LIVEPERSON, INC. Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted inthe United States of America . As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates and assumptions relate to estimates of the carrying amount of goodwill, intangibles, depreciation, stock based-compensation, valuation allowances for deferred income taxes, accounts receivable, the expected term of a customer relationship, accruals and other factors. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. In addition, our actual results could differ from our estimates and assumptions based upon impacts on our business and general economic conditions due to the current COVID-19 pandemic. OverviewLivePerson, Inc. ("LivePerson", the "Company", "we" or "our") makes life easier for people and brands everywhere through messaging powered by AI and humans. During the past decade, the consumers have made the mobile device the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers. Our technology enables consumers to connect with businesses through these same preferred conversational interfaces, including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and even marketing, social and brick and mortar engagements. For example, consumers can look up product info like ratings, images and pricing, search for stores, see product inventory, schedule appointments, apply for credit, approve repairs, make purchases or payments - all without ever leaving the messaging channel. We refer to these AI and human-assisted conversational experiences as the Conversational Space. LiveEngage, our enterprise-class cloud-based platform, enables businesses to become conversational by securely deploying messaging, coupled with bots and AI, at scale for brands with tens of millions of customers and many thousands of customer care agents. LiveEngage powers conversations across each of a brand's primary digital channels, including mobile apps, mobile and desktop web browsers, short message service (SMS), social media and third-party consumer messaging platforms. Brands can also use LiveEngage to message consumers when they dial a 1-800 number instead of forcing them to navigate interactive voice response systems (IVRs) and wait on hold. Similarly, LiveEngage can receive traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages. Our robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. With LiveEngage, agents can manage all conversations with consumers through a single console interface, regardless of which disparate messaging endpoints the consumers originate from; i.e.,
voice
agent and two to four at a time for a good chat agent. Adding AI and
bots provides even greater scale to the number of conversations
managed;
• labor efficiency gains of at least two times that of voiceagents,
effectively cutting labor costs by at least 50%;
• improving the overall customer experience, thereby fueling customer
satisfaction increases of up to 20 percentage points, andenhancing
retention and loyalty;
• more convenient, personalized and content-rich conversations that
increase sales conversion by up to 20%, increase average order value
and reduce abandonment;
• more satisfied contact center agents, thereby reducing agentchurn by
up to 50%;
• maintain a valued connection with consumers via mobile devices,
either through native applications, websites, text messages, or
third-party messaging platforms;
• leverage spending that drives visitor traffic by increasingvisitor
conversions;
• refine and improve performance by understanding which initiatives
deliver the highest rate of return; and
• increase lead generation by providing a single platform that engages
consumers through advertisements and listings on branded and
third-party websites.
As a "cloud computing" or software-as-a-service (SaaS) provider, LivePerson
provides solutions on a hosted basis. This model offers significant benefits
over premise-based software, including lower up-front costs, faster
implementation, lower total cost of ownership, scalability, cost predictability,
and simplified upgrades. Organizations that adopt a fully-hosted, multi-tenant
architecture that is maintained by LivePerson eliminate the majority of the
time, server infrastructure costs, and IT resources required to implement,
maintain, and support traditional on-premise software.
More than 18,000 businesses, including HSBC, Orange, The Home Depot, and GM
Financial use our conversational solutions to orchestrate humans and AI, at
scale, and create a convenient, deeply personal relationship with their
customers.
The key elements of LivePerson's business solutions strategy include:
Build awareness and drive adoption of the Conversational Space. LivePerson
brought our first customer live on messaging in June 2016 . Since that time, we
have been focused on building awareness for conversational experiences and
driving adoption. We have educated businesses on the financial and operational
transformation that occurs when a contact center shifts to an asynchronous
messaging environment, where the consumer controls the pace of the conversation,
which can last minutes, hours or days, from a synchronous call or chat center,
where conversations occur in real-time and have a distinct start and end.
