LivePerson Inc (LPSN) 2004 Q1 法說會逐字稿

Welcome to LivePerson's first quarter 2004 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Later we will conduct a question and answer session. At that time the operator will give you instructions. As a reminder this conference is being recorded today, April 29, 2004. Speaking on today's conference call will be Robert LoCascio, Chief Executive Officer of LivePerson, and Tim Bixby, President and Chief Financial Officer. I would now like to turn the call over to Mr. Bixby. Please go ahead, sir.

Thank you very much. During the course of this conference call, comments that we make regarding LivePerson that are not historial 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 of 1995. It is routine for our internal projections and expectations to change as the quarter progresses. Therefore it should be clearly understand that the 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 different 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 in our forward-looking statement. Potential fluctuations in our quarterly and annual results responding to rapid technological change and changing client preferences, competition in the realtime sales, marketing and customer service solutions market, continued use by our clients of the LivePerson's services and their purchase of additional services, risks related to adverse business conditions experienced by our clients. Competition for qualified personnel. The possible unavailability of financing as and if needed. Risks related to the operational integration of acquisitions. Risks related to our international operations, particularly our operations in Israel and the current civil and political unrest in that region. Risks related to protecting our intellectual property rights or potential infringement of the intellectual property rights of third parties our dependence on the continued use of the internet as a medium for commerce and our viability of the infrastructure of the internet and risks related the to the regulation or possible misappropriation of personal information.

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 from time to time by LivePerson with the Securities and Exchange Commission. Our discussion of these and other important risk factors. Now I would like to turn the call over to LivePerson's Chief Executive Officer, Robert LoCascio.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. I'm very pleased to announce that our first quarter results have exceeded the guidance set during our previous earnings conference call. During the first quarter of 2004, we generated record revenues of $4.1 million up 61% from a year ago and up 16% sequentially over the fourth quarter of 2003. We are also pleased that we had EBITDA per share at 3 cents, and GAAP earnings per share of 2 cents, both of which were a penny better than our previous guidance. LivePerson is clearly on a path of strong sequential growth and improving profitability. This quarter marks our ninth consecutive quarter of positive EBITDA our tenth consecutive quarter of sequential revenue growth, and our third consecutive quarter of GAAP profitability. Later in the call, Tim will provide you with a more detailed financial overview.

During Q4 of 2003, we delivered our new communications platform, LivePerson platinum edition, which expanded our product offerings and integrated our flagship chat application with e-mail and self service knowledge base. Company's are finding it difficult to manage their online communications in separate silos. And they wanted a scalable, secure solution, that integrates all communications channels, including chat, e-mail, voice, and self servers on to one platform. This integrated channel approach provides tremendous value to call centers for several reasons. They are able to attain a 360 degree view of a customer's historical interactions, integration eliminates the redundancy of answering the same question from the same customer through different channels. For example, if a site visitor sends an e-mail and then chooses to chat with an agent rather than wait for a response, the customer service representative taking the chat can close the e-mail so it is not redundantly answered. Today, the customer selects where they want to use e-mail chat or to make a voice call, however, an integrated platform enables the call center to proactively match the correct customer need with the most cost effective channel.

Finally, LivePerson's integrated platform provides chat, e-mail, and a knowledge base on a hosted bases and eliminates the need for internal tech resources, costly and timely software installations, and ongoing internal maintenance. Expanding our product line is an offensive move that allows us to provide a broader product line to our current target market. To jump start sales on this integrated platform, we acquired Island Data's, hosted self-service knowledge based product effective January 1. We are migrating their customer base on to our platform and simultaneously upselling these customers additional products. Furthermore, in Q1, we hired four new sales reps, bringing our company total to ten, focusing on selling our fully integrated platinum product to large call centers. This team is ramping nicely, and is expected to reach 40 to 50% of their expected quota by Q2. We are moving quickly to create a strong process in which to expand this team and attack this market on an aggressive basis.

