Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson Third Quarter 2016 Earnings Conference Call. [Operator Instructions] Thank you. On the call today are LivePerson's Founder and CEO, Robert LoCascio; and CFO Dan Murphy. You may begin.

Thanks very much. Before we begin, please note that we will make forward-looking statements during today's call, 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, in the comments made during the 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 which is available in the Investor Relations section of our website. With that, I'll turn over the call to Robert LoCascio.

Thanks Dan and thanks for joining us LivePerson's third quarter 2016 conference call. This is an exciting call for us as we had much to share regarding our 2016 priorities of completing the migration of LiveEngage platform in the private messaging and capturing operating efficiencies. Our vision is to reinvent customer care through messaging, bringing massive cost savings and contact centers across globe, and game-changing shift in our customers, consumers connect with their favorite brands. The opportunity is also game-changing for LivePerson as we believe that transferring even a fraction of existing contact center call volumes on to our messaging platform with few substantial long term growth. A shift in consumer behavior to mobile is ushering this change and we've been talking for some time about a work to ready LiveEngage for the messaging error. We designed the platform to handle the scalability, security and stability requirements of largest global enterprises. Our ability to execute on our messaging strategy is really beginning to hit its stride. Just two weeks ago, we led a seminar Industry Summit on business messaging that was hosted onsite by T-Mobile, our first flagship messaging customer. Nearly 69 million consumers, T-Mobile is the third-largest and the fastest growing mobile communications company in the United States. They're breaking them all on how to build a powerful brand and value customer experience and they're truly aligned for the vision of enabling consumers that connect with the brand on their own terms at any time, on any device. Summit is groundbreaking together T-Mobile and LivePerson showcased have brand can leverage the LiveEngage platform to reinvent customer care. Without these messaging reduces cost by deflecting expensive 800 calls and increasing agent efficiency. We also demonstrate how bands can transform contact centers into connection centers by enabling consumers to engage with…

Thanks Rob. As you heard in Rob's comments, the third quarter was marked by solid execution and strong progress of laying the foundation to win in messaging. There are a few key takeaways that bear reiterating. The migration of LiveEngage is advancing to later stages. Nearly 80% of our customers are now on the platform exceeding our initial 2016 target of 75%. We’re also rapidly reducing the exposure to customers who are not yet on the platform. 37% of our current software revenue is now in the platform and we have line of site to a total 73% of revenue that including customer who have already started moving business over to LiveEngage. LiveEngage customer metrics from usage to mobile adoption and dollar retention rates suggest the potential for brands to grow at a healthy cliff post migration. We’re successfully executing our mobile message strategy. We're adding new customers and solutions and we held a seminal event that validate the efficacy of messaging in the contact center and its ability to transform customer care. Financially we also executed on our priorities. Third quarter revenue was within our guidance range and we are on target to hold second half 2016 revenue in line with the first half. The company also continues to capture operating efficiencies as we ship to LiveEngage and continually work to improve our operating model. In fact total operating expenses are tracking to decrease by $14 million in 2016 as compared to 2015 and total EBITDA is projected to increase in the second half of 2016 as compared to the first half. Recall that we are achieving these savings even while investing approximately $5 million a month on cost to ensure positive upgrade experience as our brand move for LiveEngage. With that I will turn your attention to details…

[Operator Instructions] And your first question comes from the line of Kyle Chen. Your line is open.

Thanks for taking the question, really good to see that the migration are moving along. Dan quickly in terms of the LiveEngage dollar renewal rate greater than 100% understanding that it's still a relatively small sample size of customers that are come up for renewals since the initial migrations, I guess can you be a little bit more specific in terms of the magnitude of growth beyond to greater than 100% that you're seeing from customers that are renewed?

So Kyle, this is the second quarter in a row and again its offer small sample set but this is the second quarter in a row where we’ve seen greater than 90% customer renewal rates and greater than 100% dollar renewal rate. Right now, I’m comfortable leading at greater than a 100% small sample size but as we get customers -more customers on the LiveEngage you get a couple more quarters under our belt, we will be more accurate with that information or more target information.

