LivePerson Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 8 speakers on the call.

Operator

Afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's First Quarter 2023 Earnings Conference Call. My name is John, and I will be your conference operator today. At this time, all participants are in a listen only mode.

Operator

After the prepared remarks, The management team from LivePerson will conduct a question and answer session and conference participants will be given instructions at that time. As a reminder, this conference is being recorded. And I would now like to turn the conference call over to Mr. Chad Cooper, Senior Vice President of Investor Relations. Thank you.

Operator

Please go ahead.

Speaker 1

Thank you, John. Good afternoon, everyone, and thank you for joining us today. On the call with me today are Rob Ocasio, LivePerson's Founder and CEO and John Collins, Chief Financial Officer. Please note that during today's call, we will make forward looking statements for our 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.

Speaker 1

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 10ks, 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 and the supplemental slides where applicable. Both the press release and supplemental slides, which include highlights of the quarter, are available on the Investor Relations section of LivePerson's website.

Speaker 1

Finally, I'd like to remind everyone that we are here today to talk about our Q1 of fiscal year 2023. As you may be aware, a shareholder has announced its intent to nominate candidates for election as directors at the company's 23 Annual Meeting of Stockholders. The company intends to file definitive proxy materials related to the 2023 Annual Meeting in due course. Stockholders of the company are strongly encouraged to read the company's definitive proxy statement, the accompanying proxy card and all other documents filed with the SEC Information regarding the identity of the company's participants and their direct or indirect interests Private Securities Holdings or otherwise will be set forth in the definitive proxy statement and other materials filed by the company with the SEC. Stockholders may obtain copies of these documents for free through the company's website or through the SEC's website atsec.gov.

Speaker 1

We will not comment further on this matter on this call. We appreciate you keeping your questions focused on LivePerson's performance and results. With that, I will turn the call over to Rob. Rob?

Speaker 2

Thanks, Chad. Good afternoon and thank you for joining us for our Q1 2023 earnings call. LivePerson had a really good quarter, generating revenue of $108,000,000 while narrowing our EBITDA loss to $1,000,000 As we continue to execute on our profitability goals, total revenue was at the high end of the range and adjusted EBITDA was well ahead of the guidance range. We continue progressing on the business initiatives crucial for our next phase of growth, including a narrowed focus on our B2B core and rightsizing our expenses. We are reaffirming total revenue and adjusted EBITDA guidance for the full year and John will provide more detail on the financials shortly.

Speaker 2

For the company, our employees and our customers, May 2 was the start of the next leg of our journey with the launch of our new generative AI products and platforms. The changes we implemented over the past 5 quarters, including removing non core revenue, Divesting of our consumer business gives us a solid operating foundation to support our growth and focus on the opportunity we see from the core business. We've always completed we also completed the consolidation of certain go to market functions, which will meaningfully improve our P and L going forward. Our company is at an inflection point and with the changes we have implemented, we are poised to accelerate profitable growth in the periods ahead. We have set our sights on becoming one of the largest and most effective enterprise AI companies as we have the advantage of our early and business outcomes to the enterprise.

Speaker 2

Most AI models are trained with tens of thousands of AI generated conversations labeled Enterprises and consumer conversations with the input of 350,000 live experts on our platform, Coupled with 250,000 API endpoints that enable not only engagements but also transactions, this approach is imperative to enable generative AI in the enterprise. Our Generate AI advantages are rooted in our precision dataset, 350,000 customer surveyed agents on our platform generating the quality data, Our secure guardrails protecting our customers and their data in integrations into our customers' back end systems, which allows us to do transactions and outcomes. Those of you who joined our product launch event last week saw that LivePerson could customize and tailor responses to suit the situation reflect the brand's voice. With the largest customer conversational data set and a very strong platform for handling the data, Additionally, the VoiceBase acquisition has been a key accelerant to driving the efficacy of our data and allowing it to be prepared to scale with the new AI large language models. LivePerson is a global leader in conversational AI.

