Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Fourth Quarter 2021 Earnings Conference Call. My name is Rob, and I will 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 participants will be given instructions at that time. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up. As a reminder, this conference is being recorded.

I would now like to turn the conference call over to Richard Gu, Senior Vice President, Investor Relations and Strategic Finance. Please go ahead..

Thank you, operator. Good afternoon, and thank you all for joining us today. On the call with me are Rob LoCascio, LivePerson's Founder and CEO; and John Collins, Chief Financial Officer. Please note that during today's call, we will make forward-looking statements which are predictions, projections and 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 and 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 non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures are included in today's earnings press release were applicable. Both the press release and supplemental slides, which include highlights for the quarter, are available in the Investor Relations section of LivePerson's website.

And with that, I will turn over the call to Rob.

Rob?.

First, we are going to focus on balancing growth with strong bottom line and build a deeper foundation for profitable and leverageable growth.

Second, on the platform side, deliver our new voice AI capabilities, which will expand our overall TAM and will also deliver on our AI capabilities to get one step closer to our vision of automations being Curiously Human.

And third, expand into our next big vertical of AI-based healthcare with this new eight-figure deal and our vision around the Conversational Cloud powering healthcare experiences. Last but not least, I'd like to thank all of our employees for their hard work in making 2021 a great year, and for making 2022 a really important foundational year.

With that, let me now turn the call over to John to discuss the financials and our guidance.

John?.

Thanks, Rob. By many measures, the macro environment in 2021 was even more dynamic than in 2020. While macro forces had a derivative impact on our business, which I’ll elaborate on shortly, our capacity to innovate and adapt presented us with novel opportunities, particularly in the domains of commerce, healthcare and financial services.

All in, revenue for the full-year grew to $469.6 million or 28% year-over-year and adjusted EBITDA was $29 million or 6% margin. In the fourth quarter, revenue was up $123.8 million or 21% year-over-year and in line with the midpoint of our guidance.

Our fourth quarter adjusted EBITDA loss of $4.4 million was a meaningful improvement relative to the approximate $19.5 million loss we had previously expected as we turned our focus to profitable and leverage growth. The EBITDA improvement was a function of moderating the go-to-market investment strategy we formulated in the second quarter of 2021.

As Rob described, this strategy was premised on the traditional view that a dramatic increase in quota-carriers is necessary to accelerate revenue growth. After two quarters of aggressive hiring in an increasingly expensive and fickle market, we assess that continuing at the same pace would likely overextend our P&L.

As a result, we tapered the hiring of quota-carriers, reaching a total count of 144 as of February 15, an increase of 30 since we last reported on the metric in the third quarter earnings call.

We see a more leverage and scalable opportunity to accelerate growth that focuses on two key foundations of our business, platform innovations and strategic partners. We have already extended our platform to serve as the AI and communication rails for new business lines beyond customer service, such as commerce and AI assisted healthcare.

We are also gaining traction with expanding the strategic technology and go-to-market partnerships that Tenfold and VoiceBase previously established with leading CRM and customer experience platforms.

The strategic fit of LivePerson's best-in-class platform for messaging and AI-driven automation is clear and compelling and unlocks the potential to materially increase the scalability of our partner network. In terms of new business lines built in our platform, we have already made go-to-market traction in AI assisted healthcare.

As Rob just noted, we closed the largest deal in LivePerson's history to improve access to a wide range of healthcare testing, unrelated to COVID-19.

This opportunity would not have been possible without the relationships and technology we built to deliver COVID-19 testing, which itself was an opportunity we attribute to our innovation-first philosophy and versatile platform.

Before providing a detailed financial update, I'd like to take a moment to elaborate on a few macro themes that have altered our outlook for 2022. First, as discussed in prior quarters, we previously expected Gainshare revenue, which is driven primarily by commerce use cases to hold at approximately 15% of total revenue.

In the fourth quarter, we observed that pandemic specific shopping trends began to normalize within the Gainshare portfolio, specifically in the home improvement space, including the type and frequency of purchases and a more balanced interest in physical in-store experiences.

We attribute these trends to vaccine effectiveness, less severe COVID-19 variants and general societal acceptance of living in a pandemic. As a result, Gainshare revenue was only 11% of total revenue in the fourth quarter, and we now expect it to be 10% to 12% of total revenue in 2022.

This change alone translates to a 5 to 6 percentage point reduction in 2022 revenue growth relative to prior expectations. Despite the shift in consumer behavior, Gainshare platform usage is still approximately 2x its pre-pandemic levels.