Our other product line is LivePerson Sales Edition. As we mentioned on the last call we have a single customer who is now paying close to $1 million per year and we believe that there are several other clients and potential customers that can match this customer in terms of size and growth. One of these customers recently completed their proof of content and is one of the largest telecos' in the United States. We have seen strong ROI during the proof of content stage and are selling DSL services on their website they are now reviewing expansion opportunities within their entire organization. Although sales addition grew by 15% quarter-over-quarter, we anticipate growth in this product line to show only slight improvement in Q2. There is no doubt that this product works once the customer buys it. However we are not seeing the acceleration in new sales that we want to see at this time.

This is really being driven by a few factors. The first is limited data. We are operating with less than one year of real sales data, we are making course corrections every month based on customer and sales rep feedback. We do not yet have a mature process as we do for service addition, to take a lead and have it close under a consistent time frame. The second is marketing. We need to focus more resources on marketing with regards to educating our target audience about using chat to proactively sell online. Selling online with chat is a new concept and is not yet broadly known.

Since we to not have competition in this product, it is basically our marketing effort that creates awareness. Some of the positive results of our marketing efforts can be seen in articles, like the one the Wall Street Journal had a few weeks ago entitled "pop up sales clerks, websites try the hard sell" which featured the online sales successes of six LivePerson customers. The changes that we are making will have a positive impact in 2004, however, the nature of recurring revenue will lessen the impact for the next quarter. However we are confident in the long-term growth, potential upsales edition, because the product provides consistent triple digit ROIs for our customers, and our largest customer is using this pro product line.

Our last challenge is in solidifying the sales process that will consistently drive LivePerson's sales edition to our internal expectations. As many of you know, we are in the middle of a communications shift where the adoption of new online technologies for communication is increasing. While usage of the most common communication tool, the telephone, is decreasing. Think about how many e-mails or instant messages you send and receive each day versus phone calls. This dramatic shift is not only happening in our personal and professional lives but is also taking place within domestic and international call centers as they embrace multiple online channels to communicate with their customers. This shift to online communications has positioned LivePerson at the center of the fastest growing market within call centers today.

In another significant shift, hosted technology has seen an increase in marketplace acceptance. Bringing further attention to ASPs is a selection of hosted solution providers, including sales force.com. which are in the process of going public. Also traditional software companies like Siebel, which last year acquired a hosted CRM solution provider called up-shot, reinforced the direction in which we lead. Our strategy of creating a hosted communications platform for call centers is providing us with the ability to meet short-term growth and profitability targets as well as position us to be a long-term leader in this evolving space.

I would like to now recap some of our accomplishments during Q1. First we increased our sales by 16% sequentially over the fourth quarter. We had our ninth consecutive quarter of cash flow and generated almost $900,000 for the quarter. We completed the acquisition of Island Data a hosted self-service knowledge based company and we saw initial sales of our integrated platinum edition hosted communications platform as we hired a new sales team around this product line. I would like to now turn the call over to Tim to review our financial results and our outlook in more detail. Tim.

Thanks, Rob. We are very pleased with the first quarter, and our continued improvement in revenue, EBITDA, and GAAP net income. We again exceeded our expectations for the quarter as revenue grew 16%, versus the prior quarter, and increased 61% from the same quarter in the prior year. Our revenue growth exceeded our expectations by 2 percentage points and our GAAP EPA exceeded our expectations by a penny per share. As expected, roughly half of the sequential growth in the quarter came from the impact of the Island Data acquisition. A transaction affective on the first day of the first quarter. Growth from new customers continues to be complimented by strong growth from existing customers. In our corporate business, 75% of sales growth in the quarter came from continued growth and existing clients. While the remaining 25% came from new customers. This ratio is approximately 65/35 in the prior quarter.