Okay, that's fine. And Rob this quarter you announced go-to-market partnership with GoDaddy I guess, I understand it's early but have you seen any benefits from that relationship and has that help to your customer acquisition and lead generation prospects and I guess just more broadly speaking, how should we think about your use of channel partners to brought in their recent LiveEngage and perhaps takes some of the burden off your sales reps.

Yes, I think obviously and as we focused on the enterprise for LiveEngage we're looking at more and more partners to service down in the small business and the market segments so GoDaddy being one of those. Obviously we got integration on the much - like Facebook and we’re doing stuff and search. So, we sort of looking at that the best way to service that market. We obviously have some a direct sales that are doing - very targeted selling there. But it’s become more key to our strategy where we will focus much more on the enterprise sized customers for the big implementation in the customer care organization and use the channel partners so yes.

Okay. I appreciate it. Thanks.

And your next question comes from the line of Brian Schwartz. Your line is open.

Hi, Rob and Dan. This is Daniel Greenfield sitting in for Brian Schwartz. Thanks for taking my question. Rob could you talk about how sales hiring and sales productivity is trending this year on the hiring front are you on track with the plans year-to-date and is the sales rep capacity where you'd like to business to be at ending the quarter. And then can you also talk about sales productivity trends in general if you are seeing productivity gains with the sales force, maybe across business segments or geographies. And that’s it from me. Thanks.

Yes, we haven't changed the rep count. It’s been pretty steady for this year but the focus as we know is on the migration. So the majority of what they’re doing is working on getting the large enterprise customers in working with support themes on making sure the migrations go well and then supporting them. So that's really what the productivity is about. We even have comp tied to the migrations because we want to finish them up and we’re doing very well at them right now. So I think overall productivity as we get into next year we’ll start seeing a different level of productivity because of the out signing up sells and cross sells and more Greenfield versus focusing on the base and game and converted.

Great thanks.

And your next question comes from the line of Mark Schapp. Your line is open.

Hi, good evening. Nice job on the accelerated LiveEngage migrations. Robert a question for you. With respect to the sales force sales comp plans were adjusted to the quarter so back to favor LiveEngage migrations at the expense of up sells and that’s typically not what the sales reps like or at least like to hear. What are some of the things you are doing just to keep the sales force onboard and engage during this transition here?

Well I mean, we’re kind of missing the point a little bit which is, I talked about it that we launched one of the first enterprise scale messaging customers in the world. We had a very big event with T-Mobile outside their corporate headquarters and brought in 40 very large brands to talk about that and so that's our strategy. And so it’s not about - I think comps are pretty topical thing to talk about. Today where I think it's about we're converting customers onto the platform. The platform has messaging on it and we’ve got the first referencable customers for it and some more beyond T-Mobile. So that's what is really driving their enthusiasm because I really see the potential as our largest customer today which is 11 million, 12 million there is customers that are much larger than that when we get into messaging the size of the opportunity because we’re talking about transferring voice calls and I think we can transfer a large majority, not a majority but like could be 40% of our contract center’s calls on to the LiveEngage platform which we've never been able to do before with just chat. So that's where the opportunities are taking them excited. We are hiring people who are coming out of the call center and contact industry. We have some good perspective on how the whole ecosystem works because we’re getting more focused on competing with the Genesis and the Avaya and the Cisco. And so that’s really what’s exciting is the potential and they’ve got a shining new platforms to sell. So it’s not like we’re working off some old technology. They’re working with the latest and greatest of technology which now we have a great referencable customers there for the enterprise. So if your sales reps kind of get a new platform, you got a referencable customer, you got the future of a complex center and how the industry is going to play, and you got resources behind you. So that’s what they’re excited about.

Okay, great. Thank you.

And your next question comes from the line of Glenn Mattson. Your line is open.

I was upset by a little bit. You just threw a number out 40% of the call center. What are you seeing, what makes you say that type of figure and maybe it’s been early for T-Mobile but what kind of early update could we see?

