Good afternoon. And welcome to the LivePerson's, Third Quarter 2017 Conference Call. My name is Christy and I will be facilitating the audio portion of today’s interactive broadcast. All lines have been placed on mute to prevent any background noise. For those of you on the stream, please pick with the options available in your event console.

At this time I would like to turn the call over to LivePerson’s CEO and Founder, Rob LoCascio, and 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, and thank you for joining LivePerson’s third quarter conference call. We are excited to announce that LivePerson returned to year-over-year revenue growth in the third quarter, which is two quarters ahead of schedule.

This is a significant milestone for LivePerson and coincides with the completion of our transition to the LiveEngage platform. We are also once again raising revenue guidance for 2017. In the past year we have been highlighting the leading indicators of our return to growth.

These are the enterprise wins on messaging that’s made our steady transformation of the customer care industry and made compelling metrics for LiveEngage around platform adoption, same customer usage and dollar retention.

With the vast majority of our revenue on LiveEngage in the third quarter, these leading indicators of LivePerson momentum will clearly be reflected in our reported financial results. Furthermore, we demonstrated continued traction with additional market penetration and strong platform metrics.

Several key customer wins in the third quarter characterized the momentum we are seeing. We signed a seven figure three year deal with one of the top three diversified insurance firms in the U.S., as leading brand is deploying LiveEngage enterprise wide to place it in an competitive solution form a large ERP vendor.

The company chose LiveEngage as one of our best in class digital customer experience that better competes with the new generation of online insurance providers. We also won our first few lines of business at a Fortune 100 financial services institution that ranks as one of the top investment banks in the world.

After only a four months sales cycle, we closed a six figure two year deal. The rapid selection process is a testament to our position as an industry leader, as we clearly demonstrate our unique expertise and superior capabilities of the LiveEngage platform.

In addition, LivePerson signed expansions with two of the top tier banks from Australia and brought the first bank in the region wise already that’s messaging.

Of course our key wins extend beyond financial services and also include multi-national telecommunications company, one of the world’s leading fashion brands with approximately 500 locations; one of the premium music subscription services and a Global Luxury Jewelry Brand.

For example in August, one of APAC leading online travel sites went live with the messaging both in-app and through Facebook messenger. The company which had previously been on LiverPerson with chat has now expanded into services, as well as messaging driver a greater than 50% lift in usage.

The power of LiveEngage continues to be reflected not only in new customer wins, but also in the key growth metrics that we are seeing across the customer base. Mobile is growing rapidly accounting for 40% of our interactions in the third quarter, this is up from $0.25 just a year ago and less than 10% before LiveEngage.

Approximately one-third of our customers are using more than one interaction type on the platform. Same customer interactions continue to grow at greater than 10% year-over-year and the dollar retention rate for enterprise and mid-market customers continue to be at a 100% plus.

As we all know, from the early behavior communication preferences have shifted over the last several years from talking on a mobile device to message, be it through SMS, Messenger or any of the social messaging tools.

We recognized this shift years ago and that is why LivePerson built LiveEngage to seamlessly integrate Messaging AI, Automated bot agents and human agents on a single platform.

LiveEngage aligns businesses to consumer behavior replacing adequate voice with a superior messaging solution that can driver higher customer satisfaction, and more than two times the productivity of voice. This is an extraordinary win for large enterprise, offering a potential ten if not hundreds of millions of dollars in savings.

We went live with our first enterprise customer for messaging last June and now have numerous large enterprise scaled on messaging and AI across multiple industries around the globe. Each win is a direct attack on the legacy voice in IVR infrastructure that is in place for decades.

These competitors have relied on this old infrastructure as a cash card and I expect them to respond like they did with chat in the past, by making messaging a feature versus a transformation of platform, because yet we haven’t seen any of these legacy IVR companies or contact centers that just do anything meaningful.

This is why the leading brands make the lead to messaging embarked in AI. They are using LivePerson and our technology and our expertise around how to scale customer service, sales deployments and even now retail. We have started to enter the retail world in doing messaging out of retail locations.

