Good evening. My name is Tim and I will be your conference operator today. At this time, I'd like welcome everyone to the LivePerson Fourth Quarter 2017 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] On the call today are LivePerson's Founder and CEO, Rob LoCascio; and our CFO, Dan Murphy. Mr. Murphy, you may begin your conference.

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 this conference call, and in the 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. I will now turn the meeting over to Robert LoCascio, CEO and Founder of LivePerson.

Thank you for joining LivePerson's fourth quarter conference call. The fourth quarter marked a spectacular end to the year. LivePerson once again delivered year-over-year revenue growth and exceeded revenue expectations. In fact, the fourth quarter was our strongest ever for new contract signing, with multiple seven and six figure deals, one of which was the largest in our history and will exceed $20 million over its lifetime. The solid progress made in 2017 and early 2018 has set the stage for a strong rebound in our growth rate this year. We're introducing a 2018 revenue guidance range of $237 million to $243 million, which at the midpoint calls for LivePerson's return to double-digit growth. This is a remarkable achievement considering we just completed our transition to LiveEngage in the third quarter of 2017 and only recently returned to focusing on growth. The growth trajectory and the ramping of our field organization towards full productivity is owed in large part to the investments we have made over the past years in customer summits, partnerships, people and a robust product roadmap. Case in point is the customer event we held in October in Edinburgh, Scotland, as you may recall the purpose of this summit is to showcase Sky, a leading European entertainment company, shifted approximately 30% of their call volume on to messaging and doubled agent productivity by leveraging IVR deflection on LiveEngage, IVR being an old piece of technology that forces you to either speak or press one, two or three to route to a live agent. This was the first time in context in our history that a clear alternative to voice is successfully deployed. Each of the 100 plus attendees that participated walked away from the summit with a custom playbook, for they could go back to their contact…

Thanks, Rob. I'm more than pleased with LivePerson's execution this past year. And the fourth quarter was a great reflection of all that we have achieved so far. Once again, exceeded revenue expectations and delivered revenue growth both sequentially and year-over-year. We're seeing strong share gains across our target customers and prospects, which was evident in the fourth quarter bringing our largest ever the contract financing. The continued strengthening of our leading indicator is another positive highlight. Trailing 12 month average revenue per enterprise and mid-market customer set a new record of greater than $220,000 in the fourth quarter, up from approximately $200,000 reported in the year ago quarter. Customers on messaging had approximately doubled the ARPU of the base. The number of customers are generating more than $500,000 in annual revenue is at an all-time high. Our dollar retention rate held above 100% in the trailing 12 month ended December 31, 2017, and was at its highest level for the year. The measure takes into account the full impact of up sales, down sales, renewals and cancellations from our existing enterprise and mid-market customer base on LiveEngage. We now have more than 40% of all interactions on mobile, an incredible testament to our strategy to go LiveEngage and the ground up for the mobile consumer. Same customer usage growth year-over-year continues to exceed 10%. The consistent health of these leading indicators is a key factor behind our expectations for revenue growth to accelerate in 2018. And as we've highlighted, we're seeing stronger results from customers to adopt messaging and AI as part of our vision for conversational business, driving additional adoption is the priority in 2018. I will now review our fourth quarter operating results. Revenue of $57.4 million was above our guidance range of $56 million to $57…

In the past, Q1s have been seasonally sort of slower on revenue I think, because of usage patterns. It doesn't look like guidance really envisions that now. Can you talk about what's driving that change with seasonality? Is it really just the organic growth acceleration that you're seeing or is there a usage change as well?

It's a good question. Yes, Rich, historically we've had a little bit of down in Q1. But the momentum of the business carrying from Q4 into Q1 has been pretty strong. And as Rob indicated in his remarks and I did, we had one of our largest quarters. We had our largest quarter from a contract signing perspective. So we're excited about 2018 and the 2017 carries into 2018 from a revenue growth perspective.

