April 1, 2021- On today’s podcast, we welcome special guest Louis Summe, CEO and Co-Founder of LiveVox, a leading cloud-based provider of customer service and digital engagement tools. LiveVox recently announced a merger with SPAC Crescent Acquisition in an $840 million deal.
On today’s podcast, Louis discusses:
- What it’s like to be owned by private equity and the transition to a public company
- The future of work from home
- LiveVox’s unit economics and future growth plans
- Key insights into the SPAC merger process
- And More
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Transcript:
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.
Julian Klymochko: Welcome Louis to The Absolute Return Podcast. Real pleasure to have you on the show today. I’m sure you’re super busy with everything you got going on at LiveVox, but nonetheless, thank you for your time today, let’s get into it. I wanted to start things off by giving our listeners a bit of background on yourself. How LiveVox came to fruition and its progression over the past 16 years, basically from it starting to now, it is going to become a public company very shortly. Now you’re a veteran of the technology industry, over 25 years of experience. Started out your career as a systems engineer at EDS, then co-founding LiveVox about 16 years ago. So, you’ve been in the game a while. Can you walk us through your career and then the growth and evolution of LiveVox? Cause obviously that business has changed pretty dramatically.
Louis Summe: Yeah, absolutely. Thanks for having me on the show by the way. So, look, I’ve always been intrigued by how technology could enhance communications, make it more efficient and frankly better, you know, systematically. And so, you know, I had the opportunity to do that in a couple of different spots at Merck-Medco and Physicians online. And then when the opportunity presented itself for us to start up LiveVox, that was kind of a natural area of interest. And so that’s what we did, we started LiveVox back in, you said 16 years, but it’s actually been 20 years. And we started, you know, to really develop, you know, communication services, technology enabled communication services. And so of course that really just led us into the contact center and we’ve been, you know, doing that for 20 years now, I would say the first 10 years were exciting and we accomplished a lot, but we did the bulk of that work, bulk of that software development on a private cloud model and then starting in 2010 and really kind of culminating in about 2014, we switched our development models over the public cloud. And I can tell you that’s been transformative because the public cloud development models are at least 500% more productive. And so, it really opened the door for us to just take the software to the next level.
Julian Klymochko: And a big milestone that happened at LiveVox. A number of years ago, call it six, seven years ago was a big investment from private equity from Golden Gate Capital. It was wondering how has it been owned by private equity company? And how do you expect that to change? Like what changed when they invested and what do you expect now that you’re going to become a publicly traded entity?
Louis Summe: Yeah, so look, Golden Gate was really our first institutional money to come into the business. We’ve been largely bootstrapped up until that point and they really had great timing because again, they came in just at the time that we were really capable of really accelerated our R&D and with their partnership, we were able to really expand our product offering. Historically, we were focused on outbound and inbound voice, but as we every partner with Golden Gate, we were able to really expand our R&D. And we layered on a lot of new capabilities around digital, around contact center CRM and around workforce optimization, cloud native workforce optimization. So that was really a big, you know, a big focus for us.
And I would say that the last five years, last six years with Golden Gate have been a heavy R&D phase where we’ve really broadened our product portfolio. And then that’s just an exciting spot to be because with the market kind of going where it’s going now, it’s really an incredible opportunity to have just come out of a phase where we’ve really built up. What we believe is the next generation platform, like the platform that really is poised to help the contact center market go to new levels of efficiency and new level of customer service.
Julian Klymochko: I wanted to dig into some of the details of the expanded product offering. We spent the last number of years, heavy investment into research and development, and you indicated that the market has really changed and gone in a new direction. Could you describe how LiveVox product suite has evolved over the past say, call it decade?
Louis Summe: Yeah, no, absolutely. So, you know, I think that a lot of people are familiar with the term CCaaS, you know, contact center as a service and in general, what CCaaS is, is voice and digital channels with some AI capabilities in there. And so, you know, that’s something that we really moved to aggressively. Again, once we were on the public cloud models and we layered on a, you know, on top of what had historically been outbound and inbound voice that full suite of digital capabilities, but then we didn’t stop there. We didn’t stop at just the Omni channel. We saw the potential to really go deeper and broader. And so, we added on a contact center CRM, which is unusual. There aren’t very many contact center providers out there that bring a native CRM with the channels.
