LivePerson Inc (LPSN) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to LivePerson's first quarter 2007 earnings conference call. 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.

Thanks very much. Before we begin, I'd like to remind listeners that during the course of this conference call, comments that we make regarding LivePerson that are not historical facts are forward-looking statements and are therefore 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 should be clearly understood that the internal projections and beliefs upon which the company bases its expectations today may change, over time, and that we undertake no obligation to inform you if they do. Results that we report today should not be considered as an indication of future performance.

Changes in economic, business, competitive, technological, regulatory, and other factors could cause LivePerson's actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, listeners are referred to the reports and documents filed from time to time by LivePerson with the Securities and Exchange Commission including our upcoming Form 10-Q.

Also, please note that on the call today we will discuss some non-GAAP financial measures in discussing the company's financial performance. We will report our GAAP results as well as provide a reconciliation of these non-GAAP measures to GAAP financial measures in our earnings release. You can obtain a copy of our earnings release by visiting the Investor Relations section of our website.

And now, I would like to turn the call over to LivePerson's Chief Executive Officer, Robert LoCascio.

Thanks, Tim. Good afternoon, everybody, and thank you for joining us. During the first quarter of 2007, we generated record revenue of 11 million, up 60% from a year ago and up 6% sequentially as compared to the fourth quarter of 2006, which is just slightly ahead of our guidance that we gave on the fourth quarter conference call.

Earnings per share in the first quarter was $0.02 and in line with our guidance. EBITDA per share was $0.05, also within the guidance range we provided in our first quarter earnings release. Based on our year-to-date results in the existing sales pipeline, we expect that the quarterly revenue growth pattern in 2007 will look somewhat like the one in 2006.

In 2006 we saw solid results in the first half of the year followed by an acceleration of growth in the third and fourth quarters. Our Timpani and small business product lines continued to drive the momentum in our business and our implementation of sales pipelines continue to build. Because of the momentum we are seeing in the business, we are reiterating our full-year revenue guidance of between $48.5 million and $49.5 million. We have also increased our EPS expectations to $0.10 to $0.12 for the full year, per share, primarily due to a reduction of our expected effective tax rate.

We signed several new blue-chip clients during the quarter including Daimler Chrysler's Dodge brand, auto part supplier, J.C. Whitney, and the world's largest information technology company. We expanded business with several existing customers including Bell Canada, a very large U.S. publisher of management software, a leading global financial services firm, and Lennar, a national homebuilding and financial services company.

We also saw further expansion in the company's small and medium business categories during the first quarter, adding more than 250 customers to an existing base of 5,000.

The enterprise sales group continued to execute well. As in the prior quarter, there was a focus on expansion opportunities within our existing base of enterprise customers. This increase in revenue on a per-customer basis is driven from programs that empower the sales team to go both wide with an organization and deep within the existing division or product group. We currently have 15 direct sales reps, and the team, as a whole, is running at approximately 70% of quota.

The sales team has more internal capacity, and we also augment that with increasing headcount over the remainder of the year.

Our SNB group had a very strong quarter, with January being a particularly strong month. Our small business offering provides a complete communication suite. That includes chat, e-mail, knowledge base, website analytics and voice. Our strategy of offering a complete communication platform is driving increased adoption by new customers and a decrease in attrition within the existing customer base.

The SNB group was also the first group to offer voice capabilities, and we're seeing a strong demand for this new product offering. We introduced voice to our SNB customers in the third quarter of 2006, and we currently have over 500 SNB customers using it today.

We also introduced voice to our enterprise customers last quarter, and we currently had eight fully deployed customers on that platform. For enterprise customers, when we pair the voice platform with the proactive capabilities of Timpani, we are able to deliver a more compelling solution for generating online sales.

I'd like to now highlight the progress of our business development group. We currently generate only a small portion of our enterprise revenue from this part of our business, roughly 4%, and, as such, see it as an excellent growth opportunity and an excellent complement to our direct selling efforts. It's a fairly new group that was fired up about 12 months ago.

Currently, our partners range from call center companies such as eTech Support, Decatrends, 24/7 Customer, and Noah's Solutions to software companies like Digital Insight, which is a hosted banking platform provider.

Our focus has been primarily with the new business development team on developing relationship with call center companies, because these companies are looking for ways to create value beyond just selling hourly labor. They see proactive sales as a natural extension to the current offerings. By combining certified chat agents with our Timpani platform, we are, for customers, a turnkey solution to successfully deploy sales chat.

The main benefit of this joint offering is our direct sales team, as they will now participate in deals where agents included is a critical requirement to winning the deal.

