Good afternoon. ladies and gentlemen, thank you for standing by. Welcome to LivePerson’s Third Quarter 2018 Results Earnings Call. My name is Didra and I’ll be your conference operator today. At this time all participants are in a listen-only mode, after the prepared remarks the management from LivePerson will conduct a question-and-answer session and conference call participants will be given instructions at that time. As a reminder this conference call is being recorded. I would now like to turn the conference all over to Mr. Matt Kempler, the company’s Vice President of Investor Relations. Please go ahead, sir.

Thanks very much. Joining me on the call today is Robert LoCascio; LivePerson’s Founder and CEO; and Chris Greiner; our Chief Financial Officer. 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, in 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.

Thanks, Matt, and thank you for joining LivePerson’s third quarter earnings call. Revenue increased 14% year-over-year to a record $64.2 million in the third quarter. This marks our sixth consecutive quarter of sequential growth and the continuation of our mid-teens year-over-year growth trajectory. We are once again raising revenue guidance for 2018. And Chris will share those details shortly. Our results reflected another strong quarter for demand generation, contract signings, increased 12% over the second quarter and nearly 40% year-over-year. We signed three seven figure contract, one of which was with T-Mobile, which is the largest in our history. I want to take this quarter call to spend some time reflecting on the past two years of progress. As many of you know T-Mobile is our first messaging customers when we launched in 2016. At that time messaging wasn't even on the radar of executives overseeing digital customer care. Strategically we started with the idea that consumer behavior had shifted to platforms like messaging that today the client were over no more IVR. Then T-Mobile went live and none of us knew what to expect. It's also phenomenal, consumers love being able to message directly to T-Mobile agents instead of being forced to call. And we realized it wasn't a simple communication channel, but the new way to do all things digital. A few weeks ago, we hosted a conference with T-Mobile in Charleston, South Carolina with over 100 executives from some of the largest brands in the world. This event was T-Mobile showcase for brand to see upclose they're on carrier move called Team of Experts, which eliminates the need for voice IVR. Team of Experts is foundationally built on the power of the live engaged platform and the work we have done with T-Mobile over the past 24…

Thanks, Rob and good afternoon to all of you. I too couldn’t be more pleased with the pace at which we're bringing leading technical capabilities to our customers. I'm also excited by our consistent execution, especially as we build the go-to-market engine that scalably addresses a rapidly expanding opportunity. I’ll focus my commentary on the leading indicators continuing to guide our investment decisions. These are the same ones that also underpin the strong results we delivered in the quarter and support our continued growth outlook for the business. Specifically in the third quarter we generated record revenue of $64.2 million, up 14% year-to-year and 4% sequentially. Both of our segments delivered double-digit year-over-year growth, with B2B rising 14% and consumer 12%. Our industry expertise in telecommunications and financial services once again translated into strong growth contribution, with both of those verticals generating greater than 30% and 50% respectively. Let me highlight two of the many key wins in these industries where we continue to win share. The first was a seven figure expansion with a Fortune 100 multinational financial institution. This customer will be deploying Apple Business Chat as they seek to modernize consumer interactions to new engagement methods. The second was another seven figure win with a leading telco in Germany. They began working with us under the accelerator pilot program in the first quarter and after seeing strong consumer preference for messaging they signed an expanded contract with us to add many new consumer endpoints putting Apple Business Chat, WhatsApp, in-app and web messaging. From a geographic perspective our international markets once again delivered an excellent quarter, posting year-over-year growth of 30% and accounting for 42% of revenue. Overall our U.S. revenue grew 4% year-over-year, which was in line with our expectations and worth breaking down further as…

[Operator Instructions] And our first question comes from Ryan MacDonald with Needham & Company.

Hey, good afternoon, everyone. Congrats on the quarter. Just quickly, I guess, first question on the acquisitions you made with AdvantageTec and Conversable. Is it sort of against a shift in strategy as we are seeing or as we’re driving towards that 20% growth target that you’re going to kind of continue to look for some of these additional acquisitions that can add value or help accelerate you toward that target?

