LivePerson Inc (LPSN) 2017 Q4 法說會逐字稿

Good evening. My name is Tim, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the LivePerson Fourth Quarter 2017 Conference Call. (Operator Instructions)

On the call today are LivePerson's Founder and CEO, Rob LoCasci; and our CFO, Dan Murphy. Mr. Murphy, 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 the 10-Ks, 10-Qs and other reports we file from time to time with the SEC. We assume no obligation to update any forward-looking statements.

Also, during this call, we will discuss certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available in the Investor Relations section of our website.

I will now turn the meeting over to Robert LoCascio, CEO and Founder of LivePerson.

Thank you for joining LivePerson's Fourth Quarter Conference Call. The fourth quarter marked its spectacular end to the year. LivePerson once again delivered year-over-year revenue growth and exceeded revenue expectations. In fact, the fourth quarter was our strongest ever for new contract signing, with multiple 7- and 6-figure deals, one of which was the largest in our history and will exceed $20 million over its lifetime.

The solid progress we made in 2017 and early 2018 has set the stage for a strong rebound in our growth rate this year. We're introducing a 2018 revenue guidance range of $237 million to $243 million, which, at the midpoint, calls for LivePerson to return to double-digit growth. It's a remarkable achievement considering we just completed our transition to LiveEngage in the third quarter of 2017 and only recently turned to focusing on growth.

Our growth trajectory and the ramping of our field organization towards full productivity is owed in large part to the investments we have made over the past years and customer summits, partnerships, people and a robust product road map. Case in point is the customer event we held in October in Edinburgh, Scotland. As you may recall, the purpose of the summit was to showcase Sky, a leading European entertainment company, shifting approximately 30% of their call volumes onto messaging and doubled agent productivity by leveraging IVR deflection on LiveEngage, IVR being that old piece of technology that forces you to either speak or press 1, 2 or 3 to route to a live agent. This was the first time in context in our history that a clear alternative to voice was successfully deployed.

Each of the 100-plus attendees that participated walked away from the summit with a custom playbook, how they could go back to their contact centers and duplicate these extraordinary results. We saw a great response to this strategy. For example, key stakeholders from a leading international TV and broadband company with more than 20 million subscribers are among the attendees. Following the summit, this existing customer signed a 3-year mid-7-figure annual contract with LivePerson to power their mobile messaging strategy. This contract more than tripled the value of their previous commitment before messaging.

The company will start IVR deflection, aggressively shifting contact interactions to messaging from voice by deflecting calls at their source, an 800 number. Instead of navigating a frustrating IVR and wasting time on hold, consumers will soon be able to message the brand when it's convenient for them.

In North America, we signed a 7-figure multiyear expansion with one of the world's largest hospitality and entertainment company. This renowned brand is planning on improving their app by adding messaging as a primary means of communication, [and inviting] bots on top of messaging. Other wins include a 6-figure upsell on mobile messaging with one of the world's top 10 banks and a 6-figure 3-year deal with one of the largest online travel agency. This name brand intended to swap out a competitive chat solution with LiveEngage. However, they quickly shifted focus to messaging as a key to their future after attending our event in New York in Edinburgh.

As our momentum continues in the first quarter, today, we are announcing that Sky, the host of our October Edinburgh Summit, have signed an expanded strategic agreement for 2 years. This leading European entertainment company will use messaging and AI powered by LiveEngage platform across multiple channels. It would make the customer service more convenient and accessible.

These impressive wins exemplify how mobile messaging bots and AI powered by LiveEngage is rapidly expanding LivePerson's addressable market. We can be much more strategic with their customers and go after all the voice interactions in the contact centers, not just the ones coming off the web. And consumers are eagerly embracing the shift. In fact, messaging and bots are now approaching 20% of our conversations, up from only approximately 5% at the beginning of 2017 and nothing 2 years ago. When we look at the performance of customers who adopted, we're seeing strong validation of a large TAM -- larger TAM and leading indicators of accelerating growth.

Revenue from our enterprise and mid-market customers using messaging and AI, the fourth quarter exceeded our 20% CAGR target. Moreover, their trailing 12-months ARPU was approximately double that of traditional chat customers. These customers are also making longer-term commitments as they are more deeply aligned with our vision. As a result, the average contract term of our top 10 deals in 2017 was nearly 2 years in length. These amazing proof points reinforce why LivePerson has increased our investments, customers, summits, people, partnerships and product development. These investments have a direct impact on our ability to spur messaging in AI adoption, which, in turn, is transforming our financial model and strengthening our long-term outlook.

