LivePerson - Earnings Call - Q2 2017

Transcript

Speaker 0

Good afternoon. My name is Sonya, and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson Second Quarter twenty seventeen Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. On the line today is LivePerson CEO, Rob LoCasio. Mr. Dan Murphy, CFO, you may begin your conference.

Speaker 1

Thanks very much. Before we begin, please note that we will make forward looking statements during today's call, which are predictions, projections or other statements about future results. These statements are based on our current expectations and assumptions as of today and are subject to risks and uncertainties. Actual results may differ materially due to various factors, including those described in today's earnings press release, in the comments made during this conference call and in 10 Ks, 10 Qs and other reports we file from time to time with the SEC. We assume no obligation to update any forward looking statements.

Also during this call, we will discuss certain non GAAP financial measures. A reconciliation of GAAP to non GAAP financial measures is included in today's earnings press release, which is available in the Investor Relations section of our website. I will now turn the meeting over to Robert LoCascio, CEO and Founder

Speaker 2

of LivePerson. Thank you for joining LivePerson's second quarter conference call. We've been extremely active these past few months executing on our goals to transform customer care and return to year over year growth. In the second quarter, we built on our strong messaging momentum in the telco space and began to really open up financial services with messaging expansions institutions. We also brought the LiveEngage platform migration closer to the finish line.

Ending the second quarter with only 12% of revenue remaining on legacy, we're executing on our plan and on target to end the platform transition in the third quarter with less than 5% of revenue on our old platform. This has been a sandbox to maximize profitability. With continued solid execution, we were able to exceed our second quarter revenue guidance, and we're raising revenue guidance for full year 2017. Dan will walk you through the details shortly. LivePerson also continues to push the boundaries on how LiveEngage can transform the way that brands connect with consumers.

We are now seeing road maps where care, sales and marketing and large brands converge on LiveEngage. Through messaging and AI, our conversational platform is getting embedded into the operational layer of leading enterprises, not just in contact centers, but also across the field and back office. Entire business process, such as payments, plan changes and lead gen will be automated and rest on the LiveEngage foundation. One of the key ways we are delivering on the vision is by providing all the front end digital touch points the leading enterprise brand needs to engage with their consumers. LiveEngage serves as a hub for all messaging conversations where they originate on a branded app, SMS, within Google Search, within Facebook Messenger, the desktop or even mobile web.

And soon, Apple Business Chat will be part of the LiveEngage ecosystem. On June 10, Apple joined the brand's consumer movement by introducing Business Chat, a digital communication framework that will enable consumers to message with brands instead of calling. Apple Business Chat is also making messaging extremely discoverable by embedding connections via Safari, Spotlight Search, Siri and MaaS. With more than 700,000,000 users and over 1,000,000,000 devices, we believe Apple will have a strong impact on the customer care industry, accelerating the speed at which brands around the world shift to messaging as a primary way to connect with consumers. LiveEngage is pre integrated with Apple Business Chat so that leading brands can rapidly scale to handle millions of these interactions alongside the messages they are getting from all of their other channels.

We look forward to sharing updates on customer success stories once Apple Business Chat formally launches. Alperse is also pushing customer care and support with IBM. In June, we signed a major global partnership with IBM Watson and Global Business Systems divisions. The partnership features a joint go to market strategy and deep integration between IBM's leading AI platform and our best in class enterprise messaging platform. The unique combination enables leading brands across the globe to seamlessly power Watson field bots and human assisted messaging from a single platform at scale.

IBM Global Business Systems also teamed up with LivePerson to create a cognitive care center of excellence that will deliver the implementation and consulting services tailored to unlocking the full potential of the LiveEngage and Watson solution. LivePerson, Appian already have strong reference customers in Vodafone and RBS. We're jointly pursuing additional pipeline opportunities. You can hear more about this exciting partnership by listening to the remarks from IBM's CFO, Martin Schroeder, on the IBM July '18 earnings call. In the coming years, the majority of brands will layer AI on top of messaging to capture huge efficiencies and significantly improve customer satisfaction.

