Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to LivePerson’s Second Quarter 2022 Earnings Conference Call. My name is Claudia Gandit, and I will be your conference operator today. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. I’d now like to turn the conference call over to Mr. Chad Cooper, Senior Vice President of Investor Relations. Please proceed.

Thank you, Claudia. Good afternoon everyone, and thank you 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. And with that, I will turn the call over to Rob. Rob?

Thanks, Chad. Thank you for joining LivePerson’s second quarter 2022 earnings call. In 2Q, we generated revenue of $132.6 million, non-GAAP gross margins were up 500 basis points sequentially, and our adjusted EBITDA was at the top end of our guidance range at negative $5.5 million, a $12 million improvement sequentially. We’re still on track to deliver positive EBITDA on cash flow by year end. Early this year, we made a commitment to prioritize profitable growth. I’m pleased to report, we are delivering margin expansion faster than expected through a combination of OpEx discipline, the improving productivity of our salesforce and focusing on more high-margin revenue. We continue to make substantial changes to strengthen our P&L by focusing on the most differentiated high-value components of our business with the greatest capacity to drive high gross margins, strong operating margins, and high-quality revenue growth. In the short term, we’ll be intentionally trading some lower-margin top-line revenue for substantial, sustainable near and long-term margin expansion and growth. Our goal is to achieve best-in-class operating and financial models, which would be near or above 80% gross margin and mid-teens or better operating margins. I’m incredibly proud of the agility and innovation that allowed us to rapidly respond to the needs of our clients in the market and to drive growth during the past two years of the pandemic, but as pandemic-driven trends normalize, we are laser-focused on our more repeatable and high-margin growth engines. As the industry leader in conversational AI messaging, we provide AI-powered customer engagement solutions to thousands of companies, including 450 enterprise brands worldwide, among them many of the world’s leading consumer businesses. Our solutions help brands cut costs while improving consumer experience and achieve measurable ROI. Our platform has reduced our brand’s customer care costs by up to 50% while increasing customer satisfaction, which is equally important. Our commerce solutions have increased annual sales by hundreds of millions of dollars for some of our customers. We do not simply automate labor-intensive tasks; we help our brands optimize their engagement with their consumers throughout the customer life cycle. We’re proud to consistently deliver measurable ROI to brands through our care and commerce solutions. We’re also excited about new applications in our Conversational Cloud technology, including moving into voice and expanding our healthcare vertical, which I’ll touch on in a moment. First on three key actions to optimize profitable revenue growth: new logo growth, expansion within existing accounts and partnerships, and opening our AI so they can be accessed on other third-party platforms. So, let’s start with new logos. We’re seeing progress with our quota-carrying reps and continue to expect them to be productive with bookings in Q4 and contributing to revenue in 2023 and beyond. In Q2, we delivered the most new logo wins we’ve had since 2020. We won 45 new logos in the quarter, which was a 55% year-over-year and 73% increase sequentially. These new logo wins are green shoots indicating that our enterprise salesforce are returning to historical rates of productivity after a change in field leadership we made early this year that made great progress at generating new land and expand opportunities. Second, we’re leveraging and extending our existing customer relationships by both cross-selling and upselling, and we’re seeing strong adoption of multiple AI and automation products. In Q2, we continued to see robust platform usage with overall Conversational Cloud messaging volume growing 32% year-over-year, and AI-based messaging conversations growing 20% year-over-year. Third, we have continued our partnership momentum to unlock expanded and indirect revenue opportunities. We added 15 unique partners in Q2, and this channel produced nine new logo deals. A few weeks ago, we announced a new partnership with Solunus, a technology company focused on improving business processes for large enterprises. Our joint offering called Contact Center Conversation Mining combines the omnichannel conversational analytics from VoiceBase and customer journey mapping and back office execution management from Solunus. I’m also happy to note that Q2 marked the return of our in-person executive community events with extremely successful events held in New York and London during the quarter. Pre-pandemic, these events were a key element to our go-to-market strategy, and we’ve historically accelerated our sales cycles because they educate brands about the power of conversational commerce and AI generally through our existing clients sharing their real-world outcomes. In aggregate, the Q2 events directly influenced over 50 million in pipeline. From a product perspective, we are capturing incremental scale world revenue opportunities by opening up our platform. This will enable brands whose agents primarily use a third-party CRM to have conversations with consumers driven by our Conversational Cloud. This has historically been a pain point for brands and