritize core growth drivers, including messaging, AI and analytics, and post-acquisition integrations. As I'll elaborate on shortly, we expect the cost reduction program we initiated in the first quarter, which we're continuing to execute in the second quarter, to significantly alter our full-year profit trajectory by improving non-GAAP gross profit margin to at least 70% and by moving adjusted EBITDA into positive territory. Beginning with our reporting segments, within total revenue, B2B grew 22% year-over-year in the first quarter, and revenue from hosted software grew 27%. While revenue from professional services declined 3% year-over-year due to the timing of several in-flight projects, we expect a significant sequential and year-over-year increase in PS revenue in the second quarter. From a geographic perspective, U.S. revenue grew 27% year-over-year and represented 67% of total revenue, while international revenue grew 10% year-over-year and represented 33% of total revenue. Finally, growth in the consumer segment was approximately flat at 1% year-over-year. Consistent with past quarters, expanding our partnerships with existing brands is a key theme in the first quarter. We signed five deals worth at least seven figures in ACV in the quarter, four of which were expansions. As Rob noted, we also signed two additional eight-figure TCV deals. These large wins, including the eight-figure healthcare deal that we discussed on the last earnings call, drove RPO to a record $448 million, which was an increase of 23% sequentially and 35% year-over-year. Revenue retention was within our target range of 105% to 115%, marking the 19th consecutive quarter that this metric was within or above that range. Average revenue per customer improved $645,000 to $645,000, up 32% year over year, driven primarily by deep integration and sustained expansion in our enterprise base. Total messaging volume on the conversational cloud increased 27% year over year, and AI-powered messaging volume increased 34% year over year. on top of an extraordinary base one year ago. The continued growth was driven primarily by growth in travel and hospitality, financial services, telecommunications, and healthcare. Moving down to P&L, adjusted EBITDA in the first quarter was a loss of $17.6 million, driven primarily by the fully loaded costs of hiring and acquisitions in the fourth quarter. With a focus on profitable growth in the first quarter, we made meaningful improvements to our cost structure that contributed to the $4.2 million improvement relative to the high end of our guidance range. Cost reductions in the first quarter were primarily attributable to reducing non-core R&D and realizing post-acquisition cost efficiencies through the consolidation of general and administrative sales and marketing and research and development functions, in addition to shared hosting and infrastructure with our newly acquired company. We expect these improvements to our cost structure to be themes that continue to unfold over the remainder of the year and to be the primary drivers of positive adjusted EBITDA that we now expect for the full year. In terms of cash, we closed the quarter with $481 million of cash and cash equivalents, a decrease of $41 million from the previous quarter, which was driven primarily by capital expenditures and operating expenses, both of which we expect to reduce over the remainder of the year. I'd like to take a moment to provide an update on two variable lines of business that have had a significant influence on our growth and margins over the last two years. Beginning with gain share, as discussed on our previous earnings call, over 90% of the portfolio is now recurring revenue. and primarily secured by multi-year commitments, enabling greater control and visibility over the business and its impact on the broader P&O. As we indicated previously, we expected gainshare revenue would be 10% to 12% of total revenue in 2022, and this aligns with the first quarter results in our current four-year outlook. As for gainshare's impact on margins, because there is a ramp inherent in the gainshare model due to the reliance on agent labor to build bots and automations for customers, which is heaviest in the first nine to 12 months following deployment, we are targeting a long-term gross margin of approximately 60% for the gainshare portfolio, compared to greater than 70% for the broader platform. Regarding the other variable line of business, last quarter we forecasted a deceleration in our COVID-19 testing business due primarily to the January 2022 Supreme Court ruling blocking OSHA's anticipated testing mandate for employers. As discussed last quarter, we saw an abrupt end to our sales pipeline for this particular product line, and anticipated that testing revenue from our last material customer for COVID testing, Citi, would exit the P&L in the second quarter of 2022. We're reaffirming there have been no changes in this regard and that the guidance I'll discuss shortly fully reflects this step down from this revenue source. Considering the lower margin profile of the COVID-19 testing business, we expect gross margins for the broader P&L to improve going forward. I'll note that we're extremely proud that the platform helped one of the largest banks in the world safely reopen its branches and offices during the pandemic, and that the technology, innovation, and relationships we've built to