Our ability continues to attract top talent who have shared vision and have run skilled operations at the core of our continued success. Fortunately, our ability to attract the tech industry's top experts and brightest talents has never been stronger. These individuals see how AI and human-powered messaging will shape the future of digital and how LivePerson is leading the transformation of care, sales and marketing.

With that in mind, we're really excited to announce the hiring of Alex Spinelli as our global CTO. Alex joins us from Amazon, where he served as Global Head of the Alexa Operating System group and lead the global engineering organization behind one of the world's leading device-based virtual assistants, which powers the Echo home device. Previously, Alex was Director of Product and Technology for Amazon Search and helped other leading technology roles at McCann Worldwide (sic) [McCann Worldgroup], Thomson Reuters and AXA. Alex brings an incredible skill set for supporting large-scale platforms that process billions of transactions. But his long track record of success in machine learning, AI and massively scalable technology, Alex is one of the strongest people in the industry to lead us in our continued innovation of the contact center and messaging between brands and their consumers. Alex will also spearhead the continued globalization of our technology groups, overseeing all current technology centers and their leaders in Israel; Mannheim, Germany; New York City; Atlanta; and now Mountain View, California.

In addition to Alex, we recently brought on board an impressive team of expert engineers and architects for messaging AI startup, BotCentral, earlier this year. The founder, Eswar Priyadarshan, has an incredible history of innovation and development. He cofounded Quattro Wireless, an industry-leading digital marketing company that was acquired by Apple in 2010. Eswar then went on to work at Apple, reported to Steve Jobs as a Senior Director at Apple TV and iAd. Before Quattro, he also cofounded m-Qube, the leading North America mobile messaging platform for SMS and mobile media.

The BotCentral team located in Menlo Park were part of our partner program from the past year, are a strong cultural fit and have a great track record of joint implementation with our customers in banking, insurance, travel and other markets. This team is pioneering for us in bots and AI and extremely valuable as we work with customers and partners to deploy the scale of our offerings. In addition, they have built some powerful agent adviser AI technology that can significantly boot agent productivity by offering us suggested responses to consumer inquiries.

LivePerson's ability to attract top talent applies equally to areas outside of product development. We are pleased to announce that after a thorough review of wide routes for the high-quality candidates, we concluded our CFO search with the selection of Chris Greiner. Chris brings a wealth of experience with a strong track record as a public Chief Financial Officer, Chief Operating Officer and Chief Product Officer. He's a seasoned operational executive that knows how to leverage platform technologies and big data, has a history of fueling high-margin growth, deep international experience and a strong M&A background. Chris is joining us from Inovalon, a large public technology company that provides a cloud-based data analytics platform to the healthcare industry. During Chris' 5-year tenure, he was instrumental in developing a metric-based management system, evolving the go-to-market strategy and generating significant operating leverage and cash flows. Earlier in his career, Chris held a number of senior roles at IBM, the last of which was CFO and COO of IBM Data Analytics division, a multibillion-dollar segment that grew at strong double-digit pace under his leadership. He also served as VP at Computer Sciences Corp., a multibillion-dollar IT services company, where Chris was responsible for the financial management of their commercial portfolio and its emerging business of cloud, security and big data, all in about 6% of the company's revenues. Chris will officially join LivePerson in the middle of March, and we look forward to introducing him to each of you in the weeks to come.

Since the launch of LiveEngage, we have put ourselves right in the center of one of the greatest transformations happening in the digital since I have ever seen. I'm really excited about the possibilities of reaching this great vision when the majority of interactions that happened between a brand and their consumers are done over a conversational-based platform. It's no longer a simple vision as we now have the proof points by powering of millions of messaging conversations per month, that there is now a viable alternative to the old, time-wasting analog voice calls. For all of us, this dynamic space is capturing our imagination and creating exciting new future around the idea that an AI-based user experience could make our everyday lives easier in how we connect with our banks, telcos, our cable companies and our favorite retailers. This comes from the fact that, intuitively, we know as humans that conversations are necessary, in many cases, to buy something and to get help. LivePerson's focus on becoming the dominant platform for companies to power these conversations in the most scalable way possible.

