Dan Murphy – Founder and Chief Executive Officer Rob LoCascio – Chief Financial Officer.

Koji Ikeda – Oppenheimer Richard Baldry – Roth Capital Jeff Van Rhee – Craig Hallum.

Good afternoon. My name is Adam and I’ll be your conference operator today. At this time, I would like to welcome everyone to the LivePerson’s First Quarter 2017 Conference Call. On the call today are LivePerson’s Founder and CEO, Rob LoCascio; and CFO Dan Murphy.

All lines have been placed on mute to prevent any background noise and after the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. LivePerson’s CFO, Dan 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 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..

Thanks, Dan. Thank you for joining LivePerson’s first quarter conference call. 2017 marks a new chapter for LivePerson as we execute on our LiveEngage growth strategy. LiveEngage, we’re giving brands to power to reach huge efficiencies and strength in customer relations by replacing outdated voice contact center technology.

LivePerson’s creating a real industry buzz as our mobile messaging platform gains momentum. We found several new messaging deals in the first quarter and now scaling multiple large enterprise customers in each region of the globe. These include several of the world’s largest telcos and will soon include many leading financial service institutions.

Our ability to power and always on digital connection with consumer is already starting transformation of the customer care industry. Our announcement last week of LiveEngage for Bots further unlocks the potential of our platform to be a true game-changing scenario.

This revolutionary extension of our platform treats bots and AI just like traditional agents and enables enterprise brands to match multiple bots at scale in tandem with human agent. It’s what we call Tango.

AI and human agent seamlessly handoff conversations to each other with bots providing instantaneous intelligent responses to consumer queries and human agent supervising the exchanges.

By marrying messaging with bots and AI, a brand can virtually eliminate capacity constraints, multiplying the benefits generated from a digital connection with consumers.

And with LiveEngage, large enterprise can leverage one platform to power, measure and report on all messaging conversation regardless of channel or if they are led by human agents, AI or a combination of the two. Over the next years, we expect every leading brand to ship voice agents and even store-based employees to messaging.

We also expect brands to leverage LiveEngage to have robust AI and bot capabilities into their messaging communications. Early adopters are already leading the way and the masses are looking to follow. They just don’t know how to implement these new solutions in a scalable, successful way, but we are proving we know how to do this at scale.

In fact, we shared our vision, our strategy and success stories just last week when we held the customer care industry’s first AI Bot Summit at Carnegie Mellon’s prestigious Human-Computer Interaction Institute. This was an amazing event.

Attendance exceeded our planned capacity of approximately 130 senior leaders from 80 of the top brands across the globe. Heard Firsthand from their peers how messaging is the killer app and brands should deploy messaging with AI now and deployed quickly.

LivePerson customers Vodafone and Royal Bank of Scotland shared some of their successes embracing LiveEngage and AI to manage the tango between AI and human agent. According to Vodafone UK, Head of Contact Center Transformation, the combination of person and Chatbot is where the real magic lives.

We also introduced our customers to some of the many AI and Chatbot providers already running live with leading brands on the platform, including IBM’s Watson, Toshiba and Chatfuel. Each bot integrated with LiveEngage [indiscernible] showcase at Facebook’s F8 Conference.

This is the power of our open platform, more APIs enabled third-party developers to rapidly integrate new capabilities into LiveEngage. The sophisticated combination of bot technology and messaging is just one of LivePerson’s key differentiators.

We have been a leader in digital transformation for the past 20 years, and we had the foresight to build LiveEngage from the ground up to match the unique challenges of running an always-on enterprise messaging connection center versus a traditional, inefficient call center.

We understand the changes that have to happen in the workflows, analytics and measurements to capture the transformative potential of messaging. And we are extending our lead in messaging by rapidly expanding our list of enterprise reference to both customers.

For example, in the first quarter, we won back one of Europe’s largest broadband providers, who left a few years ago to try a – need to chat solution from a VoIP spender. I’m satisfied they joined one of our mobile messaging events and immediately aligned with our vision.