It’s not really a shift, it’s just we’re adding in with the car automotive vertical. Right now we had all the parts to discover, do discovery, search for cars and then actually buy them through messaging. This gives us the next -- the last part of the process, which is all the servicing post sales, oil changes and all that. And they have about 500 customers; we’ve got north of 10,000. So, it gives us an area to really sell into that, but it creates the end-to-end journey in that vertical. Conversable on the other side, we -- they have some very good technology and they are very focused on the quick casual restaurant vertical, we have OnStar. So, they have retailers. So, it gives us a foothold in that area. They have outbound targeting capabilities from marketing and that will accelerate some development on our platform versus us building it organically. So, we picked up about a little over 20 engineers in Austin and gives us a hub in Austin now for our developers. So, it’s not really a shift, it just is an acceleration of we’re trying to get more technology and then it creates an end-to-end vertical. You should start to see more, and I said it in my speech, which is we are getting very focused on filling out verticals when it comes to the consumer experience. So, we’re looking at areas to invest in, to organically and non-organically to sort of fill that out.

Got it. And then just a quick follow-up on sort of the Apple Business Chat and the updates we saw during the quarter. It seems like obviously there is some really nice and strong success here in signing up additional customers. Do you think longer term I guess, strategically as customers look at this, that this would be an area where Apple Business Chat is adding incremental chat volumes or do you think it’s more replacing volumes from other channels? Thanks.

If you look at Apple’s strategy from a year ago when they launched it, it was really about what line to ours, which is replacing the phone call to customer care operations and sales. So, I think we’re very aligned in that area. The ability to on device securely and this is an encrypted communication channel to message through our platform to a brand is a very powerful thing. We also have Google with RCS and Google Rich Business Messaging, which is the other obviously big device and big operating system. So, these two I think will drive a tremendous amount of adoption. This seven figure deal is like predicated on Apple Business Chat. So, we -- right now I think it’s little north of 50% of the customers on Apple Business Chat are riding on our platform. And we’re obviously doing very big deals and we’re doing more importantly great consumer experiences. And so, like I said, even the Aramark deal that we did with the Brew 2 You experience was purely on Apple Business Chat. And so, we see it as just -- it’s another way to drive consumer demand, which then drives business adoption.

And our next question comes from Mark Schappel with the Benchmark Company.

Hi. Good evening. Thank you for taking my questions and nice job on the quarter, especially the top-line. Chris, starting with you, I appreciate your comments about your channel programs in your prepared remarks. I was just wondering if you could just provide us some additional details around maybe some of the initiatives that are taking place or that are underway at the company regarding building up your channel ecosystem and building up that pipeline?

Sure, Mark. And thanks for the kind words. So, let’s start with how channels are evolving at the company. So, our channel prowess was really isolated to Europe where about on average 50% of our booking have been partner generated. So, what that’s given us we believe is a very good blueprint for how to replicate it in North America and Asia Pacific. The results you’re seeing right now and the newly created pipeline is heavily in North America. We have not yet started with the same level of capacity in Asia. What we’ve done is, we’ve brought in a terrific team of partner leadership. And if you look at how we’re partnering with very valuable strategics like IBM and Accenture, we’re not just pushing LivePerson, we’re increasingly being pulled. And I think it’s a combination of the capacity in North America, a really good blueprint from Europe. And as Rob mentioned, the theme of conversational commerce is pulling us towards those engagements rather than us having to push and emphasize our capability.

Great, thank you. And then also in your prepared remarks, you noted if I recall correctly a telco customer that left the company years ago, but has kind of now returned to the LivePerson fold. I’m wondering if you could just give us some details around how that deal progressed, obviously I’m sure your sales -- one of your sales reps or even sales teams have been calling on that customer for a while. But maybe just give us a few more details on that?

Yes, I’ll -- Rob can give some color, but this was all about creating an opportunity for the customer to take a bite at the capabilities in an easy way. We went direct with it. It had been as you correctly point out a pretty long engagement cycle, but for good reason, this is a large telco. But they’re already on the platform and we’re excited about the opportunity to grow it.

And your next question comes from Koji Ikeda with Oppenheimer.

Great. Congrats on the quarter guys. Just a question on the EBITDA guidance here going forward, I know that the guidance you’re taking it down for the two acquisitions here in the upsizing of the T-Mobile event, which makes complete sense. And I know you’re not giving out any 2019 guidance today, but just thinking about some of the commentary that you’ve had with the investment that you’re making in the go-to-market strategy and the technology too. Curious if you could talk real high level on how to think about EBITDA margin expansion going forward here as we set our models? Thank you.