At our AI Summit at Carnegie Mellon University a few months ago, we saw firsthand the eye opening moment for many business leaders when live person customers such as American Express, KDDI, which is one of the largest telcos in Japan, Kia Motors, RBS and Vodafone describe the benefits they are seeing from leveraging AI and messaging on the LiveEngage platform. For example, one of our telco customers in Asia achieved a nearly 90% containment rate of conversations by tuning a bot for a specific use case. Our financial services firm in EMEA achieved up to 50% containment rate average across a wide variety of use cases. Clearly, AI can deliver powerful results in care, sales and marketing, but the key to success is optimizing AI performance through integration with an enterprise grade conversational platform that aligns with the consumer's journey. This approach also greatly reduces the risk of AI providing same store results as many of today's in the past, what we call virtual agents, potentially causing a really bad customer experience and a decrease in brand loyalty.

This is why leading brands are working with LivePerson. We built LiveEngage from the ground up as an open conversational platform to manage AI powered messaging securely and at scale. LiveEngage delivers the tools that enterprise brands provide to successfully scale bot deployments from bot readiness to KPIs, analytics, sentiment measurements, reporting and training. Furthermore, with our Tango capabilities, brands can match human and bio agents in tandem and seamlessly handing off conversations between the live agent and the machine. Ops provide instantaneous intelligent responses to consumer queries and human agents supervise those exchanges.

We also have the expertise that comes from a twenty year history of deploying millions of agents under the most stringent requirements for the world's largest enterprises. We've perfected the framework for deploying human agents, and we are applying that same logic and frameworks to the deployment of products. One of the primary ways LivePerson showcases its unique ability to power conversational care, sales and marketing through our preeminent executive level customer service, Whether it was at our T Mobile Bellingham event, the Carnegie Mellon Blot Summit in Pittsburgh or one of the many regional satellite events held across the globe, we demonstrated how LivePerson customers are effectively deploying messaging and AI to capture digital efficiencies and align with consumer preference. Demand for these customer events has repeatedly exceeded our expectation and has been responsible for the vast majority of our wins in 2017. One of the wins that came from these events is a leading European broadband provider that signed with us in the first quarter.

This brand has quickly become a success story for LivePerson, fully aligned with our strategy to displace the 800 number. In fact, within a few short months, the broadband provider has leveraged LiveUse to take out 30% of the voice calls made to its contact center. This is something that is really never seen before. Like we actually have and we proved that there's an alternative to voice. And we're going take the 30% to much higher levels.

And this customer joins a number of other successful brands in the telecommunications industry, including Toxtel, KDDI, Singtel, Toxtel, Telstra, T Mobile and Vodafone. They are all literally changing the pace of customer care with LiveEngage. Case in point, the 7 figure expansion we signed

Speaker 1

in the second quarter with

Speaker 2

a leading North American telco. The upsell is further validation of the larger addressable market LivePerson is pursuing with LiveEngage as this win marks the second seventeen year expansion since its customers since began working with them a little over two years ago. This upsell also shows how eager consumers are to adopt messaging once offered as an alternative to voice and how readily brands recognize and are willing to pay for the value that LiveEngage delivers to their conversational business strategy. Importantly, our traction with messaging and AI is spreading well beyond telecommunications. In the second quarter, several of the world's leading financial companies also signed on to transform how they connect with their consumers.

One of these was Fortune 100 financial institutions that has increasingly been focused on building a digital connection with its customers. After attending several of our customer events and aligning around the LiveEngage vision, its leading financial brand just signed a three year, 6 figure annual expansion on LiveEngage. Customers already deploying web based messaging and installed a roadmap to the rollout of mobile messaging and AI in future quarters. Within a short amount of time, this customer could become one of our top five brands on messaging. Another exciting contract signing in the second quarter is the high 6 figure upsell at our top 20 global commercial banks.

This leading brand will launch both web based and in app messaging later this year and is in planning stage for layering dots on top of messaging thereafter. Other mid to high 6 figure messaging companies signed in North America quarter included one of Europe's leading online food delivery providers, a large North American credit union, one of the world's top global ride sharing apps and a large regional airline in The United States. The power of LiveEngage continues to

Speaker 1

be reflected not only in

Speaker 2

the new wins we are generating, but in the stats we are seeing across the customer base. Mobile usage is expanding rapidly on LiveEngage, an average of 35% interactions in the second quarter as compared to about 10% historically on legacy. Same customer interaction on LiveEngage continue to grow faster than 10% year over year. The dollar retention rate remained greater than 100% over the trailing twelve months, a solid indicator of the future potential growth for LivePerson once our entire customer base is on LiveEngage. The positive traction with LiveEngage, solid execution by the field and lower attrition as we wind down legacy enabled LivePerson to exceed second quarter revenue guidance and raise guidance for the full year.

