During this call, we will discuss certain non GAAP financial measures. A reconciliation of GAAP to non GAAP financial measures is included in today's earnings press release. Both this press release and supplemental slides, which include highlights for the quarter, are available in the Investor Relations section of LivePerson's website. With that, I will turn the call over to Rob.
Thanks, Matt, and thank you for joining LivePerson's Q1 2020 earnings call. LivePerson delivered strong Q1 results and will continue with strong results into Q2. Despite macro uncertainties that emerged starting in the Q1, revenue was in the top half of our guidance range and increased 18% year over year to $78,100,000 Our adjusted EBITDA loss of $4,600,000 was $2,800,000 better than guidance and Life Investment ended March with $171,000,000 in cash, a decrease of only $5,000,000 over the past quarter. As we highlighted on the last quarter's call, one of the key reasons we promote John to CFO was the ability to leverage automation, increase productivity and capture cost savings. I'm glad to see that John's really hit the ground running and started off very strong.
I'm really proud of the strong execution of my team, especially in a world that we're dealing with today over the past few weeks and all the changes. Obviously, to protect the health of our employees, restricted travel, and we brought all of our employees into a work from home situation. Although the new normal work from home has required some adaptation, being a digital business that runs in the cloud meant that we had very few changes in how we operate on a daily basis. I'm also very proud of the fact that we were chosen by Fast Company as the 3rd most innovative AI company in the world. Also Forrester places in solutions.
This just solidifies the great work that our product teams have been doing in extending LivePerson, not only having the best messaging platform, but also being one of the leading AI companies now in the world. We've been planning for a future where voice contact centers go away and are replaced by messaging based digital conversations powered by AI and humans. We expected that it would take 5 to 10 years for traditional call centers to disappear. Over only a 3 week period in March, the majority of call centers are now closed. And although many call center agents have shifted to work from home, we estimate that the industry is only at about 50% challenges.
As shelter in place took hold in March, conversations on live engage surged by approximately 20% month over month, and we're continuing to see growth off that new base. To put that in context, in all of 2019, our conversations including both messaging and chat were up about 21% year over year, with messaging volumes being up at a far greater rate. When office workers went remote, corporate world turned to Zoom and other video conferencing platforms to maintain productivity and keep operations running. Contact center agents, which typically represent the largest portion of the employee base for bank, telco, healthcare or insurance company, also need a cloud based platform to work remotely. LiveEngage is filling that void, helping leading brands maintain business continuity and stay connected with their consumers by rapidly transitioning to remote work and increasing staff efficiencies with messaging and AI.
In all my years of running the company, I've never seen such demand go up in the business on the usage side and demand for the company. So there definitely was a great shift with what's happened in the last couple of weeks. And many brands have been really scrambling to try to hold on to the voice contact center agents in the past. And now, however, there are major challenges to having an agent at home taking voice calls. For example, some popular contact center geographies like India and the Philippines, the agents, they don't work and live in homes that they have bandwidth, that they have connectivity to the Internet.
In some cases, they even try to put them in hotel rooms. And that even those that have connectivity, needed a cloud based solution and then they need to invest in high quality headsets and laptops and all of that has been happening over the last couple of weeks. But even if the brand got the agent in the home and they're answering calls, their children and dogs and all the noises of a normal home. And then the last part is really about data privacy. If an agent is talking on the phone and talking to a consumer about their private banking information, that's all sensitive information that's being shared with other people in the home.
All of these issues are solved by having an agent at home messaging. It's quiet. It's personal. It's in the cloud and allows for the scale that our customers look for. Once again, that was what drove that massive surge in volume month over month.
The impact of the staffing challenges and capacity today, we're seeing now everywhere, whether it's your favorite bank or airline or retailer, what you're seeing on their websites on the RAPS is if you call us, you're going to be on hold a long time. Even my bank, which is Chase, they're not a customer of ours yet, but they have up on the website, our call centers have limited hours temporarily and we're experiencing high call volumes. So you think about how long can a bank go without answering its faults. If I had an issue with my account balance, how long can they go with not answering that call? Not too long.
So that's been the rush to the LiveEngage platform. And even we know some of our customers tried to keep contact centers open with social distancing, they're running at about 30% to 50% capacity, which is not a sustainable model for running a contact
center, just with the physical
distancing in those centers. Are we successfully powering these virtual workforces with messaging today? I believe the best solution is actually not bringing the agents back online at all and just replacing them with AI based solutions. This is where we see the greatest demand in our business right now. And we've been preparing for this shift in focusing on product resources and building powerful AI based tools like Intent Analyzer, Conversation Builder and Ten Analytics.
