Thank you for joining the LivePerson’s First Quarter 2018 Earnings Call. On the call today are LivePerson's CEO and Founder, Rob LoCascio; LivePerson's CFO, Chris Greiner; and LivePerson's VP Investor Relations, Matthew Kempler. I would now like to turn the call over to Mr. Matthew Kempler. Sir, 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 first quarter conference call. We entered 2018 with a really strong start exceeding the high end of our first quarter guidance ranges for both revenue adjusted EBITDA. We increased revenue sequentially for the fourth consecutive quarter and generated 14% year-over-year revenue growth. Our return to mid-teens growth is a great testament to the momentum we are building around LiveEngage. It’s also a key milestone for LivePerson as we continue along our targeted path of generating 20% plus growth. The leading indicators for continuing to push along this path remain promising. After closing our best quarter ever for contract signings in the fourth quarter and winning our largest deal ever, we once again saw strong demand in the first quarter. Mobile activity continues to fuel our growth accounting for 45% of interactions in the first quarter, up from 35% a year ago. Our trailing 12 month average revenue per enterprise and mid-market customer continues to set new records, climbing nearly 20% year-over-year in the first quarter to more than $240,000. The LiveEngage revenue retention rate once again exceeded 100% and hit its highest level since we began tracking the metric. With another strong quarter of achievement, we are raising the low end of our 2018 revenue guidance by $2 million. We now expect 2018 revenue in the range of $239 million to $243 million, up from $237 million to $243 million previously. We’re also raising our 2018 adjusted EBITDA guidance to the range of $22 million to $25 million from $20 million to $23 million previously. Updated adjusted EBITDA guidance reflects a favorable impact from the completion of our ASC 606 review, which is reducing our commission expense forecast for 2018. Chris will discuss this in more detail. The investments we are making in sales, customer…

Thank you, Rob, and good afternoon to all of you. Before we delve into the quarter to discuss our updated view of the year, I want to take a brief moment to convey my excitement with what LivePerson is building. What attracted me to LivePerson and what has been reinforced since joining is the mission-driven culture of the company and its obsession over innovation and customer success. I'm very impressed by the depth and breadth of technical and industry expertise at all levels of the organization and highly motivated by the opportunity in front of us to be a transformative leader in conversational commerce. In short, as a CFO, there simply is no better set of ingredients from which to drive long-term shareholder value. In that setting, I'm directing my attention to three primary areas in support of the company achieving its long-term targets of greater than 20% revenue growth and adjusted EBITDA margins in excess of 20%. First, we will more broadly utilize data-driven insights to strengthen quality, increase speed and improve productivity at global scale. These are the building blocks of sustainable growth and margin expansion. Second, we will evolve to an organizational framework that is designed to accelerate growth by becoming even more nimble in delivering innovation and servicing customer demand. And third by becoming leaner operating, we will scale margins while freeing up additional capital that could be deployed to areas of our business with proven ROI characteristics namely customer summits, partnerships, go-to-market resources and technical expertise. In fact, we're already seeing momentum build across a number of notable leading indicators due in large part to these investments over the last several quarters. Illustrations of this are as follows. We returned to double-digit growth in the first quarter. We had record contract signing activity over the…

[Operator Instructions] And your first question comes from Koji Ikeda with Oppenheimer.

Great, thanks for taking questions and I welcome to the team Chris. My first question is from Rob. That new customer or the new enterprise and mid-market deal metric of 100 in the first quarter. I think that’s the best first quarter absolute number we’ve seen in a long time. And based on the ARPU metric too, it looks like much bigger customers. So I guess my question is thinking about the new customers that are coming to the platform and I guess in the aggregate, what sort of initial penetration are you seeing at the customers to start? And what I’m really trying to get out I guess that I’m trying to understand the motion of the potential to expand opportunities in these new deals?