deliver this solution are now enabling us, as Rob described, to drive expanded opportunity in the key vertical of digital healthcare. I'd also like to spend a few minutes expanding on an update for voice from an operational standpoint. We're leveraging our newly acquired voice and integration capabilities from VoiceSpace and Tenfold. And after enabling our global field with the knowledge and tools required to qualify and close voice-related opportunities, we're observing a meaningful impact on pipeline and expect this trend to continue. For example, in the first quarter, we closed a multi-year seven-figure deal with a Fortune 500 telco for voice analytics, expanding their initial use case with VoiceSpace from standalone redaction services to the full suite of analytics products. Further, we also expect voice analytics to enhance A large multi-year renewal was one of LivePerson's long-standing telco brands in this quarter. Building on top of the tenfold platform and its flexible embedded agent workspace, we're also launching an embedded messaging experience with the leading CRM platform in the second quarter. We expect this strategic integration to enable brands to benefit from the power of the LivePerson platform without changing their preferred desktop experience. We expect similar integrations to roll out in the coming months, adding new leverage to our go-to-market motion. Given the secular trends driving demand for analytics and automation, we're also focused on addressing what would proceed to be a critical gap in the market, an omni-conversational analytics platform. Through the combination of analytics capabilities across VoiceBase and the conversational cloud, we are providing a unified platform for consumer-based conversational analytics across a broad spectrum of channels. we're already working with a leader in back office automation to unlock process automation for the front office by combining their platform with our rich, structured consumer engagement data and analytics. Turning to four-year guidance, while we overperformed on revenue in the first quarter, much of the overperformance was attributable to the timing of revenue between the first and second quarter. For this reason, we believe that the guidance range we provided last quarter still appropriately captures the business and market dynamics visible to us today. As a result, we are reaffirming the full-year revenue guidance of $544.8 million to $563.3 million, or 16% to 20% year-over-year growth. As for guidance on full-year adjusted EBITDA, consistent with the strategy to deliver profitable growth that we announced last quarter, we have already taken action to optimize our cost structure and materially improve our profit trajectory. As a result, we are raising our guidance for adjusted EBITDA to a range of $1 million to $10 million or a margin of 0 to 2%, and we now expect to generate positive free cash flow in the fourth quarter of 2022. In addition, we are raising our guidance for non-GAAP gross profit margin to a range of 67% from a range of 67% to 70% to a new range of 70% to 72% for the full year. For the second quarter, our guidance range for revenue is $132.5 million to $135.5 million, or 11% to 13% year-over-year. Note that this year-over-year comparison in growth rates for the second quarter is a function of near record growth in the same period last year. As our full year guidance implies, we are expecting accelerating growth in the second half of 2022. As for adjusted EBITDA in the second quarter, our guidance ranges a loss of $9.5 million to a loss of $5.5 million, or a negative margin of 7% to negative 4%. As implied by our full year and second quarter guidance. We expect to generate positive adjusted EBITDA in the third and fourth quarters of 2022. Finally, consistent with our full year guidance, we are targeting a non-GAAP gross profit margin of 70% to 72% for the second quarter also. Before taking questions, I'd like to summarize several strategic themes that drove the first quarter's results and that we expect to continue to shape our performance for the remainder of 2022 and beyond. We are executing on the profitable growth plan we announced heading into 2022. We exceeded the high end of our guidance ranges for revenue and adjusted EBITDA in the first quarter and set in motion plans that we expect to drive meaningful improvements to full-year adjusted EBITDA, gross profit margin, and operating expenses, with an anticipated return to positive free cash flow in the fourth quarter. More specifically, during the first quarter, we executed on plans to achieve post-acquisition cost efficiencies, enhance leverage of our go-to-market motion, and reduce non-core R&D, strategically realigning our cost structure while preserving investment in messaging, AI, and analytics, and product and platform integrations, which we believe are core drivers of future growth. With successful post-acquisition integrations driving improvements on both sides of the P&L, building momentum across our core, including rapid expansion in our growing digital health vertical, and a new outlook to generate positive free cash flow in the fourth quarter and positive adjusted EBITDA for the full year, we're excited to continue focused execution on our strategy, and we're very thankful to the broader LivePerson team for their agility and commitment to excellence. And with that, operator, we can proceed to Q&A.

