LivePerson Inc (LPSN) 2008 Q4 法說會逐字稿

Good afternoon. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson fourth quarter 2008 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. I would now like to turn the call over to Mr. Tim Bixby, President and CFO of LivePerson. Sir, you may begin your conference.

Thanks very much. Thanks for joining us, everybody. Before we begin, I would like to remind everyone that during 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. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The internal projections and beliefs upon which we base our expectations today may change over time, and we undertake no obligation to inform you if they do. The 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, please review 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 when we talk about the Company's financial performance. We report our GAAP results, as well as provide a reconciliation of these non-GAAP measures to the 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'd 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.

During the fourth quarter of 2008, we generated revenue of $19.6 million, up 17% from a year ago and up 1% sequentially as compared to the third quarter of 2008. EBITDA per share was $0.07, which is a new high for LivePerson, and better than our expectations at the beginning of the quarter. LivePerson had a solid fourth quarter, capping off a year of continued strong growth and margin improvement.

In 2008, revenue increased 43% year-over-year and grew to nearly $75 million. EBITDA for the year was nearly $10 million, and improved from 10% of revenue in the first quarter to 18% of revenue in the fourth. During 2008, we signed almost 40 new enterprise customers, 10 of them during the fourth quarter, including companies like Sun Microsystems, Nestle, Sharp Electronics, and Texas Instruments, along with hundreds of small business customers.

Within our customer base, we currently serve five of the eight largest US financial institutions; the top five US telecommunications companies; five of the seven largest Fortune 500 high-tech companies. We are pleased with our 2008 results, especially given the challenging macroeconomic environment. It's a testament to the underlying strength of our product lines and overall business model.

Furthermore, Forrester recently validated the positive impact of our third generation chat solution used by our enterprise customers. Working with one of our largest financial services customers, they conclude that LivePerson Proactive Chat enabled consumers to double their application completion rates. The study validated that our proactive engagement solutions helped companies increase revenue and deliver better online experience.

Within our business operations, enterprise revenue grew 2% sequentially and 27% for the year, while our small business group's revenues increased 5% sequentially and 35% over the course of the year. Our overall addressable market is large. According to our estimates, we currently serve more than 300 out of approximately 3,000 potential enterprise customers, and about 7,000 of approximately 200,000 potential SMB customers.

We continue to see expansion of our pay-for-performance or PFP model, especially among telecommunications customers. This turnkey offering for online sales typically bundles our software with the labor provided by one of our contact center partners. Unlike our traditional business model, the PFP model is more aligned to a revenue-share-based model. In an environment where companies are focused on managing spending, the PFP program is attractive and can remove significant barriers from the sales process.

The proportion of our enterprise revenue driven by PFP has more than doubled from less than 5% to more than 10% of enterprise revenue over the course of 2008. One PFP customer is now among our five largest customers in terms of revenue, which indicates that we have passed an important proof point for this innovative model.

We are pleased with the response to our PFP model and the positive results it is generating, and we will continue to leverage this model in conjunction with our traditional business model to maintain appropriate mix within our overall revenue base.

During 2008, our consumer group focused on both transition and integration of Kasamba into LivePerson. In the second and third quarters, we combined the Kasamba and LivePerson brands within the LivePerson.com URL while updating the overall look and feel of the website.

And in the fourth quarter, we created a new marketing team in New York City and launched general advertising campaigns, promoting the expert platform. However, as we now know, this advertising push coincided with the dramatic surge in negative news surrounding both consumer sentiment and general economic outlook. In the face of this, we quickly reduced our planned advertising spend on the full branding campaign, and have now refocused our efforts on strengthening the existing primary categories from the platform.

We also continued to focus on the synergies between the consumer and enterprise lines of business. For example, our integration of independent Java programming experts from the LivePerson platform within Sun Microsystems java.com website is beginning to show solid results. We will continue to improve and expand this deployment more broadly within Sun and Java, and this deployment has proven to be a solid first step towards our ambitious goal of providing independent experts within our B2B customers' websites.

