LivePerson Inc (LPSN) 2008 Q1 法說會逐字稿

Good evening. My name is Keisha and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson First Quarter 2008 Earnings Conference Call. (OPERATOR INSTRUCTIONS.) Thank you. Mr. Bixby, you may begin your conference.

Thank you very much. Before we begin, I would 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 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 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 factor 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. Also please note that on the call today we will discuss some non-GAAP financial measures in talking about the Company's financial performance. We 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 also 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. In the first quarter we saw solid bookings in our enterprise group, while small business revenues continued to excel with 8% sequential revenue growth, and revenue from our consumer group was right in line with expectations. We also achieved a number of key operational and strategic milestones, including the completion of a full migration of our U.S.-based customers to our new co-location hosting facility, as well as the integration of Kasamba into the LivePerson website.

Though revenue came in $300,000 less than our guidance, this is primarily due to a small number of delayed enterprise implementations. Adjusted net income was approximately $0.01 per share less than expectations driven primarily by the revenue impact along with an increase in G&A expense in the quarter. Both our consumer group, formerly Kasamba, and small business group were right in line with our expectations. The revenue shortfall has primarily occurred within the enterprise sales group where customer implementation delays reduced both one-time professional service fees and recurring license fees. Half of the revenue impact was comprised of one-time professional service fees. These revenues are one-time fees related to either initial implementation or expansion and do not recur quarter after quarter, so expect minimal impact on the overall revenues for the year as a result.

A few large customers are responsible for the delays in implementations due to their internal resource allocation for our projects, as well as increased complexity of implementations outside the U.S. Several of these delayed deals have since gone live.

Attrition rates were within our normal range and in line with expectations. While our rate of competitive wins remained solid, in fact we recently were awarded another financial services win against one of our primary competitors for a proactive chat deployment, increasing our already high penetration of the financial services vertical. Recent feedback from our key financial services clients and prospects are very positive despite the market environment as innovative initiatives remain front and center to their core online marketing strategies.

From a new business perspective, the Company added several new clients with global reach, including Sharp Electronics Corporation, Texas Instruments, and Scottrade. We also saw expansions with several clients in the U.S. and U.K., including one of the world's largest financial institutions, the world's premier family destination vacation club, Getty Images, Prudential U.K., a leading insurance and pension provider, and a leading U.S.-based credit card issuer.

Our small business group performed better than expected during the quarter and grew by more than 8% sequentially. As you may remember, they are serving a very large but competitive market and continue to provide the most comprehensive solution available. We currently have over 6,000 small businesses using this service and growing.

Consumer revenue was on plan as we continued to lay the foundation to reach our strategic objectives. Our primary goal this year was to shift the Kasamba website activity to LivePerson.com and retire the Kasamba name from the market. We achieved this goal ahead of the schedule on April 15. As you can imagine, there are many different pieces that had to fall into place to join the websites under one brand, and our development team did a great job in making this happen. You will notice that although much of the LivePerson.com homepage is now consumer-focused, there are links that enable business buyers to flow directly to our enterprise and small business product lines. The website is now supporting both our consumer and B-to-B offerings.

We are now working with a single brand in the market. This is an important milestone as we begin to implement general marketing campaigns to further define and extend the LivePerson brand.

Another achievement during the quarter was the migration of the vast majority of our customer base to our new co-location hosting facility. This transition also came in well ahead of schedule. The production group did a very impressive job in planning and transitioning more than 6,000 customers to the new facility with minimal impact. We want to thank the production team for putting in the extra effort and making this happen, and we'll start to see favorable impact on our hosting expenses starting in April.

From both tactical and strategic point of views, we are pleased with the Company's performance. We're excited about where the Company is headed and we look forward to delivering additional tangible results in the upcoming quarters.

We also want to note that we continue to repurchase our Company's stock and during the quarter we purchased a total of $3.7 million worth of shares since the planned inception. We feel that at certain price levels this is a wise use of a portion of our free cash flow.

I will now turn the call over to Tim who will give you a more detailed view of the financial picture of the Company, and I'll answer any questions that you have at the end of the call. Tim?

Thanks, Rob. As Rob mentioned, the enterprise group had strong bookings in the quarter. They came in about 5% higher than the prior quarter, though revenue recognized was a little bit less than we expected. Our small business group did perform well with 8% sequential growth, while the consumer group came in right in line with our guidance.

