LivePerson Inc (LPSN) 2010 Q1 法說會逐字稿

Hello, my name is Dawn and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson First Quarter 2010 Financial Results Conference Call. (Operator Instructions.) I will now turn the call over to Tim Bixby. Please go ahead.

Thank you 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 fact 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 Live Person's Chief Executive Officer, Robert LoCascio.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. As of April 7, we reached our 10th anniversary as a publicly traded company on NASDAQ. Historical reference, and if you're not--have not been following our stock for the entire 10 years, our lowest closing price was $0.11 a share back in 2001. We recently hit our original IPO price of $8. The difference is that when we went public at $8 in 2000 we had approximately $6 million in annual revenue. In this--in the first quarter of this year we generated $6 million alone. So I have to say, like, what a difference 10 years makes. Right? So we've had our shares of ups and downs and ups, and I'd like to thank everyone who's been part of our journey. And now I'd like to for the 40th time speak about the quarter.

We had a great first quarter, with year over year revenue increasing 27% from Q1 2009 to 25.3 million. All segments of the business including our new midmarket team contributed to top line growth again this quarter. And we believe we will continue to see contributions from all business segments in the coming quarter. EBITDA per share for the quarter was $0.12 in line with our guidance for the quarter of $0.11 to $0.12 per share and EPS for Q1 was $0.04, slightly above our guidance of $0.02 to $0.03. EBITDA margin for the quarter was 24% and we generated more than $6 million in EBITDA for the quarter and had a cash balance as of the end of the first quarter of $51 million, up from $46 million in Q4. Tim will provide more detail on this shortly.

Our enterprise group had solid performance again this quarter and grew 26% as compared to the same quarter of the prior year. Our pay for performance business model continued to be a consistent contributor for top line growth and contributed over 17% of the enterprise revenue. Under this model, we are able to deliver a very strong ROI for our customers, which is why pay for performance continues to be very successful.

The enterprise customer mix continues to remain about the telecommunications, retail, financial services, technology, healthcare, and travel providers. We did start to see more deals coming from Europe this quarter, particularly in the financial services and telecommunications sectors, indicating that our investments in this region are continuing to bear fruit.

The enterprise team is now focused on a targeted list of very large named accounts and we've moved the lower end of the pipeline down to the new midmarket group. We therefore expect to see a smaller number of new names for this group, but larger ASPs. During the quarter, we signed 10 new enterprise customers and the pipeline looks strong heading into Q2. Our small business group did exceptionally well this quarter and increased revenue by 5% sequentially quarter over quarter. This is due to continued investments in sales and support as well as initiatives we've undertaken to improve customer utilization of our products. These initiatives have helped to reduce the attrition rate significantly year over year. We believe we will continue to see steady growth in this market segment as the economic environment improves and as more individuals and small businesses turn to the web as a way to create new income streams.

Our new midmarket team started to ramp up during the quarter and focused on growing existing accounts as well as uncovering new opportunities in the retail financial services, technology, education, and telecommunication market sectors. The team conducted over 20 transactions in the first quarter signing four new customers and expanding business within 16 accounts. The pipeline for Q2 looks strong and consists of a balance between both new and existing accounts, so we are confident we made the right decision to invest in this market segment.

The consumer group continued to grow generating revenue of 33.5 million in the first quarter. This represents a 37% revenue increase as compared to the prior year. Now that business is profitable and stable within the core category of personal health, we are exploring opportunities to grow some other categories, including tutoring and tech support. We are actively evaluating and analyzing the potential of several categories to determine what strategies and programs we can implement in order to capitalize on the market potential.

Now, I'd like to spend a little time talking about new product initiatives as we are about the transform the way we bring new applications to market. With our upcoming software release, we are transitioning to an open platform architecture, which will give us far greater flexibility to evolve and transform our core chat, intelligence, and data offering. For the first time, third parties will have the ability to develop new applications for our customers by leveraging our platform. This initiative will speed time to market of new applications and features in order to meet the growing demand of our diverse customer base. It will also give us the ability to go after some new large market opportunities around data and context.

We are currently working with a number of partners to develop applications on the platform and customers have expressed great enthusiasm for the initial apps. We believe that this indicates pent-up demand for the types of applications we'll be rolling out to the marketplace. We will continue to actively engage with customers and recruit development partners to build applications on our platform with the goal of extending the reach and capabilities of our core offering. Over time, we anticipate a robust, driving, LivePerson eco system where we, our customers, and third party developers can share applications and development ideas that one another--that live within the LivePerson community.

