LivePerson Inc (LPSN) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Thank you for welcome to LivePerson's fourth-quarter 2003 earnings conference call. This time all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded January 29, 2004. Speaking on today's conference call will be Robert LoCascio, CEO of LivePerson; and Tim Bixby, President and CFO. I would now 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 are 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 of the Private Securities Litigation Reform Act 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 by change prior to the end of quarter. Although these expectations may change, we're 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.

The following factors among others could cause LivePerson's actual results to differ materially from those described our forward-looking statements. Our dependence on the success of the LivePerson services, continued use by our clients of the LivePerson services, potential fluctuations in our quarterly and annual results, risks related to adverse business conditions experienced by our clients, integration of acquisitions, our dependence 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 defects that could disrupt the LivePerson services. As well as 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. Listeners are referred to the reports and documents filed through from time to time by LivePerson with the Securities and Exchange Commission for a discussion of these and other important risk factors. And now, I would like to turn the call over to LivePerson's CEO, Robert LoCascio.

Thank, Tim. Good afternoon everyone, and thank you for joining us. I am very pleased with the results for 2003 and the fourth quarter. During the fourth quarter of 2003, we generated record revenue of 3.5 million, up nearly 50 percent from the same period last year, and up 12 percent sequentially from the third quarter.

We surpassed our expected sequential growth rate of 8 percent and for the first time generated positive earnings per share of 1 penny. As well as our second consecutive quarterly GAAP profit.

Later in the call, Tim will give you a more detailed financial overview.

During the quarter, we signed Verizon, VeriSign, Mellon financial and many other new clients of all sizes. We saw continued growth within our existing base of clients, including HP, Federated Department Stores, 4X (ph) and Quest, among others.

We closed the ion data (ph) acquisition as announced in early January. We expect this acquisition to contribute approximately 1 million in annual revenue, and 0.5 million in EBITDA in 2004, excluding non-cash amortization charges. This deal provides us with additional large customers including Intel, RealNetworks and Adobe.

Ion data parts are focused around knowledge-based self-service products like frequently asked questions or FAQs. We're folding this acquisition under our service edition group, since the product is similar to the one that we recently developed in that product line. We will continue to expand the feature set of service edition around this acquisition, and will also take advantage of the opportunities to upsell our complete solution of chat (ph), e-mail and knowledge-base into this customer base.

During the quarter, we made significant progress in our core business. We continued to see a nice balance of growth from new and existing customers. During the corner 60 percent of incremental revenue growth came from existing customers buying more seats and the remaining 40 percent from new customers.

We're seeing a few changes in our business I would like to discuss. The first is that sale addition is driving larger implementations for corporate customers. While we initially expected these deals to be 1 to $200,000 deals per year, we now believe that we could reach 1 million plus per year based on our growth and our large customers. This is being driven by the fact that large clients typically have distinct divisions evolved (ph) in generally (ph) online sales. Also because these larger deals require a higher level of professional services, we had an increase in professional services during the quarter. Although I'm not a big fan of onetime professional services fees, I do see them as necessary to ensure that our customers are using our products correctly.

I'll now review some of our accomplishments during 2003. It was a year of tremendous progress for LivePerson. We hit new high watermarks for revenue, cash flow and earnings. A growing number of Companies are looking at chat as an improvement over telephone for selling and supporting online visitors. Today, over 3,000 companies use live person and 2 million of their customers chat through LivePerson each month. These 3,000 customers represent only a fraction of the Companies that are selling goods or services on the Internet today. As a matter of fact, Forrester recently published a report saying that by 2007, over 67 million online consumers will use chat for support, and that chat is the gateway to richer customer collaboration, and lower online service costs.

Our Company's online presence is becoming as important as any off-line for generating sales. And communication services are following this trend with the off-line communication of phone, being replaced by the online communication of chat.

From our overall financial standpoint in 2003, we grew organically at 46 percent sequentially over our previous year, with 12 million topline revenues, and we had 2 million in operational cash flow into our bank account. We have also maintained our high gross margins of 83 percent in aggregate for the entire year.

From a product standpoint we released in the fourth quarter and on schedule our new version of LivePerson service edition. This product gives us an integrated suite of communication services, that we can offer at call center including e-mail, knowledge-base and chat.

Finally, in 2003, we committed more resources to sales and marketing, and doubled our sales team and hired a VP of sales to lead our continued build out of that group. Much of our focus right now is on this group, as we expand our sales force in response to market demands. We also started our first resell real issue (ph) with digital insight and have seen very positive results.

