Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Fourth Quarter 2024 Earnings Conference Call. My name is Matt and I'll be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management team from LivePerson will conduct a question-and-answer session and conference participants will be given instructions at that time. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up question. As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Mr. Jon Perachio, Vice President of Investor Relations. Thank you, Jon. You may begin.

Thank you, Matt. Joining me on today's call is John Sabino, CEO; and John Collins, CFO and COO. Please note that during today's call, we will 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, March 5, 2025 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's CEO, John Sabino.

Thank you so much, Jon and thank you all for joining us today. Before diving into our results and strategy, I would like to take a moment to reflect on 2024, provide an update on where we are today and share our vision for the company's future. Nearly 14 months ago, I joined LivePerson as its CEO. From the outset, I recognized that this company was built on 3 fundamental strengths. One, we offer a product that delivers real value to our customers and positions us to lead in an AI-driven future. Two, we have a robust list of Fortune 500 customers who value our strategic partnership. And three, we're backed by a passionate team of employees committed to unlocking the potential of enterprise digital conversations at scale. To leverage and build upon LP's existing strengths, we implemented a transformation strategy that focused on 3 core pillars: reinvigorating our go-to-market capabilities with customer-centric focus; two, innovating our product to focus on voice integrations and orchestration while providing flexibility to support a brand's AI vendor of choice; and three, strengthening our capital structure. Throughout 2024, we made significant progress across all 3 of these pillars. Beginning last January and throughout the year, we enhanced our go-to-market capabilities by assembling a new leadership team and implementing best-in-class processes and capabilities. As a result, we have seen notable improvements in retention metrics and win rates which have driven sequential increases in bookings over the past 3 quarters. We continue to innovate our product by introducing several new AI-driven features to our industry-leading enterprise suite. Notable additions include Bring Your Own LLM and Copilot Rewrite which has significantly accelerated adoption of generative AI on our platform which I will detail later. We also launched our Agent Workspace for Voice, seamlessly integrating voice and digital…

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, the fourth quarter marked our third consecutive quarter of improvement. We signed a total of 39 deals, including 9 new logos and 30 expansions and renewals, translating to a quarter-over-quarter increase in total deal value of 18%. In addition, deal values for new logos were more than double the average over the first 3 quarters of 2024 which we view as another important indicator of improving commercial execution and market demand for our products. Broadly, there were 3 dominant themes in the fourth quarter that influenced our results: first, as John mentioned, increasing demand for AI agents and AI orchestration; second, continuing traction within highly regulated industries, including health care, financial services and telecommunications which collectively represented 80% of bookings in the quarter; third, building momentum with commercial partners which put us on track to achieve our partner-led bookings goals in 2025. Consistent with this thematic view, significant renewals and expansions included a U.S.-based financial services company, a leading British broadcast and telecommunications company, a British retail bank. Significant new logo wins included a deal with a large multinational consulting company to deploy our generative AI suite for enterprise customers in the Asia Pacific region, a deal with a partner in South Africa to support the rollout of digital and automation programs for the region's largest insurer and a partner-led deal at a leading luxury fashion brand to improve sales performance and consumer marketing programs through insights gained from LivePerson's conversational intelligence suite. As for our fourth quarter financial results, total revenue was $73.2 million, above the high end of our guidance range. The improvement above expectations was primarily driven by…

Great, thank you. [Operator Instructions] Our first question is from Jeff Van Rhee from Craig-Hallum Capital Group.

Just a couple for me. First, on the partners, I just want to make sure I understand, your goal is 35% partner attach in '25, if I got that right. So are you saying you expect 35% of bookings value to be driven by partners? Just maybe clarify what that term is so I can understand what that means for '25. And then what was the predecessor number for '24?

Yes. Commenting on where we see line of sight -- Jeff, this is John Sabino, I'm sorry. 35% is our total target bookings value. So that's what we're looking at. We're seeing steady improvement from where we were this year. I don't believe we did that number in the past but we're giving a target of what we're shooting for in 2025.

Can you give me a magnitude sense of how much of an increase is? Because obviously, I wanted to get some more color on the Cisco, Amazon comments and some color on how Avaya is trending.

Yes. It's definitely more than 2x of what we're seeing now. It's more than that. So the -- as we've discussed, the partner network was pretty nascent and we're now starting to see that improve and contribute to the overall performance of the company.

