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LivePerson, inc (NASDAQ:LPSN)
Q2 2021 Earnings Call
Aug 3, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Second Quarter 2021 Earnings Conference Call. My name is Victor and I will be your 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. To give everyone the opportunity to participate, please limit yourself to one question and one follow-up only. As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Alan Katz, Vice President of Investor Relations.

Alan Katz -- Vice President of Investor Relations

Thank you. Joining me on the call today is Rob LoCascio, LivePerson's Founder and CEO and John Collins, Chief Financial Officer.

Please note, that during today's call, we will make forward-looking statements which are predictions, projections and other statements on our future results. These statements are based on our current expectations and assumptions as of today, August 3, 2021 and are subject to risks and uncertainties. Actual results may differ materially due to various factors, including those described in today's earnings press release and in the comments made during this conference call as well in 10-Ks, 10-Qs and other reports we filed 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 for the quarter, are available in the Investor Relations section of LivePerson's website.

With that, I will turn the call over to Rob.

Rob LoCascio -- Founder & Chief Executive Officer

Thanks, Alan. Thank you all for joining our second quarter earnings call today. The past few years have been proving our clear leadership in conversational AI and now conversational commerce. Q2 continued that trend as LivePerson once again delivered another very strong quarter. Revenue grew by 30.6% year-over-year, exceeding the top end of our guidance range. Overall, volume on the conversational cloud increased by 15% and conversations with AI-based automations also grew by 40% compared with Q2 of 2020.

Our results reflect the conversational AI market continuing its strong momentum as we're crossing into a wide adoption phase. Brands are looking at conversational commerce as the next big opportunity in digital commerce as they recognize that conversational AI is the key to creating scaled, personalized, unique digital experiences. 5 years ago, we made a big bet to go after this space, and our first-mover advantage puts us in a unique position to drive even greater growth. We're now looking to expand our go-to-market investments to capitalize on the massive opportunity we see ahead of us. Part of that investment is bringing on leaders that can drive the next phase of our growth. Tony Owens, one of the most senior sales leaders in the cloud software space, recently joined LivePerson as President of Worldwide Field Operations. Tony has a proven track record of leading sales at some of the largest high-growth enterprise software companies in the world. He most recently led the field operations for Salesforce in the Americas, its largest territory. With Tony on board, we expect to ramp capacity to meet the next level of demand by aiming to more than double our quota-carrying reps and other go-to-market resources over the next 6 months. We believe that these investments will give us the capacity to capture an even greater share of the market.

As these reps ramp up and begin to contribute, we expect to see a meaningful impact for them and are now targeting revenue growth of at least 27% in 2022. We expect these investments to help us continue to grow our base in customer care and accelerate our move into marketing, sales, commerce and retail. Strategically, we are also doing something quite unique in how we are leveraging our conversational cloud platform to develop consumer-facing services in very large dynamic markets. One of the biggest industries that is going to be transformed by AI is healthcare. The idea that we can truly personalize healthcare and put consumers at the center of their own data will reshape the healthcare industry. In a recent Health Tech Report, Deloitte noted that in 2020, over $14 billion of venture funding was invested in health tech companies, and more than $6 billion went into digital solutions for data and platform innovators or remote monitoring solutions with AI or machine learning capabilities, seen as table stakes.

At the beginning of this year, we quickly entered into the AI health space. In the first half of the year, we developed and launched the diagnostics and testing platform called BELLA Health, built on top of the conversational cloud. We were able to move very quickly because 80% of this new offering was built using the power of our core platforms. As we discussed last quarter, the first contract for our offering was related to rapid in-home COVID-19 tests and COVID testing has become an overall catalyst for increased development of new offerings for the entire medical diagnostic industry.

We delivered the BELLA Health app and the first set of corresponding tests ahead of schedule and the timing of these deliveries led to some of the outperformance versus guidance we achieved in Q2. The business model for BELLA Health is we charge each time the app is used to administer a test. We're paid from the partner test diagnostic company. Although this revenue is a little more variable than our core business model, it enables us to quickly catch more upside as we saw in Q2. Given that we're still early in developing this business, we're going to see how volumes materialize over the next few quarters before we embed any potential upside from testing into our long-term outlook. The BELLA Health platform will also be used to deliver other testing solutions for things like flu, Strep, HIV as we're partnering with a few global medical diagnostic companies on the next phase of other testing solutions. Beyond testing, we also launched a messaging and AI automation solution for a number of global healthcare companies. We also signed a new logo deal and one of the largest urgent care provider networks in the U.S. to implement a fully automated customer interaction system to ensure they can schedule appointments and answer patient inquiries remotely. It's still early, but the medical diagnostic and healthcare markets generally represent a significant opportunity for us, so more to come on this over the next few quarters.

Another vertical we're seeing tremendous opportunity in has a first -- and we have a first-mover advantage in, is the blockchain and crypto space. This is an industry that has been expanding by 80% to 100% annually with over 100 million people now involved in buying cryptocurrency. We signed a contract with one of the world's largest cryptocurrency exchanges in last quarter and have already signed a new expansion opportunity during the quarter with them. We also signed an agreement in Q2 with ConsenSys, a leading blockchain technology company to provide conversational AI support for its blockchain and crypto communities. We'll start -- we're going to start with our Crypto Wallet MetaMask, which has over 8 million monthly active users, providing them with a simple and convenient option to start an immediate conversation with an AI and access educational information on demand. This new AI-powered conversational support will add on to existing extensive support for MetaMask users and it aims to improve the speed in which support is delivered.