We also had growth in all product lines, including sales edition, service addition, and LivePerson's Pro for small businesses. Sales edition continues to grow the fastest. Followed by Pro and service edition. As in the prior quarter, our small business group performed well. Contributing fully 30% 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 65% of the growth is now coming from our newer sales edition product, up slightly from the previous quarter and the remaining 35% from from our service edition product. Professional services revenue accounted for a smaller proportion of revenues during the first quarter and the fourth quarter of the prior year. At about 3% in the first quarter versus 6% in the prior quarter. In terms of sequential growth. Both the service edition and the small business product lines are growing consistently. At between 5 and 10%. While sales edition grew at 16% in the first quarter off of a smaller revenue base. While the results in the quarter were strong, we feel that we can do better. Steps we have taken over the past year are beginning to show positive results.

Our expectation is that continued improvement in our sales and marketing processes will continue to show results, and that that continued improvement will begin to be reflected in future growth. WASP model of recurring subscription revenue provides excellent visibility into future growth, it also dampens the impact of any improvement that we generate as revenue impacts are distributed over a longer period of time. Some of the specific steps we have taken this year include the hiring of more sales reps, increased marketing spending and the separation of our direct sales force into two teams. One focused on sales edition. The other on service edition. The newest sales reps are showing good progress and are on track to achieve approximately 40 to 50% of quota for the second quarter. Which will be the first full quarter for this newer team.

We feel that full productivity, a team of sales reps should perform at better than 70% of quota overall. This is a benchmark that is typical of established software companies. Average deal size to date for this new team is smaller than our long-term target. But, again, is encouraging for this early in the ramp-up process for these reps. While the new reps selling service edition are showing good progress, we are not satisfied with the current selling rate for our sales edition product. Our installations generate excellent results with very high documentable ROI. And a good rate of upselling to existing customers. The rate of edition of new customers, however, is the low where we think it can be based on the success of existing installations. Attrition was somewhat higher this quarter, and will have some impact on our expectations for the second quarter. The loss of ebay as we mentioned on the last conference call will begin to have impact in the second quarter and we have a sales edition proof of contact or pilot program that did not convert to a long-term contract due to lack of sufficient site traffic for the client and thus generating a reduced ROI.

These are rare events for us. But ones we take very seriously, as we evaluate our pipelines in our sales process. In financial terms, the net impact of this attrition in the second quarter will be approximately a negative 4%. So our expectation of roughly 6% growth in the second quarter is net of this higher attrition number. We do not currently expect attrition to remain at this higher rate based on our analysis of the root causes. But we are actively tracking each instance to guide our growth expectations. I'll give a bit more detail on our second quarter and full year expectations at the end of the call. There will also be details within the press release that was distributed earlier this afternoon. The Island Data transaction that occurred in early January is moving along well. And the integration is progressing. To date, we have retained all the wonderful clients acquired as part of this transaction, well within our expectations for client retention.

I'll now review the more specific financial results for the quarter ended March 31. For the quarter, LivePerson reported record revenue of $4.1 million. A 16% increase. Versus $3.5 million in the prior quarter. And a 61% increase versus $2.5 million in the first quarter of 2003. Cost of revenue in the first quarter was up in both percentage and absolute terms to $ .7 million. Driven primarily by a higher cost of goods ratio related to the Island Data revenue stream. This resulted in overall gross margin of 83%. Or slightly below the fourth quarter's 85%.

We expect the pattern of slight quarterly improvements in gross margin to resume for the remainder of this year. Product development expense for the quarter was down slightly to $.4 million versus $.5 million in the prior quarter, and up versus $.3 million in the comparable quarter in the prior year. Sales and marketing expense in the first quarter was up slightly to $1.2 million versus $1.1 in the prior quarter and up from $.7 million in the same quarter of the prior year this increase versus the prior year period reflects greater personnel costs related to growing our direct sales force. Increased sales commissions in line with revenue growth and higher direct marketing expenses. General and administrative expense for the quarter, excluding amortization of intangible assets was $.9 million up slightly from $.8 million in the prior quarter and in the first quarter of 2003.. We recognized amortization expense of $.2 million in the quarter. We will continue to have amortization expense at this level related to intangible assets throughout 2004 and 2005 related to the acquisition of the Island Data assets.