Speaker 2

100 of the world's leading brands, including HSBC, Virgin Media, Chipotle use our conversational cloud. We power nearly 1,000,000,000 conversation interactions every month, providing a uniquely rich data set to build connections that reduce costs, increase revenue and are anything but artificial. We use this data set and expertise to act as the assembler so that the responses are grounded and the large language models only use These to generate high quality responses. It can't be overstated how important it is that LivePerson can leverage the humans in the loop on our platform. Over 350,000 skilled humans are using the LivePerson platform, continually training and refining answers to provide the risk mitigation or guardrails necessary to help enterprises safely leverage generative AI.

Speaker 2

This ensures that all AI conversations are grounded in facts and relevant to our brands that we reduce what they call hallucinations. And I really feel that one day if we look at the asset value of the company, our data set alone has such a tremendous value because of its uniqueness in providing high quality outcomes. One of the most important aspects of our platform is that they combine high quality conversation using large language models and AI actions That generates sales and service outcomes due to our deep integration to the back end systems and our Tenfold acquisition also supports These integrations are the key pillar. And when we look at working with brands, I've been out with them recently, many of them talking about this. The biggest part they're looking for is the outcome of the action.

Speaker 2

What we're seeing in most things when it comes to large language models is we see that the conversation is natural It gives good responses, but we don't see usually an outcome like a sale or service outcome. And that's where we really shine. We have over 250,000 APIs integrated into our system today that provide those outcomes. So as many of you watched on May 2, you may have also saw that we have plans to deliver AI in a different way, in which we call an EII framework. And the e indicates our commitment to AI that is equal, enterprise grade and for everyone.

Speaker 2

And unlike what we talk about with OpenAI Just to open this as a general term, we think EAI is much more focused on what our customers want in the enterprise. It takes the power of generative AI and large language models, but assembles them with the right data set and training that allows us to deliver outcomes in a safe and responsible way. And with the release now of our voice AI platform, We can integrate all of that into voice platforms like a Genesis or Amazon Connect or Five9 and this will help us Accelerate what we set out to do 7 years ago. As you know, I fundamentally believe that traditional voice calls with agents Was never the way of the future. And now we will accelerate those conversations to get automated at a very high rate.

Speaker 2

It's about a $60,000,000,000 TAM. And what I could see now is I think we can get to a place where 80% of those conversations can get automated, that we don't need human beings anymore taking those calls. And I think that will happen over the next 5 years. So we're really Excited about the opportunities and obviously all the work we did in the last couple of months is really about restructuring the business to be able to focus on this big opportunity. And obviously, we had to put a lot of effort into that restructuring, but now we can put 100% of our focus into growth, and that's where we are today.

Speaker 2

When we look at the quarter, we signed 70 new deals in the quarter, including 4 7 figure deals, 50 expansions renewals, 20 new logo deals and we completed the restructuring of our go to market teams in Q1. We did put a focus on more and higher quality logos than we usually do in the mid market and small business. We're shifting in that area because we see with this technology now, We can do a lot more transformation, so we are focused on that during the quarter and that will continue forth into Q2. We did sign a 4 year 7 figure deal with Europe's largest bank and financial services company. Our immediate goal with this brand is to plan a generative AI strategy that LP at the core of everything, how they engage with their customers and their employees and they serve 23 markets today.

Speaker 2

I think what's Interesting about this deal, it's our 3rd, I believe, 2nd or 3rd renewal with them. And even in the face of everything going on with generative AI, they want to put it on platform that can allow them to do it in a way that generates the outcome in a safe and secure way. And so I think it's just a testament once again of how are we playing in the market with this new shiny object and how do we make it real when it comes to bringing it to the enterprise. We also signed a 7 figure renewal deal with 1 of the largest multinational telecommunications companies in the world. This brand increased customer adoption of messaging with comprehensive use of our AI suite, like conversation builder, conversational assist and proactive messaging.

Speaker 2

We're now going across care, Obviously, sales, retention complaints, and we're expanding our relationship with them, once again, We also landed a 7 figure renewal deal with a multinational financial services company and the largest bank in Canada. This brand doubled its LP investment in the spring of last year, leveraging our automation services. In 4 months, our automation already powers 35% of all their conversations, which is climbing daily as we optimize the operation with our dedicated automation team. Volume is Critical for them, but also the quality of the conversations is what we deliver on a day by day basis. In that deal, we beat out Salesforce and Genesis for this engagement and are pleased what we're doing with them on deployment so far.