Brands in the crypto blockchain space are fast-moving with incredible technology, but there are generally -- but they are generally not equipped to handle the customer engagement and communication needs of a sophisticated consumer base that's tech savvy. These consumers are looking for 24/7 immediate, intelligent, and asynchronous customer care from these brands. Our platform allows them to be on a device and always-on, leveraging messaging-based AI-first approach to meet consumer needs. Our early success is being driven by both our technology, our ability to scale quickly and effectively to match the fast growth of these brands. We are also continuing to see tremendous demand in the traditional brick-and-mortar retail sector as there is a continued move to create personalized, scaled, digital commerce experiences over messaging using conversational AI. In Q2, we signed a 7-figure deal with a leading retail marketplace and are deploying our Gainshare model to manage both messaging and voice. We are seeing more opportunities to take over voice operations of a brand, which gives us greater control over transforming voice to messaging using conversational AI. By working with us on voice as well as messaging, this brand is aiming to drive consumers to automated messaging interactions to increase self-service and improve response times. They are using our platform for both care and commerce, and we see this is a great long-term relationship with the potential to expand in the near future. This brand is also using our advanced AI-powered analytics and management tools, including Intent Manager to build out traditional automations and ultimately to drive strategic business decisions.

We also signed and implemented one of the largest brands in the paint and coating manufacturing industry. We started with a care use case focused on automating answers to common inquiries and driving transactions by engaging buyers in messaging while they were shopping online. Using our messaging platform, they have seen a 3.5x increase in conversion to sales compared with their prior self-service approach and also an increase in local store sales. They are also going to use our messaging platform for proactive marketing engagement and additional integration with some of their other marketing tools. When we were originally looking at our TAM back 5 years ago, we did not have companies like this in it. And what we are really seeing is messaging being used not only for communications, but as a framework for deploying a myriad of unique digital experiences.

In Q2, we also started to see increased demand from brands using our newly released social media integrations as we push into adjacent channels. By adding social, we are able to deliver a more seamless consumer experience and enable brands to consolidate consumer connections into a single platform. The social media communications market is estimated to be a $5 billion market and growing. Brands are coming to us for our fully integrated automated messaging solution, which can also incorporate social data trends into the intelligence of using AI for targeting consumers around specific intents. Along the same trend of managing end user engagement through a single platform, we had several brands that are power users of social media, move their social media communications to us. One of those brands is the leader in streaming music. They had a very large social media implementation with a well-known entrenched competitor, and they decided to consolidate the social onto our conversational cloud. This enables them to fully integrate it with all their other messaging communication channels that they do with us. This is a big win on top of a handful of others in the space that we will leverage to accelerate our go-to-market in social.

We had a vision five years ago that messaging would become more pervasive than web and apps one day in delivering unique and powerful digital consumer experiences. We started out competing in the traditional voice contact center market, and now we see a host of other opportunities in the consumer experience area. This quarter marked a new chapter in reaching our vision, and we're excited about this new phase in our company's journey.

And with that, I will now turn the call over to our CFO, John Collins, for an operational update and a discussion on our guidance.

John?

John Collins -- Chief Financial Officer

Thanks, Rob. Impressive execution translated to another quarter of revenue and adjusted EBITDA significantly exceeding the top end of our guidance range. In the second quarter, we also strategically built on the foundation required to continue accelerating growth. First, we continued signing new logos and expansions within fast-growing verticals, such as healthcare and blockchain. Second, we extended our care and commerce capabilities through integrations with Google and Adobe, the latter of which leverages our AI solutions to deliver personalized consumer experiences at scale. We also rapidly delivered end-to-end messaging services to manage voice operations and messaging operations through our Gainshare business. And finally, we continued onboarding world-class sales and marketing leaders to help plot our course to even greater growth.

In the second quarter, it marked our fifth consecutive quarter of 25% plus revenue growth, with the last two exceeding 30%, and our fourth consecutive quarter of operation at the Rule of 40. While our strategy to enhance operating leverage clearly delivered the intended results, we see rapidly increasing demand for conversational AI within both care and commerce as an opportunity to grow even faster. According to research from BCG, the market for conversational commerce is expected to exceed $130 billion over the next 5 years and we believe we are uniquely positioned to benefit from this secular shift. The breadth and extensibility of our platform, including the effectiveness of its AI solutions, enables us to deliver personalized and trusted consumer experiences at scale, which is essential for mass adoption. To drive that adoption, we're shifting our focus from enhancing operating leverage to aggressively expanding our go-to-market capacity.

Before discussing the key metrics and drivers of the quarter, I'll first elaborate on the strategic investments we're making to extend our leadership position in the market. We will be accelerating our investments in direct and partner-supported go-to-market capacity. In terms of quota carriers alone, we are targeting 200 in total over the next 6 months, up from 81 at the end of the second quarter. Naturally, an increase in quota carriers at that level requires a commensurate increase in marketing, sales and customer support infrastructure and recruiting capacity.

To that end, we expect incremental investments of up to $24 million in the second half of 2021. As we pursue a new phase of high growth, we will continue to evaluate opportunities for investment. Considering the magnitude of these investments, recruiting Tony Owens was a critical first step. Tony is a world-class leader who has built and optimized a SaaS sales machine that delivered growth many times our current scale. Recognizing that new quota carriers typically begin converting pipeline after 9 months, we expect a return on those investments to manifest primarily in 2022. More specifically, we estimate that revenue will grow by at least 27% year-over-year in 2022, including an exit run rate of 30% in the fourth quarter of that year. In terms of technology investments, we also continue to build enterprise voice capabilities.

We expect our AI-based voice offering to hit the market next year and to benefit from the voice operations we're currently managing within the Gainshare portfolio. After two large wins centered around our social media management tools, we're also allocating capital to extend our platform's capabilities in this domain. In addition, with the acquisition of e-bot7 and the continued investment in our marketplace's offering, we expect to diversify our sources of revenue by bolstering our go-to-market motion in the low end of mid-market and increasing our strength generally in Europe. Finally, as Rob mentioned, we're also off to an incredible start with the AI assisted healthcare testing business, and we're extending the platform to cover a wider range of uses. So with that strategic context, I'll move on to the quarterly financial metrics.