We clearly see a lot of opportunity for the consumer platform, and we want to give it the proper amount of time to successfully execute on its strategic and technical goals. Therefore, we have decided to use the full leverage of the consumer business model and the flexibility of our platform, and have taken steps to eliminate the annual cash burn rate, which was approximately $4 million in 2008. We expect to run the consumer platform at breakeven or better, starting in Q2.

Our goals moving forward in 2009 are clear -- offer the most compelling ROI-driven solution in the online convergence space. Companies, even in this environment, need to improve their online sales, and we offer one of the most efficient sales and service solutions on the market today. Increase our leading marketshare in both the enterprise and small business market places; continue to manage our cost structure to generate steady margin improvement over time and improve operating cash flow in the process; strengthen core customer relationships with our large enterprise accounts and SMB group; and move to profitability within the consumer group, while growing core categories and supporting synergies with Enterprise Expert and B2B implementations.

Though we are operating in a tough economic environment, we feel well-positioned to leverage our strong business model and leading product lines to be successful going into 2009.

And with that, now I'd like to turn the call over to Tim. Tim?

Thanks, Rob. We posted sequential revenue growth, as Rob mentioned, overall of 1% in the fourth quarter. This is a good result, given the overall economy and especially the pressure on financial institutions. We performed extremely well on expense management, gross margin improvement, as well as generating cash flow from operations. EBITDA per share for the full year ended very strong at $0.20 per share.

We signed 38 Enterprise deals in total in the quarter; again, a very strong showing -- 10 new names were among those deals. And this 10 number in the quarter was right in line with our performance in the first three quarters of 2008.

Pricing held well, as the average annual revenue per deal is unchanged as compared to each of the three prior quarters of 2008. We added several new clients, as you'll note in the press release from today, including ShopNBC.com, as well as a global leader in consumer electronics, a top three global wireless carrier, and the world's largest online florist and gift shop.

We also expanded business with several large customers, including Panasonic, as well as the world's leading provider of networking equipment, the leading online photo service, a leading global financial lending and services company, and the world's largest home improvement retailer.

In terms of the breakdown of our enterprise business, deal splits in revenue terms were as follows -- 40% of the new deals in the quarter came from new customers in terms of revenue; and about 60%, or the balance, came from existing customers expanding. This is actually a strong showing for revenue growth from new customers, especially as compared to the prior quarter.

In terms of the product line breakdown, almost 100%, 95% of the business done in the quarter was sales-driven as opposed to service-driven, which made up about 5% of the new revenue. Overall, average enterprise deal size was about $66,000, and that's right in line, as I mentioned, with the first three quarters of the year.

In terms of attrition, in the enterprise group, attrition increased from 1.8% monthly in the first three quarters of the year to about 2.7% in the fourth quarter. And what we saw there was increased down-sale activity among existing clients.

About 60% of the attrition impact in the fourth quarter was driven by customers lowering their number of active seats, along with their internal headcount adjustments, but not actually canceling their overall service. Attrition among our small business customers was right in line and consistent with prior periods.

Pay-for-performance continued to expand, as Rob mentioned. It's increased from less than 5% of enterprise revenue early in the year to just over 10% by year-end 2008.

Over the course of 2008, we've increased the size of our direct sales force from 13 and ending at 17. And we're looking to continue to expand this team, more likely in the mid-part of 2009, opportunistically, with potential increases in the US, Europe, and also potentially in Asia.

Our split of revenue coming from outside the US, primarily the UK, is really unchanged from the prior quarter, and that's running about 25% of total revenue. Also, the vertical concentrations have remained fairly steady as well. Financial services continues to make up about 25% of our business; telecommunications, about 25%; retail and technology, each of them about 15%; and then all others combined making up the balance of 20%.

As of year-end, we had 11 customers billing over $0.5 million per year. We had three over the $1 million mark and three actually over the $3 million mark, which is good progress on those metrics.

