LivePerson Inc (LPSN) 2003 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to LivePerson Second Quarter 2003 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. At that time, I will give you instructions. As a reminder, this conference is being recorded today, July 23, 2003. Speaking on today's conference call will be Robert LoCascio, Chief Executive Officer of LivePerson and Tim Bixby, President and Chief Financial Officer. I will like to turn the call over to Mr. Bixby. Please go ahead sir.

Thanks very much. During the course of this conference call, comments that we make regarding LivePerson that are not historical facts but forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. Any such forward-looking statements are made pursuant to the safe harbor provisions on the Private Security Litigation Reform Act of 1995. It is routine for our internal projections and expectations to change as the quarter progresses. And therefore it should be clearly understood that the internal projections and beliefs upon which the company bases its expectations may change prior to the end of the quarter. Although these expectations may change, we are under no obligation to inform you if they do. Our company policy is generally to provide our expectations only once per quarter and not to update that information until the next quarter. Actual events or results may differ materially from those contained in the projections or forward-looking statements. Following factors among others could cause LivePerson's actual results to differ materially from those described in our forward-looking statement, are dependent on the success for the LivePerson chat service, continued use by our client for the LivePerson services, potential fluctuations in our quarterly and annual results, risks related to adverse business conditions experienced by our clients, integration of acquisitions if any, are dependent on key employees, risks related to our international operations specifically including risks related to our business operations in Israel and the current political unrest in that region, building awareness of the LivePerson brand name, technology systems beyond LivePerson's control, and technology related defects that could disrupt the LivePerson's services and responding to rapid technological change. This list is intended to identify only certain of the principal factors that could cause actual results to differ from those discussed in the forward-looking statements. Our listeners are referred to the reports and documents filed from time-to-time by LivePerson with the Securities & Exchange commission for discussion of these and other important risk factors. And now I would like to turn over to LivePerson's Chief Executive Officer, Robert LoCascio.

Thanks Jim. Good afternoon everyone and thank you for joining us. I am very pleased with the results for the quarter. During the second quarter of 2003, we generated record revenue of $2.8m, up 51% for that same period last year and up 12% sequentially from the previous quarter. We more than doubled our expected sequential growth rate of 5% and again achieved break even EPS as was our first quarterly GAAP profits. Later in the call, Tim will give you a more detailed financial overview. We are now on our sixth consecutive quarter of generating positive cash flow and we continue to be focused on accelerating top and bottom line growth. During the quarter we signed Hewlett Packard, Sears, Qwest(ph) and many other clients of all sizes. We continue to see a strong interest in our sales edition product and expect a significant portion of our revenue growth for the rest of the year to come from these product offers. Users of LivePerson sales edition are seeing a solid return on investment as they use it to generate incremental sales from the existing website traffic. Positive costumer feedback about our products confidences to host our first customer summit here in New York City last month; 15 of our largest customers including Microsoft, Hewlett Packard, Qwest, American Airlines, Bellsouth, Earthlink, Suntrust, and Computer Associates joined the live present team in an interactive form. It was a tremendous success. The highlight of the conference was the customer presentation. Companies like Microsoft, [Air] Canada, American Airlines who are into it detailed the challenges in driving incremental sales online and the successes they are having with our products. These presentations served as the springboard to our high level interactions between our team and the executives at these companies. As I mentioned in our last call, our new Vice President sales is focused on growth of our direct sales force. The majority of our growth to this quarter has come from three direct sales people who had relatively matured high clients but since March, we have doubled the sales force to six. The additional three sales [reps] are trying to fill the pipelines and generate new sales. They remained significant room for internal growth and will continue to increase our sales force accordingly. On the marketing front we started initial direct mail campaign and are seeing some positive preliminary results. This campaign showcased the sales addition product while out coming marketing initiatives we focused around the launch of enhanced service and sales addition products. As you ramp our sales and marketing efforts, we are preparing for two major product releases. We'll release in the half version of LivePerson's sales and first editions in Q4. The first edition part will become an integrated cash e-mail announced base products. We will tap this market with our proven value proposition of a hosted ASP multi-subscription model that requires no major software installation. Furthermore, we will be one of the only products in the market that will enable us an integrated view of the customers inbound e-mail and chat interactions, for example, for the customers sending an e-mail and then get some patience and engages in a chat through [interpreter]; once the chat is completed, the e-mail will be closed so that the question is not answered twice. This product will also eliminate the redundant interactions that support organizations has in answering e-mail, chat and in the future voice from the same customer. We will continue to move the company away from traditional CRM and towards the [right-end course] side of online communication services. We will finish up this year delivering an integrated chat and an e-mail platform while positioning ourselves, so we can evaluate the opportunities of delivering integrated voice services using voice-over-IP in 2004. There is a very exciting opportunity for us as it defines what an online communication company is and does. The existing communication software and hardware providers for call centers like Avia (ph.), Genesis, Nortel, and Alcatel(ph) provides enterprise only systems that require large up-fund investments of capital and cost. There is a tremendous opportunity to provide and integrate the IP communications platform on an ASP basis. We will sell these services on our core values of lower fund cost, no hardware installation and ease of use. This is a multi-billion dollar opportunity for us and the key players are just beginning to define themselves. LivePerson will be well positioned to 2004 to exploit this market opportunity. We are very pleased with our team of LivePerson is executing towards our 2003 goals. All evidence points to pass the accelerating growth.

