Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's third quarter 2019 earnings conference call. My name is Catherine, and I will be your conference operator today. At this time, all participants are in a listen-only mode. After the prepared remarks, the management from LivePerson will conduct a question and answer session, and conference participants will be given instructions at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Matthew Kempler, the company's Senior Vice President of Investor Relations and Planning. Please go ahead, sir.
Thanks very much, Catherine. This is Matthew Kempler, SVP of Planning and Investor Relations. Joining me on the call today is Rob LoCascio, LivePerson's Founder and CEO, and Chris Greiner, our 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, in 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 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 of 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. Thank you for joining LivePerson's third quarter 2019 conference call. This is another milestone for the company as we deliver our second consecutive quarter of revenue growth acceleration. Revenue increased 17% year-over-year in the third quarter, up from 15% growth in the second quarter, and 14% growth in the first quarter. We expect this trend to continue, as reflected in our guidance for acceleration of 17%-22% growth in the fourth quarter, at least 20% growth in 2020. We're really excited to have this goal of 20% growth now within our sights. LivePerson's third quarter activity metrics also reflect a positive growth inflection. LivePerson signed seven seven-figure deals in the quarter, more than double we've done a year ago. The number of deals signed increased nearly 50% year-over-year.
The value of contracts signed also continues to grow at a significantly faster pace than our overall revenue, which is a great leading indicator of future acceleration. Half of our enterprise customers have now begun the transformation to messaging from chat, up from 35% a year ago, and more than 50% of those messaging conversations rely on automation. We've always stated that AI was the key to scaling conversational commerce, and we are now seeing its adoption drive platform usage. In fact, ARPU for messaging brands with AI is nearly double that of customers without AI. These trends reflect exactly how we expected the quarter to play out. Demand for conversational commerce is inflecting because consumers are seeking a better alternative to wasting time on hold with 800 numbers or searching around websites to get answers to the questions they have about the products and services they're interested in purchasing.
Brands are equally frustrated with the inefficiency and poor outcomes of legacy voice and web channels. They are increasingly turning to LivePerson and our LiveEngage conversational commerce platform to build convenient, personalized, and lasting relationships with consumers where people connect via natural language using text messaging and also voice commands. Let me share a few highlights from the third quarter of brands that are making the shift. The first is a new mid-seven-figure contract with one of the top five cable companies in North America. LivePerson will become a turnkey partner for this leading brand, helping to transform their entire customer care experience by transitioning expensive transactional voice calls and legacy chats to messaging. The customer plans to drive powerful scale and efficiency by deploying LiveEngage, seamlessly integrated with automations fueled by our Maven AI and Conversation Builder platforms.
We also signed a seven-figure annual expansion with a global Fortune 100 financial institution. Their goal is to become the world's leading conversational bank. They have set a target to shift 50% of contact center calls within the next four years. To achieve this goal, they are working with LivePerson to expand in-app messaging into new markets, migrate to web messaging from chat, launch WhatsApp, and deploy more bots developed with Conversation Builder. This is a four-year contract term, a strong validation of our strategic alignment. Other key wins include a new contract with one of the five largest airlines in the world. This marks the third major airline signed in the past year, a clear indication of our emerging leadership in travel. LivePerson was also selected by a leading global furniture brand with more than 800 retail locations across the Americas.
This multi-billion-dollar retailer plans to leverage messaging and bots across multiple channels to drive an exceptional customer experience and transform how people shop for furniture, have it delivered, and seek help. One thing that should be evident from these wins is the payback we are seeing on our product and go-to-market investments. We are successfully taking on the difficult challenge of creating the underlying technology platform and services stack that powers conversational commerce. This new category is solving the complex problems of brand-to-consumer communications that the 1-800 number, e-commerce, and branded apps have failed to address. I believe that the best technology companies today, like Apple and Amazon, have tended to build versus buy. Although it takes a lot more discipline and a real level of engineering talent to deliver on building, in the end, the advantages always outweigh the risks of technology and people integration.
The valuations of most private companies today seem inflated, tipping the cost-to-value equation even further towards building versus buying. Both building and buying require capital, with building, it flows through our operations, as you know. We raised over $200 million in Q1 to focus on these types of investments. Under the leadership of our CTO, Alex Spinelli, we have built what we consider the leading AI-powered conversational commerce platform in the world. We have been able to recruit some of the industry's brightest data scientists, machine learning engineers, and automation experts to scale the platform to reach our big vision. We've built an incredible team of technical delivery experts who are pioneers in deployment of these solutions, helping our customers with conversational design, bot tuning and implementation, and API integration. Our golden moat, though, is our conversational data that only we have at such scale.
If you want to truly create a massive conversational commerce business, you need the hundreds of millions of conversations we have today to create the AI to automate those conversations at scale. This unique asset enables us to achieve creating what we call customers as firsts. We launched the first Apple Business Chat deployments in the world, the first agent-facing bots, the first conversational airlines, the first mobile messaging food ordering experiences, and many other AI-powered conversational commerce firsts. These firsts enable us to call ourselves the leader in this space, and we'll continue to invest in our customers to further increase our momentum. With that said, we must also look to be as efficient as we can in our delivery and overall operations in order to take all of this creativity and innovation and plant it on a strong operational and financial foundation.
We have a long history in being operationally strong. I believe over time, we'll be able to achieve both high growth and strong operating margins. This will ultimately make us the winner of the conversational commerce space. With the products we are now bringing to market, I've never been more confident in this possibility. These new solutions will significantly increase our platform's reach into more conversations and enhance the consumer's ability to discover messaging. Let me elaborate on some products that we've released in the last few months. First, we released a product called Social Connect. Behind that, Email Connect. Then proactive campaigns for messaging. Customers have already started to use these new products.
