Good afternoon. My name is Tanya, and I will be your conference operator today. At this time I would like to welcome everyone to the LivePerson's Second Quarter 2017 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. [Operator Instructions] On the line today is LivePerson CEO, Rob LoCascio; Mr. Dan Murphy, CFO. You may begin your conference.

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 Web site. I will now turn the meeting over to Robert LoCascio, CEO and Founder 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 [Next-G] [ph] expansions at two Fortune 100 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 are 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 the brands connect with consumers. We are now seeing roadmaps where care sales and marketing and large brands converge on LiveEngage. Through messaging and AI our conversational platform is getting vetted into the operational layer of leading enterprises. Not just on contact centers, but also across the field and back office. Entire business processes such as payments, plan changes, and [lead gen] [ph] 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 touchpoints a leading enterprise brand needs to engage with their consumers. LiveEngage serves as the 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…

Thanks, Rob. LivePerson continued a strong start in 2017 and the second quarter by once again executing on each of its four key priorities. First, we are successfully transitioned back to a focus on selling for migration. Revenue increased 6% in the second quarter over the first and we are targeting continued sequential growth of 2017 which we expect authorization LivePerson for return 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 successful winding down our legacy often as we guided, we ended the second quarter 12% of revenue on legacy that pushes 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 a business in LivePerson from margin improvements as we have return to growth in the years ahead. We feel good about the progress we made gave and we are raising our revenue guidance and lower end of our gap and adjusted EBITDA guidance ranges for 2017, our detailed updated guidance later in our discussion. I will now review our second quarter operating results. Total revenue of $54.1 million was above our guidance range and consistent of B2B revenue of $49.6 million and consumer revenue of $4.5 million. We delivered $2.1 million of upside revenue versus the high end of our previously issued range of $51 million to $52 million approximately $1 million of the upside stand from better than forecasted performance from the current revenue. And the other million…

[Operator Instructions] Your first question comes from the line of Richard Baldry from ROTH Capital. Your line is open.

Thanks. Back into the math on the contribution of, let's say, the drag from the legacy business coming out, it was 19% in Q1, it was about $9.7 million, Q2 at 12% you'd be about $6.5 million, so a drag of $3.2 million. Now you did grow sequentially $3.2 million so that argues you're underlying can grow somewhere over $6 million sequentially in a single quarter. Can you talk about was there unusual events inside of that $6 million 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. Thanks.

So, Richard, I can't comment to all the specific numbers that you were going back and forth on, but generally what happened in the second quarter there was 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, that I stated in my script, we had about a million dollars in upside from our current revenue in the second quarter, and we had about a million dollars of upside one-time non-recurring revenue coming from our customer base. So that's what 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 [technical difficulty] the numbers that you're talking about.

Okay, thanks. And then can you talk about in the messaging side sort of the competitive field. I think you're running head-to-head with different people this time around. How competitive is it? 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? Thanks.

It's predominantly Greenfield today. And we're doing the customer care side of messaging, so it's a little bit more than -- then it'll be a little different than consumer to, let's say, someone who's in a ride-sharing like in the care, it'd more to a customer care organization. But we're pretty much Greenfielding right now. There's small competitors out there, people say they have in their product, but the strength of the company as 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 90 days, taking 30% of their calls out of the voice system, and moving 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 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 are 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 font-ends out there that we're going to be able to do a lot of cools things with and we do today. So we've got a good lead right now, and we're just very focused on taking down as many deals as we can.

Thanks, and congrats on the great sequential growth.

Thanks.

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

Great, thanks. Thanks for taking my question. 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, that's a lot of consumer engagement for LivePerson happening there. Big-picture question is when you're selling these solutions into the customer base what part of the organization are you selling into, is it really the contact center operators, is it the sales and marketing teams, or is it really somewhat bigger than just that?

It really depends. 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. And in some cases it's in the sales group. But 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 40-minute presentation. They're going to bring messaging encrypted on the device level, and they're putting it in theory and all these things. So, right, the implications are pretty major for our company as a whole to run business processes on-device. And I think if you really looked at that presentation, you're right, it is a much bigger opportunity than just a care flow. We're talking about sales, customer care, marketing, all flows can go through that pipe into the device, so you are correct. So it all depends. Somebody sort of owns the digital strategy our -- one of the things you do is try to bring it all together. It's sort of a process we run, is to try to bring all the pieces together instead of just maybe there's one person who ones it, we bring care in, we'll bring marketing, we'll bring the sales. And we put out together a strategy that they can really execute on.

Great quarter, guys. Thank you for taking my question.

Thank you.

Thanks, Koji.

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

Jeff?

Sorry guys, can you hear me now?

Yes, we can.

There we go. So just a couple for me, let's see. With respect to booking, I know you don't provide the numbers, but can you give us at least a comment with respect 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 I go by your guide. But just if you can give any quantification at all about the scope, size, coverage, anything about the pipe? And then as I said also, whether your booking met, exceeded your internal targets for the quarter?

So on the bookings side of things we're happy with the first half of the year. As you know, in a recurring revenue business that you get out of the year strong that helps you from a revenue perspective, and that's part of the reason that we were able to increase our guidance for the year, so happy with half-long booking. And as you talked about the pipeline, one of the things that we try to be clear in our remarks is we've got opportunities between IBM, Apple, and then our customer events where we're actually investing similar to upside back into generating more of that pipeline. Each one of our customer summits has 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 Pittsburg 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.