The brand is now live on a 7-figure deal, though substantially larger than the web-based chat program we once had with them. We find another 7-figure deal in the first quarter that was an existing multibillion-dollar financial services provider.

This leading brand use messaging as a primary destination where customer service will happen and is looking to use it to reduce phone volume substantially. They’re also using messaging to replace a competitor’s e-mail solution.

We achieved a milestone in the Asia-Pacific region by signing an expansion that landed us our first 7-figure customer in Japan. This leading telco started working with LivePerson a little over a year ago with just a handful of agents.

Today, they are blazing the trail for other brands in Japan by focusing on digital transformation of their contact center. Other mid to high 6-figure contracts, including one of the world’s largest music subscription services, a leading automotive financial services firm and a global provider of corporate travel services.

As we emerge from our transition and execute on this tremendous opportunity, we sought to enhance our board with new directors that have track records to developing high- growth operating cultures, outstanding customer experiences.

We recently added two directors who exemplify these skill sets, Jill Layfield, the former CEO of Backcountry and current CEO of Tamara Mellon, and Fred Mossler, who was at Zappos from the beginning and ran day-to-day operations at Zappos and was instrumental in growing it to be a multibillion-dollar revenue company, and further to its sale of Amazon.

Jill and Fred’s guidance will be invaluable as LivePerson sets its sights on capturing a meaningful share of the multibillion-dollar brand to consumer messaging market. Our strategy to win in this market is clear. In each region of the globe, we have identified a select group of brands that hold the power to change the face on customer care.

Each of these brands have thousands of agents in their contact centers, they collectively connect with billions of consumers every year. Our regional sales teams are intimately familiar with the target customers, many are already customers with local relationships.

As a result, over the last six months, we have empowered the sales directors in each of our region to direct their own local selling effort. This place is the decision making closer to the customer, aiding execution and speed to market.

LivePerson has reinforced the local selling effort with a globally driven marketing program that brings customers, prospects and field organization together through high-touch, high-value regional events such as the messaging AI bot, we just recently did.

These events showcase the power of LiveEngage platform, and how our thought leadership is already helping enterprise shed their roots in analog voice to embrace a digital connection that transforms customer care.

This combination of regional sales approach and targeted marketing efforts are providing success of being successful and have been key to our win so far with messaging in AI in 2017. As the efforts solidify, they become apparent at maintaining an overlay of the global sales of manager role is no longer necessary for executing on our strategy.

As such Dustin Dean is the decided to pursue new opportunity and we want to thank Dustin for his incredible contributions to LivePerson over these past years, especially the last two were his instrumental in helping us successfully navigate the transition to our new platform.

Our field and marketing structure is growing nicely, we are focused on building momentum through 2017 and growing second half revenue over first half. This should position LivePerson for return to year-over-year revenue growth. First quarter results sets us on a path to meet this target.

Selling activity accelerated sharply over the last year space returning to pre-migration levels. We set a record for average selling prices and we delivered revenue at the high-end of our guidance range. We also saw Q1 metrics by continue to validate our key assumptions on the LiveEngage platform in our region.

Mobile usage is expanding rapidly on LiveEngage and average 35% of interactions in the first quarter as compared to about 7% – 10% historically on legacy. Customer interaction on LiveEngage continued to grow faster and 10% year-over-year.

The dollar retention rate remain greater than 100% over the trailing 12 months, a solid indicator of future potential growth that LivePerson once our entire customer base is on LiveEngage. It is encouraging to see such healthy metrics even before matching adoption becomes fully reflected in the numbers.

Customers are only able to reap the benefits of mobile messaging, AI and bots once we move them onto our LiveEngage platform. As such, we continue to aggressively migrate customers. We ended the first quarter with less than 20% of revenue on legacy, and on target with our migration schedule.

We expect in the second quarter with approximately 12% of revenue on legacy and then to complete our platform transition in the third quarter with less than 5% of revenue on legacy. The remaining legacy customers will be sandboxed to maximize profitability.