To summarize our accomplishments, during Q4 we achieved the following -- we increased our sales by 12 percent over the third quarter, gross margins increased to 85 percent, and we delivered cash from operations of more than $700,000. Now I'd like to turn the call over to Tim to review the financial results and outlook in more detail. Tim?

Thanks, Rob. We were pleased with the fourth quarter and full year results and our continued improvement in revenue, EBITDA and GAAP net income.

As Rob mentioned, we exceeded our expectations for the quarter as revenue grew 12 percent versus the prior quarter, and increased nearly 50 percent from the same quarter in the final year. Growth from new customers continues to be balance by strong growth from existing customers, as well as balanced growth across all product lines.

In our corporate business, 40 percent of sales growth in the quarter came from new customers, while the balance, or 60 percent, came from continued growth with existing clients. This is a greater proportion of sales from existing clients than in prior quarters.

We also had growth in all product lines including sales edition, service edition and LivePerson pro for small businesses. Sales edition continues to grow the fastest, followed by pro and service edition. Our small-business group performed well, contributing 40 percent of the recurring revenue growth in the quarter. The balance came from our direct sales group, selling to larger corporate clients. On the corporate side of the business, about two-thirds of the growth is now coming from our newer sales edition product, up from the previous quarter and remaining one-third coming from our service edition product.

It is notable that professional services revenue accounted for a larger portion of revenues during the fourth quarter than in prior quarters. About 6 percent of total revenue in the quarter was from professional services; or about a third of the incremental revenue growth in the quarter. While this revenue is not recurring in nature, and thus can create a larger hurdle for sequential growth, we believe that the effective delivery of professional services enables our customers to better utilize our Software, and should lead to increased usage in recurring revenue in future periods.

In terms of sequential growth, both the service edition and the small-business product lines are growing consistently at between 5 and 10 percent, while the sales edition is growing at nearly 18 percent off of a slightly smaller revenue base.

Now I'd like to give a little bit of background on the status of one of our high-profile clients, eBay. We expected eBay will dramatically reduce or discontinue use of our services by the end of the first quarter in favor of an internally hosted enterprise software offering, which LivePerson does not provide. While it is always unfortunate to lose a client, eBay constitutes less than 1 percent of our current revenue, and thus this potential loss will have no material impact on our financial results. We see this as a one off event rather than a trend.

As previously announced earlier this month, we acquired certain assets of San Diego-based Island data Corp. in a cash and stock transaction. The initial integration of the Island data assets is going very well. We have received favorable feedback from key clients as we begin this transition, and hope to have opportunities to increase the level of business with several of these clients.

Clients added to the roster through this acquisition include Adobe, Canon U.S.A., Cox communications, Intel, RealNetworks, and several others. We expect this acquisition to be accretive on both the cash flow and EBITDA basis on day one. We expect revenue from this acquisition in 2004 of approximately $1 million. We also expect a negative impact on GAAP net income of about $0.5 million. And this is due, primarily, to the amortization of intangible assets related to the acquisition -- equal to approximately $1 million. We will also expect a favorable contribution to EBITDA of about $0.5 million or better, in 2004.

Based on our results for the fourth quarter, and first quarter to date, as well as the Island data acquisition and our visibility into the recurring revenue stream for Q1. We're increasing our 2004 revenue guidance to 54 percent annual revenue growth, which will take us to $18.5 million in revenue for the year. I will give more detail on our expectations for Q1, as well as the full year, a bit later in the call. I would now like to review the financial results for the quarter ended December 31, 2003.

For the quarter, LivePerson reported record revenue of $3.5 million -- a 12 percent increase versus $3.1 million in the prior quarter, and a nearly 50 percent increase versus 2.4 million in the comparable period of 2002.

Revenue for the full year was up 46 percent to $12 million, from $8.2 million in 2002. Cost of revenue in the fourth quarter was flat versus the prior quarter at 0.5 million, resulting in a gross profit of $2.6 million and a gross margin of 85 percent -- a slight improvement versus the gross margin in the prior quarter of 84 percent. While gross margin in the same quarter of the prior year was 80 percent.

Product development expense for the quarter was up slightly to $0.5 million versus $0.4 million in the prior quarter, as well as the comparable quarter in the prior year.

