LivePerson Inc (LPSN) 2009 Q2 法說會逐字稿

Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson second quarter 2009 financial results. 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.

Mr. Bixby, you may begin your conference.

All right, thanks very much. Before we begin, I would like to remind listeners that during this conference call comments that we make regarding LivePerson that are not historical facts are forward-looking statements and are subject to risks and uncertainty 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. 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 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 obtain a copy of our earnings release by visiting the Investor Relations section of our Web site.

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 second quarter of 2009, we generated revenue of $20.5 million, up 11% from a year ago and up 3% sequentially as compared to the first quarter of 2009. EBITDA per share came in at $0.09 cents, above our guidance range of $0.06 to $0.08 per share. EPS was $0.02 and also exceeded our guidance range of $0.00 to $0.01 per share. Tim will provide more detail on the financials shortly.

We are very pleased with our second quarter results from each business unit, especially given the challenging macro economic environment. It's a testament to the underlying strength of our teams, our product lines and our overall business model.

Within our business operation, enterprise revenue was up 2% sequentially and grew 11% as compared to the prior year, while our small business group revenue increased 1% sequentially and 14% from the prior year.

We believe that our overall addressable market remains large for our B2B products. According to our estimates, we currently serve more than 300 of approximately 3,000 potential enterprise customers and more than 8,000 of approximately 200,000 potential SMB customers. We're seeing growing interest and lead flow as compared to the past several quarters and are confident that the second half will reflect at least some of this macro environment improvement.

For the Enterprise Group, we're starting to see some substantial sales activity as companies look to expand their online sales and marketing efforts. We're even, for the first time, seeing big-box retailers begin to evaluate using our real-time solutions for their Web sites.

During the latter half of Q2, we saw our sales pipeline and bookings start to expand. In Q3, we expect to add more incremental revenue than we have seen in the past three quarters and expect sequential growth for this group to exceed 7%. As in the prior quarters, the Enterprise Group focused on expansion opportunities in the US and in Western Europe, expanding the pay-for-performance model globally and continued expansion in our strongest industry verticals of telecommunications, financial services and online retail.

Our Small Business Group revenue grew by 1% sequentially and 14% as compared to the prior quarter. We saw a higher-than-normal attrition rate during the quarter due to mainly to the effects of the economic environment affecting small businesses. However, we believe there is a sizeable opportunity in this market, and we're going to expand our investments in this business over the next six months. Specifically, we're going to expand our focus on the midmarket segment. This move will complete the overall product offering that bridges all companies from the smallest SMB companies to the world's largest enterprise companies.

The Consumer Group had a great quarter and made significant progress increasing revenue and reducing the cash burn rate. The Consumer Group's revenues increased 14% sequentially. This was significantly higher than the 6% to 8% guidance we gave in the first quarter. We continued to generate a lot of activity within the core categories of personal advice, programming, education and tutoring and will remain focused on them in the upcoming quarters. And although the consumer spending is down in the offline world, consumers still seem very interested on getting real-time advice from experts.

Our Sun Microsystems' Java.com deployment continues to do well and is now generating annualized gross revenue exceeding $150,000. This gross revenue is shared between Sun, the experts themselves, and LivePerson.

And finally, our EBITDA margin year-to-date exceeds 23%. We generated nearly $10 million in EBITDA since January 1st. This operating leverage, coupled with our focus on executing on our overall strategy of providing real-time services to businesses and consumers, enables us to drive strong performance as we enter the second half of the year.

So thank you for your time, and now I'd like to turn the call over to Tim. And also, before I do that, we're doing a little bit -- something a little different. If you go to YouTube under -- if you type in My LivePerson, you'll see there's a category now, and we're going to be posting some sort of commentary on the quarter, and we'll have that up in about an hour. But until that time, let me pass it over to Tim.

Okay. Thanks, Rob. We'll get into a little more detail on the financials and talk about our guidance for the third quarter and for the rest of the year.

