Participants

Jon Perachio; Senior Director, Investor Relations; LivePerson Inc

John Sabino; Chief Executive Officer, Director; LivePerson Inc

John Collins; Chief Financial Officer, Chief Operating Officer; LivePerson Inc

Jeff Van Rhee; Analyst; Craig-Hallum

Vijay Devar; Analyst; Northland Capital Markets

Presentation

Operator

Greetings and welcome to LivePerson third quarter, 2024 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jon Perachio, Senior Director, Investor Relations. Thank you, Mr. Perachio. You may begin.

Jon Perachio

Thank you. Joining me on today's call is John Sabino, CEO; and John Collins, CFO and COO. Please note that during today's call, we'll make forward-looking statements which are predictions, projections and other statements about future results.
These statements are based on our current expectations and assumptions as of today, November 7, 2024 and are subject to risks and uncertainties. Actual results may differ materially due to various factors including those described in today's earnings press release and in the comments made during this conference call as well as in 10-Ks 10-Qs and other reports we file with the SEC.
We assume no obligation to update any forward-looking statements. Also during this call. We'll discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release. Both the press release and the supplemental slides which include highlights for the quarter are available on the Investor Relations section of LivePerson's website ir.liveperson.com.
With that, I'll turn the call over to LivePerson CEO, John Sabino.