We showcased our industry leadership over the past year by holding several ground breaking customer summits, built around large enterprise that’s successfully deployed messaging and AI up scale. LivePerson had two of these invitation only, the lead customer events in October.

The first in Edinburgh Scotland centered on the amazing outcomes that a leading European Telco realized by introducing messaging as a tool for deflecting calls out of the IVR. Over the course of a few months this enterprise shifted millions of calls, approximately 30% of their call volume from voice to messaging.

This is actually a really big I think hallmark in the industry, there was never really an alternative to voice and we are showing that we can deflect very large percentage of volume from calls and straight out of the IVR.

And not only do consumers take up with messaging quickly, but this Telco, they basically cut the cost in half over what they would do with voice. At the same conference we didn’t we [inaudible] bob’s in AI.

We have a proven first-hand how AI product messaging can deliver transformative results in care sales and marketing and this has become a must have component of our enterprise win. The key to success is to optimizing, and doing integration at enterprise grade levels using our conversational interface and that’s how LiveEngage is built.

We deliver on the platform tools for the optimization, scale, readiness to work through workflows analytics, APIs, sentiment measurement with our NPS tool and even reporting obviously and review with our PS training resources with the bots. Edinburgh was an amazing event that included participating from AI bot leaders such as IBM Watson.

We partnered with to launch LiveEngage with Watson. The first global enterprise scale out of the box integration with Watson bots and human agents and other industry thought leaders including Microsoft.

More than 100 executives walked away from the summit with a blueprint on how they can go back to the organization and deliver powerful results by deploying automated and human assistance at scale via messaging. Our second event included an exclusive list of senior executives from several of the world’s large banks, telcos and retailers.

This event focused on how these industry leaders can leverage the upcoming launch for a new messaging channel that will radically improve how they connect with their consumers. We are excited about the rapid progress we have made so far in 2017 as we are focused on following and approving the productivity of our field origination.

The majority of our wins in 2017 were tied to customers who attended one or more of our summits over the past year and will continue to invest in these events as they are becoming a great tool for building our sales pipeline.

Over the coming quarters, we will also put additional resources towards developing the LiveEngage ecosystem, working with AI bot technology partners, as well as other messaging through leaders.

Similarly we are increasing our product development spend to deliver on a robust messaging in AI roadmap as they’ve been formed by all the learning’s that we have come from managing scale enterprise deployment to the past year. These investments will spur even more differentiation and customer benefit in the years to come.

With each new customer that ramp up on messaging, we are proving to the world that there is a finally a true alternative to voice, one that delivers a superior customer expenses and measurable increases in productivity. This is an exciting time to be at LivePerson. I am extremely proud of the transformation we are driving.

Finally, I want to comment on the announced change in leadership of our CFO Dan Murphy. As stated in our earnings release, Dan will be leaving LivePerson early next year and after more than 6.5 years or service.

Dan has played an instrumental role in getting the company through its new chapter of its growth story, he has developed a globally scale with infrastructure, top notch financial organization and is leaving us with solid capital positions almost to build our future.

Dan will be working with me on the board to effect an orderly transition and assist and identify a successor. I want to thank Dan for all the contributions to LivePerson and wish him all the best on the next journey. Before I turn the call to Dan, I just wanted to also make an annual announcement of our FeedingNYC program on November 21.

Here is New York we’ll be feeding over 4,000 families who live in shelters in the metro New York area. If you like to participate or make a donation please go to FeedingNYC.org’s website. I’ll now turn the call over to Dan, who will discuss our third quarter results and outlook in more detail. Dan..

Revenue of $217.5 million to $218.5 million, GAAP net loss per share of $0.36 to $0.35. This includes $0.21 per share for non-recurring and restructuring charges. Adjusted net income per share was $0.07 to $0.08 and adjusted EBITDA of $18 million to $18.4 million or $0.31 to $0.32 per share.

Furthermore as a percent of revenue for the year, excluding non-recurring restructuring and litigation charges, we anticipate gross profit to be approximately 73.5%, sales and marketing 41.5%, G&A of 16%, and R&D of 18.5%. Please refer to LivePersons’ earnings release issued earlier today for additional details on our full year 2017 assumptions.