The clear value of the Gainshare strategy, particularly in the domain of automation has enabled us to convert 90% of Gainshare revenue into contractually committed recurring revenue and expand the business globally with several new logo wins in EMEA and APAC.

As I alluded to a few moments ago, government policies from managing the pandemic have also shifted, particularly as they relate to the responsibilities of employers to test employees. In the second and third quarter, mandatory testing in 2022 looked like a virtual uncertainty, but this view rapidly reversed in January when the U.S.

Supreme Court struck down OSHA's testing mandate. As a result, we do not expect to close new logos for COVID-19 testing or renewed the testing deals we closed in 2021, other than our strategic relationship with Citi. This new outlook translates to approximately a 4 percentage point reduction in 2022 revenue growth relative to prior expectations.

Note that we never viewed AI assisted testing, as limited to COVID-19 use cases. While we would have preferred to avoid the negative impact in 2022 revenue growth, we view the impact as inherently short-term.

The technology we developed is now serving at the foundation for a healthcare testing platform that is far broader in scope and scale, and that is worth eight figures in committed revenue over the next five years.

From our vantage point, COVID-19 testing essentially funded the development of an exciting new vertical that sits on top of the Conversational Cloud and that promises to revolutionize, access to the data that's vital for scalably personalizing healthcare. Turning to our reporting segments.

Within total revenue, fourth quarter B2B revenue grew 21% year-over-year, while revenue from hosted software grew 17% year-over-year. Professional services grew 42% year-over-year and the consumer segment grew 21%. From a geographic perspective, U.S. revenue grew 27% year-over-year, and international revenue grew 12%.

We continued to both retain and grow our relationships with existing brands. As Rob shared earlier, a key theme in the fourth quarter was extending our partnerships with many long-standing customers. We signed seven, seven figure deals in the fourth quarter, four of which were expansion.

Consistent with this theme, revenue retention was once again, within our target range of 105% to 115%, marking the 18th consecutive quarter that revenue retention was in or above this range. Average revenue per customer was up to $610,000, up 31% year-over-year driven primarily by sustained expansion in our base.

Total billable volume in the Conversational Cloud increased 13% year-over-year. Messaging was 28% on top of an exceptional base in 2020. AI-powered messaging volume increased 44% year-over-year.

In terms of usage and revenue trends per vertical while growth and retail moderated, we continue to see accelerating growth, especially in financial services and healthcare.

As for the contributions from new acquisitions, VoiceBase and Tenfold are opening the door to new strategic relationships for the delivery of messaging in AI in addition to voice.

By wrapping these capabilities into a unified agent experience that brands can rapidly deploy, thanks to deep integrations with the dominant CRM customer experience and IT systems. We are well positioned to scalably accelerate revenue growth.

In addition, with double-digit new logo wins in the fourth quarter, the e-bot7 team is meaningfully expanding our market share in Germany, a highly strategic territory for growth in EMEA. Moving down to P&L.

Adjusted EBITDA in the fourth quarter was the loss of $4.4 million, which again was a $15.1 million improvement relative to the midpoint of our previous guidance. This improvement reflects the shift in our go-to-market investment strategy that I discussed earlier.

In terms of cash, we closed the fourth quarter with $522 million of cash and cash equivalent on the balance sheet, a decrease of $111 million from the third quarter, which was driven primarily by M&A activities followed by our go-to-market investments.

In terms of guidance, we expect the evolving macro environment, especially consumer shopping behavior in our Gainshare business and government policy on COVID-19 testing to have a short-term impact on our revenue growth in 2022.

When coupled with fewer incremental quota-carrying reps, the aggregate impact on revenue growth in 2022 is approximately 10 percentage points relative to our prior expectations.

Accordingly, for the full-year 2022, our guidance range for revenue is $544.8 million to $563.3 million or 16% to 20% year-over-year growth, and our range for adjusted EBITDA loss is $20 million to zero or a margin of negative 3.7% to 0%.

As for first quarter of 2022, our guidance range for revenue is $124.6 million to $126.8 million or 15.5% to 17.5% year-over-year growth. And our guidance range for adjusted EBITDA in the first quarter, there's a loss of $26.1 million to $21.8 million or a margin of negative 21% to negative 17.2%.

Before taking questions, I'd like to summarize several strategic themes for 2022. We are focused on leveraged and scalable opportunities that will enable us to more optimally balance profit generation with growth acceleration.