Some of the initial applications that are planned include those for mobile interaction, social networking, enhanced visitor engagement and real time intelligence as well as business applications integration. These apps will be available over time in the LivePerson application marketplace, which we expect to open in the coming weeks. The culmination of a year's worth of work, our upcoming release represents a milestone for the company and I'm very excited about the possibility this transformation will create for LivePerson, as well as our customers, partners, and the application development community.

As with our new technology initiatives, over the past year, we've started to think about how we could better manage the human side of our business to support future growth. Because we are a dynamic company spanning many territories, cultures, and languages, it's critical for us to ensure we have a common operating system with which our people execute and deliver solutions to the market. Maintaining consistency as we grow will enable us to realize the full potential of our brand value and capitalize on growth opportunities for the business. As such, we have formalized a set of core values or guiding principles that will help us drive corporate culture and business strategy moving forward. We have two simple, yet equally important core values that we believe are at the heart of what it means to be a LivePerson. The first one is be an owner, and the second one is help others. There's this delicate balance between these two values and our goal is to create a culture that fosters the creative and entrepreneurial experience to drive innovation as being an owner while creating a culture of people helping one another to succeed. Help is also a very special core value to us because it is at the heart of what our technology enables with our customers.

We believe that if everyone in the company can operate under a common set of values then we will have the foundation laid for our organization to realize its full potential and growth. And we want to just talk about this a little bit, because there'll be a lot of things externally to the company about our core values and we want to share this with our shareholders so that you have some context as to what being an owner and helping other means.

In closing, we started the year off with a solid performance. As we look ahead to Q2, our pipeline looks strong particularly within the enterprise and new midmarket segments. We have opened up our platforms so that we can bring new innovations to market quicker. And last but not least, we are refining the way we act and think as an organization, so that we can reach our full potential. We believe we will continue to see positive results from the changes we are implementing within our organization as well as at the product level and that these changes will deliver more value to our customers as well as sustain and grow our business over time.

So thanks for your time, and now I'd like to turn the call over to Tim. Tim?

Thanks, Rob. I'll give a little more detail on the financials and operations and then we'll take questions at the end of the call. First quarter revenue increased 2% sequentially to 25.3 million, which is a 27% year over year growth rate. EBITDA per share for the first quarter was $0.12 compared to $0.11 per share in the first quarter a year ago. This is right in line with our guidance range of $0.11 to $0.12 as Rob mentioned, while first quarter EPS was $0.04, which exceeded our guidance range $0.02 to $0.03.

Revenue from our business operations for the first quarter was nearly $22 million, which is a 26% increase as compared to a year ago, a 2% sequential increase off of a pretty stellar fourth quarter. Revenue from consumer operations for the first quarter was $3.5 million, a 37% annual increase. Top line growth in all the business operations for the quarter was again driven by a combination of new customers and existing customers expansion or renewals. We signed 10 new enterprise clients in the first quarter of 2010, which is a good strong start to the year, and as Rob mentioned, our PFP, our pay for performance business, continued to be a consistent contributor to enterprise revenue getting about 17% of total enterprise revenue.

The program has been very successful as customers are continuing to see impressive ROI numbers. One of our leading telecommunications customers under this program has seen a 400% ROI, which they've spoken about at recent industry events, while Shop NBC has realized a nearly 300% ROI on their deployment. Both customers are very pleased with the partnership with LivePerson and both have spoken, as I mentioned, at recent events supporting their internal ROI.

In terms of our overall view breakdown within the enterprise, we saw deal sizes consistent with the recent improvement we've seen over the last couple of quarters. Our average deal size for all deals was $72,000 annualized revenue. For new customers, $105,000. For existing customer expansions, about $65,000. Proactive sales deals averaged about $105,000 in the quarter, while customer service deals averaged about $45,000.

In terms of the breakdown between business from new added customers as compared to existing customer expansion, that split was about 25% driven by new customers and 75% driven by existing customer expansion. Last quarter, that was about 35% new and so that was a good showing for existing customers expanding.

In terms of the breakdown between primarily sales focused deployment as opposed to customer service deployment, about two-thirds of the new bookings in the quarter was driven by sales--proactive sales deployment, while a third was driven primarily by customer service. The split last quarter was about 80% sales. This really indicates that our--the customer service portion of our business continues to do well and actually showed an up tick in the fourth quarter.