As we continue to execute on our long-term vision and invest in our customers, our platform, people and expertise and delivery, we are making the right strategic decisions that I believe will one day make LivePerson one of the biggest companies in the technology space.

With that, I will now turn the call over to Dan, who will discuss our fourth quarter results and outlook in more detail. Dan?

Thanks, Rob. I am more than pleased with LivePerson's execution this past year, and the fourth quarter was a great reflection of all that we have achieved so far. We once again exceeded revenue expectations and delivered revenue growth both sequentially and year-over-year. We are seeing strong share gains across our target customers and prospects, which was evident in the fourth quarter being our largest ever for contract signing. The continued strengthening of our leading indicators is another positive highlight.

Trailing 12-month average revenue per enterprise and mid-market customers set a new record of greater than $220,000 in the fourth quarter, up from approximately $200,000 reported in the year ago quarter. Customers on messaging had approximately doubled the ARPU of the base. The number of customers generating more than $500,000 in annual revenue is at an all-time high. Our dollar retention rate held above 100% for the trailing 12 months ended December 31, 2017, and was at its highest level for the year. The measure takes into account the full impact of upsells, downsells, renewals and cancellations from our existing enterprise and mid-market customer base on LiveEngage. We now have more than 40% of all interactions on mobile, an incredible testament to our strategy to go LiveEngage from the ground up to the mobile consumer. Same-customer usage growth year-over-year continues to exceed 10%. The consistent health of these leading indicators is a key factor behind our expectations for revenue growth to accelerate in 2018. And as we've highlighted, we are seeing stronger results from customers to adopt messaging and AI as part of our vision for conversational business. Driving additional adoption is a priority in 2018.

I will now review our fourth quarter operating results. Revenue of $57.4 million is above our guidance range of $56 million to $57 million, reflecting the combination of strength in the sales force productivity, improving retention and strong fourth quarter seasonality in pay for performance.

B2B revenue is $52.9 million, and consumer revenue is $4.5 million. We signed 101 deals in the fourth quarter 2017 as compared to 93 in the fourth quarter of 2016. New customer deals signed increased to 41 from 33, and existing customer deals signed held steady at 60. The B2B revenue breakdown by vertical was consumer retail at 29%, financial services at 19%, telecommunications at 19%, auto at 12%, technology at 7%, and other at 14%. International operations accounted for approximately 37% of total revenue in the fourth quarter of this year, in line with the fourth quarter of 2016.

Fourth quarter GAAP net loss per share of $0.06 was ahead of guidance. The net loss benefit from the nonrecurrent $2.5 million or $0.04 per share tax benefit stemming from the enactment of the Tax Cut and Jobs Act, which reduced the U.S. corporate tax rate from -- to 21% from 34% and led to a revaluation of deferred tax liabilities.

Breakeven adjusted net income per share and adjusted EBITDA per share of $0.07 were both in -- within our previously issued guidance ranges. These non-GAAP measures exclude $2.9 million or $0.05 per share of expenses tied primarily to nonrecurring litigation costs and executive compensation. Please refer for today's press release for a full reconciliation of GAAP to non-GAAP measures.

Gross margin increased 90 basis points to 34.2% in the fourth quarter from 73.4% a year ago. This improvement primarily reflects the reduction in costs to our legacy operations now that we've fully transitioned to LiveEngage.

At the end of the fourth, cash on hand, including restricted cash, is $57.6 million or approximately $1 per share.

Deferred revenue increased 31% in the fourth quarter to $35.6 million from $27.1 million a year ago. LivePerson generated cash from operations of $6.8 million in the fourth quarter and spent $5.2 million on capital expenditures.

Turning your attention to our outlook. We are introducing 2018 revenue guidance of $237 million to $243 million. At the midpoint of our range, LivePerson will have returned to double-digit revenue growth. We anticipate first quarter revenue of $56.75 million to $57.75 million, which, at the midpoint, is an increase of approximately 13% year-over-year.

As Rob stated earlier, we will follow the same blueprint in 2018 that drove our success in 2017. We will continue to invest in our go-to-market capabilities and a robust conversational commerce product road map, which includes the ongoing globalization of our R&D org and developing the best talents still in the industry.

Although it's relatively straightforward, we're on the early days of a greenfield market, and we want to continue to differentiate our offering and attract new large enterprise customers with the LiveEngage platform. Even with these investments, we plan to increase profitability in 2018 with adjusted EBITDA increasing to $21.5 million at the midpoint of our guidance range from $18.4 million in 2017 or a 17% year-over-year growth. We expect to exit 2018 with a double-digit EBITDA margin and deliver further leverage in 2019 and beyond.