To this end, we've built an innovative healthcare vertical on top of the Conversational Cloud and signed our largest deal in our history to scale personalized healthcare with AI.

Through recent acquisitions, we've combined voice, messaging and AI into a unified agent experience and widen the aperture for the data capture necessary to deliver Curiously Human digital experiences.

These acquisitions have also diversified our go-to-market strategy through strategic partnerships that we can leverage, deep existing integrations to deliver messaging and AI in addition to voice.

With rapid expansion of new verticals and use cases, long-standing top tier brands driving usage growth year-over-year and the integration of new platform capabilities such as voice, we have a solid foundation to sustainably reach our long-term goals for growth and profit. And with that, operator, we are ready to proceed with questions..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question is coming from the line of Peter Levine with Evercore. Please proceed with your question..

Great. Thanks for taking my question. So three months ago, you gave us an initial guide for 2022, 27% and growth confidently with an exit growth rate of 30%. You kind of highlighted some of the kind of headwinds that are now 10% or chopping off $45 million of the guide.

So just curious to know, when did this all start coming to a head? And then second, I mean, did your close rate from opportunities you had, or did the grid rates against competitors change at all over the past couple of months?.

Hey, Peter. I'll start first with some context. I would say during the third and fourth quarter, we began to reassess our quota-carrying hiring plan. It became clear to us during that time that that many new quota carriers wouldn't be conducive to scalable and profitable growth.

In a thrown body that problems is a traditional approach that tends not to scale very well. In today's market, especially it's also an extremely expensive path to growth, and we didn't want to lose sight of the value of profit and scalability, especially when evaluating the best path to our long-term ambitions.

And to recap, there were three primary factors impacting our guide right and outlook for 2022. Part of that is pure quota-carriers as we described.

So the big contributors there are really the change in consumer behavior, shopping behavior in the Gainshare portfolio and the COVID-19 testing, which we didn't expect to suddenly be cut off through government policy. And collectively these factors, as you rightly recited were 10 percentage points of reduction to our year-over-year outlook.

But I want to emphasize that we do see more scalable and leverage opportunities for growth. And I want to reiterate what those are. Again, the COVID-19 business wasn't one and done. We transformed that business into a long-term healthcare play, built on AI assisted testing that extends well beyond COVID-19 to enable precision medicine at scale.

And this deal itself brings more sustainable revenue growth and better margins going forward. We are also just beginning to effectively cross-sell with VoiceBase and Tenfold, including signing an eight-figure deal with a mutual customer.

And we think expanding the technology and go-to-market partnerships as I described in the prepared remarks will give us more leverage on our go-to-market motion..

And then maybe just want to follow-up, obviously slowing down the quota-carrying rep hiring, is that an indication that there's just not enough demand to go around or customers perhaps maybe going with the CCaaS or CPaaS vendors that I know somewhat providing more of a platform with voice, digital and chat? Just curious to know kind of your take on that and then….

No, I don't think….

Go ahead, Rob..

Yes. I don't think it's about that. I think we just looked at it as the expense of that and the environment we're working in today. We would burn a lot of cash this year with the hope that by the end of the year, all that would ramp and be scaled.

And we felt getting to where we are at the 144 is a good place to kind of like, stop and look at where we're going. We also have some other opportunities like – the healthcare opportunity came out. We’re hoping to close that, it closed, and it opens up a big opportunity for us with a deal behind it.

So we just want to be measured and how we run the company in this environment. And we would have – this will be our trough in EBITDA right now because of – we did do a bunch of hiring and we had the acquisitions at the end of last year, but we're going to start to then move the EBITDA number up. And we just feel like where we are right now.

We'd rather focus on being more measured about how we run the company versus just like filling it with a lot of people. And then the expense of that hits and so it's not as much the demand, although new logos is still something that we definitely have to do better at, the base is doing really well.

I mean, we're expanding, they love the product, so we're not seeing a shift in the competition. We definitely have to get back into the new logo motion. And especially what we're doing with marketing with face-to-face events really propelled us here.

So that's really what's happening today, but we just felt as a leadership team, it's better to just be prudent with what everything that's happening in the market..

That's right, Rob. I would just underline in response to a question you had Peter, that the close rates, renewal rates and expansion within the base were all in line with what we've seen throughout 2021. Again, I'd point to the solid net retention figure that we cited 18th consecutive quarter in our target range there..

Thank you for taking my questions..

Thank you. Our next question is from the line of Steve Enders with KeyBanc. Please proceed with your questions..