As Rob mentioned, the second quarter revenue came in nicely with 3% sequential growth to $20.5 million. It was our 31st consecutive growth quarter. This is an improvement in the sequential growth rate up from 2% sequential growth that we saw in the first quarter. We again performed well on expense management and generating cash flow from operations. EBITDA per share came in above our guidance range of $0.06 to $0.08 per share at $0.09 per share. EPS was $0.02 a share, also a penny above our guidance range of between $0.00 and $0.01 per share.

If we combine and look at the first half of the year, Q1 and Q2 combined, EBITDA has nearly tripled as compared to the same period in the prior year, and this continues to provide us with financial flexibility to manage in a strengthening economic environment. We continue to be vigilant in managing cash and expenses, but we do have plans to expand resources in investment that have a clear ROI, particularly within sales and marketing efforts.

Within our B2B Enterprise Group, we signed 40 new deals in the second quarter, again a very strong showing, up from 33 in the prior quarter. We signed seven new names. That was down slightly from the prior quarter. But the first and second quarters together are right on the same rate of new adds as we saw a year ago in the first half of last year.

Pricing, in terms of annualized revenue per deal in the enterprise, was up from the first quarter to about $65,000. This is up from about $50,000 in the first quarter. New deal pricing, that is new customers, was strong at an average of about $115,000 annualized.

About 70% of the new bookings in the quarter in the enterprise came from existing clients expanding. Among these were some of our most established clients. We see this as a sign and some real hard data that larger enterprises are beginning to increase investment in provable ROIs. We see it in the actual growth results in Q2, as well as the expected growth in Q3. We also can see it in booked business in Q2 and booked business to date in Q3 that will begin to impact the financial results in the third and fourth quarter and beyond.

We're also seeing larger deals in the pipeline than we have seen for the past nine months. For LivePerson, this means deals with monthly recurring revenue of between $15,000 and $40,000 or annualized revenue between $200,000 and $400,000.

A breakdown on the Enterprise Group's deal splits for bookings follows. As I mentioned, 30% of the bookings were new customers, new adds, while 70% were expansion of existing customers. About 90% of the new bookings in the enterprise were sales and marketing driven business, as opposed to the 10% driven by a customer service focus. Average enterprise deal size overall, $65,000, as I mentioned.

Enterprise attrition improved for the second straight quarter, dropping from 2.7% in the fourth quarter to a little under 2.2% in the first quarter and now to 1.8% in the second quarter. Attrition within our small business customers is running a bit higher than historical norms at a little above 3%. And this suggests to us a slower recovery for small businesses as compared to enterprise and enterprise attrition.

The Consumer Group made nice progress this quarter, as Rob mentioned. We're very close to our goal to be cash flow breakeven having burned just about -- a little over $50,000 in the month of June as compared to twice that in March. We also posted 14% sequential growth in the quarter, the strongest growth quarter to date within the consumer operation. We expect continued growth going forward in the 3% to 4% sequential range. Third quarter, as you may recall, is typically a seasonally slower revenue quarter due to reduced education and tutoring revenue during the summer months.

Our Enterprise sales team headcount remains at 17 and will likely increase by one or two over the next two quarters as we continue to review the pipeline and expansion opportunities for the second half of the year.

The breakdown of our revenue in terms of geographic regions remains unchanged. About 25% of revenue comes from outside the US. And again, this is primarily in the United Kingdom but also territories beyond the UK.

Financial services, as a percent of the revenue base, remained the same at about 25%. However, telecommunications companies has increased from about 25% of overall revenue to about 30% today. Retail remains static at 15%, technology the same at 15% and all other made up the remaining 15% of our overall business.

And now to sort of run through a few more details on the financial results, as Rob mentioned, we grew 3% sequentially to $20.5 million. Enterprise revenue in the second quarter increased 2% sequentially. As compared to the prior year quarter, enterprise was up 11%, small business up 14% and consumer up about 3% versus a year ago.

Gross margins overall was 75% for the quarter, in line with our full-year expectations, and operating expenses were slightly lower than expected primarily in the G&A line, as we've kept headcount tightly in check and actually have not added any net headcount to date this year. The result of this cost containment was EBITDA per share of $0.09, EPS of $0.02 per share, both a penny per share better than our guidance range.