has been a key component of our product roadmap. Our acquisitions of VoiceBase and Tenfold have accelerated this initiative. VoiceBase is being integrated into the core analytics of our platform and Tenfold is driving the overall go-to-market strategy work with CRM and other enterprise technology platforms. We’re unifying our voice strategy from a standalone business unit to an integrated part of our broader portfolio. This provides a clear value proposition for our sales team as voice becomes a key channel within our Conversational Cloud. With VoiceBase, we’re digitizing the voice channel so we can extend the benefits of our conversational AI platform into it. This enables brands to not only meet consumers on voice if that’s their preferred channel, but also extract AI-powered insights from this traditionally analog channel in real time. These insights can also be analyzed post-conversation to help brands better serve their customers. Tenfold and VoiceBase both play key roles in the strategy that enables us to extend these capabilities to voice providers like Avaya, Cisco, and Genesys, just to name a few. As I turn to some of our top customer wins in the quarter, I’d like to highlight how each reflects how brands recognize LivePerson’s ability to deliver tangible value. Even as current economic conditions are driving brands to assess cost savings, consolidate technology stacks, and deprioritize all projects that do not have direct impact on savings or revenue growth, these are some of the most innovative brands in the world. They’re working with us to cut costs while simultaneously improving the customer experience through automation and AI. We signed five seven-figure deals and achieved a total deal count of 104 deals in the quarter. Utilizing our rich data set, we also are able to target vertical industries with repeatable AI and automation strategies. In Q2, we signed one of the largest new logo deals in our history with Capitec, the largest retail bank in South Africa with approximately 19 million consumers. Capitec originally came to us from an initial use case with VoiceBase. However, we were able to show them that they could go further automating their customer experience over WhatsApp, as well as take advantage of the power of VoiceBase for real-time insights into their consumers' experience and banking operations. This is a seven-figure three-year deal that, even more importantly, provides us with a referenceable customer in an important new geography with a new use case. This is a great example of our new logo initiatives and rich product synergies. Following last year’s acquisitions, we are driving revenue expansion as we execute on our plan of profitable growth. We also won a large multi-deal with Canada’s largest bank, being selected over two of our major competitors. The client chose LivePerson for our ability to reduce the cost of servicing customers and open the virtual doors of the bank to new account growth by managing the entire consumer journey through our messaging, AI, and automation. On the renewal front, we signed a large two-year extension with one of our major airlines using LivePerson's platform technology. This customer makes it easy for travelers to begin conversations on their app and directly from Apple Business Chat, SMS, IVR deflection, QR codes within airports and social media. We also signed a multi-year renewal agreement with Verizon. Verizon has been a client for us for three years. They started with messaging for customer care and sales, and now they’ve expanded to leverage our AI as well. In Q2, our GainShare division signed a three-year seven-figure automation as a service contract with the largest automotive OEM finance company in the world. This deal is a great example of the type of higher-margin contract structure we are prioritizing going forward with the GainShare offerings. This brand wanted to transition from a 100% voice agent call center environment into an AI-driven digital-first contact center with the goals of supporting their consumers through automation while reducing OpEx and increasing CSAT. Finally, we’re making excellent progress on our healthcare strategy, which is one of our largest verticals behind telecom and financial services, and it’s one of our fastest-growing areas. We’re working towards delivering a very scalable solution for the healthcare market, especially around using machine learning and Conversational AI for improving patient experience and outcomes. This is a big opportunity and we are in a good strategic position to go after it. Specifically related to our Wild Health acquisition, the group is performing very well and is ahead of their revenue plan. In Q2, we signed deals with Spartan Race and USA Boxing to bring our AI and telehealth capabilities to their athletes as their official healthcare partner. As I mentioned at the top of the call, we continue to execute on our profitable growth plan announced at the start of the year, and we’re ahead of schedule delivering results faster than previously forecasted. As we embarked on these initiatives, we have found other areas of the business that we can further improve our margins and profitability and lay the groundwork for future growth. While some of these initiatives are anticipated to reduce total revenue in the near term as we deprioritize lower-margin, non-repeatable areas of the business, we continue to expect to generate positive free cash flow in the fourth quarter, positioning us well for profitable growth in 2023 and beyond. And with that, let me now turn the call over to John to discuss the detailed financial results and our revised outlook for the rest of the year. John?

