Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to LivePerson's First Quarter 2024 Earnings Conference Call. My name is Judith [indiscernible}, and I will be your conference operator [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference call over to Jon Perachio, Senior Director, Investor Relations. Please go ahead. .

Thank you, Judith. Joining me on today's call is John Sabino, CEO; and John Collins, CFO and COO. 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, May 8, 2024, 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 in the comments made during this conference call as well as in 10-Ks, 10-Qs and other reports we file with the SEC. We assume no obligation to update any forward-looking statements.

Also during this call, we'll discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release.

Both the press release and the supplemental slides, which include highlights for the quarter, are available on the Investor Relations section of LivePerson's website at ir.liveperson.com. With that, I'll turn the call over to LivePerson's CEO, John Sabino. .

voice integration, extracting value with technology that customers already have, the ability to orchestrate all bots on the platform and improving the messaging experience in our top channels. First, in addition to the CCAP partnership, which we will announce very soon, we are continuing to provide AI and automation through the voice channel.

In Q1, we went live with voice AI for a leading airline and a leading provider of solar power. We also released our voice capture capability, which allows customers to easily ingest voice calls into our conversational intelligence platform and suggest areas for efficiency and improvement with voice AI.

Second, on attractive value with the technology customers have today, my person continues to be one of the few companies deploying generate AI at enterprise scale, and we are seeing strong progress in both new logos and renewal deals. We were one of the first companies in our space to market with generative AI in May of 2023.

And since that launch, nearly half of both renewals and new logo volumes have included our generative AI [indiscernible]. We have nearly 60 customers using generative AI today at scale with nearly 1/3 own 50% or more of their conversation on. We only expect these numbers to accelerate as enterprises become more comfortable with the technology.

We also believe that our pricing and packaging strategy will further accelerate this and allow more of our customers to experience the benefits of the technology. Now I'd like to turn my attention to our efforts regarding orchestration. We understand that most enterprise brands are already using several LOM.

And increasingly, the challenge is how to integrate, orchestrate and optimize those models across the business with consistency. So we have introduced new functionality to our bring-your-own LLM capabilities.

Brands are already able to integrate third-party chatbots with LivePerson, but this release allows them to integrate the preferred LLM providers from OpenAI, Meta, Cohere and Google into their live person box. This mitigates the risk of AI vendor locking.

And by consolidating with the LivePerson platform, it ensures greater control over the customer experience. Our new pricing strategy will also make it more affordable for brands to use their chosen LLM providers with LivePerson and grow the return on their AI investment across the board.

And while we continue to make investments in generative AI and train our own models against customized use cases to address specific customer needs, we believe the bigger opportunity for LivePerson in AI is managing, optimizing and orchestrating all LOMs no matter the vendor but in our product and alongside our generative AI capability that we provide today.

In addition to bring your own LLM capability, we have launched AI [ rerent ], which allows agents to generate improved responses with a single click Customers using this feature has seen 10 point improvement in NPS with over 95% of messages having better outcomes with this capability.

And lastly, we launched social orchestration for Amazon Lex, continuing our goal to allow seamless handoffs across any channel and any bot platform. We look confident that these capabilities will ensure that LivePerson remains a market leader in the next generation of AI capabilities for its customers.

The final initiative in this focus area was to improve our messaging experience within our top channel. And in Q1, we made fundamental architectural improvements to our web channel that resulted in customers seeing up to 50% performance improvement.

This has created a strong foundation for future innovation and improvements in this channel, and it paves the way for key renewals with some of our largest enterprise customers. So to summarize, we are extending our advantages in all areas of product orchestration and integration capabilities.

We're improving our voice integration, increasing functionality to bring your own LLM and improving messaging performance. And this is just to highlight a few.

In addition to all the announcements I just mentioned, I welcome you to join us virtually on May 23 for our Spark product launch event, where we will unveil even more functionality we are bringing to our product.

Finally, I wanted to share that in spite of the headwinds and challenges we have faced, LivePerson continues to be recognized by analysts and the media as a relevant player in digital customer service and conversational AI.

We are named a strong performer in the Forrester Wave Conversation Automation solutions for B2B in Q1 of 2024, which marks the eighth time that LivePerson has been recognized in Forrester research over the last 12 months. In live person, we've named the back company's procedures list of the world's most innovative companies for a third time.

We were recognized as the plot category, which honors companies embracing AI to reinvent how business is done. So I want to extend congratulations to everybody on the LivePerson team, and I want to thank all of you for your commitment and dedication to our customers and company.

So in summary, as I sit here today, approximately 4 months from the day I joined, I've only been confident since the last we spoke that the transformation strategy we are executing on today will lead to a future of profitable growth for LivePerson.

In the first quarter of our new strategy, we delivered on the guidance we provided and rightsize our cost structure. We progressed on our efforts towards improving our capital structure and currently expect to have an update on that later this month.

