LivePerson Inc (LPSN) 2009 Q3 法說會逐字稿

Good Afternoon. My name is Allie, and I will be your conference operator today. At this time, I would like to welcome to the LivePerson third quarter 2009 financial results conference call. (Operator Instructions). Thank you.

I would now like to turn the call over to Tim Bixby. Sir, you may begin your conference.

So 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 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. 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 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. I'm excited to report that during the third quarter of 2009 we generated revenue of $22.3 million, up 15% from a year ago and up 8% sequentially as compared to the second quarter of 2009. EBITDA per share came in at $0.12, above our guidance range of $0.08 to $0.09 per share, EPS was $0.05 and also exceeded our guidance range of $0.01 to $0.02 per share. Tim will provide more detail on that shortly.

We're really pleased with our third quarter results from each business unit, especially given the challenging macroeconomic environment. It's a testament to the underlying strength of our teams, the relevance of our products in today's online environment, and the leverage in our business model.

Within our business operations, Enterprise revenue was up 11% sequentially and grew 15% as compared to the prior year, while our Small Business Group's revenue increased 4% sequentially and 14% from the prior year.

We are pleased to see that the second half of this year is shaping up to be very strong for our B2B product lines. The macroeconomic pressure on retailers and their offline businesses seems to be forcing them to be more aggressive with their online investments, and LivePerson continues to be the direct beneficiary of this trend as we signed two of the largest retailers in the US during the quarter.

While our revenue split continues to be dominated by financial services, telecommunications, and technology companies, we have begun to see stronger pipeline activity interest in both the retail and the health care verticals. Retail is fairly established for us representing about [15]% of our Enterprise revenue, but the increased interest in our success in signing very large retailers recently is a very positive sign for the upcoming quarters. Health care is starting to become an emerging growth vertical for us with more customers and prospects looking towards LivePerson to help them manage providing information to their users and in generating business online. Both of these verticals should continue to show good results for us over the upcoming quarters.

In Q3, we added more incremental revenue than we did in the previous three quarters combined, and we expect sequential growth for Q4 to exceed 6% as we continue to execute on our strategic plan.

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 continuing the expansion in our three strongest industry verticals of telecommunications, financial services and online retail.

Our Small Business Group increased revenue by 4% sequentially and 14% as compared to the prior year. Our key metrics of new sales and attrition have returned to their historical levels, and we continue to dominate in this market, and as more and more small businesses move online, we are strongly positioned to grow.

The Consumer Group had a very strong quarter and we accomplished our goal generating cash flow during each month of the quarter. We generated approximately $150,000 in cash in the quarter from the consumer business. The Consumer Group's revenues increased 9% sequentially. This is significantly higher than the 3% to 4% guidance we gave in the second quarter.

We continue to generate a lot of activity within the core categories of personal advice, programming, education and tutoring and we will remain focused on these key categories in the upcoming quarters. Our ability to generate cash flow off a steady revenue growth is driven by our ability now to maximize our marketing buys within search, media and affiliate networks.

Our EBITDA margin year-to-date exceeds 23%, and we generated nearly $16 million in EBITDA since January 1. 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.

Thanks for your time and now I'll turn the call over to Tim. Tim?

All right. As Rob said, the third quarter was very strong. Revenue increased 8% sequentially to $22.3 million. This was up from a 3% sequential growth rate in the second quarter. EBITDA per share reached $0.12, well above our guidance range of $0.08 to $0.09. EPS was $0.05 a share, also well above our guidance range of $0.01 to $0.02 per share.

Within our Enterprise group we signed 43 Enterprise deals in the quarter. Again, a very strong showing, up from 40 in the prior quarter. In this set of new deals, we signed 13 new names, new customers, almost double the count from the prior quarter. And pricing, in terms of annualized revenue per deal or ASP, was up significantly from $65,000 in the second quarter to about $95,000 in the third quarter. New deal pricing, that is deals to brand new customers, was again also very strong in an average of $175,000 in Q3; this is up 50% as compared to the prior quarter.

We believe the cause of this is attributable to larger companies becoming more responsive to our online conversion results and the documented outcomes we can provide to them. As a result, they're willing to commit to higher investments from day one of a LivePerson deployment rather than increasing investment more gradually over time. While we don't expect this very high average deal price in the quarter to become the absolute norm going forward, this still is a very strong sign for the existing pipeline and is reflected in this quarter's performance.