In the second quarter, we continue to execute on the plan that we announced on our fourth-quarter call to adopt a balanced approach to profitability and growth. Revenue grew by $2 million sequentially to $132.6 million, or 11% year-over-year, and within our guidance range. Despite the lower revenue, adjusted EBITDA increased by $12 million sequentially, matching the top end of our guidance range. The improvement in adjusted EBITDA was driven by a $9.7 million sequential reduction in operating expenses, which exceeded the top end of implied guidance. The cost reductions were associated primarily with post-M&A integration and consolidation of non-quota carrying sales and marketing and research and development reduced costs coupled with the wind down of COVID-19 testing drove expansion in non-GAAP gross margins from 69% to 74% sequentially, which also exceeded the top end of our expectations. We expect continued gross margin expansion for reasons I’ll discuss in a moment. This year, as discussed during the last two quarterly calls, we are focused on adapting our operating model to ensure a sustainable framework for profitable growth in a post-pandemic world. To this end, optimizing our cost structure will continue to be a primary strategic imperative for the remainder of 2022 in order to position the company to deliver long-term profitable growth and to generate positive cash flow throughout 2023. In addition to expense reductions, we have begun purposefully eliminating low-quality sources of revenue in order to further enhance the overall health of the P&L. While we expect both the magnitude of the expense reductions and the elimination of low-quality revenue to impact near-term growth, we are confident that these actions will set a long-term foundation for best-in-class gross margin, significant free cash flow generation, and a return to the Rule of 40 framework. Before proceeding with the standard financial update, I’d like to elaborate on the largest sources of low-quality revenue that we’ve begun to purposefully wind down. Last quarter, we shared two significant changes impacting our revenue stack. First, COVID-19 testing revenue would be minimal in the second quarter and would roll off the P&L entirely going forward. Second, we converted over 90% of our GainShare revenue from variable to recurring secured primarily by multi-year contracts that increase revenue stability and transparency. Approximately half of this revenue is high-margin revenue derived from scalable usage of the Conversational Cloud. The other half is low-margin revenue derived from agent labor that we supply to our customers via contractual arrangements with BPO partners. Consistent with our goal to optimize the overall health of the P&L, we have begun eliminating this labor-based revenue from both our sales pipeline and existing customer agreements, which we expect to contribute to a temporary slowdown in revenue growth in the second half of 2022 while turning down growth accretive revenue sources. This decision was an easy one. This move will simplify the business model materially, expand our gross margin and enable us to focus management and resource allocation on our most strategic and scalable sources of revenue growth, such as automation and messaging. In the second quarter, GainShare represented 11% of total revenue, which was in line with the expectations we set previously. However, going forward, we expect this percentage to contract as we wind down labor-based revenue. Over the long term, we expect these related changes to the business model to drive the expansion of non-GAAP gross margins to at least 80%. Turning to our reporting segments for the second quarter, within total revenue, B2B grew 12% year-over-year – hosted software was approximately unchanged year-over-year, and professional services grew 95% year-over-year. Within revenue from hosted software, lower revenue from GainShare and COVID-19 testing offset increased revenue from other customers relative to the comparable period last year. As a reminder, COVID-19 testing was expected to be minimal in the second quarter and going forward. In terms of professional services, recall that PS revenue declined 3% year-over-year last quarter because several large projects pushed into the second quarter. This dynamic is driving the substantial year-over-year increase. The largest PS project relates to the eight-figure healthcare deal we signed last quarter and is focused on automation as a service for healthcare delivery companies. From a traffic perspective, U.S. revenue grew 12% year-over-year and represented 68% of total revenue, while international revenue grew 9% year-over-year and represented 32% of total revenue. Finally, revenue from the consumer segment declined 7% year-over-year, which was a function of a hard comparison to pandemic-driven growth in the second quarter last year. As Rob mentioned, we signed five seven-figure deals in the second quarter, two upsells and three new logos. RPO increased 18% year-over-year to $409 million, and net revenue retention was just below our target range of 105% to 115%, driven primarily by lower variable revenue and labor-based downturns in the GainShare portfolio. Consistent with the strategy for GainShare that I described a few moments ago, we expect modest pressure on net revenue retention in the short term given last year’s large revenue contributions from variable revenue and labor-based GainShare customers. Average revenue per user improved to $660,000, up 23% year-over-year. Total messaging volume on the Conversational Cloud increased 32% year-over-year, and AI-powered messaging volume increased 20% year-over-year. Our strongest verticals this quarter were retail, financial services, and