In go-to-market, we've made substantial operational changes by bringing in new leadership, simplifying pricing and packaging, and we plan to imminently announce a strategic partnership with a major global CCaaS company, in addition to increasing our strengths with product orchestration and integration.

As we have outlined, we are rapidly executing in each area of that strategy, and I look forward to updating this audience on our execution and positive trajectory in future earnings calls. Now let me pass the call to our CFO and COO, John Collins. John, over to you. .

Thanks, John. I'll begin with a brief operational update, followed by a discussion of our financial performance and guidance. First, I would like to emphasize John's remarks on our capital structure. Deleveraging remains a strategic imperative for the company.

As planned, we fully repaid the $72.5 million remaining balance of the 2024 notes that matured in March. We have also spent a considerable amount of time and effort on addressing the 2026 notes, and we currently expect to provide an update on these efforts later this month.

In terms of deals and customer wins, we signed a total of 40 deals in the first quarter, including 12 new logos and 28 expansions and renewals. First quarter deals included upsells with a large Astra based bank and a fast casual restaurant chain.

New logo wins included a global digital entertainment company and a global distributor of electrical products and services. Consistent with the plans we shared last quarter, we embarked on a significant rebuild of our go-to-market operations in the first quarter, hiring new leadership restructuring teams and improving processes has a short-term cost.

While we mitigated some expected customer churn in the first quarter, midstream changes to our go-to-market operations translated to below average deal counts and values in the first quarter. In total, deals were down 43% year-over-year and 35% sequentially.

To reiterate some of the critical changes, we installed new leadership, including a new Chief Customer Officer and a VP of sales operations, and we have hired a new Chief Revenue Officer.

Collectively, these new leaders, coupled with industry standard processes and greater clarity and roles and responsibilities establishes a solid foundation for our return to profitable growth.

For example, we can now evaluate customer health across technical and strategic dimensions 5 quarters into the future, giving us greater specificity on potential friction and the lead time to address them. Similarly, we have strengthened the rigor and repeatability of our sales operations for each stage of the sales cycle.

In parallel, as John described, we also initiated the rollout of a radically simplified pricing and packaging strategy that we expect to increase deal velocity and wins.

So in a very real sense, we needed to slow down before we could go faster, and I'm excited to report that we are already seeing significant improvement in pipeline generation and deals in the second quarter. Finally, before I move on to our financial results, I want to emphasize the significance of the partnership that John alluded to.

Consistent with our prior commentary, this strategic partnership is founded on meaningful shared economics and robust technology integrations.

By partnering with a major global enterprise CCaaS provider, we have repositioned to meet the #1 demand of our customers, an AI-powered single pane of glass for customer service and support across voice and digital channels. We look forward to sharing additional details at our Spark event in 2 weeks, and we encourage everyone to tune in virtually.

As for our first quarter financial results, total revenue was $85.1 million, above the high end of our guidance range, but down 21% year-over-year or 15% excluding the contributions from the consumer business. The year-over-year decline was driven by customer churn in the first quarter and the exit of noncore business lines a year ago.

Note that in the first quarter, while Health contributed $1.5 million to total revenue. Adjusted EBITDA for the first quarter was $0.5 million, which was above the midpoint of our guidance range.

Despite having a significantly lower revenue base, adjusted EBITDA was better than the $1.3 million loss in the first quarter a year ago, driven by rigorous rightsizing of our cost structure. Revenue from B2B hosted services was $71.5 million, down 11% year-over-year.

B2B core recurring revenue was $77.6 million, down 6% year-over-year, driven by the expected customer cancellations and downsells we discussed last quarter. Professional services revenue was $13.7 million, down 33% year-over-year, driven largely by the completion of the engagement with the Clare JV in the first quarter of 2023.

Excluding revenue from the JV, professional services declined 17% year-over-year. From a geographic perspective, U.S. revenue was $60.5 million, and international revenue was $24.6 million or 71% and 29% of total revenue, respectively.

For the first quarter, average revenue per customer was $625,000, up 12%, driven in part by expansions with our largest customers. Consistent with my earlier update on first quarter deals, RPO declined 7% sequentially to $297 million in the first quarter. Net revenue retention was 89% in the first quarter compared to 95% in the fourth quarter.

Considering NRR as a function of in-period revenue, it is a lagging indicator of progress against our strategy.

As discussed last quarter, given the size and timing of cancellations in the first quarter, which have a full year revenue impact, we expect revenue to decline sequentially throughout the year to the fourth quarter, though the rate of decline will lessen as we progress towards the fourth quarter.

However, we also expect new ARR that is the net of annualized bookings and annualized churn to improve throughout the year and turn positive beginning in the fourth quarter. Finally, in terms of cash, we ended the first quarter with $127 million of cash on the balance sheet following the full settlement of the 2024 notes I mentioned earlier.