As mentioned, in the enterprise group there were a few scheduled expansion projects that were rescheduled into Q2 and Q3, which in turn drove lower than expected professional services and recurring revenue related to those clients. All of the delayed projects are expected to occur during the year, though on a revised timetable. In fact, several of the delayed projects, as mentioned, are already up and running.

Our competitive [stance] and attrition rates were unchanged as compared to our expectations and as compared to recent history. And these factors are really not drivers of the variance. As Rob mentioned, we achieved a number of significant operating goals, completing the migration of our primary hosting facility to a new co-location structure on-budget and ahead of schedule during the quarter. It was a great effort and a terrific result. It really enabled us to complete that transition nearly two quarters ahead of the expectations we shared with you on the last call.

As expected, the impact to customer service and operations was minimal and we expect to begin seeing--beginning to see some cost efficiencies from this transition beginning in April and going forward.

We also completed the full integration of the two websites, Kasamba.com and LivePerson.com, so that all activity for the Company now originates at the LivePerson.com URL and leverages the strength of the LivePerson brand for both businesses and consumers.

In terms of enterprise clients for the quarter, we signed eight new names, and this was roughly in line with--or exactly in line with eight in the prior quarter. And as Rob noted, some key clients added included Sharp Electronics, Texas Instruments, and Scottrade, as well as expansions with Getty Images, Prudential U.K., and one of the world's premier family destination vacation clubs.

Our enterprise customer base continues to solidify as we now have 20 clients with revenue rates running in excess of $500,000 per year. Of those, 10 are now above the $1 million per year mark, two are between $2 and $3 million per year.

In terms of how the verticals split out, there has been a slight shift over the past two quarters, and so we'll highlight that shift today. The way we look at the breakdown in the business is in four key verticals and then all other verticals combined. So, financial services remains unchanged at about 25% of our revenue today. Telecommunications companies has shifted from 30% to 25%. So while telecommunications revenue has not decreased, its share of the total revenue has decreased somewhat. Retail in a similar fashion has decreased from 20 to 15%. Technology is remaining flat at about 15% of our revenue run rate, while the Other category, which is a combination of all the categories less than 5%, has now increased from 10% to 20%. And I think what the represents is really an increasing expansion across new verticals outside of financial services, which tends to be the primary driver. And those include verticals like Internet services, health, education, and travel.

In terms of the quantity of the deals, we signed 48 enterprise deals in the quarter. This was in line with the prior quarter where we signed 49. This includes both new clients and up sells to existing clients. In terms of the size of those deals, annualized revenue for all enterprise deals in the first--booked in the first quarter was about $66,000 per deal, slightly up from $60,000 in Q4. For proactive deals, (inaudible) sales and marketing deals, it was about $115,000 annual run rate on average per deal. That's up from 90,000 in the fourth quarter. And if we look just at new customers, we see an average revenue--annual revenue per deal of about $110,000 and that's up from 70 in Q4.

In terms of the revenue mix, about 80% of the revenue bookings in the quarter was driven by sales and marketing and the other 20% from contact center or more service-based deals. In terms of the mix between existing clients and new clients, about two-thirds of the revenue--the incremental revenue booked in the quarter--came from existing client expansions and the other one-third from new client deals.

Now, we'll detail the more specific financial results for the quarter. We reported record revenue of $17.1 million, which was a 2% increase, versus 16.8 million in the prior quarter, and a 56% increase versus $11 million in the first quarter one year ago. Excluding Kasamba, our core revenue growth was 31%, as compared to the first quarter of 2007, and 3% sequentially, as compared to the prior quarter.

Deferred revenue was up about 25% to $4.9 million, up from 4 million at year-end and up from $3.9 million one year ago.

Overall cost of revenue in the first quarter was $4.9 million, as compared to $4.3 million in the prior quarter and $2.8 million in the same period of the prior year, and this resulted in an overall gross margin of about 71%. Our gross margin, as you know, includes significant non-cash expenses and that proportion has increased over the past several quarters with the closing of the Kasamba transaction. These include costs like stock compensation--stock-based compensation expense, as well as amortization of purchased intangibles. If we exclude the non-cash items, our cash gross margin in the first quarter was 75%.