We can see that if we look at consumer behavior and demand for messaging and what we could do if we’re fully scaled we can that the, the consumer, the behavior they move like all of us are messaging our friends and family when we launch the T-Mobile it is like doom, instantly we can see the demand for messaging and how can impact voice over the long-term so, if I look five years out and that’s is this is all about. There is a pretty high probability that they’re going to be messaging with every brand, we’re going to be instead of picking up the phone calling we’re going to message like we do our friends and family so, that behavior is changing, we’re seeing is it not only T-Mobile that other customers we have live with our messaging so, we're in a good place with that's what we see.

Second question, there is a lot of moving parts and I guess this is kind of a new goal post with the new, kind of line up there for conversion and by the first half of '17. Can you guys say I'm guessing if I don’t want to talk to guidance in '17 but can you give any indication as far as directionally would you expect to see revenue growth in '17 even given all these moving parts?

So Glenn you are right. We’re not giving guidance for 2017 but what's important to us is getting as many customers on the LiveEngage platform is possible. We do know that not all customers are going to make the journey. We also know that in the back half of '17, we can incentivize our sales guys to focus on a migration which has had an impact on up sell to different customers. So from our perspective we're looking through our vision where we want the, our customers are going, where we want to be with our customers upon messaging and so that’s the goal is to get all the customers on the LiveEngage as quickly as possible and then take advantage of that messaging opportunity. And the event that we had with T-Mobile is very exciting to our 40 of our top customers, 80 executives that were there and that’s the goal and the focus that we have right now.

And you mentioned that, twice now that another ones going to come over that has been early gotten further along the path of the conversations then they have a clear insight now as to just what the maximum, conversion rates going to wind up looking like.

Again we have estimates that we have internally, we’ve noting that on comfortable sharing externally but we have 37% of RMR over under LiveEngage platform, it’s a good data point. Another data point is we moved our largest customer on this LiveEngage platform so, that shows you that our largest customer moved over and it enterprise scale. We have line of sight into – total of 73% of customers that are in the process of moving or have moved. So we’re getting pretty far along the map, what we’re going to see [indiscernible] result in the fourth quarter we got a lot of activity happening in this fourth quarter and even into early January and as Rob talked about in his script, we put a line in place that our goal is to be complete with these migration by the end of the first half of 2017. So I think we’re, will be in transparent in trying to get to LiveEngage and getting customers on the LiveEngage platform as quickly we possibly can.

Okay. I guess last question gross margin was better than an expected I guess this quarter anything there to be…

Yes, we do, what we talked about in the past is that we want to improve our margins and this is the first step in that direction. It’s not all directly correlated the moving customer over the LiveEngage but as we get customers on the LiveEngage we know that it’s more efficient platform and doesn't cost as much to support. We know that we don't get all the savings into our gross margin until we shut down the legacy platform but we’ve been able to make some strides and getting moving that gross margin. So, it’s we talked about those margins and we're starting to deliver that in the gross margin perspective.

Well, I forgot, have you said whether would be when once it was converted what do you think roughly gross margins would be?

We talked to get back historical averages which is in about 75%, 76% range.

Okay, thanks.

Your next question comes from the line of Mike Latimore. Your line is open.

Yes, hi thanks. On the T-Mobile customer they get 55 million subscribers at is there a subset of those that are using your service today and it is so like, what percent of those total sub is might be access at a some point.

Yes, we’re on few million devices right now. I can’t give you the extra numbers so - and we’re scaling that so we’re on a pretty selection on all the iPhone today and some of the Androids and we’re using from there. So that’s where we are with it. So we have a lot of interactions happening and demand was quite, they basically launched it, if you are T-Mobile customer you can see it off their app there is a little icon on the front and there is not even promotion behind it, it just went out and then we have a tremendous amount of demand for it. A lot of great reviews in all app stores around it and so we've been running since June 1 is when we went live. So we want to wait and get a lot of data under our belt and how it’s performing and once getting nice enough to have an industry event there with us our industry event if they want to show what they were doing and then how impressive the results are. So we’re at a point where we’ve a lot scale.