EBITDA, or earnings before interest taxes depreciation and amortization was $1 million up from $.7 million in the prior quarter and significantly up versus $.3 million in the prior year period. EBITDA per share was 3 cents. Versus a penny in the prior year. The reconciliation between EBITDA and GAAP net income is provided in the financial statements accompanying our earnings release. Net income per share in the quarter was again positive at 2 cents compared to a penny in the prior quarter and break even for the first quarter of 2003.

Turning now to the balance sheet. Our cash balance at quarter end was $10.6 million. Down slightly from $10.9 million at the end of the fourth quarter. A large portion of this change is due to a timing effect of tax withholding due to option exercises. We withheld approximately $1 million in the fourth quarter that was paid out to various tax authorities in the first quarter of 2004. Excluding the impact of this payment, cash flow from operations was approximately $.9 million. And was offset by about $200,000 in capital expenditures. Accounts receivable decreased light slightly at $1.1 million from $12.million in the quarter.

Due primarily to the timing of cash collections and the renewal of annual contracts. Deferred revenue was flat at $1.3 million versus the prior quarter. And DSOs, day sales outstanding are consistent with prior periods, running at less than 30 days. As I mentioned, capital expenditures was higher than prior quarters. At approximately $200,000. And this higher number was driven primarily by a three-year database software license renewal that occurred during the first quarter. Now we would like to outline our expectations for near term financial performance. We are reiterating our full year revenue guidance of $18.5 million. EBITDA per share of 12 cents and EPS for the year of 8 cents.

For the second quarter of 2004 we expect sequential revenue growth of 6% and revenue of $4.3 million and EBITDA per share of 3 cents and EPS of 2 cents. Capital expenditures for the year will be approximately half a million dollars. We currently have about 38.7 million fully diluted shares outstanding. From a tax perspective, due to NOLs. We don't expect a tax provision for the duration of 2004. We recommend fully taxing 2005 at 40% at this point for our folks doing analysis on the company. That covers the financial review. And at this point, we would ask the operator to rejoin the call and give instructions so we that we can do a quick Q & A session.

At this time, if you would like to ask a question, please press the star and one on your touch-tone phone. You may withdraw your question at any time by pressing the pound key. Once again, if you would like to ask a question, please press the star and one on your touch-tone phone. We will take just a moment as the questions queue up. Please stand by. The questions are queueing up. We have the first question from Jason Croshaw from Brakes Specialized. Go ahead please.

Afternoon, guys. Sorry. I was just with my team covering a couple of things. What was the organic growth rate if you strip out the Island Data acquisition would be the first question.

About 60% of the net growth in the quarter was from organic growth. So the 16% breaks down about 50/50. 8% trial and data, 8% for new and existing customer growth.

That's great. Next question. The sales edition product. First of all what percentage of revs does that typically make up. And then I guess you mentioned some issues in the second quarter with that product, can you just sort of go over those again?

Yeah. Sales Edition has been running at about 20% of total revenue. And that has been over the past several quarters increasing -- the trend there has been increasing in terms of a percentage. The issues we spoke about in the first quarter, the growth there was about 15%. And I think that is pretty typical of what we have seen the last several quarters. In the second quarter, we're going to be seeing a financial impact of a couple of things that we have spoken about both on this called and on the prior call in terms of attrition. We have seen slightly higher attrition than historically in the last, since the beginning of the year, and because of the recurring revenue model, attrition that occurs in the first quarter typically would not have any financial impact until the second quarter. So it's a good news/bad news situation. Where attrition obviously is a negative. However, we get significant amount of warning and can sort of let people know what the impact is. In terms of numbers, we expect in the second quarter overall for the company. We are seeing an estimate right now of about a negative 4% quarter to quarter impact from attrition. So our guidance of 6% sequential growth is you net of net 4 so really it's a plus 10 and then the attrition impact nets that down to about 6% sequential growth.

