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Q4 2019 LivePerson Inc Earnings Call

New York Feb 14, 2020 (Thomson StreetEvents) — Edited Transcript of LivePerson Inc earnings conference call or presentation Thursday, February 13, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher E. Greiner

LivePerson, Inc. – CFO

* John Collins

* Matthew J. Kempler

LivePerson, Inc. – VP of IR

* Robert P. LoCascio

LivePerson, Inc. – Founder, Chairman & CEO

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Conference Call Participants

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* Arjun Rohit Bhatia

William Blair & Company L.L.C., Research Division – Analyst

* Brett Anthony Knoblauch

Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst

* Jeffrey Lee Van Rhee

Craig-Hallum Capital Group LLC, Research Division – Partner & Senior Research Analyst

* Koji Ikeda

Oppenheimer & Co. Inc., Research Division – Director & Senior Analyst

* Mark William Schappel

The Benchmark Company, LLC, Research Division – Director of Research & Equity Research Analyst

* Michael James Latimore

Northland Capital Markets, Research Division – MD & Senior Research Analyst

* Mohit Gogia

Barclays Bank PLC, Research Division – Research Analyst

* Peter Marc Levine

Evercore ISI Institutional Equities, Research Division – Analyst

* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst

* Ryan Michael MacDonald

Needham & Company, LLC, Research Division – Senior Analyst

* Sahil Sharma

JP Morgan Chase & Co, Research Division – Research Analyst

* Samad Saleem Samana

Jefferies LLC, Research Division – Equity Analyst

* Sitikantha Panigrahi

Mizuho Securities USA LLC, Research Division – MD

* Steven Lester Enders

KeyBanc Capital Markets Inc., Research Division – Associate

* Zachary Cummins

B. Riley FBR, Inc., Research Division – Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson’s Fourth Quarter 2019 Results Conference Call. My name is Ian, and I will be your conference operator today.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Matthew Kempler, Company’s Senior Vice President of Investor Relations and Planning. Please go ahead, sir.

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Matthew J. Kempler, LivePerson, Inc. – VP of IR [2]

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Thank you very much, Ian. Joining me on the call today is Robert LoCascio, LivePerson’s Founder and CEO; and Chris Greiner, our Chief Financial Officer; and John Collins. Please note that during today’s call, we will make forward-looking statements, which are predictions, projections or 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 certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today’s earnings press release. Both this press release and supplemental slides, which include highlights of the quarter, are available in the Investor Relations section of LivePerson’s website.

With that, I will turn the call over to Rob.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [3]

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Thanks, Matt. Thank you for joining LivePerson’s Q4 2019 Earnings Call. The fourth quarter marked yet another milestone for LivePerson on (inaudible) created a new industry around conversational commerce and capped a year that demonstrated inflecting customer demand and market leadership. One year ago, we set a target of LivePerson hitting 20% organic growth. We delivered on that goal in Q4, accelerating 6 percentage points from 14% growth in 2018. We signed five 7-figure deals in the fourth quarter and 24 for the entirety of 2019, a 167% increase over 2018.

Annual contract value signed in 2019 grew by nearly 60% year-over-year. Within enterprise alone, the dollar-weighted average term was 31 months, a testament to the increasing strategic nature of our offerings and our growing backlog. We invested in the sales and product momentum needed to reaffirm our goals of generating at least 20% growth in 2020 with continued acceleration towards at least 25% growth in 2021.

Among the many wins we had in Q4, our success in opening up the health care vertical warrants a call out. We signed new contracts with a Fortune 500 global biopharma company and a top 5 U.S. health insurance provider, the former seeking improved consumer experience and enhanced agent efficiency by replacing the legacy chat vendor with messaging card over the web and Facebook. The latter is leaping straight to automation, leveraging LiveEngage and LiveIntent dashboards to create a highly scalable autonomous consumer engagement.

2019, we set our sights on health care as a key new vertical, and I’m thrilled with the promising start.

Another vertical we had targeted in 2019 was travel, and I’m pleased to report an in year 7-figure expansion with a top 5 global airline. This leading brand is on the path to become a true conversational airline. They will deploy our full suite of AI offerings, including Conversational Builder, Maven agent assist and LiveIntent analytics, with the aim to provide a differentiated, high-end experience that eliminates tens of millions of phone calls and broken web experiences.

Our core verticals also continued their strong traction in the fourth quarter as we had key new wins and expansions in Telco, financial services, retail and technology. The strong demand exemplifies the success of our mission with LiveEngage over the past 2 years. And during that time, we’ve increased the white space in our platform, adding AI, automation, messaging endpoints, use cases and care, sales, marketing and retail, proactive messaging, social, and even innovations into traditional e-mail. And we have obviously disrupted the voice contact center. Approximately 300 of the world’s leading brands now depend on LiveEngage to make messaging available as a preferred alternative to wasting time with 1(800) calls, e-mails, clicking around websites and one-way notifications.

We’re improving the lives of hundreds of millions of consumers and delivering a powerful payback to our customers. With strong momentum in delivering messaging as a new communications channel, we’re now focused on driving the second leg of our strategy, which is to make life easier for people and brands everywhere through a trusted conversational AI.

Consumers are increasingly demanding 24/7 high-touch personalized expenses. Yet, according to our Forrester study, less than 1/3 of brands feel confident they can — that they can respond to consumers in real time. Brands can’t keep solving these challenges by adding expensive inefficient labor. With messaging, we’ve given brands the tools to create a superior customer experience with conversational AI built on top of messaging will help them complete the journey, automating at scale the millions of conversations they have with their customers each day. The conversational space will transform the way consumers seek information and make purchases and disrupt traditional e-commerce websites, advertising, content creation, of course, traditional contact centers.

I believe that LivePerson is in the pole position to win this market. We’ve invested purposely in this direction over the past 3 years and now have a powerful portfolio of leading AI products that span consumer-facing agent assist bots, and enterprise analytics to better operationalize automation. Hundreds of enterprises, mid-market and small business customers deployed our conversational builder platform in 2019 and began developing and deploying automation. Many of these customers are also adding our agent assist offering in our LiveIntent offering as well. This is an impressive adoption for the first year of the platform’s launch. We will work with our customers to go wider and deeper with AI and automation over the next several years. Over the past year, we’ve been focusing on driving strong go to marketing growth but have also kept an eye on what we can do to drive real scale and leverage on the bottom line. We evangelized the largest companies in the world that, if they embrace being a conversational AI business, it will radically change their industry. We want to lead the way with that vision in transforming our own company and internal operations.