Hi. Great. Thanks for taking the question. I guess, I just want to clarify, I mean it sounds like I'm interpreting this, right. It seems like there is a more difficult hiring environment than maybe you've expected happening in 4Q. And that is kind of what led to the slowdown there.

Is that kind of the right way to frame it?.

Yes. The environment – it's a definitely – we have people who – there's crazy things going on right now on hiring and there's an inflation in salaries, and we would rather focus on the people that are at the company and basically focus on make them successful. So that's really what we're trying to do here.

And we got 144, we feel like that's enough right now and let's focus on making them successful..

Okay, got it. That's helpful. And then just on the shift in the go-to-market strategy and there is investment for 2022.

I guess, I just want to get a better sense of how is the go-to-market changing to go after this new AI-assisted healthcare opportunity that you're talking about in terms of building out the partner strategy in some of those end channels.

How does that kind of shift? And then also, I guess on top of that, as you think about the other area investments with the cross-sell or some of those newer voice solutions.

How is that also kind of changing the go-to-market and partner strategy?.

Yes. First, I'll start with the voice, the acquisitions that we did are really great, and especially there's one Tenfold, which is a very much a partner sell, and they are – we can embed ourselves in CR – we can embed our agent consoles and our technology inside of CRM systems and all of this in a very deep way.

So they had really a partner strategy even stronger than we did and with like CRM players and things like that. So we're seeing some really good traction there and then we've had cross-sell opportunities with them. So I feel like we did good acquisitions. Now we're integrating them technically, and it's going well.

Once again, we spent a fair amount of money on those guys, and we want to make sure that we're going to integrate them in a way that we can get the power of our vision, which is voice AI and changing the game on voice AI. The second part on the healthcare is the COVID testing business enabled us to build this platform.

And from that, we can now – we have a broader vision around delivering testing in a more comprehensive way and just maybe – probably most people don't know, billions and billions of dollars went into the testing world in the last two years. And all these COVID testing companies also have a bunch of other tests.

We're about to get all of us access to all sorts of tests to check cancer and all sorts of things in our lives. What we found is that these companies don't have a really good way to deliver that software, they're not good at that.

And so what we build for our COVID testing platform, we saw – could really be applied to a wider healthcare opportunity, and we are able to sign an eight-figure deal, a very large one, which is a five-year deal to deliver on something broader. So we're really excited about that.

And I think this vertical can be as big as the customer engagement vertical and we're going after it very aggressively, obviously with revenue behind it. So we're very excited about it. And I think what's important is that I don't know, our platform wasn't built just for customer engagement. And that is a really big part of our business.

We're going to continue focusing on it, even though we're not happy with some of the things on the macro side. But it's a platform to do conversational AI and we can apply it to other things. And we always had a vision of applying it to other things, and this is our second thing. And it's an exciting thing because it has real revenue behind it.

So I think for shareholders, it's an opportunity to have like a core business that's very strong and now an option on a second business that actually has real revenue behind it..

Okay. That's helpful. Just quick clarification for John, just RPO is down quarter-over-quarter here.

Is there any dynamic with Gainshare that's happening here? What is leading to a decline there?.

Yes. I would say, RPO was slightly down. I think it's about 2% quarter-to-quarter, it's up 27% year-over-year. And this is in part a function of just extended renewal processes with several large customers.

So signing those deals coupled with eight-figure deal that we've just done in the quarter would definitely expand or improve upon that metric going forward.

Okay. Perfect. Thanks for taking the questions..

Thank you. Our next question is from the line of Jeff Van Rhee with Craig-Hallum. Please proceed with your question..

Okay.

Several for me, I guess, on the VoiceBase and Tenfold, what did they contribute in Q4 and what are you assuming for the 2022 numbers?.

Yes. Jeff, it’s – in Q4, low single digits in terms of contribution percentage points. And then with regard to full-year 2022, what we're looking at mid-to-low single-digit contribution for those assets.

But I want to emphasize though that the – we're only really just beginning in terms of integrating the technology and turning on those partnership capabilities. As we highlighted, we signed an eight-figure deal with a mutual customer.

And I think the real leverage point that we get with those newly acquired assets is that they can help bring the value of LivePerson anywhere.

Messaging, AI automation should be consumable within the desktop experience of choice for a customer, whether that's a Salesforce, ServiceNow and Microsoft, et cetera, which adds leverage to our go-to-market motion by not limiting the value of our platform to only those who work within the LivePerson workspace.