And all the awards we've won recently just reinforces our focus on AI. I'd like to now illustrate the path to the future of conversational commerce and highlight one of our customers who is one of the largest telcos in Australia. And we signed this customer after they came to the T Mobile Summit in the Q4 of 2018 in Charleston. They quickly embraced both messaging and the operating model of the team of experts in which a group of agents owns the P and L of a fixed group of customers. Now this was all made possible because of the asynchronous capabilities of messaging and LiveEngage.
And today, already over 50% of their entire contact volume is on messaging. Now they virtualize because of COVID, they're virtualizing all the front end. So that includes service, sales and even their retail agents. And now they're targeting 80% of all customer contacts to be put on to messaging, leaving only 20% in voice. And the goal is to take the majority of those conversations in messaging and automate them.
This telco, there was an article written from the person who runs all of consumer experience and he said that and this came out a couple of weeks ago that they will not be returning to physical contact centers, that they will be maintaining the virtualized workforce concept. So these types of transformations are taking place across our entire customer base. For example, European Airlines saw a 900% year over year spike in messaging in March and reported that messaging agents were 3.5x more efficient than voice agents, while delivering a 95% customer satisfaction rate. 1 of our retail customers doubled their labor hours on messaging in 1 week, onboarding new agents in less than 48 hours, 95% of them who are working from home. They also built automation to address their top 10 coronavirus related intents and quickly achieved a nearly 50% containment rate.
1 of our banking customers tripled the number of messaging agents on LiveEngage and removed the call button from the Android and iOS apps. They then deployed LiveIntent, our AI operations platform that tracks in real time all the reasons consumers are reaching out to a brand and how well that brand is handling those intent. Once armed with this data, they then turn to conversation builder and they can rapidly build automations. Build conversations. And even they were using other AI tools, especially Conversation Builder, to rapidly build conversations.
And even they were using other AI technologies for some of the larger tech companies, but we made it very easy, our platform, to scale those automations and react to what was happening in the market. There's many more examples I can share about how all this is fueling the usage on our platform and how we've now compressed down years of go to market into months. So we're immediate benefits from the demand specifically in our usage based models like gainshare, which is now expected to increase more than 50% year over year in the first half of twenty twenty. We're also seeing brands rapidly embrace automation to address the imbalance between fewer agents, that's the capacity issue I was talking about, and more inbound conversations. Nearly 100% of our enterprise customers now are using our automation platform.
And approximately 80% of the messaging conversations in March relied on automation. That's up from 57% just in January. Given our long term contracts with enterprise customers, obviously, not all of this usage immediately translates into short term revenue, but it's a very strong leading indicator of future upsells, renewals and overages. When we look to the second half of twenty twenty, we're balancing the enthusiasm we have for our role as a beneficiary of these massive changes with the potential macro environmental risks, the unknowns. Ultimately, we think it will take at least a few months until anyone has a very clear view of how the effects of coronavirus pandemic will play out in the global economy.
Therefore, we are maintaining our high end of our guidance range at 22% growth. We're going to widen it a little bit and bring our lower end of our guidance to 2017 in order to accommodate for some of the uncertainties of the current environment. The benefit of being a public company and running 1 for 20 years gives us a perspective on how to navigate through macro environmental changes. You've seen the dotcom bubble in 9.11, we got through the Great Recession. What we see is the flexibility in our cloud based recurring revenue model is really powerful at this point.
And I spoke about the vision of using AI and automation even on our enhanced profitability and cash generation, while continuing to invest in our core growth drivers of AI sales capacity and product innovation. Therefore, we are raising our full year guidance for adjusted EBITDA to a range of $3,500,000 to $10,500,000 from previously issued guidance of negative 3,000,000 dollars to $3,000,000 John will take you through more details about this. In closing, I'll ask side two points. Over the last 20 years, LivePerson has successfully navigated past macro shocks. We're rapidly applying past lessons learned to the current environment.
This adaptability, combined with the strength of our business model have enabled us to raise profit guidance and target strong revenue growth in 2020 despite potential economic headwinds. We're seeing strong usage trends on our platform as brands turn away from voice and close their platform enables brands to rapidly virtualize the contact center work from home, making agents more efficient and providing unlimited scalability with automation. Companies like Zoom and Netflix are transactional beneficiaries of how shelter in place is changing our lives. As users download their apps, to me it shows in the results and we believe LivePerson is a transformational beneficiary. Our customers are embarking on generational shifts that will materialize in our results for years to come.
We will emerge from COVID pandemic a much stronger company. And with that, I'll turn the call over to John to provide an operation update and more color on our guidance. John?
