LiveVox Holdings, Inc.

Good day, and welcome to the Livebox Sports Quarter and Full Year 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Alexis Watt, Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for your participation today. With me on the call today are John DeLulu, CEO, and Greg Clevenger, Executive Vice President and Chief Financial Officer. Before we get started, I would like to remind you that comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections or future market conditions, is a forward-looking statement. The company's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including, without limitation, those listed in the risk factors section of our SEC filings. LiveVox assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. Certain information discussed on this conference call was derived from third-party sources and has not been independently verified, and accordingly, the company makes no representation or warranty in respect of this information. During this conference call, the company will discuss non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in the earnings press release, which is available on the Investor Relations website, investors.livebox.com. A recorded replay of this call together with related materials will be available on our Investor Relations website, investors.livebox.com. Livebox's earnings release and Form 10-K will also be available on the company's website. With that, I'll turn the call over to John to begin.

Thanks, Alexis, and thanks to everyone for joining our quarterly earnings call. As you can glean from our press release earlier this afternoon, we had a strong Q4 that broadly met or exceeded expectations on nearly every metric that we track. It was a quarter rich with accomplishments of which we are extremely proud, including most notably completing our first pro forma EBITDA profitable quarter as a public company. For these achievements, I'd like to thank our customers, suppliers, partners, board of directors, our supportive investors, and especially the LIVOX team. In a few moments, our CFO, Greg Clevenger, is going to share with you more details about our financial results and provide guidance for the current quarter and the year ahead. However, in the brief time that I have today, I'd like to share with you a glimpse into some of my recent observations and a few of the initiatives we have put into place to build on the positive momentum we're experiencing. In my first 100 days with the company, I have toured nearly every global Livebox office, met with most of our domestic and international employees, and visited existing customers accounting for nearly half of the company's annual sales. I've participated in our 2023 sales kickoff, been to several trade show events, hosted a user group meeting, and met with many current and prospective investors. I have found the excitement surrounding LiveOx to be effusive and vibrant, especially when listening to our customers. Contact center teams that leverage our technology have shared with me that LiveOx products improve their productivity, lower their costs, help them to engage customers in more ways, and adroitly help them to support work-from-anywhere agent populations. I am reassured from my first 100 days at the helm of Livox that the loyalty of our customer base is high and the suitability of our solution for their business needs is unrivaled. Based upon customer interactions, we believe we are now the largest 100% public cloud CCaaS solution in the market. As a result of our partnership with Amazon Web Services, AWS, Customers enjoy our ability to lower cost, consumption-based solutions. They enjoy the potential global reach and reliability that 99 AWS public cloud availability zones afford. And they enjoy scalability that is orders of magnitude better than what any of our competitors offer. The LiveArts architecture has allowed us to innovate real-time reporting, integrated omnichannel solutions, and AI-powered capabilities with an unrivaled velocity and nimbleness without the need for us to deploy precious CapEx dollars. Despite our many platform and architectural advantages, we can always do better. And it is with this in mind that we have enacted a collection of company-wide initiatives comprising four key actionable objectives. to preserve, optimize, leverage, and expand. The plan is easily remembered by the mnemonic P-O-L-E, or POLL, and aligning to these tenets is quickly becoming core to everything we do, how we measure our team's results, how we allocate scarce resources, how we establish KPIs, and how we reward our team. The first tenant, Preserve, I'm proud to say the team executed quite handily last quarter. As mentioned in the 8K filed on January 17th, we completed a reduction in force of approximately 16%. We were able to complete this action in a manner that minimized disruption to our customers and zero committed revenue projects were delayed or canceled. As reflected in our results, we did see better than expected excess usage billings in our core finance, credit, and collections vertical, and we garnered several significant wins, including a $1 million ACV Avaya displacement in the travel and leisure vertical, as well as a $600,000 ACV Alvaria displacement to a credit management company servicing student loans. In both cases, Our consumption-based pricing, virtually unlimited ability to scale, and open API-based integrations were defining capabilities that distance us from our competition. The second tenet of our action plan is to optimize. Of course, several elements of our reduction force that I mentioned earlier helped with this effort. However, as part of our restructuring, we concurrently moved more roles to our lower-cost centers of excellence in Bangalore and Medellin. We re-leveled many roles, increased managers' number of direct reports, materially reduced underutilized domestic office space, and right-sized several of our lower-impact sales and marketing efforts. We also made material advances toward deprecating older releases of our cloud-based platform, and accelerating the migration of customers to our latest production environment, Release 17. These efforts are expected to provide long-lasting economic benefits in the form of durable COGS reductions. The third tenet of our action plan is to leverage or put another way to better utilize partnerships and channels to streamline internal processes and accelerate our go-to-market efforts. Our early successes in opening the aperture of our go-to-market to include channels has been very encouraging. Two