Speaker 2

Also important to note that one of our large Fortune 500 health insurance Providers set a global goal to shift 50% of their call volume to messaging to achieve further operational efficiencies, providing meaningful upside to our engagement with the client. And this is also with we're taking that volume out of 1 of the traditional contact center players. We landed 7 figure deal with a large healthcare service provider. We'll begin their journey with web messaging and move quickly into IVR deflection and proactive messaging. Finally, a large retailer in the UK has embarked on a 5 year transformational plan with digital technology playing at the key component.

Speaker 2

Phase 1 is to deploy our technology for care, focusing on reducing the contact center costs. And then Phase 2 is to remove, one of the ticketing platforms and turn that into an asynchronous integration where we're delivering the large language models and delivering a better consumer experience than traditional ticketing. The final restructuring in Q1 Restructuring behind us, we can return to focusing on all efforts on engaging the growth engines and bringing our new products and platforms to our brands. We're in a really unique position right now when it comes to generative AI and bringing it to the enterprise because of our history with them and our trust with them. And they've used these tools with us and now they just want to accelerate the use of these technologies when it comes to scaling their operations, especially in the contact center.

Speaker 2

But it's not only limited there. There's already A bunch of customers that are using us for like HR use cases and IT use cases. So I think as we see Where we want to go with the platform, we will continue to expand into use cases that leverage what we've learned in the contact center to go after other business units. And with that, let me now turn the call over to John, who will discuss the financial results. John?

Speaker 3

Thank you, Rob. The Q1 of 2023 was a transformative one for LivePerson's financial profile and growth strategy. As we committed last quarter, we completed one of the largest restructuring events in the company's history, enabling us to enter the 2nd quarter with a profitable run rate and a focused go to market strategy for accelerating growth within the B2B core. Significantly, our restructuring plan did not simply pare back spend for the traditional enterprise sales model. Instead, we eliminated redundancies across sales and customer success and combined those roles with product and engineering talent to ensure the needs of our customers could be efficiently solutions.

Speaker 3

By bringing customers closer to code, we reduced the meetings, ticketing and scoping that were previously necessary. In addition, we sharpened our focus on the B2B core by providing transparency into recurring revenue and winding down non core business lines, including divesting Kasamba, $157,500,000 in principal amount of the $230,000,000 in convertible notes maturing in the Q1 of 2024. As Rob discussed, our market is evolving rapidly, driven in part by the transformative capabilities of generative AI. The strategy and P and L changes that I just described have also enabled us to reallocate resources in this direction to significantly enhance our broader platform and immediately deliver better business outcomes for our customers. With the generative AI products we launched last week, the rate at which we can automate the consumer experience and reduce costs for our brands in both voice and messaging channels is incredibly exciting.

Speaker 3

Turning to Q1 and our results. In the Q1, we generated revenue of $107,700,000 which was within our guidance range of $106,000,000 to $109,000,000 However, as discussed last quarter and in Rob's remarks, we divested Kasamba, the business unit underlying the consumer segment on March 20, which means we did not recognize A full quarter of revenue for Kasamba as contemplated in our prior guidance. Had we recognized the full quarter of Kasamba revenue, total revenue in the Q1 would have been $109,000,000 at the high end of our guidance range. Given the divestiture, we will discuss expectations for the year on a normalized basis that is without the impact from Kasamba. Excluding revenue from Kasamba, we recognized $100,500,000 consistent with the high end of our normalized guidance range, which would have been $98,400,000 to 100,400,000 B2B core recurring revenue was We have approximately 82% of total revenue in the Q1 and also consistent with the high end of our expectations.

Speaker 3

The improvement in revenue was primarily due to higher B2B core professional services and certain one time contributions. Adjusted EBITDA was a loss of $1,300,000 which was better than our expected loss of $8,000,000 to $6,000,000 In addition to higher B2B revenue, the over performance in adjusted EBITDA was driven in part by the timing of expenses for sales and marketing and cloud migration, which we do expect to incur in future quarters. It was also driven in part by solid execution of our restructuring plan. Before turning to our standard reporting segments for the Q1, note that these segments still reflect declining revenue contributions from non core business lines. With a B2B core revenue and expense trough in the Q1 and our restructuring plan fully executed, We expect an inflection point in the 2nd quarter and sequential improvements for the B2B core for the remainder of the year.