Sales and marketing expense in the fourth quarter was up to $1.1 million versus $0.9 million in the prior quarter, and up significantly from $0.5 million in the same quarter of the prior year. This increase reflects greater personnel costs, as we grow our direct sales force, increased sales commission in line with revenue growth, as well as higher direct marketing expense.

General and administrative expense for the quarter, excluding amortization of intangible assets, was $0.8 million, down from $0.9 million in the prior quarter, and versus 0.7 million in the fourth quarter of the prior year. We recognized net non-cash amortization expense of $0.3 million in the quarter. We will continue to have amortization expense related to intangible assets at approximately these levels throughout 2004 and 2005, related to the recent acquisition of Island data acquisition assets.

EBITDA or earnings before interest, taxes, depreciation and amortization, was $0.7 million, up from $0.5 million in the prior quarter, and versus a loss of 0.8 million in the prior year. EBITDA per share was positive 2 cents versus a loss of 2 cents in the prior year. EBITDA for the full year was $0.8 million or 2 cents per share, versus a loss of $0.5 million or 1 penny per share in the prior year. The reconciliation between EBITDA and GAAP net income or loss is provided in the financial statements accompanying our earnings release today.

Net income per share for the quarter was positive for the first time at 1 cent per share, compared to break even in the prior quarter and versus a loss of 4 cents per share for the fourth quarter of 2002.

The prior year quarter included a $1.2 million restructuring charge, related to a legal settlement.

Net income per share for the year was a loss of 2 cents, versus a loss of 20 cents per share in 2002. Net income in 2003 included a restructuring charge of $1 million while net income in 2002 included a restructuring charge of $1.2 million, as well as a charge due to the cumulative effect of an accounting change of $5.3 million.

Turning now to the balance sheet -- our cash balance at the quarter end was $10.9 million, up from 9.6 million at the end of the third quarter. A large portion of this increase is due to a timing effect of tax withholding due to option exercises. This is cash collected in Q4 2003 that will be paid out in Q1 of 2004. Excluding this, effect, cash flow from operations was $0.7 million, in line with our EBITDA results for the quarter.

We also had two nonrecurring events in the quarter, that roughly offset each other from a cash perspective. We made a $1.3 million payment, previously accrued, related to the Coreo arbitration claim (ph), and we received $1.2 million in cash proceeds from the exercise of options and warrants. The net effect of these two transactions roughly canceled each other out from a cash perspective.

Accounts receivable increased to $1.2 million from $0.5 million in the prior quarter, due primarily to the timing of cash collections and the renewal of annual contracts. A significant portion of our annual contracts tend to be tied to January 1st time frame, and so this is an impact that we see at this time of the year.

Deferred revenue was flat at $1.3 million, versus the prior quarter; and DSO's are consistent with prior periods running at about 30 days.

Depreciation for the quarter was less than $50,000.

And with that, we would like to outline our expectations for near-term financial performance.

As a result of the Island data acquisition, we're increasing our full year revenue expectations to 54 percent annual growth, to $18.5 million. And we expect EBITDA per share of 12 cents, and EPS of eight cents. The amortization impact on EPS from the Island data acquisition is roughly $1 million, or 3 cents per share for 2004. For the first quarter of 2004, we expect sequential revenue growth of 14 percent, and revenue of $4.0 million. And EBITDA per shares of 2 cents and EPS of 1 penny.

CapEx will be approximately $400,000 for the year, and we recommend using approximately 40 million fully diluted shares for per share calculations as conservative estimate for Q1 going forward, for 2004, for analytical purposes.

From a tax perspective, due to NOLs, or a net operating loss carry forwards, we don't expect a tax provision in 2004 -- however, we do recommend fully taxing 2005 at a 40 percent rate at this point. Preliminary analysis suggests that significant portion of our NOL will be subject to section 382 tax limitations. We will get more information on our NOL and the limitations of its use as the information becomes available.

That now covers the financial review. At this point, we would be happy to take your questions. If the operator could rejoin the call and give instructions?

At this time (Operator Instructions). Michael Roesler, CJS Securities.

I think we heard about the sort of breakdown in the contribution to the growth rates by the product lines. I wonder if you could maybe give us some color on what the breakdown was the year for that product line?

I term -- the breakdown has been consistent over the course of 2003 -- roughly a third of our revenue -- about 35 percent coming from the pro product. A little less than half or about 45 percent, coming from service edition and the balance or 20 percent coming from sales edition. And we would expect that to begin shift over 2004 as the sales edition product has been growing a bit faster.