telecommunications. In terms of new logos, we signed 45 in the second quarter, which was an increase of 55% year-over-year and 73% over the first quarter. The traction in new logo acquisition validates the progress we’ve made on rebuilding the foundation of our go-to-market motion, including the strategic focus on acquiring new logos. Considering our robust ability to rapidly expand with our base, which has been a primary growth driver over the last two years, new logos represent an exciting leading indicator of future expansion in revenue. As discussed last quarter, integrations with strategic partners is another foundational component of our scalable sales motion going forward. By increasing the breadth and simplicity of open APIs and third-party integrations, we’re ensuring that customers on other platforms have rapid and seamless access to LivePerson's best-in-class capabilities across automation, messaging, omnichannel, conversational analytics, and other unique innovations that improve customer engagement and reduce reliance on human agents. As Rob mentioned, we recently announced a strategic technology partnership with Solunus to integrate conversational analytics into its data processing and execution management platform. In addition, Contact Center operations that primarily depend on third-party CRM platforms can now leverage messaging and automation capabilities through scalable integrations with the Conversational Cloud. Of course, VoiceBase and Tenfold are at the core of this strategy. Moving down the P&L, adjusted EBITDA was at the top end of our guidance range at a loss of $5.5 million in the quarter. The upside, as described, was driven by solid execution on our profitable growth plan, including expense reductions, which are part of a broader restructuring plan focused on the following areas: post-M&A integration and consolidation, non-quota carrying sales and marketing, and research and development. Turning to full-year guidance with a focus on adapting the business model for profitable growth. We are making choices that will slow growth in the short term in order to materially improve our unit economics, profitability, and overall financial profile in 2023 and beyond. Critically, these moves will also enable us to focus strategy and resource allocation on scalably delivering the automation, messaging, and related customer engagement outcomes that set LivePerson apart from other platforms. As a result, we are revising down our guidance ranges for revenue to $507 million to $518 million, or 8% to 10% year-over-year growth. As for full-year guidance on adjusted EBITDA, despite the lower revenue, we remain committed to generating positive adjusted EBITDA in the year and positive free cash flow in the fourth quarter. These outcomes are made possible by swift and thoughtful decisions in the first and second quarters to right size our expenses. I think it would be helpful to recap how execution on our profitable growth strategy has manifested in our results and expectations. When we initially set guidance for the full year, we expected a loss of $10 million adjusted EBITDA at the midpoint, which implied $560 million in operating expenses. Last quarter, we improved the outlook to positive adjusted EBITDA implying a reduction in operating expenses. Now, by reaffirming guidance for adjusted EBITDA in the range of $1 million to $10 million, we’re implying zero to 2% margin for the full year with operating expenses at approximately $507 million at the midpoint. Committed execution on our profitable growth strategy is transforming our business model to generate meaningful profit and cash in 2023. As I discussed earlier, the elimination of low-quality revenue coupled with continued optimization of our cost structure are expanding our gross profit margin. Our initial guidance for non-GAAP gross profit margin for the full year 2022 was 67% to 70%. We raised that guidance to 70% to 72% last quarter, and we are raising it again to 72% to 74% for the full year 2022. In the long-term, we expect continued expansion of non-GAAP gross margins to at least 80%. For the third quarter, given the purposeful P&L optimizations we are driving together with the continued ramping of our sales force, we expect revenues to be in the range of $120 million to $123.6 million, or 1.8% to 4.5% year-over-year. As for adjusted EBITDA in the third quarter, our guidance range is $0 million to $4.3 million. We’re also expecting non-GAAP gross margin in a range of 72% to 74%. Before taking questions, I’d like to quickly emphasize several key themes for 2022 and how continued execution on our profitable growth strategy will position us for 2023. We have made strong demonstrable progress on rebuilding our sales motion, including a 73% sequential increase in new logo acquisition. We’ve also taken concrete steps to expand our partner strategy and open the platform to create new sources of indirect revenue and ensure our best-in-class customer engagement solutions are driving differentiated outcomes in the wider CX ecosystem. Consistent with our previously announced profitable growth plan and the goal to further strengthen our P&L for the long-term, we are continuing to optimize our cost structure and purposefully trading some lower-quality revenue for a stronger financial profile with sustainable, higher-margin revenue in 2023 and beyond. Collectively, solid execution on our profitable growth strategy is transforming our business model, positioning us to generate meaningful cash in 2023, expand non-GAAP gross margins to a best-in-class long-term target of at least 80%, and focus resource allocation on more strategic, differentiated, and scalable sources of revenue growth. And with that, operator, we can proceed to the Q&A.