Operating cash flow was strong in the quarter. We generated $5.7 million of cash from operations. This was partially offset by capital investment of about $2.8 million, again related primarily to the continued build out of our backup hosting facilities within a co-location environment.

Total cash reserves for the company increased to $31.3 million, up from $28 million in the prior quarter. And accounts receivable declined as a percent of revenue to 38% of quarterly revenue, down from 46% in the prior quarter. And this gave us a DSO measurement improvement from 72 days in the prior to just 61 days in the second quarter. Global headcount is currently at 360, and that is down from 366 at the beginning of this year.

Now let's turn to an update of our guidance, a first look at guidance for the third quarter and an update of our guidance for the full year that was previously given.

We expect, in the third quarter, revenue of between $21.3 million and $21.8 million, EBITDA per share of $0.08 to $0.09, adjusted net income per share of $0.05 to $0.06 and GAAP EPS of between $0.01 and $0.02. Fully diluted share count assumption supporting these numbers is approximately 49 million shares on a fully diluted basis.

We're reiterating our full-year revenue guidance, and we are increasing our expected bottom-line EBITDA, adjusted net income and EPS for the full year. So we currently expect to see approximately 15% annual growth on the top line for the year, and that -- we remain in the range of $84 million to $86 million on a full-year basis. We are increasing our guidance for EBITDA per share to a range of between $0.36 and $0.38 per share. We are increasing our adjusted net income per share guidance to a range of between $0.22 and $0.24 per share. And we're increasing our guidance for GAAP EPS for the full year to a range of between $0.07 and $0.09 per share.

Other assumptions that may be useful in analyzing the business for the third quarter and the full year, a share count of about -- just under 49 million, a book tax rate of 45%. And this is a decrease from our prior guidance of 55%, and this decrease is driven by a recalculation of effective tax rate based on a higher estimated income before taxes for the full year. A cash tax rate assumption of approximately 40% is appropriate. A GAAP gross margin in the third quarter and fourth quarter going forward of about 75% and a cash gross margin of 78%, sales and marketing approximately 33% of revenue, G&A approximately 18% of revenue and R&D at approximately 16% of revenue are sort of good rough ranges to use to support the guidance for the remainder of the year.

Depreciation for the full year should total approximately $4 million, amortization intangibles for the full year approximately $2 million. And stock compensation expense for the full year should total approximately $4.6 million. Again, for the full year, we repeat our prior guidance related to capital expenditures to be in a range of between $7 million and $9 million for the full year. EBITDA over the first half, as Rob mentioned, was $9.5 million. This is more than 2.5 times the prior year's first half EBITDA, which was $3.7 million.

I think with strong bookings, a strengthening enterprise pipeline, a significantly lower consumer cash burn rate and a refocused small business group, we're well positioned for the remainder of 2009. And we are, as we mentioned, seeing a return to ROI-driven buying decisions. This marks a change from the higher levels of cost cutting scrutiny we increasingly experienced from our enterprise customers and prospects over the preceding nine months. In these decisions, we do well, as our ability to drive measurable conversion rate improvements are well documented across many of our industry verticals.

That really covers our operational highlights. And now if we could ask the operator to rejoin the call and give instructions for Q&A, we'd be happy to take any questions that you may have.

(Operator instructions.) And your first question comes from the line of Richard Baldry.

In the past, you've talked a little bit about what I guess you'd call the pay-for-performance model where you partner with another firm to provide the headcount behind the technologies for some customers. Is that one of the reasons that telco picked up in the quarter, and could you maybe give a little bit more of an update on that part of the model? Thanks.

Yes, it is a real driver behind both the telco percentage of business and pay-for-performance. I think it's continuing to do well. We're actually seeing -- among our top five customers by year-end, we anticipate one or more of those may be a pay-for-performance customer, so if that's really, I think, testament to how well that's working. We're also continuing internal investment in that group. We'll be adding at least one more and potentially two more headcount to support that expansion. So things definitely continue to go according to plan and continue to expand there.