The up five years team in revenue also favorably positions LivePerson to incrementally invest in longer term growth opportunities such as our customer summits, our partnership with IBM and our upcoming work with Apple Business Chat. Even so, we remain on track to exceed the low end of previously issued guidance ranges for GAAP net income and adjusted EBITDA, expect to maintain, if not improve margins in 2017 and to position LivePerson for margin improvements as we return to growth in 2018 and beyond. LivePerson is in a unique position for an industry leading platform, references from many of the world's most highly regarded brands and expertise in deploying enterprise scale AI powered messaging. We're also building an ecosystem that includes some of the biggest powerhouses in technology industry today. Facebook, Google, IBM and now Apple have all chosen LivePerson to help transform customer care by bringing messaging to leading enterprises and taking down the 800 number.

With this backdrop, we have line of sight support our view from returning to growth in 2018 and being well positioned to capture a portion of an enormous greenfield market opportunity. I will now turn the call over to Dan, who will discuss our second quarter results and outlook in more detail.

Speaker 1

Dan? Thanks, Rob. Off market continued its strong start in 2017 in the second quarter by once again executing on each of its four key priorities. First, we are successfully transitioning back to a focus on selling from migration. Revenue increased 6% in the second quarter over the first, and we are targeting continued sequential growth in 2017, which we expect will position LivePerson for a return to year over year growth in 2018.

Second, we added to our lead in mobile messaging by bringing Apple and IBM into our LiveEngage ecosystem and signing multiple new wins, including key expansions with two Fortune 100 financial institutions. Third, we are successfully winding down our legacy offering. As we have guided, we ended the second quarter with 12% of revenue on legacy. That puts us on target to meet our goal of completing the transition to LiveEngage in the third quarter with less than 5% of revenue sandboxed on legacy. Finally, we continue to realign our cost structure around LiveEngage.

We expect to maintain, if not improve, our profit margins in 2017 and to position LivePerson for margin improvements as we return to growth in the years ahead. We feel good about the progress we have made to date, and we are raising our revenue guidance and low end of our GAAP and adjusted EBITDA guidance ranges for 2017. I will detail updated guidance later in my discussion. I will now review our second quarter operating results. Total revenue of $54,100,000 was above our guidance range and consisted of B2B revenue of $49,600,000 and consumer revenue of $4,500,000 We delivered $2,100,000 of upside revenue versus the high end of our previously issued range of 51,000,000 to $52,000,000 Approximately $1,000,000 of the upside stem from better than forecasted performance from recurring revenue, and the other $1,000,000 is tied to a positive upside from nonrecurring items.

Trailing twelve month average revenue per enterprise and mid market customer was approximately $205,000 in the second quarter, in line with the trailing twelve month average in the 2016. We signed 91 deals in the 2017 as compared to 117 in the 2016. The lower deal count reflects our LiveEngage growth strategy, which is focused on a targeted list of leading global brands where we have the opportunity to drive transformation. Our strategy is working as LivePerson's average selling price increased versus the second quarter of last year across both existing and new customers. In the trailing twelve months ended June 3037, the dollar retention rate for customers on LiveEngage exceeded 100%.

This measure takes into account the full impact of upsells, down sells, renewals and cancellations from our existing customer base. The B2B revenue breakdown by industry was retail at 25, financial services 20%, telco at 16%, auto at 14%, technology at 7% and other at 18%. International operations accounted for approximately 37% of total revenue in the second quarter of this year. Second quarter GAAP net loss per share of zero one three dollars was below guidance of $0.12 to $0.10 loss per share. In Q2, we took a onetime charge related to the shutdown of our legacy data centers.