I will now review our detailed financial expectations. For the first quarter of 2018, we expect revenue of $56.75 million to $57.75 million, GAAP net loss per share of $0.13 to $0.11, adjusted net income per share of 0 to $0.01 and adjusted EBITDA of $3.5 million to $4 million or $0.06 to $0.07 per share.

For the full year 2018, our expectations are as follows: revenue of $237 million to $243 million, GAAP net loss per share of $0.35 to $0.29, adjusted net income per share of $0.07 to $0.10 and adjusted EBITDA of $20 million to $23 million or $0.34 to $0.39 per share. Furthermore, as a percent of revenue for the year, we anticipate gross profit to be approximately 76%; sales and marketing, 42%; G&A, excluding non-recurring litigation of 15%; and R&D to be 21.5%.

Note that due to changes under the Trump administration Tax Cuts and Jobs Act, we are reducing the tax rate applied to our non-GAAP income to 25% from 35% as we estimate that this more closely aligns with the expected long-term tax rate of the company. We expect to pay cash taxes in 2018 of $2 million to $4 million. Please refer to LivePerson's earnings release issued earlier today for additional details on full year 2018 assumptions. We have also published a supplemental presentation that reviews key points from the earnings call on the Investors Relations section of the company's website.

We entered 2017 with 4 priorities: return to a focus on selling, build on our lead in conversational commerce, complete the transition to LiveEngage and maintain our profit margins. By all measures, LivePerson executed on these goals. As we look to 2018, we expect revenue growth to accelerate back to the double digits and adjusted EBITDA margin to exit the year also in double digits. Our solid start to the year, coupled with strength in leading indicators, provide encouragement that we will able to achieve our goal or year-end objectives.

Growth will be fueled by adoption of messaging and AI in existing customers, penetrating prospects, new customer events, partnerships and a larger new logo hunter team and extending our product lead through innovation. We have added tremendous fuel to the innovation engine through the globalization of our R&D effort and our ability to attract many of the best minds in the world of AI, bots, data science and machine learning.

I look forward to transitioning my duties to Chris Greiner, and I'm very excited about the skills he brings to the table to support the next phase of LivePerson's journey. I'd like to thank Rob, the board, the management team and especially all of you incredible people of LivePerson for the great 7 years, and I look forward that the team continue to innovate and drive the business forward.

With that, I'll open the call to questions. Operator?

(Operator Instructions) Your first question comes from the line of Richard with Roth Capital.

In the past, Q1s have been seasonally sort of slower on revenue, I think, because of usage patterns. It doesn't look like guidance really envision that now. Can you talk about what's driving that change with the seasonality? Is it really just the organic growth acceleration that you're seeing? Or is there a huge change as well?

It's a good question. Yes, Rich, historically, we've had a little bit of a down in Q1, but the momentum of the business carrying from Q4 into Q1 has been pretty strong. And as Rob indicated in his remarks and I did, we had one of our largest quarters -- we had our largest quarter from a contract signing perspective. So we're excited about 2018, and '17 carried 2018 from a revenue growth perspective.

Continuing on that, how much do you think of the guidance is really sort of backlog from the recent wins you've had versus -- maybe versus other years when you started? Or -- and how much do you really have to sort of win maybe first half of '18 to make the second half?

Yes, it's a good question. So without giving any specifics, we feel pretty good about our growth from '17 into '18. We've had a -- so we returned to growth from a revenue perspective earlier than we expected from Q3 and continued that in Q4, and so we've had great momentum in the back half of 2017 as we go into 2018. So we're feeling pretty good about the guidance and entering the year with our growth perspective.

And last thing on the -- can you talk a little bit about -- now that you've got a lot migrated over, the deployment times that you're seeing as you get in sort of these new customers who are looking, in particular, at messaging, do you feel like you've got your hands really around that deployment time now? Do you think you've been getting faster over the past year as you've done more and more enterprise sort of transitions?

Yes. I mean as we've gotten many of these large enterprises under our belt, I mean there's processes in place now, and we've built actually new groups over the past 6 to 9 months to handle the deployments. The cool thing is there's a lot of unique stuff going on out there. We have some new things coming up with some partners and integrations onto the devices, like iOS and Android devices. So there's lots of new stuff. I think we've gotten a good cadence down of implementing our customers.