Product development expense for the quarter was $3.1 million, up just slightly as compared to $3 million in the prior quarter and up from $1.8 million in the comparable quarter in the prior year. Sales and marketing expense in the first quarter, again, just up slightly from Q4 to $5.8 million, as compared to $5.7 million in the prior quarter, and up from 3.4 in the same period of the prior year.

G&A expense, excluding amortization of intangibles, was $3.2 million in the quarter. This was up from $2.9 million in the prior quarter, and up from $2 million in the comparable quarter of 2007. EBITDA, or earnings before interest, taxes, depreciation, and amortization, was $1.7 million for the quarter, down from 2.8 million in the prior quarter and up somewhat from the 2 million of EBITDA in the comparable period of the prior year. EBITDA per share was $0.03, as compared to $0.05 in the comparable period in the prior year.

Adjusted net income in the first quarter was $1.4 million, or $0.03 per share. The reconciliation between EBITDA, adjusted net income, and GAAP net income is all provided in the financial statements that the Company--our earnings release. Though net loss in the quarter was a negative--a loss of $.2 million, our GAAP EPS essentially rounded to a breakeven number of $0.00 per share.

Our cash balance at the end of the quarter was $21.5 million and this is as compared to $26.2 million as of year-end 2007. During the first quarter, the Company repurchased stock, as mentioned, resulting in a cash outlay during the quarter of $2 million. We also purchased computer hardware related primarily to the co-location facility transition, and this resulted in a cash outlay of $2.5 million.

Also in the quarter, as is past practice, the Company paid out annual incentive compensation, which was accrued in the prior year, and this resulted in a cash outlay of approximately $2.6 million. So excluding these three items, the Company generated approximately $2.4 million from ongoing operations.

Our accounts receivable balance increased to $7.2 million from $6 million in the prior quarter. And our DSOs remained fairly steady at less than 40 days.

Capital expenditures in Q1 were $2.5 million, and this was driven primarily, again, by the co-location transition efforts. And we expect overall capital expenditures to total approximately $4 million in 2008, and the overall initial phase of the co-location to be still in line with the total costs that we estimated over the past two quarters.

Depreciation was about $.3 million in the first quarter. We expect that to increase to about $.5 million in Q2 and continue at that rate going forward for the rest of 2008. Amortization of intangibles - in the first quarter this figure was $.7 million and we expect that to remain unchanged on a quarterly run rate going forward. There's additional detail on both amortization of intangibles, as well as stock-based compensation, in the press release from earlier today. Total stock-based compensation expense in the first quarter was $1 million and we expect a quarterly run rate of approximately $1.1 million per quarter going forward.

Our global headcount today is at 332, as of quarter-end rather, and this compares to 315 at the end of 2007.

And now, we'll turn to our expectations for the second quarter. We expect to see revenue in Q2 of between $17.9 and $18.4 million, EBITDA of $0.03 per share, also adjusted net income of $0.03 per share, EPS at breakeven or $0.00 per share. We continue to foresee an estimated effective tax rate of 55%. And we would estimate a fully diluted share count of approximately 50.5 million shares for the second quarter.

For the full year, the expectations are unchanged from the prior quarter and are detailed within the press release from today as well. Our gross margin in the second quarter overall is expected to be 74%. And if we do a similar analysis as we ran through earlier and exclude non-cash items, that cash gross margin would be approximately 77%.

That just covered the financial review, and now we would be happy to take your questions. If we could ask the operator to rejoin the call, then we will take questions from the listeners.

(OPERATOR INSTRUCTIONS.) Your first question comes from the line of Brad Mook.

Hi, guys. A couple of questions. First off, on the customer delays and the implementations, Rob, you mentioned internal resource allocation. Can you give a little bit more color on that and also a sense as to how many customers we're talking about?

Yes. It was resources--not our internal resources, but the internal resources of our--of a handful of customers. It was about four customers that made up the delay in the implementation. So it just seemed like during Q1 we obviously pushed our resources and we have enough to implement, but they were just slow in getting these implementations up and running, so they'll happen over the next two quarters. And then, that's--that's what the internal resource allocation was.

Okay. And if there's a commonality between them, is it more related to the types of implementations or the complexity of the implementations, as opposed to changes going on within your customer base and some of their decision making?

