LivePerson, Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to LivePerson's first quarter 2024 earnings conference call. My name is Judith Van Rieter and I will be your conference operator. At this time, all participants are in listen-only mode. After the prepared remarks, the management team 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 John Barracchio, Senior Director, Investor Relations.

Please go ahead. Thank you, Judith. Joining me on today's call is John Savino, CEO, and John Collins, CFO and COO. Please note that during today's call, we will make four 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, May 8th, 2024, 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 in the comments made during this conference call, as well as in 10-Ks, 10-Qs, and other reports we file with the SEC. We assume no obligation to update any forward-looking statements. Also during this call, we'll discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release. Both the press release and the supplemental slides, which include highlights for the quarter, are available on the Investor Relations section of LivePerson's website at ir.liveperson.com. With that, I'll turn the call over to LivePerson's CEO, John Sabino.

Thank you, John, and thank you all for joining us today. Before providing a detailed update on the business and our strategy, let me briefly preview where we are in our transformation journey and what we have delivered since the last time we spoke. One of my first priorities in coming into the company was to establish a clear and transparent plan to align our efforts and people with the key focus areas necessary to improve our business performance and deliver profitable growth. We formalized and launched this plan in February and are measuring and tracking how we are progressing with our plan across the business. Another priority was strengthening our capital structure. As we discussed during our last call, giving the market and our customers confidence that LivePerson is a long-term partner by proactively addressing our debt profile remains a top priority for the company. In our first quarter, we repaid in full the outstanding $72.5 million principal amount of the 2024 notes. In addition, we have spent a great deal of time on the topic of the 2026 notes in recent weeks and currently expect to have an update with respect to these efforts this month. The last priority I will briefly discuss is how we are improving our go-to-market capabilities. I've now met with well over 100 customers, having discussions consistent with what I shared with you on our last call. Customers continue to value our products and are excited to partner with us in their digital transformation. Additionally, I have learned that there are a number of customers interested in partnering with LivePerson in a bundled offering with Voice. And to that end, we will soon be announcing a strategic partnership with our major global CCaaS player that I will detail later in this call. Lastly, we continue to revamp our go-to-market motions by instituting processes that provide greater visibility into our customers' health and adoption. We're rolling out new pricing and packaging, and we've hired a new chief revenue officer. So now that I've shared a quick summary of our progress since the last call, let me update you briefly on our first quarter results. Revenue in the first quarter was 85.1 million, above the high end of our guidance range, driven by successful efforts to retain at-risk customers during the quarter. And adjusted EBITDA was 0.5 million above the midpoint of our guidance range, as a result of the actions the company has already taken to reduce costs. John Collins will provide more detail on financial results in his section, but I wanted to briefly highlight that we achieved what we set out to do this quarter. Additionally, the cost actions taken in the first quarter allow us to maintain our full-year guidance. These financial results and the maintenance of our full-year guidance represent an important first step in the execution of our strategy. Now I'd like to take some time and detail the three key focused areas of our transformation strategy that I laid out in our fourth quarter call. First, let me discuss our capital structure in combination with the cost reductions made in the quarter. As discussed earlier, in the first quarter, we completed the first step in improving our capital structure by repaying the outstanding $72.5 million principal amount of the 2024 notes. Going forward, we are actively focused on addressing the 2026 notes as a pivotal part of strengthening our capital structure, and we currently expect to have an update on that front shortly. I want to be clear. that giving the market and our customers confidence in LivePerson as a long-term partner remains a top priority to support our return to growth and delivery of shareholder value. In addition to these efforts made on our debt, an update we hope to give you soon, we have continued to lower our cost structure to further improve the financial profile of our company. Given largely by a reduction in force, over $30 million of in-year costs were removed from the business. These sustainable cost actions still allow us to execute our strategy, continue to innovate, and while improving our financials with a right-sized cost structure for our company. Second, let me update you on our go-to-market motion. On our fourth quarter call, I discussed the need to bring in new talent with experience in managing these types of turnarounds at scale and the appointment of a new chief customer officer and a VP of sales operations. Today, I'm excited to communicate that we have hired a new chief revenue officer. experienced in scaling commercial capabilities, and engaging with large SIs, partners, and hyperscalers. We will formally announce this person later in the month. With our new Chief Revenue Officer on board, we will have a streamlined go-to-market team that puts our commercial organization in a position to execute both on expansion and retention, while also focusing on generating new business. Now for a quick update on the news. I want to reiterate that it will take time to see improvement in results, but I want to be clear that operational improvements have already been made. We now evaluate our customer health at a more specific and tactical level than we have in the past, allowing us to better serve our customers and retain them. In addition, we have implemented rigorous structure and forecasting into our customer success organization, refocused resources onto our most impactful accounts, and launched success planning to create more value and better outcomes for customers. We are already seeing the improvements in retention and expect them to improve in subsequent quarters. John Collins will provide more detail on this later in the call. Next, I would like to discuss pricing and packaging. Last quarter, I shared we would be introducing new pricing and packaging strategies to make it easier for brands to purchase our products. I am happy to update that we have begun rolling out this new strategy as a pilot with more than 30 accounts tagged to participate. and active discussions already underway with several customers and prospects. LivePerson's new pricing and packaging is extremely simple and streamlined, with good, better, and best packages that showcase our innovation. Services will be bundled into the price, along with key features, analytics, and integration. Unlike most other vendors, LivePerson will only have two pricing meters with almost no add-on cost. so that contracts will be easy to scope with no surprises. LivePerson also orchestrates other conversational technologies and allows brands to bring their own LLMs and third-party AI without occurring additional costs. I am very excited about this strategy and have confidence that it will drive velocity into our sales cycles and increase win rates and also improve retention. We plan