From a product perspective, during the quarter, we were benchmarked by a perspective Enterprise customer for performance against a direct competitor of ours. The test result showed that our performance on page load time speeds in a real-world deployment -- and this is a critical performance metric in the hosted software world -- our performance was more than five times better than our competition, five times faster. And this was the deciding factor in the customer's selection of LivePerson to replace this competitor. Our experience in large scale deployment is what has enabled us to achieve these levels of performance on the most important metrics to our customers.

And now we'll talk a little bit about the breakdown of the bookings in the quarter, as we have for you in the past. About 25% of the bookings were to brand new customers in terms of revenue and about 75% existing customer expansions. About 75% of the bookings in the quarter were sales, proactive sales related deployments and about 25% of the bookings were customer service related deployments.

We have good news also on the attrition front. Enterprise attrition greatly improved for the third straight quarter, dropping from 2.7% in the fourth quarter to 2.2% in Q1, 1.8% in Q2, and 1.4% in Q3. Also on this metric within our small business group, we've seen a similar improvement from 3.3% monthly attrition in Q1 improving to 2.6% in the third quarter.

As Rob mentioned, the consumer group generated positive cash flow every month during the quarter. This is a major milestone since we acquired Kasamba in 2007. We achieved 8% sequential revenue growth for the consumer group, and this followed on a very strong Q2 with 14% sequential growth. The growth in both quarters was driven primarily by higher average fees per minute charged by experts.

Our Enterprise sales team headcount remains at 17 and will likely increase by two to three over the next two quarters with growth opportunities in both the US and Western Europe looking promising for us. With the much stronger growth this quarter and the pipeline we see in the fourth quarter, we are nearing sales capacity with our Enterprise sales team and this is a good thing. This is why we're expanding the team now. We plan to expand also into the mid-market with the hiring of additional inside sales capacity also during the first half of 2010. In terms of our revenue splits from outside the US, primarily in the UK, about 25% of our revenue comes form non-US territories.

And now we'll review some of the cost lines. In summary, overall revenue grew 8% to $22.3 million. Enterprise revenue grew 11% sequentially, Small Business 4% sequentially and the Consumer revenue growth rate was 8% sequentially. Our overall gross margin improved to just above 75% for the quarter, and this is in line with our expectations both for the third quarter, as well as for the full year.

Operating expenses were slightly lower than expected, primarily in the G&A line. As we have kept headcount very tightly in check across the company -- actually we have not added any net headcount to date since the beginning of the year -- though we have been active in replacing normal attrition for employees. Most of the revenue increase or our expectations fell to the operating income line and this is what allowed us to exceed our previous guidance. The result was EBITDA per share of $0.12 and GAAP EPS of $0.05 per share, both well above the guidance range.

Operating cash flow was strong in the quarter. We generated $4.3 million of cash from operations. This was partially offset by some CapEx, about $800,000 related to capital expenditures in the quarter. Our total cash balance as of the end of the third quarter is $36.5 million, and this is a $5.2 million increase from the prior quarter.

Accounts receivable increased in line with our increasing revenue and stands at $10.4 million. This is up slightly relative to revenue from the second quarter, but is in line with where we were in the first quarter of this year.

Global headcount in total is 366 and that is the same as it was at the beginning of the calendar year.

Based on the results year-to-date and our view of the pipeline and expectations for the coming quarter, we are increasing our fourth quarter and full year guidance for revenue, EBITDA, adjusted net income and for GAAP net income as follows. In the fourth quarter, we expect between $23.4 and $23.7 million, and we expect EBITDA per share of between $0.10 and $0.12. Adjusted net income per share for the quarter, we expect between $0.06 and $0.07 and GAAP earnings per share between $0.03 and $0.04. We also estimate that our fully diluted share count for the fourth quarter will be approximately 50 million.