Thank you very much, sir. First question comes from Arjun Bhatia from William Blair. Please proceed with your question, Arjun.

Yes. Thank you. John, can you just help us understand maybe how much of the revenue reduction that we’re seeing in the full year guide is coming from reducing investments that you’re making versus eliminating some of the lower margin revenue that you’re talking about, like the labor portion of GainShare revenue?

Hi, Arjun. Yes, for sure. So first, just given the magnitude of that change, I want to emphasize that our proactive strategy to strengthen the P&L is playing a large role. We have a medium to long-term goal to generate 80% gross margins, as I described in the prepared remarks. And we want to do that through highly scalable and repeatable software revenue derived from what we do best, which is of course, AI automation messaging. And in order to get there, eliminating the lower quality revenue we described, specifically that labor-based piece in the GainShare portfolio, is key that equates to approximately half of the revenue change. The other half of the change is associated broadly with the continued ramp of our newly hired sales force and broadly rebuilding the go-to-market momentum following the leadership transition that we previously discussed.

Understood. That’s helpful. And then I think Rob, one of the things that you mentioned as a goal of yours going forward is to open up your AI and provide access to it to third parties. Can you just help us understand how those partnerships would work in practice and how you would be able to monetize some of providing some of your technology? What’s the plan on that front?

Yes, the part obviously that’s the very high-valued part of our platform is our AI and automation technologies. Today, it runs solely on our messaging platform and soon to be voice, but what our customers want is sometimes they’ve got voice investments and other platforms they’re running, and they want our AI running on it. So we want to free it from our own walled garden and then move it out into the ecosystem of other CRM players and contact center software. Tenfold allows us to do a fair amount of that. Like we now can take our agent console and it can be – it’s sitting in Salesforce, like our messaging console can now sit within Salesforce if someone’s a Salesforce user. So, we’re kind of at a place in the evolution of the market to be much more platform-centric than product-centric. And that’s what we’re doing. Then the other part is we do run other AIs on our platform as we’ve been doing for years, but we don’t allow our automation tools like our analytics tools to optimize it. So we’ll also be doing that, whether it’s Google Dialogflow or Lex or Watson; they can use all of our tool sets on the analytics side to optimize their bots too. So we’re becoming more of a hub for the AI and that’s where we’re moving with our investments this year.

Okay. Got it. Perfect. Thank you.

Thank you. The next question comes from Zach Cummins from B. Riley Securities. Please proceed with your question, Zach.

Yes. Hi, good afternoon. Thanks for taking my questions. Yes, John can you talk about if there’s been any sort of changes to the commission structure for the sales force, now that you’re really prioritizing higher margin revenue sources? So I’m just kind of curious if any sort of changes on that front to incentivize the behavior?

Broadly. I think we would want to ensure that our reps are made whole during the year despite the change in strategy for the lower-margin GainShare piece of the portfolio. So that’s something we’re evaluating, but we would ensure that the overall structure is fair and equitable for everyone.

Got it. And another question for me is really just around the net revenue retention number for the quarter. I mean, I think you touched on this a little bit in your script, but can you give us a sense of maybe some of the factors that drove that slightly below your targeted range of 105% to 115%?

Yes. In fact, the variable revenue from GainShare and some labor-based revenue that we slowed down were the primary contributors to missing the range of 105% to 115%. I’ll note though that even with those factors, we’re still at 100% net revenue retention.

Understood. Well, thanks for taking my questions and best of luck in the coming quarter.