In terms of attrition measurement, which we look at at both the enterprise, larger companies, and small businesses, the enterprise was in line with the average for all of 2009 at about 1.6% monthly attrition rate. And our small business attrition rate continued to improve ending the first quarter at 2.4% and this is about a 17% improvement as compared to the prior year's average rate of about 2.9%. As Rob mentioned, our SMB business had a strong start for the year and delivered 5% sequential growth as compared to the prior quarter. The split of revenue coming from outside the U.S. is right around 24% of our revenue and that's in line with the last couple of quarters and about half of that is driven by the United Kingdom and then the rest of that rest of world territories.

In terms of how our revenue activity in the enterprise broke down across industry verticals, financial services increased slightly to about 23% of overall revenue. The telecommunications company was consistent with prior quarters at about 30%, as were retail and technology, both at about 15% of our revenue.

In terms of the sheer size of customers, we continue to succeed with increasing the size of our largest customers. In fact, we now have 11 customers, over $1 million in annualized revenue. That's up from 10 in the prior quarter. And we have 26 customers that are now above $500,000 per year in annualized revenue, and that's up two from 24 last quarter, so we continue to see good progress on those metrics.

In terms of our consumer group operations, we continue to generate positive cash flow for the quarter. Revenue for the first quarter was up year-on-year about 37%, with slight growth versus the prior quarter as well. And we continue to see higher average fees per minute charged by experts driving this increase.

In terms of gross margin for the overall business, we saw gross margin decrease about 1.7% from the prior quarter. It came in right around 74%. Our cost of goods increased in line with our plan, which entails a certain level of new investment as we detailed last quarter, and particularly in the gross margin line we've added spending to support expanded hosting capacity in a new co-located facility to support our strong pipeline of potential new business, as well as strong year to date booking results in the U.K. and into the European territories. We are also expanding U.S. hosting capacity to support our increasing number of large visitor volume enterprise customers.

The cost of the related capacity increase has a greater impact on gross margin in the first quarter due to seasonally slower sequential revenue growth that we've seen in past years. We actually saw a similar decline in gross margin two years ago as we transitioned our U.S. hosting infrastructure to a wholly owned network. This transition was followed by steadily improving gross margins each quarter, as we expanded within that more efficient network. We have now begun that same process this year within our U.K. hosting facility and that facility supports essentially all of our business outside of the U.S.

The rest of the operating expenses in the first quarter were right in line with our plan and our guidance. We have increased investment primarily related to more aggressive hiring in all areas of the company, but with particular focus on sales, R&D, analytics, and hosting infrastructure. Total headcount for the company increased from 390 the beginning of the year to 438 at the end of the first quarter. That's an addition of about 48 heads. And the breakdown of that increase is about 50% within our technology area - R&D resources, about 40% sales and marketing, and the remainder, about 10% in areas of support.

Our enterprise sales team headcount is unchanged from the prior quarter, but we continue to recruit fairly aggressively for open positions in this group. And as Rob mentioned, our new midmarket sales group ramped up nicely and got up to speed in the first quarter. We've hired three sales reps into this group to date and the head of the group is selling as well. They're trying to complete and they've begun generating growth for this market segment.

And as we mentioned on the previous call, this group will continue to focus on deals that range from about $30,000 to about $60,000 per year and this is primarily a telemarketing focused sales team. We entered the quarter with a cash balance of just over $50 million as compared to about $46 million at the end of 2009. Our accounts receivable balance was up sequentially to 12.6 million. Our days sales outstanding, DSOs is about 45 days, up a bit from Q4, but fairly consistent with a year ago where the first quarter shows a slightly higher number on that metric.

As we head into Q2, the aggressive investment plan that began in Q4 of 2009 continues - hiring in the areas of R&D, sales and marketing, product marketing, professional services. We'll continue in line with our plan as well as the expansion of the hosting facility that I mentioned. These investments will support growth in existing and new markets, as well as deliver new value added products and services to our customers that leverage our new open platform technology.

We're also increasing our full year revenue guidance based on the positive results in the first quarter and the strength of the existing pipeline that will support growth in the second and third quarters and throughout the remainder of the year. Given the pace of our continued investment and the increase in our--in the share count that we saw in the first quarter, we're reiterating our bottom line guidance for the full year in line with the expectations that we gave last quarter. And now, I'll give a little more detail on the specific guidance expectations for the second quarter, which we are providing for the first time, as well as an update on the full year.