We originally guided the shutdown for July, but we were able to accelerate the timing based on our execution around migrations. Excluding this $03 per share timing impact, GAAP net loss was within our previously issued guidance range. Adjusted net income per share of $01 and adjusted EBITDA per share of $07 were each within their respective guidance ranges. These non GAAP measures exclude total charges of $2,100,000 tied to winding down legacy operations and aligning our organization around LiveEngage as well as $1,500,000 of nonrecurring mitigation costs. Gross margin increased two ninety basis points to 72% in the second quarter from 69.1% a year ago.

Excluding the nonrecurring charge in the 2016, the gross margin increased two eighty basis points. This improvement primarily reflects the diminishing cost of our legacy operations and lower production costs for LiveEngage as the platform matures at the enterprise level. Excluding nonrecurring and restructuring charges, total LivePerson second quarter operating expenses decreased $2,900,000 year over year. At the end of the second quarter, cash on hand, including restricted cash, was $58,100,000 or $1.04 per share, approximately $6,000,000 higher than the first quarter. Deferred revenue increased nearly 25% in the second quarter to $36,600,000 from $29,500,000 a year ago.

LivePerson generated cash from operations of $8,500,000 in the second quarter and spent $4,300,000 on capital expenditures. The company also spent approximately $800,000 to repurchase 105,000 shares of its common stock in the second quarter. An additional $18,400,000 remains available under the share repurchase authorization. Turning your attention to guidance, we delivered solid financial results in the 2017 and expect to build on that basis as complete the platform transition to LiveEngage and regain selling momentum. As a result, we are raising our 2017 revenue guidance to a range of $213,000,000 to $216,000,000 from previously issued guidance of $2.00 4,000,000 to $2.00 9,000,000 and initial 2017 guidance of $2.00 $1,000,000 to $2.00 $9,000,000 We plan to exit 2017 at a run rate that positions LivePerson for renewed year over year growth in 2018.

We are also raising the low end of previously issued 2017 GAAP net income and adjusted EBITDA guidance ranges due to the company's successful wind down of the legacy infrastructure and realignment on LiveEngage. With the revenue upside, LivePerson is now in the favorable position where the company can deliver on its goal of maintaining, if not improving margin in 2017, while simultaneously selectively reinvesting in longer term growth opportunities. Rob discussed earlier the higher than anticipated demand we have been seeing for our customer summits and how we are starting to build our sales pipeline to fuel new wins. Given these positive outcomes, we're investing in the customer summit and expanding the cadence and scope of these events. We are also we are also putting more investments behind our Apple business chat offering as well as IBM and other potential long term partners.

We think LivePerson has established a leading the market and we want to extend that position. We will continue to drive the margin improvements in the years ahead as we return to revenue growth. Finally, with the wind down of LivePerson's legacy data centers accelerated into the second quarter, we are updating guidance for the third quarter restructuring and severance charges to $200,000 to 400,000 from previous guidance of $2,000,000 to 2,200,000.0 We continue to expect $6,000,000 to $6,500,000 of nonrecurring legal expenses tied to IT litigation for the full year of 2017. I will now review our detailed financial expectations. For the 2017, we expect revenue of 54,000,000 to $55,000,000 GAAP net loss per share of $03 to 0, breakeven adjusted net income per share of $04 to $06 and adjusted EBITDA of $7,100,000 to $8,400,000 or $0.12 to $0.15 per share.

For the full year of 2017, our expectations are as follows: revenue was $213,000,000 to $216,000,000 revenue guidance includes a negative foreign currency impact of 1,000,000 GAAP net loss per share of $0.34 to $0.28 which includes $0.16 per share of nonrecurring and restructuring items adjusted net income per share of $07 to $0.11 adjusted EBITDA of $18,000,000 to $21,300,000 or $0.32 to $0.37 per share. Furthermore, as a percent of revenue for the year, excluding nonrecurring restructuring and litigation charges, we anticipate gross profit to be approximately 73%, sales and marketing of 41.5%, G and A of 15.5% and R and D of 18%. I also want to highlight that we have no major customer events planned for the third quarter due to the summer months, but several events are currently scheduled for the fourth quarter. As a result, we expect LivePerson's adjusted EBITDA margin to reach into the low to mid teens in the third quarter and then return to the mid single to low double digit in the fourth quarter. Please refer to LivePerson's earnings release issued earlier today for additional details on our full year 2017 assumptions.