Continuing on that, how much do you think of the guidance is really sort of backlog from the recent wins you've had versus - A, versus other years when you started or - and how much do you really have to sort of win maybe first half of 2018 to meet the second half?

Yeah, it's a good question. So without giving the specifics, we feel pretty good about our growth in 2017 into 2018. We had a - we returned to growth from a revenue perspective earlier than we expected in Q3 and continue that in Q4. And so, we've had great momentum in the back-half of 2017 as we go into 2018. So feeling pretty good about the guidance and what we're entering the year with from a growth perspective.

The last thing would be, can you talk a little bit, now that you've got a lot who migrated over, the deployment times that you're seeing as you get in sort of these new customers who are looking in particular at messaging? Do you feel like you've got your hands really around that deployment time now? Do you see you're up and getting faster over the past year, as you've done more and more enterprise sort of transitions? Thanks.

Yeah, I mean, as we've gotten many of these large enterprises under our belt. I mean, there are processes in place now. And we've built actually new groups over the past six to nine months to handle the deployments. The cool thing is there is a lot of unique stuff going on out there. We have some new things coming up with some partners and integrations onto the devices like iOS and Android devices. So there is a lot of new stuff. But I think we've gotten a good cadence down of implementing our customers, so.

Great. Thanks.

Thanks, Rich.

Your next question comes from the line of Mike with Northland Capital. Your line is open.

Hey, thanks. Congratulations. Great news there. Just to be clear on the - you said a record times outstanding, is that sort of you are billing of - to kind of record bookings from an ACV basis?

Those are lastly record bookings from what?

Annual contract value basis?

Yes, so it was our strongest quarter where we've ever had from a bookings perspective.

Okay. Got it. Great. And the Sky deal, did you say that was a first quarter booking?

Yeah, the Sky deal was a - yeah, we talked about that being a Q1 deal, yes.

You are right, it's a Q1 deal.

Q1 deal, okay, great, great. And then on the $20 million deal, what was the sales cycle like. I mean, how long were you discussing that? How longer did that take to close?

So it's an existing customer that was on chat and now we're signing a deal to get them on messaging, the sales cycle is about nine months to that particular customer from start to finish.

Okay. Great. And then on the new logo sales team, I guess, you're adding to that, can you just quantify that a little bit, how many do you have, what percent growth do you expect to have on new logo sales?

You mean people-wise or…?

Yeah, yeah, people, yeah.

So from new logo perspective, yeah, we don't break out the new logo perspective. But in our prepared comments, where we did talk about it, we're making an investment, specifically in North America for hunters. Now, just to give you a little bit of recast of where we were, we took our sales team in 2016 and focused them on migrating customers and that worked into 2017. We had to spend a lot of time with existing customers, selling to those existing customers. Now, as we're coming out of 2017 and we started to make those investments already, as we're going into 2018, we have a group that's specifically focused on bringing in new logos and new customers. We haven't broken out that specific number. But that's again our engine for continuing to fuel for growth, along with the partnerships that we have as well as the customer events. So those are the areas that we're investing in and a globalization of R&D.

Good. Thanks a lot. Congratulations.

Thanks a lot.

Thanks.

Your next question comes from the line of Jeff with Craig-Hallum. Your line is open.

Great. Thanks. And I'll echo that, great quarter here guys, looks really strong.

Thanks, Jeff.

Number of areas I want to dive into. Maybe, Rob, just with the respect to the deployees, what percent are really applying or using AI and NLU and sort of the automation, whether it's Watson or some other variation versus just taking base messaging and looking to get up and live, and then we'll revisit later?

Almost all deployments have some bot, AI component to them. So when we deploy, we deploy with some sort of bot, because there is an automated service. And then we get more sophisticated as we go forward. But it's almost all of them are deployed with some form of bot and AI.

And so, just correlating that, I know that Watson IBM relationship is tied. I mean, broadly speaking, how often are they part of your transactions?