There was an article from McKinsey Global Institute that concluded that at least 40% of finance activities, for instance, cash disbursement, revenue management and general accounting and operations, to be fully automated and that the CFO will need to learn how to manage processes and communication within a data democracy, where business information is available anytime, anywhere for everybody. I’m really proud of LivePerson to be a leader in many areas over the past 20 years, especially what we’re doing recently in the AI space. I think you’ll find that we’re going to take a lead in transforming the finance operations, the CFO role to being led by data scientists and engineers who will use AI and machine learning algorithms to put the power of data and predictive capabilities into the hands of all of our employees.

Last year, we brought on John Collins as our SVP of Quantitative Strategy to accelerate our internal use of AI, automation and predictive intelligence to create scalable systems to deliver our next phase of growth. He’s a rare combination of a seasoned data scientist, business leader and entrepreneur with a strong background in finance and the financial service industry. He most recently co-founded Thasos, a New York City-based machine learning, predictive intelligence company that creates machine learning algorithms used on large-scale equity trading platforms. He also previously regulated financial firms at the New York Stock Exchange using predictive analytics and worked in leverage finance at Crédit Suisse. John has done great work since joining us. I’m excited about John taking over as our next CFO, and driving the vision we have of using AI within our company to automate and drive growth and scale in our operations.

I want to thank Chris for his service over the past 2 years during this exciting time at LivePerson as well as he’ll be working alongside John during this transition and wish him well in his new endeavors. Thank you, Chris.

We expect to allocate a portion of these efficiency gains to funding business innovations to expand our ongoing efforts in messaging conversational AI. For example, in 2020, we’re going to build a payment capability to handle commerce transactions within the messaging platforms through LiveEngage. Today, both consumer and brands face challenges transacting within the messaging platforms. The LivePerson is a unique position to remove these obstacles and make commerce seamless within messaging across all brands and across all endpoints. In a world where conversational commerce will dominate overall commerce, this represents a significant opportunity for us. We’re going to allocate around $16 million of investment this year in the development of this payment platform and other conversational commerce related innovations.

In closing, I want to iterate two key points. First, we set out on a mission with LiveEngage to transform the way that people communicate with brands. I believe we achieved that mission, bringing the power of messaging to nearly 300 of the world’s leading brands, and the process is turning LivePerson into 20% growth in the past — over the past 24 months. Second, we are now executing on the next step of our strategy, taking customers on the journey towards true conversational AI. The market is showing a strong appetite for this offering. We’re focusing on our investments to raise the bar on what we deliver. We believe that there is a massive opportunity for brands that emerge as leaders in the new conversational space.

And with that, I will turn the call over to Chris to provide an update on our operational and financial highlights. Chris?

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Christopher E. Greiner, LivePerson, Inc. – CFO [4]

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Thanks, Rob. I want to echo my strong alignment with the decision for LivePerson to take the next step in its journey, by applying its vision for automation and AI to our internal corporate efforts. I personally recruited John last year with a view towards the next steps our company could take to leverage all the data process and analytics engines we put in place the last 2 years. John’s expertise and strong track record of execution has enabled him to hit the ground running and make key contributions in just this first several months. I’m confident John will be another strong addition to the management team as CFO.

As we discuss our financial performance in more detail, it’s helpful to recall the two primary dimensions that underpinned our 2019 outlook, and contributed to our increasing momentum throughout the year. The first was an aggressive plan to increase investment in sales and engineering capacity; and the second, called for capitalizing on our robust opportunity pipeline to rapidly grow contract activity and accelerate revenue growth to 20% by the fourth quarter of 2019.

On both fronts, we executed extremely well and to punctuate the point, we delivered 20% growth in four different key segment measures of our business. First, total LivePerson revenue grew 20.3% year-to-year in the fourth quarter and is up 520 basis points sequentially. Peeling back on that, our B2B growth was also up 20%, up from 15% in the third quarter. Further going into the B2B segment, our hosted services or software growth, in the quarter was up 21% over last year. And finally, our consumer segment once again delivered strong top line performance, up 24% year-to-year.

With these headlines as the backdrop, let’s dive deeper into the details that propelled our strong cap to the year. Our enterprise and mid-market ARPU hit another high watermark of $345,000 and continued its trend of at least 20% growth for the seventh consecutive quarter. Revenue retention also held strong within our target range of 105% to 115%. We, once again, had healthy growth across our geographies in the fourth quarter, with the U.S. up 17% year-to-year and our international markets up 26%. And as we discussed at our Investor Day, we’re expanding into emerging markets, highlighted in 4Q with our new sales office and leadership team dedicated to Latin America.

As for our key verticals, once again, financial services, telecom and technology-led the way, each growing faster than 30% year-over-year. From a platform usage perspective, 54% of enterprise customers are now on messaging, and nearly 60% of messaging conversations rely on automation. Contributing to these results throughout the year were very strong overall deal counts. Wins in 2019 increased 34% year-over-year, fueled by 44% growth in new customers and 25% growth in existing customer wins. We’ve also seen strong traction from our go-to-market and product investments.

In terms of sales capacity, we’re exiting 2019 with 100 quota carriers, an increase of 100% from the 50 we had exiting 2018. The distribution of quota carriers is approximately 55% enterprise and 45% mid-market S&B. More than 50% of these quota carriers had reached productivity at year-end, and we expect approximately 80% to be at productivity by midyear 2020, supporting our goal of continued growth acceleration in the second half of the year. 2019 also proved our ability to open up new large verticals like travel, where we launched Delta, Spirit, and the second top 5 airline. In health care, where we signed a leading global pharma in the top 5 U.S. health care provider. And in foodservice, where we signed a leading restaurant chain and global hospitality provider.

Our highly tailored executive customer events continue to be a key asset in driving our success. In fact, at our most recent event in Dallas, 7 of the 8 presenting customers had never spoken before. Impressively, all of them started their conversational journey as a member of the audience at one of our events less than 12 months ago. Regarding partnerships, we focused our efforts in 2019 on strengthening our channel in North America. And signed deals with TTEC, DMI and Emerge, although early, we’ve already commenced training with these partners and even closed our first small joint deal with TTEC, validating the go-to-market strategy.

And finally, a few comments on product. LivePerson invested wide across the platform in 2019, with new solutions, new use cases and new endpoints. In 2020, we’ll go deeper with these capabilities. And there are already a few standouts worth mentioning. As Rob discussed, customers are rapidly embracing conversational AI, and we now have nearly 300 customers using Conversation Builder. Proactive messaging is also off to a strong start, with more than a dozen customers already live in just the first quarter of its introduction. Apple Chat Suggest is seeing solid demand as well, and we exited 2019 with more than 40 customers.

The conversations on Apple Business Chat have tripled since the launch of Chat Suggest. A testament to the high click-through rates of consumers and more customers adopting.