This will imply stronger results for the full year, and as a result, we expect revenue of between $86.1 million and $86.4 million. This is up from the previous range of $84 million to $86 million. We expect now EBITDA per share of between $0.42 and $0.44 per share, and this is an increase from the $0.36 to $0.38 per share previously. We expect adjusted net income per share of $0.26 to $0.27 for the full year; this is up from $0.22 to $0.24 previously. And we expect GAAP earnings per share between $0.13 and $0.14; this is up from $0.07 to $0.09 previously. And for the full year we expect a fully diluted share count of approximately 49 million shares.

There's a couple of other assumptions that we can share with you to aid your analysis of the company. Our book tax rate will remain essentially unchanged at about 45%; however, our cash tax rate based on higher income projections for the year will decrease to about 25% for the full year, and this is a decrease from our prior estimate of 40%. GAAP gross margin we expect to continue at its current rate of about 75%, and a cash gross margin of about 78%.

Sales and marketing, we expect to run approximately 30% of revenue in Q4 and the full year, G&A approximately 16% of revenue, R&D about 14% of revenue, and in terms of non-cash adjustments we expect depreciation for the full year of $3.3 million, amortization of intangibles of approximately $2 million, and non-cash stock compensation expense of approximately $4.7 million.

Finally, on the capital expenditure front, we expect to spend between $7 million and $8 million for the full year. This is a decrease from our original expectation for the year of between $7 million and $9 million, and we should come in near the lower end of that range.

We're on track to deliver revenue at or better than the high end of our previous revenue guidance and annual growth of approximately 15% and to double EBITDA to more than $20 million, and adjusted net income to more than $12 million as compared to last year.

We've continued to invest in our business and have delivered both revenue growth and significant margin gains without dramatic cost cutting, as many other companies have been forced to do over the past 18 months. As compared to a peer set of public hosted software companies, we are growing as fast as most, and we are more profitable than most, yet we have valuation that is 50% less on a multiple of revenue or a multiple of profit basis. And that's why we're very pleased that you joined us today to share some of the terrific results we've achieved year-to-date and hear our confident and optimistic view of the coming quarters.

That covers our operational highlights and we'd now be happy to take any questions you may have. Operator, if you could rejoin us.

(Operator Instructions). Your first question comes from the line of Nathan Schneiderman.

Hi Rob and Tim. Thanks so very much for taking my questions. Congratulations, nice job on the quarter. Great results. A handful of questions for you. The Consumer business finally cash flow positive every single quarter, which is excellent news. Do you believe that that business will remain cash flow positive on a monthly basis going forward? And then can you share with us your medium term and longer term views on operating margin for this business? Where do you think it logically goes to?

Yes, we want to keep it -- I think we turned a big corner in Q3 every month generating cash, and we want to maintain that going forward. So, yes, we'll continue on generating cash and growing that business. And the operating margins are pretty much equal to the operating margins in the core business so in the 70s percent gross margins. So we're going to maintain that and we're not adding a tremendous amount of headcount right now to the business, so we'll just sort of continue growing it out. And we're doing, I think, really well on the marketing side right now and getting real traction in the market.

Your gross margin it sounds like will be similar to your main business, but what do you think on the operating margin side?

(multiple speakers)

We'll fund it near; keep it cash flow positive. It's single-digit operating margins, because we want to keep taking the money and putting it back into the business and growing the business where we see opportunity. So I would just say single digits for now.

Okay. And then overall on operating margin you had, obviously, excellent results at close to 24% pro forma. I think that may have been the best result I have ever seen, at least since I've covered the firm. But what are your thoughts on operating margin from here as you continue to see the revenue increase sequentially? Do you continue to get some sequential improvements in operating margin or will investments take that down somewhat?

Well, we've begun to I think using headcount as a good proxy as we've begun to expand our investment in people, and that's obviously where you are making long-term commitments as opposed to sort of shorter term sales and marketing investments. So we've begun that process and we see headcount expanding going forward in areas where there is ROI, where there is people building products. So you're going to see it in sales and marketing and product and R&D. So we'll still expect to get leverage out of the cost of goods line on a limited basis and a little bit of leverage on the G&A line.

So I think in terms of how all that will net out in the margins, I would expect slightly less improvement over the next couple of quarters than we've seen in the past couple of quarters, because we've seen some nice surges and that's the result of revenue growth and fairly flat spending. But that being said, in our business if you get strong continued revenue growth, it does show up in the margins.