We've also published a supplemental presentation that reviews key points from the earnings call on the Investor Relations section of the company's website. As we move towards finalizing the transition, stability and predictability are returning to our business. LiveEngage is now at the heart of our revenue streams, and messaging and AI are the focal point with every new opportunity in our pipeline. Our goal continues to be to return to year over year growth in 2018 and then steadily drive LivePerson back towards its historical growth. The key factors that will influence our ability to achieve this goal are fueling adoption of messaging and AI on existing customers, increasing dollar retention as we complete the migration and capitalizing on the pipeline that we're building from our customer events and partnerships.

Across LivePerson, our teams are aligned on these levers, and we look forward to reporting on our progress in future quarters. With that, I will open the call to questions. Operator?

Speaker 0

Your first question comes from the line of Richard Baldry from ROTH Capital. Your line is open.

Speaker 3

Thanks. Back into the math on the contribution or, say, the drag from the legacy business coming out, if it was 19% in Q1, it was about $9,700,000 Q2 at 12,000,000 you'd be about 6,500,000.0 So a drag of 3,200,000.0 And you did grow sequentially 3,200,000.0 So that argues your underlying growth somewhere over $6,000,000 sequentially in

Speaker 4

a single quarter. Can you

Speaker 3

talk about was there unusual events inside of that $6,000,000 sequential on the LiveEngage platform? How seasonal that could be versus sustainable and extensible? It's obviously a pretty large number sequentially versus the base and would argue for pretty accelerated growth if it was sustainable or extensible near term.

Speaker 1

Rich, I can't comment to all the specific numbers that you're going back and forth on. But generally, what happened in the second quarter, there's a couple of components. From the migration of legacy through the LiveEngage platform, we were better in our attrition assumptions. So we had a better result from the attrition. The second piece is, as I stated in my script, we had about $1,000,000 of upside from recurring revenue in the second quarter, we had about $1,000,000 of upside onetime nonrecurring revenue coming from our customer base.

So that's what's driving the upside versus our guide. I hope that gives some color and insight into the question that you're asking. But like I said, I can't I don't have numbers that you're talking about.

Speaker 3

Okay. And can you talk about in the messaging side sort of the competitive field? Think you're running head to head with different people this time around. You know, how competitive is it? You know, how often are you in greenfield opportunities?

Are some of them rip and replace, like, maybe in the ride sharing space versus others where it's something brand new?

Speaker 2

It's predominantly greenfield today. And we're not we're doing the customer care side of messaging a little bit more than it'd be those different than consumer to, let's say, someone who's in a ride sharing like in the car, it'd be more to a customer care organization. But we're pretty much greenfielding right now. There's small competitors out there. People say they have it in their product.

But the strength of the company is we've been out there now for a little over a year with referenceable customers, and we've got some very big brands that are being very successful right now. As I mentioned, one of these is one of the broadband providers in Europe. And we were able to achieve, within ninety days, taking 30% of their calls out of the voice system and move those calls to messaging. And we're about double the efficiency of voice. So if you went back a year and the strategy is get rid of voice, get rid of analog voice, we're now seeing customers that are have flipped the needle.

And I think this customer, we could get much more than 30%. We're on track to really actually move voice out. So there's so many exciting things happening right now in the space. And then you've got all the companies like Facebook and the stuff we talked about, Apple. There's a lot of front ends out there that we're going be able do a lot of cool things with and we do today.

So we've got some good lead right now, and we're just very focused on taking out as many deals as we can.

Speaker 3

Thanks. Congrats on the great sequential growth. Thanks.

Speaker 0

Your next question comes from the line of Koji Ikeda from Oppenheimer. Your line is open.

Speaker 3

Great. Thanks. Thanks for taking my questions. Congrats on the quarter, guys. Just one question from me, either for Rob or Dan.

Great news on being selected as a key platform for the Apple Business Chat. And with the Facebook Messenger integration too, you have a lot of consumer engagement for the live person happening there. Big picture question is, when

Speaker 2

you're selling these solutions into

Speaker 3

the customer base, what what part of the organization are you are you selling into? Is it is it really the contact center operators? Is it the sales and marketing teams?