Okay, and could you talk about the number of salespeople you have right now -- what your expectations to adding to that would be in '04?

We currently have eight salespeople in place. Two of them are very recent hires -- just in the last few weeks. And we have a requisition out immediately for one more. And then will look at the results from the entire team over the course of Q1, including the newer reps that were hired in midyear last year, and determine the pace of hiring for the rest of this year. A very rough estimate for the year is we would expect to add between one and four additional reps.

Okay -- it sounds like there's a lot of growth in customers in the financial area. Is that coming out of partnerships? And I was wondering if there's any other particular verticals you might be going after this year?

We're still focused in on our top verticals, our financial services -- we have the partnership with Digital Insight which is going very well. We're going where up to 20 plus customers right now, and that's going well. And that's more on the midmarket bank area. We're also seeing just a lot of growth in the hardware/software market, because we've got HP, we got Microsoft, we got computer associates and it's easy to leverage those customers. In Telco we're doing well too. We picked up Verizon. Now we have Verizon, AT&T, BellSouth, Bell Canada -- so we've got almost all the major Telco’s out there and we continue on that. So we should see that continuation throughout the year.

And a final question for now. You mentioned expectations that the sales edition is going to be growing in terms of larger implementations. How would you characterize your, say, your penetration in the telecom market as a customer, and what you see the opportunities with them in terms of growing that sales edition? Product there?

If you look overall -- if I look at the overall customer -- what we're seeing is that unlike service edition, sales edition is really a multidivisional deployment, and if we look at a Company like an HP where we are in four divisions and when we continue to bring on more divisions online -- that product sort of warrants that. You know, one Company -- one division is up -- like the printer products, and having a great success with it -- and now all the other divisions want to get online and sell with it. So that's why we're seeing these multidivisional corporatewide initiatives, and that's why we've sort of -- we said, we didn't really think that this product would generate what would be the end of it -- what we're seeing we could probably reach 1 million plus dollars per year recurring revenue from these large customers.

But those (indiscernible) carry a higher percentage of upfront service costs?

They still have the same and we have the first 90 days which carry a higher -- they do carry a higher cost than service edition and obviously pro. So the first 90 days is a breakeven proposition for us. Because we have a fair amount of labor, three or four people engaged in that deployment. But once they go live it's just adding seats at that point, and we cash flow a fair amount of that -- the licensee -- from thereon and.

Okay that's all I have for now, thanks.

Brad Moch (ph), Emerging Growth.

A couple of things. You mentioned renewal cycle. It just went by. And I'm wondering if you could talk about your success rate -- I imagine it was pretty high? And also what you're seeing in terms of the change in use of the number of seat and pricing and things like that with renewals?

Yes, our contracts, while they are one year contracts, they tend to be essentially evergreen. So, everything that turned over at January 1st it tends to be a greater proportion of our contracts tied to that date. Everything that turned over on January 1st was renewed. In terms of increase, I would say roughly one-third had some sort of increase in either volume usage or total revenue, based on how the products were deployed -- so a pretty decent increase rates.

Did you specify with the new customers that you mentioned, which product they are using?

It's a mix -- and Verizon is a sales edition. VeriSign is service edition, and Mellon financial is service edition.

Did Mellon come through Digital Insight or was that your own?

That's our own. That was our own direct sales force. Same with the other Companies too. It's all direct sales force.

Okay, good. And you had, last I checked, 11 customers trying the e-mail product -- is that consistent?

Yeah, so we got them up and running in Q4 when we launched the products you know, mid-Q4. And now, we're taking all that feedback -- we will have a new release coming out -- an upgraded release, in about 90 days. But now we're actually out there starting to work new accounts. So, you should see some new accounts coming in off the LivePerson service edition Platinum.

And you're looking to put them on the existing version? Or kind of hold them until the next one comes out?

No. They're using it -- they are literally -- they were not really beta testers. They were people who wanted to use it -- they continue to use it so we will just now put them in the upgrade cycle, and they're paying us for the licenses and then we will just keep upgrading them.

The upgrade process is pretty seamless for the users, so it doesn't matter if they're ready to go, we can put them on the existing and it's a pretty easy switch to do the upgrade.