Yes I mean it’s – this is a huge opportunity. I mean it’s – when you start out, we’ll start out usually in a single channel like IVR deflection in-app could be something with Apple Business Chat. And when I look at where we can go with these customers, it’s even stuff I didn’t envision a hundred percent over a year ago, when we launched the platform, which is we’re doing retail for one customer where he can message back to people who are in retail operations. Apple Business Chat opens up a whole bunch of stuff that we're going to be able to do on selling. I was just at the Facebook conference there's a whole push for, there's now a messaging ad unit on Facebook that you can advertise messaging and you click on it and it gives you right to Messenger. So we're really even if we look at the calls we're trying to deflect out of care, we'll start out getting -- try to target 5%, 10% of them and we're ultimately trying to get the 80% of them. So we're really at day one, and then all these other opportunities are opening as Apple Business Chat, Facebook. Now Google is coming out with their messaging product. So it's sort of a very much day one.

I think just in terms of the metrics we actually closed a bit over 100 in the fourth quarter, but that growth rate pales in comparison to where we are now at 32% just for a bit of color, the new deals signed with new clients, new logos was up 40%, but the cross sell and up sell up 29%. So it was really pretty broad based.

Great, thanks for that color. And I guess one question for Chris here, looking at the balance sheet [Audio Gap] prepayments, or big deals, I’m just trying to think about that with long-term deferred on there.

Yes you broke up a bit. So if I don't fully answer your question, just you can go ahead and repeat it. But yes I mean deferred revenues is quite strong. I think what you're seeing there is the success of stringing together multiple quarters of really good contract performance, but also more upfront payments in some of the longer-term deals that we're making, that we're striking.

Okay I think that kind of addresses the long-term deferred revenue on there, right. You had some multi-year prepayments this quarter.

The payments reflect the cash in advance, typically on annual contract value, not on multiple years.

Got it. Thank you very much. Thanks for taking my questions.

Thanks Koji.

Thanks you.

And your next question comes from Richard Baldry with Roth Capital.

Thanks. In the past, the times are sporadically -- you've talked about the growth in cohort usage sort of on a year-over-year basis of people that are on the LiveEngage platform. I’m sort of curious if that is still a positive or tailwind for your revenue growth on the usage side?

So if you're talking about customers that have moved over and what their trends are after they move over to LiveEngage Rich?

Right.

Yes, so absolutely same customer usage growth is greater than 10%, it’s been consistently greater than 10% since we've been reporting that metric. And as you can see the mobile side of the business, with mobile interactions reaching a record 45%, is one of the key drivers of that. But I think you're seeing that translate into the ARPU that we've been reporting which has been increasing sequentially for the last several quarters being driven by customers who have come on to the platform, expanding usage, as well the larger new deals we’re signing.

And with the record bookings you’ve had in the last two quarters, seasonally and combined, can you talk a bit about how you feel the sales team is in terms of maturity, tenure? How much do you think still sort of has a lot of room to kind of grow into their quotas to give us a feel for the capacity?

In the U.S. operations we just added a hunter team last quarter. So they're getting up to speed on pure new logos. So there's a lot of capacity there. In Europe, we have a very seasoned team but there's just a tremendous amount of opportunity. Same with Asia what we are doing in Asia Pac. So there's a lot of demand in the market for this technology. I think once again the acceleration are also the Apples, the Googles, the Facebooks, now with Alexa where we integrate with, all those front ends out there. So there's just a lot of demand. And I think there's a lot more capacity we have left in the sales force. And where we're going, we did add some more headcount to the sales force this quarter. I think we’re up to about 48, which is our, I think, a high out for us. So we're just starting to add back into that area because we see the demand in the market.

And I’d just add it's not just the scaling of the direct sales force which obviously speaks to the 48, but if you look at what we're doing globally as well, there's a tremendous focus on expanding indirect and the channel relationships that we have.

So Q1s are typically pretty seasonally tough for you which you grew sequentially, pretty solidly. If we look back to last year, you're sequential growth dollars in the second quarter, third quarter were very strong. Is there anything unusual in the seasonal patterning either last year, or even in this quarter that we should be careful about when we're rebuilding our models? Thanks.