For the second quarter, and this detail is also available in the press release that we put out earlier today, second quarter we expect revenue of between $26.1 and $26.5 million; EBITDA per share of between $0.10 and $0.11; adjusted net income per share of between $0.06 and $0.07; and GAAP EPS of $0.02 to $0.03. We expect a slightly higher fully delivered share count in line with what we saw in Q1, which is primarily driven by an increase in our share price, and that we estimate to be about 52.5 million for the second quarter.

For the full year 2010, we are increasing our revenue expectations to a range of $107 to $109 million and the remaining bottom line expectations remain the same as provided previously - EBITDA between $0.50 and $0.52 per share; adjusted net income from $0.30 to $0.32; and GAAP EPS of $0.16 to $0.18. And I would note that these represent higher expectations, but on a per share in line with our prior guidance. So the absolute number would be higher in line with the increased revenue.

Fully diluted share count for the full year we estimate to be about 53 million. Of course, that is driven to some extent by the share price over the remainder of the year. Other assumptions that may be useful in analyzing the business for the second quarter and the remainder of the year are effective tax rate - we continue to expect approximately 40%; and a cash tax rate of slightly less - about 35%. And for those of your modeling cash flow for the year, that cash tax rate models out to about a $5 million expected cash expense for the year. GAAP gross margin we expect for the full year about 73%, and a cash gross margin backing up the non-cash cost would be about 77%. Our sales and marketing expense up somewhat as a percent of revenue in line with our investment plan at approximately 32% of revenue; G&A approximately 16% of revenue; and our research and development costs at about 15% of revenue.

Depreciation for the full year we continue to expect approximately $6 million; amortization of intangibles, approximately $1.5 million; and non-cash stock comp expense, approximately $6 million for the full year. And in closing, I'd like to join Rob and thank you for joining us on the first earnings calls of 2010. We're really pleased to share these results with you. We look forward to providing updates on our open platform initiative and the new applications it will enable for our customers on our next quarterly call.

As Rob mentioned, our application marketplace and developer community will open soon. Please look for our announcements over the coming weeks as the new applications become available. That covers the operational and revenue highlights for the first quarter of 2010. And now, if we could ask the operator to rejoin the call and give instructions, we'd be happy to take any questions that you may have.

(Operator Instructions.) Your first question comes from the line of Richard Fetyko with Merriman and Company.

Good evening, guys.

Hey, Rich.

A couple of questions. Could you give us the total number of enterprise deals so we can get to the bookings on a consistent basis?

Yes, the total number for the quarter was 55 and that should compare to I think it was 56 for the prior quarter, so right in line with Q4. That's--other than the last Q4, that's the strongest number we've seen of any quarter in the past two or three years.

Nice. And with respect to the second quarter, the EBITDA guidance you've given, it seems like you're guiding for sequentially a slight decline in EBITDA or am I doing the math incorrectly? And if you are guiding for a slight decline in EBITDA, just curious why.

Yes, it's--there's two things happening there. In absolute terms it is a slight decline. It's a little exacerbated by a higher share count than previously expected. This is in line both with our plan and what we've seen in prior years. Our second quarter EBITDA tends to be the narrowest of the year and that's driven by a couple of things that are consistent year to year. Sequential growth tends to be a fair bit stronger in the second half of the year as compared to the first half and we also historically have analyzed salaries and compensation across the company which represent a pretty significant proportion of our expenses and we adjust salaries and that takes effect in the beginning of the second quarter. And that coupled with our investment plan gives us the tightest range between revenue and EBITDA for the quarter. So that's in line with what we would expect to see. And then, our guidance and our expectation is that would expand over the course of the rest of the year.

Got you. And you added about 48 people in the quarter?

That's right.

How do you expect the pace of hiring to continue during the rest of the year relative to the first quarter?

It's quite front loaded, and again, last year we were very conservative on hiring. We went 10 or 11 months, we kept headcount essentially flat. But in prior years where we've been in growth mode, the first half of the year is when you want to get folks in so you can see benefit during the course of that year. So the pace will continue at a fairly aggressive pace in the second quarter and we would hope to have not all of the hiring done, but a good proportion of the year's hiring done by early in the third quarter. We would expect to end the year based on our current plan at right around 500 in terms of overall full company headcount at year end.

I see. Got it. And then, is the stronger U.S. dollar playing any role in terms of--or what role does it play I guess in terms of your guidance from second quarter?

We have seen little currency impact in the last several quarters. We have a significant amount of our cost structure, about a third, in the Israeli shekel. Those rates have been fairly steady. There's been a little bit of fluctuation, but right now we don't see--we obviously can't predict future rates, but we haven't seen a major negative or positive impact due to currency. Our revenue line is primarily dollars and so it's really only a cost impact for us.