Moving on to profitability. With strong financial controls in place, the company delivered on its goal of generating renewed positive adjusted EBITDA in Q4. We ended 2019 with $177 million of cash and equivalents. From a timing perspective, free cash flow use of $32 million in the quarter was higher-than-anticipated due to strong contracting activity and building execution in December. We anticipate healthy collections in the first quarter to bring DSO back to historical levels. These same forces also positively influence deferred revenue, which increased 61% year-over-year. In terms of guidance, we entered 2020 with strong market demand and momentum in sales productivity and product adoption.

With this backdrop, we’re guiding for 2020 revenue growth of 20% to 22%, positioning us to achieve our previously stated goal of at least 20% growth in 2020. We’re guiding for the first quarter revenue growth of 17% to 18% and expect second quarter in the same range. Similar to 2019, we expect steady growth acceleration in the second half of the year. The key driver of this improvement will be the increasing productivity of quota carriers we hired in 2019. We anticipate many of these reps to close their first opportunities late first quarter and into second quarter as their win back up, we would expect second half revenue growth to accelerate, putting us at an exit rate that supports at least 25% growth in 2021.

As for profitability, we expect our internal focus on automation and AI to drive material efficiencies within LivePerson enabling fewer people to do more, while providing critical business insights at an even faster pace. Tied to this initiative, we’ve set a goal to meet our 2020 growth objectives while maintaining essentially flat headcount year-over-year. This, in turn, should drive material leverage in our core business. In fact, we estimate that adjusted EBITDA for our core B2B and consumer segments will improve on a combined basis from negative $13 million in 2019 to now positive $13 million to $19 million in 2020.

As Rob discussed, there are several new conversational commerce innovations such as payments that we think offer the potential to be meaningful catalysts, validating approximately $16 million to these innovations in 2020. And on a combined basis, this brings our adjusted EBITDA guidance for 2020 to a range of minus $3 million to positive $3 million.

Now let me wrap up with a few final remarks. First, we entered 2019 with the right strategy at the right time, scaling sales capacity and increasing product velocity, underpin our growth acceleration plan, and we’re executing with precision on both fronts. Second, we’re now operating on a plan that will allow us to drive meaningful scale efficiencies in our core and drive higher profitability and cash flow even while funding new business innovations. And finally, this is a great time to put John in a position of leadership that can turn our external expertise in automation and AI inward, having recruited and hired John myself, I can attest that he’s an exceptional multifaceted leader with domain expertise across numerous areas that intersect with the finance organization’s mission and future vision. I want to personally thank Rob, the Board, senior management and my finance and HR team for the opportunity to play a leadership role in the continued scaling and expansion of our great company. Excited to partner with John to ensure his ramping is smooth and successful. Once again, John, congratulations, my friend.

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John Collins, [5]

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Thank you, Chris, and hello to our shareholders, analysts, employees, partners and customers. I’m very grateful to Rob and Chris for the opportunity and for embracing the vision to deploy automation and machine learning to transform the finance organization and its impact on the business. Considering LivePerson’s size and near-term market opportunities, now is the optimal time to invest in the model-driven processes that will enhance operational leverage and accelerate growth.

The CFO and the finance organization are at the center of a vast sea of data that could be used and organized into useful information to reduce uncertainty and reveal opportunity. Yet, data scientists and engineers are rare sites in finance departments, and most data lives in disconnected enterprise systems. We’re changing that. My team of data scientists and engineers has already deployed automation and machine learning that are delivering meaningful ROI. The main goals are to support decision-making under uncertainty and free capital and people from repetitive transactional tasks in order to redeploy them on strategic and innovative opportunities. These changes we’re making will accelerate the natural evolution of the finance function, and maximize its effectiveness as a steward of company resources and a strategic partner in the creation of long-term value.

I look forward to getting better acquainted with all of you in the coming weeks and months. Thank you.

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Matthew J. Kempler, LivePerson, Inc. – VP of IR [6]

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All right. Operator, with that, we’ll turn it over to the audience for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question is from the line of Samad Samana from Jefferies. Samad?

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Samad Saleem Samana, Jefferies LLC, Research Division – Equity Analyst [2]

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Maybe, Rob, one question for you. So there’s a big investment being put on to the payment side. We’ve seen the collision of software and payments with other vendors. And so maybe if you could just expand on that a little bit, how you’re investing in the company’s plans? Are you going to partner with a payment processor? Just give us a little bit more color on what the investments will be there? And then I have one follow-up.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [3]

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Yes. So what we see today is hundreds of millions of dollars are running around our platform. So the conversations take place on our platform, and then usually the transaction takes place in usually a web form or some sort of web experience off of messaging. So as we analyzed it, we see these hundreds of millions of dollars running through our platform, and we think there’s an opportunity to create — an opportunity to do a secure payment within the platform, and we’ll work with other providers to process the payment. But we’re going to handle the pure transactional element of that through our conversational UI and then we’re building all the authentication services, so we can do two-factor authentication with the consumers so they can basically tokenize a credit card or a debit card, we’ll tokenize it and then it can be used across different messaging platforms, including in-app and our customer on the web, but on the other messaging platforms, and then we’ll secure that and then they can invoke it. And the brand can invoke it and use it as a payment.

So I think it’s a pretty big opportunity. It’s hard to do conversational commerce without the commerce part and that’s the part we’re really attacking today. We did hire someone in the banking space. Who is now leading up that group at the company. He joined us about 4 or 5 months ago, and he’s leading that effort, and we have now a team here of ex-banking people who are leading the effort to build the payments platform. And from there, we’ll see. We’ll start with payments, and there’s other services that we’re looking at beyond that, but that’s where we’ll start.

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Samad Saleem Samana, Jefferies LLC, Research Division – Equity Analyst [4]

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Great. That’s helpful. And then, Chris, maybe one for you on the financial side. The 1Q guidance points to revenue ticking down from 4Q to 1Q. Can you maybe give us a little bit more color, how we should think about the hosted services business,revenue? And if that’s part of — if that’s what’s driving the decline? Or is it professional services? Just trying to understand better, maybe the seasonality and what the cadence of that looks like in 2020?

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Christopher E. Greiner, LivePerson, Inc. – CFO [5]

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Yes. Thanks, Samad, good to talk to you again. The hosted services software should follow the growth of the overall company. So just as an underlying principle. The skew of the first half revenue growth versus the second half revenue growth is actually consistent with our internal models that we’ve had dating back to our Investor Day. So you think about the ramping of our sales force, as I mentioned in the prepared remarks, is about half of our quota carriers today, they’re at full productivity. That group is the group that drove, as you heard from Rob, over 60% ACV growth in the year, 24 7-figure deals. They’ve been outstanding for us.