On the product development side, we are focusing on the reporting and analytics capabilities of the Timpani product line. Since our product is very sophisticated on how it tracks, monitors, selects, and drives higher conversion rates, our customers want more sophisticated reporting capabilities.

Currently, we are doing some heavy lifting in generating some of the more complex reports around ROI. Over time, a great portion of this analysis will be provided through the product itself, and the human capital we provide will focus on delivering more value-added services as we automate more of these capabilities over the next year, we expect this to drive a positive impact on operating margins.

In 2006, we invested heavily in our R&D group based in Tel Aviv, Israel. It's helpful to understand the origin of our presence in Israel as we build the core capabilities of that group. In 2000, we moved quickly to acquire a 25-person company in Israel that competed directly with our core chat offering at that time.

Subsequently, that acquisition was a critical driver in LivePerson achieving positive cash flow by the end of 2001. Today we have over 100 employees in Israel, including all R&D, help desk, and our small business group. As this organization expanded beyond the 100-person mark, we decided to complement our strong team with the expertise of a manager from a larger organization.

We recently announced the hiring of Eli Campo as our EVP and GM of our Israeli operations. Eli, prior to joining LivePerson was an original team member of shopping.com and saw it through its public offering and subsequent acquisition by eBay, where Eli became the GM of eBay's Israeli operations.

Eli will focus on driving operational efficiencies within the R&D team, network operations, and help desk. We are very pleased to have Eli on board and look forward to expanding our operations in Israel.

Finally, I'd like to speak to you about an exciting new service we recently launched in mid-April called Live Personal Shoppers. The launch of this service demonstrates our belief that building a direct relationship with consumers will provide a long-term strategic value for our company.

This website is a destination site where consumers can get real-time help by a chat about everything related to buying products and services online. While this is our first direct-to-consumer initiative, Live Personal Shoppers is a natural extension of our current product lineup. We believe that providing consumers with a place on the Web to find companies and experts who are, through live chat, will accelerate the adoption of our core products to the market.

We believe that one of the most effective drivers in our business is consumer adoption of chat as a primary channel of online communication. The Live Personal Shopper's website is a way to stimulate that consumer adoption.

At this service, consumers can find expert shopping advice on a range of topics from clothing, accessories and gifts to home décor, wine, cosmetics, and baby products. The personal shoppers who come from a variety of shopping fashion in online retail backgrounds are currently paid by us on an hourly basis.

Additionally, consumers can access a director of more than 100 retailers who use LivePerson on their website, and based on the statistics of our core business, we believe that a lead-driven directly by a personal connection like chat, can potentially have a greater value and conversion rate in those driven by other existing methods like search engines.

This service is currently free to both the consumer and our customers during the beta test period. However, we believe that there are two potential opportunities. First, consumers may be willing to pay for expert advice, especially as we expand the service and expertise of our personal shoppers.

Second, driving high-qualified traffic to customers' websites may create a revenue model in which you receive a fee on a per-click or per-chat basis similar to the revenue models of traditional search engines. However, today our primary goal is to generate enough to consumer traffic to enable us to evaluate these revenue opportunities.

The creation of Live Personal Shopper's website is a logical next step for us as we maintain our leadership position in real-time online communication and extended directly to consumers.

I'd now like to turn the call over to Tim so he can provide an in-depth analysis of our financial performance in the first quarter. Tim?

All right, thanks, Rob. We again had a very strong quarter. As mentioned, revenue surpassed our expectations that we provided on our last conference call coming in at $11 million. Bottom line results were also in line with expectations, and a favorable tax impact in the quarter more than offset some slightly higher-than-expected expense rates.

The full year continued to look strong with a solid pipeline of activity supporting stronger growth in the second half of the year. We'll give you a little more detail on our expectations for the second quarter and the full year later in the call.

We reported record revenues of $11 million, which was a 60% increase versus the prior year, and a 6% increase from the fourth quarter of 2006, slightly exceeding our guidance range. The revenue growth, as it has in the past several quarters, was driven by continued strength in small business as well as continued strong expansion within existing Timpani sales and marketing clients.

Our GAAP earnings per share for the quarter was $0.02, also in line with our expectations, and this result, as I mentioned, includes a favorable tax impact as compared to our initial guidance, as actual results have an effective tax rate of zero. We'll give a little more detail on this with the expectations as well.

EBITDA per share was $0.05, also in line with the guidance from 90 days ago.

As in the past several quarters, we generated very good results in both signing new accounts and growing existing accounts, although the balance in this quarter was skewed heavily towards growth in existing accounts, very much in line with our expectations we laid out on the last quarterly call.