This customer profile with six customers over $1 million and our largest customer near $4 million is solid proof of our ability to prove ROI to the world's largest enterprises. This is a dramatic increase over the last four years, when we thought $500,000 might be the high end of revenue per customer for us.

Overall, revenue grew 1% sequentially. This supported our 29th consecutive quarter of revenue growth. Enterprise revenue growth in the fourth quarter was 2% sequentially, while our SMB group, on its own, grew 5% sequentially. Our consumer revenue is down about 8% as opposed to the -- as compared to the prior quarter.

If we look at the year-ago period, we delivered 17% annual growth. Adjusted for the acquisition, the organic growth or the growth of our business operations combined was 23% for Q4, as compared to the year-ago period. Full year revenue growth for just the business operations -- that is just the enterprise and the SMB operations combined, was 30% annual growth.

Our gross margin line continued to show solid improvement for the third consecutive quarter, as expected, primarily as a result of operating leverage due to revenue growth, and also due to reduced hosting costs, which continue to be driven by our collocation transition and optimization within our new facilities.

Gross margin improved by 170 basis points in the quarter on top of 120 basis point improvement in the prior quarter. Gross margin overall came in at 75%. And on a non-GAAP basis, if we adjust for non-cash expenses, gross margin would be about 79% in the fourth quarter. Total cost of goods in absolute dollars actually declined a bit from the fourth quarter below the rate of both Q2 and Q3. So we're seeing nice progress there.

Operational costs improved significantly in the areas of both G&A and R&D, where we saw significant improvement as compared to the prior quarter. This improvement almost completely offset the planned increased in sales and marketing investment in the quarter, and those -- that increased investment was related to the outbound marketing efforts for our consumer operations that Rob detailed.

As noted on the last call, we increased our sales and marketing spending plan for Q4. From a cash flow perspective for the full year, we invested slightly less than expected, about $3.9 million from the business operations, cash flow and support of consumer efforts. And that puts us -- would put us at about a $1 million quarterly run rate in 2008. For the fourth quarter only, that figure was about $1.7 million, also slightly less than expected.

As Rob mentioned, we have decided, given this economic environment, to work toward bringing the consumer operations to breakeven or better on a cash flow basis. And we expect to achieve that goal by early in the second quarter. This change will deliver dramatic improvement as compared to the $4 million burn rate during 2008.

As a result of a deterioration of our market capitalization in the fourth quarter of 2008 -- and this was not rare among public companies -- we reevaluated goodwill related to our consumer operations. Due to weaker than expected financial performance of these operations in the latter portion of 2008, we recorded a non-cash goodwill impairment charge of $23.5 million or about $0.50 per share. This charge is a non-cash item, and therefore, had no impact on the Company's cash flow. Notably, the performance of our enterprise and small business operations continues to be very strong, such that no impairment related to those operations was necessary.

Our operating cash flow was strong in the quarter. We generated $3.4 million of cash from operations, and you get to that by including a $1.7 million benefit from non-cash taxes. This was offset by planned capital expenditures of $1.4 million, related primarily to the continued build-out of our hosting facilities and DR, disaster recovery facilities.

Full year cash from operations was $9.7 million; again, including the $1.7 million tax benefit. And this was offset by about $4.1 million for share repurchases that we made during the year. We also incurred about $6.8 million in capital expenditures in total, related primarily to servers and network infrastructure.

With regard to the share repurchase that I mentioned, during the year, we purchased approximately 1.4 million shares at an average price per share of a little less than $3.00. And we have continued to buy shares opportunistically in both the fourth quarter of 2008 as well as into the first quarter of 2009.

Accounts Receivable remained steady, as a percentage of revenue and collections continued in line with historic norms. And that's a good trend, especially in the current macroenvironment.

Overall, our global headcount was 366 at year-end. This was essentially unchanged from September 30, and is actually down somewhat to about 355 as of today's conference call.