We don't give a percentage out, but for the large enterprise, we see them at a lot of deals, because they have a very scalable solution for that side. So they're kind of our premier partner in that area. And then they're generating pipeline right now with their Watson and GBS sales-force, the global business solutions, GBS. So they're out all around the world also with cognitive care offering. That we drove ourselves, so they're also building pipe for us out there.

Yeah. Got it. And then just back to the $20 million transaction, just spend a minute more on that, if you would just the term duration of the contract. But mostly just kind of interested in how repeatable our transaction of that size is? You've said for a while, that there are deals of the scope out there, and they're not one-offs. But maybe spend a minute to elaborating on what the customer is, used case is, and why that size customer and that type used case is something you can win on a serviceable call or a repeatable or a semi-repeatable basis?

Yeah. I mean, they - first, this is going to be a multi-country deployment. So this is a global cable entertainment company, and we're going to deploy from Brazil to Ireland to the UK all around the world. So that's one part of it. The second part is they have such a large volume of calls that it's an impact a very significant amount of that, that's why, like I said from the [aim that] [ph] companies like this spend hundreds of millions of dollars on phone calls. So $20 million opportunity is actually not that big, to even get started, and so that's what we see it. If we look at it very large Telco or bank in the world, they're spending above $1 billion a year of handling phone calls. So that's our opportunity. That's budgeted money, that's fair, that's ready to be shifted to digital and that's our focus right now. So I don't think it's one-off, it's been building as you can see quarter-by-quarter, and we'll continue to grow those types of deals.

Okay. And then lastly, just - I mean certainly do you really bulked up fairly dramatically here with respect to the talent additions in across the board. Maybe just spend a second on the CTO, CFO roles and in just sort of the top one or two things that you think are going to be particular focus. The CTO, you said, globalization seems that's been going on. So you're just trying to separate out if there is any core pivot, you chose these individuals for specific portions of their skill sets. What were the focal parts of those skill-sets that you in particularly wanted?

Really, in both of them - well let's start with Alex our global CTO. I mean, Alex is running the - I think, one of the preeminent user experiences around conversational commerce today. He has a lot - he has a vision for it. And so that's exciting, he's one of the very scalable - this is a platform that's very scalable. And he's run other scalable platforms in this past, he's run global operations. And so we're going to be - there is a lot of - I think, a lot of things we're going to do to invest in globalizing not only Israel and beyond right now. So we've got really up our development centers. So I think its scale, vision and operational excellence. We're going to need to - continue our pace of development, and so I think Alex has that. When it comes to Chris, Chris also has been in software his whole life. Just is in one of the premier cloud companies around data and analytics in the healthcare space. But he brings a pretty rigorous operational excellence, he also the COO there. And I mean, you know one of great margins and they went through their own transformation over the last year, he was at IBM for a while. But also very excited about the vision, understand why what we're doing can really impact the world. And so that's I'm looking for is people who would come here and drive this business. So I truly believe this is a multibillion dollar revenue opportunity for us. So I sort of want to get ahead of it, and have people that can drive towards that goal.

Okay. Sounds good. Great quarter again, and Dan best wishes.

Thanks. I appreciate it. It's a nice endeavor, so I appreciate it. Thank you very much.

Your next question comes from the line of Mark with Benchmark. Your line is open.

Hi, good evening, and very nice job in the quarter, very strong quarter. So first question here, Rob, I was wondering, if you could just talk a little bit about what we can expect with respect to your upcoming marketing activities in the coming year, particularly the customer summits?

They've been a great success for us. It's a great way to pass knowledge between our customers, so we're going to do one in a couple of weeks now out in Europe with larger partner, which will now shortly. And so we'll continue to do them - I don't know, we were doing around one a quarter, a little over one a quarter. So we can get probably three, four in this year, and then we're doing mini - some mini-summits around that. And so that's one part. We've also started to increase the kind of went back in the market on digital marketing and sort of fueling the mid-market, because we're seeing demand there. So you'll see more advertising on that side. But on the enterprise, we'll do two to four big events this year.

It strikes me that your customer summits are - you're very successful. And is there something that's holding you back from maybe ramping is up?