And you've, in the past, talked about customers over certain breakpoints per year in revenue, like over $0.5 million or over $1 million. Do you have those numbers you can share again?

Yes, we're going to give a little less detail on that because it was becoming a little bit -- as those numbers got large, it became a little cumbersome. So we're going to clean it up and guide -- give a number over $1 million. So the number of customers over $1 million of annualized revenue last quarter was eight and this quarter increased to ten. So we're going to try and keep it to that metric going forward just to give you some flavor for it but keep it a little less complicated.

Thanks.

And your next question comes from the line of Richard Fetyko.

Good evenings, guys. A couple of questions with respect to your guidance for the full year, it assumes a revenue acceleration in dollar and growth terms for the third and fourth quarters. I'm just curious what level of confidence, visibility you have in that. And it sounds like the activity in your pipeline and the size of the deals has increased, but any other sort of light you could shed on your visibility and confidence in the acceleration of revenue growth in the second half of '09?

Yes, I think there's two things we can point to. One is, as you know, we can see increases that are essentially booked and scheduled out beyond the coming quarter. So some of the growth in the third quarter was actually booked and scheduled in Q4 of last year or Q1 of this year. And so some of this is just -- is not new information for us, it's just new because we're giving Q3 guidance for the first time.

And then the second piece is just normal visibility. Now we're far enough along that we can see the vast majority of activity we expect to happen in Q3. And so the pipeline looks strong. The percentage -- the sort of absolute number of deals that are in that higher price point, that $15,000 per month and up, is several deals. That's new as compared to the last nine months. So those are the kinds of things that have changed in a real way, real bookings and real scheduled deals that support the expectations for the second half.

Got you. And in terms of sort of -- you mentioned sale cycles have improved. Are they back to sort of the historical normal levels, perhaps in early '08 or late '07, or they're still elongated relative to those levels? I guess that's the second question I have, and the third one in a minute.

Okay, I'll clarify that a little bit. Sale cycles have not dramatically changed in terms of their length. What has changed is -- what we saw over the previous nine months was quite a large increase of scrutiny on just the sheer dollars. And so when companies came up for renewal, there was some downward pressure not on pricing but just on usage, so where in the past customers licensed at a certain level, they would typically renew at that level or something higher.

That was a phenomenon we saw changing in the latter half of last year where people were really looking hard at cost cutting. So that phenomenon has now seemed to slow and sort of heading towards zero and heading back the other way, and that's really what's driving the improvement. So people are most focused on expansion, more investment, and that's driving the dollars up, but the length of the sale cycles has not changed too dramatically.

Got you. Thanks. And then lastly, with respect to the midmarket sort of expansion or initiative you have to penetrate some of the midmarket accounts, what kind of accounts are we talking about? What kind of -- I thought you sort of covered the full spectrum of companies out there already with your services, so I'm curious about the deal sizes that you think you can generate in the midmarket. And also, does the product need to change, the sales approach? What kind of competition do you face in there?

Yes, we traditionally have done a good job from across the spectrum, but there's this growing customer base that sort of falls between how we execute and sell on the SMB, which is predominantly online and how we sell on the enterprise, which is traditional cold calling or outbound telemarketing, and then followed up with the high-end account executive.

So there's sort of a midmarket where we would have more of a telemarketing organization and going after companies that would spend somewhere between $30,000 and $60,000 a year, and that's sort of -- that's definitely in the middle of enterprise and above the SMB. So we're going to take sort of a hybrid approach of what we do with SMB. So it'll be an online sales team, but there's going to be a telemarketing team, and they're going to do a lot more outbound and stuff like that.

We are seeing a lot of lead flow right now. And sometimes these leads get caught between the two groups, and they're not handled properly 100%. Sometimes, they're sold into a smaller product or they're pitched such a big product that they can't afford it. So we think there's a real opportunity here right now to go after this.

I think a lot of it has to do with on the Internet right now there's a lot of -- a lot more -- there's a lot of small businesses that have graduated up to being midmarket businesses, and they're selling specific products, but they're generating leads from Google and all that, and they want a more sophisticated tool but at a good price, like $3,000 to $6,000 a month. So that's what we're looking at.