Speaker 3

With that said, within total revenue for the Q1, the B2B core recurring revenue component of hosted declined approximately 4% year over year. Revenue for the total B2B segment declined 17% year over year and revenue from hosted software declined 25%. As discussed last quarter, the primary drivers of these declines are non core business lines, including COVID-nineteen testing, gainshare labor and pandemic driven Gainshare variable revenue. Professional services revenue grew 38% year over year driven in part by the diagnostics projects for the JV that we discussed last quarter. Finally, the Consumer segment declined 21%.

Speaker 3

Had we recognized a Full quarter of revenue from Kasamba, revenue for the consumer segment would have declined 6.8% year over year. Given the divestiture, We do not expect to report on the Consumer segment in future quarters. Again, we will discuss expectations for the year on a normalized basis without the impact from Kasamba in the Q1. Note that a full reconciliation is provided in the press release. From a geographic perspective, U.

Speaker 3

S. Revenue U. S. Revenue declined 21% year over year and international revenue declined 9% year over year. Again, the primary drivers for these declines are the non core business lines that we are winding down.

Speaker 3

Net revenue retention was below our target range of 105% to 115%, due in part to our focus on restructuring in the Q1 and increased down sales in our SMB and MMB market segments. Again, we expect sequential improvement in the Q2 and going forward. RPO decreased 18% year over year to $368,000,000 due primarily to the wind down of non core business lines, including professional services for the JV. Average revenue per customer was $665,000 up 3% year over year. Note that this metric is based on total revenue, so the sequential decline from last quarter is again attributable to the wind down of non core business lines, including Daintra Labor and Professional Services for the JV.

Speaker 3

In terms of guidance, we achieved our expectations for the Q1 and we remain on target for the year. Given our current visibility into the macro environment, we are reaffirming full year revenue guidance range. Inclusive of Kasamba revenue, the guidance range for the full year is 394,000,000 to a full year of Kasamba revenue last year. However, normalizing for Kasamba in both periods, removing its impact, our revenue guidance range is 387,000,000 to $401,000,000 or a decline of 19% to 16% year over year. We expect B2B core recurring revenue to be approximately 86% to 87% of Total revenue for the full year.

Speaker 3

For full year adjusted EBITDA, we are reaffirming our previous guidance range of $15,000,000 to 32,000,000 As a reminder, part of the over performance in the Q1 was due to the timing of certain expenses that we expect to recognize later in the year. Additionally, it is not necessary to normalize our adjusted EBITDA range for the impact of Kasamba because no material contribution was originally expected. As for the Q2, our guidance range for revenue is $95,000,000 to $99,000,000 or a decline of 23% 20% year over year. Note that the recurring revenue component of total revenue in the second quarter is expected to be approximately 87%. This implies a 2% positive growth sequentially from the Q1.

Speaker 3

As a reminder, the sequential decline in total revenue from the Q1 is due primarily to professional services revenue for the JV that is not expected to continue in addition to lower gainshare labor revenue. As for adjusted EBITDA in the Q2, our guidance range is $3,000,000 to $7,000,000 or a margin of 3% to 7%. Once again, with the restructuring behind us, we have reached an inflection point in the 2nd quarter and expect sequential improvement in profitability for the remainder of the year. Finally, Wild Health growth rate in the Q1 was consistent with the expectations we set last quarter for its core revenue to double for the full year of 2023. Before taking questions, I'd like to emphasize several key themes.

Speaker 3

Solid execution of the restructuring plan that we discussed last quarter has enabled us to reach an inflection point for the B2B core revenue and profitability. After troughing in the first We expect profitable growth in the Q2 and sequential improvement going forward. Our line of sight to profitable growth is a function of 3 primary factors. 1st, A narrowed focus on our B2B core coupled with rapidly growing enterprise demand for AI driven transformation. 2nd, a more efficient and capable sales and marketing organization with integrated product and engineering support to deliver hands on AI expertise to our customers And third, generative AI enhancements across the platform, including in both voice and messaging channels with the necessary guardrails and backend integrations to deliver better Business outcomes for the enterprise today.

Speaker 3

And with that, operator, I'll pass it back to you for questions.