In the second quarter, total revenue grew $119.6 million, up 31% year-over-year, exceeding the midpoint of our previously issued guidance by $6.6 million, despite lapping the pandemic induced acceleration last year. The upside was driven primarily by higher-than-expected demand for rapid at-home COVID-19 testing, which pulled forward some revenue in the second quarter that would have otherwise been recognized in the third. As Rob discussed, we're excited by the growth prospects of this business, especially as we expand into new lines of testing. Given the variable nature of this testing revenue in the nascent phase of this business, we'll continue building a track record before embedding potential growth into guidance.

Our Gainshare and Consumer businesses also contributed upside in the second quarter, with Gainshare reaching 16% of total revenue. Note that gross margin was lower than we originally expected because of increased Gainshare and healthcare testing expenses, both of which were tied to revenue upside in the quarter. The Gainshare business tends to have a lower margin profile than our core messaging platform in the initial ramp phase of a contract. Margin tends to improve over time over approximately 1 year as automations are deployed. As for the healthcare testing business, we've only just begun, and we'd expect margins to improve as the business matures.

Turning to our reporting segments, within total revenue, B2B and Hosted Software both grew at approximately 31% year-over-year. Professional Services revenue grew 26% year-over-year, and the Consumer segment grew at 29%. From a geographic perspective, U.S. revenue grew 36% year-over-year, and international revenue grew 21%, driven by growth in both EMEA and APAC. We continue to both retain and grow with our existing brands. Average revenue per customer was $535,000, up 35% year-over-year. And revenue retention was again above the high end of our target range of 105% to 115%. In terms of revenue trends by vertical, we continue to see significant revenue growth within the retail and e-commerce space, driven by commerce related uses of the platform. Financial services also posted strong growth from care expansions. Billable platform usage continued to grow, increasing 15% year-over-year, while AI-powered messaging volume increased 40% year-over-year and now accounts for nearly 75% of all messaging volume.

As for new contracts, the dynamic in the second quarter was similar to what we saw in the first. While new logo accounts were down year-over-year, annual contract revenue for new logos doubled year-over-year. This dynamic was driven primarily by the Gainshare business and a continued pursuit of larger deals within our mid-market segment. The Gainshare offering continues to have strong traction with brands focused on conversational commerce, and these deals tend to be significantly lower than the average mid-market deal. As discussed last quarter, we have refined our Gainshare go-to-market motion to enable rapid deployment of managed services for both messaging and voice operations. We expect new logo counts to materially increase as our go-to-market investments begin generating returns.

Moving down the P&L, adjusted EBITDA in the second quarter was $13.4 million or 11.2% margin, exceeding the midpoint of our previously issued guidance by $7.2 million. The upside here was driven primarily by overperformance on the top line. As for cash, we used $7.2 million in free cash and closed the quarter with $664 million of cash on the balance sheet, a decrease of $3.9 million from last quarter. In terms of full year revenue, we are raising guidance from our previous range of $460 million to $468 million or 25.5% to 27.5% year-over-year to a new range of $464 million to $471 million or 26.5% to 28.5% year-over-year. This range reflects increasing demand for conversational AI and balance expectations for additional revenue from our exciting but nascent healthcare testing business.

Considering the strategic investments, primarily in quota carriers and field support that we're making in the second half, we are revising down our full year guidance for adjusted EBITDA from our previous range of $33.5 million to $41.5 million or 7.3% to 8.9% margin to a new range of $14.8 million to $22.8 million or 3.2% to 4.8% margin. As for the third quarter of 2021, our guidance range for revenue is $117 million to $119 million or 23.5% to 25.5% year-over-year, and the range for adjusted EBITDA is $4 million to $8 million or 3.5% to 6.8% margin.

Before taking questions, I'll emphasize several strategic themes that underscore our performance in the second quarter and expectations for growth over the next 18 months. While we've demonstrated an ability to enhance operating leverage and grow at 25% plus, we see an opportunity to substantially increase our market share. Secular demand for conversational AI is accelerating and our ability to deliver personalization at scale is extending our leadership position in the market. The versatility of the conversational cloud has given rise to a broad spectrum of new uses in every industry. For example, we've been successful at rapidly deploying our commerce offering through end-to-end managed services and extending our reach within high-growth verticals such as healthcare and blockchain. With continuity in these trends and aggressive investment in our go-to-market capabilities, again, we expect revenue growth in 2022 of at least 27% year-over-year.

With that, operator, we are now ready to proceed with questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Drew Foster with Citigroup. Please proceed with your question.

Drew Foster -- Citigroup -- Analyst

Hi, guys. Nice quarter and thanks for taking the questions. First one is on e-bot7, the recent acquisition you just announced. Could you just give some basic info on the company, maybe the size and growth rate, number of customers? And John, if -- how much if any contribution to your '22 guide is in there? And then just more broadly kind of strategic rationale was there a certain vertical exposure, technology or maybe a language locality, maybe just kind of double-click there? Thanks.

John Collins -- Chief Financial Officer

Sure. Yes, the e-bot7 team is a really talented and innovative team that extends our go-to-market capabilities in the region. They have about 100 employees today, 40 of which are in R&D. And they've built a self-service automation engine for sales, marketing and care conversations that has very strong traction in the mid-market. We expect to grow our mid-market capabilities in partnership with the team and apply that success globally, not just in Europe, but we would start with Europe.

Drew Foster -- Citigroup -- Analyst

Great. And then you talked a little bit about leaning into the sales and marketing investments, so just wanted to focus there for a second. I mean with Tony Owens now as the President of your Worldwide Field Ops, I mean can you just maybe unpeel what some of the things kind of underpinning this next level of durable growth are for you? Maybe what are the pressure points that Tony will be focused on through the end of this year and through next year, kind of focused on that direct channel maybe from a sales infrastructure standpoint?