Thanks, Zach.

Thank you. The next question comes from Samad Samana from Jefferies. Please proceed with your question, Samad.

Hi, this is Nathan on for Samad. Thanks for taking our questions. Wanted to circle back to your guidance. Can you help us understand what you’re embedding from a macro perspective? Are you assuming the environment stays the same, gets worse, or perhaps improves from what you were expecting previously?

Yes, I mean, right now it’s hard to tell for us because of the rebuild that we have, change in leadership back to the person who ran it for many years. So I can’t really tell yet whether there’s a macro impact or not. I mean, the new logos are a good green shoot that the team is starting to really perform. There’s a lot of landing and expanding in there. So they’re smaller deals, but they’re landing and they’re going to grow. But it’s hard to see it right now. Our value proposition is cost takeout, like the Solunus partnership. They’re all about cost takeout too. So we form this partnership with them because that’s kind of what the world wants right now, especially contact center labor.

Understood. And then on – this quarter, it was down a little bit from where you were tracking previously, just talking about kind of the factors impacting this and where you stand on that ELA to CPI transition.

Yes, I think ARPUs are in a range we would expect considering, as I described in the guide in the build to guide, there is some step-down from customers that were previously contributing to that value, namely the larger customers in our GainShare portfolio. In terms of ELA to CPI, we’re tracking pretty close to where we were last quarter. We didn’t have a very large number to convert this quarter, so that’s around 70% and I would expect it to be in that ballpark in Q3 as well.

Understood. Thanks for taking our questions.

Yes.

Thank you. The next question comes from Peter Levine from Evercore. Please proceed with your question, Peter.

Great. Thanks for taking my question. I guess, Robert, John, if you look at the top of the funnel, were you not as successful at converting leads or adding leads at a similar level versus kind of expectations or plans?

No, I don’t think it’s about the top of the funnel. As we were saying, it’s been a rebuild; we lost a lot of our capacity during the leadership change last year. So when we look at the bookings capacity, it’s definitely a build; it was trending nicely and then it went down and now it’s trending back up. But I don’t think it’s top of the funnel. We started the marketing events, which did definitely create some closes in the quarter that we saw in the new logos. We have good attendance at the events, so we’re seeing demand for what we’re offering in the market.

Then in your prepared remarks, you kind of mentioned voice as a preferred channel for customers. Can you kind of outline to us what differentiates your voice contact center offering versus what’s in the market today? When that product will go GA, I believe you said if I missed it on the call. Sorry, but I think you said the second half, but any updates on when that product goes live and kind of what differentiates you versus some of the competition out there?

Yes, I don’t think voice is a preferred channel. It’s still the largest channel, but it’s predominantly non-digital. Most of the world, whether it’s contact center or digital heads at the companies, want to convert as much analog into digital as they can. As we know, messaging is still the growth engine over voice. What that said is, some people want to talk to a machine like an Alexa type thing. We’re already out in beta with a handful of customers using our voice AI platform, and we said by the second half of the year, it’ll be out in GA in Q4. What makes it different is that, when you create an automation on our platform, you can deliver it through any endpoint, including a voice endpoint. So you kind of write once and deploy. And then with VoiceBase, which is a very powerful product that competes with the likes of other voice analytics, it’s also very powerful. We can do the voice analytics around how that automation is performing. Our sellers are baking in VoiceBase into sales opportunities because it’s the start of a relationship on the voice side. We can analyze the voice channel and see how it’s performing, and then we can layer in our voice automation and then live agent. We’re not trying to build become a CCaaS player. We want to do voice automation, and we will also be integrating into all the major voice platforms.

Okay. Thank you. The next question comes from Jeff Van Rhee from Craig-Hallum Capital Group. Please proceed with your question, Jeff.

Great. Thank you. A couple from me, just guys on the retention, maybe you could address the retention rate ex-GainShare. I’m curious what you saw there? And then secondly, on the AI messaging: it looks like AI messaging volumes were down a bit last quarter and then down even sequentially on an absolute basis this quarter. To help me sort of contrast that with what I think most people believe in that your leadership around the AI capability. So, why are volumes down there?