Thanks a lot I appreciate it.

Thank you. We will take our nest call from Michael Roesler with CJS Securities.

Tim, in terms of the customer attrition, ebay we know went to a competitor. Are you seeing more competition out there in terms of the, specifically about the loss of the pilot that you had going. Competitively what is going on out there?

There's a couple of things happening. Competitively, not much has changed. Meaning, ebay went to a competitor that we see seldom, if ever. I actually can't put my name on another account that has had the same transition. In terms of the sales edition, there was one client who did not have the site traffic that we expected to see during approval concept. And therefore it's difficult to generate the ROI that our product typically generates without sufficient sight traffic. Because of the higher price point our sales edition, even though it's much rarer to lose that kind of a client when it happens, it obviously has a larger dollar impact. So those, a combination of those two things happening late first quarter, having an impact on the second quarter.

Is there any loss of -- I guess, big name customers, customers that have been talked about in prior releases or other publications?

No, there's been no loss of large customers. In HP, when we put out the report, still growing. So all of our sales edition customers are still growing nicely. The thing that I kind of outlined on the call was, we wanted a greater ramp right now in that product line. The product line is doing great with our current customer base. But the ramp is still slower than what we like. Part of that has to do with what our outline really is focusing on marketing and education in the market.. Because we are the only guys selling that product now. So that's telling the world, okay, you can use chat to sell to proactively sell the companies that buy it, like Verizon and HP, and Microsoft are seeing great results, it's just getting more of those large companies on that product line. It's just a little slower than we would have liked.

Is it something that has extended compared to some prior sales, or --

it's purely fluff. So it's not like there's an extended sales cycle. Just new leads coming in the door. We wanted greater new leads right now and a then a stronger process to close those leads. A lot of this is just education. If we look at implementation. We have done a year's worth of implementation. Close to 30 customers so we know how to implement these things and get them so they give a strong ROI. But when it comes to selling, I don't believe as I outlined that we are not at our full capacity to ramp this product line.

There's a focus in on doing more marketing to generate more front end leads. And there's a focus in on creating a tighter process to -- once you get a lead, to making sure that you convert under some time frame that we feel is consistent. In service edition, it's very consistent. We know we get a lead. We know how to work it. We know how it will close. Because we have been doing that for close to five years. That's the difference in the two product lines.

In terms of benchmark going forward. What is your conversion rate in sales edition right now.

Sales edition is closing at probably 80%, 70-80% conversion rate. When we get you as a lead and we're working you as a lead, you close. It's just getting the lead-in is the -- where we see the greatest challenge right now. It's education of the market, and it's a different process from what we do with our service edition product.

The final question for now, I guess, is more an industry issue. But a lot of talk lately about anti spy-ware legislation. How do you see your product in terms of what if the chat is pushed to the customer. Yeah. Do you see that being impacted by the legislations being talked about now?

No, I mean our is still -- It's still not dead. So we may -- typically 25% of the site's traffic is addressable to be proactively engaged and out of that 25% that get a pop-up window. Not 100% take the chat. So it's still an opt in type of situation. So we're not intrusive. And the conversion rates are so high. That it shows that the customers really like this product. The conversion rates are still running in 20% plus of the people who will actually take a chat will close into a sale. That's what is driving these huge numbers for that product line. The product works. I don't think we're going to have, I don't think we really fall under being intrusive on that level. Because it's still an opt in type of situation.

Okay. Thanks.

Thanks a lot.

Thank you. We will take our next question from Brad Mook with Emerging Growth. Go ahead, please.

Thank you. Just to follow on that question. If you're having problems getting leads in sales editions, do you think that could in part be due to customers fear that they might get lumped in with the push technology. We saw it in the e-mail marketing industry. Where sales really dropped when some of the canned spam stuff started happening. Could that be an aversion to embracing the technology?