I think the other thing is the Island Data acquisition that we did gives us a real focus in on our knowledge-based part RSAQ part of our platinum edition product. And what's exciting about that is we've got this base of customers now like Intel and Adobe, that are large users of this type of product, and they also have opportunities where they wanted chat, or they wanted e-mail, and they couldn't get it from Island Data and now we can cross sell them. And upsell them on these products so this acquisition, I think, is a very strong acquisition. Especially from a product perspective.

Yes, you had indicated that you had talked to all the customers, and they were all pretty pleased about it. Have you gotten a sense as how many of them are going to be willing to be cross sold, and kind of what the timing might look like on that?

Yeah, I think you're looking at one-third to a half will look for other product offerings from us, and it's happening now, so literally account managers and salespeople are out with this customers and right now pitching them and showing the products our product demos and doing all that. So it will go through its normal sale cycle -- it could take two months, six months, to get some of these guys onto that platform. We will migrate those customers, eventually, onto the LivePerson platform -- today they're still on the Island Data platform.

Okay and I'm assuming that you're very excited about, because in terms of mentioning your evaluation criteria for acquisition candidates, the three times forward revenues that you paid for Island Data was at the high end of that range, so that would suggest you're pretty optimistic?

Yeah, I mean, it very much fit our previous acquisition, which was new channel, was a very similar type customers -- large customers, they're paying us on average 10,000 a month -- they want other services, they have big call centers, and they have had a product that they wanted a lot more features in but because the Company didn't have the resources to develop it, it provides us a lot of opportunities. So, we did a lot -- we do a lot of due diligence upfront with these guys, and once we sign a deal, then we work on the conversion process. So we're pretty excited here.

That's great and then finally, just more of a macro question -- with the IT spending environment apparently improving, how much of your business and your ability to generate new business is affected by that relative -- or is it more, primarily, just a microeconomic factors?

I think on the call centers side of the world, there's been a big -- there's been a shift that's been going on for the last -- over a year, when we start to really grow. And that is call center becoming a contact center and moving from phone to chat. And I think that was a natural progression because these call center managers have a lot of pressure to reduce costs and a chat can be a third less than a phone call, so that was happening even without the IT budgets freezing up, because it was giving the ability to do really what they wanted to do.

On the sales edition side, there's probably a part of it in that, but it's really has to do, once again, where these -- the owner of a Website who now for the last two years, has their marketing down, now is really looking to close deals online, and they want new technology. So, sometimes I think the IT budgets are related to Oracle (technical difficulty) we're back end technologies and when you're looking at our technologies they're very clear ROIs, and it's easy for a decision maker to say we're going to buy in. But, we're seeing more deal flow -- I think economy is getting better.

Okay great. Nice job, guys.

Mike Schonstrom (ph), Schonstrom Research (ph).

I just wanted to ask a question about the macro aspects of the FAQ or knowledge-based market -- I mean, who's in it? Does it have, sort of, the same metrics -- same outlook as chat? Do we really looked at them as two different markets or highly similar markets? Could you give us a little granularity on that.

When we look at -- there's really four distinct channels for handling customer support. One would be knowledge-based, second would be chat, e-mail, and then phone. So, when you look at FAQs and knowledge-based, it is the cheapest form of customer support. It has no human interaction attached to it.

The players that are in there are the same players that we compete with when we compete with on the e-mail side. A lot of these guys had a product like (indiscernible) has a knowledge-based product. So it's very important, it plays into a customer call center, contact center's strategy for handling their customers, and they're also going to use these knowledge-based internally, so the same knowledge-base that is on the public side that a customer's using is the same knowledge base that a rep is using to answer a chat or an e-mail. So we have created a fully integrated product suite when it comes to knowledge.

The size of the market right now -- is the same size as chat, a little bigger, a little smaller?

I would say it's probably equivalent to the chat market and from growth perspective I think it's also one of the big growers. As I pointed out before, you know, phone's been around for obviously ages, and that market is a fairly flat market and when we go into that market, it would be a replacement strategy.

E-mail has been out since '97 -- '96. So that's sort of at a point of maturity, but knowledge-bases FAQs on the public side and chat or sort of the newest technologies. And, so we expect to see some growth in that product line also. And one of the things we did, is through this acquisition, it really jumpstarts our sales focus in there. Now we can reference a Intel and an Adobe in a real network as customers -- and that's why it makes it easier for us to attack this market and go legitimately after competitors.

Do you have the same position with Island Data, vis-a-vis the market, as you do with your chat product where you're arguably the leader technologically?