They're big a deal. I mean, they take a lot of work if - over 100 - every time we have one, it's over 100 something customers that show up. They're very, very high end, I mean, the amount of content - the value of the content, the connections, the places we deal them, we always have a - we anchor them with the successful customer, who is basically representing their findings, and they're successful using our platform. Maybe we can do more than that. But there is - I think a certain amount, then we'll do those, and then we anchor around those. There's a bunch of stuff and anchors around that, including all the activities we're doing with the Hunter Group and all that. So it's one part of the multipart marketing strategy, that's working quite well for us.

Okay, great. And then, with respect to our AI capabilities, currently you're partnering with various Bot vendors, including IBM. Can you see a time during the next year or two, where you believe you can need to develop your own or acquire your own AI capabilities?

It's understanding. We bought the company BotCentral, which has some core AI technologies itself. We're taking a path of being a platform, and I believe we've got to be sort of neutral in this part of the technology stack. There are things that I don't want to compete in. Like, I don't want to do with Google, and Amazon, and IBM are doing with some natural language processing, and they're doing stuff that's really hundreds of millions of dollars at things that we can use. There are parts of our platform that are very specific customer care and sales, marketing even retail, retail stores that we need to build and own. So those are the parts we're kind of looking at on the AI side. How do we can predict the modeling around next best action around the consumers on the platform, and we want to make an offer to them, let's say in a month from now of something related to our sales activity for our customer. So these are something to look at, but we're trying to build really, really vibrant ecosystem with all these Bot companies. We can also for startups, give them a home, where they can enter the enterprise, because of our - we host our own facilities and the data and all the securities. So these small Bot companies that may have the technology, we can put them on our platform and get them out into the enterprise. We are not going for making a giant marketplace, it's not our - what we're trying to do - we're trying to get quality over quantity, when it comes to this type of technology. But it's going to be a mix of things, but we want to keep our ecosystem vibrant.

Great. Thank you. That's all for me. And Dan, wish the best.

Thanks, Mark. I appreciate it.

Your next question comes from the line of Kevin with B. Riley FBR. Your line is open.

Hi, good afternoon. Just looking at your pipeline today, could you talk a little bit about what percentage of your deals actually include mobile messaging as a component versus a year ago. And then, when they do include mobile messaging, what sort of win rates do you get versus kind of a chat only deal?

I don't have a percentage, the exact percentage off the top of my head, but it's a large percentage of deals are now in messaging. The whole company is selling that. There are still chat deals that are happening in the mid-market, primarily not as much as the enterprise. Let's say, the majority of the enterprise deals are messaging the implementation, if not all.

Got it. And then, in terms of how competitive the opportunity you secured in the fourth quarter were, could you talk a little bit about whether there any sort of common competitors across some all those deals? And to what extend the customers were focused more or so on the price were just kind of the references you already have in the marketplace?

Yeah, I mean, we're still have something very unique in the marketplace, the voice providers are reacting, as I expected them to, to us taking volume out of their core technology. So now there is starting to ramp up, and say, we've got messaging or take their chat products and try to make the messaging platforms, which is really hard to do that's why we built our own platform, so that's kind of what we're seeing, the fruits in the reference. And right now, we have very large scale of referenceable client. And if you own an enterprise, and you want to bet down on this, this is the real deal. You've got to - you do implementations and trainings, and all the technologies are delivering a platform with partners like IBM and all that. So I think right now, we're just really had of any one out in the market, because we started three years ago building the platform, we are not sitting around, obviously, we have such a full pipeline, right now features that are from our customers, because now we understand the scale of messaging and running Bots and even human agents on it. So we just got to continue accelerating our roadmaps and then continue executing on our plans.

Great. And just lastly, you talked about having kind of Bots of the developed options for a lot of these customers that are deploying early. As you look at usage trends, what percentage of interactions today are kind of with virtual agents are Bots, and how do you expect that to change over the coming year?