We expect to have about 80% of our quota carriers fully online in by the end of — by midyear. So as they start to scale and reach productivity. That will then layer on the growth in the second half. But in terms of the more immediate first quarter, seasonally, our gain share business had some peaks in the fourth quarter and tends to trend down in the first. And we’re seeing that play out just like we had in past years in this first quarter of 2020.

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Operator [6]

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And our next question is from line of Sitikantha Panigrahi from Mizuho. Siti?

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Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division – MD [7]

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So I just want to dig into your guidance, about 25% growth for 2021. What’s your expectation backed into that in terms of adding more self-serve process, increasing sales productivity or even increasing ASP?

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Christopher E. Greiner, LivePerson, Inc. – CFO [8]

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Sure. We know now — know from our models that the sales capacity that we have going into 2020. And again, when we expect them to reach productivity, will put us at an exit profile on 2020 with the right momentum to achieve our longer-term range of at least 25% growth. Now this year, while we’re able to maintain relatively flat headcount, that’s not to imply that there won’t be hiring in the sales ranks, and they won’t be hiring in the engineering ranks. It’s simply that through John’s expertise and his team that he’s beginning to hire and bring on board, we’ll be able to drive efficiencies in the middle layer of the company in the back office, if you will, to be able to free up funding just as we’ve done throughout the year, but to do it in a way that doesn’t allow us or doesn’t require us to take our overall headcount up.

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Sitikantha Panigrahi, Mizuho Securities USA LLC, Research Division – MD [9]

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All right. And then the investment, you talked about $16 million. How should we think about that through the — throughout the year? Is it more on first half versus second half? And then is that what you need for the payment? Or we should think about even further in next year? How should we think about the EBITDA going forward?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [10]

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So it grows over time. So it’s a team that’s building right now, and there are people in that team as we speak. It’ll give us a good chunk of the technology that we need to just go to market. And then we’ll see where we want to go from there. It’s going to be embedded in the LiveEngage platform. So it’s basically all of our thousands of brands can invoke it as a way to take payment on the platform. So it’s not riding outside the platform today. So we’re not promoting it as like an external consumer-facing payment technology, it’ll be within the platform to start.

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Operator [11]

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And our next question is line of Arjun Bhatia from William Blair. Arjun?

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Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division – Analyst [12]

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Just wanted to maybe touch on the go-to-market motion a little bit. It seems like the sales force is now fully built out. But just curious, as you’re looking into 2020, what are you prioritizing in terms of growth avenues. It seems like there’s plenty of opportunities available to you from opening the funnel adopting the pipeline to increasing endpoints, but would just love to get your thoughts on maybe what you’re most excited about? And what — where the highest ROI lies on a go-to-market perspective?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [13]

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So I think there’s a few areas. One is we have some new verticals like the health care vertical, we really want to get a couple of key plans and we did towards the end of the year. And so I think that vertical will be opening up. We’ve got the travel vertical, as you know. We talked about Delta, but there’s a number of other airlines now we’ve signed in the U.S. and now globally.

We’re opening up, as Chris mentioned, South America, so we’re seeing some nice pipe developed. As many of you may know, like WhatsApp in Brazil, Mexico, these are the main channels of how people are communicating and brand. So we’re bringing — we’re kind of coming in under that front-end in that market. And then we’ve got a lot of expansion opportunities within our base when it comes to our conversational AI platform. So as I wanted — as I was mentioning, the real focus over the last 24 months was really about the channel of communication, which is messaging. And really, what we started to focus on at the end of the year is how do we automate conversations at scale because what we found is if we hit 20% or 30% of voice calls get moved onto the LiveEngage platform, you now need to automate at real scale. So that’s a focus to expand our customers to get them — our goal is always to get to like 80% of all customer contacts are running through our platform, and they’re going to have to be automated at some scale. So that will be the focus from a product perspective. You’ll see some changes in the marketing in the next couple of months of how we’re positioning our conversational AI and even the platform as a whole. So that’ll be more AI conversational, AI focused.

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Arjun Rohit Bhatia, William Blair & Company L.L.C., Research Division – Analyst [14]

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Got it. That’s very helpful. And then on the payments real fast, just wanted to maybe follow-up. What role do the endpoints play here like Apple and Google and Facebook? And does this — does the payment functionality that you’re building out overlap with some of the functionality that the endpoints already have incorporated into their applications?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [15]

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Yes. So the greatest challenge we see is that the — all the endpoints have, obviously, a payment platform, but not every consumer uses it in — who have these devices, nor is it cross device. Obviously, I can’t use Apple Pay on an Android device and so forth and so on. Half the world is on Android, the other half — actually, about 70% of the world’s on Android, 30% on iOS. 50-50 in the U.S. But — so we found it’s just very tough for a consumer and the brand to take a payment within messaging. And most of the time, what we do is we invoke a web experience so the secure form that’s invoked, it’s called a PCI form. It’s encrypted, it has certain principles to it for security. It’s a very cumbersome experience.

So we just feel that and hearing from our customers, there’s got to be a way where I’m having the conversation. I’m showing product I got service, and I’m just invoking put your card in. And so we also, from a consumer perspective, see that they constantly have to put their card in every time they do a transaction versus put it in once into the platform, we’ll tokenize it, and then they can use it over and over again without having to put the card in ever again. So that’s kind of what we’re focused on, on the payment side.

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Operator [16]

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And our next question is line of Raimo Lenschow from Barclays. Raimo?

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Mohit Gogia, Barclays Bank PLC, Research Division – Research Analyst [17]

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It’s Mohit Gogia on for Raimo. So I wanted to start with — stay on this topic with the payments platform. So I was wondering if you can talk a little bit more about the go-to-market motion there that you’re initially thinking about so is there an ideal customer profile or maybe a vertical that you’re probably sort of like going to make the first move on with the payments platform. And also, I know it’s early stages, but I was wondering if you can speak about the potential ASP uplift as to how you think about pricing this new functionality? And how do you think about the upside to ASPs from that? And then I have a follow-up question for Chris.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [18]

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Yes. I think it’s a little early to go through all that. I will say that on the go-to-market, we have thousands of brands and we’re doing close to $16 million conversations a month on our platform. So there’s a fair majority of those conversations are commerce based. And so we are going to — the go-to-market is to embedded in the platform, make it available to our customers to then invoke it in a transaction and then let the consumer then tokenize their card and start their payment of that process. And then once again, the card is tokenized once, and then we can — the consumer can come back and use it again at that brand or at other brands that are on LiveEngage. So that’s really going to start.

I don’t really want to talk about the pricing of it or business model yet, I think later on in the year, we’ll talk more as we do bring it to market. Like I said, towards the end of the year, we’ll bring it to market. We’ll be testing it with some of the large enterprise customers, and then we’ll go from there.