And then we also layered on those cloud native workforce optimization tools and those two pieces, which really kind of go beyond what you would expect and CCaaS and really what we think of as CCaaS 2.0. So, whereas CCaaS 1.0 was Omni channel. To us, CCaaS is omni-channel plus a context center CRM and plus a cloud native workforce optimization suite. And the reason all those pieces are so important is because everything that is in there, right? All three of those pieces are what a contact center needs to take advantage of, you know, of the technology and to really enhance their communication, right? So historically contractors would have bought those three pieces from different vendors, but by being able to buy them from one vendor, you can get a better ROI, right? Because you can simply get more things pre-integrated, so you spend less money, less dollars on implementation over a 90% reduction in time to implement and equally important.
You can start optimizing right away, again, a 90% reduction in time to optimize, and with those tools there, you can simply drive a better ROI model. Because you’re deploying faster, you’re optimizing quicker. And so that’s a transformative moment. And so, we’re very excited to bring CCaaS 2.0 to the market. And it’s a different kind of technology than the contact centers had access to. And again, that’s our vision is, really leveraged that to take the potential here to the next level.
Michael Kesslering: So, shifting a little bit to the macro. LiveVox is a business was negatively impacted by COVID in 2020, like many companies. Well, you also do have some of the work from home solutions such as Zoom had an actual tailwind from the whole shift to working from home. Can you explain some of the dynamic with your business model and how you’re able to mitigate some of this impact from COVID?
Louis Summe: Yeah, absolutely. So, look, a lot of our peers, they went to market, started in the enterprise SMB sector and then moving into the middle market and then into larger enterprises. LiveVox path into larger enterprises, didn’t start with the SMB. We started off selling collection agencies and that’s kind of been our foundational market to, you know, our get started marketing. Now the collection agencies are a fantastic market to service because they really push you on compliance. They push you on security and they push you on scalability. So, they really helped us embed those capabilities inside of our DNA. And that’s really helped us expand, would be BPOs and expand with larger and middle-market enterprises because of our capabilities around compliance, around security, and because of this fundamental scalability of our platform.
However, the collection agencies, they did take a hit during COVID in a different way than, you know, than and a lot of other enterprises. And so, they had a bit of, I would say, a COVID headwind. Now our other sectors, our enterprise and our BPOs sectors. They had a COVID tailwind like the market in general. So, I think we were a bit of a, kind of a headwind tailwind scenario. Now going into 2021, though, if the economy recovering, the collections workflows are recovering as well. And so now we really are just looking at tailwinds. And so, this, again, this is kind of coinciding with the big increase in our investment and sales and marketing, again because we’ve got the maturity in the product. We’ve got tailwinds and the market has just moved heavily towards cloud-based solutions.
Julian Klymochko: So, would you say, you know, once the pandemic is over, would it have any lasting effect or did it create like a natural tailwind coming out of it for your business over the longer term?
Louis Summe: Yeah, it absolutely has a lasting effect because I think people were looking at context or technology and saying, well, maybe I’ll go prem, or maybe I’ll go cloud, when I say prem? I mean, premise-based systems, you know, like, maybe I’ll use a premise-based context in our technology, or maybe I’ll use a cloud-based context or technology. And I think what people saw in the pandemic is that those who had more cloud technology simply were more flexible and able to respond to the changing requirements. And I don’t think it’s a question now anymore of, if. I think now it’s just a question of when. And so, I think coming out of the pandemic, everybody knows that they’re going to move to the cloud. And it’s really just a question of when.
Julian Klymochko: You know, that certainly makes sense. And with the whole pandemic ending, I mean, one thing that isn’t ending is the whole, you know, work from home or flexible working options for employees, and some companies are actually going, you know, completely remote, you know, from putting your CEO hat on and management hat on. How do you think about that? Especially, you know, being based out of San Francisco for a long time, that was known as, you know, if you’re a technology company got to be based out of there, but now with more and more workers going remote, how do you think about work from home, from, you know, the LiveVox management perspective and certainly where you’re based, where office prices certainly aren’t cheap.
Louis Summe: Yeah. Look, I think work from home is a great thing because ultimately the success of your business comes from the people that you have and attracting talented individuals to join your organization is competitive. And so, giving them the flexibility to live and work where they want, that’s probably just going to become a requirement, honestly. And so, we’ve always had a pretty flexible approach. Now, I think when we think about work from home, we think more in terms of maybe a hybrid model where look, you can work from home, but we ask you to come into the offices sometimes so they can be some in-person collaboration, but we’re happy to have employees that are predominantly work from home. And of course, our industry, the contact center industry is really, I mean, it’s really going to benefit from the increased utilization of work from home labor, because by allowing agents to move into low-cost areas, you can get a higher quality contact center agent and really a pretty good deal for both parties, right? The employer gets a more talented individual. And they the context center agent, they get to move to a lower cost of living area. So, I’m pretty excited about its potential, and LiveVox is really well, and our clients are really well positioned to take advantage them.