Yes. Hey, Koji. Thanks. Hope things are going well with the new one. Let me start with -- we thought it was really important and you’ve seen us add it to the last two scripts that we have obviously increased our rate of investment as we’ve seen the market continuing to expand that opportunity. But it’s been important for us that to be very clear and transparent as to where that investment is going. And if you saw on this call point directly back to the proof points as to why we believe they continue to be the right places to put our reinvested profit. If you think back for the year, I’ll use rough numbers. For the year, we will have reinvested about 8 points of adjusted EBITDA margin. If you go back to the initial growth rates on the top-line that we expected this year, right around 10% as a midpoint, we currently see ourselves at 14%. So, already within the course of the year from a ramping set of investments and 8 points of margin, we’ve gotten back already 4 points of incremental growth. And most of those investments at this point have been directed towards enhancing our product capabilities and building out our top of the funnel. There is a logical next step now to -- as we have a great pipeline to go close the heck out of it and progress the heck out of it. That will require some capacity. I think you’re going to continue to see the company in an investment mode. The demand in the market right there right now compels that we do that. Not ready to obviously give future guidance on margins, but the theme of growth and market demand outstretching our current capacity right now will continue for the foreseeable future and it’s organic to make that point. These organic capabilities we’re going to deliver on.

Got it, Chris. Thank you for that color. And next question for either Rob or Chris, just real high level here, a question on the work that you’re doing with Google on a rich communication service initiative, how is that progressing? And at a very high level, I’m not too familiar with it, so how does it compared to say Apple iMessage or Facebook Messenger and what does that potentially mean for increased interactions for LiveEngage?

So yes, we took one of the first banks’ lives here in the U.S. Was it announced the bank or not? It was one of the big banks, not announced yet publicly, but we did that with them, we’ve done some other launches with them. So, when you look at RCS globally, there basically two part to it. One is they’ve got to upgrade all the carriers to the RCS service. And then they’ve got a client that sits on the mobile device, which they’ve gotten Samsung now to commit too and they’ve got Rich Business Messaging, which is the business part of that. So, they definitely have to do a little bit more work to scale up, but the bottom-line is every telco around the world wants to increase SMS, SMS is an old technology. They want to use RCS because it makes it very much in parity if not better than WhatsApp or Facebook Messenger. So they're very aggressively pursuing this and we're seeing them as a great partner. Obviously with Apple and iMessage easy to get it they don't have to go to a carrier it's there it's a closed system. So Google has to do a lot more work, but the bottom line is more people are on SMS today. There are 5.3 billion people who use it in 60 billion messages a day. It's larger than any single OTT over the top messaging service like WhatsApp or Facebook Messenger. So once that thing hits it's going to create a tremendous amount of impact in the world. And so we are just working with our customers and we're creating services around RCS and obviously doing that with Google's version and also working on other versions. Like in Japan they don't use Google's version and we have KDDI, they have their own version of RCS that the Japanese provided. And so we're integrating into these services. So that's how it's playing out today.

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

Hey Jeff, we can't hear you, if you're there, on mute.

Yes, tried again. How is that.

There you are, we can hear you.

There we go the old mute button. All right. So start with that. So a couple of quick ones for me. So as I look at the $4 million EBITDA reduction for Q4, can you dial that in at least a little bit more of a sense of what is Conversable and Advantage versus the T-Mobile event? I mean, we're not getting forward guidance, I think it's important to understand what's really driving that.

Hey Jeff. I'll pick that one. Obviously we didn't go into the specifics of it, both Conversable and AdvantageTec are very early stage subscale companies. So as a result you can imagine what the P&L profile of it looks like. And then the T-Mobile event as you've heard us say in the past, we typically spend on these events in the neighborhood of $1 million that’s over a day and a half and call it 50 to 70 of our customers and prospects. We did this one over a week. We included a heavy presence of our technologies and a demonstration of them and we increased the size of it to well over 100. So I'll let you deduct the math from there. But roughly speaking the change in EBITDA is pretty evenly associated with the combination of Conversable and AdvantageTec and the significantly upsized T-Mobile event.

Got it, thank you. That's helpful. And then you talked about a couple of things on pipeline, I just want to make sure I got this right. So I think you said signings output 12%, sequential 40% year-over-year. Is that count or value and is there a meaningful difference between the both?

That’s value. So what Rob, spoke to in his prepared remarks was the dollar representation of growth. What I spoke to in my remarks in terms of deal count, so we did 105 deals this quarter which was up almost 40% year-over-year.

And your next question comes from Glenn Mattson with Ladenburg Thalmann.

Hey Glenn, you may be on mute.

