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spk02: Good afternoon ladies and gentlemen, thank you for standing by. Welcome to LifePerson's second quarter 2024 earnings conference call. My name is Irene and I will be your conference operator today. At this time all participants are in a lesson only mode. After the prepared remarks the management team from LifePerson 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 Mr. John Piracchio, Senior Director of Investor Relations. Please go ahead.
spk06: Thank you Irene. Joining me on today's call is John Sabino, CEO and John Collins, CFO and COO. 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, July 31st, 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 In the comments made during this conference call as well as in 10Ks, 10Qs and other reports we filed 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 the press release and the supplemental slides which include highlights for the quarter are available on the investor relations section of LivePersons website at .LivePersons.com. With that I'll turn the call over to LivePersons CEO John Sabino.
spk03: Thank you so much John. Thank you all for joining us today. Before providing a detailed update on our business and strategy, Let me briefly touch on where we are today and what we have delivered since our last earnings call in May. On our last call, we reiterated that addressing our 2026 convertible notes remained a key priority. We have since announced our deal with Lernerock Lake which closed in early June. This transaction has significantly improved our capital structure and has given our customers and partners confidence that LivePerson will be a long-term strategic partner. Moving on to conversations with customers, I have now met with over 200, doubling from the time of our last call. And I continue to hear that they value our product and want to partner with us in their digital transformation. I have also heard from a select group that we have an opportunity to serve them better, validating our focus on customer success, which has contributed to improve with the added rigor and process installed over the past two quarters. Customers have also expressed their excitement about our strategic partnership with Avaya, which I am pleased to report is on track with addressable opportunities building in the pipeline. More importantly, customers are excited about our pivot to embrace voice and Omni-channel, which aligns with our strategy to improve our -to-market motion with strategic voice partners and other strategic partnerships. Supporting our activity with customers and partnerships, we have also been able to roll out new pricing and packaging as GA well ahead of schedule, which I will discuss in greater detail later on the call. Finally, I want to acknowledge Sandy Hogan joining LivePerson as our new Chief Revenue Officer who started in early June. With decades of -to-market experience and a proven track record of driving significant growth, I cannot wait to see what she will bring to LivePerson. With our -to-market leadership team in place, our commercial organization is in position to execute on expansion and retention as well as driving new business. Now that I have shared that summary of our progress since our last call, let me update you briefly on our second quarter results. Revenue in the second quarter was $79.9 million at the high end of our guidance range, mainly driven by successful efforts to retain at-risk customers during the quarter. An adjusted EBITDA was $8.2 million above the high end of our guidance range, largely as a result of the actions the company has taken to reduce costs. John Collins will provide more detail on financial results in his section, but I wanted to reiterate that we achieved what we set out to do in the second quarter and that these results and the maintenance of our full-year guidance represents a second consecutive quarter of execution on our strategy. Now I would like to provide more detail on our progress in the three key focus areas of our transformation strategy. First is our capital structure. As discussed earlier, in the second quarter, we completed the first step in addressing our 2026 notes, which increased confidence with our customers who were renewing and expanding their business with us. Prior to this transaction, some of our largest customers raised concerns about LivePerson's viability as a long-term partner, but since the transaction was announced, customers have expressed confidence in strategically partnering with us, which has enabled key renewals. These included two of the largest telecommunications companies in the world, one renewal being in excess of eight figures, and one of the top investment banks in the world. We have a long way to go to systemically address our renewal challenges, but these renewals are a step in the right direction. Second, let me update you on our -to-market motion. As I have already discussed, the announcement of the transaction back in May has removed a significant hurdle in our -to-market motion. In addition, the operational improvements put in place with customer success are increasingly providing more value. The rigorous structure and forecasting has allowed us to be more strategic in the application of adoption frameworks and maturity models for our enterprise customers. These frameworks are purpose-built to deliver the