We signed several new clients during the quarter included, as Rob mentioned, the Dodge brand within Daimler Chrysler's auto family, auto parts supplier, J.C. Whitney, as well as the world's largest information technology company. We expanded business with several existing customers including Bell Canada, Lennar, a large U.S. publisher of financial management software, as well as saw continued expansion in our small business group.

In terms of deal quantity and size, we closed 31 enterprise deals in the quarter. This was right in line with 32 in the prior quarter. Deal size, however, for the first quarter was down from Q4 at about $55,000 per deal, and about $80,000 for proactive deals, and about $110,000 for newly added customers.

Our revenue mix for the quarter fell in line as follows -- about 60% of new enterprise deals and about 85% of new revenue came from Timpani sales and marketing deals, while the balance, or about 40% of the deals, were contact center or service-oriented deals.

In terms of the breakdown between existing clients and new client names, the quarter was very heavily weighted, about 90% of incremental revenue in the quarter came from existing clients, and the other 10% from new clients.

We'll now go into a little bit more detail on each of the expense line items or the revenue line items for the quarter. As noted, revenue of $11 million was a 6% increase versus $10.3 million in the prior quarter, and a 60% increase versus $6.9 million in the first quarter of 2006.

Our deferred revenue at the end of the quarter increased by about 20% to $2.9 million as compared to $3.3 million in the prior quarter. This was up 120% from a year ago at this time.

Cost of revenue in the fourth quarter was $2.8 million as compared to $2.4 million in the prior quarter, and $1.5 million in the same period of the prior year resulting in an overall gross margin of 75%. We continue to see opportunity to improve our gross margin, over time, but, in the short term, we are continuing to see pressure due to increased business from large enterprises.

We remain firmly in the mid-70% range and continue to see the potential to grow that toward the high 70s by the end of 2007.

Product development expense for the quarter was $1.8 million, exactly the same as in the prior quarter and about double what it was in the comparable quarter in the prior year. This really supports our view that we invested heavily last year, but it really caught up with that investment at this point.

Sales and marketing expense in the quarter was $3.4 million, slightly up from $3.3 million in the prior quarter and up from $2.6 million in the same period of the prior year.

We continue to see leverage in the sales and marketing expenditure line as this expense declined another 50 basis points as a percent of revenue as compared to last quarter.

G&A expense, excluding amortization of intangible assets, was $2 million in the quarter, up slightly from $1.9 million in the prior quarter and up from $1.5 million in the comparable quarter in 2006. It was also, on a percentage of revenue basis, about 1% improvement in the quarter.

EBITDA, earnings before interest, taxes, depreciation, and amortization, was $2 million in the quarter, up from 1.9 in the prior quarter and double the $1 million of EBITDA one year ago. EBITDA per share in the quarter was $0.05, again, up a penny as compared to the prior quarter and up $0.02 as compared to the prior year.

We released a portion of a deferred tax asset based on current estimates of future taxable income resulting in a tax rate of zero for the first quarter, and we also have an expected rate of zero for the remainder of 2007.

The reconciliation between EBITDA and GAAP net income is provided in the financial statements accompanying our earnings release.

And, finally, net income per share in the quarter was $0.02, and this includes the impact of stock-based compensation expense.

Turning now to the balance sheet or cash balance at quarter-end was up significantly, up about $2.2 million to $23.9 million as compared to the prior quarter. Accounts receivable increased, again in line with revenues, to about $4.9 million due to both increased sales as well as the addition of several larger clients over the second half of 2006, were typically slightly slower payment schedules. DSOs were made low, even with this increase, running at about 40 days.

We'll now talk a bit about our expectations for the second quarter as well as the rest of '07. We slightly surpassed our first quarter expectations and now have a good feel for the pipeline supporting both the second quarter and the remainder of the year revenue potential.

We are seeing a pattern in line with what we saw last year in that we expect strong results in the first half but then a significant acceleration in the second half in terms of the year's quarterly sequential revenue growth rates.

We expect Q2 to equal or surpass Q1 in terms of growth, and on top of that we expect second-half quarterly growth rates to improve significantly as compared to the first half. Accordingly, we are reaffirming our confidence in achieving the prior revenue guidance range for the year, which represents between $48.5 million and $49.5 million for a midpoint of $49 million.

And as an illustration, if we are able to achieve the midpoint of our revenue guidance for both Q2 and the full year, those results would imply approximately 10% quarterly sequential revenue growth in the second half of the year, and this pattern would be similar to what we saw in 2006, where we showed a strong surge in growth in the second half of the year.