A leading European telecommunications company and an online travel agency are actively monitoring Twitter and Facebook feeds now on LiveEngage and empowering agents to publicly or directly message consumers when they have questions or complaints. Likewise, our customers can now ingest customer care emails directly into LiveEngage and automatically reply dynamically that moves that conversation from an inefficient email to a messaging conversation. We can literally move those conversations from an old technology to what consumers want to use. With proactive messaging, we now have a healthcare insurer and an education network actively managing marketing campaigns over messaging. Other customers are transforming traditional one-way messaging notifications for use cases such as flight delays, fraud notifications, and flash sales into two-way conversations that drive better outcomes.
This is really helping us extend all the places we can reach in the world where conversations are happening, whether it's on social or email. We're now bringing and ingesting all that onto a single platform. I want to also highlight a really important announcement by Apple, which is called Chat Suggest, which is currently rolling out globally on all iOS devices. With Chat Suggest, brands can choose to offer consumers now a messaging option and redirect them to Apple Business Chat right from the device when they go to make a phone call. Imagine that.
You go to dial a phone number. Now instead of just making the call, it offers you, "Would you like to message this brand?" We already have more than 30 brands live on Chat Suggest across the globe, and we estimate that LivePerson launched four times more brands than any other providers or partners with Apple. Moreover, the early data is very encouraging, as we are seeing customers with Chat Suggest double their Apple Business Chat volumes within the first several weeks of launch. This is a powerful statement for how messaging discoverability can now drive much higher volumes. In closing, I want to iterate two key themes. The first centers on our vision for how conversational commerce will profoundly change the way leading brands deliver care, sales, and marketing experiences to consumers.
The impressive breadth of use cases that our customers signed up for in the third quarter and the new solutions we are launching highlights how rapidly this vision is becoming a reality. We're exposing our platform to millions of conversations that we previously couldn't reach, like on social and email, and we're driving increased awareness of messaging with consumers around the world. Second theme is around our position of industry leadership. We've long held that LivePerson has established at least a 12-18-month competitive lead centered around a unique vision, platform, and value proposition. With the recent product introductions and our advancements in AI-powered conversation, we continue to maintain our unique competitive position. I will now turn the call over to Chris, who will do a deeper dive on our financial outlook. Chris?
Thanks, Rob. We accelerated revenue growth for the second consecutive quarter, highlighting another period of strong execution. The back of this momentum, we're increasing our revenue guidance and adjusting our profit forecast to account for increased investments tied to a market inflection toward conversational commerce and associated sales pipeline demand. Before we dive into those details, I'll first discuss a number of third-quarter highlights. On a year-over-year basis, revenue increased 17% in the third quarter, up from 15% in the second quarter and 14% in the first quarter. On a sequential basis, similar to last quarter, we grew 6% from 2Q to 3Q, demonstrating strong layering of recurring revenue driven by our second strongest contract signings quarter ever, topped only by the second quarter of 2019.
Deal volume once again rose considerably, with total deal counts growing 47% year-over-year, fueled by 33% growth in new customers and 64% growth from existing customers. Our wins are also getting larger. The average signing value increased 38% year-over-year, reflecting our depth in AI capabilities and the breadth of use cases customers are adopting. These catalysts are also reflected in our enterprise and mid-market ARPU, which continued its trend of greater than 20% growth and hit a record $330K. Revenue retention for that business also remains strong and within our target range of 105%-115%. From a geographic revenue perspective, the U.S. continued to accelerate and fuel growth up 19% year-over-year, with our international business up 14%. As we've stated on past calls, the U.S. is the region where we first invested in go-to-market and therefore ahead in the scaling.
In 2019, we began duplicating that blueprint in EMEA and APAC and anticipate a similar payback in 2020 in those markets. Looking at our industry verticals, financial services, telecommunications, and technology led the way, each climbing more than 30% year-to-year. Drilling down into our go-to-market, partnerships influenced more than 40% of contracts in the third quarter, an encouraging signal that the investments we discussed at our Investor Day in May are beginning to bear fruit. In fact, we formalized several new partnerships in the third quarter, including one with TTEC, a leading digital customer experience technology and services company, and another with DMI, a leading digital transformation company. Lastly, our sales pipeline continues to hit new records, supporting our outlook for continued acceleration based upon the investments we've made in expanding our sales force.
In the setting of our pipeline, you'll recall that we highlighted at our Investor Day our investment in sales capacity as a vehicle to capitalize on rising demand. I'm pleased to report that we continue to execute well on this important front. We ended the third quarter with approximately 95 quota carriers, up from 89 at the end of the second quarter and up from 50 at the end of 2018, putting us tightly within the range of our expected hiring goal of 100 total quota carriers by year-end. In terms of the breakdown, approximately 60% of our quota carriers are in enterprise and the remainder in mid-market and small business.
You'll recall our productivity metrics show it takes 12 months for our enterprise reps to reach productivity, meaning we'll have the full complement of our sales force beginning to contribute in 2020, a key element of our confidence in a continued rate of top-line acceleration next year. In contrast, mid-market and small business quota carriers typically ramp to productivity in 6-9 months. As a result, roughly two-thirds of these reps are now approaching maturity. We planned for this and entered the year guiding that mid-market and small business revenue would return to growth. Now we're delivering on that commitment. As we wrap up our highlights of third-quarter revenue, I'd like to call out our consumer segment, which generated 37% growth in the third quarter and delivered its fifth consecutive quarter of acceleration.
This achievement is due to our growing expertise in acquiring customers digitally and exemplifies consumer adoption of messaging for conversational commerce. Ultimately, we expect the insights from this experience to inform any future consumer offerings. We continue to see ourselves in a rapidly evolving and favorable demand environment, compelling us to operate with more agility while maintaining strong cost controls. Toward that end, during the quarter, we capitalized on the continuing favorable demand environment and consciously decided to increase investment in marketing, technical delivery expertise, and customer success, each guided by strong ROI visibility. I'll briefly touch upon each. Our experience over the past two years clearly demonstrates that our enterprise marketing summits create a differentiated and immersive customer experience.
We pointed to greater than 40% contract win rates from these summits because they connect customers to a trusted community of references and provide a clear roadmap to a conversational commerce transformation. In the third quarter, our summits delivered once again, and stronger-than-anticipated customer interest contributed to approximately $2 million of investment above our initial expectations. In Q3, we conducted over 20 events globally. Twice as many as last year, three of which were major events held in San Francisco, London, and Singapore. Notable highlights included a co-hosted event with a consumer messaging partner tied to the launch of Apple Chat Suggest. This event was highly successful, leading to LivePerson launching out of the gate with an estimated four times more brands than any peer. We attracted over 100 C-suite executives to our first event in Singapore.
We recently established an ASEAN regional sales hub in Singapore. This event was key to building initial momentum in the region. Our event in London focused on conversational marketing, which we've highlighted as a growing proportion of our sales pipeline. From a 3Q event outcomes perspective, we created and influenced nearly $12 million of pipeline, released $3 million of order forms, and signed two customers in Q3 tied to customer events. Due to rapid growth in contract activity, strong AI adoption, and a host of new developed products coming to market, we're experiencing increased demand for our expertise in conversational design and bot tuning, endpoint deployment, and customizations of APIs and function as a service. This expertise is a key differentiator for LivePerson, enabling smoother implementations and a faster customer return on investment that in turn increases platform usage.
In the third quarter, we spent an incremental $2 million to build out these delivery teams. This strategy also mirrors a key finding from this year's Enterprise Net Promoter Score survey, which was up 38% year-to-year following our response to feedback in this area. Ultimately, though, our goal is to transform the labor component of these delivery services into productized software. The final area of incremental investment focused on accelerating mid-market and small business growth. As I shared earlier, reinvesting in our mid-market and small business go-to-market engine has proven successful. On the back of increased quota carriers in small business and mid-market, revenue is now back to growth, fueled by a 50% increase in year-to-date contract signings. Now we see an opportunity to compound that success with even higher revenue retention rates.
To do so, we decided to place customer management and renewals in our own hands versus our historical reliance on third parties. As a result, during 3Q, we built up internal teams that ran concurrently with third parties in order to minimize customer disruption during the transition. This increased our expenses in the quarter by approximately $2 million, but we expect these overlap costs to be immaterial by Q1 of next year. These three incremental investments were the primary contributors to the variance between our third quarter guidance and reported GAAP net loss of $25.9 million and adjusted EBITDA loss of $6.3 million. From the balance sheet perspective, we ended the third quarter with $205 million of cash and equivalents. Deferred revenue reached a record $73 million, an increase 33% on a trailing 12-month average.
With third quarter results as a backdrop of momentum and our decision to invest from a position of strength, we're raising 2019 revenue guidance to a range of $289.5 million-$292.5 million and anticipate continued acceleration in the fourth quarter, implying an exit revenue growth rate between 17%-22% year-to-year. Taking into account the aforementioned third quarter incremental investments of approximately $6 million and carrying forward the full impact of technical delivery and customer success resources into the fourth quarter, we anticipate a full-year adjusted EBITDA loss of $14.8 million-$11.8 million and fourth quarter adjusted EBITDA of between $0 and a positive $3 million. You can refer to our earnings release for additional details on our fourth quarter and full year 2019 assumptions. Now let me wrap up with a few final remarks.
First, we entered 2019 with the right strategy at the right time. Scaling sales capacity and increasing product velocity underpin our growth acceleration plan, and we're executing with precision on both fronts. Second, we're bringing an even sharper focus on effectively onboarding and ramping customers and employees, which should magnify paybacks on our sales and product investments. Third, we believe we can disproportionately win share in conversational commerce. The creation of any new market category is highly dynamic, making it imperative that we remain agile in our investment decision-making while maintaining strong cost control and continued investment rigor. We're operating to that principle daily. With that, we'll hand the call back to the operator to take your questions. Operator?
Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star and then the number 1 on your telephone keypad. We ask that you limit your questions to one question and one follow-up. Once again, that is star and then the number 1. Your first question comes from the line of Ryan MacDonald with Needham.
Yeah. Hi, Rob and Chris, thanks for taking my questions and congrats on a good quarter. I guess as just digging into the increased levels of investment in the quarter, I guess as we look at sort of the cadence of customer summits and sort of the large increase we saw in third quarter, what sort of visibility do you have into sort of the schedule and cadence of that as we look into the end of the year and perhaps into the early parts of fiscal 2020, just to get a better sense of what maybe levels of spend will be like going into next year? Thanks.
Hey, Ryan. Thanks. As you'd imagine, we have good visibility into the locations. There's a great deal of planning that goes into the process. The enlistment or the sign-up of customers can be fluid. With the success that we've had and the campaigns that we're running that wrap around these large summits, we saw very high interest in the quarter for not only those large-scale summits that we held in San Francisco and London and Singapore, but as I mentioned in the prepared remarks, we held 20 overall, which was double what we had last year. Those can be more micro events that we take LivePerson to a customer, or we do something in between the level of one of those micro events and a large scale. Good visibility to where. The fluidity is how much sign-up we get.
What's been, I think, powerful about those summits, they've evolved from creating awareness and creating new pipe to now, we put this in our prepared remarks, they're usually as much about creating new opportunities, but they're great progression tools. A good indicator of that was the distribution of 3 million of order forms and two contracts that actually closed on the back of our event. Pretty good visibility to wrap up, but we've seen really high interest, and that drove the expansion of costs in the quarter.
Excellent. Just a quick follow-up. In terms of the metric you gave about a 38% increase in average deal sizes, can you quantify or talk about sort of what's driving that more, whether it's customers actually signing up for more interactions, or more channels, that they're adopting at the initial point of sale? Thank you.
A combination of both. It was also this quarter, driven by both new customers, existing customers, and partner-led sales. It was really pretty broad-based across the sales that we saw this quarter.
Thank you very much.
Your next question comes from the line of Peter Levine with Evercore.
Great, Rob, Chris, thanks for taking my question. With the incremental $6 million this quarter, I mean, is that an addition to the $10 million you called out in 2Q? How should we think about investments going into Q4 and perhaps maybe into calendar 2020?
Yeah. Kind of just tracing back, right? The marketing events were incremental to what we had talked about last quarter. What we didn't have in frame last quarter was the addition of technical resources and the shift we were going to make to bring in-house customer management and renewals in the mid-market. We certainly pulled some spend into the third quarter that was planned, but the technical delivery resources and the customer management resources were net new, and you see that then flowing through into the fourth quarter. I think on a macro basis, though, to kind of really zoom out for the investments that we've made this year, we're thinking about them as being in 2 buckets.
First, we wanted to make sure that we put capacity in the system to develop the products that we wanted to bring to market and to be able to execute on the pipeline that we had from a go-to-market perspective. Check the box. I think we've done a really good job. We're now up to 95 quota carriers. The second bucket that I characterize this third quarter and fourth quarter investment now flowing into is how you service that demand. We've received very clear feedback in our Net Promoter Score surveys, and we're fortunate to have great customers that take the time to complete them. What they're asking for is depth in industry and depth in our technology platforms, and they're willing to pay for it, so we're reacting to that.
On the mid-market and small business side, we talked about wanting to bring that business back to growth, and it began to return to growth last quarter. It accelerated this quarter. It is being driven by really outstanding contract bookings. We want to marry that execution up with great contract management and customer service, and we think the best way to do that is to do it ourselves.
Right. I think one of the objectives here is to kind of lower the number of concurrent deals I think reps carry. I think for you, I mean, you called out, I believe it was like high to mid-teens, where I think the industry average is like four to five. Where are we today in terms of how many deals reps are carrying? Where do you want to end the year? Kind of if you think about the building of these pipelines, I mean, do you have confidence that the investments you're making today, that your service org can kind of support these deals going into calendar 2020 or in calendar 2020?
We definitely do. If you look at what reps are carrying today, when we talked last, it was around 15 for new logo hunters each and around eight for partners. I think we've made a dent in that, but what we're getting better at now as a company, and kudos to our sales leaders, we're starting to get smarter on when we pick up the deal, right? When that deal gets handed off between the SDR and the account rep or the CP, so that we're chasing deals when they reach the right stage of maturity. I think we'd be a bit chasing our tail if we kept trying to keep up with how fast our pipelines are growing with having to continue to throw bodies at it.
We're trying to get better now and smarter now on handing them off when they're at the right stage of progression and be more efficient that way. We're looking at every single sales rep
Every single client partner, every single SDR in the company, their time to first deal, trying to get really smart on what we can do to make them be more successful and ramp quicker.
Great. Thank you again. Save my questions.
Thanks, Peter.
Your next question comes from the line of Koji Ikeda with Oppenheimer.
Thanks for taking my question, guys. Congrats on a nice quarter. I wanted to touch up on the deal metrics, some of the best we've seen in a while, and the trailing 12-month ARPU increased again, so congratulations there. Billings, even coming out of tough comp, it was single digits, and even looking on a trailing 12-month billings perspective, it decelerated. Could you help us bridge the gap between that really good deal commentary and then the deferred revenue and billings build? Thank you.
Hey, Koji. Again, we've talked about repeatedly on past calls that internally, billings is not a metric that we use to guide our business. It's not a metric that we talk to externally as a view. On a quarter-by-quarter basis, timing of invoicing, the maturity of customer terms, meaning if they extend their terms or their terms narrow, can affect that. We do look at deferred revenue, obviously, deferred revenue on a trailing 12-month average is up 33% year-over-year. Again, seeing good overall growth there. Again, we're just not managing the business on a quarter-by-quarter basis, and we don't think that metric is something that's relevant to how we're delivering our growth. Koji, it's Chris.
Let's go back into the metrics that you talked about and what gives us the confidence and the visibility that we can continue to accelerate, not just in the fourth quarter, but as we said, at least 20% in all of 2020. As you pointed out, we've now strung together really two bang-out quarters of signings. Last quarter was its all-time high. This quarter was second only to that, and it was a pretty impressive quarter in terms of deal counts. New logos up, existing customers up, bigger deals. As you said, the ARPU's climbing. Revenue retention was right in the range that we want it to be, between 105 and 115. I think, when Matt and I look at it in detail, we then start to look at, okay, are you layering revenue quarter to quarter? I think there's some really interesting metrics to us.
This is obviously the second straight quarter of 6% sequential growth, when you dig one layer beneath that and you look at the hosting of the software revenue, that grew 4% sequentially last quarter and accelerated to 8% this quarter. We're confident we have the visibility to continue with our accelerating growth trajectory.
Thanks for that, Chris and Matt. Then just a quick follow-up here on the increased spend profile for the fourth quarter. I guess what we were wondering out there is, the opportunity looks really, really good. Is there a potential even in the fourth quarter for more pull-forward of spend or increasing the spending environment if that overall end market demand still remains really, really hot out there? Then back at the Analyst Day, I know you gave a 2020 EBITDA guidance of 7%-10% margin. What's the right way to think about that? Any sort of help there would be really helpful. Thank you.
For sure. The answer is no, that I don't see us pulling more spend from 2020 into the fourth quarter. Let's go back to an earlier statement being made. We're really trying to strike a balance of creating a new market, being dynamic and agile in how we invest, but at the same time, keeping the right spending controls and investment rigor in place. We think we're doing that well, but at the same time, we've added a lot of capacity in the last 12 months, and there's a point where you move off the dinner table and you just digest a little bit, and you assess what you have, and you look at the productivity that those resources are able to drive, and I think we're at that point right now.
Obviously, 2020 is not that far off. We're at that point as a management team and as a board evaluating what we've done, watching them and trying to enable them to be productive so that informs us on how to best go forward with 2020.
Thanks for taking my question, guys. Great quarter.
Thanks, Koji.
Thanks.
Your next question comes from the line of Jeff Van Rhee with Craig-Hallum.
Great. Thanks, guys. I appreciate it. A number of questions from me. Maybe along the lines of the prior question, just with respect to sales and sales capacity, obviously made great progress in these first three quarters. Just an update on where it sounded like you're going to maybe take a pause in Q4 and think about how this lines up for 2020. Just any updates on where you think we'll end this year? Chris, maybe just spend a minute on the hard and fast math around maybe CAC or LTV-related ratios or other ways that you look at to give a go, no-go decision on incremental sales heads maybe in 2020.
Great question. I think we'll land right around 100, Jeff. We're at 95 quota carriers where we ended the third quarter. I think we'll be within two on either side of that. I think as you point out, as we've said, we want to now look at that capacity. We're now measuring on a sales rep basis how long they've been here. We're now looking at the effectiveness of our enablement programs, their time to their first deal, how their pipeline is progressing through the system. Those are the metrics right now that we're looking at to be able to evaluate what is their future productivity going to be, and are there scenarios where we need to hire ahead of where we don't think someone's going to make it? We're trying to be balanced in that way.
We haven't talked externally about CACs and LTVs. It's something that we're doing internally now, something we certainly want to step up and do more of. I can't comment it on externally. The metric that we're looking at most right now for the productivity of the sales force is how each rep is working through their funnel. With the type of granularity all the way down to how many meetings they're setting up and the help that they need to get deals done and surrounding them with the right expertise to be able to close deals quickly.
Mm-hmm. Okay. Helpful. Then on the CapEx, if I have it right, I think you had guided $42. Was it $32 prior? If it was, what was the incremental decision increase there?
Yeah. That's correct, Jeff. There's two pieces to it. On the PP&E side, we're making an investment in more servers tied to production. We have customers that are driving very high volumes, and we're catching up to that from a capacity standpoint. Obviously, also with the headcount that's come on, there's a little bit more on the facility side that we're spending. The other component of it is the capitalized software. That is a little bit higher than we had guided to a quarter ago. With all the new products coming out and what we're delivering to the market and what we have in our pipeline, there's a little bit more that's being capitalized there.
Okay. Competitively, you commented on the leadership position, and certainly it bears out, I think, in our field work from what we've heard. I'm curious if you would talk about the bake-offs, what that looks like. Who is ultimately there and at least considered relevant by your customer base?
Yeah. Obviously, we're attacking the voice providers. Those are the companies that, they're legacy companies. They've been saying the last couple of quarters that they have messaging, and we know messaging is just a delivery mechanism with all the AI behind it and everything, but they don't even have that type. They're taking their chat platforms and sort of trying to make them something that is not messaging, but that's what we see today still. There's really not a change or shift in the competitive set.
I just think-
Okay. Go ahead.
No, please go ahead.
I was just going to say on the Chat Suggest, I think you commented about the impact there. I am curious to the extent you think the Cross-Carrier, the connect initiative that some of the major carriers came out with on the Google RCS side. Just any thoughts there?
Yeah. We're directly wired into the Google infrastructure right now, so the Google Jibe Cloud, which is the RCS sort of overlay. We are connecting directly into all of the carriers where they're not connected. This is for Android devices, which is about 3 billion Android devices. It's sort of at the beginning. We have to see how it shakes out. We've been working with the carriers because they're our customers and wiring in, and then also we're wired into Google, and we're already in the U.K. where they launched. In the U.S., we launched a year ago with their first brand on there, which is a big financial services company.
Mm-hmm. Okay, great. Thank you.
Thank you.
Thanks, Jeff.
Your next question comes from the line of Zach Cummins with B. Riley.
Good afternoon. This is Sarkis in for Zach. Thanks for taking my question here. Can you discuss your recent strategic partnership announcement with TTEC? Is there much in terms of maybe customer overlap, and what do you view as the total addressable market with that customer base? Thank you.
Yeah. We're very excited about this partnership. I've known Ken, their CEO, for almost 20 years. They've made a big shift, obviously getting into doing technology and strategic technology and digital consulting for contact centers. Now it's really an opportunity for us to work together to deliver on the conversational commerce promise. We're very excited about it. We're working on deals right now. We feel like it could be a really great partner for us, and we're very focused on it. It's good. I don't know. We have internal numbers, and we haven't put those out yet. Somewhere, we'll probably talk about it a little bit more as we get some momentum because we just announced it. They're one of the largest providers of technology in the contact centers. Obviously, they run large contact centers.
We have a lot of overlap with our enterprise customers because they're pretty much in every enterprise in the world in some capacity. This is really an opportunity to work closer with them on implementing our platform and also looking at the gain share, where we have all the gain share business that we do, which was previously called Pay for Performance. There's also an opportunity to have them service that gain share and then transform live messaging agents into bot builders and automation engineers. That's really, I think, the transformation we can do with a partner like that. We're quite excited.
Thank you.
Thanks, Sarkis.
Thanks.
Your next question comes from the line of Raimo Lenschow with Barclays.
Hi, guys. It's Mohit on for Raimo. Thanks for taking my question. I'll offer my congrats on a solid quarter again. Rob, a question for you. In terms of in Q3 or rather in Q2, you discussed you had laid out some incremental product investments. I was wondering if you can give us an update there, how those are sort of driving in ROI. Also, I was curious, so you mentioned a 12 to 18-month product lead, and I'm assuming the competitors are trying to catch up, and the market is obviously getting a lot of traction. To maintain that lead, how do you think about product investments in the next year? If you can unpack that for us, that'd be great.
I'll take the second part, which is the competitive advantage. There's two parts to the platform that are really important. The core is the automation, the AI engine, which we call Maven, which enables these conversations to get automated, either consumer-facing or we help the agent to be more efficient by automating what the agent's doing in the console. That we continue to provide more and more technology. We just provided some technology around how do you look at an intent? How do you process that intent? How do you get smarter on how you answer a question to the intent? There's a lot of technology that goes into that. As I talked about in my prepared remarks, our mode is really the data that we have.
The data sciences engineering teams are able to take that data and do many things with it that gives them a massive competitive advantage on the AI and automation side because we have hundreds of millions of these digital transcripts. The second part is we're pretty much almost finished with all the endpoints that we have 13 now endpoints that a consumer can come through, whether it dial social, all the messaging endpoints, in-app, web, in the IVR. We've provided now a bunch of those in this quarter. That gives us our reach. When we look at our flywheel, it's reach, it's the amount of use cases we can do through that reach, sales, service, and marketing. As we mentioned again on this call, we now can do outbound campaigning. It's not all about inbound. We do outbound marketing campaigns and targeting on the platform.
The quality of those conversations, automation versus human, and that drives our flywheel. I think that just gives us a massive advantage in the market is because we also have many scaled customers now after being about two and a half years out in the market or so. We baked so much into the platform. We were years ahead when we launched, and then we continue to be ahead in what we're doing. I feel really good and we dropped a lot of product in the last two months. We're pretty excited about on that side. The first part of the question.
Mo, I think we missed it.
Yeah.
Were you asking about the return on the R&D investment? Or was it something else?
Yeah. In Q2 you discussed some incremental top R&D investments. Just wondering as to how those are. If you can give us an update there, how those are trending.
Yeah. They're trending well. It's basically correlated to what I just said. We dropped a tremendous amount of product into the market in this quarter. We're very excited about the investments we're making and the speed in which the products are coming out onto the platform. Obviously we have a future roadmap coming. We feel good right now about our level of investment and the return that investment's going to make. That'll just drive ARPU. Ultimately, when you see ARPU numbers go up, a lot of this has to do with what are the other things that they're using. We know, as I mentioned also in the prepared remarks, if a customer starts with automation, it could be double the size of the ARPU versus someone doing live interactions.
These are all things that we go, the Apple Chat Suggest stuff and preparing for that could drive a tremendous amount of volume. That'll drive ARPU. This is all the things that are driving. We feel good about the investment right now.
Thanks, guys. If I can ask a follow-up. I know that you may not be ready to talk about the next year's leverage and margins, high level, if I think about the three OpEx items, right? S&M, G&A, and R&D, which of those areas you think will be more probable to see any leverage next year? I'm assuming you still want to keep your competitive lead in product. We'll see healthy growth in expenses there. Quota carrier capacity, I think you discussed actually how you're thinking about that from a LTV to CAC basis and other KPIs. Just any highlight on which of those three areas maybe we might see some leverage next year will be great. Thanks, guys.
Yeah. Look, we did a tremendous amount of investment this year to put capacity into the system, and that has to do on the product side, and that has to do on the quota-carrying rep side, and then the support and field organizations that support our customers. I think right now we need to see how those investments start to ramp. The trainings with our reps, all the products we've built, we've got to bring them to market, sell them. I think as a leadership team, we're looking at why don't we just look at how things go now. I would expect to see some leverage. G&A, I definitely think we're going to see leverage there. In the other areas we're looking at, right now we're just really looking at all that capacity.
We sort of say front-loaded it, we loaded it this year and we want to see the knock-on effect into next year. Personally, I'd like to see how that comes through before we keep biting more and more apples down on it. That's where we are.
Yeah. I think it's worth emphasizing when we look at all of our quota carriers right now, the 95 that we have, and as absolutely thrilled as we are with how this year's signings are playing out, it's being done with a partial team, barely a partial team. Next year, when you look at the charts that we're looking at, when people have been hired, where they are in their ramping, the full complement of the sales force will now be contributing in 2020. That's exciting to us, and we want to see that translate.
Sounds good. Thanks, guys.
Thank you.
Your next question comes from the line of Samad Samana from Jefferies.
Hi, this is Mason on for Samad. As you talked about, ARPU was up nicely, but they continued to decelerate as you continue to sign these larger deals and onboard them. Should we expect the ARPU deceleration to continue at the same rate as we think about 2020?
I think with the volume of deals picking up, and with mid-market and SMB really starting to accelerate as they have, that will bring pressure on the ARPU. If that's a bigger force than the momentum we have in enterprise and the type of deals they're signing, that would bring downward pressure to it. That's kind of on a matter of time thinking about it.
Yeah. I agree. If ARPU is coming down, it should only be happening if deal counts are going up, and it's because we're signing more new business and more mid-market and small business, which come in at lower than a traditional enterprise ARPU. Hopefully that's a positive trend for us. The combination of unit volumes and ARPU should still drive the overall growth measure.
All right, great. Thank you.
Thanks, Mason.
Your next question comes from the line of Brett Knoblauch with Berenberg Capital.
Hi, guys. Thanks for taking my question. First one, maybe if you just look at your top five largest customers, what % would you say you are penetrated in those accounts?
If I look at all the use cases, sales, service, marketing, and all the potential endpoints, it's somewhere between 3% and 7% of what we think we can get out of our customer on the messaging side.
Okay. That's helpful. Maybe as you're thinking about proactive and reactive interactions, is there a mix you see that falling to? Maybe are there different pricing points between a proactive or like a reactive message or interaction?
Yeah. We know the proactive gets us into the sales and marketing budgets. They tend to be a lot bigger than the potential of the care budgets, which are potentially inbound. I expect on a unit basis that the revenue we would make per unit would be higher, and also the volume would be far greater at some scale. Today, our entry point still is, beachheading into care and then fanning out. The other thing is that the proactive capabilities also slot intelligence, even for care to go back out proactively and say, like, if I'm a telco, maybe we're having service issues in an area, we can be proactive with a lot of intelligence back to a certain customer base. There's a lot of technology we've built. We built this thing called FaaS, function as a service.
You can actually develop code within our platform, and you can connect up your internal We already have CRM, but action on it. You could trigger that there's network outage, on the platform, it goes and looks and dips into all the messaging clients that are in that area and sends out a proactive message. That's all part of the capabilities now with the proactive capabilities we put in there. The sales, marketing, and retail also we see as much bigger opportunities than the care opportunities. We're beachheading still in on care.
Okay, thank you. Maybe just one more on gross margins. A little bit of a downtick this quarter. I guess, is there any one particular thing driving that?
Yeah, the gross margins, that's where those technical delivery experts are residing. What makes them unique is they're the type of candidates that can toggle between R&D and delivery, but in their most recent utilization, they're more focused on scaling and making the implementations go very quickly, which obviously drives faster time for the customers to see value on the platform, which therefore drives more usage. That's what's driving the margin trends right now.
All right, great. Thanks, guys.
Your next question comes from the line of Mark Schappel with Benchmark.
Hi. Thank you for taking my questions. Most of my questions have been answered. Rob, just to follow up here or finish with a product-related question. With respect to the Chat Suggest product that you talked about, I believe you mentioned that there's currently four customers using this solution.
40.
Was it 40 or four?
It's about 30. About 30?
Yeah. What we said is that we've launched with four times more customers-
Four times more.
than Apple.
We have about 30 on it.
Okay. Thank you for the clarification. I was wondering if you could just provide a couple of examples or specific examples of how customers are actually using the new solution.
Yeah. If you want to use us, per se, if you do, let's say, a search on the web for LivePerson, you'll see a phone number on our website, or you see a phone number on Google My Business, whatever it is. When you go to click on that phone number, previously, it would pop up a little dialog box on the iPhone that says, "Call or cancel." Right. Now it has Message, Call, Cancel. You hit Message, and then you'll be brought right into the Apple Business Chat, which is iMessage, and then you're connecting right with the brand. The brands decide, "Okay, I'm going to enable certain phone numbers to be deflected." Then they can also throttle the volume. They can decide, let's show this only to 1% of people who are making phone calls or a certain volume.
They can throttle it, and that gives them control over it. The statistics we have are pretty startling and exciting about, we're seeing how many people are clicking and then interacting. I think the power of it is that we've been very focused on getting rid of deflecting 800 calls from the IVR, but this, it never goes to the IVR. The call never made it to the IVR. It made it straight into messaging, and then we're using a bot to ask the question, like, "Do you want a sales? What would you like to ask a question of?" That's the way it's being used today. I think it's quite powerful because it cuts off the call from getting into the IVR.
Thank you. That's helpful. Thanks.
No problem.
Your next question comes from the line of Steve Enders with KeyBanc.
Hi. Thanks for taking the question. I just want to dig a little bit more on the product side and some of the new initiatives that you're rolling out. Just wondering, as you go to customers and you're talking about your new social initiatives and email initiatives and everything else you just came out with, what is driving this interest from them, and where do you see the biggest potential to drive growth over the next few years?
This really came from our customers, which is they have social groups. They've got the email groups. Obviously, they've got voice groups, messaging groups, chat groups. We've obviously consolidated the messaging and chat groups. They get consolidated on our platform. The social care one, actually, we've had direct messaging, that if you do a direct message with a brand, it would have came on LiveEngage, and that's been out for a few quarters. Now what we can do is in the public feeds, where a consumer just posts something into a news feed, we can track it, we can reply back, and then we can take someone into a direct message. We have the monitoring capabilities and then the ability to take that in.