Yes. It's really about the complexity in that we're doing a lot more global implementations and a couple of these were multinational and we're--we have a little bit more complexity with those implementations. But I think Q1 was--we expected in Q1 I think more like--because of the issues with the economy, maybe there would be issues in the customer base, but it wasn't really due to any of that. It was really focused on just their allocations of resources during the quarter. So--.

Okay. And then, shifting gears to Kasamba. I know the change you made, the shift to LivePerson.com, was after the quarter ended. But have you--given the [recent] nature of the business, I imagine you've seen what impact that has had. Any noticeable impact there with that change?

No. I mean, the biggest--it was a lot of changes, because we had to move all the keywords to go to that domain. Then we've got all of our affiliates and we've got thousands of websites that have the LivePerson.com B-to-B tags on them. So everything had to sort of shift. And we wanted--the goal was really just to have no impact, neither negative nor positive, and we achieved that. So we didn't see any real impact. It's like it didn't take place. So, so far, so good. But the more important thing is we've been holding off on the marketing because we didn't want to promote the Kasamba brand because we knew it was going away.

Right.

So now, we're very much focused into marketing efforts, then let's focus on growing revenues. This quarter it's still going to be another quarter of a lot of behind the scenes changes that we're making to the website in preparation for going to market. We are starting to build our marketing campaigns and we're starting to sort of focus on the bigger issues around getting the brand out in the market. But we're very happy and pleased that we didn't see any real impact with the shift in the website.

Okay. So we should expect kind of the--pushing the pedal down a little bit in Q3 with respect to marketing spend and aggressiveness?

Yes. And then, it's a great experience. I mean, we'll be getting so many learnings out of the platform. And it truly is a platform. I think the thing we've realized like an eBay or even a Google, like even though we changed the name of the website and there are a lot of changes behind the scenes from the customers' perspective and the experts' perspective, it didn't really change anything because we're a true platform and the real nature of our product is that expert advice. And the expert advice didn't change. So I think we have some flexibility on things that we can do with the website and making changes and feeling comfortable it won't have that much of an impact on revenue. So there's been a lot of key learnings in the quarter.

Yes. And then, just last, related to that. In terms of category shift, how is that going? I know you were trying to take it slow to not disrupt the model, but have you been able to actually make some progress there in terms of shifting the highest activity categories?

No, we didn't really make any shift in allocations. One of the biggest shifts we made is we reduced the spending per month by about $100,000 in the spirituality category, although we've continued growing the traffic base and we've become--I think we've become better at monetizing and being smarter at generating a stronger ROI. And we did three or four different things to get more out of the keywords that we're buying, and yet we were able to reduce. So we're going to take that money and we'll redeploy into other categories, and obviously, continue with that one.

But the interesting thing about that category is there is a lot of spillover. Someone comes in for that category and they're chatting for an hour, so they're spending about $40 for a chat, and they're spilling over into other categories. But the other categories have some real volume in them. And now, we have some of the ability to sort of expand now that we're into a single brand.

Good. Okay. Thanks for that.

Yes.

Your next question comes from the line of Raghavan Sarathy.

Good afternoon and thanks for taking my question. Rob, you briefly touched on the macro economy. Can you give us some sense for the linearity in the quarter, as well as do you see any change in the ASPs across different verticals? I see the numbers are pretty strong. Can you give us some color on that?

Yes. There's really no change in our business and no impact on--from the economy in our business. I think the real factor is all of these companies, even the guys we've been very focused on, like let's take the financial services vertical. We've been very focused on looking at that and saying is there going to be issues in that vertical, and we're not seeing anything. And I think there's some small customers that will go away, that have normal attrition because they can't handle a downturn in the economy. But most of our companies, they're using the online channel as their primary channel to expand their business.

And the other thing is chat--I don't know if you--you probably follow the general what's being written in the media. But chat's getting more and more play lately about how to interact online and take care of your customers [with Web 2.0]. So I think there's a mindset of the buyers, the heads of marketing, the heads of sales of these websites, that hey I want to use chat on my website. So the economy I don't think is going to have any real impact on our business. It's just we had a couple of--four customers who were like they couldn't go live during the quarter and said we're going to--we've got to push it out and we can only twist their arms so far. So--.

Now, on the Kasamba, last time you maybe I should say (inaudible), you gave the monthly metrics. Could you share that with us?