John Sabino

Thank you so much Jon and thank you all for joining us today. Before getting into our results and strategy. Let me share a high level update on our business. Customers view LivePerson as a trusted partner to seamlessly, orchestrate, automate, analyze and personalize their digital conversations.
This leads to significant return on investment through improvement in operational efficiency and stronger relationships with their end customers. Recently at our spark customer conference, we unveiled a unified omnichannel solution that seamlessly integrates digital and voice interaction.
These enhanced capabilities, elevate LivePerson from a trusted digital partner to a strategic partner for all channels. Customers can now apply our best in class digital experience to their voice conversations with a consistent AI powered automation capability.
This drives increasingly more value for our customers by bringing our capabilities and outcomes to a larger share of their conversational value. Furthermore, brands can innovate over the top of their existing infrastructure without reliance on a risky multiyear CCaaS migration with solutions now available. Our strategic partnership with a Avaya is beginning to translate into bookings and pipeline momentum.
This includes a joint new logo win with a large retail bank. A direct new logo win with a Fortune 200 insurer and a large joint renewal with a Fortune 50 logistics company. I will provide more detail on the momentum here later in my remarks.
In addition, the strategic changes we have made to better serve customers are resonating. Many customers have shared that LivePerson has become much easier to do business with. We now offer simpler and more competitive pricing and packaging as well as allowing customers to use LivePerson's leading digital capabilities within an integrated best of breed solution.
I am confident that our customer centric approach and ongoing commitment to enhancing our capabilities will position LivePerson as the preferred partner for enterprise digital transformation. While still early days in our turnaround, we are beginning to see improvements in sequential bookings that John Collins and I will discuss in greater detail.
Now let me discuss our high level third quarter results revenue in the third quarter was $74.2 million. Above the high end of our guidance range, mainly driven by successful efforts and retention during the quarter and adjusted EBITDA was $7.3 million. Also above the high end of our guidance range driven by the actions we have taken thus far to right size our cost structure.
John Collins will provide more detail about our financial results in his section, but I want to point out that these results and the maintenance of our full year guidance midpoints represent the third consecutive quarter of execution.
Now I would like to provide additional detail on the progress of our transformation strategy. First, let's discuss our product at our recent spark customer event, we announced several innovative solutions. We launched a unified omnichannel workspace that integrates third party voice providers like Avaya into LivePerson's best in class agent workspace. By transcribing calls in real time brands benefit from our AI capabilities such as Copilot Assist, and automated summaries for their voice conversations.
The voice conversations integrate seamlessly with analytics studio, unifying both speech and text based conversations into rich actionable data. Our customers can now analyze customer journeys and coach agents across all channels.
Many contact centers do remain on premise due to the complexity and cost of migrating to cloud with legacy systems deeply embedded in their operations. By integrating with on-premise and cloud voice vendors LivePerson enables brands to bring digital AI and advanced analytics to their contact center without disrupting their existing operations.
This gives customers the flexibility and agility to move to the cloud on their own terms and timelines. We also enhanced the administrative experience for our Copilot products. We launched a self-service portal for brands to test and tune their experiences. Now, customers can quickly customize AI models to meet their unique business needs.
Additionally, we enhance our reporting capabilities to connect these Copilot experiences to outcomes. This enables customers to measure the real impact of specific generative AI use cases on their operations.
These enhancements are critical as generative AI usage is growing rapidly across our customer base. In Q3, we saw a 14% sequential increase in the number of clients leveraging our generative AI capabilities and a 40% sequential increase in conversations using our generative AI suite.
Now let me share a few examples of this. Let's start and Frost Bank, which is known for premium human first customer care. Liveperson's Copilot solution enables their human agents to respond in less than a minute to hundreds of thousands of conversations annually resulting in a consistent 91% customer satisfaction score.
Then there's Signet Jewelers the world's largest retailer of diamond jewelry. Our AI is trusted by Signet to help their customers navigate one of their most stressful and expensive purchases in their lives. Using LivePerson's AI powered agent assist, smart rewrite and summarization capabilities. Signet sales agents orchestrate highly personalized buying experiences that increase the average order value while achieving a 90% customer satisfaction score along the way.
Next is Najm, a Saudi Arabian vehicle insurer. After years of using voice as their only support channel, Najm turned to LivePerson to launch AI agents in whatsapp. LivePerson AI agents have reduced response times by 92% and enhanced personalization across millions of annual interactions, lowering the Najm's cost by over 60% while improving retention rates.
Finally, one of the world's largest health insurance providers is accelerating digital sales with LivePerson. They use AI for external customer facing and internal agent facing use cases. With a variety of AI agents assisting consumers and agents. At various stages of the customer life cycle, LivePerson solutions have helped them achieve 222% year-over-year growth in digital sales and an 86% customer satisfaction rate.
Over the next several quarters, LivePerson's innovations will remain focused on these core areas. We plan to expand our voice partnerships, increase generative AI use cases and enhance our digital channel capabilities and double down on unified analytics. These investments will further enable brands to analyze, orchestrate, automate and personalized conversations at scale across any channel.
Now, I'd like to update you on our progress and go to market. We're beginning to see momentum in our bronze, silver, and gold pricing and packaging strategy. In Q3, we saw a significant increase in deals closed with our new pricing and expect that to increase into Q4.
In fact, the majority of our new global pipeline has already moved to new pricing and packaging. We are starting to see the intended results with larger deals and shorter sales cycles. For example, a leading sports -- sporting goods retailer adopted our gold package based on a successful pilot of our generative AI suite. This resulted in a significant renewal and upsell, as mentioned earlier, our expanding partnership with the Avaya has already resulted in our first new logo win together.
One of the largest privately held banks in the US chose our integrated solution. It helps them accurate. It helps them accelerate value and innovation while avoiding the risks and costs and delays associated with a full migration of mission critical systems. This is our key to our value proposition. Additionally, we secured a new logo win with a Fortune 200 insurer looking to leverage the same integrated solution and renewal through our Avaya relationship with a Fortune 50 logistics company for an ACV of nearly a million dollars.
We're also seeing strong pipeline in the early access program for a unified workspace from a number of additional Fortune 500 companies. Looking ahead, we plan to integrate with more on-premise and cloud voice platforms like Cisco and Amazon connect. We're seeing the start of real momentum. But I want to be clear, this is just the beginning of our omnichannel journey that it will take time for this to become a material source of revenue.
To conclude, I want to reiterate that we delivered on our expectations we set in the last earning this call. We have continued to innovate on our product by adding unified experiences for voice and messaging, enhancing our current analytics suite and growing our enterprise generative AI adoption. We have also continued to make strides in our go to market by setting the foundations to reignite growth and increase adoption of our new pricing and packaging options.
And finally driven by our product innovation and key partnerships. We have continued to advance our omnichannel strategy with our solution now deployed in sales momentum building these positive developments in both product and go to market. Show our continued progress on our strategy that being said there is still progress to be made to get us back to profitable growth.
Before I turn the call over to our CFO and COO John Collins to discuss our financials in detail and guidance for the remainder of the year. I would like to provide an early view of our expectations for bookings and churn in 2025. As we discussed in the past two quarters, aligning our operations and industry best practices has translated to sequential improvement in bookings and greater visibility into addressable term risks.
Our expectations for retention rates continue to steadily improve as we look forward to future renewal cycles. We do see heightened risk for the remainder of the current renewal cycle with customers who are likely making their renewal decisions before we install our new customer success motion.
The last of these customers are slated to renew in the fourth quarter of this year and the first quarter of next year. As a result, we currently expect attrition to continue into the first half of 2025 offsetting expected revenue gains from sequential bookings improvement. With the transition towards positive net new ARR expected in the second half of 2025. That said, I believe this near term churn is largely the result of the legacy issues in the business that I've been focused on since the day I joined LivePerson.
Regarding the new booking trends, we expect to see eight figure bookings in the fourth quarter. An early indication suggests that we should be able to maintain that bookings level through the first quarter of 2025.
We'll provide a more detailed update on our 2025 expectations on the next earnings call but we felt it was important to provide you with this improved visibility today. So now let me hand over the call to John Collins. John?