Thanks, Rob. As Rob shared, LivePerson had a strong first quarter and is executing well in this new environment. We are tightly managing the bottom line while actively positioning our product development and go to market organizations to support customers during the crisis. Combined, these dynamics are accelerating the adoption of our platform and our path to profitability. My commentary will center on a review of the Q1, how the coronavirus is factoring into our revenue growth outlook and our strong execution on initiatives to enhance productivity, profitability and cash generation.
Starting with the Q1, revenue increased 18% year over year to 78,100,000 dollars We were pleased to land in the upper half of our guidance range despite the difficult environment. B2B revenue increased 18% and consumer grew 15%. Within B2B, hosted software grew 18%, while services grew 14%. The U. S.
Grew 26% year over year and accounted for 62% of revenue. International grew 6% year over year and accounted for 38% of revenue. We signed 2 7 figure deals in the Q1 and 130 deals in total, an increase of 10% year over year. Existing customer deal counts increased 42%, while new deal counts fell 15%. Deal counts reflect several stalled sales cycles in March, particularly for new logos, as contact centers went into crisis mode and focused on triaging operations rather than deploying platforms.
However, we have already closed several of these delayed deals in addition to a 7 figure upsell in the 1st weeks of April. As Rob detailed, our platform can bring immediate benefit to brands struggling to respond to the crisis with a virtual workforce. In order to maintain business continuity with remote agents and address broken call queues, leading brands are rapidly adding new messaging endpoints, shifting agents to LiveEngage, expanding use cases and widely embracing automation. In turn, conversation volume surged 20% month over month in March and we are continuing to build off of that base. From an industry perspective, volume increases were led by financial services, followed by consumer retail and then telco.
Retail and e commerce within consumer retail is the fastest growing sub industry. Rising demand translated into a continuation of the strong trends we've been seeing in key metrics. ARPU, for example, increased greater than 20% to approximately 365,000. Revenue retention for enterprise mid market customers was once again within our target range of 105% to 115%. Moving on to the bottom line, the adjusted EBITDA loss in the Q1 of 4 of $6,700,000 to $8,200,000 We also executed well on the balance sheet, bringing DSO down from the 100 days we reported in the 4th quarter to 72 at the end of the first quarter, which is back in line with our historical We ended March with a cash balance of $171,000,000 which was only a $5,000,000 reduction from last quarter.
The improved loss in the Q1 represents steps taken by LivePerson to accelerate its path to profitability and cash generation, while continuing to invest in the core growth drivers of sales capacity, AI and product innovations. In total, we are on track to reduce our 2020 expenses by $7,500,000 to $16,500,000 Where we fall on the expense savings range will align closely with where we land within our revenue range for the year. Approximately 1 third of the savings will be from lower T and E and marketing spend as travel was halted and events turned digital. Approximately twothree of the savings are tied to lower planned headcount, which has 2 primary dimensions. First, we slowed recruiting in non growth areas like G and A, deferred some innovation spend and consolidated overlapping marketing and professional services teams.
2nd, since I joined LivePerson in October, I've been streamlining operations through automations and we are seeing some of the fruits of this work. Our data science and engineering teams have already introduced nearly a dozen tools that increase productivity by enabling our teams to do more with fewer people. New automations are wide reaching, ranging from pricing and commissions calculators to pipeline analytics and cash reconciliation. Although we are hyper focused on prudently reducing spend, I want to reemphasize that our investments in growth and innovation continue. Forrester just released a report that recognized LivePerson's leadership in digital first customer service solutions, which is clear evidence of the payback we are seeing in our product investment.
Likewise, we will continue to strengthen our go to market machine. For example, in EMEA, we recently brought on a talented new sales leader who previously ran the EMEA Service Cloud team for Salesforce. Turning to the Q2, we entered April with a strong sales pipeline. We're executing our strategy to add scale to our market reach beyond direct selling capacity by strengthening our partner channel. We're building a solid pipeline with existing partners like TTEC and BMI and recently closed 2 new arrangements, one with a global top 10 digital consultancy and another with a multibillion dollar BPO.
Accounting for year to date contract signings and the strong volume trends we are seeing within our usage based offerings, we expect 2nd quarter revenue in a range of $83,000,000 to $85,000,000 up 17% to 20% year over year and approximately 8% quarter over quarter. We are targeting adjusted EBITDA in a range of $1,000,000 to $2,000,000 bringing us to profitability 1 quarter earlier than anticipated. When we look out to the remainder of 2020, we are encouraged by the elevated usage trends in our business, our ramping partner activity and the broad ranging discussions we're having with our customers. LivePerson's ability to help leading brands succeed in this challenging new environment has opened the door to customers embracing transformation at a faster pace than ever before. We also recognize, of course, that there are macro risks stemming from the coronavirus pandemic that could potentially impact our business, sales cycles and customer attrition, particularly with new logos and small business.