At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up. One moment, please, while we poll for questions. Our first question is from Ryan McDonald with Needham. Please proceed with your question.

Hi, Rob and John. Thanks for taking my question. Great to see the return of the in-person marketing events and some of the, I guess, good pipeline generation so far. As we think about the remainder of the year, what should we expect in terms of marketing events and You know, what confidence do you have that this can start to sort of rebuild the pipeline of new logo wins rather than just existing expansions? Thanks.

The event last week, I was at the event, obviously I opened it up, and they're pretty amazing events, as you know, if you've been with them in the past. Having our customers up in front and talking to each other and presenting information what they're doing just accelerates, especially the new logo. In three quarters, the people in the room were potential new logos. So I think it'll definitely do what it did in the past or has the potential to do that. I think obviously we're going to have one in London in a few weeks, and then from there we'll keep going if COVID doesn't prevent it. But you can see that when people come out of these conferences, they have a reassurance that, that working with us can enable them to do successful things. So I think we'll have the same impact as long as we can roll these out. At one point, we were doing, I think, close to one a month or so, you know, in 19. So we were using them as definitely a strategic weapon for go-to-market, and we'd like to return to that, but we'll see how it goes with everything with COVID.

Maybe just as a follow-up, Rob, you talked in more detail about the healthcare opportunity and it being a large vertical company. I mean, first on WildHealth, I think, at least from the website, it looks like they had more of a direct-to-consumer, go-to-market motion. Can you talk about the investments you need to make to sort of shift that to be more of a B2B offering over time? And then, you know, what sort of demand are you seeing from some of the large payers that you currently have as customers for sort of additional opportunity or selling motion there? Thanks.

Yeah, they already today provide their platform to other customers. medical professionals. So they have a platform, they license it out, and so that platform's there and that's the platform called Clarity. So we have this platform that takes the disparate data that comes off of a person's body and we can put all that into a single store and then create connections between that data and then provide conversational AI consumer experiences. When you get into healthcare, as probably many of you know, it's a different vertical than any other vertical we have. Having the right platform for the consumer data, having a way to bring that data together and do actionable insights into it is really at the heart of what we're doing. There is a direct-to-consumer play as part of that, and that's how they've learned how to build the technology they have. But that platform will be used as a core data platform using machine learning to correlate the data of the consumer for the entire healthcare vertical. So we're very excited about it.

Thank you. Our next question is from Mark Chappell with Loop Capital. Please proceed with your question.

Thank you for that question. Bob, before I get to this topic, Start off with a question on your international business. For a couple of years now, the company's been trying to raise its overseas growth rate to closer to that of the U.S., yet the international rate continues to lag the U.S. by about half. And I was just wondering if you could just give us a sense of why you think that is. I mean, would you attribute this slower growth just due to internal issues or matters, or would it be more of a structural issue with overseas markets?

I think it's just investments. Our largest market is still the North American market, and we put a lot into it. If we look at even what we're doing in LATAM, we fired that market up two and a half years ago. We have about in that entire market now, we have partners there. We have a robust group in the UK. We made an acquisition of EBOT7 that gives us feed in on the continent in Germany, France, and then we've got what we have in Australia, Singapore, and then Japan. So it's really investments into these areas and the North American market continues to be a focal area of ours when it comes to return on investment. We've seen a lot of volume in South America. So like Brazil as a country is a WhatsApp country and there's a lot of opportunity there on the WhatsApp messenger to power that and we're doing that. We saw the use case with the Argentinian government and what we're doing there. So I just think it's about a focus in investment, and we're probably going to hold where we are right now. Once again, focus in markets that are big. We are investing in these areas, but it's really about the focus in investment.

Great. And as a follow-up, with respect to the sales force, if I recall correctly, there were 144 quarter carriers at the time of the fourth quarter earnings call. How many quarter carriers do you have today, and where do you see that number going by you? It's a similar amount today.