highest return on investment by driving increased usage and adoption of the broader capabilities of our platform, including the ability to orchestrate several LLMs across BUs, use cases, and vendors. Highlighted earlier, our new pricing and packaging was launched GA on June 18, months ahead of schedule. The new pricing and packaging is extremely simple and streamlined with good, better, and best packages that showcase our innovation. Services have been bundled into the price, along with platform capabilities such as analytics and integration. Unlike most other vendors, LivePerson now only has two pricing meters with almost no add-on costs, so contracts are easy to scope with no surprises. It also allows brands to bring their own LLMs and third-party AI without incurring additional costs. In part, thanks to this new pricing model, alongside our strong product capabilities, we were able to win back and expand a major healthcare provider. This customer found that our straightforward, all-inclusive pricing structure provided significant value and faster scaling. We expect this momentum to continue in future quarters. I would now like to update you on our partner strategy. We have had dozens of enterprise brands leaning into our vision for a unified, omni-channel workspace that integrates LivePerson with -in-class voice solutions like the BIOS. But by unifying the agent workspace, analytics, and AI within the conversational cloud, LivePerson becomes the single pane of glass for brands as they navigate their voice to digital transformation. We anticipate a GA release of these capabilities by the end of Q3 and a rapid expansion of functionality and partnerships with more integrated CCAS vendors to come in the following quarters. This brings me to our third area of focus, extending our advantage in product integration and orchestration. Today, we have over 70 customers paying for generative AI, including 23 of our top 100 customers. The number of customers who have adopted generative AI has grown 20% since last quarter. Additionally, in the last quarter, we have powered over 6 million conversations with our generative AI capabilities, which is up over 165% quarter over quarter. Unlike legacy chatbot systems, which struggle with complex conversations and may often sound robotic, LivePerson's generative AI bots engage in a sophisticated, personalized interaction that drives business outcomes and helps agents provide better customer service. Our customers using LivePerson's generative AI capabilities report seeing higher customer satisfaction and improved operational efficiency. In the last quarter, the adoption of LivePerson's generative AI capabilities has grown significantly, and the highlights include a leading North American telecommunications provider deploying our AI co-pilot to now over 7,000 agents, a major European telecommunications provider reducing average response times by seven minutes and improving their net promoter score by five points. Another is a large retailer utilizing LivePerson's AI to cut operational costs by 60%, and a top 10 US credit union lowering their average response times by 20%. These results show that generative AI is getting deployed throughout our customer base globally because it's driving real world results. We also continue our track record of product innovation at our SPAR conference in May. During this event, we introduced several new AI innovations designed to deliver better customer experiences and increased operational efficiencies. Highlights from the event included bringing your own LLM, which allows brands to integrate their own large language models from Google, Amazon, and OpenAI and others into LivePerson. Co-pilot Rewrite, which refines agent messages for clarity and professionalism, helping agents achieve exceptional customer experience. We have generative AI routing agents that accurately understand customer needs and efficiently routes them to the appropriate resource, whether that be a bot or a human agent. And we've created data collection agents, which effectively gather information from customers, making the data collection process more efficient and accurate. The innovations launched at SPARC will help our customers remain at the forefront of generative AI in customer care. Over the next several quarters, the innovation coming from LivePerson will continue our focus on building more AI agents, improving AI co-pilot, and integrating voice into the LivePerson agent workspace.
spk01: Before handing
spk03: this call to John Collins, I want to reiterate that we are continuing to execute a multi-quarter turnaround that will take time to see the long-term results. I want to thank the LivePerson team for their strong commitment and the rapid execution on the transformation strategy that we've laid out in February. We continue to deliver the expectations we set by improving our capital structure and continuing to make strides and go to market by adding new leadership, launching new pricing and packaging, and advancing our partnerships with Avaya and others. We have also continued to increase our strengths in our product with exciting solutions to drive incremental value as we work with our customers to deliver their digital-first future. I look forward to continuing to update you on our progress in the quarters to come. Now, let me pass this call to our CFO and COO, John Collins. John?