In terms of our expectations going forward, in the first quarter, we expect no material revenue growth, as solid incremental revenue added, we expect will offset the slightly higher attrition rates that we saw in Q4 and that we expect in the earlier part of Q1.

We expect EBITDA per share of $0.05 to $0.06. And that equates to a dollar number of between $2.5 million to $3 million; and also GAAP EPS of between $0.00 and $0.01 per share. We currently expect for the full year of 2009 a range of revenue growth between 13% and 17%. And that would put us total revenue for the year for the total Company at $84 million to $86 million. We expect GAAP EPS for the full year of $0.04 to $0.05, and EBITDA per share of between $0.23 and $0.27 -- which would be a nice increase from the $0.20 reported today.

There's a few other current assumptions that we think will be useful, as you go about analyzing our business for both the first quarter and the full year. These are not -- this is not part of our guidance, but it is some internal assumptions that we think you may find useful.

Share count of approximately 49 million shares, fully diluted, is an appropriate number to use. We assume a book tax rate of approximately 65% in 2009. And it's also appropriate to assume a cash tax rate of approximately 40%. We expect GAAP gross margin between 74% and 75%. And this also would equate to a cash gross margin of about 78%.

And then in terms of the cost lines relative to revenue, sales and marketing, a fair assumption is about 32% of revenue for the year overall, and a little bit higher, probably in the range of 34% in the first and second quarter.

For the full year 2009, G&A expense -- a fair assumption is running at about 20% of revenue; R&D, approximately 17% of revenue. And then on the non-cash charges, we expect the following are reasonable assumptions -- depreciation, approximately $3.7 million for the year; amortization of intangibles, approximately a $2 million run rate; stock compensation expense of approximately $4.3 million. These three -- depreciation, amortization of intangibles, and stock comp expense -- it's reasonable to assume more or less a straight line pattern over each of the four quarters.

For the full year, we expect capital expenditures to be in the range of $7 million to $9 million for all of 2009. And that sort of caps off the assumptions, and we'll be happy to go into more detail in the Q&A, if that is helpful.

With record EBITDA in the fourth quarter, a debt-free balance sheet, and more than $25 million in cash, our recurring revenue model, I think we're positioned well heading into the first quarter -- the rest of the first quarter and all of 2009. This, I think, is likely a time when strong companies continue to invest and grow profitably. And that's what we intend to do.

We have invested aggressively in the past two years in significant hiring, collocation hosting infrastructure and R&D innovation. We expect to continue to fund those efforts going forward.

As the by-far market leader in proactive online conversion solutions, we continue to be well-positioned to succeed, even in a challenging environment. And I think we've made smart adjustments in our operating plan to ensure that we're ready to take advantage of opportunities as conditions begin to improve.

That covers our operational and financial highlights. And now, if we could ask the Operator to rejoin the call, we'd be happy to take a few questions from the folks on the call.

Thank you. (Operator Instructions). Richard Baldry, Canaccord Adams.

Thanks. I think on the prior call, you thought the key words typically at something on the range of a 3 to 4x return on dollars spent. So, given to pullback in spending, did you see that -- those metrics really tail off pretty quickly in the quarter? I'm trying to figure out sort of how that decision was made. Thanks.

Yes. When we started to run our campaigns -- and we ran -- you know, we did some offline on radio and then we did some online with mostly in media in stuff outside of the core. It just sort of got lost. We saw very quickly it got lost in how consumers were feeling about all the negative noise.

And so the click-through rates were very good but the conversion rates were not. So we decided to sort of pull it back, and then continue focusing on the key words in the media that we know gets a solid return on investment, which is the core categories that we've been working on for the last couple of years -- or Kasamba was working on for the last couple of years.

Maybe looking on the balance sheet or cash resources versus the market cap, could you talk about your comfort levels of what type of cash you'd want to have to run the business? It looks like you're sort of pulling back on growth-oriented spending on one side of the table; maybe does that auger for increased buybacks over the year ahead? Thanks.