Specifically, we expect the following financial results -- in Q2, revenue of between $11.6 million and $11.7 million. This would represent approximately 6% sequential revenue growth and a nearly 60% increase as compared to the second quarter of 2006.

EBITDA of $0.05 a share, GAAP EPS of $0.02 a share for the second quarter. Overall revenue for the full year, as mentioned, of between $48.5 million and $49.5 million, and this represents just under 50%, or 47% annual revenue growth.

EBITDA of $0.24 a share, that is unchanged, and GAAP EPS of between $0.10 and $0.12 for the full year of 2007. The upward adjustment of our EPS expectation is driven primarily by a favorable full-year tax assumption of a zero percent effective tax rate.

As noted on a couple of calls in the second half of last year, we do expect that the share count will increase by approximately 1.1 million additional shares during the second quarter, and this is based upon the revenue earnout provisions related to our acquisition of Proficient Systems from last summer. This is an estimate based on currently available information, which is very nearly final at this point, and will be finalized by mid-May according to the terms of the purchase agreement.

The GAAP EPS expectations mentioned already include the estimated impact of a change in accounting and policies related to adopting FAS 123R in January of 2006. As in the last quarter, we expect that total stock compensation expense for 2007 will approximate $3.6 million, which equates to an impact on net income per share of $0.08 for the full year and about $0.02 for the second quarter of 2007. This is based upon the unamortized stock-based compensation expense as of now and includes the impact of share issuances related to acquisitions, to date.

This impact may change based upon additional stock option grants and forfeitures, if any, methodology refinement or other factors.

Capital expenditures in Q1 were somewhat higher than normal -- about $400,000, and those were -- that increase was tied to typical annual purchases that happened earlier this year than they had in prior years. We expect total capex to approximate about $750,000 for the full year.

Depreciation and amortization, excluding stock compensation, was $200,000 in Q1, and we expect that to continue at that quarterly rate during the remainder of 2007.

Our headcount at the moment is right around the 200 mark, and we expect that to continue to grow through the course of the year, by between 30 and 40 additional heads by year-end.

And, finally, to facilitate those who are building models, we will give you a breakdown of the stock-comp expense by line item. In cost of goods sold, the Q1 expense is $95,000; in R&D, the expense item for stock comp is $255,000; in sales and marketing, $248,000; and in G&A, $217,000. That should total $815,000 for the total expense.

That covers the financial review, and if the operator could rejoin the call and give instructions, we will be happy to take any questions that the listeners have.

Certainly, sir. (Operator Instructions) Kyle Evans.

Could you dig down a little bit on the gross margin? That's a pretty significant sequential decline, especially in light of the fact that you had a lot of growth from existing customers. I would have expected the ramp-up of some of your existing large customers to generate higher incremental margins and, in fact, what we saw was a pretty significant decline. I just don't understand the COGS in the quarter. And I have some follow-up questions.

There were a couple of drivers there and, you know, unfortunately, we don't report in greater detail on it, because then I think it would be easier to parse the pieces. But there are -- there's the core COGS that is required to support an incremental dollar of revenue or an incremental chat or piece of traffic, but what's also in there are things like disaster recovery. So we have redundant facilities for which we may have increases in expenses but don't necessarily tie directly to revenue. And so in quarters where we see either slower improvement or a negative impact, those increases may come at a time when we don't have a significant revenue growth. So that is in there.

Today we also continue to support the Proficient software platform, which is a redundant platform for us at this point, although we have several customers that are still on it. But, again, until that integration is complete, which we expect later this year, there are ongoing support costs that are related to that revenue that are not -- certainly not any level of scale as our core business. And so we'll see that improve, over time, and eventually those costs will go away.

One other factor that's in cost of goods that's more of an impact over the past, I would say, 12 to 18 months, is, number one, stock comp. So if there's a non-cash component that's in there, and you have the detail on that to back that out.

There was also some increase in other noncash expense, primarily depreciation -- again, most of it tied to Proficient that hits that number. So I think net of all those, there's probably 2 to 3 points of noise in that number that will improve, over time. And then on top of that, we'll expect to see more scale.

Okay, but you had -- we had a full quarter Proficient last quarter, and we still saw a several-hundred-basis-point decline. If there is any way for you to quantify the one-time maybe investments, and infrastructure and redundancy, that would be very helpful.

In terms of -- I mean -- you could almost do it mathematically because you could see the amount, if you held the percentage steady, you would get more or less the impact in the quarter because the growth, at 6%, is not at a level that would drive significant scale. You know, you did see improvements last year when the growth was faster, but one thing we do do is build out in advance, and whenever we do that, you'll see the full impact of the expense both in terms of the hosting capacity as well as the account management capacity come online. And that, you know, in the first quarter, I think, we had significant buildup of capacity both for new customers coming online later in the year as well as some hiring a little bit more quickly than expected both of which hit the cost of goods line.