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Mohit Gogia, Barclays Bank PLC, Research Division – Research Analyst [19]

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Understood. And a follow-up question. So just on that $16 million, I know you mentioned that the overall headcount you expect to be around the same number end of the next year, right? But you are trying to sort of like use AI and leverage machine learning sort of, like, to make sure that you can invest in the right areas in terms of headcount, so leverage some efficiencies there. But can you break down as to that additional $16 million as to which function? So is it more sales investments you’re going to make? Or if this is more — you need the R&D headcount to grow just to provide the functionality of the platform? So any more color on that $16 million basis?

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Christopher E. Greiner, LivePerson, Inc. – CFO [20]

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Yes. Let me — I want to — I think it’s important for us to highlight that we’re purposeful in breaking out our core B2B in consumer segment’s profitability versus the new innovations, payment being obviously a key area of that. The change in adjusted EBITDA year-over-year in the core is very meaningful, right? It’s going from a negative $13 million to a range of positive $13 million to positive $19 million. So at the midpoint, almost a $30 million improvement year-over-year. And as you highlight in your question, our ability because of the extension of our vision from what was an external automation and AI to now internal is allowing us to make exciting inroads, not just in the office of G&A, which is obviously has been and will continue to be even more of a focus, but there are many processes inside the enterprise today, that impacts sales that can free sales up, prioritizing better. I wouldn’t want to give you a definite point precision as to how we’ll free up and what functional areas, but it should not be thought of as just being generated by G&A, it will be wider than that.

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Operator [21]

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And our next question is from the line of Steve Enders from KeyBanc. Steve?

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Steven Lester Enders, KeyBanc Capital Markets Inc., Research Division – Associate [22]

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And Chris, it’s been great working with you. I just want to kind of get a better sense of the deals that you’re seeing coming in. I know that historically, they’ve been more focused on the customer care side, but wondering if you’re seeing any change in mix there that’s more — it’s more marketing-driven?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [23]

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Yes. I mean we have now the proactive marketing capabilities in the platform so we are starting to sign more and more customers around that. So obviously, we were — be heading into customer care and then panning out, as we said, I think, mid last year, into the sales and marketing use cases, so we’re starting to see a pickup in that product area.

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Steven Lester Enders, KeyBanc Capital Markets Inc., Research Division – Associate [24]

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Okay, great. And just a quick follow-up. I just want to better understand — as you guys think about the changes in the finance organ and how you think about that, I mean, what are the — I might be a little bit early on this, but just kind of wondering what are the core areas that you think you can change? And what are the new processes that could be put in place to help automate that?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [25]

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Yes. I — as I wrote in my remarks, a couple of things. One is, I think it’s important that our company take a lead with our own platform and vision around conversational AI and AI as a whole. It’s one thing we sell the vision to our customers, and we implement them, and they get these great results. But when you look at us, I think we should be sort of the leading test case. The next step in the thinking there was, if we look at the G&A lines as a whole and finance, these are really the central areas where a lot of data flows.

And so we were thinking the best leader for that today would be someone who has a data science background. Also a business background, and there’s massive leverage we can get just in that alone. Right now, if we spend between 16% and 18% of our revenues on G&A, I think we could drive that one day down at 5%, 6%. 9% would be, like, world-class. But when you look at what we can do automation, and when I — when we brought John in, one of the things we told him is if you can do this for us, we’ll productize it, run it on our platform, and then we’ll take it out and sell it because conversational business is not just about commerce with our customers, it’s about also internal.

And we use it now for — we have an HR bot here, and we do have some stuff in finance, very limited stuff, but if I think of a company like our largest enterprise, they probably spend between $500 million and $700 million on G&A. You talk about these giant brands. And I know what goes on there, we talk to them. So we really want to use ourselves as a way to show the world that we can transform the way business gets momentum and growth. And also scale on the bottom line by bringing AI machine learning and the conversational experience. So that’s why it’s pretty exciting to have John take over. And once again, Chris has done a great job it’s not a — something about Chris. It’s really about — we have this vision of let’s change and take the leadership. Not to go on, but I really believe you’ll see in the future that the CFO position will change. There’s many articles written about it now about how it should be a data-centric place. But we’re really taking a leadership position on saying we’re going to put a leader who can drive that.

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Operator [26]

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And our next question is from the line of Ryan MacDonald from Needham & Company. Ryan?

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Ryan Michael MacDonald, Needham & Company, LLC, Research Division – Senior Analyst [27]

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I guess, as you’re looking at the pipeline and also back at the improvements that you’ve made in ARPU this year, can you talk about the mix of benefit that you’re seeing from one, interaction volume increases, perhaps with the support of AI versus expansion of the number of messaging endpoints that customers are adopting,?

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Christopher E. Greiner, LivePerson, Inc. – CFO [28]

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Ryan, it’s Chris. We don’t report on that data externally. But let me maybe answer it a different way. If you think about where the deal volume was contributed this year, right? Over a full year. So it’s a pretty good swath of execution on the opportunity pipeline. Our deal counts for the year, as I mentioned, was up 34%, and about 44% were from new customers and about 25% from existing customers. We talked about the ACV attached to those deal volumes being up over 60%. And so then that’s what you peel out and say, okay, how much is from existing business growth versus new? We are seeing our messaging volumes continue to grow. It continues to be a strategy to go deeper with an endpoint or wider. But what we’ve also seen, and we’ve commented on in the past, but now that we have evidence over the automations that we’re selling continue to grow.

We said we had over 300 customers on conversation builder, the ARPUs, when our AI is present, are twice what the standard ARPU is. So a lot of exciting growth and execution of the pipeline focused on leveraging our automation technologies and even more of our core AI.

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Ryan Michael MacDonald, Needham & Company, LLC, Research Division – Senior Analyst [29]

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Great. And then just in terms of the pace and cadence of sales and marketing investment as we look into 2020, what role is our customer summit is going to play moving forward? I know, obviously, they’ve been a big lead generator in the past. Should we start to see that moderate a little bit in 2020?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [30]

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Yes. I mean, we did a — we’re doing a fair amount them in 2019 will sort of hold the cadence. We’re not going to increase it right now, some new markets like South America, we will, but we have a very good — I mean, it’s like — there’s more than once a month now, they’re running. We just did one in San Diego, we have one coming up in New York. There’s a lot of in-month event. So I think we’ve got a good process going. And we’re — I don’t think we need to add and accelerate it because we got a lot happening. It would just, I think, dilute the quality of the ones we have now.

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Operator [31]

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And our next question is from the line of Peter Levine from Evercore. Peter?

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Peter Marc Levine, Evercore ISI Institutional Equities, Research Division – Analyst [32]

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Chris, best of luck. First one here is with the sales hiring, the — I think the goal was to kind of get the number of concurrent deals that reps carry down to more of an industry average. So if you’re looking at more of your senior reps as a benchmark and really, I’m just trying to get a sense of if the funnel is working, how do you quantify the productivity of your neutral reps?