And to recap the quarter, we had sequential growth of 12% over Q1. We increased our direct sales team from three to six full-time reps. We again have positive cash from operations, increased our cash in the bank by 5% to 8.8m. We surpassed revenue and achieved EBITDA guidance for the quarter and we continue to assign new large corporate client and to convert existing parts of long-term deal. Let me now turn the call over to Tim who will review the financial results and expectations in more detail.

Thanks Rob. We continue to make progress on key performance methods. We again exceeded our expectations for the quarter as revenue grew 12% versus the prior quarter and increased 51% from the prior year. *Our business with key existing customers grew during the quarter including with Forex, Ebay, and [inaudible] among others. We are also pleased that our growth from new customers is balanced by strong growth from existing customers as well as growth across all product lines. In our corporate business, 50% of sales growth in the quarter came from new customers while the other 50% came from continued growth of our existing clients. We also had growth in all product lines including sales edition, service edition, and LivePerson's probe for small businesses. Our small business groups performed well, contributing one-third of the growth in the quarter. The balance came from our direct sales groups selling to larger corporate clients.

Of the corporate side of the business, 40% of our growth came from our newer sales edition product in line with the previous quarter but the balance of 60% came from our flagship service edition product. Pricing is also holding up well for LivePerson. Today we succeeded in raising prices consistently as our products continue to advance. Our Pro product list price has doubled from $49 to $99 per month per seat over the past three years. While our service edition list pricing has also doubled over the same period from $250 per month per seat to $500 per month per seat currently. Likewise, list pricing for our sales edition product has increased by 25% in just the past year to $12,500 per month per business unit to start. We are also seeing some success with up selling our sales edition product following our pilot appearances which are typically 60-90 days long. One reason pilot conversion to a long contract resulted in a 200% revenue per month increase based on the success of the initial pilot. Well this is not typical of every deal; if there is [due] some perspective on the potential of the sales division product once introduced to large corporate users. Visibility on the sales pipeline also continues to improve, and our recently added sales reps are coming up to speed very nicely. We had a strong Q2 which supports our optimism for the rest of 2003. We are increasing our 2003 financial guidance by 5% for the top line to 40% annual revenue growth, which will take us to $11.5m in revenue for the year. I will give a little bit more detail on our expectations for Q3 and the year later in the call. I will now review the detailed financial results for the quarter ended June 30.

For the quarter, LivePerson recoded record revenue of $2.8m, a 12% increase versus $2.5 in the prior quarter and a 51% increase versus $1.9m in a comparable period of 2002. Cost of revenue in the second quarter was flat versus the prior quarter at $0.5m resulting in a gross profit of $2.3m and the gross margin of 82% versus the gross margin in the prior quarter of 81%. Product development expense for the quarter was $0.4m, up slightly from $0.3m in the prior quarter as well as in the prior year. Sales and marketing expense in the second quarter increased to $0.9m versus $0.7m in the prior quarter and versus $0.5m in the prior year. These increases reflects greater personnel costs related to growing our direct sales force, increased sales commissions in line with the revenue growth we are seeing, as well as higher direct marketing expenses. General and administrative expense for the quarter excluding *amortization of intangible assets was $0.7m, down from $0.8m in the prior quarter and flat versus the prior year. We recognize net non-cash amortization expense of $0.3m in the quarter flat versus the prior quarter and versus $0.1m in the prior year. We will continue to have amortization expense related to intangible assets of this same amount for the remainder of 2003. We expect that the total balance, currently half a million dollars, will be fully amortized by the year-end 2003 at a straight line rate. EBITDA or earnings before interest, taxes, depreciation and amortization was $0.4m, up from $0.3m in the prior quarter and up from $0.1m in the prior year period. EBITDA per share was 1 cent versus breakeven in the prior year. The reconciliation between EBITDA and GAAP net income loss is provided in the financial statements accompanying our earnings release. Net income per share in the quarter was zero cents compared to a net loss per share of zero cent for both of prior quarter and for the second quarter last year.