Okay, one last one, and I hate to just harp on this, but should I take, from your comments, that the core gross margins were basically in line sequentially ex the one-time infrastructure investments?

I think -- when you say "in line" -- in line with history or in line with guidance?

Well, you said if I do the math by just holding the gross profit flat on a quarter-over-quarter basis, that would give me the number. From that, should I infer that gross margin on the core business was, in fact, flat -- on the core business ex the infrastructure investment?

Yes, we're in a very tight range, plus or minus. Yes, I would say it was essentially flat in the quarter.

Okay, one more quick question, and I'll get back in queue. You're expecting a pretty significant second half of the year ramp. What drove that ramp last year, and what gives you the confidence that you're going to see that again this year? Thanks.

The key driver is typically a relatively small number of larger deals, and so when we analyze the pipeline, we're doing it on a name-by-name, customer-by-customer basis. And that what we see this year is very much in line with what we saw last year, in that we can identify very specific customers with targeted growth rates and the further along we get in the year the better view we have as to the trigger dates for those. So we're 90 days further along in the year, and I think what we see is a very strong firming up end of Q2 and into Q3 that will impact those growth rates.

And are you assuming any increase or improvement in your win ratios to get to those -- to get to your annual guidance, or do you expect the pipeline to kind of convert into revenue at a similar rate?

No, we expect a similar rate as historically.

Richard Baldry.

Thanks. Could you talk a little bit about ASPs that you're seeing? I think the last time, I've got notes on that from the third quarter of last year, and Timpani was in 300K a year kind of range, which was up about 50% year-over-year. So a few quarters later, I'm curious about how that's trending.

And then if there's any way to strip an organic growth number out of what you currently have. It looks like by the second half you'd be looking at -- you know, fair comparisons are giving you still a 40% organic growth rate, whether you feel that's about where you're at today? Thanks.

Yes, on the first point, I think while the average -- while ASPs in the first quarter were definitely lower in the fourth quarter, in the fourth quarter we had fairly -- I think the most significant numbers we've ever seen on a per-deal basis. We don't see anything that indicates that that's a trend. So if we look at the overall customer base, the average revenue level is right in line with what we've indicated over the past, I would say, two to three quarters.

Brad Whitt.

Tim, can you give us anymore color on -- it looks like, in your press release that your cash flow from operations was a little more than, roughly, $600,000, is that correct?

Yes, go ahead.

I mean, but your cash was up over 2 million. I was wondering what the other sources of cash were?

Yes, there's a unique change in how the numbers need to be reported relative to tax accounting, and so if you look at the 10-Q when that is published, you'll see there is a deferred income tax impact that's technically not in net cash provided by operating activities, and so if you get true cash flow from operations, you have to net those two numbers together. This is a change that started to impact us in the first quarter of this year, and you also saw it in the second half of last year.

So if you make that adjustment, it's about -- you get to about 1.5 million, and that puts it more or less in line with the EBITDA number.

Okay. Now, for instance, these two like normal kind of bookings analysis where we take the revenue plus change inferred, it looks like bookings were actually quite good this quarter, even better than last quarter. I know you've got a lot of moving parts there, but is that a fair assessment?

Yes, I think that's fair. What you see is a typical ebb and flow where a lot of bookings hit the P&L, Q3, Q4 last year, and you tend to go through these cycles. So now you see your deferred analysis, I think, is reasonable, and just looking at the core deferred revenue, that number is up quite a bit. So you do see, at our size, these cycles of ebb and flow, so I think that's fair.

Okay. And, Rob, can you comment maybe a little bit on what you're seeing for proactive service and what kind of assumptions are built into the guidance here with that new product? Have you closed any business?

We just started to market the product in Q1, and we're actually going to be doing sort of a summit with one of our key customers who already has it deployed, and he's going to lead a whole one-day seminar with some other key customers around how he deployed it and how he's using it in his operation.

So expecting to start getting more around Q3, Q4, but the numbers we're putting out there don't really have in the guidance anything related to proactive service, because there's maybe a little bit of deals that we know will exist, but the guidance that we see today what we're getting in double-digit growth in Q3/Q4 is really what we just see as things that are going to get implemented now, and that's predominantly proactive sales and small business and some contact center.

Okay, and one other quick one, if I could -- with the Dodge Nitro press release it looks like you've got some other press in some other automotive journals -- are you seeing any -- what kind of activity are you seeing in automotive? Can you just kind of give us an idea of where you are with that vertical and what kind of opportunities you see?