Speaker 5

Or is it really something somewhere bigger than just that?

Speaker 2

It really depends. There's when we look at digital heads in a company, there's usually digital leads that could be in marketing. In some cases, the digital interface resides in care. In some cases, it's in the sales group. So these are big strategic things.

If you saw what Apple spoke about at WWD and there's a presentation that I recommend people to look at, it's about a forty minute presentation, they're going to bring messaging encrypted on the device level. They're putting it in Siri and all these things. So right, the implications are pretty major for a company as a whole to run business processes on device. And I think if you really look at that presentation, you're right, it is a much bigger opportunity than just a care flow. We talk about sales, customer care, marketing, all flows can go through that pipe into the device.

So you are correct. It all depends. Somebody sort of owns the digital strategy. Our one of things we do is try to bring it all together. Sort of a process we run is to try to bring all the pieces together instead of just maybe there's one person who owns it, we bring care in, we'll bring marketing, we'll bring sales.

We put together a strategy that they can really execute on.

Speaker 0

Your next question comes from the line of Jeff Van Rhee from Craig Hallum. Your line is open.

Speaker 2

Hello? Hello?

Speaker 4

Sorry, guys. Can you hear me now?

Speaker 1

Yes. Yes. We can.

Speaker 4

There we go. So just a couple for me. Let's see. With respect to bookings, I know you don't provide the numbers,

Speaker 1

but can you just at

Speaker 3

least a comment with respect

Speaker 4

to your performance relative to your expectations for the quarter? And any quantification with respect to the pipe? I know you've pivoted to selling. It sounds like you've got some pretty tremendous momentum as echoed by your guide? But if you could give any quantification at all about the sump size, coverage, anything about the pipe?

And then as I said also, whether your bookings met or exceeded your internal targets for the quarter?

Speaker 2

So on the bookings side

Speaker 1

of things, we're happy with the first half of the year. As you know, in a recurring revenue business, if you get out of the year strong, that helps you from a revenue perspective. That's part of the reason that we were able to increase our guidance for the So happy with half one bookings. And as you talk about the pipeline, one of the things that we try to make clear in our remarks is we've got opportunities between IBM, Apple and then our customer events where we're actually investing some of that upside revenue back into generating more of that pipeline. Each one of our customer summits have been oversubscribed that we've done so far this year.

As a matter of fact, we had an unplanned one that we held in the second quarter in Brooklyn because our event in Pittsburgh was oversubscribed. So we're pretty excited about these, and these are driving the pipeline and the quality of the pipeline along with our partners as well.

Speaker 4

Okay. Then with respect to the EMEA broadband provider, where you said you did a 30% call deflection, can you just expand on that a little bit? What kind of traffic is it that was so effectively redirect? What were the common queries, the common customer questions coming in there? And also along those lines, any semblance of revenue potential in an account like that?

You said you barely scratched the surface. If you can achieve that kind of deflection, helps

Speaker 3

out your

Speaker 4

entry point there from deal size and then where you think that the deal size can ultimately go for an account like that.

Speaker 2

Yes. I mean, it's when you think of those numbers and where we're headed, I think the deal side could be much, much more significant. Know, strangely enough, it's such a major impact, and yet we're day one. We are doing some outbound. So once you get somebody on a messaging connection, you can be proactive to them like a month later.

So it starts with an inbound query about testing and support and care, and then they can go back out, proactively in more of a sales environment. So we're just sort of scratching the surface on what can be done here. We're in both their iOS and Android apps, doing SMS, Facebook as well. We're taking the traffic in. It's all unified experience.

So but I I just wanna point out, which this is the first time in history there's an alternative to voice. Like, they're they're up to now, there's been real even chat, and this is what we saw. Chat was just about 10% of volume, but it never had that impact. And, we can actually see voice one day going away. And so that's that was our goal a year ago, and it's exciting for us as a company to actually see it happening.

And so every one of our enterprise and every enterprise in the world, like I said, if I go a couple of years from now, let's say five years from now, I don't believe voice will be a primary channel. People will message their brand. And so this is just one example that shows it can work. The customers love it and the brand loves it. So we're very excited about it.