John Collins

Thanks John. I'll begin with a brief update on customer wins, followed by a discussion of our financial performance and guidance. In terms of deals and significant customer wins in the third quarter. We delivered another quarter of sequential improvement. We signed 44 deals including nine new logos and 35 extensions and renewals.
The total number of deals was up 19% from the second quarter and total deal value was at 22%. Significant renewals and expansions included a seven figure deal with a large Australian financial services company, a seven figure deal with one of the world's largest health insurance providers. And a high six figure deal with another large health insurance provider. New logo wins included a leading fast casual restaurant company, a US based private retail bank, a Fortune 200 insurer, a Fortune 50 logistics company. And I'll highlight as John did that. The last three of these were tied to our voice integration with Avaya.
Consistent with our expectations. We have improved geometrics every quarter this year and we expect that momentum to carry forward this quarter. We are currently tracking to double digit bookings which would be a first since the fourth quarter of 2023.
As for -- third quarter, financial results total revenue was $74.2 million. Above the high end of our guidance range. The improvement over expectations was due to the timing of deals and lower than expected customer turn in the quarter. Adjusted EBITDA for the third quarter was above the high end of our governance range at $7.3 million driven primarily by the same factors contributing to higher revenue.
Revenue from B2B hosted services was $62.7 million, down 27% year-over-year B2B core recurring revenue was $68.8 million or 93% of total revenue down 21% year-over-year. As previously discussed, the year-over-year declines were driven primarily by customer cancellations and downsells this year.
Further segmenting revenue, professional services revenue was $11.6 million down 26% year-over-year. From a geographic perspective US revenue was $49.4 million and international revenue was $24.9 million or 67% and 33% of total revenue respectively. Average revenue per customer was $630,000 up 6% year-over-year driven in part by expansions with our largest customers and in part by customer churn.
RPO declined to $256 million consistent with the same factors, driving the declines in revenue. Net revenue retention was 79% in the third quarter compared to 83% in the second quarter. Again, given the size and timing of customer cancellations in 2024, we expect revenue to decline sequentially through the fourth quarter and into 2025. A trend that I will elaborate on shortly. Finally, in terms of cash, we ended the third quarter with [$143 million] cash on the balance sheet inclusive of the proceeds -- from the previously closed transaction with Lynrock Lake.
In terms of revenue guidance for the full year 2024 we are maintaining the midpoint but tightening our range to$ 305 million to $310 million. As for B2B core recurring revenue, we continue to expect it to be approximately 92% of total revenue for the full year.
We are also maintaining our midpoint for adjusted EBITDA guidance but narrowing the range to $18 million to $23 million. Consistent with prior commentary, we also continue to expect the B2B business to be free cash flow positive for the full year. The implication for revenue in the fourth quarter is a range of $65.7 million to $70.7 million. We expect B2B core recurring revenue to equal approximately 93% of total revenue.
As for adjusted EBITDA in the fourth quarter, we expect a range of $2.1 million to $7.1 million. Before leaving the topic of guidance. I'd like to build on John's earlier remarks on 2025. While we do not typically provide commentary on the next fiscal year without the benefit of the fourth quarter close and the first quarter trends given the importance of growth to our turnaround strategy. We want to provide a few comments on key trends we're currently seeing in the business.
We now expect annualized bookings to exceed annualized term beginning in the second half of 2025. It follows that revenue is also expected to continue defining sequentially but at a slower and slower rate before reaching a growth inflection point by the end of 2025.
This expected timing for positive net new ARR is driven by two primary factors. First, based on today's information, we expect newly our newly installed customer success motion to have a greater impact on future renewal cycles, reflecting customer renewal decisions that we are actively influencing today.
Comparatively, we believe we have a limited ability to influence the remainder of our current renewal cycle which reflects decisions customers likely made well in advance of the renewal events that are occurring this quarter and in the first quarter of next year.
As a result, we continue to expect a significant risk of customer attrition in the fourth quarter and the first quarter as we complete the current renewal cycle. On the upside, the second factor driving this updated view is the building momentum in our sales motion. Consistent with our expectations, we have sequentially improved bookings every quarter of this year. And the first, fourth quarter is currently tracking to double digits which again would be a first in 2024. Importantly, leading indicators such as pipeline generation and rep productivity suggest we are also currently tracking to double digits in the first quarter of 2025.
Before taking questions. I'd like to briefly summarize a few key points. We have restructured the business to focus on its core products and customers and we continue to right size the cost structure to generate positive free cash flow. Despite the anticipated near term decline in revenue. We continue to work through a challenging renewal cycle driven by customer decisions made during a period of significant corporate instability and prior to the leadership and operational changes implemented this year.
Thanks to which we now have line of sight to renewal rates that should approach industry norms in the second half of 2025. At the same time, sequential growth in bookings each quarter including tracking to double digits this quarter and next implies both continued demand for our products and that we now have a sales motion to consistently address that demand.
And with that operator, we can now move to Q&A.