No. I don't really, it's not, there's no aversion to the technology. It's more of -- it's really educational market. If I go back and look at service edition. When we entered service edition. There may have been 25 competitors all spending marketing dollars talking about chat and e-mail and knowledge bases and how great they are. Those were a lot of marketing dollars from a lot of different companies hitting the market. Today, sales edition, it's us. If you saw that article. We had an article in the Wall Street Journal. It was all six of our customers. They tried to find a competitor. But there's really no competitor with any customer. That's where we're really seeing it. There's no fear on the customer side. It's pure driven by -- last year we spent $200,000 total in this company in marketing. A small percentage of that went to sales edition so we've gone to make it a larger percent this year.

So it's an awareness issue?

Pure awareness today. Although, I don't want to look at it as a, you know, we try to be very conservative and be very transparent. We are not flagging all these major problems. We are saying that it's slower than what we would have liked to have seen. Tim and I want to see greater growth in that product line.

As we look forward to get to the $18.5 million number, it looks like you're sequential growth in the second half Q3 and 4 is going to be about 10% or so, which will be consistent with the Q2 10% less the attrition. Is that a fair assumption that the attrition goes away and you're looking at 10% sequential growth.

Yeah. I think, just picturing where we are and we're only a month into Q2. We tend to be fairly conservative. There's really three quarters left to get to that number. I think we're definitely on track to do it. There's probably as in the past, there's potentially some upside in the guidance. But, yeah that's basically the assumption for the rest of the year.

On the product side, you had mentioned a new version of platinum would be coming out around the April time frame with upgraded ACD and routing is that something that has come out? Where do you stand with that?

That's completed. And that's being implemented right now. It's like four customers. One major of the sales edition that wanted that to expand their implementations. mentation. Then in August the August/September time frame we'll have the 7.0 version of our product, which we really are going to make a push to sort of relaunch platinum as the communications platform rebranded. So there's a lot going on internally with that. So the next big upgrade will be in August on, for platinum.

Am I correct in saying that your advancements like this new version that you just released and some of the new stuff you're working on is customer-driven? Things the customers are specifically requesting?

Yeah. this is one of our largest customers. Who wants to -- they want to do, they're in four or five divisions right now. And they want to start scaling that and they wanted some features in the routing capabilities of our product. That are more sophisticated than what we had and so they drove that development, they paid for some of that development too during the quarter and so we're rolling out that as we speak. So everything is on track there.

You're moving along pretty quickly on the technology front with upgrading to the platform. Is that a potential risk as the year progresses and maybe one of the things affecting your growth is customers holding out and waiting for the new technology? New customers who want to see the platform before they make commitments?

That product line, the Service Edition product line, they are outselling it, so we have that new sales team that's going there, they're going pretty. we were pretty happy with what we're seeing preliminarily. I don't think it's having an effect. We never, our technology is a machine in how they produce. So that is going well. Once again, we are reaffirming guidance for the year. We just see a little bit of -- we saw a little bit more attrition and a little less ramp-up on the (INAUDIBLE).

Because when the new version is rolled out, there's no, we basically roll it out on our severs and there's minimal impact on the customers. There's really not the pressure to wait for a new version as there might be with enterprise software.

Sure. I was just thinking if you're preaching and there's been a lot of talk about the importance of an integrated solution, then some may hold off on spending commitments until they can make a decision on an integrated solution a little bit further down the road. That was my thought there. But I understand your answer. Just a couple more. Knowledge base through the Island Data, obviously turning out to be a key asset and a little better than you thought as far as the importance of that piece of technology. Do you have any thoughts on additional pieces of technology that you might seek to acquire or build that's incremental to what you talked about?