Okay. Thanks for that. Now that I've gotten some of the housekeeping questions out of the way, just one sort of strategic (inaudible). With the opening of the platform, what verticals or types of applications do you foresee having the most interest in extending your platform?

Right now there is--the low hanging fruit applications are where people--companies can take our chat application and extend it out beyond the website. So that's where the first one will come. Like mobile, we've developed a way to integrate chat into a Twitter feed. And so, if you're a customer and someone is tweeting about you and saying something negative or positive, you can check keywords. We can drop a chat--a real time chat into the middle of that as a retweet. So social networking, mobile, so the low hanging fruit. And then, things with content and data will be sort of the next play - analyzing the (inaudible) transcripts and all the behavioral data we collect, and so there's some things there. But basically, I would say mobile and social is the part.

Got it. All right. Thanks, guys.

Your next question comes from the line of Brad Whitt with Broadpoint Capital.

Hey, guys. Thanks for taking my questions and happy Cinco de Mayo.

Thank you.

Nice up tick in the deferred revenue. Tim, is there anything different you're doing from a billings perspective there? Is it just mostly setup fees or--?

--No, that's primarily a first quarter phenomenon. We have a little bit greater proportion of annual deals that are tied to the calendar and hit in the first quarter and so there's not--no major changes in how we're operating billing, but that's a phenomenon we've seen in prior years in the first quarter.

Okay. So are you primarily able to collect one year upfront? Is it--I know for SMB it's pretty much to month, right?

Yes, the number is relatively small and so shifts in it maybe appear outsized. But the vast majority of our customers do pay each month as we bill for the services, as we provide the services.

Okay. So very few pay a full year upfront?

That's right.

Okay, and that's been no change really, right?

Right.

Correct.

And then, the--I guess, Rob, you talk about opening up the platform, the new apps. Are there any apps that you are building internally that you're expecting to impact this fiscal year or next fiscal year?

We built apps for iPhone, Blackberry, SMS, Gateway, Instant Messengers. So we actually did--we have a last group now that did the internal development of that. And we developed this Twitter integration where we can pop a chat into Twitter. So what we're really looking at, the first set of apps is to drive usage of our chat. So a lot of our customers--take even our telco customers, a lot of their customers are on an iPhone and they're having an issue, then they hit "call" and they go right to a phone call. So what we want them to do is hit "chat with me" and go to a chat and it will drive more volume. So we didn't put anything obviously in the numbers about any of this, but we should see some volume increase in chats, which usually drives revenue.

Great. That's helpful. And Tim, it looks like to me, if my calculation is correct, kind of the implied bookings here, it looks like it was pretty consistent with the fourth quarter.

A little bit ahead of the fourth quarter and almost as strong as the fourth quarter, which is our strongest quarter on record. So just straight math is about 4 million versus 3.8 in Q4. And remember that bookings number on a relative basis is directionally correct, but does not capture any of the sort of ongoing activity in PFP or small business. But from a metrics standpoint, that's correct.

Okay. And then, final question on PFP at 17% of your enterprise business. Based on your pipeline and maybe customers you've signed recently, where do you see that going maybe by year end or you have a goal?

Kind of holding pace with the B to B growth or the enterprise growth, which is quite strong now. So it really outpaced the enterprise growth when we had a couple of slower growth quarters last year in a tougher macro environment. Now it seems to be more in line. So I think by year end it will probably be right around that same level. If I'm wrong on that, it would be stronger - the bias is definitely positive in that group, so it could be a little higher than that 17%. But I would expect it right in that range.

All right. Good. That's helpful. Well, thanks for taking my questions and thanks for getting the press release out there early this time. That's helpful.

You bet. Sense of humor today.

Your next question comes from the line of Mike Latimore with Northland Capital.

Yes, good evening. Nice quarter. Tim, are you--maybe you gave this on the call already, but were you able to break out enterprise versus midmarket versus SMB revenue?

We didn't break that down and I'm--we're considering what we want to do with that over the course of this year. And right now, we're going to stick with the breakdown we've provided historically. That group is getting up and running, but there is business that's still transitioning between those groups. So we want to give you sort of color on how they're doing. They're ramping up. We have three ramps. They're doing well and they're growing, but we're going to hold off for one or two more quarters before we introduce new metrics on that group.