Yes. One of the things we're looking at there is determining what are the best metrics to share and when. And on the last call we did share just on a global level--sort of a macro level to give people an initial snapshot of the number of people who were using the service and paying, the number of experts that were generating revenue. And those numbers have not changed materially either up or down. But we're not yet far enough along in sort of analyzing verticals and determining the key metrics that we want to share publicly. So we're not going to give you those exact numbers every quarter until we get to the point where they are effective indicators of where the business is headed. So they were really unchanged in terms of what we disclosed last time. We had around 10,000 individuals that were generating revenue.

About 60--between 50,000 and 60,000 chats took place during that same timeframe on a monthly basis. And so, that's what's generating the revenue in the--but it's the same as the Q4 numbers.

So fairly consistent. And then, also, that's something we were tracking before and after the transition of the website, and again, seeing a fairly consistent flow in those metrics.

And then, in terms of the gross margins for that business it's still 80%?

Yes. The 80% again is sort of a cash gross margin because there's some deal costs, there's some amortization of non-cash costs that are now in there that weren't in there before. But on a pure gross margin, that's correct. It's still right at that level.

And then, with regards to your guidance, what sort of sequential growth are you looking at for the core business?

The core and the total in Q2 are right in the same range. So we're getting to the point now where the--breaking out the consumer numbers will not show large distinctions. So the (inaudible) for Q2 is 5 to 7% sequential growth. And that range would apply with or without consumer, so they're both running in that same range. And I think over time, probably within a couple of quarters, we will not necessarily break out every metric between consumer and non-consumer. But we'll definitely give you enough to know how the trajectory is, either is growing or proceeding, in the same way that we've given metrics that show the difference between small business and enterprise. So over time, you'll see that sort of a transition happening.

I think the interesting thing about the consumer business is--I mean, we track it by the hour. And--or we track it by the minute. So it's very different than our--obviously, our enterprise and small business groups in that the levers of moving revenue are--there's a lot more at our disposal. So it--it will get--I think it should get interesting towards the out quarters of the year, as we said at the beginning of the year, because we can move revenue a lot differently than we can in the small business and enterprise groups.

And just one final question before I pass it over. You probably mentioned this. I might have missed it. The G&A expenses jumped sequentially. Were there any one-time expenses in there?

Yes. There were a couple of things there that weren't--they were not recurring expenses or overhead--personnel related expenses. They were more--some higher legal expense run rate in the first quarter, just a little more complexity and activity around some of the opportunities we've been working on. And then, we also had some one-time franchise tax expenses that hit in the first quarter and run through the G&A line that are not income taxes. But again, that's more of a--it's not a steady quarterly flow, but it did hit us a little higher in the first quarter than we had anticipated.

So just a follow-up. So should we expect G&A to be flat going--flat to down, or how should we think about that?

Yes. I think Q1 will be a little bit of a spike, and then it will settle back down into a run rate where it will grow either steadily with revenue or show some improvement with revenue. So not flat in absolute terms, but flat or a little better than flat in terms of percent of revenue terms.

Okay. Thank you.

Yes.

Your next question comes from the line of Brad Whit.

Hey, guys. Thanks for taking my questions. Rob, can you comment a little bit on churn--customer churn, particularly with the larger proactive customers? I mean, it seems like with only a 300,000 or so increase in sequential subscription revenue, it seems like maybe you must have lost some customers.

No. The churn rate--it goes up and down and some months we see high, some months we see low. Overall, it tends to even out on a quarterly basis. January was a higher than typical rate, but it was obviously something we saw and was worked into the guidance. So the real driver was on the gross revenue line and not driven by attrition. So that was not a real change nor unexpected.

Okay. And what about sales headcount? Did you give that metric?

I'm sorry. Was that--?

--Sales headcount.

Sales headcount is at 15 right now.

It's stuck on 15. How about what's your share count expectations for next quarter?

We mentioned that here and you should use 50.5.

And what about how--could you comment on some of the products, maybe the voice product, and what kind of interest you're seeing there? And then, I'd be interested in what kind of activity you've seen around proactive service.