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

Just to be clear on the -- you said record times outstanding. Was that sort of you going on as -- kind of record bookings from an ACV basis?

What was that last piece, record bookings from what?

Annual contract value basis.

Yes. So it was our strongest quarter that we've ever had from a bookings perspective.

Okay. Got it. Great. And the Sky deal, did you say that was a first quarter booking?

Yes. The Sky deal is a -- yes, we talked about that being a Q1 deal. Yes, you got that. It's a Q1 deal.

Okay. Great, great. And then on the $20 million deal. What was the sales cycle, like -- I mean how long were you discussing that? How long did that take to close?

So it's an existing customer that was on chat and now we're -- signed a deal to get them on messaging. The sell cycle is about 9 months for that to get to our customer from start to finish.

Okay. Great. And then on the new logo sales team, I guess you're adding to that. Can you just quantify that a little bit? How many do you have? What percent of growth do you expect to have on new level sales?

You mean people-wise? Or...

Yes, people.

So for the new logo perspective, yes, we don't break out the new logo perspective. But in our prepared comments, what we did talk about is we're making an investment, specifically in North America for Hunter. And just to give you a little bit of a recap of where we were, when we took our sales team in '16, it focused on migrating customers, and that worked into '17. So we had to spend a lot of time with existing customers, selling to those existing customers. Now as we're coming out of '17 and we started to make this investment already, as we're going into '18, we added a group that's specifically focused on bringing in new logos and new customers. We haven't broken out that specific number. But that's, again, our engine for continuing to fuel for growth, along with the partnerships that we have as well as the customer events. So those are the areas that we're investing in, in the globalization of R&D.

Your next question comes from the line of Jeff with Craig-Hallum.

Great, and I'll echo that great quarter here guys. It just looks really strong. A number of areas I wanted to dive into. Maybe, Rob, just with respect to the deploys, what percent are really applying or using AI and NOU and sort of the automation, whether it's Watson or some other variation, versus just taking base messaging and looking to get up and live and then we'll revisit later?

Almost all deployments have some bot-AI component to them. So when we deploy, we deploy with some sort of bot because there's an automated service, and then we get more sophisticated as we go forward. But it's almost -- all of them are deployed with some form of a bot and AI.

And so -- just correlating that. I know the Watson-IBM relationship is tied. I mean, broadly speaking, how often are they part of your transactions?

We don't give our percentage out. But for the large enterprise, we see them in the lot of deals because they have a very scalable solution for that size, so they're kind of the premier partner in that area. And then they're generating pipeline right now with their Watson and GBS sales force, their global business solution, GBS. So they're out all around the world also with cognitive care offering. And as we jointly sell, so they're also building pipe for us out there.

Okay. Got it. And then just back to the $20 million transaction, just spend a minute more on that, if you would, just the term duration of the contract, but mostly just kind of interested in how repeatable a transaction of that size is. You've said for a while that there are deals of this scope out there, and they're not one-offs. But maybe spend a minute elaborating on what the customer is, use case is and why that size customer and that type use case is something you can win on a serviceable -- call it a repeatable or a semi-repeatable basis.

Yes. I mean, they -- first, this is going to be a multi-country deployment. So this is a global cable entertainment company, and we're going to deploy from Brazil to Ireland to the U.K., all around the world. So that's one part of it. The second part is they have such a large volume of calls that we know it can impact a very significant amount of that. That's why I just said from the beginning that companies like this spends hundreds of millions of dollars on phone calls. So a $20 million opportunity is actually not that big to even get started, and so that's what we see. If we look at a very large telco or a bank in the world, they're spending about $1 billion a year handling phone calls. So that's our opportunity. That's budgeted money. That's fair. That's ready to be shifted to digital. And that's our focus right now. So I don't think it's a one-off. It's a -- it's been building, as you could see, quarter-by-quarter, and we'll continue to grow those types of deals.

Okay. Then lastly, just -- I mean, certainly, you've really bulked up fairly dramatically here with respect to the talent additions and across the board. Maybe just spend a second on the CTO, CFO roles and just sort of the top 1 or 2 things that you think are going to be particular focus. The CTO, you said, globalization seems that's been going on. So I'm just trying to separate out if there is any core pivot. You chose these individuals for specific portions of their skill sets. What were the focal parts of those skill sets that you in particular really wanted?