Turning now to the balance sheet, our cash balance at the quarter end was $8.8m, up from $8.4m at the end of the first quarter. Accounts receivable decreased by approximately 1/3rd to $0.6m due primarily to the timing of cash collections in the quarter. Deferred revenue was down slightly to $1.3m versus $1.4m in the prior quarter. And our DSO's or Day Sales Outstanding are consistent with prior period at very low levels due to excellent collection history and running in less than 30 days. Depreciation for the quarter was unchanged at about $0.1m. We will continue at approximately [best] quarterly rates for the rest of 2003. We'd now like to outline our expectations for near-term financial performance. We are increasingly confident in the size and predictability of our sales pipeline and have seen strong results to-date in the second quarter. As a result, as we mentioned, we are increasing our full year revenue expectations to 40% annual growth to $11.5m and EBITDA per share of 5 cents. For the third quarter of 2003, we expect sequential revenue growth of at least 8%, which would take up the revenue of $3.1m and EBITDA per share of 1 cent. That covers the financial review. I would like to close now with thanks to LivePerson's team which has continued to execute on plan. They have built impressive personal relationships with large corporate clients, which enable us to grow those accounts very efficiently. They have continued to deliver outstanding development work ahead of schedule and on budget and they have risen to the challenge of steadily increasing demands from a growing diverse customer base.* Our thanks to the team and of course I thanks to all our shareholders who enable us to continue to build a profitable customer driven company. And at this point, we would be happy to take any questions that any of you might have. So, I would request that the operator please rejoin the call and give us the appropriate instructions.

At this time, ladies and gentlemen if you would like to ask a question please press "*" "1" on your touchtone phone. Again that is "*" "1" to ask a question. Your first question comes from Reni Bracken (ph.) from Bracken Capital (ph.).

Well I didn't [mean I am going to be first] but what the hell. Email option that is going become available in the fourth quarter, can you just describe how that will enhance your deal size or ASP, and can you just reiterate what you said about depreciation by year-end?

Sure, on the first question, the email product, the point we are on the schedule is basically finalizing [test] scene or the sort of early roll out stages. We would expect to have usage by customers sometime in the third quarter and growing in the fourth quarter meaningful revenue numbers; you probably will not see until 2004 from that product. So the remainder of this year is really bit about so we will define the product in building the customer base, and then we will see some revenue impact. In terms of ASP we are seeing ranges that are roughly equating to a 100% of our chat pricing, which specifically would mean for a customer who is currently using one seat of our corporate service edition product, that' 500 hours per seat per month. If they were to get an additional seat with full access to the new email and knowledge based product, it would be roughly double that cost. We would expect to see some high volume price breaks for larger customers but right now that's we are looking at in terms average selling price. On the second question, the depreciation -- sorry I will repeat the depreciation number -- our amortization is the larger number and that's quarter of a million dollars, about $250,000 per quarter, each quarter and that will continue in both Q3 and Q4. Our true depreciation numbers are very small less than $100,000 and that also will continue at that rate. What's notable [inaudible] about the amortization number is that we will go to zero -- based on the current balance sheet we'll go to zero at January 1, 2004.

Okay. Thank you. That's the thing I missed, I appreciate that and congratulations on a great quarter. I have a follow up I'll go back in the queue, thank you.

Thank you.

You next question comes from Michael Capman (ph.) from Lean wonder Capitals (ph.)

How are you gentle men?

I am right how are you doing?

I'd like to better understand the methodology of the sales -- the direct sales force and then who is responsible for increase in the installed base number of seats; if that's a separate channel done with telesales or not and then how do you [quote] the direct sales force, what's then the impact if you could split it out in terms of revenue way of the enhanced size of sales force so we could extrapolate them going forward?