LivePerson also remains on target to generate between $16 million and $19 million of savings in 2017, excluding onetime restructuring and non-cash expenses as we wind down our legacy infrastructure and realign our operations. This is on top of the nearly $15 million of savings captured in 2016.

It’s exciting to see our vision, strategy and execution come together in 2017. The investors we made in our LiveEngage platform and customer migration are paying off as leading brands across the world are now relying on LivePerson to change how they connect with their consumers.

With the migration winding down, our sales and revitalized and our primary focus is to extend our lead in messaging and to shift a portion of the 270 billion 1-800 calls made each year onto our platform. We look forward to building on the progress we’ve already seen in 2017.

I will now turn the call over to Dan, who will discuss our first quarter results and outlook in more detail.

Dan?.

revenue of $204 million to $209 million, and $201 million to $209 million previously, revenue guidance includes negative foreign currency impact of $3 million, GAAP net loss per share of $0.40 to $0.31, which includes $0.16 per share in one-time restructuring.

Adjusted net income per share of $0.07 to 0.12, and adjusted EBITDA of $17.3 million to $21.3 million or $0.30 to $0.37 per share. Furthermore, as a percent of revenue of year excluding one-time charges, we anticipate gross profit to be approximately 73.5%; sales and marketing, 38.5%, G&A of 16.5% and R&D to be 20%.

Note that these margins excluding above discussed one-time restructuring and litigation charges. Also as a reminder, we have updated methodology for calculating adjusted net profit per share in 2017. As we previously incorporated the GAAP tax rate into our calculation.

We now start with GAAP pre-tax profit loss, add back restructuring one-time and non-cash expenses, and then apply a standardized 35% tax rate. To go live at this calculation is to limit of volatility of flat tax they fluctuations into more closely align non-GAAP taxes with cash taxes.

Please refer to LivePerson’s earnings release issued earlier today for details on our full year 2017 assumptions. We’ve also published a supplemental presentation on the Investor Relations page of our website that reviews key points from the earnings call and a full reconciliation of 2016 adjusted EPS under the historical and updated methodologies.

You may find a presentation on the Investor Relations section of the Company’s website. I’ll close with what I view is a summary of key takeaways. The migration of LiveEngage is on track to end in 2017, improving our visibility to target the first half of the bottom in revenue for LivePerson’s transition.

With visibility, along with the initial traction from reigniting our sales engine has enabled us to raise the low end of our revenue guidance range in 2017. We are extending our leadership in messaging and now building on our value proposition by integrating the management, measurement and reporting of bots and AI at scale for enterprise.

We continue to see greater than a 100% dollar retention rate on LiveEngage for full-service customers, a solid indicator of future growth potential. We’re on target to shed approximately $16 million to $19 million in 2017 expenses and by the fourth quarter of 2017, we build our gross margin back to 75%, in line with historical peaks.

We have a healthy capital structure with $52 million in cash and no debt, providing us with ample resources to execute on our vision. With that, I will open the call to questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Koji Ikeda form Oppenheimer. Koji your line is open..

Hi, thanks for taking my question. Just a quick question here on the – it looks like there was a pretty big jump in the percentage of recurring revenue that is being generated on the LiveEngage platform in Q1.

Was there anything in particular in the quarter that was contributing to that good pace of that recurring revenue migration? I guess just speaking about that remaining, that less than 20% out there that’s left is the profile of these revenue transitions more or less the same as what has been going on over the past few months? Or is the profile of these transitions a little different?.

I’ll answer the second question first. The profile of these customers is relatively the same. We’ve gone through a lot of migrations with enterprise clients, midmarket clients, and these transitions are relatively the same, it’s just timing for us.

And I’m sorry, the first part of the question is, just remember, Koji, on the RMR, there’s 2 things that are occurring, we’re selling obviously, the LiveEngage to the new customers, and that has an impact on the RMR, and the second thing is we’re migrating customers over from our legacy onto the LiveEngage platform which has an impact on RMR as well.