And Tim, on the bookings number being a little ahead of fourth quarter, if you go back sort of on average the last two years, aren't first quarters--tend to be a little bit seasonally weaker than fourth quarters on bookings traditionally?

It's varied. I mean, if you look at the last two years, last year I think was probably the toughest scenario on just about every count. And so, the first quarter was weaker than the others by a factor of three I think versus the best quarter. More normalized years, if you go back to 2008, it was a little more in balance. So this quarter versus 2008 we're up about 30% versus the first quarter. So what that implies for the rest of the year I'll sort of leave up to you, but it was--I think we were pleased to see it come in line with what we thought was a really strong fourth quarter. So I think that's one of the reasons we were comfortable enough to increase the overall revenue guidance for the year by a little bit.

Right, got it. And then, just in terms of some of the verticals. I know you had won a couple of big box retailers in the third quarter. Can you talk a little bit more about that vertical? Do you still see strong prospects there?

Yes. I mean, the pipeline has a number of those guys. They're the big gorillas and each of our reps has one or two of that size customer in their sights. They're a little tougher to knock out. That's why you don't see them every quarter. But with the results we see with the guys that we've signed so far and Home Depot has always been a really strong customer for us, we could hope to be able to sign some more of those over the course of this year.

Okay. Just a last question. You talked about where the expense growth was in the quarter, but it looks like G&A was up the most in terms of just I guess absolute (inaudible). What was going on in the G&A side?

As compared to a year ago or compared to the--?

--The fourth quarter.

The bulk of the activity there is a little bit of expanded hiring to support just the overall growth of the company, and then some sort of just general overhead expenses. I don't think there was any one thing that really jumped out in that area.

So no real one-time item in there or anything?

No. I think it was probably a bigger step up than we'll see in subsequent quarters. Again, a lot of the sort of one-time salary adjustments I guess would qualify as a one-time per year event, and those hit in--those hit effective in the earlier part of the year.

Okay, great. Thanks.

Your next question comes from the line of Nathan Schneiderman with Roth Capital Partners.

Hi, Rob and Tim. Thanks very much for taking my questions. I wanted to start with some follow up questions on bookings. When you talk about a bookings number, what is the typical duration of that?

All of our deals in the enterprise--we're focused on the enterprise deals. We don't count small business deals, because there's quite a few of those at a smaller revenue point. So enterprise deals are typically one year deals. Occasionally, they can be two or three-year commitments, but the bulk of them are one-year commitments.

Was there any change in duration if you look at this bookings number of approximately 4 million versus recent quarters like last quarter, or is it staying approximately the same?

In terms of the length of the contract that folks are--?

--Yes, in other words, was it a very healthy bookings number because the duration of the contract extended, or is it pretty apples to apples when you look at it?

It's definitely apples to apples. It's average price, a little bit higher. And the absolute number of deals was obviously quite high at (inaudible).

Okay. And just to clarify, on the raised revenue guidance, do you feel that the strong bookings numbers alone gives you that confidence or are you kind of highly dependent on what you're seeing in the pipeline?

Well, the two biggest drivers of the year are actual results in Q1 because you get four quarters of that impact, and then bookings in Q2 you get three quarters of that. And so, we go from knowing not much about the year in February to knowing quite a bit about the year today. And so, that--it's not--it's a pattern that we've seen in prior years where it's a combination of the two, but certainly Q1 coming in right in line or at the higher end of our expectations takes a lot of the uncertainty out of the year, because it does have a disproportional impact on the full year.

Okay, great. And Rob, a few questions for you related to the new products. I understand your--the open platform is going to be available shortly. But when would you expect general availability on some of these other product lines like some of the data and the content products?

Pieces will come out in this quarter and then we'll keep rolling forward. I wouldn't expect anything significant in data until Q4 because there's a bunch of other stuff we have to do on the targeting side with that. But you're going to see like the mobile apps and everything will come out right away when we release the open platform in a couple of weeks and some of the social networking apps. And then, there's an open API, so there's--developers can just basically create apps on top of it. The first set of developers will be really our customers. So our customers did--what we found and why we did this is that because we've got over 8,000 customers, they all have such a diverse need. And there's a pent-up demand to do all sorts of interesting things with our applications that we normally can't develop for that large group, so we tend to develop for high end or very large customers. So initially, it frees us and we'll get a lot more momentum and a lot more usage of the platform. But we'll start delivering applications immediately with the release of the open platform.

Got it. In the past you've talked about applying your proactive technology in some areas outside of chat. What's your sense of the timeframe to deliver solutions in that area?