Yeah, this is Robert, the way we have our sales force broken up is we have account executive and this is our direct sales force that is responsible for new sales and that's what we quoted, it's today we have six of those; we had three starting at the beginning of the year and now we just doubled that up in the previous quarter. So three are pretty fully engaged on a pipeline level and then three have just have come online behind them. So, they are responsible for nothing but direct sales. Then we have account managers and account managers are -- there are also six of them are responsible for day-to-day operation with the customers. So they will go in there, train initially; then they will offer professional services behind that and then basically they are on the customer on a day-to-day basis on making sure they are utilizing the seats and that they are increasing their volume. But another thing that's happening to our change in the sales force is that our new deals that are coming online, we really work horizontally and vertically at an organization like Hewlett Packard that we just signed. We are working with two divisions to start and previously last year we had only really to stick with one division. And now we are going to an organization, we say, where can you use *realtime] interaction throughout entire organization, let's get everyone at the table and let's start one or two or three pilot programs right up of the back and see what kind of results we get under these different divisions. That's also happening in Qwest and some of our other customers today. The [qualities] on the reps are between 800 and 1m a year in annualized revenue and that's how they have quoted today. There is a minimum that they have to reach in order to participate in commission plan and so there is pretty high threshold that we haven't [had] on a quarterly basis in order to participate. That's describing lot of our growth today.

And how long does it take new reps to become effective?

It's a -- realistically it is 90 days to 120. We've really been studying that now with the [newest] rep after the three to fourth rep is on; he is getting pretty close to its 90th day and his pipeline is starting to fill up almost fully. So these guys are going pretty quickly. It's pretty much a function of six reps; when you think about six reps working it's only the United States that they are working today. There's a lot of demand out there so we are not really showing the demand in the market, yet, but we are being careful; we are not going to over hire, yet, you know, we are *basically] just going is the methodology in which we are bringing on sales reps today.

Great, thank you.

Thank you.

Your next question comes from Jim Stone from Alexander Capitals.

Congratulations gentlemen for a nice quarter.

Thank you

In terms of the hiring plan for the salesmen, could you tell us how many more you expect to hire this year?

We were probably at six today, we will probably ramp anywhere into 10-12 by year-end. So that's sort of our goal right now. And that's sort of our focus. We will also bring up some channels and doing stuff like that, but you should look around probably about 10 by year-end.

Okay, and will that be more [backend] rolled or it'd be fairly linear?

It is going to be fairly linear from here on now. So we won't do a hiring rush, you probably get one or two more people in this quarter and then one or two more people in the fourth quarter. So we are bringing about nicely, * partly] we just hired a just hired a new VP of sales at the end of Q1, and so you are going to hear the plan that we are all working of [any hiring] against that plan, and needs growing revenues against that plan also. So and so far everything seems to be in line so we are working off that.

You mentioned three new customers signed during the quarter, could you tell us whether your * trials s, whether hit a small point -- put us some feel in aggregate what they are doing?

We typically don't -- we [are only sort of managing] customers in this way, though the customers are assigned for long term contracts. When they are in pilot programs, we may refer to them more generically. But for the named customers, it would be a customer signed to a long term contract.

And typically our long term contract is -- we have one year contracts so we sign up with these customers that besides.

what I am asking about is -- you referred the three new customers in the quarter, here is some [inaudible]. I am trying to understand what new customers means, are these [pinning] as the rolling it out within one sales -- within one sales point or division, rolling in multiple divisions, talking in aggregate, not asking for one by one, I am just trying to understand?

Yes it's when we look at -- when we announced customers it pretty much means that they are beyond trialing (ph)which means that the ROI that they got off the product makes sense, and with the sales addition product they can run pretty straight line ROI which is how many sales that we generate in the quarter for the 90-day pilot that we did and then they got multidivisional. So all these customers that we have named today are multidivisional customers because basically the sales plans for new customers is, as I have mentioned before, horizontal and vertical, which means we go multidivisional and then we'll go deep into a division and then now we are going to layer [answering] new products like e-mail and knowledge based on top of that.

You are sure that some of the old ROI's that you are seeing, but not by customer obviously because--?

Typically on the sales addition product, the ROI is in the thousandth percent, 1100% you know 1000%. So *it's been pretty phenomenal. We know that's why we one of the indications is we increased our pricing around the product because of the success we have had in the high ROI, that we are seeing with customers like Microsoft and HP and guys like that are using our products.

Okay and with you said which products * you tract] getting you [thousand]?