So we made quite a bit of headway from Q4 into Q1, and as we’ve talked about on previous calls, our expectation is be done with the migration to have less approximately 5% or less of revenue on legacy platform which of course, we’ll sandbox and manage for profit..

I guess just as a follow-up, I think you had about $10 million, those $10 million in recurring revenue that you say you’re going to see sandboxing in the third quarter. And I believe you mentioned on a couple of calls before that some of the timing of those transitions is due to new product features.

And if you could, could you please give an update on those updates? And how to think about the product roadmap going forward?.

Yes. We’re very focused on those roadmap items to move that revenue back onto the LiveEngage platform. So I mean, we’re juggling between features that they want to make the move from the old platform to the new one, and then also all the new features that we have around messaging in AI and all that stuff.

So – but they’re being prioritized around the revenue opportunities. But we’re very focused on obviously migrating all those customers or as much as we can onto the platform, that’s why we’re seeing on target will be gone at a less than 5% of revenue in Q3 because of all the capabilities that we’ve delivered in LiveEngage..

Great, thank you for taking my questions today..

Thank you..

[Operator Instructions] The next question comes from the line of Richard Baldry from Roth Capital. Richard your line is open..

Thanks.

Can you talk a bit about the breadth of sales on the messaging, maybe across your sales quota teams, how well you think that’s spread around them, maybe geographically as well, so we get a feel for how that’s playing out across your go-to-market?.

Yes. I mean, we’re seeing the high demand around the world, U.S. and Europe being the largest segments of customer demand. And the enterprise sales reps are just focused on that. There’s focus on new sales. We’ve put their compensation against selling and messaging, and all the capability so that it’s a very high focus obviously for each of them.

As we know, last year, they were very focused on migrations and that really new revenue opportunity. There’s a big focus on new revenue opportunities and we had a very strong Q1 from a bookings perspective. And so, we’re seeing some good traction with those guys..

And you’ve had a lot of success with telcos like Orange, T-Mobile, Telstra.

Can you talk about whether you see them as a really strong channel for you to get into their own customer basis on a go- forward sort of a leverage channel for you?.

Not today. I mean, it’s a possibility in the future. We’re just very focused on, as you point out, telcos, we have telcos – we have the largest telcos in every region now except for South America, we’re really not active direct or we have some partners, but we have the largest teles that are on messaging. So they were the first to adapt and go live.

Part of it is because they have control over their devices, they have very active apps and they understand messaging because they see it all day on those apps. So that’s really a focal point from selling.

I think there’s other areas that you’re going to see some channel pickup for us, especially in the AI space and the cognitive space And there’s some partners there that we’ll be announcing in the next quarter. So I think there’s some exciting things happening on that side.

We’re also becoming – because we built the platform, it’s truly an open platform. We have many companies that are integrating with us now too.

So if we look at, I’d go back to Bob’s, I mean, it’s kind of like there’s a lot to talk about them, but actually implementing them and managing them and getting them onto a platform where they are transparent, most of the platforms don’t do that, they just provide core AI technology.

The way it will put them onto a platform and you’re measuring them and deploying them like an agent. And so where we’ve been very direct in the past, I think you’re going to see more indirect opportunities for us coming up shortly. That’s what I can say..

And last one, if you look at the customer that you won back, is there anything unique about that customer that made that an opportunity to bring them back? Or something that would be more of a pattern that you think you could take that same sort of characteristics and look at the customers that have churned and put a concerted effort on bringing them back because of something that’s consistent in across the base? Thanks..

I think the most unique thing about this customer is that the person who let us go is the person who signed the deal. And so 2 years ago, he went to a one of the voice platforms that he has, they do chat in, and he did think strategic. And if we look, we work with that customer for 4 or 5 years, we got to a certain place.

Well, a few years later, we just fit the strategy that he was thinking. And he signed with the deal at the start, which is a size of the chat ones at its end. And there’s an excitement around really attacking voice that instance what to about 500, 600 agents already in matter of weeks.