We also have Ford as a customer and, yes, that vertical seems to be, even though, is, I don't see as a group, as a sector, there's a lot of pressure there, but because there's a lot of pressure in that industry, and as aside, there's this concept out about 70% or 80% of purchases for cars, research is done online, the car companies really want to get out there and use the Web, finally, as a place they can actually provide guidance and information, expert advice.

And so I think that vertical -- we had auto parts company, and so I think we should see this -- the automotive vertical sort of start to move as well as I've said before, the travel vertical, I think, is a good vertical for us this year, too. You know, we have Orbitz as sort of a lead customer in that area. So these are two good verticals this year.

Okay, and then final question, Rob, how does it feel to be coming off of New York City's Most Eligible Bachelor list? The last time I checked, you were just under A-Rod, right? Congratulations.

I've got a couple more days to go, but I appreciate the congratulations. So thanks.

[Darren Bartoff].

I was wondering if you can address the competitive environment, if you've seen any changes over the last 30 or 60 days? In particular, if you can talk a little bit about a company called iSTAR, who recently on their call talked a little bit about some of the wins that they've been seeing and the strength of the market, in general. So I was just wondering if you can kind of discuss the competitive environment and how you see iSTAR as a (indiscernible).

We haven't really seen any new competitors to our -- the Timpani product line and, once again, there's a lot of development -- in that we've gotten, now, three years of development in it.

I do expect, you know, we've been sort of hearing that your traditional contact center company is going to offer "proactive" chat, and that could be a range of things, and we know the sophistication of doing this and also we've obviously got a large base of installed customers as references gives us a competitive advantage.

Relating to iSTAR, we have started to attack them directly, and we launched a voice product three quarters ago. We already have 500 companies up using it in our small business product line, and we just started Q1 with our enterprise group selling it, and we have eight customers up and running with it. So we're going at the heart of that company and their core competency.

So we expect to compete with them, and we expect to win, lose. Like I said, it is their core, but we believe we've got a much stronger value proposition because we're tying all the capabilities and the intelligence behind Timpani with voice and not just providing voice as a call-back function, as they have today.

But I've said this 1,000 times -- if we don't have competitors, then we're probably not in an industry that has real growth. And we're growing close to 50% a year. We should expect to see competitors, and I think it will be healthy and good for our group, but we don't really see direct ones in the Timpani product lines yet.

Just a follow-up -- so they reported about $5 million in revenue last quarter, so is that then not entirely directly related to your product offering, or is that just a subset of your offering, and does that mean that there's a big market opportunity you can go after in terms of the types of clients or those types of offering that they currently have?

It's basically they are providing voice, and that's all they're providing is all voice, and we provide chat. It was our primary product combined with, you know, we've got e-mail knowledge base, but the Timpani product line is really directed around chat. So it basically provides for us, it tells us that there is an industry there of just voice, and so that's why we said we thought there was a great opportunity to go after that industry because we think voice and chat have a similar value proposition, especially if we layer them and integrate them together. And that's the real competitive advantage out there.

So, like I said, it's not as much as we're playing defensive. We built a product to go directly at this company, and we think there's a real industry there, and we think there's some real opportunity, and our guys are doing pretty well. I mean, the small business group alone, which will compete with them on smaller deals is already up to 500 customers.

And I don't know what their customer base is, but we've gotten significant traction on the small businesses, and we're going to start to get traction on the high end. So we think it's good because, you know, it's been two years of development for us to get here, so we think it has some real legs.

Just one other question -- can you just update us on your sales force? How many people you plan on hiring over the course of the year?

Yes, we're still at 15 today, and we'll be on track, I think, to bring in probably plus four to five by year-end.

Jon Hickman.

Could you just elaborate a little more on this business development initiative where you're going after the call center guys? You said something about this allows you getting new contracts where, I guess, the customer wants -- doesn't have their own agents, they want you go -- you know, the agent to come along with the whole package deal. Is that what I understood to be correct?

Yes, there's -- what we found is, as we started to sell the Timpani product, there were many instances where a company said, "You know, we'd love to do this, but we just don't have the labor right now," or "The labor's tied up into some other initiative, but we would love to try this out. So if you can provide us with a turnkey solution, we'll do it."

So that really made us start to work on more business development opportunities around the call centers, and 24/7 Customer is one of the largest call centers in India today, and Noah is a very large one, and Decatrend is very large. These are fairly large call centers.