Question and Answer Session

Operator

(Operator Instructions)
Jeff Van Rhee, Craig-Hallum

Jeff Van Rhee

Great. Thanks. Thanks for taking my questions. Hey guys. So several maybe to John -- S John. Obviously pretty substantial push here in terms of the expectations around here are bottoming and it sounds like in the renewals engagement with customers. Ultimately, there's just less ability to offset churn than you suspected maybe 90 days or 180 days ago. Just talk a little bit more about that like, you obviously at that point had visited [125, 150] I forget the number of your, of the -- the top customers. But it sounds like since then something got a little more challenging, just expand a bit there if you would?

John Sabino

Yeah. So a lot of this, when we first stepped in, Jeff, a lot of this came with -- some uncertainty to how far we could see out into future quarters. And I think we've really dialed in our health scoring, and adoption scoring and that's giving greater insight into the risk that's out there.
In the case of what we're seeing ahead of us, there's one or two renewals that we were seeing that, we were hoping that we could turn around and ultimately, we don't think that we're going to be able to and a lot of that had to do with some of the instability issues we've had in the past.
So, it's -- I think it's us being able to refine what we're seeing and after interacting with the customers substantially realizing that, we're probably not going to be able to influence their decision as they're coming up. So I don't think it's anything that's a material change. I think this is us based on best available data. Now, we're finding what we're seeing.
And lastly, you know, as I said before, it was going to take, you know, quarters to turn this around. We're still in that renewal cycle. I think maybe you and I have actually spoken about this in the past. We have to get through a full renewal cycle before I think we, gotten most of the risk out of the system, but that's what we're seeing. And we should be through that by the end of Q1 going into the end of Q2 next year.

Jeff Van Rhee

Okay. And then on the new sales motion just talk about the progress there, I guess relative to expectations. I mean it does sound like to John the other John's commentary, you're going to get to double digit book bookings growth, I think is what he commented the next few quarters. But how does that compare to your expectations again? Not a quarter or two ago is that ramping as fast as you expected?