Speaker 4

Just two briefs in for me. The SandBox customers, just to refresh on how you see that eventually playing out. Obviously, you don't intend to run that indefinitely. Just refresh on what you think that SandBox world looks like six, twelve, eighteen months out. And then lastly, the incremental leverage.

It looks like you're putting a lot of a very strong revenue performance back into the marketing side, even within crude bounds, how you think about 2018 sort of split the overages fifty fifty between flowing through to operating profit versus reinvest back in the business? Just whatever you can share about how you think about pacing the reinvestments versus letting it flow through. Okay.

Speaker 1

Thanks, Jeff. So just on the SandBoxing piece. So at the end of the first quarter, we said we would be at 12% by the end of the second quarter, so check off the year of 12%. And then in the third quarter, we'll be at 5%, and we see a very good path there. So with that last 5% of revenue that's there, that's for a number of different reasons that those customers will be standardized.

But our expectation is to continue to, over time, to move them to the LiveEngage platform. We know not 100 of them will make it, but our goal is to continue to push. And as the product continues to evolve, one of the things that helped us in the second quarter is our attrition was a little bit less from the migrations than we expected. So that was also a positive impact. And so in the last 5%, we're going to try to move them over to Loudingage as quickly as we possibly can.

As far as going towards 'eighteen, we haven't given guidance for 'eighteen. We've been pretty transparent on our expectations as far as we want to get back to year over year growth. And as we came into 2017, we want to continue a sequential growth from Q1 to Q2 to Q3 and into Q4. And our goal is to continue that trend as we go into 2018. I can't give you specific guidance on what we expect to do at this point, but we have stated that we want to improve margins.

We see an opportunity in front of us in the back half of 'seventeen with some of the revenue upside to invest in our customer summits, which has been successful on building quality pipeline. And then obviously, with our relationship with IBM, we see an opportunity there to invest in that partnership and other longer term partnerships to help close our pipeline and our growth prospects from a revenue perspective. Hopefully, that gives you a little bit of color, but I can't commit to specific amounts at this point in time.

Speaker 3

Okay. Appreciate it.

Speaker 0

Your next question comes from the line of Mark Chischow from Benchmark. Your line is open.

Speaker 6

Hi. Thanks for taking my question and starting off with a good job on the quarter. Robert, with respect to the IBM and the Apple partnerships, are there any other messaging vendors that are partnering with either of those companies?

Speaker 2

There's some voice vendors on Apple's side, and so you have Genesys, Salesforce, one other, Nuance. And then IBM IBM has many strategic relationships with, many partners. I think the issue with IBM is that we're very focused on the care space, and that's a very exclusive partnership with them to focus on that one area and bring our cognitive care offering to the market.

Speaker 6

And then with respect to the upcoming customer events planned specifically for Q4, will IBM or Apple be participating in any of those?

Speaker 2

Traditionally, they participated IBM was at our event in a cognitive event that we had at Carnegie Mellon University. So we'll see. We're putting events together now. There'll be other partners there, too, but we haven't announced anything yet.

Speaker 6

Great. And then finally, with respect to AI, a lot of discussion in your prepared remarks. I was just wondering if you're seeing customers actually open up their wallets yet and start rolling out pods and deploying pods? Or are they still just kind of kicking the tires at the moment?

Speaker 2

No. We have real scale bot deployments. So at our conference that we did, this AI conference at Carnegie Mellon, we had Vodafone showing what they're doing, RBS shows showed what they do, KDDI, large telco in Japan showed what they did. So, yeah, we're the the stuff we're doing is not tire kicking. We're actually doing it at scale.

The interesting thing is when the when we put AI AI on our platform, it looks like an agent. It looks like a it just looks like a human agent. So we've got all the capabilities to manage it. Normal deployment to bots and why they're kinda tire kicking them is you you put them on a website or maybe they're back ending a messenger front end like Facebook, and you don't have a lot of control over them. They run, and then you may get a report at the end of the day and you're looking at it and trying to figure out.