In an effort to balance these uncertainties with the positive trajectory we are seeing in our year to date results, we think it's prudent to widen our 2020 revenue guidance range to $340,000,000 to $355,000,000 from previous guidance of $350,000,000 to $355,000,000 Taking into account spend initiatives outlined above, we are positioned for improved profitability in 2020, even if our conservative growth assumptions play out. For full year 2020, we're targeting adjusted EBITDA of $3,500,000 to $10,500,000 up from previous guidance of a loss of $3,000,000 to positive 3 dollars We are also targeting a total cash burn of less than $50,000,000 in 2020, which would have us end the year with at least $130,000,000 of cash on hand. Please refer to our press release and supplemental earnings materials for more detailed guidance. I'll close by summarizing a few key points about our business. Despite the current macro uncertainties, LivePerson's resilient and adaptable business model has enabled us to raise profit guidance and target a 2020 revenue growth that is at least as strong as in 2019.
We are successfully streamlining operations and driving enhanced productivity through automation, and these initiatives are accelerating our path to sustainable cash generation. The investments we've been making in product development and our go to market strategy are not only accelerating growth, but solidifying our industry leadership, a view now validated by Forrester, a leading third party research firm. So with that, I'll hand the call back over to the operator for your questions.
Barclays. Raimo, your line is open.
Hey, guys. It's Mohit Gobi on for Raimo. Thanks for taking my question and congrats on a really solid quarter. So my first question is for Rob. Rob, just contending on the market opportunity here, right?
So you guys are obviously evangelizing this opportunity. It's word, in this sort of like unseen world where people are working from home, where you alluded to that messaging volumes are going up just because contact centers are realizing voice is not the ideal medium. I'm just wondering as to how do you see the sort of like the market sort of like get more traction among the customers? So you talked about shorter deal cycles as sort of like one proof point that alludes to that now it's getting more and more volume share. But I'm just wondering as to if you can talk about the longevity and also sort of like the phase of market evolution that this pandemic might provide you?
And then I have a follow-up question for John. Hey, guys, can you hear me?
Can you hear me now?
Hello? Okay. We can hear you now.
The work from home conference call. So the demand in our platform, the 20% growth month over month, I think tells a massive story about the need for our platform. And that would have taken us a couple of years to do. If you annualize that, that would take a couple of years to get that type of growth on our platform. We didn't have to add more agents.
We didn't have to do anything. It's just the demand for the platform. And that comes in 2 places. 1 is messaging is the delivery for automation. It's the best way to deliver an automation with AI.
So we first had that demand because they couldn't fulfill voice and then they went into our platform. And then right away, the amount of activity in automations, the billing of automations, was pretty extraordinary. So I think it just says when all of this is over, and I don't believe we're getting back to fixed contact centers. And even if that doesn't happen next 6 months, our brands are looking at how can they create now a different way to engage. And that was like I was talking about the telco over in Australia.
I mean, they're all in and many brands are following that. So I think now short term, medium term and even when we get through this, we're going to be on the other side of capturing a lot of the demand in the market today. And we're not a voice platform. It's not about a voice platform in the cloud. Once again, there's a lot of challenges taking that home.
It's about being having a digital connection with your consumers and automating that connection at scale. So I think we're in a great place right now.
Understood. And my follow-up question is
for John. So John, if
you can just help us bridge. So the higher guide on profitability is welcome. But if you can just drill in a bit as to what is driving that. So you mentioned about the high end like $16,000,000 sort of like reduced expenses. But last quarter, I think you guys also mentioned incremental $16,000,000 investment in this messaging payments platform.
So if you can just help us reconcile as to compared to what we heard on the Q4 earnings call as to are those investments sort of still on track? Are they still big into new guidance? And then sort of like the sort of layers of that $16,000,000 release expenses, if you can give us any more granularity than what you discussed? Thank you.
So with regard to the expense savings, I'll reiterate what I said in the prepared remarks that the expense reductions we're targeting for this year are primarily a function of, 1, T and E and reduced marketing, and 2, lower plan headcount, again stemming from slowed recruiting in G and A, deferred innovation spend, which I'll let Rob speak to in a moment, and consolidation of overlapping teams and marketing professional services. In addition, automations that we've delivered have helped us to make the lives of our reps and other members of the organization easier. You build a machine to solve a problem, There may be a little more upfront cost than putting a person on that problem, but once solved, you never have to revisit
our next question is from the line of Sitiya Panaghi with Mizuho. Sitiya, your line is open.