Really -- and both of them. Well, let's start with Alex, our global CTO. I mean Alex is running the, I think, one of the preeminent user experiences around conversational commerce today. He has a lot -- he has a vision for it, and so that's exciting. He's one of the very scalable -- this is a platform that's very scalable, and he's run other scalable platforms in the past. He's run global operations. And so we're going to be -- there's a lot of, I think -- a lot of things we're going to do to invest in globalizing not only Israel and beyond right now. So we've got -- really have 5 development centers. So I think it's scale, vision and operation excellence. We're going to need to continue our pace of development, and so I think Alex has that. When it comes to Chris, Chris also has been in software. He's hold -- just is one of the premier cloud companies around data and analytics, even the health care space. But he brings a pretty rigorous operational excellence. He also was a COO there. And I mean (inaudible) great margins, and they went through their own transformation over the last year he was at IBM for a while but also very excited about the vision, understands why mobile dealings can really impact the world. And so that's what I'm looking for, is people who can come here and drive this business because I truly believe it's a multibillion-dollar revenue opportunity for us. So I'd sort of want to get ahead of it and have people that can drive towards that goal.

Your next question comes from the line of Mark with Benchmark.

And very nice job in the quarter, very strong quarter. So first question here. Rob, I was wondering if you could just talk a little bit about what we can expect with respect to your upcoming marketing activities in the coming year, particularly the customer summits.

They've been a great success for us. It's a great way to pass knowledge between our customers. So we're going to do one in a couple of weeks now out in Europe with a large partner, which we'll announce shortly. And so we'll continue to do them. I don't know -- we were doing them around one a quarter, a little over one a quarter, so we could get probably 3, 4 in this year. And then we're doing mini -- some mini-summits around that. And so that's one part. We also have started to increase -- we kind of went back in the market on digital marketing and sort of feeling the mid-market because we're seeing demand there, so you'll see more advertising on that side. But on the enterprise, we'll do 2 to 4 big events this year.

It strikes me that your customer summits are very successful. And is there something that's holding you back from maybe even ramping those up?

They're big to this. I mean they take a lot of work. If you can do over 100 -- every time we have one, there's over 100-something customers that show up. They're very, very high-end. I mean the amount of (inaudible) the value of the content, the connections, the places we do them at, we always have a -- we anchor them with a successful customer who is a -- representing their findings and their successes using our platform. Maybe we can do more than that, but if there's a, I think, a certain amount, then we'll do those, and then we anchor around those. There's a bunch of stuff and anchors around that, including all the activities we're doing with the Hunter Group and all that. So it's one part of a -- of the multi-part marketing strategy that's working quite well for us.

Okay. Great. And then with respect to your AI capabilities, currently, you're partnering with various bot vendors, including IBM. Can you see a time during the next year or 2 where you believe you're going to need to develop your own or acquire your own AI capabilities?

It's interesting. We bought this company BotCentral which has some coy AI technologies in itself. We're taking a path of being a platform, and I believe we got to be sort of neutral in this part of the technology stack. There are things that I don't want to compete in. Like, I don't want to do what Google and Amazon and IBM are doing with some natural language processing. And they're doing stuff – they're throwing hundreds of millions and billions of dollars at things that we can use. There are parts of our platform that are very specific to customer care and sales, marketing, even retail, retail stores that we need to build and own. So those are the parts we're kind of looking at on the AI side, how do we do predictive modeling around next best action around the consumers on the platform. And we want to make an offer to them, let's say, in a month from now of something related to a sales activity for our customers. So these are some things to look at, but we're trying to build a really, really vibrant ecosystem with all these bot companies. We can also, for startups, give them a home where they can enter the enterprise because of our -- we host our own facilities and the data and all the securities. So these small bot companies that may have their technology, we can put them on our platform and get them out into the enterprise. We are not going for making a giant marketplace. It's not our -- what we're trying to do, we're trying to get quality over quantity when it comes to this type of technology. But it's going to be a mix of things, so we want to keep our ecosystem vibrant.

Your next question comes from the line of Kevin with B. Riley FBR.

Just looking at your pipeline today. Could you talk a little bit about what percentage of your deals actually include mobile messaging as a component versus, say, a year ago? And then when they do include mobile messaging, what sort of win rates do you get versus kind of a chat-only deal?