Operator

And our first question comes from the line of Siti Panigrahi with Mizuho. Please proceed with your question.

Speaker 4

Hey, this is actually Dan on for Citi. Can you just provide some additional color on the

Speaker 3

The restructuring event that occurred in the Q1 was the largest over the course of the last 12 months. As you may know, we've been rationalizing our cost structure since we entered 2022 And that culminated really in the Q1. The 8 key areas of consolidation and expense reduction Flipped us from a loss to a gain going forward.

Speaker 4

Got you. And I guess just on the go to market consolidation, is it possible to provide more detail on that, maybe your sales So you're going forward and if that will allow you to reaccelerate revenue growth beyond this transition period?

Speaker 3

Yes, I think broadly go ahead Rob.

Speaker 2

No, go ahead, John.

Speaker 3

Broadly, the restructuring allowed us to right size the organization and we have come away with a Allow us to be more responsive to the demands of our base today. And I think as we look forward, we'll hire according to The rate at which we continue to build pipe and respond to demand. So I think we're well positioned today to be responsive.

Speaker 2

Yes. And we also because of the nature of where the business is and our focus on The acceleration of AI, obviously, we did messaging and 5 years ago we added the automation, but now it's all AI and I can double click on what that really means for us as a company. But We did a heavy restructuring around the customer success org and we ended up creating a new org, it's called LP1 And it's led by product and engineering. And so in the past, we had more relationship managers. Our customers want experts around AI and automation.

Speaker 2

So we did this big restructuring and removed a lot of those pieces and then we took Product heads that are really key to the company, but now they're running customer facing operations, then we're pairing that with client partners that are really instrumental in driving revenue. So I think we're going to have a much better Result in driving usage on the platform, but the bottom line is if you're going to show up as an AI company, you got to show up with product and engineering folks versus The traditional customer success folks.

Speaker 4

Okay. Thank you.

Speaker 2

Thank you.

Operator

And the next question comes from the line of Peter Levine with Evercore ISI. Please proceed with your question.

Speaker 5

Hey, this is Gerard Vad on for Peter Levine. Thanks so much for taking the question. I wanted to ask how you might be thinking about Capital allocation for the remainder of the 2024 convertible notes as well as The longer term notes you have. Thanks so

Speaker 3

much. Sure. Again, we retired All about about $73,000,000 of the 2024 notes. As we discussed in the prepared remarks, we expect to Continue to accelerate profitability going forward and be cash flow positive exiting the year. So the balance of cash that we expect to end the year with will be more than adequate to both satisfy the remaining $73,000,000 in notes and of course have ample Operating capital to run the business.

Speaker 1

Okay. That's all for me.

Speaker 3

And did you have a follow-up?

Speaker 5

No, that's thank you so much.

Operator

And the next question It comes from the line of Jeff Van Rhee with Craig Hallum Capital. Please proceed with your question.

Speaker 6

Great. So a couple of questions for me. I guess, Rob, one of the questions I get Quite often, I know you're focusing more on the core businesses and trying to get away from distractions. And one of the businesses that I think most people I speak with don't find a tight fit with is So when you look at that business, different end users, different sales model, etcetera, I didn't hear a lot in the prepared script here this quarter, but Just talk about your thinking and how that remains a core product given the differences between that and say the core messaging B2B customer care offering?

Speaker 2

Yes. I mean, we have a large group of healthcare companies in our core. And if you go back to what that is, it's a platform play. And as a And as a matter of fact, they're working on some larger deals with healthcare providers to use that platform to drive Scale in healthcare outcomes. So it was always looked at as like, if you want to go into healthcare, there's a lot of expertise you need in that area, especially around regulatory and things.

Speaker 2

But they built a pretty tremendous platform. And now we've incorporated all the large language models, so we can scale How a doctor or a healthcare coach can service customers at a different scale than normal. So for us, obviously, it's growing very, very large. Healthcare and AI, if you look at any other company out there on the tech side, They've got an investment in healthcare, almost all of them. And it's important as an investment.

Speaker 2

And I think in the future, We'll see some pretty massive returns with that product. But once again, it's a we should look at it as a vertical play today. I think later on in the year, We'll be able to give some perspective on doing deals with these larger healthcare providers, which I think will allow the shareholders to get a better sense of how it plays into our overall strategy.