Sorry I heard the last caller do that. I said I won't make that same mistake. So interesting about Rob's comments on ARPU and the guys using messaging and LiveEngage and what a significant difference that was, I missed though the figure as to when you’ll get the 30% I'm just curious about the growth rate of that. I guess, as you see it over the next few years where you can get bigger in that to drive that number higher.

Yes. So by year-end we'll be over 30% of the enterprise customers that are on LiveEngage will be using messaging. So we're already going to be at 30% or we're actually already 30% we're going above it by year-end. And so what that tells us is a couple of things. One is we still have a lot of room, we've got a lot of customers out there, large customers that we can move to messaging and obviously up-sell cross-sell. The other thing is we can go very deep with them. So once we get them on then we spend a lot of time just kind of getting very deep, which drives the ARPU number. And so as Chris said, we didn't really add capacity in the last couple of years of headcount because we kind of were focused on the last two years of doing it right. Spending time with our customers to get T-Mobile where they were so do this big launch a couple of weeks ago. It took us going very deep with them. Now with those learnings, we can really focus on bringing new people onto the platform taking that 70% that's not there accelerating that. And with that we'll add additional capacity into the field group. Because now we have sort of good -- we have good frameworks for growing and expanding the business.

And we're motivated by how much more broadly our customers use the platform once they get on messaging. I think, there were some data points that Rob provided. So at a total midmarket enterprise level average portfolio ARPU right now is $270,000. We see ARPU greater than $0.5 when we have customers on messaging. And as we conveyed in the past, as we bring our customers more and more endpoints, which again part of the strategy is the expansion to Apple Business Chat, WhatsApp, Google Rich Messenger, the Facebook Messenger the list will go on. As clients go from just messaging and then they expand with more and more endpoints there is actually an exponential change in the revenue per customer to the point where we have customers on three or more endpoints to now you start to you picturing your mind how does the company continue to penetrate the wide space in our account. When customers are in three or more endpoints that average ARPU can be as high as $2.9 million compared to the today average of 270. So our capacity is stretched between how do you go cross-sell and up-sell the base, while also acquiring new logos. But we're motivated on both fronts. There is nice leverage with each.

Great. Thanks, that's good color. And then, I guess, curious on the other there were comments about the fact that there was less capacity in the SMB space in the past, but maybe that's changing now as far as on the domestic side and helping to boost growth there. Can you give us -- could you remind us what the breakdown is I guess between enterprise and SMB and I guess like the size of those two will help us understand what it's going to take to change the trajectory of the U.S. growth rate overall?

We don't break it out today. But we want to highlight is because actually last call when we said 4% people are like what's going on with the enterprise and they kind of related that to the enterprise. And I want to break it out to just explain that. Obviously our strategy with enterprise care and that's still our focal point and we've grown that which will be over 20% this year the growth rate. So if that's our focus we can’t put any investment into the SMB space because it's just dollars, we want to invest and make a bet and focus that bet. As of January we started to reinvest, in fact we took a leader who did the migration and now he's now running that SMB business. And so now he's focused on accelerating that and actually we're going to have one of our biggest bookings quarter coming up. So we see now demand in that area and we’ve made -- we started those investments in January, we should start to see them forward and that should start to pick up the overall North American growth rate going into 2019. But if you look at enterprise, it's pretty amazing it went from like zero obviously because we were migrating to 20%. And so I want to break that out for you guys. So obviously that business is flat to negative. It was flat to negative in the year and now it will start to pick up.

And your next question comes from Mike Latimore with Northland Capital Markets.

Great, thanks. Yes, nice quarter there. Just wanted to clarify. So the deal count growth is that a decent proxy for bookings growth?

It's mixed right because the deal sizes are going to be a mix bad, right. And what we specifically highlighted in the deal count was just how impressed we were with the contribution of our channels and our accelerator packs, right. So these accelerator packs were something that we launched very early in the year. We had 25 opportunities that's tripled in size. And we are having great success in this type of an offering making it very easy is the bottom line for customers to get on the platform and allow us to prove what our customers say at our events that we can drive real value for them.

Yes, this is Matt. I mean, I agree with what Chris is saying. In this quarter they were pretty closely related, but doesn’t necessarily always tied together. We actually had very strong deal value coming from existing customers, we had a lot of volume coming from new customers tied to the accelerator in our partnered programs.

And we built out if you guys remember we started to build out a hunter team a few months ago. So that hunter team, which is new logo only has started to produce, you're going to see logos, this to our logo count probably move up because we got a team focused on and they're expanding themselves too if there's opportunities out there.