Yes Rich I think when you look at last year we had a trough right, when we were approaching end of life on the legacies which you saw when we had our fourth quarter call we talked about that finally $15 million that wasn't going to come along for the rights you saw that flush out. Which set us up for I think for some stronger sequential compares. Then we talked about it in the second quarter of last year some onetime revenue that came through, which helped us. And then we also had some in the third quarter, some PFP revenues that was in advance of our expectations. So that’s some of the pieces on the sequential side last year.

Thanks. And congrats on a great quarter.

Thanks a lot Rich.

And your next question comes from Jeff Van Rhee with Craig-Hallum.

Great, thanks for taking my call. So a couple of – can you hear me?

Yes, you broke up a little bit, but go ahead yes.

Okay hopeful you can hear me. The ASC 606 change and the benefit you're seeing on the S&M line. the S&M line, if I heard it, mid-single digit millions benefit there, I guess. You're flowing through two of it of the incremental portion you're keeping. Just spend maybe a minute longer specifically where you're putting that and how you're prioritizing where you're spending that.

Yes certainly. Thanks Jeff. This is Chris. Great question. So just to kind of recap what we said mid to high seven digits you can assume that that's roughly spread evenly across the year, but it’s obviously, largely dependent upon the revenue and the contract signings during the year. In terms of what's getting passed down to the bottom line you're correct it’s about $2 million where the reinvestment is going to go, think about it really in two categories, there's an element of what we were planning to do that we've now accelerated, hit the accelerate button on it, if you will. And that's really around a lot of the hires that we've made both in technology and in sales, these are just incredibly impressive people from premier brands that want to come do what we're doing. I think Rob talked about that with the fact that Alex is here and the type of talent that he’s attracting. So that’s kind of acceleration component, hiring faster and sooner than we were counting on. Second category I'd characterize is really doubling down. A good example of this is what we did in the first quarter when it became apparent that we were going to have this benefit. We took what was typically a regional customer event in London, we made it Global. We doubled it in size. And I think customer event in London, we made it Global. We doubled it in size. And I think as we commented on the past, those are expensive adventures with high ROI and they're million-dollar events. So it's going to be in those same categories, more summits, bigger summits, more partnerships expansions like we have with IBM and looking to extend that with others. Certainly, sales capacity expansion particularly in Asia and North America as well as building on our technical expertise.

Got it. And then on the telco side, you referenced the deal where you replaced two vendors. Who did you replace? Maybe just talk a bit more about that deal.

Do you want to hit that?

So one of them was a large ERP provider, also space in the contact center and the other was a small solution that the company had bought thinking they could solve the problem.

Okay.

Chat providers.

Yes chat providers.

They were chat providers that we took out with messaging.

Okay. And then just last from me. On the revenue retention you've commented that it's $100 but you didn’t say it was a record. Can you just fill in maybe a bit more about the magnitude of the upside or the record, if you will?

Yes I think we’ll stick to just characterizing it as greater than $100 but attrition hit a multiyear low. I think it's just a testament to the stickiness now of the new platform and the adoption rate that we're seeing with our clients. Very strong.

Yes thanks a lot Jeff.

Thank you.

And your next question comes from Peter Levine with Needham & Company.

Great, thanks guys for taking my questions. I’ve just kind of eluded to it earlier but a lot of the checks from this quarter seem to kind of come back more prevalent on the fact that a lot of brands and retailers are no using messaging and chat more in the front line for sales reps. A lot of these brands came back and said they're really seeing improvement in their kind of customer acquisition cost. As you sell it as more of a sales channel, how does that change your sales process? And how do you look at the upsell, cross-sell opportunity in terms of other departments once you kind of land within an organization there?