Okay. And then Rob, 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 redirected? 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 talk about your entry point there from a deal size, and then where you think the deal size can ultimately go for an account like that?

Yes, I mean when you think of those numbers and where we're headed I think the deal size could be much, much more significant. Strangely enough it's such a major impact, and yet we're at day one. We are doing some outbound. So once you get somebody on a messaging connection we can be proactive to them like a month later. So it starts with an inbound query about something in 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 there iOS, and Android apps, doing SMS, Facebook as well. We're taking the traffic in; it's all a unified experience. But I just want to point out this is the first time in history there is an alternative for voice. Like, up till now, there's been real -- even chat. Initially chat would get through about 10% of volume, but it never had that impact. And we can actually see voice one day going away. And so that was our goal a year ago, and it's exciting for us as a company to actually see it happening. And so everyone one of our enterprises, 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 brands, and so this is just one example that shows it can work. And the customers love it, and the brand loves it. So we're very excited about it.

Yes. Just two briefings for me, the sandbox customers, just refresh me on how you see that eventually playing out. Obviously you don't intend to run that indefinitely. Just refresh on what you think that sandboxed world looks like six, 12, 18 months out? And then last, the incremental leverage, looks like you're putting a lot of very strong revenue performance back into the marketing side, even with crude bounds how you think about '18, sort of split the overages 50-50 between flowing it 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. Thanks.

Okay, 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 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 for a number of different reasons that those customers will be sandboxed, 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. So on the last 5% we're going to try to move them over to LiveEngage as quickly as we possibly can. As far as going towards '18, we haven't given guidance for '18. 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 wanted to continue our 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 '17 with some of the revenue upsides and invest in our customer summits, which have been successful in 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 build 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.

Okay, appreciate it.

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

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?

There are some voice vendors on the Apple side, and so you have Genesis, Salesforce, and one other -- Nuance. And then IBM, IBM's got many strategic relationships with many partners. I think the interesting thing 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 out cognitive care offering to the market.

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

Traditionally they've participated. IBM was at our event in a cognitive 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.

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

No, we have real scale bot deployments. So at our conference that we did this -- the AI conference at Carnegie Mellon we had Vodafone showing what they're doing, RBS showed what they do, KBDI, a large telco in Japan, showed what they did. So, yes, so the stuff we're doing is not tire-kicking, we're actually doing it at scale. The interesting things is when we put AI on our platform it looks like an agent. It just looks like a human agent. So we've got all these capabilities to manage it. In normal deployments of bots and why they're kind of tire-kicking them is you put them on a Web site or the maybe the backend of your 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 and trying to figure out. In our system the bots actually, you look at them in real-time, and what our customers are doing is putting a live agent to manage the bots. And then the agent could step in if the bot fails, they go back into the AI engine, and we'll update the question and answers so that the bots become better. There are things with timing and tuning that we do on the platform. So our platform, we've booked up some capabilities that enable a lot more control over the bot. So you don't have to kick the tire. Most of the time when the kick the tires because there's no way to sort of really control it and better it on a day-by-day basis than how we provide on the LiveEngage platform. So that's kind of the interesting part.

Okay, thank you. That's all for me.

Thank you.

[Operator Instructions] Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.

Hi, thanks a lot. Yes, a very nice quarter. On the sales force productivity, can you give us a general sense of that level, are we at 50%, 75%, 100% in terms of productivity for sales person?

Yes, Mike, I won't give a specific number, but we're happy in the direction and the 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. It gave us the opportunity to increase our value from the back half, not only bookings, but obviously successful migrating customers over to LiveEngage platform. So we're happy with were the productivity is and we're continuing to push the business and build out our pipeline. Again, there's a good opportunity in front of us as we move into '18.

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

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. And one of the best selling tools that they have been talked to each other, there are opportunities what they're going through, how to implement, and existing customers become some of our best recommended customers.

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

No. It's an added amount of volume, because they were doing chat, it's always pretty much web. So we really expand like new capabilities to the amount of interactions that we possibly can take. What's great is that although the migration, as I said, I probably don't want to go through migration again in the company's history, but I can say that with certainty, but we're on the other side of that obviously. But now we got this new platform, it's got a lot of capabilities in it. We've got an install base that's using the chat capabilities and it's a focus group of leads. They haven't really shimmered us. They are all seeing messaging and AI and box, and that's something strategic, and we got them on this platform that looks like a flip of a switch that they can get it. So now it's just a question of educating them, getting them the opportunity, what's the entry point, is it SMS, is it Facebook, is it app, is it web, wherever that entry point is, it's sales and service, and so we just sort of keep working through that with each of these customers. And 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 had one of our large enterprise Five 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 growing in app and we're going around. But they didn't migrate to chat. They migrated straight to messaging. We shut all the chat down. So that's the real interesting things that we see.

Okay. And then just last, he I think the European broadband provider is basically just replacing voice with messaging, but I don't think you're doing the kind of the Tango there or whatever, you know, is most of your pipeline kind of migrating to inbox and live agents, or is more kind of the European broadband example?

Sometimes we start live to live, and then we look at what we can automate. So every deployment will have box and AI though. This is what's happening. So, even you know, this customer will be putting box in for different areas of interaction, so -- but yes, every one of them will have a mix of it, every one of them.

Great. Yes, thanks a lot.

Okay, thanks, Mike.

There are no further questions at this time. I'll turn the call back over to the presenter.

Thank you. And we will see you on the next quarter.

Thanks, everyone.

Thanks, guys. Goodbye.

This concludes today's conference call. You may now disconnect.