So we think this opens up new opportunities for joint distribution, product innovation and general scale. We're only just beginning there..

Let me just make sure I got that right.

Low-to-single for Q4, but mid-to-low single for the year for all of 2022?.

Correct..

Maybe you could just expand on that. I mean, the combination, the two, I believe was about $250 million purchase price.

And you're talking, if I'm – assuming I'm hearing you right, $5 million for 2022?.

No. So percentage point contribution to our total revenue base. And then with regard to the purchase price, remember that a substantial sum is contingent consideration tied to revenue earn-out..

Okay. All right. So call it 25-ish, and I can do the math there. Okay. That's helpful. So if I take that out, then, we're looking at roughly, I don't know, 13% organic embedded in the 2022 guide, and the rep counts going from 81, I think in August to 144 now. So I guess help me understand how 13 is happening.

I mean, I get the – sort of get the change in shopping behavior, sort of get the COVID testing, but virtually every data point around messaging is dramatic growth.

So this kind of goes to some of the other questions, is there competitive loss going on? I guess just more clarity there is desperately needed here?.

No, again, renewal rates are strong, expansions are strong, close rates are strong. And by that, I mean in line with 2021, I think there is an element of conservatism here. We don't have a lot of good reasons not to be conservative at the moment. And then of course, we hired a lot of heads and we need to ramp.

And so that will take place this year and we're focused on integrations and again, scalable sources of revenue growth, profitable sources of revenue growth. And that's really will take some time this year to build out, but I think holds a lot of promise for this year and the years to come..

Yes. On the sales side, just to revisit, I think you mentioned Manlio, just a little more clarity. I mean, obviously he departed, he's comeback.

What does that mean? What does that mean for Tony Owens? What does that mean for the direction of the sales organization?.

Yes. So Manlio is taking over the organization. Tony is turning into a consultant to the company. Manlio, he had a real personal issue back last year and that causes to go out and find someone else, but he was the one who architected all the marketing and sales activity and all the growth that you've seen. And luckily he was able to come back.

So three weeks ago he came back and he's culturally aligned and he did such a great job. We didn't think we would get him back from some personal issues, but everything is fine. He's back. And he just stepped in and he knows the team and we're excited to have him.

He is very focused on leverageable growth and it's not about hiring a ton of people and over staffing in a traditional model, he has a different way of executing, which we showed over the last couple of years and we're excited to have him.

I said, Tony will continue on, he's got a consulting agreement, he's continuing on as a consultant to the company where we need him to help us..

Okay.

One last, if I could sneak it, in COVID testing for 2021, what was it as a percent of revenues or dollars?.

In terms of COVID testing for the full-year, Jeff?.

Yes..

Yes. That would've been kind of low to mid single-digit percentage point again..

Okay, great. Thank you for taking my questions..

Thanks, Jeff..

Thank you. Our next question comes from the line of Samad Samana with Jefferies. Please proceed with your question..

Hi, good evening. I have a couple of follow-ups to some of the questions that been asked. I mean, I want to maybe zoom out. A few years ago the company said that they wanted to double headcount in quota-carrying reps to 200. That was in 2019, and it didn't happen then.

And now you guys announced this on the earnings call for 2Q, so late August and between late August and now you've decided that the traditional model of 200 reps are ramping up significantly doesn't work.

I guess, where I'm confused as when you were making the original decision both in 2019 and now, again, it's not that long ago, it was just in August.

Who made the decision at the time to go to 200, and what about that industrial logic broke down?.

Well, it was the previous – Manlio came back and we looked at it and we just didn't like what we want to do there. I just think that the cost of that right now, it would be extraordinary. And the risk of that on the business is just not worth it. We have other opportunities, especially in the mid-market.

We ended up developing a new offering to the mid-market that doesn't require a bunch of humans. And originally the previous plan was we're going to hire big mid-market team and do all that. We actually built a platform that connects Shopify and it can take small business to mid-markets and automate conversational commerce experiences with one click.

It's not a human-based system. We actually built it over a year. So there was a fair amount of headcount going into mid-market. We don't need that headcount right now. We built actually a platform to go after that.

So that's a big part of that, even though we're 140, that would've been the fair amount of mid-market reps and small business reps, but we don't need to do that. We're going to service that with a platform. We already have about 700 customers on this platform called, Maven. And it's in the market already for the last couple of months.

So we felt that's a better way to do it. If we went ahead and did everything that was going to be planned by the previous person who was here, we could burn a $100 million in cash and we just don't think that's prudent in the environment where we're looking at today. I don't think shareholders want that and neither do we.