So this is sort of the magic of messaging and this is what makes it quite powerful, is that when we start out although we may go into one area like customer care, predominately, where we're beachheading in, we actually align all the groups before we get started because messaging gives us asynchronous and the consumer is always connected to the brand. There's no break in the action. So a consumer who goes through a care flow then comes back and asks to buy something and we see this today. So it's just a natural part of it and it becomes this mesh of the pieces of the business like one of the big telcos in the U.S., we've got the retail folks in there now. We got the care folks, obviously, we started there, their sales. But it's just one continuous conversation with the consumer. So it's a natural thing and it allows the organization to align with that also. So it's like we need we do a lot of work upfront working with these enterprises to make sure the right people in the room so that when we go ahead and lock down a deal and these are obviously becoming much larger deals, there's a hope and promise that we're going to deliver on a unified connection with the consumer, a unified way to sell, market it and service with them. That's what we see today. We're also seeing the beginnings of something that's also very unique to messaging, which is productivity. We have brands that are using it to go outbound to the consumer for some of that. So we had one of the big broadband providers in the UK, they use it to promote a fight that was going on. They also did outbound for care when there is services outage, so the consumers would get a notification. So we did a retail case here in the U.S. where we took dormant customers of a telco and these customers they are customers, but they just are not buying stuff, we did outbound to them on SMS and we got a very high conversion rate back to getting people into the stores. So that's kind of the other hidden part of messaging, which you don't get in chat, which you don't get. And obviously you could do outbound telemarketing on phones, but mostly we don't want to get telemarketed to. But we find when the consumer gets a message, they go like this is cool. And I’ll come back and I’ll answer that. So we’re seeing some good results there.

Great. And then I guess finally longer term, you're investing in sales and marketing this year as well as in R&D. But can you talk about where you think messaging can go in the next say two years, right? And what kind of products could we expect that you guys could launch if not acquire but just technology rise, right. A lot of checks while this quarter came back as knowledge management, experience management really helping the customer engage, but also on the backend. So just curious to know what we can expect in terms of functionality over the next two years.

There’s a couple of pieces obviously there. I think we're getting to a place where we’ve got almost all the front ends taken care of. So whether you have voice, the voice in home, virtual systems like Alexa connecting with that, all the way to these books to in app, to SMS, to IVR. So we're kind of we doing – there’s a lot of – I don't know how much more we're going to need on the front end especially when Google launches chat and we got Apple business chat. So that’s those parts. The second part is when a consumer comes in, we have automation that happens. So we're routing bots and concierge bots to figure intent from the consumer. Then we go into a route that intent to a live agent or to another specialized bot. So you have to build those bots and we're doing conversational design around those areas. But I think there’s some specialization in those technologies that we see that you need. Our acquisition of BotCentral is actually giving us some good tools to design those compass bespoke bots. And the next step down is I’ll call the consistent run across every brand, for instance bill pay, tracked my package, things like that. And those are connected to back ends. And so those are things that we want to build, we want to unify across all of our customers so there's like one way to pay a bill between telcos, all the telcos in the consumer has a great experience. So those are the areas. Think and I don't really love the word CRM but it's going to shift, I think, because the conversation becomes the knowledge of the consumer. And so the concept of CRM where you save some data into a database, it changes dramatically when we're looking at a real – a conversion that happened what do we get out of that conversation? So we use technology to look at the insights. And then we're going to look at next best action. So an event happened at the business, it says sell somebody something or give them something proactively. And that can all happen on the platform proactively and through the conversation. So I actually think there’ll be a shift in CRM that will happen in the next 24 months but it’s exciting. I was just at the F8 Conference and I did a panel there with the Head of Product from T-Mobile. We talked about the results they are getting on conversion rates on Facebook Messenger far outweighed their website. And what I put out last quarter as I said I think there’s an opportunity here that there are a lot of websites and functionality websites get consumed into the messaging framework. So we have that, we have phone calls. So we’re really at day one and it's exciting but it's just every week, there's a different opportunity.

Great, I appreciate it. Thank you very much guys.

Thanks a lot.

Thanks.