I think when you look at the company today, we have a lot products. Between knowledge base, e-mail and then our two chat products, we have a lot of products so the real focus right now on the company is more just focus in on the channels. Focus in on distribution. Focus in on getting that product out into the market. That's what they are doing today. What is interesting about Q1 for us, is it was the first quarter in which we weren't just selling chat. We now are selling knowledge base against the traditional knowledge base guys, like Primus. And right now, technologies, and we're having some successes. So it opens up a different market, and now we're competing with those guys. So that's what is happening today.

To that extent, is it premature to be talking about voice that you need to focus on the existing product?

Yeah. As we said, from a technology perspective, we will deliver voice at the end of the year, and then from a sales perspective, it will start in the first quarter of '05. But we have a pretty tight way in which we are going after the market, and we've always -- as we have always said, you have to continue to lead in with continued lead in chat. You know, we roll out into these other technologies, because the same decision maker is buying e-mail and knowledge base. We need to win in those markets. But what we should be bringing back to you guys is more wins in the knowledge base and e-mail and consistently leading in chat.

Right. Okay. And then just lastly, if you could comment on partnerships. How your existing partnerships are progressing and any progress towards new partnerships.

Yeah. Digital Insight is progressing nicely. We had a little bit of bump-up in revenue in Q1 attributable to ROI. Now there's a focus in, on -- we believe, the BPOs the guys who actually handle labor, and outsourced labor. Whether in India or the Philipines, or in the United States. We think these guys are channel for the platinum product. Now it's a fully integrated product. So one of the focuses of that team is to start opening up some channel. And you should start seeing it in that area.

Great. Thanks.

Thanks a lot, Brad.

Thank you. We will take our next question from Denise Rush from Roth Capital. Go ahead, please.

Hi. Could you tell me the split between the sales team? You said that your sales were split between the service and sales edition. Is that an even split?

In terms of resources, we have got three folks selling sales edition and four -- sorry, six, three teams of two selling service edition for a total of ten.

Okay. And then are you planning to invest in sales tech comp for the year, and if so, can you give me a sense of in what way and how many, and then also if that stakes into guidance.

Sorry, I missed one of the words. Invest in --

Additional sales tech count for the year.

I think where we are now will take us through the second quarter. And then that's the point where we will reassess the second half of the year, and hire from there. You know, we are actively bringing candidates in so that we have a bench ready to go when we make the decision. But it all really hinges on the speed of ramp up of the newest sales reps. Right now they they are tracking nicely. So I would anticipate the next add happening in the third quarter.

Is that baked into the sales and marketing line already?

There is cost. Yes. Built into the cost model.

Could you go into a little more detail about the large teleco pilot that you had in sales edition. Is than an existing client using service edition. For instance, how long was the pilot -- is it a multi-divisional type of deal if it were to convert to a sale.

It's a new sale. So it wasn't an upsell from a service edition hosted sales edition pilot.. It was for 90 days. And it was for selling broadband DSL services that the teleco does. So it was a one divisional. Like they normally do, you pick one division and then do a 90-day proof of concept and then we get the ROI count. And then we write a one-year contract from there. That's what we're doing right now. The ROI was very, very, very strong. And that's really driving to do multi-divisional with that account. So we believe that account can become -- like, one of our largest accounts, which is close to $1 million today. So we believe that we'll have that sort of ramp up.

Lastly, with the Island Data, the customers you acquired with Island Data. You talked about upsell. As of right now, given it's only one quarter in. Have they just been converted over to your products, or are you in process for that?

The process for Island Data is following our product development schedule. So we're developing now some features into the integrated product that will be completed over the summer. And once that happens, and it's launched, then we will be able to complete the migration of those clients. So there, as of today, on the existing Island Data platform. We expect that to happen over the next six months.

Thanks.

Thank you.

Thank you. We will take our next call from Lisa Zoeller with Trust Company of the West. Go ahead, please.

They must be doing this list alphabetically. One question. Have you made public what the quota is for your salespeople?