I don't have a percentage, the exact percentage off the top of my head, but it's a large percentage of deals are now in messaging. The whole company is selling that. There are still chat deals that are happening in the mid-market primarily, not as much in the enterprise. Let's say, the majority enterprise deals are messaging, implementation, if not all.

Got it. And in terms of how competitive the opportunities you secured in the fourth quarter were, could you talk a little bit about whether there are any sort of common competitors across all those deals? And to what extent customers were focused more so on price versus just the references you already have in the marketplace?

Yes. I mean we're -- we still have something very unique in the marketplace. The voice providers are reacting as I expected them to, to us taking volume out of their core technology. So now they're starting to ramp up and say they've got messaging or take their chat products and try to make the messaging platforms, which is really hard to do. That's why we built a whole new platform. So that's kind of what we're seeing. The proof is in the reference, and right now we have very large-scale referenceable clients. And if you own an enterprise and you want to bet down on this, this is the real deal. You've got to -- you do implementations and trainings and all the technology and we bring a platform with partners like IBM and all that. So I think right now, we're just really ahead of anyone out in the market because we started 3 years ago building the platform. We're not sitting around. Obviously, we have such a full pipeline right now of features that are from our customers because now we understand the scale in messaging and running bots and even human agents on it. So we just got to continue accelerating our road maps and continue executing our plans.

Great. And just lastly, you talked about having kind of bots as a developed option for a lot of these customers that are deploying early. As you look at usage trends, what percentage of interactions today are kind of with virtual agents or bots? And then how do you expect that to change over the coming year?

It's still a small portion of interactions are fully automated. I would say I don't -- I'm guessing around about 20% or so or less -- much less are using bots. Human agents are still the dominant way to interact with the consumer. But that shift is changing. There are times where also we do bot-human interactions together, which is actually -- we call it the Tango, which like the best way to deploy. And so we offer that combination. If you remember, we also have, in real-time, kept something really interesting. We call it MCS, which is our sentiment analysis, which in real-time monitors a human and a bot and basically looks at the sentiment of the consumer and how they feel about the interaction. This has been very valuable on creating this Tango. So we're not -- we don't hold religion on like bot and automation. We just want to deploy the best consumer experience as possible. Sometimes, that requires automation. Sometimes, it's good to have a human interaction. The good thing is when we deploy human interaction, it's still about 40% to 50% cheaper than a human interaction with a voice call. So either way, we can win and provide value to our customers whether bot or human. I think we've been very careful about our deployments using AI and bots, that they aren't those things you see in the world that are just disappointing. And we see a lot of this on Facebook and things like that, and we're very careful when we deploy that we wanted to create a really delightful consumer experience.

Your next question comes from the line of Peter with Needham & Company.

The first question is around sales productivity. Can you talk about the, I guess, sales productivities from the second half to the first half of '17 and your expectations for '18? Just trying to gauge if we kind of reached an inflection point where kind of sales productivity given where we started -- '17, with the reps selling again and new reps that came onboard late '16, early '17. I mean, are they now contributing? And is there kind of leverage in the sales and marketing line where you are investing more in these programs, but can you kind of increase quoters? Are we kind of at that point with reps?

So yes -- I mean I think you gave a pretty good synopsis of kind of where we were and where we've been, but '17 is still about finishing off the migration. And yes, those reps will be coming productive right now selling as evidenced by the fourth quarter and having some contract-signing perspective, our largest quarter ever. We can see that the ARPU is growing as well. So all those give us an indication that things are going in the right way. And from an investment perspective, we talked about the Hunter, which, again, just gives us another focus on bringing in new logos into the fold. But as we go into '18, those reps are getting more productive, and they will continue to get more productive into '18 and beyond. We will continue to make investments in the sales organization. So that's why we talked about hiring those specific countries. We think that's important to get those news logos coming into the top of the funnel. And as you know in our past, those new logos come in, and we continue to expand those new logos from either signing additional lines of business with our logo, or continuing to go deep. So we've got a pretty good strategy as we go into '18 and beyond to fill up the top of that funnel with those new logos. So we're excited about the opportunity as we go into 2018. And everybody's focused on selling It's not -- the word migration does not exist.

Good to hear. Last question is -- great job on your technology partnerships, but where do we stand today in terms of bringing on more of those traditional sales partnerships? Or if you can talk about strategy you have in play to kind of get some of those guys onboard for the year.