It's the sale addition product which has a pretty straight line ROI, its -- we can tract the actual sales that take place through that system and you can really track it back to our customers or their first online sales agents, so pretty much at the end of the week you can run a report, and literally have the VP of sales see that you are paying x amount of dollars per license you are paying you know $10-12,000 a month for the product, and you are generating you know 20, 30, 40,000 whatever you are generation of revenue was.

What are you seeing as the acceptance of -- fixing up * the names of your products, the one we are going and customize per customer?

The sale addition price is more of customization and then the service product is our like click-to-chat product. 60% of our revenue still coming through the service addition product. *A lot of that as the function of that is the kept largest installed base in the company today. 40% of our sales are coming through the sales product lot of function because it is new product that was just released to couple of months ago. We are seeing focus of the marketing efforts in the company, the focus of the sales reps of the company is on the sale addition product because the pricing points are higher. We have less competition there. We virtually have no competition. We brought the competition last year and in the ROI this is really clear and clean for our customers. [inaudible] basically it is the premium product, I mean, when you look at what it's doing you look at the company like Microsoft you know they have thousands of people come to their website everyday and before we existed those people would come and go and now they are able when they come into the door of our website Microsoft contractively say hey *do you need help and that's the radical change in selling on line and that's what really achieving these are [inaudible] numbers for these customers.

The new customers that are coming on in general [inaudible] so addition and not service.

No there it's fairly I think balance between the two products in the second quarter about 40% of the incremental sales where from the sales addition product and about 60% where from the service addition product.

Okay keep up the good work

Thank you.

Your next question is from Ivan Hoop (ph.) from Vertical Line Capital (ph.).

Yeah, couple of questions for Tim and then one for Robert, the Tim you mentioned the *GR Line (ph)] differed revenue has declined, why should we not be worried about that and then the second question is that were, any plans for the cash it seems t be just sitting there.

[inaudible]on the third from the differed revenue we know there is no reason that you should be concerned there what you are seeing there is the sort of the net impact of obviously the increases and decreases in differed because of relatively smaller portion of our business is annual deals that are paid up front which is the real driver of the differed revenue number we could do significantly more business but we are paying on a monthly basis and that wouldn't show up n differed revenue. So I think if you saw [differed] dropping and you saw revenue growth dropping then that would be a concern, but if you are sort of the net impact of a couple of clients decided to pay on a monthly basis versus an annual basis.

Okay and the cash?

Cash is increasing nicely, steadily in line with our EBITDA as we expect. We did, as you know, we did the New Channel acquisition a year ago which we feel is a smart and effective way to use cash which is on a limited basis with a short term less than 12-month payback. Everything turned out as good or better than expected in that transaction. If we see the transaction, it looks a lot like that. Those are the kind of places we would look to use the cash right now.

Okay, and Robert a question for you, it seems that and tell me if I am wrong that the business is* shifting towards the large enterprise I was wondering what you are doing in the small and medium enterprise market and how are those partnerships with companies like [Wizard] progressing?

Sure. 33% of our revenues still comes through the small business group and the small business group continue also to add a fair amount growth each quarter for our company. So, it's still our main focus, but recently with that group you know we think it is important* is really two reasons] is one is that it keeps way small companies at your graph, you know, we didn't have that product; there will be a competitor out there that would try to get that business and one day may be they could step into the large enterprise deals. And the other part that I think is exciting is they are doing a lot of these interesting little deals with the overtures and the deals with the [prime watch] and what they really focusing on is taking chats and making more of that market product. And so I have seen things lately I saw a demo a couple of weeks ago on integrating it with the search engines. Where it literally search comes up on where it's a Google or whatever and they were playing with it that a chat could be right at the point of the search engine. So I think there is some interesting things that are they doing that continues to be pretty excited about that group here today. The focus *of the company is obviously on the *highend because there is a lot of growth and the call center really needs the real time products feed base and they have got higher price points, I mean these are big deals these are $150,000 deals one of our largest customer accounts for $600,000 a year in returning revenue alone. So we think there is some good growth there, but we think as a company both groups *are equally[important to our success.

And are you how are you going to market these *small to medium enterprise product lines; is it through these partnerships, so maybe if you can talk a little bit more on that?