Thanks for taking my question. Rob, I just want to ask how does your go to market motion change in this environment? You are expecting some kind of increase in productivity of Shell cells that you hired late last year. How does that impact the sales productivity of your product areas in this environment?
The good thing is there wasn't much change to our go to market or even product, obviously. We're just executing on what we put up in Q4. We're focused on partners. I mean, obviously, our base is very active. So our current customer base
is like very, very active and they need a lot.
And then our partner space also needs a lot. So we're seeing some good activity in the base of those partners. We talked about it in Q4. We're going to start focusing on partners. But not much has changed on the go to market.
Obviously, we're not doing face to face marketing events. There's some those are the savings that John talked about bringing in, but the rest of it is sort of we're just focused on the base. There's enough, I think, business right now on the base here to just take us beyond this year. And so we're just trying to keep pace with what our customers demand from us right now and our
1st 3 months as a CFO. I'm wondering how was the experience there? And of course, you are not expecting COVID-nineteen spending, but some of the improvement you talked about, but also what's your expected snow for 2021 that you guys talked about last quarter?
Thank you. For 2021, we certainly, from an expense standpoint, would expect to see some continuation of T and E and marketing spend like we had in 2019, although at a more efficient levels given the strength of our partner network. In terms of our path to profitability and cash generation, I mean, that's the core reason why I was brought on board and elevated to this position. We are focused on generating cash in the business and automations is a key factor on that mission.
And our next question is from the line of Arjun Bhatia with William Blair. Arjun, your line is open.
Congrats on the quarter. First one, maybe for John, it's good to hear that your messaging volumes are increasing and kind of the adoption rate is accelerating. But can you walk us through how and when this increased usage might show up in the financials given how your contracts are structured? I mean is there an opportunity to upsell or expand contracts mid contract or is that something that you'll have to wait for until renewal to capture that upsell?
Yes. Certainly, it's worth noting that the surge in volume that we highlighted in the prepared remarks does not immediately translate to revenue across our entire customer base. Obviously, we have a usage based model where that would be true and also long term contracts, including ELAs, where that would not be true on an immediate basis. However, it is a very strong indicator of future increased business, especially in the base with regard to renewals and upsells.
Got it. And then a quick follow-up. It's Rob, you touched on this in your prepared remarks, but the inflexibility of this voice based call center model is really showing up in this environment. I would imagine that new customer interest is increasing from those that don't have any messaging adopted right now. What can you tell us about how that pipeline is changing?
What you're seeing from new customers, potential new customers? And what you're seeing from customers that are on live chat that have not yet adopted live Messenger? Thank you.
Yes. So we some indicators, we did a we're doing business continuity workshops now. It's interesting. I think voice is not about messaging being transformational anymore. It's about business continuity and risk.
If you have a voice contact center, you can see it, you've got a risk and you've got staying connected to your consumers. So I think part of that, like we did a call, a virtual in the new world order. So I think that that's showing up quite well. Chat is has decreased as a volume in the platform. It's down around, I think, about 40 or something percent from 50%, and it's now more and more shifting into messaging.
So we should see more and more of that shift over from legacy chat into the messaging platforms with everything that's going on right now. Part of it is that in order to deliver an automation, you need to have the synchronous capabilities of messaging and that's what's driving and fueling a lot of the even movement from the brands that didn't make the movement yet to messaging.
And our next question is from the line of Samad Samana with Jefferies. Samad, your line is open.
Hi, good afternoon. Glad to see the solid business performance and hope likewise you and your families are doing well during this time as well. So maybe the first question, I know last quarter the company gave exposure by vertical and you gave some color on this call as well. But with consumer and retail accounting for like a quarter of revenue and then some other vertical exposure. I'm curious, I guess the trends through March, but as things have gotten a little bit worse in terms of employment, what are you seeing in different verticals through April?
And how should we think about the rise in some verticals with more usage, but some of the more prolonged impact to like airlines and to retail, how are you seeing volumes in those end markets now that we're in late April, May as a trend line?
Hey, Smot. Good to speak
with you
again. With regard to travel and hospitality, volumes were up. However, it is one of the areas we see potential risk in the future. However, I would note that from an exposure standpoint, it was only about 5% of our 2019 revenue. With regard to retail, especially brick and mortar retail, that's a key strength right now.
And in the usage based platform, we're seeing a lot of upside
there. Great. And then maybe in terms of, again, after hearing the commentary around new business bookings, etcetera. But if you think about new deals being deal count falling 15% in the first quarter. As I think about the new activity through April, are you seeing outside of the deals that slipped, are you seeing an increase or kind of pipeline building faster than you did this time last year?