A key component of our industry awareness marketing strategy has been to hold
multiple global customer summits each year that target executives from
enterprise customers and prospects, and feature a key theme within the
Conversational Space, such as Apple Business Chat, Google Rich Business
Messenger, IVR deflection or AI. LivePerson customers are the centerpoint of
these summits, presenting why they chose LivePerson for conversational
experiences, how they achieved success, and what type of ROI they have realized.
Each attendee then receives a blueprint for how they can achieve similar
outcomes. We have found this strategy to drive strong results for LivePerson, as
we have seen a greater than 40% conversion rate on opportunities that were
created or advanced as part of the customer summits. By year end 2019, we had
brought approximately 300 customers live on messaging and increased adoption
within our enterprise customers to nearly 55%. In addition, nearly 60% of
messaging conversations had automation attached.
In light of the coronavirus pandemic and recent shelter-in-place mandates, we
have adapted our marketing strategy to include targeted digital experiences that
emphasize the unique positioning of our messaging and AI offerings to help
brands succeed in this new environment. Our marketing message has shifted from
business improvement to business continuity and virtualization of the contact
center.
Increase messaging volumes by developing a broad ecosystem, expanding customer
use cases, and focusing on AI and automation. Our strategy is to drive higher
messaging volumes by going both wide across messaging endpoints, deep across
consumer use cases, and focusing on AI and automation as the means to deliver
powerful scale. LivePerson offers a platform usage pricing model, where
customers are offered access to our entire suite of messaging technologies
across their entire agent pool for a pre-negotiated cost per interaction. We
believe that over time this model will drive higher revenue for LivePerson by
reducing barriers to adoption of new messaging endpoints and use cases.
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In order to drive broad messaging adoption, it is imperative that LiveEngage
integrates to all of the messaging apps that consumers prefer to use for
communication and addresses all key use cases. For example, if a consumer is an
avid WhatsApp user, and a brand only offers SMS as a messaging option, that
consumer may be reluctant to try messaging the brand. Therefore, a key strategy
of ours has been to build one of the industry's broadest ecosystems of messaging
endpoints and use cases. In June 2016 , we launched with In-App messaging. In
2017, we introduced Facebook Messenger, SMS, Web messaging and IVR deflection
integrations. In 2018, we added Apple Business Chat, Google Rich Business
Messenger, Line, WhatsApp , Alexa, Google Home, Google Ad Lingo and Twitter. In
2019, we added email, allowing brands to manage emails through the same console
they use for messaging, and to convert legacy emails into messaging
conversations. We also added social monitoring and conversational tools for
Twitter and Facebook, and introduced proactive messaging, allowing brands to
transform traditional one-way notifications such as flight cancellations or plan
overage alerts into two-way conversations. Finally, we connected to Facebook and
WhatsApp digital advertisements, enabling consumers to initiate messaging
conversations for marketing and customer care directly within the advertisement.
Each channel and use case added opens the door to hundreds of millions of new
consumers, providing brands a greater opportunity to shift share away from their
legacy contact center channels into messaging. For example, in 2019, leading
airlines launched on WhatsApp and Apple Business Chat with the ability to make
secure payments; a baseball stadium launched an automated conversational
concierge providing answers to a wide range of questions from restroom locations
to player stats; and a multinational telecommunications company used proactive
two-way messaging for outbound campaigns.
LivePerson makes the management of all these disparate channels seamless to the
brand. AI-based intelligent routing, queuing and prioritization software
orchestrates these conversations at scale, regardless of which messaging
endpoint they originated from, so that human and bot agents can engage with all
customers through just one console.