In Q3, we'll open up an API for the rules engine and so that people can develop applications off the rules engine and the behavioral targeting aspects. We will extend it beyond chat and we're going to have the ability to target couponing and landing pages and general marketing campaigns. And so, starting in Q3 with that API. The APIs that are out now are around the chat application, getting access to the chat transcripts, and being able to pull some of the data so you could do data analysis of the traffic on your website.

Okay. And a final question for Tim. When you start introducing these new products, the new APIs and the new product areas, like data and proactive, outside of chat, is there going to be a different rev rec model applied and can you just describe how that might work from a rev rec point of view on new products? Thanks very much.

Yes. Thanks. It's premature I think to talk about rev rec. We're certainly open and focused on innovative business models on the new platform. But we're always very cognizant of the fact that we have a recurring revenue stream and that's important to the company and important to investors. And so, that's really the best guidance we can give at this point on that topic. I think what's interesting from a company perspective is we have such a diverse way in which we have revenue today. We've got the consumer, we've got like cost per acquisition, which is pay for performance, we have a recurring revenue model, we have special services. So we're managing a business that gives us a lot of flexibility. And so, I think going forward we'll probably see more of a transactional base where we get some sort of cost per acquisition, cost per click, cost per 1,000 CTM. And that's where we'll sort of move the business.

To give a little context, we set out to really--it took about a year and we didn't talk too much about it during that time until we could just really bring something tangible. But what we've created now is something that I think will--it's setting a foundation for the next five years of growth. Five years of growth we created proactive chat and we sort of game changed the basic chat market and that took us from 20 million or so to over 100 million now. And now, we've set the next level of technology to go from here to the next set of goals. So it's--I think it will really give us a lot of flexibility getting there.

Thank you very much.

Thank you.

Your next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Great, thanks. Several questions, guys. First, maybe you could attack the consumer side of the business. Certainly through the past year you harvested some higher rates. As you look forward to the remainder of 2010 here, how do you think about growth here? Have we seen all of the benefits from those rate increases and we really need to drive gross minutes, or how should we think about that business?

Yes, I think--well, we have a couple levers. One is we can move rates up and we have different ways in which we do that. We can obviously drive (inaudible), so you put the two--the two triggers. We have a billing system coming out. It took about a year of development. And so, that's coming out in a few weeks and that's going to give us a lot of flexibility in the consumer group to change billing--I mean change pricing. So when you hit the website, let's say you came from a different, a certain campaign. We can give you 20% off your first chat and do like one-time $10 couponing. It gives us a lot of flexibility.

So I think going forward we'll see a little bit some more changes in this because we'll have a lot more flexibility with the billing system.

Are you assuming within sort of apples to apples--I know you talked about expanding to some new market, but within existing markets can you give me a sense of what kind of gross improvement you're thinking about in terms of minutes?

I mean, I don't--I don't want to give that data now. I'll give it when we deliver the results around different minutes. If it's in each vertical has obviously a different average minute and a different average when it comes to what the experts are charging. [Spirituality] is still one part personal vice, so that's where a lot of the per minute you're seeing an upping of fees. But the other ones are different. But I'd like to see how they play out as we go forth. Like, tech support and tutoring we think could be good categories. Where we are today is that last year we just wanted to stabilize the business and get cash flow going. And now, we're really retrenching and saying, okay, we want to expand now into other categories. The other part is the building system was something that our B to B customers wanted in order for them to utilize experts on their side because they want to be able to do couponing and get the first 10 hours for free and we'll bundle it with a software package. So we're going to have a lot more flexibility going forward.

Okay. And just a couple of other quick ones, then. Tim, the--just so I'm clear in terms of the guidance, you certainly raised the revenue picture but reiterated on the earnings side. And if I heard you right, were you saying the only variation there is share count, so essentially we'd get done doing the models here, we're not--there were no incremental net operating expenses here added compared to maybe your expectations last quarter?

No, no. I should--I would like to clarify that. So some of the impact is due to share count, but we are giving expectations that our spend rate will be slightly higher so that it will come from both share count and increased expenses. Our bias this year is definitely toward investment. And we're still early enough in the year where costs in Q3 and Q4 are quite a ways in the future, whereas revenue we tend to have a better view of the pipeline. So you would expect to have or I would expect you to end up with a model that shows a higher expense rate, but that the per share numbers that we expect to see should come right in line with where we were a quarter ago.

And the incremental relative to last quarter regardless of the dollar amount, where is that focused?