And the product, does that change in terms of --?

It'll be predominantly just -- it's taking -- it doesn't change. All of the products are off of a single code base, and so we're going to package it a little bit differently, and it'll have everything in it. So it will have chat, email, voice and the proactive capabilities. And so it'll look like the products we have. It'll look like the high-end SMB product that we sell today, which is our Timpani product.

Got you. And is the competition in this tier of the market different from the other two?

No, it's the same competition, so -- it's just we look at it as opportunity. It's just we're seeing, like I said, a lot more lead flow. The competitors will be the same, but we're going to be much more focused on it and, like I said, have a little bit of a different approach to more like an outbound telemarketing group, someone who has been in sales for, let's say, five years or so. So it's more like a midlevel sales person.

Got it. Okay. Thanks, guys.

Thanks.

And your next question comes from the line of Brad Whitt.

Hey, guys. Thanks for taking my questions. Rob, on the consumer business, nice sequential uptick this quarter. I'm just curious as to how much visibility do you have on that business quarter to quarter, and what gives you confidence that it's going to grow 3% to 4% sequentially in Q3 when I think you said there would be some negative seasonality?

Yes, we're already kind of seeing the seasonality because it's when school's out. Our tutoring area really goes down significantly. It shaves about $100,000 a month off of revenue. So we already started to see that in the numbers.

We have a lot of visibility because about 80% of revenues is existing customers. So 80% of our revenues comes from the base, and then 20% is just the new customers on top of that. So we have a pretty good handle on that business today. And it's been pretty resilient, as you can see, even in the face of slow consumer spending for many things.

Okay. And Tim, just curious about any impact from the shekel this quarter, since you gave guidance last. I haven't been tracking it.

In the second quarter, it's been slightly a favorable impact but not much -- not so significant that we talked about it. In Q1, you might remember it was a pretty strong impact.

Yes.

Q2 is immaterial to slightly positive.

Okay, okay. And also on the -- how much of the increase in the EBITDA and EPS guidance is just attributed to the lower tax rate?

Well on the EBITDA -- EBITDA is before taxes.

Oh, sure, yes. I'm sorry.

And so the majority of it is from operating changes. So on a rounding basis, the tax is not a huge impact. EBITDA basis it's partially just taking credit for Q1 and Q2 and then assuming a flow-through impact from some of the increase in revenue in the second half of the year.

Right.

I think there is some -- as always, there is some favorable that could come in, cause those numbers to be a little bit higher, but that goes both ways. So I think the middle to the high end of those ranges are pretty good.

Okay. And just so I'm clear on the guidance and your visibility, it looks like Q4 you're expecting probably the strongest sequential increase you've had in six-plus quarters. So are you saying the majority of that business has been booked already, or is it stuff that you see in the pipeline that will book between now and then and allow you to start recognizing revenue?

So it's not a majority of it that's been booked, but it's, I would say, a significant proportion. And in line with what we've seen in prior years is booked versus anticipated. So part of the implication for Q3 and Q4 is some of it is timing, so something that might go live in September might hit October and vice versa.

And that's why the full-year number we're still comfortable with and makes sense, but there could be still some flux between Q3 and Q4. But I would say our confidence is as high as it has historically been when you give those ranges.

Okay, great. Thanks for taking my questions.

Yes.

And your next question comes from the line of Nathan Schneiderman.

Hi, Rob and Tim. Thanks very much for taking my questions.

Rob, you referenced several -- both of you referenced several times in your presentation strength in bookings and some improvements in the pipeline, but I was hoping maybe you could share with -- maybe try to quantify that for us a little bit, maybe in terms of how that's improved on a percentage basis, quarter-over-quarter, year-over-year, something just to help us gauge that.

Yes, so I think one of the data points we give is the average number of deals and the average size of the deals. And so if you look just on that basis, 40 deals, average price point of about 65, that gives you an implied bookings for us of about $2.6 million.