We believe that this strategy has influenced LivePerson's enterprise and
mid-market revenue retention rate, (the trailing-twelve-month change in total
revenue from existing customers after upsells, downsells and attrition) which
was within our target range of 105% to 115% for 2019. The benefit can also be
seen in LivePerson's average revenue per user (ARPU) for our enterprise and
mid-market customers, which increased approximately 20% in 2019 to $345,000 from
approximately $285,000 in 2018. In fact, in 2019, the ARPU for Enterprise
customers on messaging was more than 5 times higher than those on just chat. We
believe these ARPU trends are a clear indication of how LivePerson's strategy to
drive messaging adoption has successfully influenced our revenue growth by
taking share from legacy communication channels. We plan to continue adding new
messaging endpoints and use cases, and to drive higher adoption of existing ones
within our customer base.
Attract the industry's best AI, machine learning and conversational talent. We
believe that AI and machine learning are critical to successfully scaling in the
Conversational Space, and that in order to develop the industry's leading
technology, we need to attract the industry's best talent. In 2018, LivePerson
recruited Alex Spinelli , key architect of the Alexa Operating System at
Amazon.com, as our Global CTO. Under Mr. Spinelli's leadership, LivePerson
opened an Advanced Technology Center in Seattle, Washington , where the Company
now has more than 125 of the industry's brightest data scientists, machine
learning engineers and automation engineers, many from firms such as Nike,
Amazon.com, Microsoft and Target, who are working exclusively on applying AI to
the Conversational Space. LivePerson also expanded its Mannheim, Germany
development center, and added key development talent through the acquisitions of
BotCentral in Mountain View, California and Conversable in Austin, Texas .
Bring to market best-in-class AI and machine learning technologies designed for
the Conversational Space. We believe that in the last decade many vendors
introduced AI and bot offerings that created frustrating experiences for
consumers and businesses alike, which in turn has eroded trust in automation.
Many of these solutions have proven difficult to build and scale, and have been
limited by stand alone implementations that lacked the measurement, reporting
and human oversight of conversational platforms such as LiveEngage. In December
2018 , LivePerson announced its patent pending AI engine that is designed to
overcome these shortcomings and help brands rapidly bring to market
conversational AI that can scale to millions of interactions, while increasing
customer satisfaction and conversion rates.
Unlike alternative solutions designed solely for IT departments, LivePerson's
Conversational AI was built to be used by developers and contact center agents.
By putting the power of conversational design and bot management in the hands of
contact center agents, LivePerson's Conversational AI gives brands the ability
to leverage the employees closest to the customer, those who are most versed in
the voice of the brand, and with the most expertise in how to craft successful
outcomes for customer service and sales journeys.
Some of the key innovations behind LivePerson's Conversational AI include:
• a holistic approach to scaling AI by combining consumer facing bots,
agent facing bots, intelligent routing and real-time intent
understanding, with an analytics dashboard that helps users focus on
the intents that are impacting their business and prioritize which
intents to automate next
• bot building software that is based on dialogue instead of workflow or
code, so non-technical employees like contact center agents can design
automations
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• leverage a data moat of hundreds of millions of conversations to feed
the machine learning that rapidly and accurately detects consumer
sentiment and intents in real-time. Use intent understanding foradvanced routing, next-best actions, and to fully contain conversations
with automation
• the establishing of contact center agents as bot managers, ensuring
that every conversation is safeguarded by a human and that agents arecontinuously training the AI to be smarter and drive more successful
outcomes
• powerful Assist technology that multiplies the efficiency of agents by
analyzing intents in real time and then suggesting next best actions,
predefined content, and bots that can take over transactional work
• pre-built templates for target verticals that provide out of the boxsupport for the top intents and back-end integrations
• the ability to bootstrap conversations with existing transcripts,
reducing design effort and speeding time to market
• third-party AI natural language understanding (NLU) integration, so
customers aren't boxed into one vendor
• AI analytics and reporting tailored to the Conversational Space,
providing brands with immediate, actionable insights about their
businesses and contact center operations
Our strategy is to continue to enhance the Conversational AI engine and related
products, leveraging our global R&D footprint and substantial library of mobile
and online conversational data, with the aim of increasing agent efficiency,
decreasing customer care costs, improving the customer experience and increasing
customer lifetime value.