Speaker 6

Okay. And then on the core business around Core B2B, understanding you're really leaning in on the AI side, but until that takes hold and as I look at like the Q1 performance, Talk about the competitive landscape for the core B2B messaging offering. You were early to get there with automations. It looks It's like the AIautomation rates were relatively flat this quarter. That for a while felt like you had clear sort of best in class platform.

Speaker 6

But the momentum on the booking side revenue growth, I think you gave the NRR was below the 105 to 115 this quarter. Just talk more in detail about what's going on with that. Are you winning your share? Are you just not getting in enough deals? Why is that business not growing more?

Speaker 2

I think it comes down to our focus. If I can go back and change things, obviously, the things we our customers got us into We unwound and the restructurings that we did to get profitable. It's a focus to take out The amount of expenses we took out in 12 months to be here and the team did a great job at that and that wasn't easy. Obviously, the focus now is growth again. We're still signing large logos and large banks and all that.

Speaker 2

We signed renewals with some of the largest banks in the world, even though we're in the middle of generative AI and it's because they trust us. So I think what we need to just show the world is that we'll get back to growth, but we shouldn't marginalize all the efforts it took to restructure the business over the last 12 months and the focus it took to do that and to execute on that. And so, obviously, the quarters going forward will be the judgment and how we can execute and grow the company. But I think we're in the right place and we still have the gold standard of that platform. And now Adding in all that technology we just launched, which is GA, will help us sort of grow.

Speaker 2

So that's our focus now. That's our one focus. We don't have to worry about restructuring anything anymore. We're done with that. That's behind us.

Speaker 3

Hey, Jeff.

Speaker 5

I just

Speaker 3

want to add to the NRR comment that While we're below the range, the primary reason for that was increased attrition down market and small business and mid market segments in particular, As we restructured and focused on the demands of our enterprise and of course made it through the distraction of the restructuring. And we think going forward that the down market that lower end of the market would be better served by The enhanced product usability and platform self-service that you may have seen we launched last week. So we think there's upside there as we move forward Down market and then of course within the core of enterprise, it remains strong.

Speaker 6

Given the scale really lies in the enterprises, would you The automation rates, the percent of messages being automated to rise or how should we think about that number going forward?

Speaker 2

Yes, that's going to be that's the big thing. There's no more bot building. Like as of last week, We don't have to build bots anymore. And the ability to automate conversations, especially the long tail, Is there I think I gave an example maybe on the last call, I didn't. But we looked at all the airlines that we have and we started to use the large language to look at conversations that we're having with agents.

Speaker 2

And believe it or not, there are a bunch of conversations about bringing like an iguana on a plane. Now you would never build a bot around the intent iguana, but on our airlines, people are asking, can I bring in iguana? And we can handle that now with the models because it basically is just looking at the data set. So the rate of automation is going The second part of that is that the actions that we can do on the platform, the automations are only as good as they do actions. And we've got all these integrations already.

Speaker 2

So these should be done at a very high rate. And especially on the voice side, I really I want to finish what we set out to do, which is get rid of traditional voice. And with our voice AI launch, that's where we'll be focused on.

Speaker 6

Okay. And then last one, just John, I think you mentioned you covered a lot of ground there really quickly, but I think you mentioned there were some One time items that affected revenues and I think you were talking about B2B?

Speaker 3

Yes. In general, those are pretty small. The largest contribution for the Q1 It was really core B2B Professional Services being up. And then in terms of one time items, there's some catch ups normal to Big enterprise deals that we also recognized in the quarter.

Speaker 6

Got it. Okay. Thanks for taking my question.

Operator

And our next question comes from the line of Zach Cummins with B. Riley. Please proceed with Your question.

Speaker 4

Hi, good afternoon. Thanks for taking my questions. John, could you talk a little bit more about the adjusted EBITDA upside here in Q1? It sounds like there were

Speaker 3

In the Q1, we had previously expected more marketing expense, for example, which ended up not being necessary for Variety of reasons that we fully expect to deploy later in the year. That's a significant component. And then as we Continue what is a complex migration to the cloud, there is expense that we expect to Hit later in the year as well, that did not occur in the Q1. So those are the 2 primary drivers.