Yes. And then maybe just talk to the Avaya integration and announcement, kind of how that relationship is trending versus expectations and then just thoughts on Cisco and Amazon in terms of timing and go-to-market there.

On the Avaya partnership, we are going in the right direction. We've closed over a 7-figure deal with Avaya. We have a number that are in the pipeline as we speak and we've agreed upon target accounts and markets. We've even seen where we've partnered with Avaya and defeated another CCaaS vendor who was an incumbent from an acquisition. So we've been actually -- with that partnership, we've actually been able to help Avaya retain customers as well as us. So that partnership is going in the right direction. The partnership with Cisco and Amazon Connect is an extension of the overall strategy of the company where we believe voice is an important part of the digital connected customer experience. So having that data to inform both customer experience and engagement and personalization as well as driving some of the AI capabilities that we have are continuing forward with that strategy. So by expanding with those 2 other providers, it allow -- it gives us basically the ability to get to the TAM of almost 65% of voice calls that are out there.

Helpful. On the S&M incremental spend, a couple of questions there. Just can you quantify how much incremental spend you're going to be putting into S&M? I mean obviously, I think you're addressing the decision you've got to make as opposed -- do we drive for EBITDA to get to some coverage ratios that make refinancing the debt easier? Or do we not focus on that but more so focus on driving top line growth? And I understood your message to be here, look, that is our decision. We're going to hammer down on S&M. So just the process there in coming to that conclusion and then how much incremental spend are you talking about?

I'll start here...

Yes, exactly, Jeff...

Broadly speaking, Jeff, there's not incremental investment relative to 2024. Rather, as we thought about the reductions in the cost structure that I mentioned in my prepared remarks, we left more in S&M but there was an overall net takeout or reduction in cost. It's just how much we left in relative to other business units as we thought through the areas where we could afford the reduction and still make our 2025 plan possible.

Got it. Okay. And then just along those lines and I'll let somebody else jump on, just the evolution of the thinking in terms of the debt situation. Obviously, you did the step 1 transaction with Lynrock but the goal is to take out the existing debt and sort of delever through that path. Any updates, any changes in strategy, any time lines? Just any color there would be great.

No update to provide at this moment in time. No change to the strategy either. I expect that there'll be developments as we progress through the year.

[Operator Instructions] And our next question here is from Michael Latimore from Northland Capital Markets.

The gross margin ticked up sequentially a good amount. Is that a sustainable number?

It is largely influenced by the reduction in certain consultants that were assisting us with cloud migration and general cloud operations in addition to the reduction in labor from our Gainshare portfolio. As you know, we continue to reduce the size of that portfolio and specifically the labor component. So with less labor in the business today, margins have expanded. That said, as we look forward to 2025, there will be some pressure on gross margin tied to the cloud migration and new costs associated with being on GCP in particular. So I would expect, broadly speaking, it to come down from what was reported in Q4.

Okay. Got it. And then I know you're guiding for attrition to continue through midyear. Like what percent of your customers or percent of revenue has officially gone through that renewal cycle at this point and what percent left?

That's a good question. JC, if you have numbers that are more accurate than a roundabout amount that I could put out there, I'd appreciate you jumping in with that first.

Well, broadly speaking, as we've described over the last few quarters, we expect the current renewal cycle or the legacy renewal cycle that John spoke to in his prepared remarks to be ending in the first half of 2025 and that the majority of the customer losses that we had kind of signaled or messaged during the third quarter call will take place in the first quarter of this year. So the rest of the year should be lighter in terms of customer attrition and really reach more normalized retention levels that is aligned to our expectation to produce net ARR in the second half.

And it's a significant -- of course. The renewal cycle does represent your customer base going through a renewal with you and impacted over a course of 15 to 18 months of the renewal cycle.

Yes. Great. And just last one. You highlighted as one of the values of your product is the customer does not need to do a system overhaul. By that, do you mean they basically keep their contact center infrastructure in place? Is that what you mean by that?

Exactly. What we're seeing is when it's a full-scale CCaaS replacement, CRM replacement, we are being seen as an extremely attractive option that they can keep some of those components in place and then get best-in-class digital alongside what they're using today, correct.

[Operator Instructions] If there are no further questions, I'd like to turn the floor back to management for closing comments.

We have no additional comments at this time.

Great. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.