And your next question comes from Glenn Mattson with Ladenburg.

Hi, thanks for taking the call. Most of the my questions have been answered. Curious Chris you mentioned some of your initiatives as you take the helm here. I think one thing you said the framework design to support growth. So I'm just curious, do you need to do as you kind of made your initial assessments, did you see a major investment that you need to make at any level to either support your department or the sales function as it’s already been put in place?

Glenn look I think kudos to Dan. Dan really did a superb job in building a really solid infrastructure to support the company. So there's always fine-tuning and personal preference that someone has, but there’s nothing structural that needs to change. But what we did observe, what I did observe is that we have an opportunity as a company to take the center of gravity and push it even farther out to where software development is happening and where sales and client interactions are happening. So if you can picture it you’re kind of just pushing that weight out to the side and that's where we're going to direct investment. We believe that that will improve quality, we believe that will improve our speed of execution not just internally but with our clients and both those yield productivity, at least in my experience, it's the combination of those forces that lead to sustained growth, real powerful operating leverage. It's just not kind of ripping cost out and doing it one time. I think those are the ingredients that are allowed to last for a while. So that's going to be to focus and there's a lot of buying for the company. It couldn't be happier for the leadership’s openness to thinking about it this way. And we're investing in them rather than taking away. So it's exciting time if you think there's too much opportunity right now to let it go by.

Great thanks for that. And Rob this might not be fair, but I'll ask anyway. You had the biggest deal, I think, in the company history last quarter. Obviously, average deal size are going up clearly from the results. But could you talk about the pipeline for other kind of large megadeals as it matured and developed further over the course of the first quarter. Thanks.

Yes obviously where the enterprise is doing big game hunting and we have a model to get large deals and to show return on investment for our customers when they remove those voice calls. So most of these large deals we're working on, it's a commitment of the organization to transform to digital, and that digital experience happens through messaging and especially bots and AI, obviously. So these deals, I think could get bigger. There are deals one day that will be $100 million deals and very large deals because like a large telco or a bank will have a $1 billion worth of costs in taking phone calls. And if they can cut those down by 60%, 70% and think of the savings and what we can gather in value for our company, so that's what we’re playing for right now. So I don't know what the cap is on the deal size, I know they keep staying large. That was our largest but I would think somewhere through this year, we'll have something that becomes the next largest.

Okay great, thanks. Good luck for the rest of the year.

[Operator Instructions] Your next question comes from Mike Latimore with Northland Capital.

Great thanks. Great quarter. Just to clarify, did you say that the bookings in the first quarter were a were a record high for first quarter, is that what you said?

Yes that’s correct.

And then T-Mobile is one of your bigger customers. They're bridging with Sprint is that sort of an opportunity there or not an event?

Yes I mean I can’t obviously comment on the merger but they are acquiring then if you – I read the press releases and they’re talking about their care model. And boy their care model is a real leverage point for them. So we view it as an opportunity. Obviously, it's going to take a while but that's as far as we know today that just happened.

Got it. And then you mentioned adding that 100 team [ph] earlier in the year. How many people are in that group?

So we haven’t disclosed the number of people in the 100 group. But we added anywhere between five to six to the group in the first quarter so a good size addition to the team.

Got it. And then are you seeing any of your current customers as they add messaging? Does the messaging tend to be incremental to kind of what they're paying you for or does it tend to replace the chat volumes?

You mean on the base?

Yes.

Right now it’s pretty incremental because chat this is the reason we pivoted the business. And our best customer chat was 10% of our volumes. So we had 90% still stuck on voice. So if you look at chat really is web and we actually end up flipping web synchronous chat into web messaging and then we go into the IVR or their app. We pick up incremental volume today. And so that’s what’s happening today.

Okay thanks you.

Okay thanks.

Thanks Mike.

[Operator Instructions] And we have no more questions at this time.

Thanks everybody for being on the call and we will see you at the beginning of August for the next call. Have a good day, bye-bye.