Meaning, if you have a senior app with 20 deals to close the month, I mean, does that turn into 2 reps closing 10 deals? Or is it more so distribution of the funnel getting kind of dispersed across the sales force?

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Christopher E. Greiner, LivePerson, Inc. – CFO [33]

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Sure. A couple of different forces, and one very much linked to what you heard Rob speak to in terms of the evolution of the (inaudible) finance. First, we are more heavily scrutinizing what’s coming in the top of the funnel, and we’re evolving how our STRs canvas the market to where it’s not as much just an emphasis on quantity, but it’s also an emphasis on quality. And that, in turn, should provide a filter to less burden on the individual seller and just how many deals they were carrying. We talked about our hunters carrying on average 15 opportunities concurrently. We think that’s far too many. What John and his team will be able to bring is an even more granular data lens to be able to route and truly curate what are the best deals.

And John, you could — feel free to add any more commentary on that, but we’re excited about what the data scientists can actually bring to the process.

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Peter Marc Levine, Evercore ISI Institutional Equities, Research Division – Analyst [34]

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Great. And just a final point here is, any updates on your conversations with SIs? Just trying to get a sense of what your confidence is in your sales or — right? So as the number of deals are getting larger, can you sales or — kind of deliver on the last mile or at some point, you’re going to have to rely on SIs to kind of get some of these deals? I guess, is it.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [35]

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Yes. I mean, we’re starting to shift, especially in 2020, to a model where there’s other people doing the implementations and integration. So it’s interesting, when we talk about TTEC which I’ve known the CEO for many years, and we never really had any work together, but when we crafted this partnership at the end of last year. And what we’re seeing right now is they’re really trying to — they have — part of their business, obviously, is about technical implementation part is BPO, but that technical implementation group, we’re seeing some very good pipeline being built and other ones around the world. So some of the deals we’re inking right now are about working with those SIs and having them do the work because you’re right. It’s hard for us to add the capacity into the business. I’d also like us to move more towards just focusing on the transaction and — that happened on our platform versus all the services around the platform. We’re a technology company, that’s where we’re very strong, implementing and doing services. It’s — we have to do it, but I think it’s better if we build an ecosystem around ourselves.

So 2020, we’ll be more aggressive about that. Plus we have a lot of learnings from ’19 and ’18 that now we know how to sort of operationalize messaging and do that. We can pass that to a partner.

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Operator [36]

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And our next question is line of Sterling Auty from JPMorgan. Sterling?

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Sahil Sharma, JP Morgan Chase & Co, Research Division – Research Analyst [37]

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This is Sahil on for Sterling. So customers that have gone live in the conversation commerce in the past year, are we seeing — are they getting bigger in terms of the revenue opportunity? And then on the client summits, are there going to be held anymore summits in 2020?

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Christopher E. Greiner, LivePerson, Inc. – CFO [38]

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Yes. To be clear, and Sahil, Rob answered before that we’re going to hold our customer summits roughly flat 2020 to 2019. And 2019 was a pretty hefty increase year-over-year. We do see the customers that we’ve signed get bigger with us. That comes in two different ways, those that signed and initially onboarded with us through a pilot program. We’ve seen nice success in scaling them from pilot to full launch. And as customers are starting to see volumes grow in the messaging platform and the value proposition, whether it’s cost savings, ROI in the contact center, better CSAT scores, higher sales conversions. It’s compelling them to add new endpoints or, if you will, open up the spicket for how much volume gets diverted away from voice into messaging. So we are seeing growth from new customers.

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Operator [39]

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And our next question is from the line of Richard Baldry from Roth Capital. Richard?

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [40]

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Can you talk about the difference in growth between the U.S. up 17%, international 26%, is it — really feel like in fiscal ’20 that the catch-up of the U.S. growth rate, is that really what you’re counting on to get up to the 25% growth exiting the year? Or do you think both will accelerate to some degree? Is there some structural delta between the two? For example, could the rollout of RCS in the U.S. over the next year or two bring that growth rate up to sort of on a natural demand increasing basis?

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Christopher E. Greiner, LivePerson, Inc. – CFO [41]

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Rich, I don’t believe it’ll be driven by RCS. We’re optimistic, but it’s — we’re not counting on it. The U.S. has many businesses inside of it. What we’re really excited about and we’ve commented in several calls is, the enterprise business within North America continues to grow at very high rates, right? Materially higher than the overall company. And the pipeline that we have in North America, the talent that we have in North America, the marketing programs that are attached and enable those sellers. We’re optimistic that, that should continue on a really exciting rate and pace. The consumer business and the segment of consumer is also largely inside the U.S. that had a slightly slower growth profile. We think it will grow. You should think of is growing equal with the overall company in 2020. International, we are really happy with the performance of Asia Pacific, it’s still a — it’s a young market for us. We’re largely penetrated mostly in Australia and Japan. But we’re optimistic about the growth prospects that are there over the longer term in Asia Pacific.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division – MD & Senior Research Analyst [42]

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And just last one would be, receivables kind of stepped up in the quarter, fairly substantially. Is there anything to better understand that and what the trend should be starting the year or throughout 2020?

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Christopher E. Greiner, LivePerson, Inc. – CFO [43]

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Yes. No, I think we anticipate DSO to return to regular levels in the first quarter. In fact, if you look at the aging of our customers, it’s better today than it was a year ago. So just a really good job on contracting activity and billings execution in the quarter.

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Operator [44]

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And our next question is from the line of Jeff Van Rhee from Craig-Hallum. Jeff?

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division – Partner & Senior Research Analyst [45]

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So Rob, maybe if I could start with you. If I take a longer-term view, you’ve outlined a $50 billion TAM, and a substantial lead over your peers given what you’re bringing to market now. Given the limited resources as a company, you’ve got to make a decision between incremental sales capacity or incremental products. Given the $50 billion TAM and the leadership position, I’m curious, the decision to front burner new product development and back burner sales capacity, which seemed like it had been the priority. Just walk me through how you weighed those two?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [46]

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Yes. It’s still — if you look at our overall spend, it’s — we still have a fair amount — let’s say it’s 50-50, but it’s — when you look at the field as a whole and engineering group as a whole, they’re almost equal in headcount. So we are funding some new innovation on the product side. We are a product-led company. So sales can’t sell air, they have to sell something that’s innovative and unique. And so we always have to maintain our leadership on the product side. And once again, we gave a little color about some of the areas that were looking like payments. But I mean, the field, we added a lot of capacity last year. And so we — now we added a market in South America. So we just want that capacity to really start to hit and then we’ll add more throughout the year, but I don’t see it as a terrible trade right now. I think we just feel like we’ve got to keep the product always 20 steps ahead of competitors. And we — and the TAM is really big, and we know there’s a lot to fill out the product line. But I don’t think it’s a real change from the past.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division – Partner & Senior Research Analyst [47]

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The — I think in the last call, the comment was that you were going to come into the latter part of the year and do a real full sort of deep dive on what happened in sales over the course of the year and make some decisions about capacity additions. As you went in and did that deep dive on sales, I’m curious what you learned? What are you doing well? What are you not doing well? What the cohort analysis tell you about sales execution? I guess inherent in there is, did they hit quota and planned for the year and the quarter? But more importantly, what did you learn when you did that deep dive? What’s working and what’s not?