John Sabino

It's ramping as fast as I expected if not a little bit faster. So again, this is that offset between, the what you call some of the churn up there in your bookings that you're trying to speed up. And I will say [Sandy] has hit the ground running. The pricing and packaging is actually shrinking deal cycle times and expanding the size of the deal that we're seeing. So things are moving in the right direction. And I think that the leadership that we've brought in the changes that we've made are starting to bear fruit that in addition to the Avaya partnership is moving forward in a steady fashion. This is at least where we expected it.

Operator

(Operator Instructions)
Mike Latimore, Northland Capital Markets.

Vijay Devar

Yeah, hi. This is Vijay Devar for Mike Latimore. Couple of questions from my side. First one on the new logo wins. Could you talk about all of the main use cases you're seeing?

John Sabino

There are a number -- JC, I'll jump in on this.

John Collins

I'm happy to get started.

John Sabino

Yeah.

John Collins

Sorry John. Would you like me to get started here?

John Sabino

Yeah, go ahead, JC. I'm sorry to jump it for you.

John Collins

Yeah, sure. So we have you know, in terms of some of the new logos that we mentioned that clearly one of the themes is the integration with voice and so providing unified analytics across both of those channels in the case of logistics company that we highlighted, there's, you know, ticketing involved case management, proactive outreach and the light.
And as John highlighted in his prepared remarks with respect to some of the expansions and wins within existing accounts, particularly with health care. We're both increasing the rate of service as well. As adding a sales use case that allows agents at the customer to win more business increased revenue through the utilization of our platform. And of course, [Signet] as was highlighted is a key thread across all customer wins. And the usage of Generative AI on the platform has been increasing significantly on a sequential basis.

John Sabino

Yeah, and I'd like to add a little bit specifically highlighting what we're seeing, which is expanded, use cases supporting the customer journey just beyond customer care. We're all -- we're starting to see customers use our capabilities and Generative AI and Copilot and summarization capabilities to drive commercial opportunities.
Additionally, The Avaya partnership is allowing us to expand conversations with BPOs and other partners that are looking to go beyond just the momentum of being a call center with customer care, but also looking at how you can turn some of these customer care capabilities into possible revenue generating opportunities.
So we're seeing not only the use case expansion in terms of the use of our product, we're also targeting other providers and partners to see if they can offer more value to their end customers through the services they provide.

Vijay Devar

Great on the seven figure deals that. Could you talk a little bit deeper into who are the main competitors and what are the key value adds that really ensured -- you want those deals?

John Sabino

I'm sorry, can you repeat the question? I'm just having trouble understanding it.

Vijay Devar

With the -- two seven figure deals, I was just wondering if you can expand a little further in terms of who are the main competitors. And what are the key value adds that really enable the clients to kind of really choose a LivePerson over anybody else?

John Sabino

So jump in really quick on this. Our competitor base has not shifted. We see in most RFPs, the same type of competitors. We see unified CCaaS providers, we see sales, automation and cloud platform players coming into the space. And we also see social platform vendors in the space. So it's been well, our competitive base is relatively consistent. And I will say quarter-over-quarter, we have not seen loss rates change against these competitors.
If anything, we're seeing them stabilize and move in our favor. And now as far as the commentary around the larger $1 million customers and JC, please add additional data here if I got it right. The -- we're seeing our partnership allowing customer, the value prop that we're bringing forward is that they don't have to go through that full CCaaS migration and we're able to offer them more capability, essentially a disruption, innovation without disruption.
So it's the value prop is that they can add our Coppilot and invest and breed agent workspace and digital capabilities to their current architectural footprint without having to go through -- the delays of the CCaaS migration.
And it did -- and again, you see the similar players over and over again and I will say that we have been able to compete successfully against some of them, which is Genesys and Salesforce.

John Collins

Yeah. And I would say just to add that in the context of the two seven figure deals that we highlighted in the prepared remarks, Both Genesys and Salesforce were involved and potential options for the customer.

John Sabino

Yeah, thank you JC.

Operator

Thank you, ladies. All right, we have reached the end of our call. Thank you for joining us today. Thank you.

John Sabino

Thank you.