LivePerson Inc (LPSN) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's First Quarter 2022 Earnings Conference Call. My name is Kyle, and I'll be your conference operator today. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference call over to Ms. Jamie Goldstein.

Thank you, operator. Good afternoon, and thank you all for joining us today.

On the call with me are Rob LoCascio, LivePerson's Founder and CEO; and John Collins, Chief Financial Officer. 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 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 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 non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures are included in today's earnings press release, where applicable. Both the press release and supplemental slides, which include highlights for the quarter, are available in the Investor Relations section of LivePerson's website.

Finally, I'd like to remind everyone that we are here today to talk about our first quarter of fiscal year 2022. As you may be aware, a shareholder has announced its intent to nominate candidates for election as directors of the company's 2022 Annual Meeting of Stockholders. The company intends to file definitive proxy materials relating to the 2022 Annual Meeting in due course. Stockholders of the company are strongly encouraged to read the company's definitive proxy statement, the accompanying proxy card and all other documents filed with the SEC carefully and in their entirety as they contain important information. Information regarding the identity of the company's participants and their direct or indirect interest by security holdings or otherwise will be set forth in the definitive proxy statement and other materials filed by the company with the SEC. Stockholders may obtain copies of these documents for free through the company's website or through the SEC's website at www.sec.gov. We will not comment further on this matter on this call. We appreciate you keeping your questions focused on LivePerson's performance and results.

And with that, I'll turn the call over to Rob. Rob?

Thanks, Jamie. Thank you for joining LivePerson's First Quarter 2020 Earnings Call.

We had a very strong quarter. And what you will hear from John and myself will reinforce the progress and improvements we are making to the overall business and our focus on profitable growth goals and our continued leadership in the AI space. We beat both top and bottom line guidance for the first quarter. Revenue and adjusted EBITDA exceeded the high end of the guidance range with revenue growing 21% year-over-year to $130.2 million and adjusted EBITDA loss of $17.6 million, $4.2 million better than the top end of our guidance range. These strong results were driven by both higher revenue and greater operational efficiencies.

We signed 5 7-figure ACV deals plus 2 additional 8-figure TCV deals. Overall, deal count was solid, up slightly year-over-year. Many of these deals were very large upsells with existing customers, driving ARPU to increase 32% year-over-year as we continue to execute on our successful land-and-expand strategy. These achievements illustrate strength across the business and clear proof points of execution on the key strategic and operational priorities we announced heading into 2022, including our profitable growth plan, which have been focused on since the beginning of the year. We are confident that our laser focus on these priorities will help us maintain our industry-leading position, strategically deploying capital to generate shareholder value and get more leverage on the business model. As John will cover in his remarks, we're also improving our Q2 and full year 2022 guidance for adjusted EBITDA to reflect operating cost realignment. And we now have line of sight to generate free cash flow by Q4 2022.

John and I are excited to share more details about the progress on our Q1 priorities and our plans to continue executing on them through 2022 and beyond. We continue to see robust platform usage during the quarter with conversational cloud volume growing 34% year-over-year for AI-based messaging conversations and 27% year-over-year for total messaging conversations. As the platform usage grew, so did our brand relationships. As noted at the beginning of the call, the first quarter strong execution reflects the great progress we're making as we focus on the key strategic and operational priorities we talked about on the previous earnings call. One of these initiatives is our continued focus on evolving and adapting our go-to-market strategy to align with our goal of profitable growth.

We spent the last few quarters focused on building and ramping extraordinary sales team. And I think in the next few quarters, we'll see an increase in traction as the team's capacity starts to grow. Our land-and-expand strategy continue to bear fruit as we renewed contracts in some of our long-standing brands and leverage existing relationships with new logos. We closed an 8-figure TCV renewal for care and commerce with a multibillion-dollar North American satellite radio entertainment company during the quarter.

In 2019, we began our partnership with this brand by providing them with IVR deflection, capabilities to help manage the 24 million calls they receive each year. Since then, we become an integrated partner, leveraging our platform and gain share model to support them in their mission to offer a frictionless experience to the entire customer journey, for their customer is signing up for free tall or transferring an ongoing subscription to a new device. This deal represents an expansion with the brand across multiple core conversational cloud capabilities, including in addition, our voice analytics products. It's a great example of the product synergies and market traction we are already seeing as we execute our strategy for the voice assets we acquired towards the end of last year.

We also expanded our partner-led relationships with one of the largest automotive manufacturers in the U.K. This brand has been deleveraging the Conversational Cloud to enable a high-quality messaging experience through almost every channel to manage conversations among brands, its retailers and its customers. In Q1, we added an AI virtual assistant to assist retail technicians by suggesting methods to resolve vehicle issues immediately rather than involving human agents from the OEM. Going forward, we're also working to help increase engagement with inefficiency of their HR processes as we evolve their HR FAQ chatbot into an AI-powered virtual agent provide 24/7 assistance to their employees. This expansion is a great example of execution on our strategy to drive greater leverage in our go-to-market model with continued focus on our indirect distribution channels.