Sorry, John, you want to hit that?

Go ahead, Rob. Go ahead.

It's a similar amount today. We are, you know, we'll probably add a little bit more quota carrying capacity because we're looking now into next year and what we'll need for next year. So there are more heads that we'll look to add. Not a tremendous amount, but enough to, you know, cover what we think we're going to need to build pipe today. to get to next year's goals. So we're looking at that right now, but it's pretty much steady state where we are. Okay, great. Thank you.

Thank you. Our next question is from Sidi Panigrahi with Mizuho. Please proceed with your question.

Hi, this is Abhinav on for Sidi Panigrahi. Great quarter. Just wanted to ask a question about what you're looking at in terms of the competitive environment for live chat, especially as you mentioned, looking to integrate your offering into a large CRM this quarter. We see HubSpot launching live chat. A few other small vendors launching as well. How are you thinking about a competitive environment looking ahead? Thank you.

Yeah, I mean, we've always had two sets of competitors. We have the call center companies that are primarily voice, and then they've added chat or messaging. We still have the best asynchronous messaging platform out there, It's very different than a chat platform, but we're competing with them. We're adding voice capabilities now into the platform to take the voice traffic. It's kind of a direct, going up to them directly at their core businesses. And then we've got the AI automation companies, which is Google and Amazon. And we partner with them. And sometimes they're inside of our platform. We deliver their AI by our messaging platform. Sometimes we compete with them. So those are really the two steps. I think the big change, though, is that in 2022, we actually, in 2020, we renamed the platform from LiveEngage to the Conversational Cloud. And we really envisioned that the conversational user experiences would be embedded as a platform in many different opportunities, even beyond customer care. So I think this year is really about that. How do we open the platform up? It's sort of a walled garden. It's got a lot of APIs. It's got a lot of tools. But our ability to open it up and even our tenfold acquisition was part of that because we want it embedded in many different other systems. Like, you know, we want to be inside of Salesforce. We would like to be inside of ServiceNow. And we can have our agent console inside that with the tenfold acquisition. So we're at a place in the maturity of the market where even our customers just want this stuff embedded in other systems beyond our own. So there's a big focus right now on... you know, extending the platform capabilities so that we go beyond just a vertical playing customer care per se.

Thank you. It makes a lot of sense. Appreciate it.

Thanks. Our next question is from Samad Sanana with Jefferies. Please proceed with your question.

Hi, this is Mason Marion on for Samad. Thanks for taking our questions. So if I'm doing my math correctly, guidance implies about 20% growth in the second half of the year for total revenues. Can you just walk us through kind of the key assumptions and factors, give you the confidence you can reaccelerate off the 12% you got into 2Q?

Yeah, the 12% in the second quarter is really just a function of hard comparables where we had near record growth in the second quarter of last year. Remember, we have sequential improvement from Q1 to Q2 that's roughly in line with past sequential improvement. And considering the ramping sales force that we've discussed previously, along with other tailwinds that we discussed in the context of voice, we have a clear line of sight today to accelerate from where we are in Q2.

Okay, understood. And you had a nice step up in RPO this quarter. What were the drivers behind this?

Yeah, continued signing of large deals, as we described, right? Large renewals, large upsells, and the eight-figure health care deal that we had discussed on the last quarter.

Okay, thank you.

Our next question is from Arjun Bhatia with William Blair. Please proceed with your question.

Hi, this is Chris on for art and thanks for taking my question. What are the digging a little more on some of the strategic rationale behind the wild health acquisition? So we've touched on a bit of on the product side where that fits in, but I'm going to, from a personnel standpoint, are you planning to retain the majority of wild health personnel and what role can they play? You know, as my person moves into some more technical healthcare domains like precision medicine.