We have also published a supplemental presentation over these key points from the earnings call on the investor relations section of the company’s website.

We entered 2017 with the four priorities, return to the focus on selling, build on our lead and customer care and mobile messaging, complete the transition to LiveEngage and maintain our profit margins. Year-to-date LivePersons’ executed on plan or better than plan on each of these objectives.

These achievements paired with normalizing attrition is consistent with 100% plus LiveEngage dollar retention rate and improved revenue predictability to provide a strong foundation for our next chapter of growth.

Growth will be fueled by adoption of messaging and AI in existing customers, expanding on new customer pipelines through our customer events and partnerships and extending our product lead through innovation. Across LivePerson, our teams are aligned to these levers and look forward to reporting on our progress in future quarters.

With that, I’ll open the call to questions. Operator..

[Operator Instructions] The first question comes from the line of Richard Baldry of ROTH Capital..

Thanks. Can you talk about any vertical market particular strength your seeing for LiveEngage on the messaging side? It seemed like as a percent of your contribution, the tech was at 8% is below what I would have thought. I would have thought they had been earlier adopters, so maybe if you can go over that.

And then also, what do you think the usage impact in the fourth quarter? I know historically on the prior platform usage you know it really drove incremental revenues in the fourth quarter due to holiday seasonality. Is that similar under the newer model and how should we think about that? Thanks..

Well on the vertical side, the big verticals that we’re going after is Telco Banking and broadband providers and some travel. So in Telco we got basically the leaders, the leading Telco, we chose areas or countries around the world. They were the first to go live too.

They could see those messaging and how it’s being used on device with their consumers and now banking has followed and then you’ve got broadband providers in each area.

So its following along what we previously did and there is some retail also now that’s coming, but those are the biggest areas that we have in messaging today, because strategically they’ve got the largest contact centers and they have the biggest expense when it comes to matching voice calls.

On average Telco could spend over $1 billion a year on phone calls. So that’s where the real paying point is and that’s where we’re focused on attacking..

So then Rich, on the second part of your question just around the usage portion, you know we had the benefit of the PFP being pulled forward into Q3 and what we’ve historically seen in previous years on the legacy platform is that usage would increase in the fourth quarter and specifically around PFP and drive some additional revenue.

The fact that we were able to pull some forward is a positive step in the right direction and the second thing for the business model that you’re seeing used days, that increase in usage does come through the P&L and you see it in our bookings number driving and continuing to drive our increase in recuing revenue, so is the two component that we expect and we gave the guidance for Q4..

And last thing will be, you have pulled your cost down year-over-year. It’s kind of some set at the legacy platform.

Should we look at Q3 as really setting a floor now that you know from here forward to support your growth in LiveEngage that the expenses will growth sort of with the top line or given there is a stub restructuring cost in the fourth quarter, it’s a really one more level down as we exit the year and then sort of see our way higher again in 2018.

Thanks..

Yeah, it’s a good question. From our perspective you know we’ve taken some of the upside in revenue so far this year and invested it back in the business, specifically in partnerships and around AI and bots and adding more development resources to fill out the product roadmap.

So as we move forward – and customer events, sorry, and investing in customer events. So as we move forward into 2018, you know our goal is to continue to drive top line growth and so we’ll continue to invest in the business and those strategic areas that will help us drive that top line growth..

Thanks, and good luck Dan..

Thanks Rich..

The next question comes from the line of Koji Ikeda..

Hi, I just want to say congrats on the retirement news Dan and wish you well in your next adventure and thank you for taking my questions. I just got a big picture question for Rob or Dan.

Do you think the enterprises out there have a full grasp on really how to engage the millennials and now it’s just really a question of technology execution, and do you think you know – there is such a big focus on millennials right now, but to really think about it, Generation Z is coming up pretty quickly right behind them.

I mean does this generation you know in your experience have a different set of demands, even from the millennials that enterprises are going to have to think about..

Yeah, so the millennial population which is now the largest segment in the U.S., I think its 75 million or 78 million people. The baby boomers now as of last year are reducing in size and basically the influence of this group, because they also have buying power is significant.