I think you'll see for this year is a focus on some of the large, call it, systems integrators (inaudible). But I would say the technology integrators that are out there, the big ones who are all interested in how do you do the things we're doing with Sky and all these other companies. So I think they'll open up a big channel for us in selling, and that's kind of a focus because they're doing big, strategic work with these enterprises, and that's where we're putting a lot of our focus down. There is also an interesting part on the call center side, if we can get to the vision of transforming the call center, not just with our customers on top of third-party call centers. We have partnerships with these guys today, but if we can transform them to become more bot-centric and managing bots and crafting bots, I think there's an opportunity to even impact that industry which had a lot of pressure on it for many years. So I think these are the 2 areas that we are very interested in and that we see a lot of interest in us, and that's where we'll sort of put our focus this year.

Your next question comes from the line of Glenn with Ladenburg Thalmann.

Most of the things have been touched on already, but I'm curious, you guys have -- the previous questions kind of talked a little bit about this, but one thing that stood out in Chris' hiring in his bio was just a strong M&A background. Can you give us a sense of how active you guys are as far as looking for acquisitions? And would they be kind of tuck-in technology-type things or kind of expanding -- trying to expand out perhaps new verticals or something like that?

We traditionally bought companies in the technology side, like small tuck-ins, to accelerate the platform. Right now we're just kind of looking out there, looking especially in the AI space and the bot space, and so we are curious about that area. Right now we don't have any imminent plans to do anything. We're very focused on organic growth and fueling organic growth. We built our own platform, so we just focus on execution. And I don't really want to disturb the good work we're doing right now and have to do some giant integration or something, so it's not really in our plans right now.

(Operator Instructions) Your next question comes from the line of Koji with Oppenheimer.

Just got a question on bot technology here. It really seems like bots are becoming very commonplace here in the U.S. I'm beginning to see them all the time here. And I guess just thinking about internationally, with international being almost 40% of the business, I was wondering if you can give some big picture commentary on bot technology acceptance internationally. Is it similar to what we see here in the U.S.? Or are there any major differences to point out?

Yes. I mean, it's a -- there's this much demand for bots and AI outside of U.S. I did this trip at the end of the year around Asia to our offices over there and many large telcos and banks between Japan and Australia. And yes, it's not a U.S.-centric thing. It's basically a global concept. And I think what's interesting about it is not the concept of a bot because bot really needs automation. It's more of, intuitively, we feel like we're a conversation with something. We could get a business transaction done as a consumer. And so why it's so intriguing to everyone is not the technology. It's really the -- it's resonating inside of people that automation and build a website and they'll come in one click. It's not delivering on what it was supposed to do. But the concept that a human could have a conversation with someone, ask a series of questions and get those questions answered through an automated service, it seems to be a user experience that all those think is natural. And I -- so that's the human experience. So globally, no matter whether you're in Japan or Singapore or China or the United States or wherever, we have a sense that conversing with a user experience will allow us to get a transaction done. And this is why it's a global phenomenon. Now implementing bots is the thing that -- it's a work in progress. We actually created design group now, in the company, that works with our largest customers and does like multi-day workshops on designing conversational flows. And we even have a -- we hired a guy who did a Barbie doll. There's a talking Barbie doll a couple of years ago. Now he's working here, and he's helping customers build those conversational flows. So it's exciting. But I think, once again, it's resonating with something as a human that we need to converse to get a business transaction done, and that's why it's a universal thing.

I just got -- Dan, I got one question for you. ASC 606, I apologize if there's any comments already on that before. But maybe some high-level commentary on any potential headwinds or tailwinds on how that is affecting the 2018 profitability guidance.

So Koji, that was Rob that gave the response so...

I'll give that over to Dan. It's his last call.

So we're still going through the process of ASC 606, but we've done a lot of the initial work over the last couple of quarters, and we don't expect any headwinds or tailwinds that don't matter for ASC 606.

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

So before we go -- and this is Robert this time. I just want to thank Dan for the past 6 years, all the work that he's done. Honestly, he joined as we started to pivot. And as a public company, pivoting is never an easy thing. And there were many calls where we were sitting here and looking at each other and just wanted to get through the call and get to the next day. But I want to thank him for all the service that he did for the company over the past 6 years, and I want to wish him luck in all his new ventures. And as a company, I want to thank him for his service. And so thank you, Dan.

Thanks, Rob. Thanks very much again.

And for that, we'll see you on the Q1 call.

Thank you.

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