Okay, great. And final question for you, in recent quarters you've given us the number of customers contributing at least $1 million annually, and I believe it was 10 last quarter. I was curious if you could give us an update there. Thanks very much.

Robert LoCascio. Yes, there's 11 so we've added one more over the $1 million mark.

Okay, thank you.

Your next question comes from the line of Richard Fetyko.

Good evening guys. Just curious with respect to the strong bookings you've seen in the third quarter. If any of that is sort of catch-up sales that were pushed out in the first half of '09. Do you get the sense that that's potentially the case or not? And then, Tim, what's the impact of weaker dollar. A fair amount of your expenses are in shekels so curious if you could review that for us as well.

So on the first one, I think we are -- we looked at bookings as an early indicator of future quarters, and if you sort of look at actual bookings quarter one, two three and then expected for Q4 you see a fairly steady improvement. And that suggests to us that it's a relatively small amount of catch-up in the numbers. So it's a little early to see into Q1 at this point, and we're not giving guidance for next year until the next call. But so far all the indications are we're back to a more normalized bookings rate and that it's not -- a dramatic amount of this is not the catch-up, I guess as you might call it.

On the exchange rates, we're very close right now, a little bit better than our planned exchange rate. So in the first two quarters of this year we were fairly favorable, meaning the exchange rate moved in our favor and gave us a little bit of a tailwind. In the third quarter, it was a very limited effect, so no negative impact but not a dramatic positive impact. And that's what we see so far in the fourth quarter as well.

Great. And one other one with respect to source of new revenue. I understand that you're seeing existing customers sign up for new deals, but are you seeing actually existing customers also add additional seats because there was some attrition earlier this year and late last year with respect to sort of seat attrition. Are you seeing them -- we're seeing the attrition decline. Are you seeing your customers actually add seats to the deployments that they have existing in place?

Yes, definitely. To hit these levels of sequential growth rates, we have to see growth from existing customers, and that's why a significant proportion comes from those existing customers. That's exactly what they're doing. They're expanding seats in existing deployments or they're adding new deployments either in new product lines or new territories. Sometimes it's territories domestically, sometimes it's across the globe. But in both cases it's quite a bit of growth from existing customers.

Another thing we've seen more frequently or saw more frequently in the third quarter is a larger proportion of our growth came from pay-for-performance performing at a higher level. So a little less than half of the growth in the quarter came from pay-for-performance deals, where as we expect if we perform better faster, revenue goes up better faster and that's really the goal of being in the pay-for-performance market. And then we also saw in terms of overage or activity-based fees, those were also quite high in the quarter as well. And the net of all those is what pushed us above our expected guidance range.

Got it. All right, thanks.

Your next question is from the line of Brad Whitt.

Hey, guys. Thanks for taking my questions. Looking at the two big retail deals, Rob, you said you had in the quarter. I was just curious whether you started recognizing revenue in the third quarter or whether that should come in future quarters.

That comes in future quarters.

Okay. And also I was curious about the health care vertical if you can give us any more color how health care customers might use your product.

So, health care is an interesting one. It's a combination of both information and actual transactions. So if you had an apple, it's primarily I'm asking about a product and I'm buying a product. With health care as often as not, it'll be just I want to contact these entities and get information about my coverage, my potential coverage, health care options, those kinds of things.

So it's an interesting combination of both sort of our sales and service learnings, it's just these companies are facing much more online activity. People are much more comfortable and in many cases more comfortable being anonymous and getting information about medical issues and very personal issues anonymously rather than on the phone. So there's in some cases a chat preference.

These companies are getting more comfortable with the security. They know that Citibank and Bank of America and Schwab and companies like that look to us and are confident in our security, and so these companies that have to satisfy HIPAA and other pretty extreme regulations are getting much more comfortable that a hosted solution works well. And that's why we're seeing some new names in this area.

Okay. Just so I'm clear on -- I mean this was a rather large sequential increase in revenue for you guys this quarter. Is there some -- you mentioned revenue share being half -- I don't know if that was half the increase or half the upside. Maybe you can give some clarification on that. But is there some one-time items in there that we should not expect to repeat or is this potentially something that could repeat going forward?

No, there's no real one-time events in there. Things, again, because of our model some of this began to click in in Q2 but you just don't see it in the recognized revenue until Q3, and so that's why I think we captured much of the upside but not 100% of it in our guidance.