Now, what's good is that we package it together. What's great for the call center companies, too, is there's a lot of price pressure in this industry if you're just offering labor. But if you tie it to the opportunity of generating incremental sales off the website, it really gives the call center also an opportunity to sell a complete solution.

So they're selling directly out there a complete solution, and then it also allows our sales guys to sell a complete solution, too, so it's good. And we do revenue sharing on the projects.

So these guys have already brought you deals?

Yes, and we've brought them deals, so it's already -- as I mentioned, it's about 4% of our overall sales right now is coming from this business development group, which is a fairly new group. You know, it's a group that got started a year ago, but you could say six months ago, it started to get some traction as it started to sign some deals with these call center guys.

Richard Fetyko.

Just curious about the visibility that you have in the pipeline for the second half of this year and the sell cycles that you're seeing and also with respect to the guidance, you mentioned that you've been running at the 70% quota for the salespeople right now, or at least in the first quarter. Does the guidance anticipate an increase in sales quota or at least some of the utilization of the sales reps?

On the pure guidance front is a fairly conservative outlook on what we know. And so we can see a fair amount of deals that are going to get implemented a lot from internal customers, existing customers, and we can see where they're going to be, and a lot are coming in on the third and fourth quarter.

It seems like the first quarter, you know, I don't know if our business -- it definitely has changed as we've been selling Timpani, but it just seems like there's this buildup before the holiday season. The first quarter, things are getting started, and they're getting their budgets, and then they start expending those budgets throughout the year, and so I think there may be a trend that we may see next year where the first two quarters are good, and then there's this buildup right before the holiday season, and that's kind of what we see today, but we feel confident in what we're seeing in the pipeline. But it's not looking at, okay, increasing revenue, productivity from a rap or anything like that. It's just the deals we can see.

Terrific, and then any sort of preliminary data points you could share on the LivePersonalShoppers.com site in terms of traffic levels, conversion rates, the take rates from consumers, who do come to the site in terms of, you know, how likely are they to engage with the personal shopping assistant that you have up there, and things like that?

As I mentioned in the press release a couple of weeks ago or two weeks ago, we just launched site out beginning of February, and have been buying traffic from predominantly Google and some other search engines that we've done some basic additional advertising on some content sites.

So today we're up to about a little over 1,000 unique visitors are coming, or 800 in about a day, and then about 20% are chatting. So there's a fair amount of people who are coming and chatting. About 40% of the traffic right now is a return visitor. So it's a visitor who had been to the site and who had a good opportunity to chat with an expert shopper or one of our customers and came back to the website and so -- and we see about 70% are women who are coming to the site today, which, as we know, women account for close to 70% of all Internet sales today. So they are the power buyers on the Web, and that's who, really, we're gearing a lot of the service toward.

So out of that, when an actual expert, personal shopper, takes a chat, it looks about 40% of the time the consumer is satisfied with that chat as in they're taking an action, a recommendation that the personal shopper gave them. So it's a very high rate.

We're going to start to track the actual conversion rate to sale off of customers of LivePerson. So if you're a LivePerson customer, and we generate traffic for you, we'll be tracking if that traffic turned into a sale. Right now we track it because the consumer will tell us, "Hey, you know, this is a good chat, I bought something," and then we mark that down in a post-tab survey. So that's how we're capturing it today.

We had a write-up in The Washington Post, listed with other personal shopping, you know, like Neiman Marcus and companies like that. We're going to have a couple more articles coming out. We're doing no press on it, but it's starting to get a fair amount of momentum out there, and we're excited.

Once again, the goal of it is what drives our business's consumer adoption? If consumers want to chat, we sell more chat seats. And so we want to stimulate consumers chatting, and we want to go direct with them with this offering. So we're fairly excited about it.

Kyle Evans.

Can you comment a little bit on international trends and give us a percent of revenue?

About 25% of revenue is coming from international. We do have an office in the UK, and, as we mentioned, we do a fair amount of sales there focused on the financial services vertical. So we've got Lloyd's Bank and World Bank of Scotland, and a bunch of other banks, and HSBC. So there's a fair amount of activity over there, and that's our focus when it comes to European expansion.

Once again, the focus of our company has always been the U.S. just because, for our product, the Timpani product, the majority of websites that have real traffic are U.S.-based companies. So when we give account of, we think there's 3,000 targetable customers, you know, you're dealing with 85%, 90% of them are here in the United States, and that's where our real focus is today.

That 25% of revenue -- what have been the trends historically there?

It seems pretty steady state. I mean, as the business has grown, it's been 25% for probably four or five years, I would say now.