We also secured a renewal with one of the largest, biggest standing Gainshare customers in the quarter, renewal, which converts about 90% of the customer spending into recurring revenue for LivePerson was driven by the volume messaging we support for the brand with strong customer satisfaction there seen using our platform and our automation capabilities. We continue to make headway in the growing Web3 space and have quickly become the go-to-messaging provider for customer care in this vertical, including having one of the largest Web3 exchanges and also one of the largest Web3 wallet providers as a customer. During the quarter, we closed a 3-year renewal of consensus and are powering their customer engagement offering for their MetaMask wallet. And so MetaMask wallet grew from 5 million monthly active users to over 30 million in just 1 year, they were looking to accelerate customer support capabilities to meet consumer needs.

We started with a consumer support bot to help users quickly access content to help resolve their needs faster without back and forth on e-mail. The LivePerson and consensus teams continue to collaborate on optimizing the AI automation, which now reduces support wait times by 93%. Consensus is quickly expanding to use our product -- our entire product suite into some of their lines like NFT platforms and leveraging other bots beyond what they're doing with the wallet.

We also expanded our relationship with one of the largest crypto exchanges during Q1. They are now expanding into new international markets, and we should see continued growth from them over the next few years. Some of our international markets, especially in LatAm and APAC are also seeing more traction with new logos. In LatAm, with the distribution partner, we closed an exciting new win with the government agency in Argentina, the government agency built an online portal to help its citizens access education and reduce the country's unemployment rate to increase traffic on the portal, they've been using our messaging capabilities to send 300,000 proactive outbound messages per month via WhatsApp and enable citizens to continue the conversation over WhatsApp to rent or educational courses. As of now, close to 60% of the proactive messages are reaching their target audience, a number which government considers to be a huge success. This story, along with many other, highlights on this call represents incredibly wide span of use cases and projects that can be built on the Conversational Cloud.

In addition to these wins, I want to highlight that we were thrilled to have hosted the return of our popular in-person executive community events last week in New York City. Close to 100 participants from many of the leading consumer brands in North America, of which approximately 2/3 were new prospects and 1/3 existing customers. Several of our top brands in the health care, retail, software and hospitality spaces presented on stage about their successes in working with LivePerson and now they're leveraging our AI platform to drive automation across many different powerful use cases. It was our first large customer event since 2019, and these events in the past have proven to drive meaningful deal flow. We're hosting another one in London in a few weeks and will add events during the year in alignment with the impact in sales pipeline.

Beyond our achievements and strength in our core messing business, we are focused on 2 main areas of platform expansion. The first is extending our platform to include voice and voice AI. As you know, brand-to-consumer conversations take place today across both messaging and voice channels. We are executing on our strategy of bringing a powerful unified AI-based consumer experience across both voice and messaging. We've been organically building the foundations of voice natively into our platform and that made the acquisition of VoiceBase to accelerate high-quality voice analytics and natural language understanding, or NLU, within our platform. The power of the combined LivePerson VoiceBase solution is demonstrated by global technology and business services client that use VoiceBase conversational insights to increase conversion rates by 104% and inform real-time agent assist and coaching that reduces agent attrition by 39% in just 4 months across both voice and messaging.

The second area of focus is extending our platform so that it can be fully integrated into critical third-party systems that exist in the enterprise today. With the acquisition of Tenfold and our integration hub, we can now help companies connect with the Conversational Cloud with hundreds of integrations, and we're leveraging Tenfold's flexible user interface to extend our core messaging capabilities into other agent workspace and CRM platforms like Salesforce and Microsoft Dynamics. The focus of this acquisition is to integrate across a myriad of technology applications so that we can greatly expand the amount of use cases we can automate for brands. A good example is a Fortune 100 software company that leveraged Tenfold across their global services operations to integrate Genesys, Microsoft Dynamics 365 and ServiceNow. By connecting customer communications into their consumer data and case management systems, they eliminate 30% to 57% of manual steps across dozens of common call scenarios for thousands of agents leveraging Tenfold contextual UI and workflow automation capabilities.

Another benefit of the Tenfold acquisition is that we have strengthened our team's expertise in developing a strong technology partner ecosystem. And the founder of Tenfold or a co-founder of Tenfold is now heading up this team globally. This is important to us as we execute on our strategy to empower brands and partners to extend the Conversational Cloud with integrations and interoperability with the broader care and commerce systems. We are starting to see demand generation momentum with strategic technology partners, a new source of opportunity for LivePerson consistent with the strategy we discussed previously to drive more leverage in our go-to-market motion through distribution and technology partners.