to make this pricing and packaging generally available to the market in the back half of Q3. Lastly, in go-to-market, we shared our strategy was to drive partnerships at greater velocity, specifically with the desire to integrate with voice providers to give our customers a 360 view of conversational data. I am proud to say that very soon we plan to announce a strategic partnership with a major global CCaaS player to power a unified, best-of-breed, omnichannel suite like nothing else in the market today. Unlike surface-level partnerships common in our space, The intent of this partnership is to include deep integration of the products at all levels, true alignment of our field and customer success teams, and activation of our joint partner networks to maximize reach and client value realization on a global scale. We believe our joint partner offering will leapfrog the competition in terms of innovation by enhancing the entire product suite with marketing leading digital, AI, and conversational intelligence capabilities. LivePerson will gain an integrated enterprise-ready voice channel to enable a complete omni-channel experience for our clients, as well as access to an install base of contact center agents nearly 20 times the size of our current footprint, and a network of more than 5,000 channel partners and a scaled GTM operation in several key regions around the world that are untapped today by our existing geographic footprint. We are very excited about this opportunity of this partnership, and we will be able to discuss more about it in the near future. This brings me to our third area of focus that I discussed as part of our transformation strategy, extending our advantages in product integration and orchestration. On the last call, we discussed four product initiatives, voice integration, extracting value with technology that customers already have, the ability to orchestrate all bots on the platform, and improving the messaging experience in our top channels. First, in addition to the CCaaS partnership, which we will announce very soon, we are continuing to provide AI and automation through the voice channel. In Q1, we went live with voice AI for a leading airline and a leading provider of solar power. We also released our voice capture capability, which allows customers to easily ingest voice calls into our conversational intelligence platform and suggest areas for efficiency and improvement with voice AI. Second, on extracting value with the technology customers have today, LivePerson continues to be one of the few companies deploying generative AI at enterprise scale. And we are seeing strong progress in both new logos and renewal deals. We were one of the first companies in our space to market with generative AI in May of 2023. And since that launch, nearly half of both renewals and new logo volumes have included our generative AI products. We have nearly 60 customers using generative AI today at scale, with nearly a third powering 50% or more of their conversation volume. We only expect these numbers to accelerate as enterprises become more comfortable with the technology. We also believe that our pricing and packaging strategy will further accelerate this and allow more of our customers to experience the benefits of the technology. Now I'd like to turn my attention to our efforts regarding orchestration. We understand that most enterprise brands are already using several LLMs, and increasingly, the challenge is how to integrate, orchestrate, and optimize those models across the business with consistency. So we have introduced new functionality to our bring-your-own LLM capability. Brands are already able to integrate third-party chatbots with live persons. But this release allows them to integrate their preferred LLM providers from OpenAI, Meta, Cohere, and Google into their live person box. This mitigates the risk of AI vendor lock-in. And by consolidating with the live person platform, it ensures greater control over the customer experience. Our new pricing strategy will also make it more affordable for brands to use their chosen LLM providers with live person and grow the return on their AI investment across the board. And while we continue to make investments in generative AI and train our own models against customized use cases to address specific customer needs, we believe the bigger opportunity for live person and AI is managing, optimizing, and orchestrating all LLMs, no matter the vendor, within our product and alongside our generative AI capabilities that we provide today. In addition to bring your own LLM capability, we have launched AI rewrites which allows agents to generate improved responses with a single click. Customers using this feature have seen 10-point improvements in NPS, with over 95% of messages sent having better outcomes with this capability. And lastly, we launched social orchestration for Amazon Lex, continuing our goal to allow seamless handoffs across any channel and any bot platform. We're confident that these capabilities will ensure that LivePerson remains a market leader in the next generation of AI capabilities for its customers. The final initiative in this focus area was to improve our messaging experience within our top channel. And in Q1, we made fundamental architectural improvements to our web channel that resulted in customers seeing up to 50% performance improvement. This has created a strong foundation for future innovation and improvements in this channel. And it paves the way for key renewals with some of our largest enterprise customers. So to summarize, we are extending our advantages in all areas of product orchestration and integration capabilities. We're improving our voice integration, increasing functionality to bring your own LLM, and improving messaging performance. And this is just to highlight a few. In addition to all the announcements I just mentioned, I welcome you to join us virtually on May 23rd for our Spark product launch event, where we will unveil even more functionality we are bringing to our product. Finally, I wanted to share that in spite of the headwinds and challenges we have faced, LivePerson continues to be recognized by analysts and the media as a relevant player in digital customer service and conversational AI. We were named a strong performer in the Forrester Wave conversation automation solutions for B2B in Q1 of 2024, which marks the eighth time that LivePerson has been recognized in Forrest's research over the last 12 months. And LivePerson was named the Fast Company's Procedures List of the World's Most Innovative Companies for a third time. We were recognized in the Applied AI category, which honors companies embracing AI to reinvent how business is done. So I want to extend congratulations to everybody on the LivePerson team, and I want to thank all of you for your commitment and dedication to our customers and company. So in summary, as I sit here today, approximately four months from the day I joined, I've only gained confidence since the last time we spoke that the transformation strategy we are executing on today will lead to a future of profitable growth for live persons. In the first quarter of our new strategy, we delivered on the guidance we provided and right-sized our cost structure. We progressed on our efforts towards improving our capital structure and currently expect to have an update on that later this month. In go-to-market, we've made substantial operational changes by bringing in new leadership, simplifying pricing and packaging, and we plan to imminently announce a strategic partnership with a major soap global CCAS company, in addition to increasing our strengths with product orchestration and integration. As we have outlined, we are rapidly executing in each area of that strategy, and I look forward to updating this audience on our execution and positive trajectory in future earnings calls. Now, let me pass the call to our CFO and COO, John Collins. John, over to you.