In our system, the bots actually, you look at them in real time and and what our customers are doing is putting a live agent to manage the bots and then the agent can step in if the bot fails, they go back into the AI engine and will update question and answers so that the bots become better. There's things with timing and tuning that we do on the platform. So our platform, we we built out some capabilities that enable a lot more control over the bot. So so you don't have to kick the tire. Most of the time when they kick the tire, because there's no way to sort of really control it and better it on a day by day basis and how we provide on the Live2Geek platform.

So that's kind of the interesting part.

Speaker 0

Your next question comes from the line of Mike Latimore from Northland Capital.

Speaker 2

On the Salesforce productivity, do you have do

Speaker 5

you have a general sense of, you know, that that level? Are we at fifty, seventy five, 100% in terms of productivity per salesperson this morning?

Speaker 1

Mike, I won't give a specific number, but we're happy in the direction of way things are going. One of the questions that came up earlier was about bookings. And as far as the expectations for the first half of the year, we're happy with where we are, gave us the opportunity to increase our guidance in the back half, not only bookings, but obviously successfully migrating customers over to LiveEngage platform. So we're happy with where the productivity is, and we're continuing to push the business build out our pipeline. We think there's a good opportunity in front of us as we move into 'eighteen.

Speaker 5

Okay. And then the pipeline of potential bookings, is that is the majority from current customers outstanding or new ones?

Speaker 1

No, from a mix of customers. It's from a mix of existing and new customers. At these summits, we have a combination of customer types. We have existing customers and new customers coming in. And one of the best selling tools is to have them talk to each other about their opportunities, what they're going through, how to implement, and those existing customers become some of our best reference customers.

Speaker 5

And then obviously a lot of your customers migrated over to LiveEngage and the biggest percent still traditional chat, I guess. Do do you see moving customers is the opportunity there to upsell messaging, or do you see a lot of customers just shifting volume from chat to messaging?

Speaker 2

No. It's it's a it's a it's an it's an added amount of volume. Because if you're doing chat, it's always it's pretty much web. Mhmm. We really expand the the capabilities to, I mean, the the amount of interactions that it possibly could take.

What's great is that although the migration, as I said, I I I probably don't wanna go through a migration again in

Speaker 1

the company's

Speaker 2

history, but I can say that with certainty. But we're on the other

Speaker 1

side of that, obviously. But now we

Speaker 2

got this new platform. It's got a lot of capabilities in it. We've got an installed base that's using, obviously, the

Speaker 1

the chat capabilities. And it's just it's a it's just a it's a

Speaker 2

focused group of leads. You know, they have a relationship with us. They they are all seeing messaging and AI and bots and as something strategic, and we got them on this platform that with, like, a hook of a switch, so they can get it. So now it's just a question of educating them, getting them the opportunities, you know, what's the entry point? Is it SMS?

Is it Facebook? Is it Snap? Is it web? What wherever that entry point is. Is it sales?

Is it service? And so we just sort of keep working through that with each of these customers. The base has a lot of capability to grow, though, because we have some of the largest brands. And you're right, they're still on chat. We just took the interesting one is we we had a one of our large enterprise financial services company.

They were on chat chat web. And for many years, three or four years, we migrated them a couple weeks ago, no chat anymore. They migrated a 100% to web messaging start, asynchronous web, and then we're going in app and we're going around. So they didn't they didn't migrate to chat. They migrated straight to messaging and we shut all the chat down.

So that's that's the real interesting things that we see. Got it. And then

Speaker 5

just last, you know, the I think the European broadband provider is basically just, you know, shifting voice with messaging, but I don't think you're doing the kind of the the tango there or whatever. You know, is most of your pipeline kind of migrating between bots and and live agents, or or is it most more kind of that European broadband example?

Speaker 2

It it's it's a you know, sometimes we start live to live, and then we look at the we look at what we can automate. Mhmm. So every deployment will have bots and AIs over it. It's it's just what's happening. So even even this customer will be putting bots in for for different areas of interaction.

So but, yeah, it's every one of them will have a mix of it, every one of them. Alright. Yeah. Thanks a lot.

Speaker 0

There are no further questions at this time. I will turn the call back over to the presenters.

Speaker 2

Thank you, and we will see you on the next quarter.

Speaker 1

Thanks, everyone. Thanks, guys. This

Speaker 0

concludes today's conference call. You may now