Maybe just some kind of comparative commentary around what the pipeline what's been closed in April and what the pipeline looks like going forward?
Sure. So we did have a few stalled deals in the Q1, as I highlighted in the prepared remarks, that did close in the 1st weeks of April, including some 7 figure upsell and another large deal in the usage based model. With regard to the pipeline generally, we feel it's a very strong pipeline for the Q2 even relative to last year.
And our next questions are from the line of Sterling Auty with JPMorgan. Sterling, your line is open.
Yes, thanks. Hi, guys. You partially answered this, but I want to put a finer point. How have you evolved your go to market motion specifically around marketing and pipeline development given that you don't have the in person summits to rely on? And what are you seeing in terms of the pace in which deals are moving through the phases of the sales pipeline?
Yes. I mean, the it's just that the change in the macro environment and the idea of business continuity and then automation is now driving a different conversation. Like I said a remark ago, we did this online conference, had close to 1,000 people show up because everybody is trying to figure out how do get back to connecting with my consumers. So I think that just the market conditions alone, they're looking for platforms where not only do they get to have the agents at home, but as I said, let's say, what I'm seeing right now with our large enterprises and our BPO partners, it feels like 50% of the agents never got to work. I don't believe we should bring them back to work.
And so there, what we should do is automate those use cases and those intents. So that's where our strength is in our platform. And so part of the go to market is also allowing them to get on the platform and sort of try it, create automations and then scale. So that's kind of what we're seeing today and then working with our partners. So far, we have a pipeline that was already there that we're working through.
Then there's been this big interest on how do we transform the connection with our customers with everything around business continuity and automation.
Got it. And then one follow-up. You talked about the improvement in DSOs. One of the things we're consistently hearing out there because of COVID-nineteen is request for flexibility on payment terms. What did you experience in March that tried so throughout April in terms of what your where your customers are around the payment side?
We're not really seeing a large amount of requests for deferred payments. We see that there may be some risk in small business and travel and hospitality, although again, those are small percentages of our revenue in general. So exposure there is pretty limited.
Next, we have a question from the line of Koji Ikeda with Oppenheimer. Koji, your line is open.
Hey, thanks for taking my questions and congrats on a good Q1. First question here is for John, I think. I just wanted to dig in on the cost savings initiative that's going on this year a little bit more. So the 7 and I just want to be absolutely clear on this, so I understand it. The additional $7,500,000 to $16,500,000 in cost savings you announced today, it sounds like a lot of that is attributable to a pivot to a virtual environment and how to deal with the coronavirus and all that disruption that's going on right now.
Is that the right way to think about it? And then thinking about the in the Q1, you announced $26,000,000 to $32,000,000 in cost saving efficiencies. Is that mainly attributable to the internal automation and AI efficiency gains that you were talking about? And if that's the case, how far along are you in that process of realizing those $26,000,000 to $32,000,000 in cost savings? And then I have one follow-up.
So on the first, it's only about a third. So I wouldn't say it's the bulk of it. Again, T and E and reduced marketing due to the COVID environment is about a third of the expense savings that we highlighted. With regard to the other 2 thirds, much of that is playing out now as planned. Again, we slowed recruiting in non growth areas like G and A.
The deferred innovation spend was marginal and the consolidation of overlapping marketing and services teams makes up the balance along with the automations that we're deploying today.
Okay. Thanks for that. And just one quick housekeeping question. I don't know if you've given this metric before, but I'm going to ask it anyway. What is your thinking about the revenue mix, what is the overall exposure to SMBs?
That's about 15% in total.
Next, we have a question from the line of Ryan MacDonald with Needham. Ryan, your line is open.
Good afternoon, everyone. Thanks for taking my questions. First question is really around the portion of the savings around deferred innovation spend. Can you just give an update on sort of the progress you're making on building out the payments functionality? And does the deferred innovation spend mean that you're pushing out sort of some of the spend related to that and so we should expect maybe that product launch is more of a 2021 and maybe a late 2020?
Thanks.
No. Those innovations are on the payment side, but it is still on track. So we're not we're going to deliver that this year. And it was only a small portion of savings that we were able to save in the on the innovation side. So it's not as much as the other savings that John talked about.
Got it. And then a quick follow-up. In terms of international, it sounds like that business in terms of the growth is decelerating a bit from last year. And it sounds like you made a change or an addition to the team there. Can you just talk about what you're seeing internationally?
Or is there a greater impact from a macro perspective or perhaps not as strong as execution as you were seeing 3, 6 months ago? Thanks.
Yes. When it comes to I mean, Asia is doing very well right now. We just opened South America where we expect some good growth on the heels of things like WhatsApp.