So when we look at how they are communicating with each other, even beyond millennials, but they are engaging and messaging; they engaging in content in a different way. The obviously engage in retail in a different way and we see that with how the impact on the retail world we live in. They are not going to big box retailers.

So that’s been influencing us for a while. Now what’s happened is that they have buying power and significant buying power and that’s making the brands to space off to them in a different way and that’s why our platform is sort of instrumental in our digital transformation.

So we’re not starting a channel communication, we’re starting a way to connect with consumers in a certain way that they are doing in their normal lives. So I think they have such a tremendous influence today and we see it when we’re with our businesses, our customers.

They definitely obviously have been influencing them for many years and there’s change that’s got to happen in order to service that group of consumers..

Got it, and maybe a question for Dan. Looking at your trailing 12 month ARPU here, thinking at about $215,000 in the quarter, it’s been ticking up here in the past. It looks like six, seven quarters and I guess you know this is one of the biggest jobs that we’ve seen in a while.

I mean what are some of the levers that are playing into that growth? Is it more from bigger customers signing on a platform or are you seeing a better monetization of the installed base or is it really just a healthy mix of both?.

I think it’s a healthy mix of both. I mean as you talked about the our strategy is to go after the large enterprise customers and really you know they’ve got access to a lot of consumers and they got access to big care centers and you’ve got to improve their CSAT scores and customer satisfaction.

So I think it’s a combination of the two and you know we’re happy that the trailing 12 month metric is going in the right direction, its excited to see..

Congrats again on the news Dan and thanks for taking my questions..

Thanks Koji, I appreciate it..

The next question comes from the line of Jeff Van Rhee..

Great, thanks. Congrats guys. The numbers look really good; great growth there. I guess several questions. First, with respect to bookings, I know you don’t provide a number, but can you characterize bookings this quarter maybe versus the last quarter, the last few quarters.

What stands out? Did you see notable acceleration in the bookings? We can see a little bit on the ARPU side, but any color on bookings?.

Yeah, I mean from our perspective Jeff they’ve been where we expected them to be if not slightly higher.

As you can see in your current memory, some of that is from – in the second quarter is from better than expected bookings in the third quarter, you know from our current run rate perspective, less than expected attrition related to migrating customers over.

So our goal is still the same, as we stated before, we’re going after the large enterprise customers and we think there’s a big opportunity there and you can see that in our ARPU starting to pick up in the right direction..

And as you think about ’18, should we assume that all revenue upside goes back into the business. So namely don’t count on leverage, but also don’t assume or see scenarios where maybe the margin comes down. Just a little more color on margins if you would..

So a good question.

We’re not giving the direction for 2018, but I think in 2017 we’ve taken our dollars and put them back into the customer events and as Rob stated in his prepared remarks, you know those customer events have been strong from a pipeline perspective, as well of you know helping us with bookings, and many of the ideas that are closed have been related to those customer events and they are high end events focused on senior level of executives at these large enterprises.

So we continue to invest in those and you know as I said over the mark of March 3 you‘ll get a very strong product roadmap and we’ll continue to invest in the products as we continue to lead the market we have a LiveEngage and messaging in AI and bot..

On the product side Jeff when we go live with the customer, we see very quickly anywhere from 20 to 40 product requests. So the product, there is so much more to do with it, even though there is a lot to probably just build it. But we’re learning so much and so we still need to build a tremendous amount around the platform to allow us to scale.

And as we talked about this Telco that held the event in Edinburgh, you know they are a recent customer and we are going to get 30% out of their IVR. A lot of that’s – because there’s a year’s worth of product roadmap that came from you know sorting out, going live a year ago with our first customers.

So we’ll continue to invest in that as we accelerate growth and get more customers in the end and satisfy their needs..

Got it, and Dan you referenced one-time revenue this quarter and last quarter.

Just a quick recap of what that was?.

Yeah, so the increase from revenue this quarter was approximately $1 million of non-recurring, with a PSP customer that’s fast forwarded some of the spend into Q3. So we did this and a similar spend in Q3..

And last quarter the pull forward was?.