As we announced last year, we have executed on our strategy to bring together the expertise and technology of VoiceBase and Tenfold with our own voice offering, and we're creating a uniquely unified, deeply integrated voice and conversational AI platform. We successfully launched the comprehensive global sales enablement for Tenfold and VoiceBase, which we expect to accelerate pipeline growth in Q2 and beyond. The key voice win for the quarter is a 7-figure multiyear deal with a telco that's already in expansion discussions with us to include other parts of their business. There is widespread demand for unified consumer experiences with a clear preference for brands that connect across channels and connect the history of their interactions. 87% of consumers prefer brands that connect voice and messaging together. We have already been leveraging VoiceBase and Tenfold to help brands gain complete ownership and visibility over engagements across all of these channels and drive scalable, profitable growth for LivePerson as we are cross-selling and up-selling into these opportunities.

Now I'll turn to health care. Another strategic priority has been continuing to build out the health care vertical on our Conversational Cloud. As today, it's our third largest vertical behind banking and telco. Third-party research estimates that American telehealth market is expected to grow to over $43 billion by 2026 at a CAGR of over 28% for software and services. And just like customer care and commerce, we view the application of conversational AI to the health care verticals and natural extension of our core platform. We've been expanding our position in this space over the past 2 years, signing 4 of the 5 largest health insurance providers in the U.S. and the leading consumer health solutions company to build conversational AI services, and we continue to see substantial opportunity to dive deeper into health care vertical, given the strong relationships with our customer base, increasing demand for conversational AI.

In order to accelerate our health care offerings, we acquired a company called Wild Health during Q1. Wild Health was founded by a group of medical professionals and technologists who built an underlying AI-based medical data platform called Clarity, which uses machine learning algorithm and secure and compliant way to gather consumer health insights. This platform is intended to underpin our overall health care offering so that insurance companies and other medical professionals who are key clients and prospects for us in the B2B health care vertical can use our core conversational AI platform to scale patient interactions. We see huge growth potential in this business and are excited to play a part in what we believe is the scalable technology-driven platform for the future of the health care space.

In order to service the health care space, I cannot overstate the importance of having a leadership team with vertical IP expertise like Wild Health has today. I believe it will give us a path in becoming the best AI platform, both for health care providers and insurance carriers so that they can use AI to drive a fundamental change in the broken flows of patient engagement. In line with this broader vision, our continued focus on the health care vertical during the quarter led us to expansion with a major online marketplace for health insurance in the U.S. as well as one of the top 3 health insurance providers in the U.K. We're helping Bupa Global cut costs by converting some of the 430,000 customer service calls they receive each year related to referrals, medical guidance and claim information to messaging conversations via their website and mobile apps. This expansion was driven by the excellent message experience reported by other brands in the Bupa family, particularly in the Australia region.

In closing, the strength of our company can be found in our culture and the people who work here each day. I'm really proud to announce that LivePerson was recently named Fast Company's #1 most innovative AI company in the world as well as its #21 most innovative company across all industries. LivePerson was also recently ranked as a leader out of 19 vendors in Quadrant SPARK Matrix for digital first customer care solutions, we were ranked #1. We also kicked off 2020 with the golden Stevie Award for Best Contact Center solution, and we were honored to once again be recognized on Built In's 2020 Best Places to Work list, earning 8 awards countrywide and for our hub locations in New York City and Seattle.

These are incredible accomplishments and testaments to the work that we have done to maintain our industry-leading position, pushing the cutting edge of conversational AI and empowering brands to build entire businesses on the Conversational Cloud. These rewards are also on the back of us winning Newsweek's top 100 places to work last year, reinforcing the strength of our company's culture and representing another proof point in our ability and agility to focus our investments in our people and our products. We continue to make progress and improvements in the overall execution of the company. I'm very excited about what happened in Q1 and what we're seeing coming up in the next couple of quarters.

And with that, I'll now turn the call over to John, who could do a deeper dive on the financials and our guidance. John?

Thank you, Rob.

In the first quarter, we executed on the plans we previously announced to adopt a balanced approach to growth and profitability. To that end, we delivered $130.2 million in revenue or 21% growth year-over-year, which was $3.4 million better than the top end of our guidance range. As for profit, adjusted EBITDA was $4.2 million better than the top end of our guidance range despite absorbing the fully loaded cost of our fourth quarter acquisitions and go-to-market investments. The improvement in adjusted EBITDA was driven by both revenue overperformance and optimization of our cost structure, including realizing post-acquisition cost efficiencies and narrowing the focus of R&D to prioritize core growth drivers, including messaging, AI and analytics and post-acquisition integrations. As I'll elaborate on shortly, we expect the cost reduction program we initiated in the first quarter, which we're continuing to execute in the second quarter to significantly alter our full year profit trajectory by improving non-GAAP gross profit margin to at least 70% and by moving adjusted EBITDA into positive territory.