Yes, I think if you look back at the history of the last couple of years, is a good proxy for how we think about it. We've -- in the case of 2008, we generated very healthy cash flow from operations. And then we felt comfortable enough with our cost structure and our outlook to reinvest that into primarily the collocation transition and also a healthy amount into the share repurchase. The share repurchase is obviously a little more discretionary.

And I think that is something that we're comfortable with -- the cash balance at the beginning of the year was essentially unchanged at year-end. And so that range feels comfortable to us. And I think we're looking into 2009 something similar, where we're a few million dollars ahead on cash or breakeven or better, and we're still able to invest in these -- in projects that are strong ROI, that is what you should expect going forward.

Well, the bottom line, though, is we feel like in the face of the economy and I think what everyone is seeing, it's not -- it's sort of a slowdown in just the buying process -- not as much as people saying, I don't want this or I don't want that; they're just like us. You know, we're doing the same thing, we've been very conservative on our cost side.

And even on the consumer group, we decided in the face of a tough consumer market, let's generate cash. Let's not try to out-beat what consumers feel. So, the best thing we can do as a company is generate as much cash as we can with the growth rates that we're going to achieve this year.

(Operator Instructions) Brad Whitt, Broadpoint AmTech.

Thanks for taking my questions. Tim, just a clarification on some of the expense items that you gave. When you say sales and marketing 32%, G&A 20%, R&D 17%, is that a non-cash number that excludes stock-based comp?

No.

Okay. Just wanted to clarify that.

And Rob, maybe you can give us a little more color on what's going on, on the consumer side. I think you said it was down 8% sequentially. And I noticed you're using email -- just curious as to what the dynamic is between email and chat, and whether you're able to generate revenue from email as well as chat?

Yes, about 15% of revenues right now are offline, so they're through email, and then the remainder is through chat -- and there's a little bit of voice on the platform too.

Basically, in our focus in the latter half of the year on Q4 was really to shift some of the marketing budget off the core, which is all of the personal advice categories, and put it into the general campaigns. And so. because of that, it had an impact on some of the core categories.

The thing that we're seeing now is the core categories, all the personal advice stuff is sort of hanging in there. The conversion rates are hanging in, the lifetime values are hanging in. So, the one way to go we feel right now that we have real confidence is in that personal category -- the personal category area.

So we're going to focus there and grow the business from there, versus trying to do general brand-building around the world of experts. And that also allows us to basically change the dynamic of the spending and run it as a breakeven to profitable group and that's our intention, so.

Okay. And also, Rob, any new products that you're planning on launching this year that we -- to look forward to?

Well, the couple of things that we have coming up -- we've got a whole data warehouse investment that we've been making over the latter half of last year and going through the full year of this year. We hired eight people in the warehouse team. And we're very focused on the analytic side of the business. And we have some amazing data. We call it like voice of the customer, that we have transcript data of what people are chatting about. And we have millions of these transcripts, 7 million or 8 million a month that we capture.

So I think this year, we're going to be very focused on presenting that to our customers and making it that they can get real data out of it. So they can see what are people talking about on the website? What issues are they having? And we've even talked about rolling that up on an industry-wide, so they can see what are other LivePerson -- let's say, financial customers, what are they talking about, you know, their customers talking about?

So, that's an exciting project that we're putting a fair amount of focus on. We've got a couple other things in the small business that are coming, but I'd rather just -- we'll talk about them in the latter half of the year, from a competitor standpoint.

And then on the consumer side, we're testing voice now. And we're just going to focus, like as I said, on that core and getting back to growing at. So, I think data warehouse is the biggest project on the enterprise side.

Okay, thanks. Thanks for taking my questions.

John Pinto, [Hinsdale Micro Capital].

Hey, Rob, Tim. Great quarter. Had a quick question on your guidance and just understanding that. But before then, could you just give me a little bit of sense of, given the environment out there, can you get people to focus on the consumer business? And by that, I mean some of your current clients and trying to create the tie-overs that you did, for example, with Java. Or just kind of give me a little bit of a flavor.