Sustain our leadership position by aligning brands to a vision that transforms
how they communicate with consumers and delivers a superior return on
investment. We believe that most contact center technology vendors incorrectly
view messaging as a feature. They are content with building integrations to a
messaging endpoint and offering messaging as just another product in their
suite. LivePerson holds the perspective that messaging and AI are the foundation
for transforming conversational experiences, disrupting how agents operate and
how brands engage with consumers across service, sales, marketing, social and
brick and mortar. Brands must adapt their contact centers to an asynchronous
messaging environment and leverage a combination of human agents, bots and AI to
achieve scale and efficiencies. When done correctly, the entire consumer
lifecycle with a brand will be maintained within the Conversational Space, and
traffic will steadily shift away from lower returning voice calls, websites,
emails and apps to higher returning messaging endpoints.
We believe that LivePerson is uniquely positioned to deliver this transformation
due to our technology and expertise:
• The LiveEngage enterprise-class, automation-first, cloud-based
platform, was designed for AI-assisted and human-powered messaging in
mobile and online channels. The platform offers best-in-class security
and scalability, offers the broadest ecosystem of messaging endpoints,
is designed for ease of use, and features an AI engine custom built for
the Conversational Space, intent recognition, robust real-time
reporting, role-based real-time analytics, predictive intelligence, and
innovations in customer satisfaction and connection measurement.
Additionally, LiveEngage is an open platform with pre-built,
enterprise-grade integrations into back-end systems as well as theability to work across natural language understanding (NLU) providers.
• The Company has a data moat built on hundreds of millions of
conversations across industries, geographies and use cases that isfeeding the machine learning engines that power intent understanding.
• The platform has expanded to power conversations across a broad
spectrum of channels and use cases, from traditional sales and customer
service, to marketing, social, email, advertising and brick and mortar.
• LivePerson has deep domain expertise across verticals and messaging
endpoints, a global footprint, referenceable enterprise brands and a
team of technical, solutions and consulting professionals to assistcustomers along their transformational journeys. We are positioned as
an authority in the Conversational Space,. We have developed a
Transformation Model that is introduced to existing and prospective
customers to help guide them on their journeys from legacy and
oftentimes inefficient legacy voice, email and chat solutions to modern
conversational ones powered by messaging and AI.
We believe that LivePerson's differentiated approach to the Conversational
Space, combined with our unique technology and expertise has established us as a
market leader, with an ability to deliver superior returns on investment.
LivePerson customers manage as many as 40 messaging conversations at a time, as
compared to one at a time for a voice agent and two to four at a time for a good
chat agent. Adding AI and bots provides even greater scale to the number of
conversations managed. Our customers often see labor efficiency gains of at
least two times that of voice agents, effectively cutting labor costs by at
least 50%. Furthermore, our ability to deliver more convenient, personalized and
content-rich conversations often drives increases in customer satisfaction of up
to 20 percentage points and increases in sales conversions of up to 20%, while
enhancing average order value, customer retention and loyalty.
Strengthen our position in both existing and new industries. We plan to
continue to develop our market position by increasing our customer base, and
expanding within our installed base. We will continue to focus primarily on key
target markets: consumer/retail, telecommunications, financial services,
travel/hospitality, technology and automotive within both our enterprise and
mid-market sectors, as well as the small business (SMB) sector. In 2019, we made
strong inroads into new verticals with key
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wins in the airline, foodservice and healthcare industries. We are increasingly
structuring our field organization to emphasize our domain expertise and
strengthen customer relationships across target industries.
Continue to build our international presence. We are focused on expanding our
international revenue contribution, which increased to 41% of total revenue in
2019 and 2018, up from 37% in 2017. We are generating positive results from our
recent investments in the Asia Pacific region, and recently opened an office in
Latin America .