Rob LoCascio -- Founder & Chief Executive Officer

Yes. I'll take that one. We -- when I look at the demand in the market, it's definitely at another level coming through what we experienced last year, and we continue to see growth on the platform. So we're behind right now. I feel like we're behind on the quota-carrying reps definitely in that area. I think we're leaving the mid-market open, and we're going to go heavy at that area. Obviously, you can see our ARPU is -- we're doing very well on the enterprise, but there is a lot of action in the mid-market, and Tony can bring a lot of skills there and people to really go at that. And e-bot7 I think also can be part of that. But right now, just we have so much more demand that we're not picking up. And that's why Tony joined the company is there is a lot of opportunity. And then we're seeing, obviously, expansion beyond care right now and there is a lot of use cases coming around commerce and marketing. And so, that's adding a whole other level of access to budgets at our current base and then beyond that into new logos. So it's a time where we need someone who has another level of operational excellence. He ran about 7,000 people over there at Salesforce, so he's run a very big operation. And so I think we're really excited to have Tony here to take us from here to multibillions in revenue. That's kind of the goal.

Drew Foster -- Citigroup -- Analyst

Great. Appreciate the color. Thanks guys.

Rob LoCascio -- Founder & Chief Executive Officer

Thanks.

Alan Katz -- Vice President of Investor Relations

Operator, the next question? Victor, the Operator, can you please queue up the next question? We are having some technical difficulties here. Operator, can you hear us? It looks like we may have lost a connection here.

Rob LoCascio -- Founder & Chief Executive Officer

Can you let them in? The callers on?

Alan Katz -- Vice President of Investor Relations

I don't have access to let him ask the question, unfortunately. I think that the Operator has to do that. But if you give us just a minute, we will reach out to the team here.

Operator

Ladies and gentlemen, we apologize for the technical difficulties. The Q&A is now back up and was Drew finished asking his question?

Rob LoCascio -- Founder & Chief Executive Officer

Yes, Drew was finished. And I believe the next person up was Raimo from Barclays.

Operator

Yes, I see. Okay, one moment. Yes, I see it now. So our next question is from Raimo.

Alan Katz -- Vice President of Investor Relations

Lenschow Raimo, are you on? Did we lose her?

Rob LoCascio -- Founder & Chief Executive Officer

Hey, John, are you there anyway?

John Collins -- Chief Financial Officer

Yes.

Rob LoCascio -- Founder & Chief Executive Officer

So why don't I ask you a question, John?

John Collins -- Chief Financial Officer

Go for it, Rob.

Rob LoCascio -- Founder & Chief Executive Officer

Because dead air is -- like, we will let them fix it up. So once you tell me about deal -- I'll do the, I'll be as good as I can, of analyst as I can, doing this for 21 years. So tell me about the deal count and what happened in the quarter.

John Collins -- Chief Financial Officer

Yes. So again, much like in the first quarter, our deal counts were down year-over-year, about flat quarter-to-quarter. However, as planned, our move upmarket within mid-market and even kind of the high end of small business has resulted in substantially higher ACVs. In fact, our ACV growth was over 100% for new logos in the quarter. Overall, we saw a slight bump up in expansions. And again, as signaled in our prepared remarks, the investments we're making are designed to accelerate not only the growth we've seen in ACVs, but also the new logo counts moving forward. So as our reps ramp, again, we expect about 9 months for new reps to become productive, we would expect not only growth in ACVs, but growth year-over-year in new logos from account perspective, which would be a turn from the trends we've seen over the last handful of quarters.

Rob LoCascio -- Founder & Chief Executive Officer

Would you like -- I mean, with the hiring of Tony and everything like that, are you guys going to start to build out beyond? Obviously, you're focused on the enterprise, but like it would seem like there is something, opportunity beyond that. Are you guys going to -- is that part of the spend that you're going to make for the rest of the year?

John Collins -- Chief Financial Officer

Yes. So as we think about the investments, there is two primary categories. We've talked mostly so far about our go-to-market capacity. Of the spend we've highlighted, about 75% would be dedicated to go-to-market capacity. And if I were to break that down, we're looking at about 45% of it going directly into quota carriers, about 20% in marketing spend, and then the remainder would be focused on that sales and customer support infrastructure. So managers, SCRs, CSMs, etcetera. The other piece of the investment, though, as we discussed, is focused on our technology. So, we have seen a lot of traction with social media management tools, and we're extending our capabilities there as in voice. In terms of our go-to-market motion, clearly, there is opportunity in the enterprise that we've delivered on quarter-after-quarter, but the real opportunity that we're kind of leaving on the table right now is in the mid-market. And we see an opportunity to take our go-to-market resources and adapt our platform to really go after growth in the mid-market.

Rob LoCascio -- Founder & Chief Executive Officer

So my next question would be, once again putting my analyst hat on, what was the driver of the revenue upside compared to guidance? Because there is obviously real upside there, but what really drove that when you unpack it?

John Collins -- Chief Financial Officer

Yes. In the quarter, obviously, we had strong growth in the core business. And even without the additional testing revenue, we would have been around our -- the top end of our guidance. And of course, the boost above, most of the boost above guidance was driven by the at-home rapid COVID-19 testing business. Gainshare also continued to outperform. It went from around 13% of revenue last quarter to 16% of revenue in the second quarter. So that was another key contributor of upside as was our consumer business, which significantly outperformed its internal plan.

Rob LoCascio -- Founder & Chief Executive Officer

But do you think the testing business is like -- do you have it back on? Or do you want to keep playing out?

Alan Katz -- Vice President of Investor Relations

Not yet, but I was going to suggest if the analysts want to email me any questions, I can also ask those questions as well.

Rob LoCascio -- Founder & Chief Executive Officer

Give them your email. What's your email so they have it?

Alan Katz -- Vice President of Investor Relations

It's akatz@liveperson.com.

Rob LoCascio -- Founder & Chief Executive Officer

So, I don't mind being an analyst here for a little bit while we get through this.

Alan Katz -- Vice President of Investor Relations

I believe the analysts may be able to ask questions now. Operator, are we open again?

Operator

Yes. Our next question is from Raimo Lenschow with Barclays.

Rob LoCascio -- Founder & Chief Executive Officer

What did you think, Raimo? How did I do?