And that's not an absolute number, but that's a good guidepost, a good metric to use. And that's up about 60% from Q1. So I think that that's probably the best indicator of the real improvement because those are actual booked deals. So some of that revenue hits the P&L in Q3, some in Q4, so it's not a direct quarter-to-quarter correlation, but that I think is the clearest signal that things are improving.

And then just on your references to a build in the pipeline, can you -- any kind of math you can do for us there to help us scope that?

Well I think the average price is certainly going up per deal, and that's supported by the fact that we're again seeing a return to the $15,000, $20,000, $30,000 RMR deals, a higher proportion of those.

And we also see, if you sort of look down the names of the companies in the pipeline, the kinds of names of companies that we think have real growth potential, so household names with big online businesses that we think can expand. So comparing that to a company that might start at $20,000 and stay at $20,000 forever, that's a real strong indicator also of longer-term growth.

Shifting gears to the enterprise business that seemed to come in at the low end of expectations, so I'm just curious what you think happened as the quarter played out in -- what happened relative to what you were expecting to happen there or why you feel that came in at the lower end?

Yes, I think it's mostly timing. I mean, you'll -- if you sort of flow through our guidance, you'll see the full year hasn't changed much. The enterprise number hasn't changed much, but you can see these shifts quarter to quarter. We'll see the same thing in Q3 and Q4. You can't always get it down to the exact month. But it came in right within the range that we gave, so I don't think there was any one particular driver I would point to that drove that.

On the consumer business, I know that you have a goal to get to a breakeven to profitable level. You came pretty close in the month of June. But I'm wondering do you feel you'll be at that level in July, or what month would you expect to actually turn that business profitable?

Yes, I think right now we're just maintaining sort of this -- I think $50,000 plus or minus is good for this business right now because, for instance, we had some -- the ability to buy some media on a cheaper rate, and so we pay out now for those clicks and those conversions, and then they come over -- about a year, we get a -- we have a lifetime value that we achieve, so. And that's why we spent a little bit ahead.

So it's probably going to be -- it'll be $50,000 plus or minus from -- till the end of the year and depending on how we want to allocate those dollars if we get better deals or if we don't we'll just save the money and tuck it in.

Okay. And then final question for you, you gave us SMB churn stats of, I believe, a little over 3% on a monthly basis. But what would that have been last quarter and last year? And thanks very much for taking my questions.

So that's higher than it has been historically. Historically, it's been sort of below the 3% range, 2.5% to 3% range. It's definitely spiked up a little bit in the past couple of quarters, and that's something that we're obviously very focused on right now.

Part of that, in some ways, can be favorable in that if you bring in more companies that test that can create lead flow, but it can increase your attrition rate, so you don't want that to continue too long. But I think we're making some changes in that group to sort of reinvigorate the growth, and I think the second half should definitely show some improvement.

Okay. Thank you.

Thanks.

(Operator instructions.) And you have a follow-up question from the line of Richard Baldry.

It looks like cash is at an all-time high, and you've been a pretty strong generator of recent quarters. So can you maybe revisit the concepts of acquisitions, maybe also a buyback. I know you've done -- lightly approached that kind of recently, so sort of an outlook, kind of intermediate term on the balance sheet? Thanks.

Yes, I think we're definitely at -- on a nice pace of adding cash to the balance sheet every quarter. I think the $20 million to $30 million range has historically been where we feel comfortable.

The repurchase is still in place. We don't have any specific plans at this moment for deals or repurchases, but it's definitely something we look at. Those are the three areas we really focus on, capital expenditures, where we're investing in things that'll drive future operating improvement. We're adding new people in the second half of the year that we think can expand our sales and marketing efforts, but also we'll continue to look at the repurchase and at M&A opportunities.

Historically, M&A has been fairly opportunistic in terms of the use of cash versus stock and combinations, but that's definitely something that gives us flexibility to have a little more cash on the balance sheet.