And then you talk about the other roughly 10%, 11% growth in LiveEngage you see year-over-year. I guess is that kind of also good ballpark to think about once the customers might over we see that kind of uses, is that use largely tied to just e-commerce growth or how do – what do you think about that.

The usage is the ability to use contents of greater than 25% are using more than just chat. So they’re using content targeting. Mobile interactions goes up considerably because the platform is built for mobile. So all of that drives more interactions because you are getting more tractions with the base. Obviously sometimes some of their traffic is growing. It’s not as much as it used to be in the past. Traffic is fairly stable on most websites. There maybe a little bit of growth but it’s mostly about going after a larger group of consumers and then focused on mobile because 60% of usually visitors to a website are mobile and so we're focused on getting those consumers onto LiveEngage.

Got it. And then with regard to the migrations when a customer's migrates do they typically kind of once they’ve started they clearly end up migrating everything to you guys or are you assuming that some customers don't migrate and maybe they migrate a portion of their traffic over and kind of leave the rest on something else.

No, we haven’t seen that. It’s pretty hard to splint the traffic when we’re dealing with because you need to tag the whole site and we’ve got to look at the whole site. So we’ve had nobody whose has split between one platform or another. So that's something – once they go live on one business unit then we go live over time. Some time they start with a small business unit and then they’ll migrate it but we go pretty quickly on that.

And just last, you said you expect 50% of revenue to be migrated over about a year end. What is the profile like of the other 50%, the remaining 50%. Do you feel like the churn risk there is higher or lower versus the first 50%.

I think we have 73% of the revenue right now that’s line of sight as in it’s migrating. Some of it went in October, it didn’t go in last quarter. Some of the line of businesses that went so there's a little bit more than 20% that we are just finalizing dates and timeframe in the first half of the year and so but we feel pretty good about where we are at the migrations as an organization. So for in many ways it’s not behind us but we sort of booked back of it in many ways because we've migrated our largest most difficult customers in many cases the most complicated implementations in the past were migrated and we’re seeing good results once again in the platform. So we feel really good about - I think the migrations for us is it’s getting into the rearview mirror. It’s not there obviously but it's starting to enter our rearview mirror and at the same time I think it’s important to note that we launched the strategy. So although it’s not like we migrated to chat although we did we also migrated and then getting them live on mobile and mobile messaging. And so we’re able to do sort of these two big things at one time and execute on them quite well which I think is important to set us up for '17, '18, '19 and '20.

Yes, thanks.

Your next question comes from the line of Jeff Van Rhee. Your line is open.

Great thanks a lot. Most of what I need has already been answered. Just two remaining. Dan you had talked about the $5 million in expenses that you had in this current year to accelerate the migration timeline. Just refresh me, what was in there? What were those, just a little more color on those expenses?

Yes, so there were three main components. The first was of outsourcing. So we use them outsourced resources to help us set up the accounts in the background the support our professional service and sales people. The second biggest piece was associated with the prior to [indiscernible] the secondary was associated with compensation aligned to certain groups of people to get migrations accelerated and done as quickly as possible.

So as you go into 2017 and obviously now the T-Mobile and some of that I think you said your largest migrated in a few others that are obviously a large - as you get into the higher frequency of the very large customers, what is it about 2017 that doesn’t require the outsourcing particular, I’m thinking about tagging pages and kind of some of the challenges of a migration. Just help me, you did it this year and not in 2017?

So we’ll have some of those costs in 2017 as we complete the migration but it won’t be as much that kind of the first statement. The second statement is we're heavy into it right now moving our large customers and again it’s not just about tagging pages, it's also getting them setup as an instant, so they can actually see and feel and touch the data while they’re going to the migration. So $5 million is happening in 2016 and some of those expensive not always that’s go into 2017.

Yes.

We’re moving pretty fast from our perspective on the migration, getting those large customers over on to the LiveEngage platform.