Michael Kesslering: So, on the financial side, you have quite compelling unit economics with a eight and a half X lifetime value of a customer to your customer acquisition costs. So, would you be able to describe some of the, kind of a little bit of granularity on how you’re able to achieve this level of unit economics?
Louis Summe: Yeah. Look, we’ve always sold a larger organization, as I mentioned earlier. And important way that we get inside of our organizations is, I would characterize more as a departmental level sale. And so rather than trying to win the full enterprise in a giant RFP, we really more try to get in the door with a department to solve a, you know, an immediate need there. And with model is, you know, successful departmental model within which we follow because we’ve still got a broad product portfolio, and we have so many exciting ways to improve their ROI. We just had great shape and to upsell and to show them how easy it is to deploy. One number I’ll give you is we have less than 1% of our revenue, is professional services. Now, if you think about that, that just shows you how easy it is to deploy our platform. How much that the CCaaS 2.0 suite makes that deployment and, you know, optimization steps easier and simpler because we’re able to do it with much less professional services. And so, you know, that’s, you know, that’s an important part of how we’re really helping the contact centers to, you know, to make this technology easier to adopt.
Michael Kesslering: And so, along with that, in terms of, you know, as you had mentioned, making it easier to adopt. You do have a 118% net retention rates that you mentioned in your investor presentation. Can you describe how you’re able to effectively have a negative turn which would be through cross selling, I’m assuming?
Louis Summe: Well, so once we get in the door, once we do that departmental land and we’re inside of a department, inside of a large organization, we kind of, you know, we focus on really impressing that group, that department, right? So, we show them how easy it is to adopt and how they can drive their ROI, a 90% better ROI by using a platform. And then once we’ve done that with a department, then other departments see that, and with those other departments seen that, then we can expand in other departments. Now, if you think about that selling motion, that simply has shorter sales cycles, and it also has a lot of potential to keep selling existing customers more and more. And so that’s a big part of how we’ve been able to drive our net retention of 115%, because we’re always in there building this relationship, and we’re always showing them new ways of evolving their business. And since we’re inside of large organizations, there’s just a lot of room to do this. In fact, the potential is so big. We today have tapped only about 10% of the agents that are inside of our existing customers. So, not even talking about the market opportunity, our existing customers have over 500,000 thousand agents in it. We have about fifty thousand of them on our platform. And so, there’s an amazing opportunity to just keep selling our existing customers for a very long period of time.
Julian Klymochko: It’s an interesting notion of 118% net retention rate. There are a couple other figures that stood out to me from your investor presentation, number one, forecasted revenue growth at a 26% compound annual growth rate. In addition, expanding margins, gross margin from a 65% to 67%, I believe over the next couple of years. How do you plan on accomplishing these two feet in terms of both expanding margins while driving revenue growth?
Louis Summe: Yeah, well, you know, given the way that our new products are growing, like if you look at the CRM and the analytics products and the digital products that we’ve layer on over the last five years, those are by far the fastest growing part of our business. And, you know, with the market, really switching now to kind of a cloud first mentality, there’s just a tremendous opportunity for us to take our mature CCaaS 2.0 products to the market that really is seeking to move to the cloud now. And so, the best way for us to do that of course, is to really accelerate our sales and marketing investment. And over the next two years, we will more than double our gross dollar investment in sales and marketing, and more than double the number of AE.
And so that’s where the growth is going to come from. It’s simply a larger investment in sales and marketing with a mature product suite and a market that’s just tipping to the cloud. Now to the margin questions, a lot of these newer products that we’re rolling out and adding, have a higher gross margin than our historical voice products, which have a great gross margin, but not quite as good as the digital piece. So, as we have more of our revenue come from the digital products, the margin does improve.
Julian Klymochko: One key insight that I was keen on hearing about Louis is your recently announced merger with SPAC Crescent Acquisition, valued LiveVox at $840 million dollars. So, a very large milestone for the company going public transaction. What are your thoughts on it? And how did this deal come about?