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Christopher E. Greiner, LivePerson, Inc. – CFO [48]

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Jeff, it’s Chris. I’ll go ahead and take that and certainly others can jump in as well. We did have — we didn’t wait until the end of the year to have learnings. In fact, during the year, when we started to really ramp investments, we began to look at in particular, our sales investments, whether it was SDRs, whether it was our quota carriers, whether they be hunters or farmers, even our marketing spend looking promptly at the ROI. So our strategy throughout the year evolved as that data continued to come in. So key learnings to respond to your question was, North America is a hot market for us. We invested first in late 2018 in the SDR profile in our hunters and farmers there and obviously, complemented their efforts with marketing events. And that strategy has paid off well. And we’ve continued to put resources behind it, and the talent of the leadership team is just exceptional. In terms of other key learnings, we were able to validate that in our enterprise business, our quota carriers ramp to productivity in about 12 months. You can shave, call it, 3, 4 months off of that for the commercial business. But what that’s opened our eyes up to, and it’s another area of investment this year that we’re making inside the overall spend profile of the company, is aggressively on rethinking how training should be done in companies, specifically of reps. But not only reps, making everybody an AI expert, AI native.

So that was a key learning for us. That investment in training has a high ROI to it. And we’re going to get even better at how we train all of our employees, not just our sales reps.

And then on the SDR front, it was about the quantity of opportunities that were coming through and it’s bearing effect on the quota carrier. And as we started to see the quality of leads, they’re aging. How quickly they’re being taken onboard and progressed, there were deals being left behind, and we put a new lens on it. John will be instrumental on this and his team will be on putting a quality layer of the opportunities that we’re starting to chase, so that we don’t have 20 or 15 on top of each AE. Maybe we go down to 10 or 8, but there are deals that are able to be faster progressed and even faster disqualified, that has the potential to shave a quarter off of the sales cycle when we do it well.

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Operator [49]

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And our next question is from line of Zach Cummins from B. Riley FBR. Zach?

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Zachary Cummins, B. Riley FBR, Inc., Research Division – Analyst [50]

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With the investments in the new payments capability expected to be kind of spread out over the year. Can you provide a little more color around the current adjusted EBITDA guidance for Q1? Is there any major estimates that are there or happening more so than, I guess, what would be spread out through the rest of the year?

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Christopher E. Greiner, LivePerson, Inc. – CFO [51]

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Yes. First quarter, for us, has some timing built into it. So you have a couple of different forces that are in play in terms of the cadence of profit and how should be thought of over the course of the year. The first is, we’ve got a lot of the heavy lifting of hiring behind us in 2019. But what comes with that is the continued annualization of those salaries, right? So that’s present in the first quarter, present in the second begins to fall off in terms of annualization in the third and certainly more in the fourth quarter. In terms of timing-related items, how we treat our vacation accruals here, payroll taxes, health care benefit costs. All those are quarter 4Q to 1Q dynamics that tend to sales commissions, both same and things like that. Those are present in the first quarter that aren’t as heavy in the fourth.

So the cadence of profit across the year will be a loss in the first, continued losses in the second and then those will get trend and turned positive by the fourth quarter.

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Operator [52]

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And our next question is from the line of Mike Latimore from Northland Capital. Mike?

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Michael James Latimore, Northland Capital Markets, Research Division – MD & Senior Research Analyst [53]

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Yes. On the ACV up 60%, was that sort of across the board, meaning small, mid and enterprise? Or was that just mid and enterprise?

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Christopher E. Greiner, LivePerson, Inc. – CFO [54]

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The deal count volume was driven by both, nice healthy growth by both, but the ACV was certainly more contributed on the enterprise side. If you think about the 24 7-figure deals that were signed in 2019, that’s up 167% year-over-year. These are exciting transformational deals being done with enterprises, but probably still scratch the surface of what we could take down in the future.

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Michael James Latimore, Northland Capital Markets, Research Division – MD & Senior Research Analyst [55]

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Okay. And then on the conversational AI strategy, obviously, of the ARPU with that, and that’s a focus. What’s the — what are the kind of core elements of improving attachment of conversational AI going forward? Is it tailoring box to verticals? Or is it a sales strategy? Or what gets that attachment up?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [56]

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Yes. So I mean, we built a pretty major piece of the technology at year-end, which is called LiveIntent or intent analyzers. So we have the ability to process conversations. We’re also taking in — we can take in conversations outside of messaging platforms, could be e-mails, things like that. We’re going to expand into taking voice calls in, and that maps all the intents that are happening in the organization. Then we built models based on the data we have of matching those intents to use cases. So we can see that certain conversations and the intents are matched to, let’s say, paying the bill at a bank, a credit card payment. So we pre put that, populate that and we’re able to organize. Now we’re about at like 40%, 50% of conversations, we can get down based on those prepackaged intents. Then the rest, the customer has a tool to sort of say, okay, this grouping of intents is related to something, and this is something else. The next step is then they build the automation and the conversations, then they deploy the conversations, that’s your Conversation Builder. And then on the actual platform where the agent console is, that becomes a place that they actually improve the automation because they’re watching it in real-time, actually performing, and they can change it.

So there’s 3 major pieces to the conversational AI platform, and the intent one was the last piece that we built and released at the end of the year. And it’s quite powerful. We’re using it here. We actually use it here to optimize our keyword spend with Google and Facebook. So we’re — we can look at the intent to come through in our company. And then we’re looking at what to do with them and actually trying to use it in the company now to look at all the intents that are happening in our company, in employees and with our customers to map those intents and see where we can automate them. So that’s a — it’s a pretty major piece of technology that was built last year.

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Operator [57]

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And our next question is from the line of Brett Knoblauch from Berenberg Capital Markets. Brett?

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [58]

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At your Investor Day, you kind of broke out revenue contribution from large, mid and small customers, in addition to their respective ARPUs. Do you plan on also giving that information for 2019?

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Christopher E. Greiner, LivePerson, Inc. – CFO [59]

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If we do, it’ll be part of another Investor Day, but it’s not part of our plan as of right now.