Hey, Jeff, I’ll start with the retention question. Ex-GainShare we’d be in that range, is the short answer. And your other question was on volumes? Yes, typically following the first quarter, we do have our kind of seasonal low before it picks up again in August, September, and reaches our seasonal peak in the fourth quarter. There’s some slight variation there, but we don’t see anything in the trends that would suggest a problem though. It’s more or less consistent with how things have trended seasonally in the past.

Yes. Like we see...

I would also add one more piece here: we have automated volumes at a very high percentage of total messaging. So the pace at which that continues to grow will lessen over time naturally.

Yes.

Okay. And then on the rep count, need a little clarification there. I guess we ended Q4 2020 at 80 reps; I think in Q4 2021, you said you were around 144, and you were going to stop there. You went through the sales leadership change. But I think at that time, the expectation was that you’d see some leadership churn where you probably retained a lot of those guys. So just the comments around sort of not having capacity and not having ramped reps at this point, where are you in terms of rep count and then just kind of recap that chronology for me if I have that wrong.

Yes, the rep count is pretty much where it was last quarter, but during the end of last year and beginning of this year, there was a lot of turnover with reps. So even though we added more reps, we lost a lot of seasoned reps during the past leadership. If we had kept all those old reps that were already trained in, we’d probably be at a different bookings number during the quarter, but we have a lot of new reps just building up. Now, over 50% of them all had a deal so far this year. We’re seeing some good green shoots on these reps starting to come out. We didn’t lose the regional leaders. We kept our regional leaders and then we hired a new set of leaders below them in North America. So, we have the leadership team, and some of the leadership team below the main leaders are new, and they were put in place in Q1. They’re coming up to speed and then they have their reps under them. But the actual leadership team that’s running things was the one that was there previously.

Okay. I’ll leave you there. Thank you.

Thanks.

Thank you. The next question comes from Ryan MacDonald from Needham. Please proceed with your question, Ryan.

Hi, thanks for taking my questions. Rob or John, first one for you, as you think about ramping reps, can you talk about what the expectation is in terms of sales cycles? Or what they’ve historically trended as? And then is there any – are you seeing anything in pockets with whether it be EMEA or APAC of an elongation of those sales cycles? I know you’re – I understand that you’ve got new reps that are ramping, but just curious, I guess, how those sales cycles and those time to productivity are trending versus historical expectations and whether or not the macro could be playing any role in that?

Yes, I mean, we look at about a nine-month sales cycle. It could go out a little bit longer now; once again, it’s hard to tell on the macro, just because we’re ramping a bunch of new reps. But I’m assuming it’s playing into something. It would be foolish to think the macro doesn’t play into slowing down sales cycles and elongating sales cycles. But once again, we’re just monitoring how well these reps perform. The new logo count shows that these reps are starting to deliver. More than 50% of them have at least one deal under their belt, so we’re seeing good signs.

Understood, thanks for the color there. And then on the gross margin trajectory, can you give us a sense of the timeline it’ll be required to sort of get that labor component of the GainShare revenue out of the P&L and then how quickly you think you can start getting to the progressing to those 80% plus target margins? Is this a fiscal year 2023 expectation? Or is this more of a 2024, 2025 expectation? Thanks.

Yes, so the gross margin expectation in that 80% range would be more of a longer-term outlook broadly. We’re executing swiftly on that in the back half of 2022 and probably at least into the first quarter of 2023.

Thanks for the color. I’ll hop back in the queue.

Thank you. The next question comes from Siti Panigrahi from Mizuho. Please proceed with your questions, Siti.

Thanks for taking my question. I just wanted to dig into the third growth driver you talked about today, is that opening your platform to third parties. Could you dive a little bit more? I understand you have partners from Tenfold and VoiceBase, but is it something you are opening up your AI messaging, and then who are the CRM vendors right now you are targeting to partner with? My understanding is that a lot of CRMs have their own messaging solution, so that will be helpful.

Yes. We just put our messaging platform into Salesforce’s app store and integration. What you find is that it’s not just a channel of communication. If you look at messaging at its core, it’s a way to operate the business in a digital way. Most platforms are providing their solutions and putting more humans on it, which costs the same amount of money. Whereas the world is shifting towards how we take agents and automate them. Even the GainShare part of our business, where we provide labor and do automation as a service is valuable. Our overall goal is to take the significant sum of money spent on labor and automate it. If we developed messaging and have a human behind it, we are not reaching the goal. That’s what most of these companies are doing; providing their platforms and basically just adding more humans to it, which costs the same amount. We’re looking to enable messaging so it can be used effectively across many different platforms the users prefer.