Unidentified Participant

Hey, this is Ravi on for Raimo. Can you hear me OK?

Rob LoCascio -- Founder & Chief Executive Officer

Yes. Sure.

Unidentified Participant

Yes, you did a great job. You asked a lot of the questions I'm sure you were going to get otherwise. But I just wanted to dig into that last point a little more if possible. So you had a really nice quarter and you beat estimates by about $6 million, but the guidance raise was only $3 million to $4 million. I know you mentioned being conservative around health. Are there any other puts and takes that investors should consider as we look into the second half and even further? Thank you.

John Collins -- Chief Financial Officer

No. I think that the guidance range we put out was strong and reflects continued momentum in the core business and again the nascent phase of the healthcare testing business which was the bulk of the upside in the second quarter. So we're excited about that business and the potential for continued growth there. But given the lack of track record, we're reluctant to embed more upside into our guidance at this time.

Rob LoCascio -- Founder & Chief Executive Officer

There is about 8,000 people, around 8,000 people today who wake up every morning and are using this platform. These are consumers to take these tests, and today they are rapid COVID tests, so they can go back to work. The second part of that is, obviously we're working with these testing companies to develop beyond that. So we even have a contract we signed during the quarter to develop a platform beyond that to do other testing. And the testing business is kind of a really hot market because of COVID testing drove a lot of investment into the market. I don't know if you guys saw it, but even Goldman Sachs I saw was putting a bid in for one of these companies. And so the PE, the private equity part of their business, they want to buy one of these companies. So there is a lot of investment going in it because the in-home testing market got a lot of infusion of capital, and they are not very good at software. And they need conversational AI platforms. So once again, we came out of the chute pretty hot on this, and we're excited about it, and we were able to swarm it and go after it. But we got -- it's a new -- it's like we built a start-up within months and launched it and generated millions in revenue. So we're feeling good, but we don't want to over-promise on what it is until we get our legs behind it.

Unidentified Participant

Awesome. Thank you. It makes sense. Thank you.

Rob LoCascio -- Founder & Chief Executive Officer

Thanks a lot.

Operator

Thank you. Our next question comes from Richard Baldry with ROTH Capital. Please proceed with your question.

Richard Baldry -- ROTH Capital -- Analyst

Thanks. Can you hear me?

Rob LoCascio -- Founder & Chief Executive Officer

Yes.

Richard Baldry -- ROTH Capital -- Analyst

Okay. Congrats on getting us through the quiet period there. Can you talk about how tough it is to actually double the reps in two quarters? Obviously, given macro challenges, delta challenges, bringing people on virtually, it seems like it's a pretty high hurdle to do. And then maybe add to that any backdrop you're willing to offer about the sort of existing sales utilization, quota achievement to kind of give us a view for how capacity starved you feel like the field force is? Thanks.

John Collins -- Chief Financial Officer

Yes, I'll start there. Go ahead, Rob.

Rob LoCascio -- Founder & Chief Executive Officer

No, start.

John Collins -- Chief Financial Officer

Right. We're really -- we're pulling all the stops to get boots on the ground here with this strategic round of investments. So yes, it's a tough hiring market, but with Tony on board and our focus to really bring on frontline managers first who, each of whom, can then bring on reps underneath, will help to accelerate our path to the target. And on top of that, like the investment is aggressive in that we're going to use many different channels to hit our targets for the year. And it's an estimate, of course, but given the demand we see in the market, there is not a lot we won't do to get the right people onboard to go after that opportunity.

Richard Baldry -- ROTH Capital -- Analyst

Maybe to follow-up, do you feel like any of the backdrop M&A activities, whether it's on the voice side, etcetera, are they -- is it easier to hire than we might think because of specific things that have happened around your vertical? Or where are you really looking to find these people from? Is it very tailored with backdrops that are narrowly tied to where you're at? Or can you cast a broader net into CRM type areas?

Rob LoCascio -- Founder & Chief Executive Officer

I think we can -- we're definitely casting a broader net. We have a very good story to hire the best talent in the world. AI is a very obviously big area. Conversational AI is even more specific and people think, OK, this is a hot area. So if you're in the software industry right now, we're in a good place. And if you're a technician, you get to work on some of the best brands in the world with some of the largest datasets in the world, conversational datasets. And if you're someone in the field and sales, there is a great opportunity to really drive large deals here and that'll be mid-market and will expand. So we just have a good story right now and we want to capitalize on it. I feel like we got very caught up last year in just the growth in the business, and we probably should have started turning on the jets in September with hiring. It's like easy to look backwards because I look at the demand right now, but we came through last year with a lot of demand in the business. We saw it continue into this year. It wasn't like an anomaly through the pandemic. We were probably a little conservative. But now we can open it up. And once again, I think hiring Tony and other people into the company will help drive to the goal to really take those growth levels, the growth rates, to a different level.

John Collins -- Chief Financial Officer

I would add also that the success we've had in winning talent over big tech, Google, Amazon, Facebook, Twitter, etcetera., has been phenomenal and due in large part to the story Rob described to our innovative platform and the growth prospects we have ahead of us. And I think we will be able to leverage those dynamics to go after go-to-market talent in the same way.

Richard Baldry -- ROTH Capital -- Analyst

Great. Thanks.

Operator

Thank you. Our next question comes from Mike Latimore with Northland Capital Markets. Please proceed with your question.

Mike Latimore -- Northland Capital Markets -- Analyst

Great. Thanks a lot. I guess just two here. One would be, it looks like you're guiding effectively to negative EBITDA in the fourth quarter. I guess any thoughts on whether you'd be EBITDA positive in fiscal '22?

John Collins -- Chief Financial Officer

Yes. I would expect that as we succeed with our hiring plan, the blips we're on right now would normalize in 2022, perhaps the end of the first half or second half of 2022.