So we have a better way to service markets. We like to use technology to service them. And then the healthcare play also enables us to do something in a market that we feel is also a good use of resources.

So why double, triple down on in one area and put the risk of burning that type of money when we can invest that capital in a different way that we think can get better returns. We have a portfolio that we're looking at as we run the business. So that's really it.

So yes, in 2019, same thing, we looked at the headcount, but today it's also just an expensive environment to hire into. So we're going to deploy that capital in other areas..

Understood. And then maybe a follow-up, if I just go back and kind of think about the last few quarters, it seemed much more about investing for growth. And I think it clearly resonated this quarter that the profitable growth is kind of the pivot point.

So I know you've given EBITDA guidance for 2022, but can you maybe expand on what profitable growth is? And should we start to think about free cash flow becoming positive this year or growing to positive in the next couple of years? Just how should we maybe measure the company against the profitable growth that you're talking about?.

Yes. I'll take that Samad and maybe provide just a little context on how the quarter – how we expect the quarter and meaning first quarter and the rest of 2022 to progress given the fully loaded cost of the acquisitions we made in the fourth quarter, and the hiring that we did do despite the flow down there.

We will expect a large loss in the first quarter that will improve each quarter thereafter, turning significantly positive in the third quarter and fourth quarter. In terms of cash flow generation, free cash generation. I don't expect a large number in 2022, but that is an intention of ours as we look forward into 2023..

Thank you..

Again, of course, I would just add that we're also part of this analysis that we did on our go-to-market investments is with the Rule of 40 quarters that we put up over 2020 and the first half of 2021. We think that's just a cleaner, more scalable way to manage the business..

Thank you. I appreciate you taking my questions..

Our next question comes from the line of Ryan MacDonald with Needham & Company. Please proceed with your question..

Hi. Thanks for taking my question. Rob, let me just help us understand the AI for healthcare opportunity a little bit more. Obviously we've seen sort of this emergence of precision medicine that are – vendors that are using AI and taking patient data to combine that with testing data to drive better outcomes.

Are you intending to offer the test yourself or are you intending to sell the platform into the testing providers and then trying to add the value there? And then it's obviously a very new vertical, are you confident in sort of the updated outlook for profitability that you're appropriately sort of accounting for, one the R&D, but two, then go-to-market investments that are going to go into this sort of completely new area? Thanks..

Yes. I think we're definitely covering the investments for this year because we built – we kind of got free funding out of it through our COVID-19 build. So the last two years, I mean, all the money we made, we piled back into building this platform on top of the Conversational Cloud, but you're absolutely right.

What's happening is that, we're about to enter a world of healthcare in which we're going to uncover our body and the data that comes off our body through testing. And so one part of this is creating a unified way to get the testing data up, so we are not going to make tests, obviously we're partnering with test companies.

But that testing data has to get on to a single platform. And then there's got to be a way that people take those tests. And that's really what we did with BELLA Health. And so we have real expertise that we gained over 24 months there. You're right.

The next step is that who uses that testing and that's called precision medicine, which you're going to see something in that area too for us is that – and precision medicine right now is about obviously being able to look at the data of each individual and then providing guidance through genomics and blood testing to tell people how to improve their lives based on an individual basis.

The biggest problem with that is humans. It doesn't scale because – and it's very expensive, mostly for athletes and CEOs and people who have money. But we believe there's a way to scale that through conversational AI experiences. So we're seeing those two parts together, the ability to do the testing, bring the testing on data on to a single platform.

So people can really own their body and the data that their body throws off. And secondly is what are the recommendations to move you forward as a person? It's right to really disrupt the market.

Like I said, we spent two years building and getting to know the testing companies and I've spent personal time with many of them and learned a lot and I felt okay, we did really well with the COVID testing business.

We've got this technology, it's time to kind of move beyond COVID because I think it's very up and down as we showed with the revenues and now we're going to go into something very sustainable, which I think has real legs into it. So this year, I think, it's mostly a build, there's revenue associated in that build with our partner in doing this.

And there'll be some revenue associated with patients and bringing patients on the platform. And then we'll see how it goes from there. But it's a potential very, very big opportunity for us, so. I guess, and one last thing with it is that, I believe also that there's an offering, we can go back to our corporates with.

The same way that we worked with this large bank and they relied on us to develop this whole platform to bring their employees back to work. We see also a way to drive this into the corporate world and work with our clients on this. So I also think it'll have some real benefit there..