spk04: Thanks, John. I'll begin with a brief operational update, followed by discussion of our financial performance and guidance. As previously announced, following the May earnings call, we closed the transaction with our largest nodeholder, Linoch Lit. That significantly improved our capital structure by enabling us to capture some of the discounted current market price of our 2026 convertible nodes, extend debt maturity schedules, and raise new capital to facilitate further deleveraging. With a stronger balance sheet, we are better positioned to meet the needs of our customers and partners for the long run and to accelerate value creation for shareholders. To this end, as John alluded to, the transaction with Linoch, reinforced customer confidence to renew and expand business with us in the second quarter. I would also like to provide a brief update on wild health. In the second quarter, we divested wild health, consistent with the expectations we set previously. Because the business was operating at a significant loss, the timing of this divestiture was accreted to earnings, saving an estimated $3-5 million in full-year expenses, which we previously accounted for in guidance. Note that live persons did not retain any interest in or obligations to wild health, which materially limits the potential for liabilities tied to future patient claims. In terms of deals and significant customer wins in the second quarter, we continued to build momentum. We signed over 37 deals, including nine new logos and 28 expansions and renewals. While the number of deals was down 8% from the first quarter, the value of these deals was up 58% sequentially. Expansions and renewals included a seven-figure upsell with a global financial services company and an upsell with a global audio streaming company. New logo wins included a large New Zealand-based telecommunications company and a large US mortgage company. As for second quarter financial results, total revenue was $79.9 million at the high end of our guidance range, driven primarily by -than-expected customer turnover. Wild health contributed $1.1 million to total revenue in the second quarter. With the divestiture of wild health, we do not expect any revenue or cost impact going forward, which was reflected in our prior guidance. Adjusted EBITDA for the second quarter was above our guidance range at $8.2 million, driven primarily by a one-time benefit from a vendor settlement and -than-expected revenue. Revenue from B2B hosted services was $67.3 million, down 17% -over-year. B2B core recurring revenue was $74 million, down 18% -over-year, driven by customer cancellations and downsells that we discussed in the first quarter. Professional services revenue was $12.6 million, down 23% -over-year, driven primarily by the same factors impacting revenues in hosted services. From a geographic perspective, US revenue was $57.3 million, and international revenue was $22.6 million, or 72% and 28% of total revenue, respectively. Average revenue per customer was $630,000, up 10% driven in part by expansions with our largest customers and also by customer turnover. RPO declined 13% sequentially to $283 million, driven again by the same factors underlying the decline in revenue. Net revenue retention was 83% in the second quarter, compared to 89% in the first quarter. As previously discussed, NRR is a lagging indicator of progress on our strategy, due to it being a function of in-period revenue. Given the size and timing of cancellations in the first half, we continue to expect revenue to decline sequentially through this year to the fourth quarter, as the full year impact of this customer churn is realized. In contrast to NRR, we view new annual recurring revenue, that is the net of annualized bookings and annualized churn, as a leading indicator of progress on our strategy. While still a negative value in the second quarter, new ARR improved from the first quarter to the second quarter, and we continue to expect further improvement in the third quarter. Finally, in terms of cash, we ended the second quarter with $146 million of cash on the balance sheet, inclusive of the proceeds net of transaction costs from the previously announced transaction with Lunar Waste. In terms of guidance for the third quarter, we expect revenue to be in the range of $69 million to $73 million. This is a sequential decline of approximately $9 million at the midpoint, which as discussed, is primarily driven by customer cancellations and downfalls in the first half, and to a lesser extent, the divestiture of wild health. B2B Core recurring revenue is expected to be approximately 92% of total revenue in the third quarter. As for adjusted EBITDA in the third quarter, we expect a range of $0 to $5 million. The sequential step down in adjusted EBITDA is driven almost entirely by the sequential step down in revenue. For the full year, we are maintaining our revenue guidance range of $300 million to $315 million. As for B2B Core recurring revenue, consistent with the third quarter, we expect it to be approximately 92% of total revenue for the full year. Finally, we are also maintaining our adjusted EBITDA guidance at a range of $15 million to $26 million, and we continue to expect the B2B business to be pre-cash flow positive for the full year. Before taking questions, I'd like to briefly summarize the progress we've made on our strategy during the prior two quarters. We've significantly reduced our cost structure and completed the wind down or divestiture of all non-core business lines, focusing the business and bringing it one step closer to sustainable generation of cash flow. We've onboarded a CCO and CRO who are accelerating the rebuild of our commercial operations. We've closed a transaction with our largest note holder that reduced our debt, extended maturities, and raised capital to facilitate further deleveraging, giving customers the confidence to continue renewing and expanding business with us. Collectively, this progress, coupled with ongoing investment into voice integrations and related partners, has strengthened LivePerson's foundation. We expect continued execution of our strategy to reinforce confidence in LivePerson as a trusted strategic partner for the voice to digital transformation of enterprise customer service. And with that,
spk01: I'll pass the call back to the operator for questions.