Our pipeline and activity and activity to date in the fourth quarter all are very strong indicators that it was not a one-off. Our guidance and expectations, as always, takes into account possible pluses and possible minuses in Q4, and so that's why our guidance is a little less than the actual in Q3. But in terms of what we saw at this point of last quarter, it's very much in line with what we're seeing quarter-to-date this quarter.

Okay, great. Thanks for taking my questions.

Thanks, Brad.

Your next question is from the line of Mike Latimore.

Good evening, very nice quarter. On the consumer business, Tim, did you say that the main reason it grew was the experts are charging higher fees. Was that the main reason?

Well, there's three pieces to the revenue line that sort of drive it. There's the actual amount of activity, so whether it's minutes or sessions, that's volume. There's the price that the expert charges to the consumer, and that's set and determined by the expert, although there are things we can do to influence that and support that. And then the third is the proportion of the fee that we keep, and we obviously set that price, that proportion of commission that we keep, and that is -- we raised that in February and have not raised it materially since then. So all three of those are contributing so volume, price and then the fee structure that we charge. The primary driver in the third quarter has been the price that the experts have charged. So that was a stronger driver than the other two in the third quarter.

Is that because a specific vertical was more pronounced, like I think you thought that it would slow this quarter because less tutoring, so was there another vertical that kind of kicked in here?

It's all in the personal category, so spirituality and the health and wellness categories and the Java programming category. So we're just driving more traffic. Sometimes we're driving more traffic, so there's a lot more demand and demand, it could push the experts to move up pricing against that demand, because their time is basically how much time they want to put into it and if they get a lot of people wanting to chat with them they'll up their pricing accordingly. So a little bit of that.

Okay, thanks. And then what do you expect the headcount to be by year end, end of the fourth quarter?

It will be -- we don't have a hard metric forecast on this, but based on our plans right now, I can see adding in the range of 15 and probably that -- you always have an aggressive goal, and it takes a little longer to hire people. So that's probably the top end of the range.

Right, okay. And I think historically your Enterprise and Small Business segments grew at about the same rates. Do see that occurring again, or are some of these Enterprise deals just getting so big that Enterprise should sort of always grow faster than small business going forward.

I think they will definitely have -- it'll be certainly possible that they both grow at the same rate and within the same ranges, not exactly every quarter together, but in line with each other. What we're seeing now is a little bit bigger gap between the two than we've seen in the past and that, I believe, is because the small business attrition rates are recovering a little more slowly than the Enterprise attrition rates. I think there is just a lot of pressure still on small businesses to do anything. To get loans, to find money, to hire people, all of those things, and it's just going to take a little bit longer, I think, for those to recover to their historical rates.

But the market size on the small businesses you're talking about -- let's say it can be 200,000, 300,000 small businesses that are potential targets for us where in the Enterprise it's about 3,000 customers. And I really believe the small business has a fairly significant opportunity to grow greater than it is today, and we're going to actually fund some more headcount in there. We're going to be focusing on what we call mid-market segment. So we're going to sort of split out small business from mid-market and break the team so they have more focus, because we think there's a lot of deal flow in this area. So I think next year we should see a lot more trajectory in this part of our business.

Okay, great. And then just last question, in terms of the number of customers that want to buy click-to-chat and click-to-call at the same time. Have you seen that sort of percent or percent of pipeline change much in the last year?

It hasn't moved significantly. Usually a customer has a preference of one versus the other, but we always work to provide both. Many times it's used click-to-call and click-to-chat as an escalation path, chat being the initial communication methodology then escalating into voice if it's a higher value customer. But not a big shift in what we've seen over the past several quarters.

And I think ultimately, although we have click-to-call in our product lines and email knowledge base, we always lead with chat just, because from a cost perspective the business gets leverage on the operator so they can chat with one or three people simultaneously, versus when it goes to a call now you're not going to get any real scale. So although click-to-call I think was more fashionable I feel like the last two years, but I think when the buyers come down to it, they have 800 numbers. And so they can utilize those 800 numbers but it doesn't get them real efficiency like chat does.

Got it, okay. Thank you.

Your next question is from Jon Hickman.

Hi, can you hear me?