of our larger transactions in Q4 were initiated by our agency referral network, including a new logo win of $240,000 of ACV for a complete inbound and outbound customer care solution that will be deployed in a regional credit union's auto financing center. Our largest managed service provider grew their usage with us more than 50% in Q4. And in recent weeks, we signed our first two value-added resellers. In Q4, we also became an Avaya DevConnect partner and a member of Jack Henry's vendor integration program. We expect that these collaboration efforts, together and in combination, will meaningfully improve our lead generation and sales productivity in future quarters. The last tenet in our four-element strategic initiative is expand. As I shared last quarter, the markets in which we participate are burgeoning with opportunities outside of our historical focus areas of finance, credit, and collections. We have exciting expansion opportunities to grow overseas, to participate in the mid-market customer segment, to adapt and certify our products for use in the government sector, and to improve adoption of our products in more traditional care segments by offering flexible pricing and consumption-based deployment options. Although it is early days, we are making good progress in all these markets. In many ways, our results in Q4 are a celebration of the market's acknowledgement of our competitive differentiators. On the product front, I'm happy to announce that in January, we released the beta version of our flagship product, Release 19, which includes a live instance of our first AWS international point of presence in Dublin, Ireland. Release 19 will deliver more inbound contact center features, higher reliability, and lower compute and storage costs. In addition to opening the expansive European markets to LiveOps, Release 19 also has several special capabilities that will help us to exploit new customer segments and verticals, including a new agent assist functionality that automatically suggests call summary wrap-up notes derived from AI-powered automated speech-to-text translations, dramatic UI UX improvements, that greatly improve the typical agent's desktop and reduce clutter, and a much-requested integration with WhatsApp, a very popular support channel overseas. In the go-to-market arena, I'm excited to report that we've made significant progress in a few of the most critical areas, including an effort to reimagine the LiveOx brand and to modernize our messaging so that it will find broader appeal. I'd like to invite you to visit our new website, which launched earlier this week at www.liveox.com. I'm also pleased to announce that for the first time in our company's history, we have been included and well-positioned in the most recent Forrester CCAS Landscape Report, the Frost & Sullivan Cloud Contact Center Survey, the Aragon Intelligent Contact Center Grid, and the DMG Network. Cloud Contact Center report. It is well known that Livox enjoys a rich heritage and an enviable franchise in the finance, credit, and collections vertical. These markets became quite challenging during the pandemic as lenders enacted forbearance, forgiveness, and payment deferral programs. In recent months, we have seen early signs of improvement in these markets as government assistance programs are sunset and consumer debt originations continue to grow. Normalization of the consumer credit cycle is potentially a long-term tailwind for LIVOX. However, as yet, we have not seen a meaningful increase in utilization owing to this macroeconomic development, and reacceleration of this business has not been included in our 2023 outlook. At LIVOX, we're excited about 2023 and beyond. Though there is much economic uncertainty in the world, we fervently believe that the next five to 10 years uniquely hold great promise for LIVOX owing to three unswerving factors. First, the increasing geographic dispersal of contact center agents and their post-pandemic proclivity to work from anywhere is compelling operators to embrace cloud-based omnichannel solutions in support of remote and distributed ad hoc work environments. Second, controlling costs by utilizing consumption-based solutions is quickly becoming a must-have throughout IT, and it is especially crucial in the deployment of contact center technologies. And third, The increasing scarcity and turnover of contact center personnel is driving operators to seek AI-powered solutions that automate workloads and shorten the ramp time of onboarding new contact center agents. These three macro trends are powerful and enduring. Together with our committed, loyal employees and our obsession with customer success, They form the foundation upon which Livox is built. Thanks again for your time today. It's my pleasure now to introduce Greg Clevenger, our CFO, who will walk us through the numbers. Greg? Thanks, John, and good afternoon, everyone. I want to remind you that all non-GAAP financial figures that I discuss on the call today are reconciled in a presentation posted on the Investor Relations section on our website, in our press release issued just prior to this call and in our 10-K. I'll start off with a recap of a very solid fourth quarter and end to 2022, followed by some key operating metrics for the year before moving on to guidance for the first quarter and the full year of 2023. Our total revenue for the fourth quarter was $35.7 million, 12% higher than the fourth quarter of last year and above the high end of our guidance range of $33.7 to $35.2 million. This was supported by continued strength in our contract revenue, which was $28.8 million for the fourth quarter, 18% higher than the fourth quarter of last year, and at the higher end of our guided range of $28 to $29 million, and in strength in our excess usage revenue, which was $6.9 million for the quarter, which, while being down 8% year over year, was above the high end of our guidance range of $5.7 to $6.2 million. Total revenue for the full year 2022 was $136 million, 14% higher than 2021, and above the high end of our guidance of $134 to $135.5 million. This was comprised of contract revenue of $108.7 million, 20% higher than 2021, and at the higher end of our guidance range of $108 to $109 million, and excess usage revenue of $27.3 million, which was also above the high end of our guidance range of $26 to $26.5 million, although down 5% year over year. ARR, which is annualized total revenue for the quarter minus all non-recurring revenues such as professional services, for the fourth quarter was $142.8 million, 