Beginning with our reporting segments. Within total revenue, B2B grew 22% year-over-year in the first quarter, and revenue from hosted software grew 27%, while revenue from professional services declined 3% year-over-year due to the timing of several in-flight projects. We expect a significant sequential and year-over-year increase in PS revenue in the second quarter. From a geographic perspective, the U.S. revenue grew 27% year-over-year and represented 67% of total revenue, while international revenue grew 10% year-over-year and represented 33% of total revenue. Finally, growth in the consumer segment was approximately flat at 1% year-over-year.

Consistent with past quarters, expanding our partnerships with existing brands was a key theme in the first quarter. We signed 5 deals worth at least 7 figures in ACV in the quarter, 4 of which were expansion. As Rob noted, we also signed 2 additional 8-figure TCV deals. These large wins, including the 8-figure health care deal that we discussed on the last earnings call, drove RPO to a record $448 million, which was an increase of 23% sequentially and 35% year-over-year. Revenue retention was within our target range of 105% to 115%, marking the 19th consecutive quarter that this metric was within or above that range. Average revenue per customer improved $645,000 -- to $645,000, up 32% year-over-year driven primarily by deep integration and sustained expansion in our enterprise base. Total messaging volume on the Conversational Cloud increased 27% year-over-year, and AI-powered messaging volume increased 34% year-over-year on top of an extraordinary base 1 year ago. The continued growth was driven primarily by growth in travel and hospitality, financial services, telecommunications and health care.

Moving down the P&L, adjusted EBITDA in the first quarter was a loss of $17.6 million, driven primarily by the fully loaded cost of hiring and acquisitions in the fourth quarter. With a focus on profitable growth in the first quarter, we made meaningful improvements to our cost structure that contributed to the $4.2 million improvement relative to the high end of our guidance range. Cost reductions in the first quarter were primarily attributable to reducing noncore R&D and realizing post-acquisition cost efficiencies through the consolidation of general and administrative, sales and marketing and research and development functions in addition to shared hosting and infrastructure with our newly acquired companies. We expect these improvements to our cost structure to be themes that continue to unfold over the remainder of the year and to be the primary drivers of positive adjusted EBITDA that we now expect for the full year. In terms of cash, we closed the quarter with $481 million of cash and cash equivalents, a decrease of $41 million from the previous quarter, which was driven primarily by capital expenditures and operating expenses, both of which we expect to reduce over the remainder of the year.

I'd like to take a moment to provide an update on 2 variable lines of business that have had a significant influence on our growth and margins over the last 2 years, beginning with Gainshare. As discussed on our previous earnings call, over 90% of the portfolio is now recurring revenue and primarily secured by multiyear commitments, enabling greater control and visibility over the business and its impact on the broader P&L. As we indicated previously, we expect the Gainshare revenue would be 10% to 12% of total revenue in 2022, and this aligns with the first quarter results and our current full year outlook. As for Gainshare's impact on margins because there is a ramp inherent in the Gainshare model due to the reliance maybe to build bots and automations for customers, which is heaviest in the first 9 to 12 months following deployment. We are targeting a long-term gross margin of approximately 60% for the Gainshare portfolio compared to greater than 70% for the broader platform.

Regarding the other variable line of business, last quarter, we forecasted a deceleration in our COVID-19 testing business due primarily to the January 2022 Supreme Court ruling, blocking OSHA's anticipated testing mandate for employers. As discussed last quarter, we saw an abrupt end to our sales pipeline for this particular product line and anticipated that testing revenue from our last material customer for COVID testing would exit the P&L in the second quarter of 2022. We're reaffirming there have been no changes in this regard and that the guidance I'll discuss shortly fully reflects the step down from this revenue source. Considering the lower margin profile of the COVID-19 testing business, we expect gross margins for the broader P&L to improve going forward. I'll note that we're extremely proud that the platform health is one of the largest things in the world safely reopened its branches and offices during the pandemic and that the technology innovation and relationships we've built to deliver this solution are now enabling us, as Rob described, to drive expanded opportunity in the key vertical of digital health care.

I'd also like to spend a few minutes expanding on an update for voice from an operational standpoint. We're leveraging our newly acquired voice and integration capabilities from VoiceBase and Tenfold and after enabling our global field with the knowledge and tools required to qualify and close voice-related opportunities, we're observing a meaningful impact on pipeline and expect this trend to continue. For example, in the first quarter, we closed a multiyear 7-figure deal with a Fortune 500 telco for voice analytics, expanding their initial use case with VoiceBase from stand-alone redaction services to the full suite of analytics products. Further, we also expect voice analytics to enhance a large multiyear renewal with one of LivePerson's long-standing telco brands in this quarter. Building on top of the Tenfold platform and its flexible embedded agent workspace, we're also launching an embedded messaging experience with a leading CRM platform in the second quarter. We expect this strategic integration to enable brands to benefit from the power of the LivePerson platform without changing their preferred desktop experience. We expect similar integrations to roll out in the coming months, adding leverage to our go-to-market motion.