Leverage our open architecture to support partners and developers. In
addition to developing our own applications, we continue to cultivate a partner
eco-system capable of offering additional applications and services to our
customers. We integrate into approximately a dozen third-party messaging
endpoints including SMS, Facebook Messenger, Apple Business Chat, Google Rich
Business Messenger, Line, WhatsApp , Alexa, Google Home, WeChat, Google Ad Lingo
and Twitter, multiple IVR vendors and dozens of branded apps. LiveEngage
integrates our proprietary messaging and Conversational AI with third-party bot
offerings, empowering our customers to manage a mix of different bots, human
agents and technologies from one control panel, thereby optimizing contact
center efficiency. LivePerson's proprietary and third-party AI/bots enable
brands to partially or fully automate communications with their customers.
In addition, we have opened up access to our platform and our products with more
than 40 APIs and software development kits that allow customers and third
parties to develop on top of our platform. Customers and partners can utilize
these APIs to build our capabilities into their own applications and to enhance
our applications with their services. In 2019, we launched LivePerson Functions,
a serverless integration capability that allows brands to more easily and
rapidly customize conversations flows within LiveEngage through
functions-as-a-service technology.
Expand sales partnerships to broaden our presence and accelerate sales cycles.
We are focused on broadening our market reach and accelerating sales cycles by
partnering with systems integrators, technology providers, business process
outsourcers, value added resellers and other sales partners. We formalized a
relationship with IBM Global Business Services in 2017 and Accenture in 2018. In
2019, we announced strategic partnerships with TTEC, a leading BPO focused on
customer experience, and DMI, a digital transformation company, to redefine the
customer experience with digital engagement, messaging, and AI-driven
automation. LivePerson increased the number of partners focused on SMBs to more
than 300 at year-end 2019, from over 150 at year-end 2018, and approximately 40
at the end of 2017. Approximately one quarter of all opportunities were
influenced by partners in 2019, and we are focused on driving that contribution
toward 40% longer term.
Maintain Market Leadership in Technology and Security Expertise. As described
above, we are devoting significant resources to creating new products and
enabling technologies designed to accelerate innovation. We evaluate emerging
technologies and industry standards and continually update our technology in
order to retain our leadership position in each market we serve. We monitor
legal and technological developments in the area of information security and
confidentiality to ensure our policies and procedures meet or exceed the demands
of the world's largest and most demanding corporations. We believe that these
efforts will allow us to effectively anticipate changing customer and consumer
requirements in our rapidly evolving industry.
Evaluate Strategic Alliances and Acquisitions When Appropriate. We have
successfully integrated several acquisitions over the past decade. While we have
in the past, and may from time to time in the future, engage in discussions
regarding acquisitions or strategic transactions or to acquire other companies
that can accelerate our growth or broaden our product offerings, we currently
have no binding commitments with respect to any future acquisitions or strategic
transactions.
Key Metrics
Financial overview of the three months ended June 30, 2020 compared to the three
months ended June 30, 2019 :
• Total revenue increased 29% to $91.6 million from $71.0 million .
• Revenue from our Business segment increased 30% to
$64.8 million .
• Gross profit margin decreased to 70% from 75%.
• Cost and expenses increased 15% to
• Net loss decreased to
• Average annual revenue per enterprise and mid-market customer
increased greater than 25% to approximately $395,000 for the
trailing-twelve-months ended June 30, 2020 , as compared to $310,000
for the trailing-twelve-months ended June 30, 2019 .
• Revenue retention for enterprise and mid-market in the second quarter
of 2020 exceeded our target range of 105% to 115%. Revenue retention
was within that range in the second quarter of 2019. Revenue retention
rate measures the percentage of revenue retained at quarter end, from
full service customers that were on LiveEngage at the same period a
year ago.
Adjusted EBITDA and Adjusted Operating Income (Loss)
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To provide investors with additional information regarding our financial
results, we have disclosed adjusted EBITDA and adjusted operating income which
are non-GAAP financial measures. The tables below present a reconciliation of
adjusted EBITDA and adjusted operating income to net (loss) income, the most
directly comparable GAAP financial measures.