Yes, its' done today in two levels one is that the majority of sales that comes to that today or viral, and I hate *to use that word, was in 1999 was but it actually works. Right now you know 1.7m people a month were used live person on the Internet to get support as that 1.7m people talk to a couple of [thousands], and say hey this is really cool, I just used it on [E-bay], let me click go to live across some website and this maybe a person of sales real estate in Ohio and so they will chat with an online sales rep, that online sales rep will sell them right online they put their credit line in and they got and that's most of business here as credit cards have been solid so that's [inaudible], and then these guys are also working with overturn, they are working with fine what, they are working with fine one, they are working with regard, they are working with web hosting companies, and they are using those channels too. I am very excited about what we are doing on the search engine side of the business, I cannot really talk much about it. Because we don't talk about things until they are really become revenue driving piece for the company but there is some exciting things over there.

Okay great thanks lot.

Thank you very much.

We do have a follow-up question Reni Bracken (ph.) with Bracken Capital (ph.).

Hi guys, for the sales managed product can you just let us know what was the percent last quarter?

Yes. That the sale product has been running little bit about 15% of revenue since the later part of the last year when it was launched it edging up this point towards 20% so within that range, but it is growing nicely so 15-20% range right now.

Do you expect that to accelerate?

As a percentage of total sales.

Yes.

We are actually seeing -- we are seeing similar acceleration I guess I would say in the service edition, so both are growing nicely] and as Rob mentioned because the existing base for service is much larger I think that sort of masking some of the growth we are seeing in sales and they are balancing each other out. So I don't see a situation in the next two or three quarters were you know 100% of our incremental growth comes from sales only. But *therewill be I think continued shift in that direction.

And in terms of the - you know we have gone to this *like[in you know 98-99 where internet related companies kept on spending and you guys don't believe I am not *implying the you are on this track but I would have expected little more leverage on the P&L this quarter given the upside but in 98-99 we saw companies spend *for every dollar they made they spend and they don't drop as much in the bottom line. When do you think you are going to be in a position were your infrastructure is set to that you can really increase your quality to sales [inaudible] and leverage the P&L

Yes I think what you have seen there is we were serve at the point where we can see but can't say in the public number were at [debt] GAAP breakeven. So it's * tough see what the how the leverage works out but the things with point to are the gross margin and that's track that been you know and that's improving a little bit above 80% and then also we mentioned we had couple of expenditures in the current quarter that we are not really related to revenue we got a customer summit which was sort of precedence event for us was a great success but cost a little bit of money. We also had some non-cash charges that were unique in the quarter, again, not tied to revenue. If you make that adjustment then we are dropping 50% of the incremental revenue to the EBITDA line which is not bad. Given that, you'll have sort of track over the next couple of quarters and see how that progresses. We have stated our position and continue to live by this that we will -- our goal is to draw cash but to reinvest a portion of that cash into sales and marketing. So I think what you are saying now is that balance. We could make another [inaudible] percent in the current quarter and the next quarter, but we have determined that hiring the three new sales reps and beginning to spend a little bit more to drive top line make sense. But we are -- exact question every day and we make sure we are not replicating past mistakes

Okay, one follow up on the -- on the e-mail product, I know you pitches basically an integrated product, but you basically describe] what the over-lap is with your installed base with you know with some -- some one another product like a [inaudible] an excellent product with a you know the pitch in this particular products going to be little more challenging.

Yeah, I mean one of the reasons we sort of drove to [inaudible] is we look at the competition out there let take a [inaudible] is a good example and we looked at of our largest customers and they -- they will be using this product there is a fair majority of live-person customers that use [inaudible] for e-mail and chat you know Live Person for chat what interesting is that it also turns the decision maker in this organizations that manage chat also manage e-mail and there has been a dynamic that we saw about a year ago, we saw these enterprise software companies start to [soften] a little bit and yet they were still changing the exorbitant maintenance fees which [inaudible].So there is a recurring revenue element that the our [march] customer has to continue to pay so that was one thing till we think there is an opportunity to grab that revenue and the second part is the decision makers have looked I had someone who dropped an email off and then [inaudible] for the [cap] but yet we had to be emailed because the comment system and the Live person systems are not tied together and this is problematic, we are probably doubling up on a lot of our customer responses it would be better if we could a more 360 view of our customers interaction can you guys build this and so we went ahead and decided to build it a year ago and then the third part is that we'll be one of the only players in the market that is delivering a product that's comprehensive as an asp so they don't have to you know install the servers, maintain the servers and what we are also seeing is doing lot of more outsource labor in India, in Philippines and this is also benefit SP model. So we think the combination of all that is winner and we will see. I mean we have delivered it is very sort of pre-sold [inaudible] bearing marketing. We showed it at customer conference and got some good feedback and we hit market with it pretty soon.