16% higher than $123.5 million in the fourth quarter of 2021, with the higher growth rate as compared to our total revenue growth rate, reflecting the lower non-recurring revenue in this quarter relative to the fourth quarter of 2021. Our net revenue retention strengthened to 113% versus 105% last year and 109% last quarter, as existing customers continue to add additional products and usage volumes stabilized relative to 2021. Our adjusted gross margin for the fourth quarter was 68.1%, an increase of 180 basis points versus last quarter and higher than our guidance of 67% as we continue to drive cost efficiencies across our 100% public cloud platform as we scale. We have increased our adjusted gross margin by over 900 basis points since the fourth quarter of last year, a significant accomplishment by the engineering and operations teams that have made this happen. and a testament to the financial leverage that can be achieved by running SaaS business on a pure 100% public cloud platform. Our adjusted EBITDA for the quarter was a positive $500,000, an increase of about $2 million sequentially, and achieving our guidance of being adjusted EBITDA positive in this quarter, which incidentally we achieved including all of the expenses related to our CEO transition incurred in the fourth quarter, which was about $1 million. which was unanticipated when we initially provided the guidance of a positive adjusted EBITDA quarter in 4Q. That brings our adjusted EBITDA for the full year to a loss of $14.8 million, above our guided range of negative $17 to negative $15 million. Our GAAP earnings per share for the quarter were a negative $0.06 on both the basic and diluted basis versus negative $0.13 in the fourth quarter of last year, continuing our steady march to GAAP net income profitability. Our CapEx for the quarter totaled only $50,000, coming to $900,000 for the full year 2022, which was about 40% less than our 2021 CapEx. And lastly, we ended the year with $55 million of debt and $69 million of cash and cash equivalents and marketable securities, a use of about $2 million during the quarter. Our headcount at year end was essentially flat versus the end of the third quarter at $627,000. and down 7% from the end of last year as we not only slowed hiring throughout the year, but reduced our headcount by about 3% early in the third quarter, and otherwise were extremely diligent in managing all backfills from normal attrition, particularly in the second half of the year. We ended 2022 with 340 customers, down from 353 customers at the end of 2021, adding 33 new logos over the course of the year, with customer churn largely coming from smaller customers that were acquired in prior acquisitions. In fact, the customers we added to our platform last year contributed about twice the ARR of the customers that churned. The addition of larger customers coupled with the churn of smaller customers is evident in our annualized average revenue per customer in the fourth quarter of 2022 of $420,000 per year, up 15% year over year, and in the increase in our average monthly revenue per user as of the end of 2022 of $186 per user per month, up 5% year over year. All of these measures excluding the impact of political customers, users, and revenue. And finally, we had 34 customers who billed more than $1 million last year versus 28 customers in 2021, further demonstrating the traction we are getting with larger enterprise customers. Bookings were softer in 2022 than we had initially anticipated, and this is reflected in our revenue guidance for 2023. But we believe that focusing on the core tenets John outlined earlier, preserve, optimize, leverage, and expand, will set us up for success as we move forward. However, due to a combination of concerns about the macro environment, our sales leadership change, tepid pipeline growth, and a general lengthening of sales cycles, as we discussed last quarter, We anticipate that maintaining the same growth rates in the second half of the year could be challenging. So let's pivot to forward-looking guidance. As I mentioned on the call last quarter, we believe that it is becoming less informative to focus on the individual contract and excess usage revenue components of our total revenue as usage increases on the platform and more customers move to lock in more revenue under contract. You can see this happening in the sharp improvement in our net revenue retention metric in the quarter that I mentioned earlier, up to 113%, and it's making it more difficult to forecast and guide on the individual components, and as a result, less informative. Therefore, going forward, we will only be providing guidance on total revenue and not the individual components that comprise it. However, we do plan to provide our ARR each quarter going forward, which we believe is a more informative metric for our business. So with that, I'll start first with the first quarter revenue guidance. We expect first quarter total revenue to be between $34 and $35 million, 6% to 9% growth over the first quarter of 2022. We expect our adjusted gross margin in the first quarter to be between 68% and 69%, and we expect for this to trend up to 70% by the fourth quarter of this year as we continue to optimize our AWS costs and scale on the public cloud infrastructure. We expect our adjusted EBITDA to be between zero and $500,000, a little lower than the fourth quarter as the first quarter is burdened by additional operating expenses such as our annual sales conference in the quarter and payroll taxes, which are always higher in the early part of the year relative to the latter. And as I've guided previously, we expect to be free cash flow positive in the second quarter and thereafter, building on a minimum cash balance of $60 million that we expect to have at the end of the first quarter. Keep in mind that we always tend to have seasonally high cash utilization in the first quarter, which includes the payment of annual cash bonuses and some annual vendor contract renewals, and this year will include the cash impact of the restructuring that we announced in January of about $3.1 million. In terms of full year guidance for 2022, we expect our total revenue for the year to be between $143 and $148 million, 5 to 9% growth over 2022. We expect our adjusted gross margin to trend towards 70% by the fourth quarter, and we expect our adjusted EBITDA to be between $3 million and $6 million for the full year, with an adjusted EBITDA margin of 6% in the fourth quarter. With that, operator, can you please open the line for Q&A?