After further reducing our cost structure through actions taken in the first quarter and current quarter, which will yield over $30 million of in-year savings, we expect our cash balance to be near the current balance by year-end. In terms of guidance for the second quarter, we expect revenue to be in the range of $76 million to $80 million.

This is a sequential decline of approximately $7 million at the midpoint, which, as discussed, is primarily driven by the full effect of customer cancellations in the first quarter, along with below average deal counts that we expect to improve in the second quarter.

B2B core recurring revenue is expected to be approximately 92% of total revenue in the second quarter. As for adjusted EBITDA, in the second quarter, we expect a range of $0 to $5 million. For the full year, we are maintaining our revenue guidance range of $300 million to $315 million.

Again, this range is heavily influenced by the concentration of cancellations in the first quarter, which had full year revenue impact.

Considering the progress we've already made and we're building our go-to-market operations, we expect to improve deal velocity and wins and materially reduce the impact of cancellations and downsells in subsequent quarters, enabling us to generate positive new ARR in the fourth quarter.

As for B2B core recurring revenue, again, we expect it to be approximately 92% of total revenue for the full year. Finally, we are also maintaining our adjusted EBITDA guidance range of $15 million to $26 million, and we continue to expect the B2B business to be free cash flow positive for the full year.

Now I'll turn the call back to John for his final comments before we proceed to Q&A.

John?.

Thanks so much, John. Before turning the call over to Q&A, I want to emphasize to this audience that everything we told you we were going to execute during our last call, we have done or we're executing imminently. As I've said before, we'll take time to see these results of these operational improvements.

But the changes that drive the results we see are happening today and will continue to happen as we transform this company and progress on our journey to profitable growth. At this point, I'd like to hand the call over to the operator for Q&A. .

[Operator Instructions] Oour first question comes from Jeffrey Van Rhee of Craig-Hallum Capital Group. .

Maybe the first one for John [indiscernible] John. In terms of the -- you've been out talking to a lot of the customer base, just take a minute and expand on what you've learned in terms of the common traits of those that churned off the platform? I know you had some suspicion last time we spoke, but I imagine you know a lot more now. .

Yes. So some of the customers that have churned were looking for enhanced functionality that we did not plan to provide on our road map, specifically the ability to completely customize or build custom interface on our agent workspace.

So there are some that fall into that category where they are looking for enhancements that we are not willing to bring at this point in time. That's definitely one category of customer. The other ones are very similar to what we spoke about before, which is we're seeing that the consolidation around CCaaS and digital.

And this is where this partnership that we're referencing, I think, will be a very, very important way of going to market in the future to counteract that churn. So it falls into 2 central categories, one being feature and functionality that a specific customer might want and need for their business.

That's not really on a road map at this point and the other being platform consolidation, which we've discussed in the past, and we feel that this partnership that we'll be announcing very shortly will definitely assist us in counteracting. .

In the quarter, I think you commented on the -- obviously, it's in the deal counts as you said your bookings value also missed expectations.

Just talk about the disruption to Q1 sales cycles and bookings and maybe with a lens of losses, your win rates may be declining versus maybe changes you made that disrupted cycles, possibly buyer reluctance due to balance sheet kind of what you saw? Because obviously, I'm sure you'd want to leave deals in flight, not disrupt those deals, if you could help it.

So just talk through what led to the weaker bookings in the quarter. .

Yes. Correct. We -- so the commercial headwind wins around the debt, of course, played a role. Customers are waiting to hear back from us on how we're progressing on that debt discussion. So some of the bookings opportunities push. And then we've -- as I discussed before, we've retooled the front end of our go-to-market.

Everything from restructuring to the team, bringing in new leadership, establishing new processes. And this has a disruptive effect. And as John Collins stated, it really was essential to slow down, put these changes in place, and we're starting to see those green shoots fall-through in this coming quarter.

Additionally, I've said in the past, the customers have felt at times it's difficult to do business with us.

We definitely have turned the corner, I think, in our pricing and packaging in a way that will allow us now to start experimenting with what I spoke about in my prepared remarks, to simplify the actual process of closing deals with our customers, give them more economic value and have a competitive price in the marketplace.

So these pieces of also were not in place in Q1. We had a lot of work to do. We worked very rapidly at it. And now we have most of them in place and we're doing well on the pilot side of it as well with the new pricing and packaging. And again, we're starting to see some positive results there. .

I guess, last for me then. You gave the revenue number for Wild Health.

Can you give a sense of where it was for the quarter, loss-wise, annualized expected loss? Just wondering how that's impacting the bottom line?.

Yes. So in terms of losses from Wild health, in general, for the full year, as we discussed last quarter, we're expecting well under -- well under $10 million for the year, and we further reduced that through the actions we're taking right now with respect to the decision to sell or wind down the business.

And I expect to have more of an update on that topic later this month. .

Thank you. Ladies and gentlemen, we have reached the end of the call. Thank you for joining us, and you may now disconnect your lines..