And theoretically, to hit your fourth quarter implied guidance, you'd still be called relatively flat with the pro forma EPS versus your first half even if the top line stepped up to a pretty incrementally higher level. So could you talk about if there are some areas that, by definition, need to delever in the second half or whether that's -- essentially asking if that's just simply conservative guidance. Thanks.

Well yes, there're some specific areas where we expect to increase our investment. We've kept headcount in check. We've actually reduced headcount a little bit, net-net overall, and continued to grow. With the stronger enterprise growth anticipated, which -- hitting the P&L is a lagging indicator meaning we have to gear up now to support increased growth in the second half, especially as we go into the holidays.

So that means two things. We expand our team and our production team that supports customers, especially enterprise customers, and so we'll continue to invest in that area. That'll start to hit in the second half. We're also looking at expanding our sales and marketing, primarily sales resources, both in the midmarket, as Rob mentioned, as well as continuing to build out the enterprise sales team, at least -- well one or two over the second half of the year.

So those are the specific investments. We're becoming enough -- we're confident enough in the growth that we're willing to continue to hire in those areas.

And then the other piece of it I think is somewhat conservative on some of these things that we don't control in terms of exchange rates and things like that.

And could you also talk a little bit about I guess the sales capacity concept with bookings up 60%, like you said, sequentially? Now how much headroom do you feel like you have there, or is there some point where -- and it's not often talked about in this market, but is there a constraint level there? And do you really feel like adding only maybe one person to the enterprise sales side is adequate as you head into second half and then ready for '010?

There's quite a bit of headroom, I think, in the existing teams. So when price points go up and deal sizes increase, you can drive a fair bit of growth with no increase in headcount. And so if you factor that in, and also look at where people are relative to quota, we probably have as much as 50% untapped capacity in the existing sales team.

Historically, if I look back over a couple, three years, we've booked as much as almost double what we booked in the second quarter, in a very top quarter in 2007, for example, with a team that was either the same or maybe one or two smaller. So I think there's plenty of room there.

Thanks, and congrats on the quarter.

Thank you.

And your next question comes from the line from, [Bill Balkin].

Great job by the way. Hey, actually two questions. The first one, what are your thoughts on the expert channel that Java's utilizing? And where do we go from here, which I find the most interesting part of the expert channel, by the way?

And then secondarily, or the second question, can you comment on the earlier reluctance and I guess now the interest out of the big-box retailers?

Yes. So for the Java one, I agree. It's -- yes, I think we've got -- and it's only been the last couple of months that we really have been able to really take that to the next level for many reasons. We -- the implementation, we kept -- we'd keep changing things and sort of optimizing it.

So I agree with you. I think it shows that businesses -- and we have obviously 8,000 B2B customers. There's a way to put experts on your Web site and have them field questions and let consumers pay for those questions. And in Java's case, they're able to decrease -- normally, it would be a cost for them to support those questions, and now they've turned it into a revenue stream.

So now -- so I think stage one is kind of over and stage two is now let's go out to our base, now that we have it sort of the model down, and that's what we're doing right now. And the sales guys have added it as part of their pitch. So that's that part.

And the second part is, yes, the big-box retailers, which have I think traditionally been slower to adopt our technology, there's a couple of them in the pipeline, and it just seems like they're -- like everyone else, they're focused on increasing conversion rates, and they need our products to do it. So like I said, in the next two quarters, I think we'll have a couple of these guys in our customer list, and it's exciting for us. It's sort of taking it to a whole other level.

Thank you.

And you have a follow-up question from the line of Richard Fetyko.

Hi, guys. Just a mundane question. Tim, what was the CapEx in the quarter?

Right about $2.8 million.

And could you tell us what you spent it on?

That is here in our hosted server facilities, primarily for our backup -- the expansion of our backup facility. So we've essentially completed our initial build out of the primary facility, and now that's just expanding with growth. But we've sort of moved on to the backup facility as we move and expand that, and then to some extent the data warehouse that we're building. Those two would capture most of that.

Got you. Thanks.

You bet.

And your next question comes from the line of [Jordon Benshay].

Hey, guys. I have a question with regards to your enterprise and your consumer. Do you see one or the other of them being your main driver or leader, or do you sort of see them for your business going forward, or do you see them [sort of] equally?