Helpful. Maybe just a follow-up for John on the Gainshare commentary. So you said, for 2022 here expecting between 10% and 12% of revenue and you decided to shift being revolving consumer purchasing patterns.

Is that – should we take that to mean that volumes are just naturally lighter, but customer retention has remained strong or are you actually seeing customers churn off because they don't need to sort of push excess traffic – inbound traffic to LivePerson moving forward?.

No. It's definitely the former. We have a very strong customer retention within the Gainshare portfolio. We have one large customer in the Gainshare portfolio. That's a home improvement retailer. The shopping trends I cited are predominantly affecting that phase.

And I would note though that even this customer still has 2x its pre-pandemic usage of the platform. So while these trends have caused growth to slowdown, clearly, it's not the case that the customer is treating or that there's not still value add in the Gainshare offering.

I would also say that the Gainshare business aside from this customer continues to grow. Given the strong value proposition of automation, we've transformed the majority of the variable revenue into recurring revenue and signed new logos internationally for the first time.

So we're actually – the business is very strong and getting stronger, given the shift to recurring revenue despite the headwind with this specific area of commerce..

Thanks for the color..

Thank you. Our next question is from the line of Arjun Bhatia with William Blair. Please proceed with your question..

Hi. This is Chris on for Arjun. Thanks for taking the question. I wanted to dig in a little bit on some of the ARPU growth that you've seen over the last year.

I just kind of wanted to get a sense of the composition between, is that primarily coming from volume expansion or is it driven by a shift from chat and messaging? So it's kind of a follow-up, understand that messaging is premium price relative to chat. So could you give us a sense for what the pricing difference is there? Thanks..

Sure. So ARPU is definitely a function of volume expansions with our largest customers. New use cases, automation are sort of the key drivers of those volume expansions and the main reason for the continued increase in ARPU. In terms of chat, there's very little chat still on the platform and we've shifted over 90% of it into messaging.

So there's little effect from that area of the platform on ARPU today..

Got it. Thank you. And then just to shift gears a little bit, just to touch on the voice offering, and I know you mentioned to me kind of coming more into the market later this year.

Have you got any – just curious what you're hearing from your beta customers so far, and if you've come around on a strategy for monetizing that it'll be a unit of volume, and then if there's any assumption of contribution to revenue in 2022 from voice? Thank you..

Yes. So we're not up on beta yet. It'll be coming shortly. There's very low contribution because we're going to be delivering towards – at the second half of the year, the platform. But we see there is definitely demand.

I mean, we went into it because we automating voice calls like we automate messages at high quality plus it's an integrated experience between messaging and voice and an integrated agent desktop. We know is going to have a lot of value.

And then having Tenfold and VoiceBase also gives us the product build out to do the integrations at the backend and the quality to really look at the quality of voice around voice analytics and that's VoiceBase. So we just haven't put a lot of contribution in, there's a potential upside there. But we're just being conservative.

Same thing – it's like what we're doing with the reps even though we have a lot more reps right now. We just don't need to overextend ourselves and we feel like we'll be conservative.

We're going to ramp and then there's some upside there, but we figured it where we are today is just be tempered about what we put out at the start of the year and we have a lot of opportunities, but we just want to be – just be focused on how we're going to run the company..

Great. Thank you for taking my questions..

Thank you..

Our next question comes from the line of Zach Cummins with B. Riley. Please proceed with your question..

Yes. Hi. Thanks for taking my questions. And just following up on kind of your last commentary.

In terms of the reps that you've recently onboarded, I mean, is there really any sort of expectation that you're going to get a contribution from them even towards the back half of this year?.

I mean, the original plan that would be the back of the year. So as we thought about that and we’re like, okay, let's just – it's a lot. By the way, it's not just the reps, there's a supporting group of people who have to support those reps for enablement. For lead flow, there's a huge amount of people that support them.

So we are trying to accelerate that. Our goal is to make those reps successful. We want every one of them being successful. We don't want to spend more time hiring people. It takes time and focus out of the leadership team. And we felt that let's take the ones we have and see if we can accelerate them.

And if we can get them to their quotas faster, then we're going to be heroes. And so, we just said, let's just put a little bit of pause on there. Once again, in the mid-market – we have a product line now in the mid-market. We don't need humans to sell in the mid-market small business. We have a product now to go after that that's more automated.

But with the enterprise reps we'll just focus on making the one successful. We don't want to lose them. We want to make them really work..