We have included adjusted EBITDA and adjusted operating income in this Quarterly
Report on Form 10-Q because these are key measures used by our management and
board of directors to understand and evaluate our core operating performance and
trends, to prepare and approve our annual budget and to develop short and
long-term operational plans. In particular, the exclusion of certain expenses in
calculating adjusted EBITDA and adjusted operating income can provide a useful
measure for period-to-period comparisons of our core business. Additionally,
adjusted EBITDA is a key financial measure used by the compensation committee of
our board of directors in connection with the payment of bonuses to our
executive officers. Accordingly, we believe that adjusted EBITDA and adjusted
operating income provide useful information to investors and others in
understanding and evaluating our operating results in the same manner as our
management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:
• although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized may have to be replaced in the
future, and adjusted EBITDA does not reflect cash capitalexpenditure
requirements for such replacements or for new capital expenditure
requirements;
• adjusted EBITDA does not reflect changes in, or cash requirements for,
our working capital needs;
• adjusted EBITDA does not consider the impact of acquisition costs;
• adjusted EBITDA does not consider the impact of restructuring costs;
• adjusted EBITDA does not consider the impact of other costs;
• adjusted EBITDA does not reflect tax payments that may represent a
reduction in cash available to us; and
• other companies, including companies in our industry, may calculate
adjusted EBITDA differently, which reduces its usefulness as a
comparative measure.
Three Months Ended June 30, Six Months Ended June 30,
2020 2.019 2020 2.019
Reconciliation of Adjusted EBITDA
GAAP net loss $ (18,627 ) $ (23,987 ) $ (55,628 ) $ (42,877 )
Amortization of purchased intangibles 688 723 1,377 1,469
Stock-based compensation 15,945 9,305 30,642 16,471
Contingent earn-out adjustments - - (263 ) -
Restructuring costs - 205 (1) 3,193 (3) 484 (3)
Depreciation 5,738 3,762 11,274 7,643
Other litigation and consulting costs 1,338 (2) 1,727 (2) 6,046 (4) 4,144 (4)
(Benefit from) Provision for income
taxes (339 ) 699 13 1,292
Acquisition costs - - - 648
Interest income 3,211 2,017 6,002 2,684
Other expense (income), net 1,309 (5) 250 (5) 1,975 (5) (483 ) (5)
Adjusted EBITDA (loss) $ 9,263 $ (5,299 ) $ 4,631 $ (8,525 )
(1) Includes severance costs and other compensation related costs of $0.2 million for the three months ended June 30, 2019 .
(2) Includes litigation costs of $1.0 million and consulting costs of $0.3 million for the three months ended June 30,
2020 , and litigation costs of $1.1 million and consulting costs of $0.6 million for the three months ended June 30, 2019 .
(3) Includes severance costs and other compensation related costs of $3.2 million for the six months ended June 30, 2020
and $0.5 million for the six months ended June 30, 2019 .
(4) Includes litigation costs of $2.3 million , reserve for sales and use tax liability of $2.3 million , employee benefit
cost of $0.8 million , and consulting costs of $0.6 million for the six months ended June 30, 2020 and litigation costs of
$2.2 million and consulting costs of $1.9 million for the six months ended June 30, 2019 .
(5) Includes financial income (expense) which is attributable primarily to currency rate fluctuations.
Our use of adjusted operating income has limitations as an analytical tool, and
you should not consider it in isolation or as a substitute for analysis of our
results as reported under GAAP. Some of these limitations are:
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• although amortization is a non-cash charge, the assets being amortized
may have to be replaced in the future, and adjusted operating income
does not reflect cash capital expenditure requirements for such
replacements or for new capital expenditure requirements;
• adjusted operating income does not consider the impact of acquisition costs;
• adjusted operating income does not consider the impact of restructuring costs;
• adjusted operating income does not consider the impact of other costs;
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