Mike Latimore -- Northland Capital Markets -- Analyst

Got it. And then the AI volume growth, I think it was 40% this quarter. I think it was 50% last quarter. I guess any thoughts just on the changes there?

John Collins -- Chief Financial Officer

No, it's typical sort of dynamics in the business. There is some seasonality with regard to the Gainshare business that obviously is a contributing factor there. And overall, volumes continue to rise. And so on a year-over-year basis with regards to total billable volume and automation, which has fluctuated with different types of intents in different industries, we saw that manifest in travel and hospitality in a big way during the pandemic and then coming out of -- or not coming out of the pandemic, but when travel opened up and the rate of automations changed based on the types of intents that are most in demand or most asked about from are the consumers entering the platform. So in general, I would say to recap, it's still strong growth across total volumes and automated volumes.

Mike Latimore -- Northland Capital Markets -- Analyst

Thanks.

Operator

Thank you. Our next question comes from Siti Panigrahi with Mizuho. Please proceed with your question.

Alex Lim -- Mizuho -- Analyst

Hi. This is Alex Lim on for Siti. You guys previously talked about converting ELAs to CPIs for contracts. And I just wanted to know how this has been trending so far. And what assumptions do you have for growth rates coming from conversions versus new logos and your Gainshare business? And to add to that, how much growth do you expect to be driven from this contract conversion versus new logos and I have a follow-up after it?

John Collins -- Chief Financial Officer

Yes, from -- in terms of ELA to CPI, that's our enterprise license agreements to cost per interaction agreements, we are on track with what we had described in the previous quarter. Last quarter, we had converted approximately 40% of those contracts. We are up around 45% at the end of the second quarter. We still expect to be nearly 70% converted by December 31, of this year. And in terms of growth, that conversion from ELA to CPI is taking place at the time of renewal when total volumes for these customers are typically many are far in excess of what they were when the ELA was initially signed. So, those almost always result in up-sells upon conversion, so that contributes to ARPU and contributes to growth in general.

Alex Lim -- Mizuho -- Analyst

Okay. Thanks. And you guys talk about launching of a payment solution last year, can you provide an update on your payment solution, and when you think it will be a material revenue contributor?

Rob LoCascio -- Founder & Chief Executive Officer

It's implemented. It's out in the market, with a bunch of enterprise customers. We haven't really given any guidance yet on. It's doing transactions right now as a service on the platform. So, we tokenize the card. And the consumer doesn't have to go outside the messaging flow, it's adding to DARs or CPI. So, that's how it's built in today. It's growing. But we haven't put anything in it yet on. We aren't giving any numbers yet around it, but it's in revenue right now.

Operator

Thank you. Our next question comes from Sterling Auty with JPMorgan. Please proceed with your question.

Unidentified Participant

Hi, it's Maya on for Sterling. Could you just give a little bit more the color for the core business during the quarter, so not including anything from the expansion to healthcare? How much of the growth was driven by new versus existing customers?

John Collins -- Chief Financial Officer

Yes. As I have mentioned earlier, in response to kind of Rob's analyst questions. Without the COVID-19 testing, we still would have been in excess of our sort of previous guidance range. Just with the core business. Again, a lot of growth there coming from the Gainshare business as well as our consumer business.

Unidentified Participant

Okay. Thank you.

Operator

Thank you. Our next question comes from Ryan MacDonald with Needham & Company. Please proceed with your question.

Unidentified Participant

This is Alex on for Ryan and congratulations on the quarter. I just have one question for me here. Can you give us an update on the progress you are making on the indirect sales initiatives? And what was the mix of bookings versus direct and indirect channels this quarter?

John Collins -- Chief Financial Officer

Sure. We continue to add to our partner network. I mentioned two integration partners, Adobe and Google. And in terms of total contracts that were influenced by the partner network, we were around 27% of bookings in the quarter were influenced by that network, and that's consistent with the first quarter. Our goal is to move that number up closer to 50%.

Unidentified Participant

Great. Thank you.

Operator

Thank you. Our next question comes from Steve Enders with KeyBanc. Please proceed with your question.

Steve Enders -- KeyBanc -- Analyst

Hi. Great. Thanks for taking my question. I just wanted to get a better sense for how you are thinking about those go-to-market investments and what gives you the confidence to more than double the rep headcount over the next few months, over the next six months here?

Rob LoCascio -- Founder & Chief Executive Officer

Yes, the...

John Collins -- Chief Financial Officer

Go ahead, Rob.

Rob LoCascio -- Founder & Chief Executive Officer

So, on the demand side, I mean once again, we see demand and we are seeing that our current reps are at their targets. And there is more left on the table right now. So, we feel very good about adding that type of capacity into the system. Once again, we hired Tony to go ahead and drive the next level of running that investment and bringing people in and doing all of that. We have a good story for reps. You can make money here. So, this is what reps want. We are in a hot space. There is large deals you can do here, like very large deals, and we can open up mid-market also. So, I just think right now, we are just so -- there is such a dynamic happening in the market. Every day there is another article about messaging and conversational AI and conversational commerce. And we were very early out of the gate with it. As all of you know, we kind of pioneered this whole market, and we want to maintain that leadership position and accelerate it. And we are leaving some areas open that we don't want to leave open, and we think there is more verticals to go after, and there is just more use cases even beyond care. So, this is really an opportunity now to double down on what we are doing and take the company to the next level. We definitely have moved out of the early adopter phase. We are definitely -- there is just -- it's like just all these different industries and people are adopting it. It was a very early adopter thing for the first couple of years, but we definitely have transitioned into more mass adoption and especially retail. They got sort of a taste of what it's like to shut down your stores, and they definitely want more digital connections, meaningful connections with their consumers, and we can provide that on our platform. So -- and then even the social side, opening up socially, there are public companies that are social media companies and we know we can take that business. We actively have done that over the last two quarters. So, we also know there is some activity in those areas. So, there is just a lot of overall activity in the business today.