Speaker 4

Got it. Understood. And Rob, just from your launch event of all your new AI solutions, it sounds like some Pretty interesting opportunities if you can expand into HR and IT use cases. It sounds like you have a few customers that have Can you give any sort of early feedback that you've gotten from customers as you expand beyond just customer care with your AI platform?

Speaker 2

Yes. One of the there's 2 parts to our platform. 1 is called knowledge AI

Speaker 1

and the

Speaker 2

other one is obviously the large language models and the ability to generate the outcomes. But we now have the ability to put in like PDF documents, knowledge base. We've Had this previously, but we enhanced it for the models. So you can take in all that data. It could be an employee handbook.

Speaker 2

It can be all of that. And you can put it into our platform and then instantly it gets prepared for the models. And I when you look at all the tooling that You have to do to make generative AI work, it's real tooling. And especially around the data side, if you just put the data in it, the data could be formatted in a way that the model won't understand it. So we built a process for the model to understand that.

Speaker 2

So it opens up those use cases and we already have a handful of large customers who use it But I think the power and if you were watching the event last week, The journey to be an AI company from a conversational AI company is 1. And the first thing we're going to release in about 8 weeks from now is A new interface to the data set. And this will allow anyone in the company to ask questions of the conversational data that we store. So imagine a person in marketing can say like, tell me why people are not happy with this product today. Tell me like what's the best marketing campaign that I could build to sell this type of product.

Speaker 2

And that access to that data and then what we're hearing is our customers want to put more data inside there, maybe Medallia surveys and other things. This kind of shifts us into a different place when it comes to doing AI in the enterprise, but that could be in the HR side, it could be in the IT help desk side. So, obviously, we have a focus on continuing down the path Customer engagement, but that data set is important and the ability to put more data into the platform to go other use cases is also important. So that's They can do today. And that's what's exciting about our strategy and what I think is very different from what people are trying to do out there.

Speaker 4

Understood. Well, thanks for taking my questions and best of luck with the rest of the quarter.

Speaker 2

Thank you.

Operator

And the next question comes from the line of Arjun Bhatia with William Blair. Please proceed with your question.

Speaker 7

Hi, thanks. This is Chris on for Arjun. Thanks again for taking the question. The first one for me, Wanted to get your take on the evolution of the competitive landscape going forward with generative AI becoming more and more common. So how to think about LivePerson's source of competitive advantage as elements make interacting with businesses Through chat and natural language more accessible than ever.

Speaker 2

Yes. So if you look at how it's I think it's going to play out, We'll pick the next couple of months and then years. What the enterprise is looking for right now is safety and security. And so they want to start using this stuff tomorrow, but they need it on platforms that will allow them to adhere to The ideas of data sovereignty and security around that, we've already provided that. So for us, it's kind of like one click and we're guaranteeing that using these models are going to be done in a way that adheres to the principles of the enterprise, especially around data.

Speaker 2

So that's the one part. The second part is what is an enterprise AI company and what is it going to look like? And Someone is and I think that play is interesting, which is that there'll be these desktops in the entire organization and they're going to use this technology to generate business outcomes. What I believe could win the day and this is our It starts with the data set. OpenAI gives you the data set of the Internet and that's there.

Speaker 2

But the most valuable data set to the enterprise is the customers and the customer conversations. We go to work to understand our customers better. And so what I see in the upcoming years is the data set. And if you want to judge who could potentially win this horse It's who's got the best data set to generate a business outcome. And so for us, we're sitting on one of the best data sets you can ask the customers questions.

Speaker 2

It's It's interesting like in real time you feel like ask the customers, what do you want from me? And I think that has a power to it and it's unique to us. So there's other that you have sales force out there now, obviously, using it what they're doing with their data set, which is CRM data. They They do have some customer care. They have very limited conversational data like we do.

Speaker 2

There are voice companies out there and I think they're the most Because they have voice data, some of it's transcripted, but a lot of it just remains in the voice files. So I think you got to think about the language models become not commoditized, but we'll have our own soon. We're using others. I think the brands will create their own, depending on the dataset. And then the datasets themselves become the competitive weapon to being pervasive.

Speaker 2

So I think over the next 5 years or so, the winners could be these people who have these data sets. And I also think The acquisition model, there may be M and A in the future around datasets. Where do we get our hands on better datasets to generate those business outcomes? And so that's kind of how I see it playing out.