Yes. You know, I mean, I think we're really blocking and tackling Java and it's really doing, I think, quite well in how it's growing. And we want to just sort of get the model down and then be able to sort of package it and take it out to our other customers. Because, I mean, we've proven a basic point, which I think a lot of people maybe didn't believe, which was, if you go to Java.com and you go to the Help Center, people are paying now for help versus sending in an email or picking up the phone to Java's -- to some microsystem's call center.

And so, we've proven the point that consumers will pay for other consumer's knowledge, if they can get it in real-time and they can get it through chat. So yes, I think we're very excited. And I think that in this economic environment, people don't want to staff as much; it may play nicely into that.

And then I think on the flipside, there's a lot of people looking for alternative ways to make money, and they're experts at something. So, the supply side of our business continues to increase. We get about 100 new experts a day applying to be experts. So, I think both sides are working the supply and demand side, so we're excited about that.

So when you said you're focusing on the personal side and on the consumer, but then it sounds like you've got a separate focus also in really trying to mine your current business customers. Should we expect Java-type relationships coming out soon? Or is that something that -- that's just taking longer than you thought to --?

I think it's probably -- we'll see some more throughout the year. We're just, from a resource perspective, we have a limited amount of resources and we just want to make Java work at 110%. And we've made -- if you keep going back to that site, you'll see many changes. Pretty much like every two weeks, there's a change to what we're doing because we're learning a lot, because we're the first guys to do this.

So I'd expect a few more of those. And then, with the core, we know the core, the core makes money. The core has strong return on investment. There's a very strong lifetime value in the core categories, between $200 and $300 we get from each consumer per year.

So, we've got a focus. We don't have an opportunity right now to go out and try to educate the market about experts when they're thinking about their mortgages or losing their houses and their jobs. So -- but they sure as hell want personal advice, when it comes to that stuff.

Agreed. And then maybe this for Tim or you, Rob. On your EBITDA guidance for the year of $0.23 to $0.27 and then your Q1 guidance, and putting that in light with the goal of being breakeven beginning in Q2 for the personal business, the fact you blew or you spent/invested $4 million last year, when you look at that, that should be a $0.06 benefit, you did $0.15 in the three quarters last year, it looks like you're modeling right now -- at the top end of the range, you're guiding for flat EBITDA from the core business. Am I reading this wrong or --?

Yes, I think if you do a simple math calc like that, you'll get to the number you just got to. I think a better way to think about how we're putting the guidance together is getting the consumer operations to breakeven. That is -- that's one specific piece of the business in isolation. And so we wanted to be very clear on that.

That -- the timing of that is uncertain; we expect to be there early in Q2. And so we expect to get the majority of that benefit for the year, but not a full year benefit. There are other pieces of that -- pieces of that business that are unpredictable as well as in the core business.

So I think it's fair to say we're being a little bit conservative on both counts, in terms of rolling up the EBITDA guidance. But your straight math is definitely correct, in that if everything goes exactly as it went this year and we make that change, then you'll get to a number that's a little bit better than our stated guidance.

Okay. But it's nothing -- you're not at this point trying to tell us something about the core business being down year-over-year on EBITDA?

No, no. To the contrary. I think it's definitely as strong as ever. The margins are strong. Gross margin improvement was even a little bit better than we anticipated. There are some cost structures issues that change in the first quarter every year, in terms of payroll taxes and those kinds of things. So you see a natural -- maybe a $0.005 or so of change from a normal Q4. But other than that, it's all definitely good news on the business operations model.

And you should get some benefit in the first two quarters from the server farm, as well, right?

Yes, I mean, we're not guiding to consistent improvement every quarter in gross margin, but we certainly saw that and more in 2008. So we're optimistic. But I think we're getting to levels now that are sort of at or almost at our targets -- we're back at 75%. And so I think in the range of 75% to 80%, each bit of improvement gets a little bit tougher. So we're very comfortable and actually very pleased with the 75% gross margin rate.