We're just known -- I mean, our lead product is (indiscernible) because we have years of that under our belt in marketing and sales. And so that's still today is our lead market. As I've said in previous calls, this Company will have to make a shift into not being LivePerson the real-time chat Company for customer support and sales, but it will have to be LivePerson the communications services Company for call centers. And that includes the four types of communication services. So this year, we're really going to move the product lines out, so they're all very solid. We're going to move the marketing out so it supports that. That vision and that's what we're doing.

And one final question on the e-mail -- with this release you have coming out in 90 days, is that going to get you to where you're offering a lot of the functionality that, (indiscernible) offer?

Yeah I mean we -- I believe we have got a competitive set to compete with them today. And we provided, as an ASP, and they provided as an enterprise software package -- which is -- it's greatly different. What we look given 90 days, is just that next level of functionality -- that probably will allow a higher level of customer but I believe today we can still compete with them.

Great. Thank you.

Richard Feco (ph), Merryman Co.

Just on the sales and new additions in the sales group, how long do you expect the sales guys to ramp up, before they ramp up to their full quotas?

We're seeing, I think, a consistency there, around the six-month point, to really get developed their existing leads -- we're hiring folks with good experience in the industry, so they come with some good industry contacts just from their professional life. And then, they're also supplemented with the leads coming directly in the LivePerson. But, some will go quick, some will go slow -- but we're still seeing the five, six-month ramp up..

And on the Island Data impact, Could you sort of go over that again -- million on the top line and what's the impact on the bottom line?

Yes it's 1 million in revenue, 0.5 million in cash costs, and about 1 million of non-cash amortization. So in isolation, it's plus 0.5 million EBITDA, minus a 0.5 million net income.

Got you. And then finally, deferred revenues grew nicely quarter over quarter -- is that just because of the sort of the year-end the renewal impact or that has nothing to do with it -- this is a reflection of your pipeline?

Is primarily the annual renewal aspect. We -- again, allow the annuals come at the January year-end, or we get a renewal in December, and so it will pop up that number.

Okay. Very well. And then one more question on the taxes. You know five -- would those be cash taxes or non-cash?

I assume cash taxes.

Okay, thanks very much.

(Operator Instructions). Mark Diker, Diker Management.

I'm wondering if you can comment a little on the pricing dynamic going on. I know in the past you have commented -- you've been able to kind of raise prices. These are the pursy prices, and you know what is the price dynamic on both the support or the surface edition and on the sales edition?

So sales edition is running at about 15,000 per month for five seats -- and we sell it as a minimum of five seats -- and then if you look at service edition, it's running at $500 a seat, if you buy chat alone. If you buy combined with e-mail it's a 750 seat. And then our -- we've kept $99 for our pro products.

And pricing -- we adjust to pricing of a couple months ago up, and we are pretty much holding it there. And really, what we're focused in on right now is just these multidivisional sales. It's not about getting another 200 bucks a seat. It's really about how do we get another -- you know, can we get 2, 300 seats up and running on a client.

When you say you adjusted them up -- so versus 12 months ago what has been the kind of percent price increase? On a per seat basis, really?

The adjustment up we made most recently was taking a portion of clients up to full price. We have -- the process we go through is raising prices -- new clients and then grants on either existing clients at the older price and then raising them overtime. So, when we raise prices we're bringing people up to the $500 per seat point, recently.

But the track record has been, over three years, we have gone from 250 to 350 to 500 on the service edition product, and over the same period from 49.99 to 99.99 for the pro products. And then (indiscernible) edition has been a slight increase -- clients were initially at 10-K per month for five seats, and now we're seeing between 12.5 to 15,000 a month per client.

And you think you will be able to raise that going forward, or again, you're just going to look at penetrating, rather than increasing the price per seat? It's because it seems to me like the ROIs are pretty compelling -- particularly on the sales edition.

I think our sales force is obviously trying to maximize pricing but I think they're focus right now is -- how do you take these clients and get them to be million dollar plus accounts? That's really strong, strong revenue support in a per customer basis, so that's what their focus is in today.

Okay and then the second question is on the, kind of, the competitive environment. Are you seeing new entrance in the sales edition, and then what's also the competitive environment, like on the service edition?

WE haven't seen any real new entrance into the sales edition product and the service has the same entrance too. I think the difference is this year it's going to be a real -- I think it's going to be hand to hand -- we're not sitting around -- we're being very aggressive out there right now, from the sales perspective. And the guys who survive, survive -- whether they're big or small, they're survivors. So our goal right now is just -- win as many deals as we can, cut off as much deal flow to our competitors as we can, and come out 2004 the winner in this space.