So that’s really, I don’t think, its – I think the unique part is really that doesn’t happen like somebody fires you 24 months ago, they believe you’re backing up something new and cool. But our platform is so different and so unique in what it can provide that this person do that. So I do think there’s opportunity go back.

We are inviting customers back to look at what we have on the platform and so that’s a very exciting opportunity in those customers maybe left us that we can bring back..

Thanks..

Thanks..

And your next question comes from the line of Jeff Van Rhee from Craig Hallum. Jeff your line is now open..

Great, thanks. Rob, a couple of questions. Just first on the bots. I don’t know how to best frame the question, but I guess I’m curious in terms of the cycles that you’re working on, what the frequency is where sort of this – one of this key your central features of that cycle revolves around your ability to cope or handle bots.

I’m just curious where the adoption cycle is among the target customer base?.

Fundamentally, what I’m seeing today is that most deals will include AI. And until we term that as a bot, so I believe we’re going to see a pretty heavy mix of bot and human together. And the way we built the platform is pretty unique in that they there – they actually live together side by side.

So the agent can come in and there’s no transfer, agent comes in when a bots on working, and agent can watch a bot and see its performance, and actually we have a system to manage the performance and rate the performance on a scale, which we’re using the Meaningful Connection Score that we developed in the platform.

And then we also have the ability for the human to call in the bot if they want to run an automated process. So they could be talking and messaging and then [indiscernible] you want to pay your bill, let me bring in the bill pay bot, and we’ll run the automated process on that.

So we have Watson, we worked with Watson, we showcased Watson with a couple of clients at the conference last week and it was a pretty integrated, very, very comprehensive experience that the consumer gets with it and it will bring power of the bot to care.

So I think we have a really good offering there, but I wouldn’t suspect going forward and see a lot – most of our deals having both..

Okay. And then with respect to sales, Dustin’s departure, can you expand on this a little bit, the timing? He – obviously, you haven’t had a lot of outbound sales, you’ve been much more focused on migration.

Given his sort of core expertise in the outbound, let’s go book new business kind of mode, it would seem he would just be coming into a window that fits him really well. So I guess 2 things. One, just the timing and a little more color as to what to led that departure; and then two, churn.

I’m just curious how the churn in the sales always trended over the last 2 or 3 quarters..

So there’s been a little churn over the last couple of quarters. So we have a stable enterprise customer base. And Dustin, what those – close to 10 years, he went from sales reps running Asia and then really came back during the transition and help with the migration. But we really are not going to go back to a global role.

So we have a very small group of customers that we are focused on. We have strong regional heads that are working those deals and I hired a new global head of marketing 10 months ago.

He was really doing a fantastic job overlaying all these conferences and go to markets and marketing is playing a far greater role on the global way to bring us the expertise to our customers and bring them together. So it’s kind of like for him and there’s not much to do here anymore.

And unless you are going to go back to run a rep or run a region, and we have people doing that.

So it seem like a good time that we are exiting migration and we wish him the best and it’s on very friendly terms and we want to thank them for all the service they did, but today, we have to align to where the business and that’s more of a regional-focused head very targeted group of accounts..

Last one for me then.

What is – where are you with the rep count now? And how do you think about it, I guess, at year-end?.

We’re at about 45, 46 reps right now. Based on where we are in the first quarter, we’re comfortable with that number. But as the quarters pick up, we can add to it if we think it’s necessary. But one’s goal is to do a very targeted group of enterprise customers that runs very large contact centers. And that’s where we are. This is a very targeted list.

So we don’t need a ton of reps to do it. It’s more of a very focused approach to those reps owning telcos, banks, cable some retail healthcare in different regions..

Got it..

There are no further questions in the queue. At this point, I’ll turn the call back over to the presenters..

Thank you, everyone, and we will see you on the next Q2 call. Thank you..

Thanks, everybody.

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