Given the secular trends driving demand for analytics and automation, we're also focused on addressing what would perceive to be a critical gap in the market, an omni conversational analytics platform. Through the combination of analytics capabilities across VoiceBase and the Conversational Cloud, we are providing a unified platform for consumer-based conversational analytics across a broad spectrum of channels. We're already working with a leader in back office automation to unlock process automation for the front office by combining their platform with our rich structured consumer engagement data and analytics.

Turning to full year guidance. While we overperformed on revenue in the first quarter, much of the overperformance was attributable to the timing of revenue between the first and second quarter. For this reason, we believe that the guidance range we provided last quarter still appropriately captures the business and market dynamics visible to us today. As a result, we are reaffirming the full year revenue guidance of $544.8 million to $563.3 million or 16% to 20% year-over-year growth.

As for guidance on full year adjusted EBITDA, consistent with the strategy to deliver profitable growth that we announced last quarter, we have already taken action to optimize our cost structure and materially improve our profit trajectory. As a result, we are raising our guidance for adjusted EBITDA to a range of $1 million to $10 million or a margin of 0% to 2%, and we now expect to generate positive free cash flow in the fourth quarter of 2022. In addition, we are raising our guidance for non-GAAP gross profit margin to a range of 67% -- from a range of 67% to 70% to a new range of 70% to 72% for the full year.

For the second quarter, our guidance range for revenue is $132.5 million to $135.5 million or 11% to 13% year-over-year. Note that this year-over-year comparison and growth rates for the second quarter is a function of near-record growth in the same period last year. As our full year guidance implies, we are expecting accelerating growth in the second half of 2022. As for adjusted EBITDA in the second quarter, our guidance range is a loss of $9.5 million to a loss of $5.5 million or a negative margin of 7% to negative 4%. As implied by our full year and second quarter guidance, we expect to generate positive adjusted EBITDA in the third and fourth quarters of 2022. Finally, consistent with our full year guidance, we are targeting a non-GAAP gross profit margin of 70% to 72% for the second quarter also.

Before taking questions, I'd like to summarize several strategic themes that drove the first quarter's results and that we expect to continue to shape our performance for the remainder of 2022 and beyond. We are executing on the profitable growth plan we announced heading into 2022. We exceeded the high end of our guidance ranges for revenue and adjusted EBITDA in the first quarter and set in motion plans that we expect to drive meaningful improvements to full year adjusted EBITDA, gross profit margin and operating expenses with an anticipated return to positive free cash flow in the fourth quarter.

More specifically, during the first quarter, we executed on plans to achieve post-acquisition cost efficiencies, enhance leverage of our go-to-market motion and reduce noncore R&D, strategically realigning our cost structure, while preserving investment in messaging, AI and analytics and product and platform integrations, which we believe are core drivers of future growth. With successful post-acquisition integrations driving improvements on both sides of the P&L, building momentum across our core, including rapid expansion in our growing digital health vertical and a new outlook to generate positive free cash flow in the fourth quarter and positive adjusted EBITDA for the full year. We're excited to continue focused execution on our strategy, and we're very thankful to the broader LivePerson team for their agility and commitment to excellence.

And with that, operator, we can proceed to Q&A.

(Operator Instructions) Our first question is from Ryan MacDonald with Needham.

Robin, John, great to see the return of the in-person marketing events and some of the, I guess, good pipeline generation so far. As we think about the remainder of the year, what should we expect in terms of marketing events? And what confidence do you have that this can start to sort of rebuild the pipeline of new logo wins rather than just existing expansions?

Yes, the event last year -- last week, I was at the event and I opened it up. And they're pretty amazing events, as you know, if you've been with them in the past, having our customers up in front, talking to each other and presenting what they're doing just accelerates, especially the new logo in 3/4 the people in the room were potential new logos. So I think it will definitely do what it did in the past or has the potential to do that. I think, obviously, we're going to have one in London in a few weeks. And then from there, we'll keep going if COVID doesn't prevent it. But you can see that there -- when people come out of these conferences, they have a reassurance that working with us can enable them to do successful things. So I think we'll have the same impact as long as we can roll this out at one point we were doing, I think, close to 1 a month or so in '19. So we were using them as definitely a strategic weapon for go-to-market, and we'd like to return to that, but we'll see how it goes with everything with COVID.