Yes, that’s kind of the trajectory we’re working on.

Thanks for that color. And then John, follow up to your commentary and thanks for that color on gross margin. But if I look at a EBITDA margin, you kept it the same to your prior guidance. When should we think about EBITDA margin expansion and how much? Is it mostly that when you see the revenue ramp up? When we should see the EBITDA margin expansion or any cost cutting you’re going to do? And any kind of without guiding, help us understand how the margin, EBITDA margin expansion we should think going forward?

Yes, I think if you look at the implied guide on expenses, the overall cost structure of the organization is improving significantly. We think, as Rob described, this can allow us to produce double-digit margins at least next year, for the full year, in addition to very healthy free cash flow.

Thank you. The next question comes from Ryan MacWilliams from Barclays. Please proceed with your question, Ryan.

Thanks for taking the question. Just to follow up on the last question, John. While things might look different now, given you’re exiting some of the lower quality revenues, how do you think about the normalized financials of this business? And as we’re working through our model, any guidance on how we could think about revenue growth expectations for next year? Like, could we expect to see improvement of the implied revenue growth rate exiting the fourth quarter?

Yes, I think it’s interesting actually to take a look at the business on a normalized basis without, let’s say, the pandemic-driven COVID-19 testing and the pandemic-driven GainShare that benefited growth over the last two years. If we normalize for that – meaning, remove its impact from last year and remove its impact from this year – for the second quarter, we’d be in mid-to-high teens, for example. For the full year, we would also be mid-to-high teens. So, I think that’s a good way to think about our core business and growth potential moving forward into 2023.

Excellent. And then Rob, I’d love to hear your thoughts around the agreement and partnership with Starboard that was announced in the quarter. What are some of the goals of the new operating committee that was announced as part of the agreement? Just love to hear your opinion there. Thanks.

Yes, we obviously made an agreement with them and we are going to put a new board member on, and then they’re going to put three people that we can select from. So we’re going to put one of their people and we’re going to start interviewing candidates. So that’s what we’re going to do, and then we had one of our board members retire. I’m not sure what the operating committee will look like; we haven’t defined it yet. I guess when we get together, we’ll do that.

Appreciate the color. Thanks.

Thank you. We have reached the end of our call today. I’ll now turn the call to Robert LoCascio for closing remarks. Thank you, sir.

Thank you so much for listening today. I wanted to reflect a little bit on what we’re trying to do with the P&L. Back in the dot-com era, we were one of the few survivors and we made some radical changes. Some of you were shareholders back then, and we went from burning a lot of cash to profitability in a matter of three quarters. That saved us. We’ve been looking at the business as a leadership team, and what we’re looking to do now is, while growth is important – obviously we’re a growth company and this is a growth market – one of the lessons we’ve learned is that growth on top of a P&L that doesn’t generate cash flow does not make for a great company. Our focus now is on generating cash, which is how we got here. Even though we’re taking down top-line revenue and we could just hold onto that revenue and keep it going, we felt it’s time to cut it loose and move forward, because this is a huge opportunity for us, as you can see all the new logos and stuff. But putting revenue on a weak company will not make for long-term value. So, as shareholders, we’re all aligned with the aim to strengthen this company. When you look at many of the peers in the cloud today, their P&Ls are not so great. We just don’t want to be a part of that, and we want to strengthen our position. We’re going to make broad changes to the company and continue to do what we’ve done. I think you’ll see a different company on the other side of this and over the next two quarters where we’re going to focus on delivering the results. The leadership team is focused on this because we know we have this giant opportunity, Conversational AI is one of the biggest transformational technologies. However, we chased a lot of revenue during COVID, like everyone did, and now it’s time to focus on revenue that can help us build a stronger company in the future. So, I want to thank everybody in the company. I’m looking forward to adding these two new directors, one from Starboard, one from us, and I also look forward to adding new blood on the board. And with that, thank you, and we’ll see you next quarter.

Thank you very much for participating in this conference. You may disconnect your lines at this time. And thank you very much for your participation.