Yeah, I mean, we're keeping the team. It's a little bit more than half technologists. So you have data science, engineering, user experience, and all that. And then on the other side, you've got the pure medical professional science because you're looking at the data of the consumer. So we are keeping it and we'll continue to grow it. And it is growing nicely as a group. It really is about health care. When you think about health care and customer care, there are They're quite similar. It's labor intensive. You know, humans talking to humans all the time to get advice, to get answers on their insurance. And it's all around a person's personal data. And so the system of health care is consumer personal data, their health care data. And the most important thing we can do is have a platform to store that data and make use of that and then provide these conversational experiences off of it. So I'm excited about it. Once again, the verticals are already our third largest vertical. We got four out of the five largest insurance providers. Precision medicine, what does that really mean? All that is about is the ability to take consumer data, a person's data, and use machine learning to correlate that data and make recommendations on that data. And that's at the heart of AI. And so they have data scientists, they got data engineers, and pure engineers, and that's why it's interesting to bring it into our platform, more than interesting because we're an AI company. And if you want to go after healthcare, which every AI company is doing that, if you know Nuance, obviously, before they were acquired by Microsoft, one of their biggest plays was in the healthcare space. And you could probably make a case that the reason they got acquired by Microsoft was just that, it was for healthcare, not their old legacy customer care businesses. It's the same here. We just see it as the second big vertical we can go after. And it's important for us to have a foundational group of people here that understand that because you can't wing healthcare, especially healthcare AI.

Great. Thank you. That's very helpful. And then, John, I have one quick one for you. So you mentioned the overperformance in the first quarter was a bit due to some deals closing a little bit earlier than expected. give us a sense of how much of the beat in the first quarter was related to that. And was that the right way to characterize it? It's, you know, it was deals that were just closing a little bit earlier, maybe right on the border of 1Q, 2Q. Thanks.

Yeah, there's some shifting in deal closures. And as I described, there's also the last remaining sort of testing revenue between it flowing into first quarter. And in terms of the total quantity, it would make up, Approximately the upside relative to our guide was the timing component. Great. Thank you.

Our next question is from Jeff Van Reet with Craig Hallam. Please proceed with your question.

Great. A couple for me. I want to go to the revenue growth and the timing around the acceleration. Maybe start With the combination of voice-based, tenfold, and wild health, about $400 million of incremental spend in terms of acquisitions, as you're now getting a little clearer look at 22, what do you think that collection of new names is going to add to the revenue picture for the year?

Yeah, hey, Jeff. Our expectation for the year is that the three assets will contribute mid-single-digit percentage of total revenue in the year. And that's approximately the same case for Q1 as well.

Okay. And then on the gross margin, that's a very material revision of the gross margin outlook. And if I look at what that implies for COGS for Q234, you're looking for not only stable, but it looks like declining. Just talk about what changed from the prior guide to this guide in terms of how you've been thinking about gross margins.

Just the speed with which we are able to execute on optimizing our cost structure. You know, we've had a a look at the P&L and there's a general tightening of expenditures and consolidation of vendors. We've reduced non-core R&D initiatives and some of the technology spend that also hits COGS. We've had post-acquisition cost synergies as well that hits COGS and a consolidation of hosting and infrastructure. So there's a wide range of initiatives that we delivered on in Q1 and that will continue to unfold throughout the remainder of the year that are driving those improvements to both gross margin and, of course, EBITDA.

Okay. And then I guess just two quick loose ends. On bookings, I know, Rob, you've talked until the new reps get productive, you're kind of tapped out in terms of bookings capacity and that most quarters had been roughly flat recently. I just want to confirm this quarter was in that same category, roughly flat year over year. And then, John, just on the numbers side, stock comp looks like it was up from $22 million in Q4 to $32 million in Q1. How should we think about stock comp going forward?

Yeah, I'll take both those, Jeff. So, yeah, approximately flat in that regard and regarding the increase in stock comp and general usage of shares. that's tied primarily to the upfront component of the wild health transaction, most of which was stock-based.

Okay. All right. Thank you. Thanks, Jeff.

Our next question is from Zach Cummins with B. Reilly Securities. Please proceed with your question.

Yeah, hi, good afternoon. Thanks for taking my questions and congrats on a solid quarter. I just want to start off by asking about the gain share program. I know you mentioned in your script that you converted most of those programs to 90% recurring now. Is that a meaningful change from what we've seen in the past? And does that present any sort of kind of near-term impact versus the potential long-term benefit we could see from an increasing recurring portion?