It's still a small portion of interactions are fully automated. I would say, I'm guessing around 20% or so, or less - much less our using Bots. Human agents are still the dominant way to interact with the consumer, but that shift is changing. There are times, we're also - we do Bot, human interactions together, which is actually we called the tango, which is like the best way to deploy. And so we offer that combination. If you remember we also have in real time, kept something really interesting, we called MCS, which is our sentiment analysis, which in real time monitor as a human and a Bot, and basically looks at the sentiment of the consumer, how they feel about interactions. This has been very, very valuable on creating this tango. So we are not - we don't hold religion on like Bot and automation. We just want to deploy the best consumer experience as possible. Sometimes, that requires automation; sometimes it's good to have a human interaction. The good thing is when we deploy human interaction; it's still about 40% to 50% cheaper than a human interaction with a voice call. So either way, we can win and provide value to our customers, whether Bot or human. I think, we've been very careful about our deployments using AI and Bots, that they aren't those things you see in the world that are just disappointing. And you see a lot of these on Facebook and things like that, and we're very careful in deploying that we wanted to create a really delightful consumer experience.

Understood. Thanks for taking my question, and congrats on a good quarter.

Thank you.

Thanks.

Your next question comes from the line of Peter with Needham & Company. Your line is open.

Great, guys. You've done a good quarter. First question is around sales productivity. Can you talk about the - I guess, sales productivity from the second half to the first half of 2017, and your expectations for 2018? Just trying to gauge, if you kind of reached an inflection point were kind of sales productivity given where we started - 2017 with reps selling again and new reps that came onboard late 2016, early 2017? I mean, are they now contributing? And is there kind of leverage in the sales and marketing line where you're investing more in these programs, but can you kind of increased quarters, so we kind of at that point with reps?

So, yeah, I mean I think they gave a pretty good - some options of kind of where we were and where we've been, but 2017 is still about finishing off the migration, and yes those reps are becoming productive right now selling, as evidenced by the fourth quarter and having some contract signing perspective, our larger quarter ever. We defeated, the ARPU is going as well, all those give us an indication that things are going in the right way. And from an investment perspective, we talked about the hunters, which again just give us another focused on bringing in new logos into the fold. But as we go into 2018, those reps are getting more productive, and they will continue to get more productive in the 2018 and beyond. We will continue to make investments in the sales organization, so that's why we talked about hiring those specific hunters. We think that's important to get those new logos coming in through the top of the funnel. And as you know in our past, those new logos come in and we continue to expand those new logos from either signing additional lines of business with logo or continuing to go deep. So we got a pretty good strategy as we go into 2018 and beyond to fill up the top of that funnel with those new logos. So we're excited about the opportunities as we go into 2018 and everybody is focused on selling. It's not - the word migration does not exist.

Good. Good to hear. Last question is - you did a great job on your technology partnerships. But where do we stand today in terms of bringing on more of those traditional sales partnerships or if you can talk about strategy you have in play to kind of get some of those guys on board for the year?

I think you'll see for this year is a focus on some of the large, call, systems integrators, but in different languages - I'd say, the technology integrators that are out there, the big ones who are all interested in how do you do the things we're doing with Sky and all the other companies. So I think they'll open up a big challenge for us in selling. And that's kind of a focus, because they're doing big strategic work with these enterprises and that's where we're putting a lot of our focus down. There is also an interesting part on the call-center side. If we can get to the vision of transforming the call center, not just with our customers, I'm talking about the third-party call-centers. We have partnerships with these guys today. But if we can transform them to become more bot-centric and managing bots and crafting bots, I think there is an opportunity to even impact that industry, which had a lot of pressure on it for many years. So I think these are the two areas that we are very interested in and that we feel a lot of interest in us and that's where we'll sort of put our focus this year.

Good. Thanks, and congrats on a great quarter. And, Dan, best of luck.

Thank you very much. Thank you.

Your next question comes from the line of Glenn, with Ladenburg Thalmann. Your line is open.