spk02: Thank you.
spk01: We
spk02: will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys. One moment please
spk01: while we poll for questions. The first question we have is
spk02: John Wenry of Craig Hallam. Please go ahead.
spk05: Hi guys. A couple for me. So just maybe if you start and either of the Johns, I guess, take your pick. But on the NetNew ARR, just expand a bit more on bookings and churn relative to expectations in the court. I heard them mentioned in passing, but I'm trying to deconstruct there. The churn meet expectations with churn a bit higher than expectations. I think I heard you say the bookings were ahead, but just retouch on that for a second if you would.
spk04: Yeah, Jeff, I'll start here. Broadly speaking, we were a little better on churn than we previously expected. And on the New Deals, while we were up 58% sequentially, that was a little lower than what we had previously expected. All in all though, New ARR improving considerably from the first quarter to the second.
spk05: And on the New Deal front, obviously there's some changes going on. New CRO, you're obviously pushing harder into partners. But with respect to the direct sales motion and win rates you're seeing, just talk a bit about the observation over the last six months and how that's trending.
spk03: I'll start, John, and if you want to add more detail, please feel free. So when it comes to new business, part of the reason we brought in Sandy Hogan is really to improve that partner motion and to rebuild our ability to acquire new logos. And it's also a structural improvement with pricing and packaging so that we can be more competitive. So the win rate has actually improved quarter over quarter. We still have some ways to go, and it's going to take a few quarters for Sandy to fully ramp it up. But the initial indications is that quicker rollout of pricing and packaging, engaging with our customers with a stronger CS motion, and some of the new capabilities that we're releasing on the A front are attractive to new logos, and we're looking to see further improvement there. And the win rate has been improving quarter over quarter.
spk05: That's helpful. And on the churn, you said it was a bit better than expected. I know you're rolling out new pricing and packaging, but it seems I think that just hit. So just curious what you would attribute the improved churn to.
spk03: The improvement, John, I'll jump on that one too. Again, feel free to add some extra commentary here. So this goes back to the initial conversation that we had with Jeff with having to improve on exactly how we engage with customers, getting additional value out of the platform. We spoke about being able to use more of what a live person offers versus just isolated use cases or messaging in and unto itself. So all of these motions now had a few months to move forward with our CS organization. We spoke about the frameworks and conversational value paths that we use with customers to do that. So the improvements that we're seeing in retention really is being driven by some of the additional value that we're seeing being driven by our AI capabilities, opening up more of our portfolio to customers and the activities that Kevin Meeks is driving with our CS organization. And of course, the transaction with Linn Rock Lake is also playing into this as well. I think it removed some of the concern customers may have had in
spk01: strategically partnering with us longer term. Thank you. With that, we have reached the end of the call today. And thank you for joining us.
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