It's a big market down there,
and we're doing a lot of work around that area. We just want to see more performance out of EMEA, and we hired a new leader who ran the Service Cloud business for Salesforce. So we just felt there's still a lot of opportunity there and especially now. And so we just want to put some more some new leadership to give some new energy to that market. And obviously, North America is doing quite well and the same leadership is running that and growing that.
And our next question is from the line of Steve Enders with KeyBanc. Steve, your line is open.
Hi, great. Thanks for taking the question and hope everyone is staying safe and healthy. I just want to get a better sense of the rent activity. I know you've been through a big investment last year and they're just now expected to be closing deals and it's a tough environment for that. But just wondering what you're seeing from those reps today and their ability to execute and close?
Right now, it's very strong. Once again, the real focus is in the base. There's just a lot of demand. I mean, we're all working really hard right now, even from our homes, whether in sales or implementation, marketing, because we have this demand and most
of it has tremendous amount
in the base. There's a bunch of new logos that are already in pipe that we've been working on and then we're ramping our partners. As we said in Q4, even before everything was happening, we felt that it was time to sort of put the partner strategy in place. And the great thing about that is they have a base. So we're working with these big BPOs or integrators.
They already have a base, so we're working with them on their base. And I think we can all understand that the base will be an easier place to sell because we have contracts and relationships. And then we'll see what the new news are going to be. And that's coming up in a few quarters. But right now, we have a lot of momentum with those sales reps focused in on the base and partners.
Okay. That's great. And I just want to get a better sense of I know you're seeing strong usage, I think you called out 20% in March. I don't know it's tough for some of those contracts to know when 3rd coming due. But with that strong usage, do you think that the prior outlook for 2021 of a 25% growth is still on the table?
Yes. I would consider that still on the table. And once again, we widened our range, but we kept the top end of our range even this year. So it's going to get interesting. And it's definitely like what I said is when you grow 20% month over month, even maintaining that capacity on our clouds globally, I mean to handle that volume has been extraordinary.
And it's just a it's a perspective into the future value of the And we don't see it coming down. It's sort of now up at a peak, and now it just continues. And then we'll see it we see it continue to grow again. We'll see it grow in April. So I think it just talks to the short term revenue was gainshare, and that's up 50% of the year over year for this month of March.
That's massive too. So all those models, usage models, you can see it flowing through. And then the rest of it really is a predictor of our future and how we come through this thing.
And our next question is from the line of Zach Cummins with B. Riley FBR. Zach, your line is open.
Hi, good afternoon. Thanks for taking my questions. It's really nice to see the strong messaging volumes here, especially the 20% year over year growth in March. But when I'm thinking about professional services, I know it's not a huge portion of total revenue, but have you seen any impact to that organization? Or are there any services that require being on-site to complete them?
No. I mean, we work in the cloud. We're digital. So we're implementing bots and we're doing a lot of bot building. So we're implementing that.
We're taking customers live. We're taking divisions live. We're training new agents. Even how we're bringing employees into the company, we have a huge remote employee base as it goes. So it really hasn't disrupted any of that yet.
So our customers just need us. Like they do like to have us show up face to face in the previous world, but they just need us right now and we've got to deliver on the things they need to handle the volume that they're getting through the platform.
Got it. That's helpful. And then I guess with about 15% of your revenue being geared towards SMB customers, are there any concerns with churn towards that lower end of the market given the potential economic implications from COVID-nineteen?
I mean, I don't our SMB can be pretty big logos. They just don't usually have a lot of contact center reps. They could be some retailers and stuff like that. So, so far, even for Q2, they look pretty good. I think the auto business in the dealership side is a little soft, but yet we're on the OEM side, we're seeing some real activity because the OEM, the manufacturers are looking at, we got to sell cars.
How do we sell those cars? How do we create that connection with the consumer? But I think auto dealer, which is very small business and people aren't going to dealerships for sale for selling maybe, although there are a lot of sales happening and the service business in the dealers is happening still, but that's the only place. The rest of it looks pretty good.
And next, we have a question from the line of Michael Latimore with Northland Capital Markets. Michael, your line is open.
Hey, thanks. You touched on gainshare or pay for performance. What was that as a percent of the first quarter
revenue there?
It just reached double digits in the Q1.
Okay. Got it. And then in terms of the sales headcount, I believe you were at 100 at the end of last year. Is that roughly where you are today?
In enterprise, we've kept the quota carriers the same as where we ended in Q4.
And our next question is from the line of Brett Knoblauch with Berenberg Capital. Brett, your line is open.
Hi, guys. Hope all is well.