But I mean on the sales edition side, are you as your winning these deals, are you competing head-to-head with people who have well-competing products? Or is your functionality at this point, vis-a-vis the algorithms and the deployment methodologies, kind of -- it's a slam dunk for you or --?

Yet it's not -- we it's not a competitive situation. It's not them and we're compared with someone else. There's really no one else today. It's really whether they buy into the fact that you can sell by chat on a Web site; and then once we get them to a trial, you know, we prove that. We have had obviously very low attrition on that base. You know -- one customer.

What about on the service side?

On the service side, there's still two or three little guys out there, who will undercut us on price. They will win smaller deals. So if there's a three seat deal, four seat deal, they will sometimes win those deals because we will not -- we don't really like to lower our price -- and a lot of it has to do with attrition. We want to have customers that are serious about this and we want to have our attrition rates low. And we feel price is sort of an artificial wall to stop attrition, to get real customers in the door.

Okay and then the eBay thing -- I grant you that it's a small piece of the overall revenue -- it's obviously less than 1 percent. But are you -- is that a one off or are you seeing some noise in the market of people wanting to go enterprise? Because it seems to me that the transition of the model has been really to a the ASP model.

Yeah I mean it's not a trend. It's definitely -- I think we've all been reading a lot about how the ASP model -- even if you look at a Company like Siebel (ph) that made an acquisition of an ASP recently in their space, where they were kind of saying this wasn't a real thing. So, the market is clearly going toward hosted models. I think every now and then we're going to run into a Company who wants to bring it internally and unfortunately or fortunately, we will not change our model. Our model works. And if you look at our competitors that are enterprise software Companies, they can't make money. And so, we like our model and we will stick with it.

Okay. Good job, guys.

Joan Hickman (ph), Helpurn capital (ph).

The could you talk a little bit about the 60 percent growth coming from existing customers? That's up from like 40 percent in the past, isn't it?

Yet in the past you sort of hovered between 40 and 50 percent I think over the past few quarters. It was little higher this quarter. A couple of things going on there. One is -- a fair amount of the revenue in the quarter came from professional services, as we discussed, and that tends to be for new customers. And so, a fair amount of the focus on new revenue was on additional services for the newest customers, getting them up and running. So you think that really supports their eventual growth.

And then, I was a -- sort of a conflicts of a couple -- a couple three different accounts that had more than one increase in the quarter -- an increase in October, an increase in December drove that number up. It's something we keep a close look on and we will update each quarter, but it has sort of tended to move -- can move 5 or 10 percent in a quarter.

Are your salespeople involved in these increases from existing customers?

Yeah, it's a sales person and an account manager. So the account manager is a person who's dealing with our customer on a day-to-day, and it's really being done by both of them -- when you're looking at a very large account, it's basically the sales person selling new divisions and the account manager is right behind that person getting those new division live and making sure they're happy. And so that's what's happening.

Is the new division sale an existing customer or a new customer?

It's an existing customer. So even though we may pick up division No. 5 at HP, we don't count that as new sell, we count that as an existing sale.

Okay, one more question. Did you say you've added two salespeople in January? So you eight right now?

Yes, so we have added two people. We sort of split the sales teams now in two. So we have a sales edition sales team and a service edition sales team, and we hired people in the service edition sales team who have predominantly call center backgrounds. So they have contacts in the call centers. They have been in that for years, either selling some sort of Telco product or some sort of CRM product into there. And we made that change because of focus. We want the teams to sell both product lines, and we saw that the teams were gravitating towards sales edition. Because the higher price point and less competition.

Okay, thanks.

At this time we have no further questions. I will turn back over to management for closing comments.

Thanks. We wanted to just do -- make a quick comment on the shelf registration and the island data registration of shares. As you know, as we previously announced, we filed to S3's recently -- one related to the Island Data acquisition -- about 0.5 million shares, as well as a 4 million share shelf registration. And the philosophy there is really to continue to enable us to be proactive and flexible when we see opportunities in the market. The Island Data acquisition was a combination of cash and stock, and I think the registration process is just one more hurdle to get through, and I think that the primary goal here is to give us additional flexibility over the course of 2004 to move quickly when we see opportunity.

That will conclude our call for today. We thank everyone for participating, and good afternoon.

This call is now concluded. You may now disconnect.