Excellent. Maybe just as a follow-up. Rob, you talked some more detail about the health care opportunity and it being a large vertical for you. I mean first, on Wild Health, I think from at least from the website, it looks like they had more of a direct-to-consumer go-to-market motion. Can you talk about the investments you need to make to sort of shift that to be more of a B2B offering over time? And then what sort of demand are you seeing from some of the larger payers that you currently have as customers for sort of additional opportunity or selling motion there?

Yes. They already today provide their platform to other medical professionals. So they have a platform, they license it out. And so that platform is there, and that's the platform called Clarity. So we have this platform that takes the disparate data that comes off of a person's body, and we can put all that into a single store and then create connections before -- that's connections between that data. And then provide conversational AI, consumer experiences. So when you get into health care, as probably many of you know, it's a different vertical than any other vertical we have, having the right platform for the consumer data, having a way to bring that data together and do actionable insights into it is really at the heart of what we're doing. There is a direct-to-consumer play as part of that, and that's how they've learned how to build the technology they have. But that platform will be used as a core data platform using machine learning to correlate the data the consumer for the entire health care vertical. So we're very excited about it.

Our next question is from Mark Schappel with Loop Capital.

Rob, if I could just start off with a question on your international business. For a couple of years now, the company has been trying to raise its overseas growth rate to closer to that of the U.S., yet the international rate continues to lag the U.S. by about half. And I was just wondering if you could just give us a sense of why you think that is? I mean would you attribute this slower growth just due to internal issues or matters? Or would it be more of a structural issue with overseas markets?

I think it's just investments. Our largest market is still the North American market, and we put a lot into it. If we look at even what we're doing in LatAm, we fired that market up 2.5 years ago. We have about -- in that entire market now, we have partners there. We have a robust group in the U.K. We made an acquisition of e-bot7 that gives us feed on the continent in Germany, France and then we've got what we have in Australia, Singapore and then Japan. So it's really investments into these areas, and the North American market continues to be a focal area of ours when it comes to return on investment. We're seeing a lot of volume in South America. So like Brazil as a country is a WhatsApp country, and there's a lot of opportunity there on the WhatsApp messenger to power that, and we're doing that. We saw the use case with the Argentinian government and what we're doing there. So I just think it's about a focus on investment and we're probably going to hold where we are right now, once again, focus in markets that are big. We are investing in these areas, but it's really about the focus on investment.

Okay. Great. And then as a follow-up, with respect to the sales force, if I recall correctly, there were 144 quota carriers at the time of the fourth quarter earnings call. How many quota carriers do you have today? And where do you see that number going by year end?

It's a similar amount today -- sorry, John, do you want to hit that?

Go ahead, Rob.

It's a small amount today, what we are -- we'll probably add a little bit more quota-carrying capacity because we're looking now into next year and what we'll need for next year. So there are more heads that we'll look to add, not a tremendous enough, but enough to cover what we think we're going to need to build pipe to get to next year's goals. So we're looking at that right now, but it's pretty much steady state where we are.

Our next question is from Siti Panigrahi with Mizuho.

This is Abhinav on for Siti Panigrahi. Great quarter. I just wanted to ask a question about what you're looking at in terms of the competitive environment for live chat, especially as you mentioned looking to integrate your offering into a large RCR in this quarter. We see HubSpot launching Live Chat, if you had small vendors launching as well. How are you thinking about competitive environment looking ahead?

Yes. I mean, we've always had 2 sets of competitors. We have the call center companies that are primarily voice and then they've added chat or messaging. We still have the best asynchronous messaging platform out there. It's very different than the chat platform, but we are competing with them. We're adding voice capabilities now into the platform to take the voice traffic. It's kind of a direct -- going up to them directly at their core businesses. And then we've got the AI automation companies, which is Google and Amazon, and we partner with them sometimes. Sometimes they're inside of our platform. We deliver their AI by our messaging platform. Sometimes we compete with them. So those are really the 2 steps.

I think the big change, though, is that in 2022, we actually -- in 2020, we renamed the platform from LiveEngage to the Conversational Cloud. And we really envision that this -- the conversational user experiences would be embedded as a platform in many different opportunities even beyond customer care. So I think this year is really about that. How do we open the platform up? It's sort of a walled garden. It's got a lot of APIs. It's got a lot of tools. But our ability to open it up and even in our Tenfold acquisition was part of that because we wanted embedded in many different other systems like we want to be inside of Salesforce. We would like to be inside of ServiceNow, and we can have our agent console inside that with the Tenfold acquisition. So we're out of place in the maturity of the market, where even our customers just want the stuff embedded in other systems beyond our own. So there's a big focus right now on extending the platform capabilities so that we go beyond just a vertical playing customer cap per se.

Our next question is from Samad Samana with Jefferies.