Steve Enders -- KeyBanc -- Analyst

Okay. No, that's great to hear. And then just I was just kind of wondering how you are thinking about kind of the up-sell opportunity and being able to push more of these incremental use cases that you are talking about into the rest of the customer base today? How do you drive more than one use case outside of kind of core customer care into commerce and marketing and social, and kind of where are we on that journey?

Rob LoCascio -- Founder & Chief Executive Officer

It's really -- I mean our marketing motion right now is very focused on commerce. And we call it warm commerce. We are in talking to our customers about how to create this call it warm connection with your consumers, and ongoing connection with the consumers. And especially in selling, the brands just want to have this different relationship. And what's happened now is, I would say our platform is sort of self-actualizing in many ways, which it started as messaging as a communication channel. Then as we started to get a lot of volume from our customers and maybe 30%, 40% of their voice volume transitioned to messaging, then they want to automate it at scale because they don't want to add human agents, so they want to automate that. We built a lot of great automation capabilities and continue to. And now above that is how do we create, how do we deliver, how does our platform deliver these very intimate, high-valued connections between consumer and brand. And then what do you ride over that framework. So, people are putting videos over that. They are running different use -- they are running different content over it. It's not just messaging as a communication channel. They are using it as a digital channel to deliver things they would on a website. And so these are the things that are really changing the business, and it definitely is changing. What happened is competitors are still back trying to compete with messaging. And we do have a very strong messaging platform. And we are up to the place now where we are creating these very special connections between consumer brand, and they want to bring branded connections to that. How do you create the special engagement, and that's why even things like Adobe, we are partnering with Adobe because they are very involved with engagement and engagement management with web. But they don't do anything on the messaging side, so we have combined forces of how do we bring an engagement strategy to selling and marketing. And that's really what we are seeing. So, we are just selling it right now. We are positioning it, and we are working with different partners in that area, so it's starting to take off.

Steve Enders -- KeyBanc -- Analyst

Okay. Perfect. Appreciate the response there.

Rob LoCascio -- Founder & Chief Executive Officer

Thanks.

Operator

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

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Great. Thanks for taking my questions. Two categories are kind of areas I wanted to focus on, if I could. Rob, on the Gainshare business, why is it you think consumers are gravitating to that over a non-Gainshare model? Kind of how do you think about where that's going? I mean, given it comes in with lower gross margin, maybe has a little more complexity in terms of the implementation, it seems like it's taking off. And I guess just frame that for us. Why is that the preferred channel? Where does it go? And what are the gross margins on that initially?

Rob LoCascio -- Founder & Chief Executive Officer

Yes. So, it's preferred because we take over -- there is a budget right now they have for outsourced labor in taking phone calls and even maybe they are doing chats. We get that entire budget and that entire operation and it comes under us now. And there was always a time, not always, but there are times of friction point with the outsourced provider because they want to increase people. They make money by increasing headcount. And the brands are like, we don't want to increase headcount, but there is that friction. We come in and say, look, we are going to take that labor. We are going to manage it as human labor to start, but we are very quickly going to automate, and our goal is to reduce that human labor. And so what happens at the beginning is, we do take that entire operation, and we even in the core took a voice operation. And we are running those voice agents and basically transitioning that voice volume to messaging and then we are automating it. So, what happens over time is the margins go up nicely because we start to reduce the labor, but we still fix the budget. We have that original budget they already gave to the labor providers. So we keep that budget, but we start taking out headcount faster than they ever can. And so it's just a great solution versus like trying to transform their own contact centers where we take it over and we own the transformation. And that's why they are very excited to work with us on that. And it's really booming and it's a great way to move the business along. It just has speed to market because we control everything.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

And what you are thinking on where that could go as a percent of revenue?

Rob LoCascio -- Founder & Chief Executive Officer

I mean it could...

John Collins -- Chief Financial Officer

Yes. So, right now we are at 16%, and that's up from around 13% last quarter. We see it kind of staying in the 15% to 16% range right now. Certainly, there is potential for more acceleration. But from where we sit at this moment, we would guide that range for Gainshare.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

I am sorry, you broke up just a little there. Did you say 15% to 18% is where you think about it?

John Collins -- Chief Financial Officer

15% to 16%.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

15% to 16%. Okay, great. And then my last question, on the move to mid-market, I mean certainly my sense from our field work, the full feature nature of your platform dominates in the large enterprise space. And mid-market, my sense is, has not been your strength. And I think your -- the move down market, what do you have to do there to succeed? Is it simply just a matter of taking the product you have and just putting more sales resources after that market or is it more a pivot that's needed on the product set to make it easier to consume? How do you think about what's different mid-market versus enterprise?

Rob LoCascio -- Founder & Chief Executive Officer

I mean there is obviously more self-service ability that you would -- that we want to create, and we have been working on that. So, we already had, we have a team that's focused on that area. They still need help with like bot building and all of this. All the platforms, even ones that are mid-market focused, they can be sort of self-service, but that means they are very basically like FAQ bots. And we have all seen bots. As I say, bots like a four letter word. It's a very -- not a very good thing. Truly AI automation is having an end-to-end conversation with the person. So, we can give that power of our toolset to the mid-market. I still think they are going to need training. There is things they are going to need handholding on. We may do that with partners, more of agencies, smaller agencies that can help out there. But we have a lot in the area of the product. It's just really team. What happened was we have a mid-market team, we have one, but they are getting pulled up-market every quarter. So, we just have demand, more demand in even the -- we will call it the mid-market, the high end of the mid-market is where they end up gravitating, because it's big dollars and the reps want those dollars. So, it's obviously how you compensate the types of reps, you hire a younger group of reps. So, it's just a group we have got to get focused on and not have them drift up-market with the demand we are seeing in the enterprise.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Okay. Thanks for taking my questions.

Rob LoCascio -- Founder & Chief Executive Officer

Thanks Jeff.

Operator

Thank you. Our next question comes from Zach Cummins with B. Riley FBR. Please proceed with your question.