Hi, Jon.

Hi. Could you talk -- it looks like the consumer side kind of really spiked this quarter. Can you talk about the competitive environment in that sector? Other expert sites or where other people go to get -- I guess you could go website-by-website, but do you run into other competitors here?

It's more there's every major vertical, so from tutoring to spirituality to psychology, there's a niche competitor who has just an offering in that segment and we'll compete with them directly in that segment. A lot of the competitors do click-to-call, so they're using voice as the method of delivery versus chat.

So I think in the marketplace, we've got the largest community of experts that are charging for their advice and who are doing with chat, and we do offer some voice within the platform, and there's an email component where they can trade emails back and forth and the expert can charge a one-time fee for answering emails. So I think it's the platform's more comprehensive, and then we're not niche, we're broader in how we go to market and the different expert segments that we're in.

Okay. And then just to -- are you seeing anything new on, not the Consumer side, but the Enterprise side. Is there any new competition or anything that's different this quarter than any other time?

I think we continue to just execute and I think we, for all intents and purposes, I think we own a lot of the chat market, and whether it's small business or it's these very large -- especially the large implementations. I think it's very hard for companies that have included chat as a check-the-box to compete where we made chat a strategic implementation. We made it strategic to our marketing department, and this is something we set out to do four years ago, and I think we've executed really well on making chat going from being a very tactical use for support to being a strategic use for our marketing department to drive sales. And I think we're just clearly showing that it's a real product, and in itself, it's a real business, and that allows us to continue to gain momentum over the guys who just have it in there as a feature.

Okay, thanks.

Your next question is from Craig Nankervis.

Yes, thank you. Good afternoon and congratulations on a nice quarter. A handful of questions. On the deal metrics, we had a spike here and you talked about them maybe not necessarily being sustainable. Would you think that some of these deal metrics will fall sequentially here in the current quarter? Maybe we start there.

So a couple of notes just on the kinds of metrics that we report on. So average deal size overall for the Enterprise has tracked historically in the mid-$60,000s. It went as low as $50,000 in the first quarter, which is a tough quarter, and then in Q3 it was $95,000, so a pretty dramatic uptick. And if you go back even further, you'll see deal sizes again in a sort of $60,000 to $70,000 range.

So I think what we're seeing is almost without a question a return to those historically -- the steady historical rates. The $95,000 I think we've only exceeded once in three years and so that's why it's not -- we're not quite prepared to say that's the new standard going forward, but we're certainly well above where we've been for several quarters and almost back to historical norms.

Okay. The split between your Enterprise bookings I think for a while has significantly favored the sales side, but we had a little bit more proportion this time on the customer service, the 75%/25%. Is there any commentary about that? Do you think this is maybe how your pipeline is starting to play out and you might see more of that type of split? Or any comment on that.

I think it's, again, it's in a reasonable historical range. I don't think it indicates any long-term shift in the business. I think it's more in contrast always on Q4 and Q1, which I think were just really dramatically unique quarters from just about every measure. And that really drove things much more in proportion towards the sales deals, which is a very high ROI, and in Q4 people are very focused on maximizing revenue on their website. Customer service is more of a long-term focused decision for these companies. So I would expect the splits to sort of stay in that range where whether it's 25% customer service, 20%, 30%, that range I think is sort of the normal you should expect.

Okay. And on your investment and the headcount adds and you're really not have added -- made net adds year-to-date, at least through Q3. Can you just talk about that a little bit in terms of not adding in Q3 and now you're going to add in Q4? Was there a particular reason that you've held off in Q3?

Well, there's -- no, nothing has shifted. There's a lag time between when you decide to make hires and you start to make hires, obviously, so these decisions were made probably beginning in late Q2. To begin to make hires, letting people feel more free to invest money. People are seeing the opportunity; the folks who were closest to the revenue opportunities are really the folks who drive this. They bring in recommendations, and they say I can use people here, and that's how these things change.

That's a very different thing than we heard six months ago from the same folks. So it's not a black and white decision you make, but it's been gradually moving more toward the bias of increasing over the past three or four months.

Outside of sales, it's slightly different because it's not a direct ROI, but we have product opportunities where most of the skills we have in-house but there are places we see opportunities where we have to bring in new skills. So that's where we'll be investing in incremental headcount within our product and R&D groups.