This is Mason Marion on for Samad. So if I'm doing my math correctly, guidance implies about 20% growth in the second half of the year for total revenues. Can you just walk us through what are kind of the key assumptions and factors give you the confidence you can reaccelerate off the 12% you guided to in 2Q?

Yes. The 12% in the second quarter is really just a function of hard comparables where we had record -- near record growth in the second quarter of last year. Remember, we had sequential improvement from Q1 to Q2, that's roughly in line with past sequential improvement. And considering the ramping sales force that we've discussed previously, along with other tailwinds that we discussed in the context of voice, we have clear line of sight today to accelerate from where we are in Q2.

Okay. Understood. And you had a nice step-up in RPO this quarter. What were the drivers behind this?

Yes, continued signing of large deals as we described, right, large renewals, large upsells and the 8-figure health care deal that we had discussed on the last quarter.

Our next question is from Arjun Bhatia with William Blair.

This is Chris on for Arjun. I just wanted to dig in a little more on some of the strategic rationale behind the Wild Health acquisition. So we've touched on a bit of on the product side where that fits in. From a personnel standpoint, are you planning to retain the majority of Wild Health personnel? And what role can they play as LivePerson moves into some more technical health care domains like precision medicine?

Yes. I mean we're keeping the team. It's a little bit more than half technologists. So you have data science, engineering, user experience and all that. And then on the other side, you've got the pure medical professional science because you're looking at the data of the consumer. So we are keeping it and we'll be -- continue to grow it. And it is growing nicely as a group. It really is about health care. When you think about health care and customer care, they're quite similar. It's labor-intensive, humans talking to humans all the time to get advice, to get answers on their insurance. And it's all around our personal data. And so the system of health care is consumer personal data, their health care data. And the most important thing we can do is have a platform to store that data and make use of that and then provide these conversational experiences off of it. So I'm excited about it. It's -- once again, the verticals are already our third largest vertical. We've got 4 out of the 5 largest insurance providers.

Precision medicine, what does that really mean? All that is about is the ability to take consumer data or person data and use machine learning to correlate that data and make recommendations on that data, and that's at the heart of AI, and so they have data scientists, they got data engineers and pure engineers, and that's why it's interesting to bring it into our platform more than interesting because we're an AI company. And if you want to go after health care, which every AI company is doing that, if you know Nuance, obviously, before they acquired by Microsoft, one of their biggest plays was in the health care space. And you could probably make a case that the reason they got acquired by Microsoft was just that. It was for health care, not their old legacy customer care business. It's the same here. We just see it as the second big vertical we can go after. And it's important for us to have a foundational group of people here that understand that because you can't win health care, especially health care.

Great. That's very helpful. And then, John, maybe one quick one for you. So you mentioned overperformance in the first quarter was a bit due to some deals closing a little bit earlier than expected. Can you give us a sense of how much of the beat in the first quarter was related to that? And was that the right way to characterize it? It was deals that were just closing a little bit earlier, maybe right on the border of 1Q, 2Q?

Yes. There's some shifting in deal closures. And as I described, there's also the last remaining sort of testing revenue between flowing into first quarter. And in terms of the total quantity, it would make up approximately the upside relative to our guidance was the timing component.

Our next question is from Jeff Van Rhee with Craig-Hallum.

Great. A couple for me. I want to go to the revenue growth and the sort of the timing around the acceleration, but maybe start with the combination of VoiceBase, Tenfold and Wild Health, about $400 million of incremental spend in terms of acquisitions. As you're now getting a little clearer look at '22, what do you think that collection of new names is going to add to the revenue picture for the year?

Yes. Jeff, our expectation for the year is that the 3 assets will contribute mid-single-digit percentage of total revenue in the year and that's approximately the same case for Q1 as well.

Okay. And then on the gross margin, that's a very material revision of the gross margin outlook. And if I look at what that implies for COGS for Q2, 3, 4, you're looking for not only stable, but it looks like declining. Just talk about what changed from the prior guide to this guide in terms of how you've been thinking about gross margins?

Just the speed with which we are able to execute on optimizing our cost structure. We've had a look at the P&L, and there's a general tightening of expenditures and consolidation of vendors. We've reduced noncore R&D initiatives and some of the technology spend that also hits COGS. We've had post-acquisition cost synergies as well that hits COGS and a consolidation of hosting and infrastructure. So there's a wide range of initiatives that we delivered on in Q1, and that will continue to unfold throughout the remainder of the year that are driving those improvements to both gross margin and, of course, EBITDA.

Okay. And then I guess just 2 quick loose ends. On bookings, I know, Rob, you've talked until the new reps get productive, you were kind of tapped out in terms of bookings capacity in that most quarters had been roughly flat recently. I just want to confirm this quarter was in that same category, roughly flat year-over-year. And then, John, just on the numbers side, stock comp looks like it was up from $22 million Q4 to $32 million in Q1. How should we think about stock comp going forward?