Yes. On the voice side, we spent--we've been focusing our efforts primarily on some opportunities to distribute that indirectly. So we think that's one area uniquely among our product base where working with a partner would give us a real advantage. And so, we've been focusing in that area and I think we put a lot of effort in and I think we'll see some good results from that not too far out. In terms of uptake, I think it was a little low in terms of the number of customers added. Small business customers seemed to be more focused on chat than voice in the first quarter. And that came after a pretty strong surge in Q4. And so, that's really where the resources were dedicated on voice in Q1. So I think we'll have some interesting information coming over the next few quarters, if we're able to--some of those opportunities pan out.

And then, in terms of proactive service, we really continue to see really nice results. Again, a good proportion of the growth, especially at the larger and largest accounts is in the service side. The installed base of operators is enormous at the vast majority of these customers. And so, once we're able to start in that side of the business, I think the growth potential is pretty vast. When we're selling sales and marketing we're generally bringing in new resources or borrowing resources at our customers in terms of operators from another effort. So proactive service--we've continued to invest more. We've got a very senior executive with broad experience outside the Company in that area and he's really driving that and supporting our sales team on that.

Okay, great. And again, the--so for depreciation, looking for roughly 500,000 a quarter for the rest of the year?

That's correct.

Thank you. That's all I have. Thanks for taking my questions.

Thanks, Brad.

Thanks, Brad.

Your next question comes from the line of Nathan Schneiderman. Go ahead, sir.

Yes, hi. This is Nick Pajwani for Nate Schneiderman. Rob, you mentioned that four customers delayed closing deals here. How many of them have you closed now?

They're actually closed, but they're--they need to get implemented. So they're--they [were] closed. They were signed, closed, and now we're just waiting for them to go live over the next two quarters.

The next two quarters, okay. Could you--I know you discussed briefly about the pricing nature and pricing on Kasamba. What are some of the trends that you're seeing? I know you said the matrix was similar to Q4. But is there anything that you can share with us about the pricing environment?

Pricing is basically the same as Q4. We did a lot of experimentation during Q1 to understand the levers of pricing. So there's levers in supply/demand because it's a marketplace, and then there's levers on how we drive traffic and who we drive traffic to - which priced experts we're driving traffic to. So we--I think we've got a good handle on sort of how to move pricing in different directions. And the net result is we drove it down, drove it up, we sort of played with it a little bit. And in the end, we drove it to the goal, which was our number for the quarter. So--but there's about four or five different parts of it that will do it. But the pricing pretty much held across all the different categories that are there today.

Okay. Well, Tim, you spoke about some unusual items on the cash flow statement. But this is the first time that you had a cash burn since March 2004. Should we expect the cash flow (inaudible) fairly nicely in line with--in line with revenue growth here, or how should we think about the cash going forward?

Yes. I think two things. One is, we give you I think fairly good information ahead of time to expect what the cash flow will be in upcoming quarters and all of the things we saw were things that we've either seen before or were expecting. So the stock repurchase, while we can't necessarily foresee the exact amount, we obviously know there's a plan in place and will be--we'll enact that when we think the parameters are right. Co-location is right on plan and we're nearing the end of that, but that--the remainder of that spending, which is another 1.5 million or so, will occur over the rest of this year. Q1 cash flow is typically the lowest of the year due just to the timing of some annual payments of accruals that happen during the year. And the cash from operations typically comes in right in line with EBITDA. In this quarter in fact it was 2.3 versus EBITDA of 1.7. So that's typically a very good proxy for the cash flow and I think that will--that you should expect that going forward as well.

Okay. And lastly, you gave us a headcount for--gave us the (inaudible), but what are your hiring plans for the rest of the year? Thank you.

So as mentioned, 15 account executives--full quota carrying account executives in the U.S. and the U.K. combined. And I would expect--we're in--just starting May now, I would expect to add two over the next quarter and a half and that's about the pace we should be on for the remainder of this year.

Okay, thank you.

Thank you.

(OPERATOR INSTRUCTIONS.) And you do have a follow-up question from the line of Raghavan Sarathy.

Thanks. I'm trying to get--trying to understand this EPS flow. It looks like we--you're looking at 70% of the earnings to come in the back half of the year. Is it going to be primarily driven by the revenue that's left that you expect to recognize in the third and fourth quarters?