Okay, I appreciate that. I may have missed it, but did you offer color on your deal sizes sort of that you're looking at in your pipeline versus I think there was particular commentary 90 days ago about how the deal sizes had sprung back and increased. Is there any new color sequentially on that front or can you confirm that they continue to be up there?

I think they continue to be strong. So I think we spoke about it a quarter ago, because it was a pretty dramatic shift after two or three quarters of a tougher pipeline environment, and that's why we really wanted to call it out last quarter and say look this is real. We can see it, and we want to make sure people understand that. I don't think we're returning back to anything that is less attractive. We're seeing plenty of opportunity there now.

Okay. And then lastly is there any color on your data warehouse beta. Is there any commentary around that? Are you disclosing at all when you think you might have that commercially available? Just anything on that subject.

Yes, where we started about 24 months ago building a data warehouse to take all the data that we capture and sort of normalize it, so we can use it for other product lines. So we're at sort of the tail end on the technical development of that, so next year we should see some products and features built around the data warehouse. But we haven't given anything on it yet.

And is it in beta now? Are you willing to say that or what?

Yes, the technical side is, like I said, it's on sort of the -- we don't determine beta or alpha, because it's just technology and we haven't rolled this to the customers as products yet. So it's kind of I would say pre-alpha, sort of between alpha and beta.

Thank you very much.

Your next question is from Richard Fetyko.

Just a follow-up question on the product side. Just curious if the existing platform that you have, are there any sort of enhancements that you're working on, on the proactive sales particularly, in terms of the technology? Just kind of status quo there.

Yes, I think there's a focus right now on the R&D side on sort of two things. One is the data and the assets of the data that we capture right now and everything around the data warehouse is something that we're, I think, interested in and that's why we made a fairly large investment over the last two years.

So we, for those of you who may or may not know, we capture a lot of consumer behavior data. So when you go to one of our customer websites, we do a lot of tracking around what you're purchasing, where you came from, where you're going, how much you spent, and that data has a lot of value to it. And so we're going to start to, in the future, look at how to take that data and make a real asset out of it. And we capture right now, we're monitoring about 800 million visitors a month and we generate about 8 million transcripts of chat a month, which is pretty extraordinary in the amount of data we're capturing. For like one telco alone, we capture about 25 gigs a day in data. So there's an asset there.

The other thing we're doing is we're working on really our technology and opening up our technology so that our customers or partners can use these assets like data and the transcripts and do a lot more with them. So we haven't sort of outlined a product strategy externally yet, and we're working on it internally, but I think in 2010, you guys should look for things around data, around content, more around the analytics areas. And so that's where we'll have sort of a push, because our customers find a lot of value in our products in that area, coupled with the chat obviously.

Thanks. And then actually a follow-up for Tim. The low end of the CapEx guidance of $7 million would imply I think around $3 million in the fourth quarter. Is that right? And if so, what's that related to?

Yes, that continues to be related to co-location, primarily DR at this point. Most of the large investments are done in terms of the primary. We're now starting to see increased hardware purchases just for normal growth. So where we had a few quarters of a couple percentage points of sequential growth, we didn't have to expand capacity at all. But if you get back into a -- here we see in the Enterprise group grow 11% a quarter, if you replicate that a couple quarters in row, then you're buying a little bit of gear to support that growth. So most of it will go towards that in Q4.

Okay, thanks.

(Operator Instructions). Your next question is from the line of Richard Schneiderman.

I think that was supposed to be Nate Schneiderman. Hey, just a real quick one. Last quarter you gave us the sequential growth in bookings, the percentage growth, and I was wondering if you could share that with us this quarter.

Sequential growth in bookings, bear with me a second. I think that the last quarter we gave about 50% growth. This quarter the comparable number is about 55%, and that corresponds to the metrics we gave on average deal size and then 43 new deals.

Okay, 55% sequentially. Thanks very much.

You bet.

Thanks, Nate.

I am showing no further questions at this time.

Thanks for the call. We'll pop up a video again on YouTube in a little bit under My LivePerson so we did a little commentary last time and we'll do that again. So look for that and look forward to seeing you guys in the new year. Thank you.

This does conclude today's conference call. You may now disconnect.