Understood.

And John, can you give an update on the progress that you've made with transitioning from enterprise licenses to CPI type of contracts?.

Yes. We essentially reached our goal for 2021. We converted 64%. I think our very original goal was 70% and we brought that down to 66% given later in the year. So we're right in line with the original target. One of these, I would note was the eight-figure expansion with the joint VoiceBase customer.

So again the ability to upsell during these conversions remains very strong. Most of the remainder to give you a sense for what's to come of these renewals will be in 2022 with still some to come in 2023..

Understood. And final question for me is just around the partner side of this, I mean with leaning into more profitable growth now and not just completely hiring direct sales reps.

How are you thinking about relationships with partners and ability to kind of expand upon some of those more major partnerships?.

I think especially with Tenfold, it's one of the reasons we really wanted to bring them into the company is they – most of their selling is that, and they've got good leadership over there to do that. So we got system integrators and people like that, doing stuff for us and the Gainshare business also has a bunch of BPO providers.

But with Tenfold, they actually have a lot more like – they've got all the major CRM players. And I think there'll be some interesting announcements we'll make in the next quarter or so about real integrations with them. And so I think they've got a different – they've got more platform strategy.

We had more SIs and BPOs, so we should see more acceleration there. We're already seeing it because they're part of our company..

Understood. Well, thanks for taking my questions..

Thank you..

Thank you. And last question is from the line of Siti Panigrahi with Mizuho. Please proceed with your question..

Hi. Thanks for taking my question. This is Alex Kim on behalf of Siti Panigrahi. I just wanted to ask what's been the feedback for a payment solution from enterprise customer base.

Has it been gaining traction? And what are things that can be improved about your current payment solution? And do you plan on implementing any new features to this payment solution? I have a follow up as well..

Yes. So it's out on the market, actually the mid-market product line. It's really interesting. This Maven platform that we have for the mid-market, it's tightly integrated into – for Shopify and big commerce merchants. In one click, you automatically get all the conversational commerce rails, including – you get catalog search, payment is all in there.

And we're tokenizing the payment and everything, so that's all in that offering. And so there's going to be a lot of volume, I think, coming through it there. And then our enterprise customers are just – it's a unit of like, it sits inside the messaging channel, and then we get a usage fee for it, which is also going well.

It's harder in the enterprise a little bit because we have to integrate it. So it really integrates with their payment gateways. What's great about the Shopify stuff is that it's using the Shopify payment rails.

So once you go ahead and say, you want to be a Maven customer, it automatically just integrates all the payment and everything, our payment system with Shopifys. And so we're quite excited about, but that's where we're going to see a lot of volume, I think, come through it..

And how much TPV is there today for your payment solution?.

I don't have the data on that. I don't have the data..

Okay. No worries.

And in regarding your VoiceBase and Tenfold product, how much ASP uplift do you see when you cross-sell those products versus your current LivePerson product and what are the gross margins of those products versus the core LivePerson product?.

Hey. This is John. I think it's too early to provide such specific metrics given the very early stages of cross-selling within the VoiceBase and Tenfold installed base. But that's something I think we'll be able to expand upon as we progress through the year..

Got it.

And what are the gross margins of those products like versus the current LivePerson product or the core LivePerson product?.

Yes. They're very leveraged businesses like ours, so comparable to our gross margins..

Okay. Got it. Thank you for answering..

Thank you. At this time, we've reached the end of our question-and-answer session for today. And I'll now hand the call back to Rob LoCascio for closing remarks..

Thank you, operator. So I just want to just summarize again, what we're thinking about in 2022, which is, we really want to look at how do we get the leverage off of our overall core business. We've got to do the integrations of VoiceBase and Tenfold, but more importantly, bringing our voice AI capabilities.

And then last is really about this healthcare vertical that we've been in. Now is the third largest vertical we have. But the ability to go deeper in it, I think it's definitely an option to do something quite big even beyond what we're doing in the core.

So we look – obviously there's been some changes in how we've been thinking about the business, like everybody, the environment has changed, but we think it's just prudent at this point to drive towards profitability and leverage when it comes to growth and don't overextend ourselves and have this be a very strong year, a foundational year to prepare for the next level of growth that we're going to see.

So with that, I want to thank everyone and thank all the employees for all the work – and all the hard work we did last year and all the hard work we're going to do this year. And obviously there's a lot of uncertainty in the world. So with that, just everyone be safe. And thank you. See you next quarter. Bye..

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation..