LIVEPERSON INC Q1 FY2023 earnings

LivePerson's revenue fell sharply in the quarter ended June 30, 2023, while cost cuts and one-time gains pushed the company to a profit. Total revenue was $97.5 million, down 26.4% from the prior-year quarter. Management tied the decline to its plan to exit lower-margin and non-core lines of business. The March 20, 2023 sale of Kasamba removed the entire Consumer segment and the revenue it carried, and the company now reports revenue in a single consolidated segment. The drop came from lower hosted services and professional services revenue.

Profitability improved dramatically. Operating income was $5.6 million, up from an operating loss in the prior-year quarter. Net income was $10.8 million, up from a net loss. Diluted EPS was $0.12, up from a loss per share. Operating margin was 5.8%, up 58.8 percentage points. A settlement with former WildHealth shareholders did much of the work. It eliminated a multi-year contingent earn-out payment of up to $120.0 million and reversed previously accrued stock-based compensation, in exchange for a lump-sum payment of $12.0 million. Adjusted EBITDA, a non-GAAP measure, was $12.8 million versus a loss of $5.5 million a year earlier. Adjusted operating income was $3.1 million versus a loss of $12.6 million.

Customer metrics were mixed. LivePerson signed 69 deals in the quarter, made up of 33 new logos and 36 existing customer contracts, including 3 seven-figure deals. New logos included one of the largest banks in the world, a digital-only European bank and a leading health solutions company. Trailing-twelve-months average revenue per enterprise and mid-market customer rose 14% to $575,000 from roughly $505,000. Revenue retention for enterprise and mid-market customers on the Conversational Cloud stayed below the company's target range of 105% to 115%, as it did in the comparable prior-year period. Management plans to calculate ARPC using only B2B Core recurring revenue going forward. Backlog also shrank. Deferred revenue was $100.4 million, down 9.2%. Remaining performance obligations were $326.3 million, down 20.2%. About 89% of that backlog is expected to be recognized within the next 24 months.

Guidance for the third quarter of 2023 calls for revenue of $97 million to $101 million and adjusted EBITDA of $5.9 million to $12.9 million, with an adjusted EBITDA margin of 6.1% to 12.8%. B2B Core recurring revenue is expected to be 85% of total revenue in that quarter because of a one-time increase in non-core revenue. For the full year 2023, revenue guidance was narrowed to $388 million to $400 million from $387 million to $401 million, keeping the $394 million midpoint. That range excludes the $7.2 million Kasamba contribution in the first quarter. Including it, the full-year range is $395 million to $407 million. Full-year adjusted EBITDA guidance was raised to $19 million to $32 million from $15 million to $32 million. B2B Core recurring revenue is expected to be 86% of total revenue for the year.

Several risks hang over the story. Revenue retention remains below target and revenue is still shrinking. One customer accounted for at least 10% of accounts receivable at June 30, 2023. The company lists a material weakness in internal controls among its risk factors, along with lengthy sales cycles and the use of AI in its product offerings. WildHealth revenue recognition remains deferred pending a Medicare reimbursement review, which management expects to complete and recognize in the second half of the year, likely in the third quarter. On July 24, 2023, Starboard Value withdrew its notice of intent to nominate three directors.