Primarily in--not in G&A, so that end of the scale and most of our hiring focus is in the other three line items - R&D, sales and marketing, and hosting. And that's where I think we want to maintain a little flexibility, because the reality of the market right now is we have a lot of opportunity. We are seeing better and better people in our recruiting efforts and so we want to be able to take advantage of that, and a strong cash balance as we see the rest of the year play out.

And the direct head count, you were looking to go from 17 in Q3 to--of '09, if I recall, to 31 in Q3 '10. So I guess the question is are you still targeting that 31 by Q3 of this year?

I would--we're still targeting that. I would say by year end. We're--I don't think we're adjusting any plans. It's just a question of when you get great people onboard. So I would say we're still on track to that and we'll look at that and see where we are in the quarter.

Okay. And then, last one, I'll let somebody else (inaudible). The pay for performance has certainly been just a fantastic aspect of the business and you touched on the ROI. Can you talk about as a percent of mix it's come up dramatically and I understand a lot of large number, but still seems to be that you're messaging it to now drop in line with more of the corporate growth average. I mean, what's new in that business? Is there kind of a gap in the pipeline here in terms of new numbers? Is it usage maybe at some of these customers has hit some sort of ceiling? Just help me understand that because it's been well above corporate average here for a while.

Yes, I don't think it's so much PFP dropping. I think it's the rest of the group kind of catching up and starting to hit some really nice bookings numbers and growth numbers. So it's more of a good news for the rest of the group catching up more so than PFP dropping. I think the longer term PFP opportunity is really strong. What happens in every quarter going forward is a little tougher to predict. It's really driven by when and how we deploy and where you see improvements happening. So we do not want to give any indication that we don't see continuing strength in that business as strong as we've ever seen it since we started it two years ago.

Okay, great. Thank you.

You have a question from the line of Craig Nankervis of First Analysis.

Yes. Thanks very much. Nice job. Interesting commentary on the R&D side. A couple of questions that I think haven't been asked. One, Rob, I'm interested to know--you talked about the larger ASP in large enterprise fields. Maybe that's deals you've closed or that's deals that are in the pipeline. Can you just elaborate on that a little bit, what might be in particular driving the larger ASPs?

It was more of the enterprise team now. They used to as of last quarter they would go after very high end customers, and then I call it lower end customers, guys who are spending between $60,000 and $100,000 a year. What they've done now is we've taken the $60,000 to $100,000 and we've moved that to the midmarket group, and so that's focused on that. And so, what you're going to see from them is we're not including the midmarket--those deals into their pipelines, into their goals. So they're naturally just going to have a higher ASP for those customers, the remaining customers. And now they have--the way the team is structured is that each rep has a named account. And so, we--they're very targeted, very high end. We're doing a tremendous amount of marketing behind those named accounts. So we can penetrate into--these are brand name companies. So that's what I meant by you'll see a higher ASP, not that the ASPs are growing per se. It's more a mathematical thing.

It's a mathematical thing. So if you saw, hey, there's only 10 deals in enterprise and normally there's more than that, it's because we shifted some of their deal flow into the midmarket and I want to make it clear about that.

Thank you. And just on the revenue guidance that's changed, do I understand there is no new products revenue in the guidance? Can you just clarify that, please?

Yes, there is no new revenue in the guidance, so we--it's just existing business. We're seeing a move to the next level of growth.

And Tim, there was a question on G&A. Is--do we consider Q1 G&A to be a new baseline for the rest of the year? Is that appropriate to think about it that way?

Yes, I'm glad you've given me the chance to correct my earlier response. I was combining two questions about the first quarter and the second quarter. The second quarter expense expectation is getting a little bit larger. That's really driven by the compensation adjustment that I mentioned that happened annually in the second quarter. First quarter, we spent a little more aggressively in some of our efforts to bring folks in the company together around launching our core values. And so, we had a little bit higher expense rate in Q1, some of which hit the G&A line and that is something that is not something we'll expect to recur. So it could be a baseline, but that growth from Q4 to Q1 is more of a one time increase in expenses.

Okay. But so, it is more or less a baseline is the short answer?

Yes, I wouldn't expect a significant decline, but the growth rate in Q1 was a bit of an anomaly.

Okay. That's--those are my questions for now. I think I'm all set. Thank you.

Thank you.

There are no further questions in queue, sir.

Okay. Thank you for being on the Q1 2010 call and we'll see you in Q2.

Thank you for participating in today's conference call. You may disconnect at this time.