Okay. Congrats on T-Mobile. Thanks for taking my questions.

And your next question comes from line of Craig Nankervis. Your line is open.

Thanks, good afternoon. Just a question on the complexion of those migrations yet to come, the remaining 20% or so, is that complexion much different than what already happened in the past few quarters. Is there any way you can talk about the flavor of that?

No, I mean they’re going to be similar to the very complex ones we’ve done. There’s some others that are complex, but we’ve done in the most complex, the largest - the one with the most business units. We kind of done pretty much all of the ones with the high volume, high volumes in mobile, lab and we kind of cut across a lot of them right now. So we feel very good about migrating the rest of them over and absolutely we’re focused on. I believe there will be some - don’t move for certain reasons. And so we’ll have to see where that plays out. We’re kind of - we’re very focused as I said a couple months ago, we’ve got to great platform but the future of that platform is focused on creating more opportunities like T-Mobile and we’re doing that. And if you look at just to the industry as a whole, there's a lot of movement in our space right now one of our messaging. And no one has gotten enterprise customer live with millions of consumers. It’s all about small stuff, even the Facebook stuff that working on it's fairly - their mid-market small business for today, even when the enterprise use it it’s not scale of operation, it's small lease cases. So we’re in a very big hunt to win it and we’ve got the first out and we’ve got our platform that supports. So the migrations we’re probably one step ahead of you guys a little bit in that because we migrated all the complex customers the biggest ones and we feel very good about just getting everyone to meet to convert across the line and then but we’re also focused on absolutely getting them up on messaging. The one who came to the T-Mobile Summit, they’re very interested in messaging and these are very large brands, the largest banks in Telco, and so we’re very focused on doing them. That’s going to win the day here in the area. So the migration is one thing, but it’s too early about also want once we migrate and we get amount to the messaging framework. And we intend our goal to be the central place for an enterprise to plug in and do messaging on their own apps to search, through Facebook and any other place that will happen, and I think we’ve got a good head start, but it can heat up pretty quick.

Thanks for the color. The T-Mobile situation, you mentioned there, I think you mentioned that there is no promotion that the capability, since we just appeared and that is driving the uptake. Do you know, is there a plan for T-Mobile to be more noisy about it or do they plan to promote this in a particular way of the strategy for that or how does - can you share anything about how T-Mobile expects to expand the user base for this?

Yes, I mean I can talk about what they’re going to do because that's - and the stuff, but once again the demand was really significant without much promotion because the demand in consumers, not the call and to do what they’re normally doing, so and that demand continues to grow and as we get our more devices and we're accessing more consumers. So that just - the demand in itself is far greater than we ever expected to be honest, when we launched an hour later, we were flooded with messages and so there’s a significant demand in the market and that's driving what we do. And there is a lot of plans, but I can't speak to what they want to do.

Do you think that there will be initial demand even surprised T-Mobile?

When you’re the first to do something for both of us, I think we just – you don’t know and I think it is a pretty proud day. I’ve always felt that our company is – we invented chat in 1997 and build the company on it and we planted the next flag in an industry that trying to lot of talk and I haven’t seen a lot of action, except for what we’re doing. Everyone is talking about messaging with your Facebook whatever but we saw. It was exciting day even for me to see like you built this thing but it’s part of the vision from three years off of a platform that’s been rolled out. And you see it working like - if the consumers love it, it goes, if they don’t love it, you're done, like the adopted chat on a certain level. And so we’ve just seen some great adoption, and I know for us as a company, we’re just pretty excited to be in the middle of it and to be leading it. And now we are going to get more brands and the enterprise is where I think the win is because there will be large contact centers. And we’re going after that hard and good to have a customer and we have more than T-Mobile with us.

Thanks for the color.

There are no further questions at this time. I will now turn the call back over to the presenters.

Thank you for our Q3 2016 call. And on election night I guess get up to vote, so have a good night guys.

Thanks everyone.

Thank you very much.

This concludes today's conference call. You may now disconnect.