Louis Summe: Well, you know, it really came about again, because we just saw how the market shaping up, the back half of 2020, we could just see our newer products really selling. The market really moving to the cloud. And we just said, look now is the time to increase our investment in sales and marketing. And, so then it was a question of, okay, well, what’s the best way to do that? And in collaboration with Golden Gate, we decided that as a publicly traded company, we’d be better positioned to invest in sales and marketing. And so, then that became an option that we pursued. And so, we talked to some potential partners, and we evaluated some different scenarios and we were fortunate to find Crescent really a great group of people with a lot of experience and a lot of expertise that could just get us into the market with a lot of resources and help us transition from that R&D phase as a company into what we now are investing in, which is our go to market base,
Julian Klymochko: Right? And with respect to Golden Gates involvement, it appears that they’re rolling their equity as part of this transaction. However, investors cognizant to that they have been involved for about seven years, which is the typical private equity lifecycle. Have they communicated? You know, what they’re looking to do over the next kind of near term, are they looking to exit? Do they have permission from investors to stay in LiveVox longer? Do you have any thoughts on that specifically?
Louis Summe: Yeah. Golden Gate as an evergreen fund. So, they really have, I would say longer horizons.
Julian Klymochko: Right.
Louis Summe: Than a lot of investors do. And after the SPAC they’re going to have about 60% of the equity. And so, they’re going to be major holders. And again, they’re, long-term investors, they’ve been great partners and I’m excited to be working with them and I look forward to working with them as we go forward.
Julian Klymochko: And you mentioned the SPAC Crescent Acquisition. How did that come about? Was this a competitive process? Did you utilize advisors and speak to a number of different SPACs and management teams out there?
Louis Summe: Absolutely. So, we evaluated a number of options and we enlisted a number of advisors and, you know, Crescent just was a great fit. I mean, there again a very experienced group of individuals with a lot of expertise that they can bring to bear. And, and so, you know, we were able to partner with them and excited to do so
Julian Klymochko: I’m sure the $25 million Ford purchase agreement helped smooth talks. Because that is definitely one appealing thing about certain SPAC is just having that additional capital to back the proforma entity. But fast forward, you’re expecting closing in the next kind of couple of months or so, but once this merger closes, you’re up in trading as a newly minted public company, symbol, LVOX, at that point, say an investor wants to hear your story. What would be the quick elevator pitch for the stock? Why should they pay attention to LVOX once this deal is complete?
Louis Summe: Well, it starts with the market. The market is, it’s an amazing market. I mean, it’s a $5 billion cloud now, and that’s, you know, it’s 20% of the overall technology spend right now is cloud. So, you’re looking at 5 going to 25 right there just as it moves from prem to cloud. But on top of it, McKinsey is predicting that an additional 50 million dollars, 50 billion, sorry, initial $50 billion dollars over the next 10 years. Technology spend is going to come from converting labor to technology. I mean, the overall context center market today from a total spend perspective is 250 billion. And right now, only approximately 10% of that is spent on technology. Again, McKinsey is predicting that 30% of the contact center spend is going to go towards technology by 2030. And so that’s an enormous greenfield opportunity and LiveVox has built out a next generation platform and the CCaaS 2.0 platform just gives context and there’s a better ROI. And with that, you know, the vision is just real, right? You can convert the labor, the manual steps into technology and deliver a better experience for consumers with greater efficiency. And so LiveVox product is ready to go for a market that has unbelievable potential. And with our public company profile, we’re going to have more than a hundred million dollars on our balance sheet. And we will be more than doubling our investment in sales and marketing to realize this opportunity and to take advantage of the product, and also take advantage of our proven ability to sell large organizations and deliver our services at scale.
Julian Klymochko: Right, and so that’s a great story you guys have at LiveVox with respect to CCaaS 2.0 migration to cloud. Forecasting, strong revenue growth. And the business combination is that valuation of roughly 5.2 times next year sales, seems reasonable. So, Louis, prior to us letting you go, if investors want to learn more about LiveVox, where can they do the research?
Louis Summe: Well, they can go to the LiveVox website and they can go to the Crescent website and they can also look at our proxy, which we filed with the SSC. So those are three good sources.
Julian Klymochko: Okay, perfect. Well, I encourage interested investors to do your due diligence, read the respective documents and Louie, I wanted to thank you for your time today. Great getting some key insights into LiveVox, your history and the future of the business. So, thank you very much for your time today.
Louis Summe: Thank you. Appreciate it.
Julian Klymochko: All right. We wish you all the best. Cheers.
Louis Summe: Thank you.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