What we see is that in the care organizations, let's say, they don't want to have that group on a separate platform. They want to bring that all into a conversational commerce platform. Then email, we've never built an email system in our life. I never wanted one here, nor did we build one now. We tried to solve the problem of email, we know is not a great way to communicate, but obviously, a lot of emails are going back and forth between brands and consumers. Now we have a way to take that email. We ingest it into LiveEngage. We then turn it into a conversation that we can send back out. The reply email is I click here, and let's start a messaging conversation that's asynchronous around that email. Then a case is built.
We have the capabilities to keep that email, track it, but you take it off of email now, and it's once again sitting in that platform, and we can then have a full view of a consumer. Now I got them through Apple Business Chat, but they sent an email. Now I put them back on Apple Business Chat. Now I can be proactive with them. They went through social, and they posted something on Facebook or Twitter, "I'm having a problem with your product." Now I brought them through the messaging channel. It gets them to have that single view of the consumer from the messaging perspective. Then you can do the AI and all the proactive stuff and the reactive stuff.
Okay, got it. That's really helpful. I guess that's the last one for me. Just wondering how you guys are seeing the current hiring environment and the ability to bring reps onto the LivePerson.
We feel good. We have a good story. If you're on the field side, you can make a fair amount of money, a lot of money if you're a quota-carrying rep because we have a unique product offering and a way to bring it to market. On the engineering side, we've got a great leadership team. We're global now. We obviously did a great job on globalizing operations. What's amazing is that we opened up an office in Seattle, I think it was about less than a year ago, and we're almost up to 200 engineers there. That's what's been recruited, that's a tough environment. I think our story there, too, that we have this technology, we have this data set that's very unique. I think people are excited to come here.
It's a tough environment, but we're in a very good place, and obviously, the power of our company is based on the power of our people and how good they are. We've been very fortunate to recruit some great people. We've also recently recruited some very good senior field people out of some of our call center competitors. I think we've taken some of their big sales people out, and so they're coming here now to fight the battle. I think that's also been a good indicator of what we have to offer in the market.
Okay, great. Thanks again, guys.
Thank you.
Your next question comes from the line of Mike Latimore with Northland Capital.
Great. Thanks. Yeah, congrats on the deal growth here. Just two quick questions. One is, you've given an enterprise growth rate for North America in the past. I wonder if you have that. Second, consumers really accelerated. Does that continue to accelerate, or does that sort of level out here?
I'll go reverse order. On the consumer business, obviously really excited about the five straight quarters of acceleration. 37 is awesome. I think it's best to think about the model there, at least how we are right now in the high teens, low 20s. We'll see if we can exceed those expectations. In terms of the enterprise growth rate, we just didn't want to get into the habit, but the trajectory hasn't changed.
Okay. Great. Thanks.
Your next question comes from the line of Jonathan Kees with Summit Insights Group.
Great. Thanks for taking my questions. I'll start with congrats. I'll add my congrats also for the quarter. I'll start with the follow-up question first. You guided for a Q4 of a top line of 17%-22%, and then for 2020, of at least 20%. I'm assuming you're still reaffirming your long-term revenue growth of 25%. It sounds like it may not be that long-term from that, given the growth rates here.
Yeah. The 2020, we're reaffirming, and the longer-term model, we're also reaffirming.
Okay. All right. In terms of, I guess, more of a deeper question here. You talked about the particular verticals, especially financial services, had 30% plus growth for the quarter. Just curious why financial services dropped in terms of the percentage of revenue contribution for the quarter, especially if it was one of the fastest-growing for the quarter?
Yeah. I've got it here. I guess it's 22% of revenue in the first quarter, 24% in the second quarter, 21% in the third. I don't think there's anything really to it. In fact, we've got a great pipeline of financial services, we've had good success there, and growth was over 30%, so I'm not sure there's anything, not on our radar anyway.
Okay. Fair enough. All right. Thank you.
Okay.
Thank you, ladies and gentlemen. I would now like to turn the call back over to Rob LoCascio for closing remarks.
Thank you, operator. I'll end the call just reemphasizing a few key points. We entered 2019 with stated guidance that we would accelerate revenue growth. We're delivering on that goal with two consecutive quarters of acceleration. We're now introducing meaningfully new product catalysts that will enhance our competitive position, raise awareness of messaging, expose our platform to millions of conversations we previously couldn't touch. More importantly, we're exiting 2019 what we believe is the definitive AI platform for conversational commerce. We believe that automation will be the future of business. Our goal is to be the world's leading conversational AI company. We have a tremendous opportunity in front of us. We're going to keep focusing on execution, return on investment in order to accelerate the momentum and capture the full demand of this dynamic market. With that, we will see you in Q1.
As I say on this quarter, on November 26th, we do this program since 9/11 called FeedingNYC, where we feed over 4,000 families in New York. If you get an opportunity, we've all had a good year. The company's doing great, stock's up and all that, but giving back to the communities we serve is important, and we've been doing it since 9/11. We've fed over 75,000 families in the city, in the shelters, and it's a great thing. If you're in New York or you want to come to New York with your families on November 26th, we pack turkeys and take them out, and we deliver them door to door to all these families who won't have normally a Thanksgiving meal. If you can, donate.
If you want to take some of your gains this year and put them back into feedingnyc.org, go there, make a donation. We want to feed tens of thousands of families next year, and we've got big goals, not only about the company, but serving our community. If you can do that, I'd really appreciate it. With that, enjoy.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.