Yes. I mean, the revenue obviously, as you saw in the first quarter, the revenue in either direction - ahead or behind expectations - a significant proportion of it drops. So I would say the primary driver in the back half of the year will be revenue. And then, we will also see some benefit in primarily the cost of goods line as we see some benefit coming online from the co-location transition. And G&A was a little bit higher in Q1 and we'll see some benefit there. The other two line items will remain essentially in line growing with revenue.

And when the co-location is--when do you expect that to go live?

That is--it is live now. And so, we have--our entire U.S. customer base has now been migrated from our prior facility to the new co-location facility. And that was complete right around April 1. And so, while we're not at 100% of our eventual savings rate, those cost savings have begun April 1 and then it will ramp up to a fully loaded savings rate by the end of the second quarter.

And that's--you are looking at a 2% improvement just on co-location (inaudible)?

Yes. If you isolate co-location, that 2% is a good measure. We are being a little bit cautious in our guidance in that there are several other line items obviously in our cost of goods that drive gross margin besides the hosting facility. But it is likely that a good majority of that benefit will roll down to the gross margin.

Thank you.

Thanks.

Your next question comes from the line of [Bill Dawkins].

Hey, guys. Thanks for taking the call. Looking forward, could you provide some color on your marketing plans for the consumer and the enterprise, if you--I would imagine you'd be separating that out. And more specifically from the enterprise side, how--what attributes enterprise would or could utilize with the Kasamba or new LivePerson? Thanks.

The overall strategy is to obviously focus on generating the brand activity around the LivePerson name and how we are--we're powering the world's experts, so whether they're experts who are independent on our website or the experts sitting at Apple or one of our customers where they're chatting in their call centers. So the overall strategy of promoting the brand, I think it's a carryover on both enterprise and the consumer business.

On the enterprise business, we continue to do trade shows and we do webinars and we do a lot of direct outbound telemarketing. On the consumer side, we've given no plans yet to the external world of how we'll be marketing, but today we do a fair amount of keyword buying on Google and Yahoo! and some of the other search engines. And we'll continue to do that to expand categories, but we'll also focus on just general let's say advertising online when it comes to banners and other things.

And then, there's just going to be a general awareness campaign a lot around PR and getting the word out. I mean, as we've said many times, no one really knows about this website, and yet it's got close to $30 million in gross transactions happening through it. So there's a real opportunity there and there's been a lot of chatter in the market around experts and the need for experts in the world. So we think there's a lot of pent up supply/demand and right now our focus is really doing a lot of work behind the scenes to prepare for the campaigns that will start out in Q3 and Q4. But we'll give more specifics as we deliver those marketing activities.

Just so I understand, so like from the enterprise perspective, I mean, could you almost like think about this in the sense of an enterprise maybe outsourcing their customer service?

Yes. I mean, our--right now, our enterprise team is going to the market and going out to enterprise customers and talking to them about their communities and who exists in their communities, because almost all of these large enterprise customers do have communities on their websites where consumers are interacting with each other. And now, we're talking about how do you power those real experts there to sell that information and provide that service to other consumers onsite. So, yes, that's definitely what the enterprise team is doing today.

We're trying to be pretty smart on just keeping what we're doing to a select group of customers. And we want to get a couple of customers up and running, and then come back to the external world and show them what we're doing. And so, like I said, I think over the next couple of quarters we'll be able to bring some results on how the enterprise customers are using the expert network and using what we're delivering with the experts for their own benefit.

Thank you very much.

Thank you.

We have a follow-up question from the line of Nathan Seiderman.

Hi. This is Nick, again. Could you give us the geographic distribution for this quarter? Thanks.

No real change there, so the metrics we've given in the past should remain pretty static, if you're tracking that specifically.

So it's 25% international? Is that fairly--?

--That's not one you really expect to see big shifts quarter to quarter.

Okay.

So that's one we'll periodically update, if we see a major shift in any region outside the U.S., although we're seeing a lot more demand than we have in the past in our U.K. office and our European operations. So obviously, the European groups will lag behind the U.S. when it comes to demand for Internet products. So now, they are sort of catching up with the demand. But it's a bank or it's a teleco or a cable provider. These are some large verticals and some of our largest customers over there. So we are seeing an increase in demand in that area.

All right. Thank you.

Thank you.

And there are no further questions at this time, sir.

Okay. Thank you very much and we'll see you on the Q2 call.

Thanks, everybody.

This concludes today's conference call. You may now disconnect.