It took approximately $1 million in annualized revenue.

It's the same for both sales and service division?

Yes.

Just one other question. The pilot you mentioned that you took it to the pilot that did not prepare into a sale, you said you take this stuff very seriously, and you had learned from it. I would be curious, what did you learn from losing that pilot?

One of the things we measure and said when we're looking at a potential pilot is the amount of site traffic, and then we run some scenarios based on that amount of traffic. Unfortunately, it's not always easy to get an exactly accurate reflection of site traffic. Clients that think they know it exactly may not know it exactly. And it also may be sporadic, depending on the time of year or where on the site it's implemented. So there are some factors which can move that number around. If they're on the fringe, you know, we will make a judgment call as to whether we go forward with that business or not. We can -- you know, based on the cost structure we have currently, we can do a 90-day implementation and come close to breaking even. And so that influence is where that boundary is set. But as we go to the next one, it looks a lot like this one, we will think a little bit harder about whether they have sufficient traffic or not.

Thank you very much.

Thank you.

Thank you. We will take our next question from Mike Shonstrom from Shonstrom research. Go ahead.

How are you doing? Just a follow-on that, the question on that one particular site that didn't turn into a sale. Is that a much broader industry issue for -- you know, the customer service, customer sales side of the business? In other words, is this an industry sector that may be limited in -- as to using your product?

No. This is business is a financial services type client doing banking type services online. And so it was purely driven out of site traffic. When we look at ROI calculations, we run site traffic and then we run what is the total value of a customer. And we run a calculation. It's very scientific. We can tell you how much revenue is going to generate. The staff for this is just not what they were supposed to be. So what was actually generating traffic on that site would not generate enough chat to warrant a $20 an hour body. Because ultimately it comes back to you've got a $20 an hour body taking a chat. They have to make X amount of return on investment in their amount of sales per hour to cover that cost and then make the project worth it. So it was a break even scenario. But we couldn't generate enough traffic to actually get it to show the ROI numbers that we want to see. So it's 30 customers. We have one that we have learned -- okay, here was an issue.

Just to follow up, you don't expect to run into this on a highly recurring basis, I'm assuming?

No, it's something that we understand it. It wasn't because of service or some issue with the product. It's pure driven through X amounts of chats per day, per hour, per rep. It either works or doesn't work. It's a very simplified process to success in that product line.

I guess we have beaten that to death. Could you talk about new customers. You mentioned Toyota. How much of that business or what segment of that business, I'm assuming, it's not Toyota worldwide, but did you get, and is there an upside to that?

They're using us -- there's a new Toyota car company, CYON (ph). They are using us with their map site. You may have actually seen some additional press on that. But the typical buyer of this car is someone who is younger, fairly tech savvy and more likely to be an avid user of this kind of technology. They chose us to provide that kind of interaction on the site. So currently, that is a service addition implementation, they are using it almost in a sales addition application. So it's an interesting hybrid. But there is definitely more potential. That's one very small brand within a much larger company.

Thanks.

Thank you.

Just one final one in terms of share count as the year progresses. Does that have some sense of where the year-end share count will be -- I assume the stock is about $25 bucks.

We obviously don't make any assumptions that are relative to the stock market. I've given previously a fairly conservative number of $40 million to use at year-end and sort of ramp up to there. We had a higher spike in the first quarter as a result of the Island Data transaction, where we issued about 370,000 shares related to that transaction. Other than that, I believe we will go back to a -- you know, levels of increases we saw in the third and fourth quarter of last year.

Thank you.

Thank you. Once again, if you would like to ask a question, please press the star and one on your touch-tone phone. We will take our next question from Richard Fetco from MCF and Company. Go ahead please.

Thanks. My questions have been answered. Thank you.

Once again, if you would like to ask a question, please press star and one on your phone. It appears we have no further questions at this point. I'd like to turn the program back over to your hosts.

All right. Thanks very much for joining us today. Good afternoon.