Last quarter we had a portion related to professional services and then we had some related to customers that went into overage on their billing contracts..

Okay, great. And one last one just on sales; thoughts at this point are on two lines.

One, any preliminary thoughts around sales hiring for ’18 and second, you know you’ve been in outbound sales mode now for enough time to have some semblance of productivity and ramp, if you could give some color there?.

Yeah we are – I mean right now we have a – our sales team is pretty focused on a very finite group of customers. So we’ll probably add obviously more people, because there will be more demand, but we have the group we need size wise to go after this group of enterprises that can just change the game.

And as I think I said before, I believe our customers could be $10 million, $15 million, $20 million, they could be $40 million at scale a year if we’re doing the work we’re doing today and so we’re keeping at a very finite group.

You know our top sales guys were making over $1 million a year and so we want to keep this very, very expert based you know high end sales group that’s going out and doing these big deals and they are very strategic. So that’s come in low. And the second question….

Outbound sales mode..

Outbound sales mode is so from an outbound perspective, Jeff your right. We’ve been going through this year and we refocused our sales guys on selling again. 2016 just to refresh a bit of this memory, we focused on – and their compensation on migration in 2017, we focused them back on selling through the customers.

That being said, we reported some customers had to go through the migration.

So as we end 2018 and as Rob talked about, we got the high end sales group focused on enterprise customers and there is some capacity in that group and we will continue to leverage that capacity as we move into 2018 and they are necessary to have the right skill set to sell to those enterprise level customers..

Great. Okay thanks so much. Best of luck Dan..

Thanks..

The next question comes from the line of Mark Schappel..

Hi, good evening. Congrats on the quarter, and Dan congratulations on your retirement. Rob just starting with you on your customer submits, they appear to be very successful.

What can we expect with respect to future events in the next six months or so?.

We are doing about one a quarter, the big one and then we’ve got some small ones in-between. So we are going to continue on that path. There may be some more next year. I mean we are working through a plan as we speak, but you know eventually that is about 100, 120 people about 70 brands shop up. We actually do it, we host them at a customer site.

So we are next to our customer site, so the customer can showoff what they have been, but they are very high end and they are very focused on, I think taking a very C-level group of people though an experience. So they can understand how they can do transformation.

But we’ll probably accelerate the marketing from where we are because we’ve gotten great results from it..

Great, thank you and then your auto vertical if I recall correctly is down about 12% this quarter and that kind of brings up contact at once.

I was wondering, with respect to that business or product where does that fit or not fit within the broader LiveEngage migration?.

I mean they do messaging and there is some exciting stuff happening there. We just launched a direct from manufacture to consumer messaging to sell cars. This took place about four weeks ago. Normally when you buy a car you are connecting with a deal, but we’ve launched for the first time direct manufacture to consumer messaging and we started to sell.

So I think there is a lot of stuff there. We are going to bring the businesses together now. So they contacted once, but we’ve just had a lot of small deals in new markets and that’s got the large manufacturers. We are going to put that together closer with our SMB business, because it’s got to overlap and put a single leader on that group.

So we are going to take advantage of what we see as two pieces that could come together today. But I expect a lot of good stuff from them in the upcoming months. Once again, they kind of shifted a little bit into seeing if they could go after these very large deals with the manufactures as we just went live.

We got preliminary results that look pretty good. Nothing to really talk about in detail, but we should see more enterprise type deals coming out and then we’ll supplement that with the small business in the dealership segment..

Great, thank you..

You got it, thanks..

The next question comes from the line of Mike Latimore..

Great thanks. You mentioned pay for performance.

What percent of revenue is that now?.

Yes, it’s in the high single digits Mike. So in that 8% to 9% range..

And then on the revenue retention, you know it continues to very strong.

To what percent of total revenue would that apply with?.

If you are talking about the metric on LiveEngage, it’s about a 100% greater than..

Yeah..

Great than 100% on customers on LiveEngage..

Yeah..

Yeah Mike, so we don’t actually break out the revenues specifically on LiveEngage. We just talked about 95% of our revenue being on the LiveEngage platform as of the end of migration. So you know from our perspective, Q3 of last year when we are comparing that retention rate, we had a good number of customers on the LiveEngage platform.