Yes, I see them as there's a strategy behind the acquisition we did at Kasamba two years ago, and we're executing on it, and more and more of the businesses we're bringing together. And ultimately, I'd like LivePerson to be known as a brand by consumers where they can -- when they see it, whether they get it on our customer's -- a B2B Web site or on our Web site, that they think, "I'm going to get the best possible advice. I'm going to get expert knowledge," through our system.

So no, it's all part of a bigger strategy of enabling consumers to get expert advice, whether it's from a B2B or an individual expert.

Okay. And do you see as -- which do you see growing more going forward, or do you see them sort of being the same?

Yes, they I think equally have a lot of room to grow. I mean, we've only got 8,000 customers out of about 200,000 or so on the B2B side.

And in the consumer business, we're not known. We're not like -- we're not Twitter. We're not a household name brand. We do a lot of direct marketing to get the consumers to our Web site, and they like the service when they get there. But when we step it up and people know about us, that's when we know we've really reached our potential. So we've got a long way to go.

And what were those numbers that you just quoted, so enterprise 800 out of 2,000, is that what you said?

We have 8,000 customers in the small business segment, and we've got 300 customers on the enterprise side, and --.

And I think you said out of a potential, was that correct?

Yes, out of the -- for the 8,000 small businesses, about 200,000 businesses that are there, and in the enterprise we've got 300 out of what we target at about 3,000.

Okay, great. Thank you.

Thank you.

And you have a follow-up question from the line of Richard Fetyko.

Richard, we're going to get your name down. It's Richard Fetyko. I can't handle Fetyko.

Thanks, Tim. I got used to it. You guys mentioned the burn in the consumer segment for the month of June and March. Can you give us the EBITDA burn for the consumer segment for the second quarter in total?

Yes, between $150,000 and $200,000.

Got you. And then just more of a bigger-picture question, with respect to the technology that you're implementing or using in the Timpani sort of practice sales product, and there's been a fair amount of advancements made in all-in media, all-in advertising space in the behavioral targeting of ads that improved the performance of those ads, clicks and (technical difficulty) whatnot. I mean, is that something, using sort of past behavioral data and purchase data from third parties, is that something you're looking to implement or perhaps you're contemplating developing a new product or a new generation of your product?

Yes, I mean, we've been looking at -- I think lately we've been looking at how do we expand the use of our engine, which in real time tracks, monitors, and then does a proactive engagement. And we are tracking about 700 million uniques a month, in which about seven million chats take place.

So we have a tremendous amount of data. The first step is the data warehouse that we're on the tail end of building and the business intelligence above that will give us a lot of insight into what do we got on the data side. And then from there, we can decide how are we going to take that data and then expand our business with it. But there's definitely something interesting in the data when you track that many people and their purchase behavior on some of the biggest Web sites in the world.

I would think so. And then the business intelligence, the data warehouse that you're sort of building, is that something that you will make available to your customers, as well, to gain [sight], and will that be part of the existing services or deals, or will that be an extra fee?

I think it's three pieces, really. So we provide reporting to our customers today, and I think we will continue to provide that at the current level. And ideally, we expect it to be a much more sophisticated level.

There's a second category that's things that we don't and can't do for our customers today that we plan on doing that we think we can generate additional revenue for.

And then the third piece is new business opportunity, new uses for the data, potentially new customers, and that's the most greenfield piece, also with real potential. So that's how it breaks down.

Okay. And timing on some of these things?

The data warehouse is gearing up now. It will head towards beta and testing with customers in the second half of this year, and then we'll roll that out from there once we're comfortable that the thing is doing what we expect it to do.

Got it. All right, thanks.

And there are no more questions at this time.

Thank you for the call. And as I mentioned at the beginning, if you go to YouTube, we'll have up there a couple of videos sort of doing a little bit -- a little commentary on the quarter, and you can just search My LivePerson, and you'll find the videos there. So I will see you in Q3.

And this concludes today's conference call. You may now disconnect.