Okay. Great work, guys. Keep at it.

(Operator Instructions) Corbin Woodhall, Merriman Curhan Ford.

Hey, guys, thanks for taking my call and congratulations on a good quarter. I jumped on the call a little bit late, so I'm sorry if I missed this, but I was wondering if you can just tell me a little bit about your underlying assumptions for the 2009 revenue guidance from the consumer segment? Whether they're flat or down from the 2008 revenues?

So, our assumption is that they're essentially flat with the current run rate. We're making adjustments, but the revenue structure, as Rob mentioned, that it start to take effect later in the first quarter. So we'll see it -- we'll expect to see a step change that will raise that revenue run rate up. Net of all of that is we should see a number -- the guidance number is very similar to the total we did in 2008. So, the $10 million net revenue number is -- will be consistent with what we did in 2008.

Okay, thanks a lot.

Brad Whitt, Broadpoint AmTech.

Can you just comment a little bit on the CapEx expenditures? It seems a little higher than we had thought for, not only for this past year, but for next year as well.

And then also, I don't quite understand your 20% G&A guidance for next year. This quarter, I think G&A was about 12% or 13% -- it was about 15.5% of revenue for the year and you've got it going to 20%. That would imply G&A growing probably three to four times faster than revenue. If you could just explain that to us. Thanks.

Sure. So, I'll hit the second one first. I think the difference in the G&A is the amortization of intangibles you may have separately. And so that 20% includes that number.

Right. I asked you awhile back if it included that -- if it was a cash number or not.

Yes, I'm sorry. That's different because we break it out on the face of the P&L for G&A only, that my response earlier was not 100% correct. So, for the other line items, it includes the non-cash. In G&A, you have to combine the two line items from the P&L and then it should [put]. So it shouldn't be a dramatic change from Q4.

Okay. Q4 was a pretty big drop from Q3. Was there some one-time reversal of accruals or something like that in Q4?

In G&A?

Yes.

The biggest shift -- well, there were actually two significant shifts. One was we had some higher legal expenses and accruals just for ongoing legal costs in Q3. That tapered off a bit in Q4. And we also do accruals over the course of year related to bonus payments. And there was a bit of an adjustment there, that was a little more favorable in Q4 than in a typical quarter. And so that, we're assuming that obviously goes away in Q1. And that's why that rate might -- would go up a little bit in Q1.

So, I think -- you know, we obviously got a big improvement in Q4. I think we'll get most, but not all of that, going into Q1.

Okay. And just back to the CapEx, what kind of things are you going to be investing in this year -- the $7 million to $9 million in capital expenditures?

Yes. The bulk of that again is servers and network infrastructure. And in terms of what's in that, in 2008, the main focus was moving our primary hosting facility in the US to collocation. That's essentially finished in terms of a transition.

So all of our small business, enterprise, and consumer has all been transitioned as of the latter part of 2008. We then move to do a similar transition with our disaster recovery, our DR facility. So we get the same sort of leverage out of the costs going forward in that transition. That will be the bulk of the investment in 2009, as well as to some extent the data warehouse build-out investment that Rob mentioned. And that also has sort of a server and software component.

I think the $8 million, the $7 million to $9 million number at this point is somewhat conservative, but it's fairly, obviously very early in the year. We wanted to have that out there and we'll update that next quarter, as we get a better view of the rest of the year.

That's somewhat fungible, so if we think we want to be a little tighter on cash, we can delay and push some of that transition out and vice versa; if we're tracking well, we may want to move forward, we can sort of move that accordingly.

Okay, that's all I have. Thanks for taking my questions.

Nathan Schneiderman, Roth Capital Partners.

I'm sorry, he has disconnected. There are no further questions at this time.

All right. Thank you.

I want to thank everybody for joining the call.

And we'll see you on the Q1 call. Thank you very much.

Thanks very much.

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