So though we are comparing it with Q2 where maybe there was less customers, in Q3 there is significantly more customers especially enterprise and good market customers. So we’ve got a good volume of customers that we can make that comparison to..

And then on the seven figure deal, did you say that was replacing the ERP systems?.

Yeah, one of the big you know Oracles of the world that we kind of put it under that category, and so we replaced one of their, one their implementations with messaging..

They have Chat, Legacy Chat from Write-On Technologies and they are replacing legacy chat systems with messaging..

Okay, and then was that a – was that seven figure per year or more just over three years or whatever..

Over three years..

Great, thank you..

Okay, thanks Mike..

Next question comes from the line of Peter Levine..

Great, thanks guys for talking my question. Most of them has been answered, so I guess just stepping on the sales.

With this new strategy can you maybe quantify changes to the pipeline sales cycle if you are willing to maybe breaking out the bookings percentage of those booking now as enterprise?.

Yeah so we don’t break out the bookings between enterprise and mid-market, but historically our books have been 75% to existing customers and 25% to 30% to new customers and I can tell you that that’s been pretty consistent from quarter-to-quarter.

As far as pipeline is concern, one of the goals of our investments in these customer events and customer summits is around growing that pipeline.

So these aren’t meetings or events, sorry customer summits just for existing customers, they are also for prospects and its very valuable for those prospects to have the opportunity to talk to existing customers about how they think about the world, some of the hurdles that they had to go through in their business to go live on messaging or AI or bots, but it’s been helpful in building the pipeline and its definitely been helpful in closing customer contracts..

Then with – I know the migration came to an end. Can you talk about any new areas, product areas that you are focused on maybe for the product roadmap or your M&A appetite entering ’18..

I mean on the cognitive side of what we call bots, in reality it’s the automation, is where we have a lot of focus. You know there is two types of agents, there is an automated agent and a live agent and so we have a lot of focus on building those things.

So there are pieces of the technology that we built like a greeter bots, concierge bots, agent assist bots and we are using teams like Watson and other bot makers for some basic NOU, NOP processing. I think we are included in those areas, because I think its part of our core strategy, its provide an agent, so we manage agent supply.

We don’t supply the live agents. Our customers really manage them, but the bot is something we can actually manage and own on our platform and every implementation on messaging now is going out with automation in it. So that’s an important key aspect.

And after a year of doing this, we’ve kind of demystified what AI is in our world, in the care world and how it works and you implement it and how you get by – customers have 60% containment of questions of intents that will contain in messaging and never go out to a voice call.

So we’ve kind of figured it out for our world and demystified it and we know what we need. So we are spending a fair amount of time there.

We are also spending a fair amount of time on things around operations and scale, because we are talking about thousands of agents and bots that run on our platform and the third big part is we built an ecosystem where other technology providers can get into our platform and implement their technologies in there around bots AI, other types of messaging units like video, voice and we so need to build out a better way to service those small startups and put them in our secure environment, so they can scale with our customers.

One of the things that we are seeing is that our customers, they want to write one check to one company to get their bots and their live agents and I think that’s an opportunity that kind of they’ve been approached by many companies around all these different bots and AI technologies. They have been playing with a lot of it.

A lot of it was a lack of success. But I believe there is an opportunity just to get one single check that we have applied from that live and we bring that technology to the game and that’s a big opportunity going into 2018..

This one is for Dan. I’m not sure how far along you are in your assessment of implementing ASC 606 for next year, but I don’t know, maybe if you can give us some highlights of what you think the impact and model will look like.

Thanks?.

First of all, thanks for joining the call and I appreciate it. I know this is your first call. So on 606, we have been going through the process of looking at 606 and from a revenue recognition standpoint. We are still going through with our auditors. I don’t think it will have an impact or minimal impact if any.

But we are still going through that assessment and have done so with the audit committee and a lot of this, but I don’t expect any major impact..

Great, I appreciate it..

Thank you..

There are no audio questions at this time..

Okay, thank you for joining us on the Q3, 2017 call and we will see you next quarter..

Thanks everybody..

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