Right. And then Rob did you say that 50% of all Apple Chat volume is going across the LiveEngage platform?

Yes, close to it. It's going -- the not volume it's the customer account, is riding on. It's those customers are using the LiveEngage platform.

And our next question comes from Zach Cummins with B. Riley.

Hi, good afternoon. Thanks for taking my questions and congrats on a really strong 3Q results. But in terms of Apple Business Chat, you had a press release out earlier talking about a new wave of customers coming on and going live with that messaging service. Do you anticipate that the adoption and the amount of customers going live is going to accelerate here over these next couple of quarters?

Yes, I mean, it's definitely if you are business in the world, you have the ability to be wired into an iOS device, it makes sense to wire in. And so I believe that it's going to drive tremendous traction. It's really is that stage one because there's so much more discoverability that Apple I believe will do on device right now to find a brand, you have to search them and put them in. But I think in there are maps, and there's some other areas, but I think there's going to be a lot more that even they're going to do in the future. So Apple is very committed to it. And I've seen now Google with IBM and RCS. And so there's going to be a lot of demand in the market for this type of stuff. And they're driving it, they drive adoption and then they're recommending partners to work with. And I believe we are preferred in many ways, because we do a very good job. And we're focused on this, but they're great partner of ours.

Okay, that's helpful. And then last question for me is just around the new Google AdLingo opportunity. I know, it's pretty early days, but have you seen any sort of indication of interest or potential demand for a lot of your customers to potentially be able to communicate directly with consumers through display ads?

It's definitely -- I don't want to give any stats as I don't have any data. It's definitely are on, we've got a handful of customers or a hand of customers, I'd say not full, just one hand. But it's really interesting display ad from the display ad, you can message. And so you can think about the possibilities. I really feel like and this is some stuff even with the Conversable acquisition, if you sort of knitted together there's an edge in advertising through messaging. We have seen much higher conversion rate. So if you take it an ad unit on Facebook, and you drive it to Facebook Messenger for business. We see a much higher conversion rate than you would if you click the link sent it to a landing page. And so all of those messaging front ends and the ability to drive advertising -- use advertising to drive to them. It's going to create a whole set of business opportunities, and I can feel it like there's going to be brands that will just use it to build the business. Like you could get such an edge if you can do it right now, the flip side is it's a very, very creative process today. We don't, you can't stamp it out. So when we using it, we got to -- how to create the ad. What does it look like how to get people to click? It's very different and setting expectations. But I think it's a pretty major step on the conversational commerce side to drive adoption.

[Operator Instructions] We have reached the end of our call today. I will now turn the call over to Mr. Robert LoCascio for closing remarks.

Thank you, operator. I’d like to end the call by reemphasizing a few key points. LivePerson straightened the outlook is directly proportional to our execution on the goal of being one of the biggest and most recognized companies in the world of conversational commerce. And as I said many times, I firmly believe that conversational commerce is going to be one of the biggest transformations in digital, it'll assume, obviously voice calls, we can see it assume parts of the web and especially apps. These are things that are going to get pulled in. If you can simply go on an Apple device and say I want to buy car and you get shown the car you want to buy and then you buy it and then it comes to your house and then you want to get your oil changed, you say I want to get my oil changed and then you get it, that’s what we’re talking about. And so, it’s simple and powerful. We also -- I think have a very, very clear roadmap on how we can go after this multi-billion dollar industry. And we have I think hired a tremendous group of people in the last year. And then we have all the people who have been here to get here. And so, we’ve got a platform that’s powerful and we’ve got people behind it to deliver on that. And we have this unique asset, which is every month 50 million to 60 million new conversations happen on our platform, end-to-end business conversations. And if you’re creating AI, using AI or trying to create a machine learning algorithm and you look at a conversation like we can take a vertical like telco and we have biggest telcos around the world and we look at how do you do bill pay right? I know we’re going to be able to automate bill pay, which is like 30% of all voice calls in telcos. It’s hundreds of millions, billions and billions of dollars a year globally spent on how can I pay my bill, we’re going to automate that. So, that gives us a real edge in the market. So, I’m very excited, very bullish about where we are. And now I feel like we just have this opportunity to bed down on it because we have the metrics. We know what makes a successful customer, we know how to ticket AE and get them to sell and now we just want to bet down for the next level. So, I look forward to the next quarter and taking this journey with you as we build the business to the next level. Thank you.

This does conclude today’s conference call. Thank you for your participation. You may now disconnect.