And how many clients asked you to actually develop the product?

it was -- I can't give you the number but is say our top you know our biggest clients have sort of pushed us towards going beyond chat and that's why we finally certainly made the rule to do this today.

Thank you very much.

Thank you very much.

Your next question comes from Rich Vule (ph.) Harkness Capital Management (ph.).

Hi guys great quarter, just a quick follow-up last quarter you mentioned sales channel partnership and I was wondering if you had any comments on how lead deals were going through that or do you have seen any deals come from that partnership?

Yes, anywhere the last quarter we announced our partnership with Digital Insight we have closed a handful of deals in this quarter so it has started up nicely, and then you know we should -- right now we are retaining our forecasting as it seems like it will continue any contractions so we are pretty excited about that partnership, we continue to focus in on our partnership, and we haven't announced any others, but you should once again see some others in the financial services arena fairly soon and we will now talk about that little later.

Okay thanks, great quarter.

Your next questions comes from Mike Anstrom (ph.) from Sanstrom Research (ph.).

Good afternoon.

Hi Mike.

Hi Mike.

Great quarter, not better than I was looking for, but my question has to do in a couple of areas. One is with this is probably *far fetched ] but with the actions against outbound calling to cut that down on the part of the consumer and also the actions you are seeing, the products you are seeing that minimizes [inaudible] on the personal computer. Would that be a driver for your product at all, I mean there is revenues that were going into direct marketing over the phone but now have to find another niche?

Yes there is a definite, definite benefit for us. I mean what it helps do for us is*merge[le] along with concept of real time marketing. What our sales in product has done for our customer is it has enabled them to do real time marketing which means up just regarding the marketing information real-time, but actually closing the sale at the same time and I think the more and more press you see about some of these changes related to spam and related to telemarketing just puts all sorts of pressure on companies to look elsewhere in there lead base and what the first factor they look is there the number of visitors on there site. Most of our large corporate clients have done a fantastic job of getting visitors to there site, but where there is still a tremendous amount of opportunity is doing something *effective with that monster there. And so it's a gradual shift but yeah every little bit where there is front page journal in current story about it really helps to tell the story.

And what do you see overall I mean specific clients you are seeing e-Bay for example that you are seeing increases in seats utilized; is that happening on a throughout your customer base, what is happened to the average seat per customer?

Yeah I'd say are seeing I mean obviously you know the bigger names have larger numbers of customer service operators and thus have a bigger pool that we can penetrate and so you will hear more about them when they have more of a growth potential for us but what we are seeing is sort of a *in the interest of] change in these customers meaning they set up a certain number of seats they train those operators and then they evaluate the traffic being handled by those seats and then they incurred more traffic and then they add operator seats to handle that additional traffic. And so the gradual process of adding traffic adding seats adding traffic adding seats and we see that in the customers to really have a firm grip on what happened on their side and what changes, changed behavior of the site visitors. So smaller businesses you might not - you might not see quite so much you know systematic movement or growth but in larger customers and the ones you mentioned I wonder you really see the opportunity like this, you know we are seeing the consistent quarter to quarter growth.

Great thank you.

thanks very much

Ladies and Gentlemen if you like to ask a question please "*" "1" on your telephone keypad.

Your next question is from John Hickman (ph.).

Hi Robert.

Hi John.

Can you - you mentioned that financial services area and you have talked little bit about E-bay and *Qwest[Hewlett Packard, can you give us some idea like which vertical are really moving for in, which ones you are trying out, exploit and. .

Sure. I mean we - ways of little bit focusing on the software and hardware. [inaudible] and so we have been pretty focused and that's one of things you seen with HP indications [inaudible] they have AT&T Bell Canada, Bellsouth few more in the [inaudible] that's a big vertical forest until -between *telecommunications ad] and then financial services those three are keeping as pretty busy. Today we did a direct mail campaign 20,000 pieces we dropped that one or two Vice Presidents of sales in 03 vertical so we are starting to get some good feed back and those direct marketing campaign

Okay thanks a lot.

At this time Mr. Bixby] there are no further questions.

Okay, thank you very much for being on the call and we'll see next quarter. Thanks.

Ladies and gentlemen this concludes today's conference call. You may now disconnect.