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Brett Anthony Knoblauch, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [60]

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Okay. And then on the last call, you guys kind of talked about just pull forward a lot of investments and kind of going to, I guess, take a seat or step off the table and kind of digest and see how everything turns out. And then this quarter, you kind of announced another incremental $16 million investments, and it was just kind of thought process for maybe the rest of the year? Like should we see another announcement of investments? Or do you think this is really going to be the bulk of it for the year?

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Christopher E. Greiner, LivePerson, Inc. – CFO [61]

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Yes. I think — first of all, you’re right. On — but I think it’s important to distinguish the difference between investments throughout 2019, second half of 2018 that were devoted to the core. Core being B2B and our consumer segment versus truly new innovations. And as we talked about the core profitability year-over-year is quite material and almost a $30 million improvement whereas on the innovation side, we see, based upon the activity that we can firsthand witness across our platform, that payments is an exciting and right opportunity that we should invest behind. So as you think that’s an important distinction. That is what we have line of sight to right now. I think we made a pretty clear commitment to holding headcount flat, we would have said that if we didn’t mean it.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [62]

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Right. So if we — if you took the $16 million out, we would have headcount gone backwards. And so we’ve added — we’re going to keep it flat and basically focus down on these innovations. I think you all know, we raised some capital, close to $200 million in ’19. We believe that we can organically build and grow. And that’s why we brought that capital in. We just — we have good muscle on innovating and going to market. And we’re innovating in places where we can’t buy a lot of stuff. So there is no conversational AI payment platform out there today. Can’t find it in a start-up, and the larger ones are not providing it. That’s why we see the gap. So we do want to stay focused on filling the gap in the platform and in the market to win the space, this conversational space.

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Operator [63]

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Our next question is the line of Mark Schappel from Benchmark. Mark?

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Mark William Schappel, The Benchmark Company, LLC, Research Division – Director of Research & Equity Research Analyst [64]

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Most of them have been answered. Just one though for you, Chris. And I have a question around the 25% revenue growth number that you expect in 2021. Just a little clarity around that, do you expect that to average during — or to average 25% during 2021? Or just to exit the year of 2021 with 25% revenue growth?

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Christopher E. Greiner, LivePerson, Inc. – CFO [65]

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The latter. And we’ll — obviously, we’re a lot closer to 2021, and we’ll think through the exact cadence of it. But the point being is that what we invested in 2019, how we see 2020 playing out with high-teens growth in the first half. An acceleration into ’20 and then beyond will position us just like 2019 did for the right exit rate to achieve what we communicated at our Investor Day of our long-term model of at least 25%.

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Operator [66]

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And our next question is from the line of Koji Ikeda from Oppenheimer. Koji?

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division – Director & Senior Analyst [67]

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Chris, it was great working with you. Just a question here on the competitive landscape. B2C messaging is a really hot topic out there these days. I guess, how would you categorize the competitive landscape right now maybe versus a year ago? Are you still seeing the same players? Are seeing anybody new out there? Any sort of color there would be helpful.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [68]

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Yes. We’re — I mean, we’re — it’s pretty much the same players. The big contact center software guys are the major competitors that were out there. So the competitive force hasn’t changed that much over the last year. So not really too much change yet.

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Christopher E. Greiner, LivePerson, Inc. – CFO [69]

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Okay. Sorry, just making one clarification on the 2021 growth target, the 25% is for the full year.

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Koji Ikeda, Oppenheimer & Co. Inc., Research Division – Director & Senior Analyst [70]

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Okay. And then I guess, just for Rob, a follow-up here. Big picture perspective, it sounds like the technology is in the right place, sales capacity is in the right place for 2020. It sounds like the R&D is where it needs to be in Seattle and elsewhere. And really the B2C messaging opportunity is really, really profound out there. I mean, I guess, from a real high-level perspective, Rob, what’s keeping you up at night these days?

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [71]

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That’s a good question. My greatest worry is that we are operating in a space, the space we call as conversational, and I fundamentally believe it will be as big as search and social or any other space. Matter of fact, I know it’s going to assume things like e-commerce, there will be c-commerce. Conversational commerce will be the natural way in which consumers will buy. So what keeps me up at night is, I believe, in 5 years from now, and I also believe we also have in our minds already, like, we fundamentally believe right now we should be talking to machines and saying, “I want to buy a car”. The machine says, “okay, what kind of car”. And you go through a buying experience that’s that easy. So it’s in the mind’s collective consciousness of us. I’ve got to, as a leader and as a company, shorten the time frame to the 5 years. That’s signing up enterprises. That’s building consumer-facing user experiences. That’s commerce and payments. And because this space, we know there’s — the biggest tech companies in the world are also after it. So although we talk about the contact center companies we’re competing with today. I’ve said this many times, you’ve got Amazon, Facebook, Google and Apple, all in the game. And we’re providing the back end to them, but there will be a winner of the space. And so for all the work we’ve done, what keeps me up at night is just how quickly can we shorten the time frame to the 5 years. And can we deliver that. So that’s really what we’re doing.

I really fundamentally believe 2020 will be another big year for us on getting to that vision. And it’s exciting. And — but I wish we could just get to it today. Then I can sleep peacefully.

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Operator [72]

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And at this time, I’m showing that we have no further questions. I would like to turn it back to Rob LoCascio for closing remarks.

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Robert P. LoCascio, LivePerson, Inc. – Founder, Chairman & CEO [73]

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I felt like that was a closing remark, but I’ll expand a little bit. So I’m very excited about what we did in ’19, especially if you followed this for the last couple of years, we went through this big transition, and we came out of the box strong. And then we hit our 20% goal in Q4, and now we’re looking at in 2021, the 25% in 2020, reaching that probably at the end of the year. Leading this transformation now, we talked about the second phase of our strategy, we very much were focused on messaging as a channel. We weren’t even sure people were going to use it. We know now, not only do people use it, they love it, consumers and brands love it. And now it’s about how do we scale those conversations with conversational AI. Many of you know, we hired Alex from — Alex Spinelli from Amazon Alexa. He’s built a great team globally and especially out of Seattle. So we’ve got this great talent here. And then I think as this is just tremendous opportunity for us to change how we run as a company, the best technology and companies use their own technology to transform their company. And I think it’s important that we do the same.

And so look for us in 2020 to show things that LiveEngage and conversational AI and AI as a whole can do. We all talk about how AI fundamentally is going to change the world, and we have an opportunity as a company to not only sell that technology but use it internally. And once again, I’m excited about John being onboard and the whole company. So very excited for 2020, and thank you for all the support, and we’ll see you on the next call.

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Operator [74]

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Ladies and gentlemen, we thank you once again for joining us for LivePerson’s Fourth Quarter 2019 Results Conference Call. This concludes the call, and you may now disconnect.

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