Yeah, it's definitely a departure from what we've seen in the past, but in a good way. In the past, most of the portfolio was entirely variable revenue, which increased variability of our broader P&L. Now, with over 90% of it being recurring and a function of committed multi-year contracts, that gives us a lot more visibility into the business while not reducing growth potential. there is still variable upside in addition to the strong base of recurring revenue that we have today. So in that sense, we've really just improved the overall structure of the gainshare business.

Understood. And then my second question is really around Updates on your go-to-market strategy, specifically with the mid-market. I know that was previously expected to be a bigger driver of you returning to more meaningful growth on the new logo side. So any sort of updates you can provide on that front would be helpful.

Yeah, we have focused... Go ahead, John. So we... Go ahead, John.

We're both remote in a different room. Exactly. Clearly, the physical event that we just held, marketing event for the first time since 2019, is a new and very welcome addition to our go-to-market strategy, which we expect to drive incremental pipeline and new logos. As Rob said, there was a substantial contingent of the audience at the event that were new logos. And depending on the metrics that we see coming off that event, we'll host more going forward, which of course is a tool that we have not been able to deploy in past years. As you know, we did invest, even though we didn't reach 200 quota carriers, we invest substantially in increasing our total quota carrier count. Last year, many of them are ramping as we speak. Some of those investments included increasing our total SDR team, and they have contributed meaningfully to pipeline generation in the first quarter and in the second. The other component here is the leverage we're gaining on our go-to-market motion through strategic partnerships. We've talked a lot about how Tenfold, right out of the box, can kind of port our core platform into other platforms, which, of course, is what many customers demand today. So these are all relatively new levers for our go-to-market motion that we're seeing traction with.

Understood. Well, great. Thanks for taking my questions, and best of luck with the rest of the quarter.

Thank you.

Thanks.

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

On the Q4 call, we were very clear about our goal to deliver sustainable, profitable growth, and I'm proud of our progress and execution of this to date, and the team is laser-focused on delivering on those goals over the long term. If we step back for a moment, what has made this company unique as we have the agility, even at our size and maturity, to adapt as we see market conditions change. With the short-term view, it's easy to confuse our adaptability and agility as inconsistency, especially during the past two years of significant global macro shifts. But I'd like to clarify how these abilities have unlocked shareholder value over the years, enabled our evolution of being named, recently, Fast Company's number one AI company in the world. Our strategy since the founding of the company has been to power digital conversations at scale. In 1997, we invented web chat and progressively evolved it to lead the industry as a feature-rich and mission-critical platform for the world's leading brands. We delivered another major innovation in 2016 with the creation of our asynchronous messaging system for brands. And then in 2018, we moved quickly to capture an even broader and deeper opportunity as a conversational AI company in which we now have over 1 billion conversations per month running on our platform, with over 70% of those powered by AI. So we went from a chat company to an AI company in short order. And leading requires an operating model that enables quick access into new markets, the agility to open and close down new initiatives, and the experience of knowing how to balance growth and profitability. Today, over 95% of our investments are put into customer engagement, care, and the core platform. We spend around 5% a year on new innovations, which were all intended to leverage the conversational cloud. So everything that we do connects back to growing conversational usage on our core platform in markets that we believe have high growth potential. For most of our 26 year history, we self-funded our technology initiatives through our own cash flow. And only recently did we raise capital so we could accelerate the development of our AI capabilities. We deployed that capital into both organic and some strategic acquisitions. Our acquisitions of Tenfold, VoiceBase, and WildHealth provide us with core technology to accelerate our leadership into core markets and business processes that would benefit greatly from better engagement, automation, and insights powered by our AI platform. Our focus will be integrating these acquisitions now versus looking for new M&A opportunities. Doing big things like winning the number one AI company in the world and multiple best places to work recognitions, even against the Googles and Amazons of the world, require a strong team and a strong culture to support the 1,700 talented and dedicated people who are focused on the constant improvement and progress of LivePerson. I want to thank everyone at LivePerson and the leadership team during these unique times and for staying focused on executing on our short, medium, and long-term goals and for delivering a beat on both the top and bottom line during Q1. With that, thank you everyone and we'll see you on the next call.