Yes, I'll take both of those, Jeff. So yes, approximately flat in that regard. And regarding the increase in stock comp and general usage of shares, that's tied primarily to the upfront, all stock -- the upfront component of the Wild Health transaction, most of which was stock-based.

Our next question is from Zach Cummins with B. Riley Securities.

Congrats on solid quarter. I just wanted to start off by asking about the Gainshare program. I know you mentioned in your script that you converted most of those programs to 90% recurring now. Is that a meaningful change from what we've seen in the past? And does that present any sort of kind of near-term impact versus the potential long-term benefit we could see from an increasing recurring portion?

Yes. It's definitely a departure from what we've seen in the past, but in a good way, right? In the past, most of the portfolio was entirely variable revenue, which increased variability of our broader P&L. Now with over 90% of it being recurring and a function of committed multiyear contracts that gives us a lot more visibility into the business, while not reducing growth potential. There is still variable upside in addition to the strong base of recurring revenue that we have today. So in that sense, we've really just improved the overall structure of the Gainshare business.

Understood. And then my second question is really around updates on your go-to-market strategy, specifically at the mid-market. I know that was previously expected to be a bigger driver of you returning to more meaningful growth on the new logo side. So any sort of updates you can provide on that front would be helpful.

Yes, we got focused...

Go ahead, John. So we're both remote in a different room. Go ahead.

Exactly, yes. Clearly, the physical event that we just held marketing event for the first time since 2019 is a new and very welcome addition to our go-to-market strategy, which we expect to drive incremental pipeline and new logos. As Rob said, there was a substantial contingent of the audience at the event that were new logos. And depending on the metrics that we see coming off that event, we'll host more going forward, which, of course, is a tool that we have not been able to deploy in past years. As you know, we did invest, even though we didn't reach 200 quota carriers, we invest substantially in increasing our total quota carrier count last year. Many of them are ramping as we speak. Some of those investments included increasing our total SDR team, and they have contributed meaningfully to pipeline generation in the first quarter and in the second.

The other component here is the leverage we're gaining on our go-to-market motion through strategic partnerships. We've talked a lot about how Tenfold right out of the box can kind of port our core platform into other platforms, which, of course, is what many customers demand today. So these are all relatively new levers for our go-to-market motion that we're seeing traction with.

We have reached the end of our call today. I'd like to turn the call to Rob LoCascio for closing remarks.

On the Q4 call, we are very clear about our goal to deliver sustainable profitable growth, and I'm proud of our progress and execution of this to date, and the team is laser-focused on delivering on those goals over the long term. If we step back for a moment, what has made this company unique as we have the agility even in our size and maturity to adapt as we see market conditions change. And with the short-term view, it's easy to confuse our adaptability and agility as inconsistency, especially during the past 2 years of significant global macro shifts. So I'd like to clarify how these abilities have unlocked shareholder value over the years, enabled our evolution of being named recently Fast Company's #1 AI company in the world.

Our strategy since the founding of the company has been to power digital conversations at scale. In 1997, we invented webchat and progressively evolved it to lead the industry as a feature-rich and mission-critical platform for the world's leading brands. We delivered another major innovation in 2016 with the creation of our asynchronous messaging system for brands. And then in 2018, we moved quickly to capture an even broader and deeper opportunity as conversational AI company in which we now have over 1 billion conversations per month running on our platform with over 70% of those powered by AI. So we went from a chat company to an AI company in short order.

And leading requires an operating model that enables quick access into new markets, the agility to open and close down new initiatives and the experience of knowing how to balance growth and profitability. Today, over 95% of our investments are put into customer engagement, care and the core platform, and we spend around 5% a year on new innovations, which were all intended to leverage the Conversational Cloud. So everything that we do connects back to growing conversational usage on our core platform in markets that we believe have high growth potential. For most of our 26-year history, we self-funded our technology initiatives through our own cash flow and only recently did we raise capital so we can accelerate the development of our AI capabilities. We deployed that capital into both organic and some strategic acquisitions.

Our acquisition of Tenfold, VoiceBase and Wild Health provide us with core technology to accelerate our leadership into core markets and business processes that would benefit greatly from better engagement, automation and insights powered by our AI platform. Our focus will be integrating these acquisitions now versus looking for new M&A opportunities. Doing big things like winning the #1 AI company in the world and multiple Best Places to Work recognitions even against the Googles and Amazons of the world require a strong team and a strong culture to support the 1,700 talented and dedicated people who are focused on the constant improvement and progress at LivePerson. I want to thank everyone at LivePerson and the leadership team during these unique times and for staying focused on executing on our short-, medium- and long-term goals and for delivering a beat on both the top and bottom line during Q1.

And with that, thank you, everyone, and we'll see you on the next call. Have a great day.