Zach Cummins -- B. Riley FBR -- Analyst

Yes. Hi, John and Rob, congrats on the quarter and thanks for taking my questions. John, I think you kind of touched on this a little bit in your prepared remarks, but can you give us a little more insight into kind of what's kind of temporarily impacting the gross margin profile for the business? And kind of what you think that could look like once it starts to normalize a little bit more?

John Collins -- Chief Financial Officer

Yes. So, gross margin is impacted by Gainshare as we discussed, but that's more of a temporary impact. We, over time, approximately a year after first signing a large contract, we would expect those margins to expand. The -- in the quarter, the healthcare testing expenses, lower margin profile also contributed to what we saw. And then we have some additional hosting expenses tied to the public cloud migration that, again, will be temporary, but impacted the quarter and will impact the year.

Zach Cummins -- B. Riley FBR -- Analyst

Understood. And Rob, just kind of building upon kind of the momentum you are seeing on the Gainshare side of the business. I think interesting dynamic to see that you are actually taking over some of the voice operations. And I think John in his commentary hinted toward maybe even an AI-enabled voice solution in this coming year. So, can you just talk about kind of your overall strategy on that side of the business and then why it makes sense to take over that entire process?

Rob LoCascio -- Founder & Chief Executive Officer

Yes. I mean, obviously, my talk track for the last couple of years is about getting rid of voice. And so if you can own it and control it, you have a better chance of transforming it. So, we are actually running voice cloud platforms, and that gives us a lot of I think preparedness for what we will deliver on the voice side because we are working on a voice automation offering. And obviously, most of you know Alex Spinelli, he is our CTO, ran Alexa, the engineering team. So, we have a lot of engineering talent that built the Alexa. So, we are bringing those skills to bear. We will do it our way. It's about commerce, it's about the brand being able to build their own consumer experiences that are very on-brand versus like an Amazon Alexa. But we are going to go pretty hard at it. And I think obviously, the more we control of it, we are preparing to transform it and replace it. And so that's really what the Gainshare is working on. We hired a very senior guy out of Talkdesk, not out of Talkdesk -- John, where is he from? Not Talkdesk -- from one of the other big voice providers.

John Collins -- Chief Financial Officer

RingCentral.

Rob LoCascio -- Founder & Chief Executive Officer

RingCentral, who is running the team and he is doing a great job and he hired a handful of people already, and we are starting -- we have started the development on it. So, we are moving very quick to get into the voice automation arena.

John Collins -- Chief Financial Officer

And from a tactical perspective, just to kind of frame the strategy near-term, if we look at the performance of our IVR deflection that exists today, we see that 30% to 50% of those consumers who are already in the IVR opt to exit and message. And so that kind of forms a soft, lower bound for the level of volume we would expect that we could actually transform from voice to messaging if we owned, end-to-end, the voice and the messaging operations. So, there is a lot of upside from that perspective as well.

Operator

Our next question is from Arjun Bhatia of William Blair. Please state your question.

Arjun Bhatia -- William Blair -- Analyst

Yes. Thank you very much. John, maybe this first one is for you. But I did notice that messaging volumes may have declined quarter-over-quarter, just looking at some of the presentation materials that you have put out. And I am curious if those expectations are impacting your Q3 guidance at all or if it's primarily the healthcare and Gainshare portion that are driving your Q3 guidance?

John Collins -- Chief Financial Officer

Yes, primarily the latter. And in terms of volumes, again, total billable volumes up about 15% year-over-year for the quarter. Messaging volumes up 40% as was automated volumes. Quarter-to-quarter, as you noted, it's less growth, flattish, but not impacting our view of the third quarter.

Arjun Bhatia -- William Blair -- Analyst

Okay. Got it. And Rob, maybe just one for you, given all the traction that you are seeing in healthcare and the COVID-19 rapid testing market, can you maybe just explain to us what the role LivePerson is playing in that at-home COVID-19 test? And why that's lower gross margin than a typical messaging conversation or a typical CPI contract?

Rob LoCascio -- Founder & Chief Executive Officer

Yes. So, we built a technology platform, so there is a lot of investment that went into the technology platform. And we then deliver that platform with the tests to a B2B customer. And then they are bringing that to their employees. And we deliver the whole entire offering together. And so it has a little bit lower margin in it for some of the testing revenue that's in there and the software revenue because we are just starting investment. There has been some heavy investment in services and delivery to start. So, we have -- basically, it's a pretty heavy lift to do what we did in a very short period of time. So, those were the main drivers to margin right now on the testing side.

Arjun Bhatia -- William Blair -- Analyst

Okay. Got it. Thank you very much.

Rob LoCascio -- Founder & Chief Executive Officer

Thanks.

Operator

Thank you. We have reached the end of our call today. I would like to turn the call back to Rob LoCascio for closing remarks.

Rob LoCascio -- Founder & Chief Executive Officer

In closing, growing organically is about making long-term bets and having the best teams to deliver them. We have a great team, and we will continue to hire the best we can in the industry. We have a very powerful AI platform that can serve the most scaled and impactful use cases. We have a lot of cash on the balance sheet to go after accelerated growth. We intend to capture as much of the market as possible as we accelerate our investments into adding more people, capabilities to our platform and opening new markets. I want to thank the team for another great quarter, for hitting the Rule of 40 for the fourth consecutive quarter, and for delivering our second quarter of 30% plus growth.

Thanks. And we will see all of you on the next call. Thank you. Have a good night.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Alan Katz -- Vice President of Investor Relations

Rob LoCascio -- Founder & Chief Executive Officer

John Collins -- Chief Financial Officer

Drew Foster -- Citigroup -- Analyst

Unidentified Participant

Richard Baldry -- ROTH Capital -- Analyst

Mike Latimore -- Northland Capital Markets -- Analyst

Alex Lim -- Mizuho -- Analyst

Steve Enders -- KeyBanc -- Analyst

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Zach Cummins -- B. Riley FBR -- Analyst

Arjun Bhatia -- William Blair -- Analyst

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