Hi, yeah, thanks for taking the question. Most things have been touched on, right. But I'm curious, you guys have - previous questions kind of talked a little bit about this, but one thing that stood out in Chris' hiring, in his bio, was just a strong M&A background. Can you give us a sense of how active you guys are as far as looking for acquisitions and would they be kind of tuck-in technology type things or kind of expanding, trying to expand out the - I don't know - perhaps new verticals or something like that?

We traditionally bought companies in the technology side like small tuck-ins to accelerate the platform. Right now, we're just kind of looking out there, looking especially in the AI space and bot space. And so, we are curious about that area. Right now, we don't have any imminent plans to do anything. We're very focused on organic growth and fueling organic growth. We built our own platform, so we're just focused on execution. I don't really want to disturb the good work we're doing right now and have to do some giant integration or something. So it's not really in our plans right now.

Okay, great. Thanks. That's good color.

Thanks.

[Operator Instructions] Your next question comes from the line of Koji for Oppenheimer. Your line is open.

Oh, great. Thanks for taking my questions and congrats on the quarter. Just got a question on bot technology here. It really seems like bots are becoming very common place here in the U.S. I'm beginning to see them all the time here. And, I guess, just thinking about internationally, with international being almost 40% of the business, I was wondering if you could give us some big picture commentary on bot technology acceptance internationally? Is it similar to what we see here in the U.S. or are there any major differences to point out?

Yeah, I mean, it has - there is just much demand for bots and AI outside the U.S. I did a trip at the end of the year around Asia to our offices over there and met with many large telcos and banks between Japan and Australia. And, yeah, it's not a U.S. centric thing. It's basically a global concept. And I think what's interesting about it is not the concept of a bot, because bot really means automation. It's more of intuitively we feel like through a conversation with something we could get a business transaction done as a consumer. And so, why it's so intriguing to everyone, it's not the technology. It's really the - it's just resonating inside of people that automation and build a website and they'll come and one click, it's not delivering on what it was supposed to do. But the concept that as a human could ever - a conversation with someone, ask a series of questions and get those questions answered through an automated service seems to be a user experience, but all of us think it's natural, and I - so that's just the human experience. So globally no matter whether you're in Japan or Singapore or China, the United States or wherever, we have a sense that conversing with a user experience will allow us to get a transaction done. And this is why it's a global phenomenon. Now, implementing bots is the thing that - it's a work in progress. We actually created a design group now of the company that works with our large customers and does like multi-day workshops on designing conversational flows. And we then have a - we hire guys who did a Barbie doll, there is a talking Barbie doll couple of years ago. Now, he's working here and he's helping customers build those conversational flows. So it's exciting, but I think once again it's resonating with something as a human, as we need to converse to get a business transaction done and that's why it's a universal thing.

Great. Thanks for that color, Dan. Or - I just got - Dan, I got one question for you. ASC 606 and I apologize if there was any commentary on that before, but maybe some high-level commentary on any potential headwinds or tailwinds on how that is affecting the 2018 profitability guidance.

So, Koji, that was Rob LoCascio response so…

Oh, sorry about that. Sorry, Rob. Sorry, Rob.

But I - I give that over to Dan. It's his last call on here [indiscernible].

Sorry, Rob.

So we're still going through the process of ASC 606. But we've done a lot of the initial work over the last couple of quarters. And we don't expect any headwinds or tailwinds that matter for ASC 606.

Okay, great. Thanks, Dan, for that update and congrats again on the quarter and best of luck, Dan.

Thanks, Koji. Appreciate it.

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

So before we go - and this is Robert this time - I just want to thank Dan for the past six years for all the work that he's done. Obviously, he joined as we started the pivot. And as a public company pivoting is never an easy thing. And there were many calls where we're sitting here and looking at each other and just wanting to get through the call and get to the next day. But I want to thank him for all the service that he did for the company over the past six years and I want to wish him luck in all his new ventures. And as a company, I want to thank him for his service and so thank you, Dan.

Thanks, Rob. That's very nice of you. Thanks.

And for that, we'll see you on the Q1 call.

Thank you.

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