Yes, the small business enterprise, I think the small business proportion of that has been more or less steady, over time. The last two years, probably some increase as we've increased our footprint in the UK. We have historically sold UK and Western Europe out of the U.S. even before we had an infrastructure over there -- so probably a 5-point increase due to our increased footprint there as well as a number of accounts that came through the Proficient acquisition.

On the Proficient integration, I feel like when this deal was announced in the September quarter of last year, that you guys were talking about maybe a 1Q for finishing the integration. In your mind, are you kind of on track there and can you give us some sense for how many of the Proficient clients you've moved over to the LivePerson platform?

I'd say we're definitely on track. One reality of that kind of integration is that it's difficult to really eliminate the hosting facilities and support costs until you're 100% complete, and so we're -- it was at this point, we're down to the last maybe three accounts that we expect to move over. They tend to be the larger ones, and until they move over completely, then you've got to keep that infrastructure up and running.

But I'd say that it's very close to what we have assumed since the deal closed.

And you expect those last three will move over this quarter, and you can shut down some of that hosting expense?

It will probably be sometime during the third quarter, unlikely it will be the second quarter, and the driver is the website implementation schedules of a couple of these larger accounts where we are really at the whim of their internal technology schedules.

Okay, so they're not resisting the transition? You're just caught up in a larger development cycle?

The bigger company the fewer website upgrades they have per year, and we're with a couple of companies that literally have two times a year they can have material impact on the website, and that's -- we're waiting for the next cycle for those.

Nathan Schneiderman.

A handful of questions for you -- with the change in the -- the unexpected change in the tax rate, what is the rate you are now expecting for '08? Should we go back to the 42% or something less than that?

We've not given an indication on a weight only because we're one quarter into this change. So that's something we'll have a better idea of potentially in Q2 but more likely in Q3.

So at this point, we reckon a no change. I believe everyone is looking at '08 with a 40% tax rate or a full tax rate. So I would not recommend a change to that.

Okay, and then one thing on the EPS guidance I was curious about -- the prior guidance was $0.09 on a 42% tax, and in my model if I change that to a 0% tax, I get $0.15. So you push out the guidance to 10 to 12, but it's below the model that I would have had. Is that mainly reflecting the expenses that came in higher that you expect to persist a little bit or something else?

Our goal -- your arithmetic is correct, of course. Our goal with guidance is to be conservative and cautious, especially the earlier we are in the year and certainly with regards to taxes. So we're in this couple-of-year period where we're in the tax switchover, so it's a combination of being early in the year, a little excess expense in Q1, and but primarily just being conservative on the tax assumption.

Okay. I have a question about the Proficient earnout. Last quarter you were suggesting it would come in at 1.4, and then in the K in March, it suggested 1.7 and now it sounds like 1.1. Did that business fall off at the end, or was it just really hard to estimate, or what happened with the Proficient business?

I think we were a little conservative in terms of the share count estimate, obviously, because that impacts how people model dilution, and so we were erring on the high side for the share count estimates, which I think made sense from an earnout calculation perspective. There are very specific terms in the agreement in terms of what revenue is included and what is excluded. So when we got down to March, we found that the true calculation triggered a slightly smaller share count. So the overall business is more or less what we expected, but the terms of the agreement were slightly more complex. So that's what drove it.

Okay, and my final question area is DSOs. AR was up a fair amount sequentially, and DSOs were up. Can you speak to that dynamic? And then you gave us the stock comp in the individual expense items. I was hoping you could give us that for amortization. Thanks very much.

On the first question, deferred revenue was up for a couple of accounts, and that really triggered AR as well. So, really, one existing account moving into a renewal that was a prepay that just has not been collected yet. And then one major new account that came through Proficient -- again, a prepaid account, so those two really drove the increase in accounts receivable.

They're big companies, slow payors, but very dependable payors, so we're not too concerned about that other than we'd like to accelerate collections.

Your question about the amortization of intangibles, I'm not totally clear on. There's an amount that is broken out on the P&L. Are you look for some additional information?

Well, for example, you gave us the stock comp that was in each of the expense side, so I was wondering if you had that for the amortization as well so that we could break it out?

If it were not broken out, it would all be -- the amount you see on the P&L from the press release would all be in G&A. And then there is an incremental amount, if you look at the cash flow reconciliation, the EBITDA reconciliation, you'll see an additional $80,000 that's in the amortization line there -- all of that 80,000 is within the COGS, cost of goods sold line. So those are the two line items it would hit if you pushed it back into the line items.

(Operator Instructions) There are no further questions at this time.

Thank you for joining our call, and we'll see you next quarter. Goodbye.

Ladies and gentlemen, this concludes today's conference. You may all disconnect.