Thanks for taking my questions. The first is just curious for an update on the payment related investments and if you're executing that on schedule or I guess just ultimately where we are with that?
Yes. We're still on schedule for the end of the year.
And right now, obviously, we built because
we said the commerce will happen on our platform and we can see it even today. But payment platform happening within our platform. So yes, we're still on track and we're still investing in it and
building it. Yes, perfect. And maybe just you guys talked about a new relationship with the top 10 digital consultancy. Could you walk us through how this relationship works in terms of showing up in the financials? Is this more or less outsourcing maybe some professional services?
And then you kind of just offset that revenue, recognize a more higher margin kind of cloud based revenues?
Yes. So it's a new deal just signed. I think, again, it's part of our broader partner strategy to get more leverage on the model. There's obviously, as with reps, there's a ramp phase. And so given the strong results we're seeing with our existing arrangements with partners, we would expect to see the same take place here.
It's a little early to say right now
though. And our next question is from the line of Jeff Van Rhee with Craig Hallum Capital. Jeff, your line is open.
Great. Thanks for taking my questions and nice quarter here guys. A couple for me. I guess just maybe starting with the guide, if you look at the high to low end of the range, talk about the variability, sort of the top 1 or 2 key unknowns and how you think about best case, worst case there to sort of come up with the bounds that you set? And then I have one other question.
Hey, Jeff. This is Matt. So when we think about the guidance range, obviously, as we talked about, we're on a good trajectory through the first half of this year. And so the high end assumes that trajectory continues where we're seeing good traction with usage, existing customer demand and ramping partners. But we caveat it because we know there's a lot of uncertainties out there tied to the macroeconomic environment and that's why we reduced the low end of the guidance range to $340,000,000 That's just the uncertainty that we don't know about.
We're just only a few weeks into what's happening with the COVID pandemic.
And maybe if I could just to put a finer point on it, when you look at that lower end of the range, what is the most unpredictable factor? Is it bankruptcies out of customers? Is it the spike in usage and how sustainable it is? Is it do we close new deals? Like is there anything you can talk about on that low end that is the key set of unknowns?
It's the economy. I mean, we're all so far, usage has been, like I said, tremendous in the business, and we see a lot of demand. I think, 130,000,000 Americans and around the world, another tens of millions of people are unemployed. We just don't know the impact. So we'd rather just widen out.
And like I said, we feel good about the business, but we just don't know what those impacts will be. Right now, it looks like we're a beneficiary of this, but we'll see how it plays out.
Yes, it's great to see the volumes. And then just one last one, I guess, for me as it relates to the restructuring in the quarter. I think you had a little over $3,000,000 restructuring charges. Just talk about, I guess, maybe 2 things. Just from a headcount and departmental level, what changes did you make?
What are the key underpinnings of that restructuring? And then if it's not already part of the answer, maybe just talk about sales and any tweaks you may have made within the structure there?
Hi, Jeff. We haven't really touched the sales organization, at least in terms of quota carriers. As mentioned previously, we did consolidate some overlapping teams, particularly within marketing and professional services.
And at this time, I'm showing that we have no further questions over the phone lines. I would like to turn it over to Rob LoCascio for any closing remarks.
Thank you, operator. I'd like to end the call with reemphasizing just a few key points. The coronavirus has created a new normal for contact centers and brands have relied on legacy voice tech for far too long. And they were unprepared to handle the surge in volumes and shift to remote work. And so LivePerson is really helping them with stopgap right now in the current crisis and to transform their operations so they'll be ready for the next one and have a long term view on how to service their consumers.
The investments we've made in our conversational platform over the past really 24 months have uniquely positioned us to help brands navigate the current environment, because we can power every conversation consumer has with a brand across care, sales, social, marketing, and a greater efficiency to voice. And we have the ability to deploy those automations, which is really, I think, going to be filling the gap of the supply of the capacity that won't come back. And they meet with those consumers still are going to want to converse, but I don't believe the agents will be the ones doing those conversations. So we have experienced imagining through financial crisis before the dotcom. And as a company, you can see we're very focused on growth.
We're still a growth company and we're going for high growth. But I've been through this before and we've seen this is that the best thing we can do also is get very efficient in our spend. And we started this even entering the year and before all this happened. So we're already on a path, as you can see, to get more leverage from the bottom line. And I think that shows just maturity of how we run the business and our future.
So we're very excited, Looking forward to next quarter coming up. And thank you for your time and for everybody. Like all us, stay safe. Thank you.
Ladies and gentlemen, we thank you for joining us for LivePerson's Q1 2020 earnings conference call. This does conclude today's call and you may now disconnect.