Speaker 3

Yes, Chris, I just want to underscore a key point that Rob made, which is Today, there's 1,000,000,000 of dollars spent by our enterprise brands on agents to field voice calls. And that's often the case because the intent, the desire that the consumer has to get results with the brand is In the long tail, not easily automated on yesterday's technology, that's no longer the case. And we're very well positioned given our Platform that's heavily integrated into the back end systems of the brands today to deploy generative AI to drive business outcomes today to kind of transform the cost structure that our brands currently have to run the service centers and even to provide support on sales. So The positioning we have at this moment in time at the data, as Rob said, but also the integrations and the processes that we've been Refining for decades to help brands take costs out of their contact centers. And that's something that we can deploy and have deployed Already as of last week.

Speaker 7

And then just one other thing I want to touch on the generative AI topic. Where do you expect that you would see kind of a short term tailwind show up in the business? I know last quarter you talked a little bit about An uptick in demo volume is kind of as customer attention has shifted towards things like OpenAI. Have you seen that translate to increased deal flow or

Speaker 2

Yes. The short term wins I see is that obviously The one we're turning on like immediately is what we call the making the agents more efficient. So the agents don't have to type anymore. And that's actually the easiest, safest way to deploy this technology and we're opening that up. That's on the platform now and every customer can do that.

Speaker 2

Also, there's like Summarizations of conversations, normally it's a manual process. So now it automatically happens so that agents spend 45 minutes to an hour a day, Basically, summarizing the conversations they had and we already have this technology, but it's enhanced with the large eigos model. So that's the easiest one. The second one is automating the conversations fully. And so that's the next part.

Speaker 2

And that's also there's some low hanging fruit in there. And then I actually think the greatest low hanging fruit, which will be out in a couple of weeks, is this concept that It's the platform we're putting out, we call Bella for Business, which is the ability for the organization to ask questions of their data. And that's a safe thing to do, like you can just ask questions and get outcomes and a marketer could ask So I think there's some sort of base hits that we can get. Ultimately, the home run is we automate the contact center like an 80% volume and there's no there's only 20% of that We're humans in the loop. And then the other part is we become very pervasive in providing the generative AI a platform that every organization can use to do business outcomes like HR and all that.

Speaker 2

That's what we're playing for right now.

Speaker 3

We have reached

Operator

the end of our call today. And I would now like to turn the call back over to Rob LoCascio for any closing remarks.

Speaker 2

Yes. So, I obviously started the company in 'ninety five and in 'ninety seven invented chat and obviously it's Chat CPT. And everything is around this interface. And the vision of the company has always been around that these conversational interfaces would power commerce, Care and everything else, and we've been singularly focused on it for many years. Our time has sort of come.

Speaker 2

And I know we're all trying to figure out, we I wish we were here without all the restructuring, and that creates a certain noise And uncertainty, but we're here and we bet to be here and there's probably a handful of us in the world. When you think about it, it's probably 10 of us in the world that actually can say that they can deliver this technology and this revolution into brands. And like I said, in one way, I wish we didn't have to do the restructuring and a lot of companies went through this because it'd be a cleaner story, but we're here. And we're here with one of the best products in the world and platforms. We've always been a leader at that.

Speaker 2

So right now, when I think about our focus, It's really in 2 areas. One is we need to finish up what we started. I talked about killing the 800 number and all of that, and we need to complete that mission, And we will now with our voice AI products. And the second is, we need to take this platform and use our data set as a way to leverage and apply it to other business areas like marketing and sales, even HR. So that's what we're focused on as a company.

Speaker 2

The large language models in Generate AI just gives us an accelerant, but we always had the vision. We're not chasing something right now. We were one of the pioneers in how this could work. So as shareholders, I'm excited for the next couple of quarters and how our company will get focused back on growth, how we'll get focused on continuing our missions of providing conversational AI and then generative AI to the enterprise. And ultimately, I think that leads us to being the largest enterprise AI company in the world.

Speaker 2

And that's the bet we're making right now. So thank you for the support and we'll see you next quarter. Thank you, operator.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
LivePerson Q1 2023
00:00 / 00:00