LivePerson Inc (LPSN) 2011 Q1 法說會逐字稿

Good evening, my name is David, and I will be your conference operator today. At this time I would like to welcome everyone to the LivePerson first quarter 2011 financial results conference call. (Operator Instructions). I would now like to present your presenters, Robert LoCascio, Chief Executive Officer and Tim Bixby, President and Chief Financial Officer. Mr. Bixby, youmay begin your conference.

Alright. 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 can 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. 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 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 would 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 happy to report that our business had a very strong quarter. We generated $33.4 million in revenue which is a 1% increase from the prior quarter and a 20% increase from the prior year. Earnings came in better than our guidance with a record EBITDA of $0.16 per share and adjusted net income of $0.09 per share.

Before I review the details of our ongoing operations and new areas of potential growth I want to update you on our overall strategy. 2010 was a transformation year for LivePerson as we reexamined our products, processes and values. The entire Company came together to identify our core values and establish a common mission that would guides our decisions and strengthen our value proposition in the marketplace. Our mission is to create meaningful connections between businesses and their online customers. This is something we have been doing since the Company was founded and is one of the main drivers of our success.

Today our [product] chat 8,500 companies make meaningful connections with their customers in a way that delivers significant value to their business by increasing conversion rates on their website and dramatically increasing customer satisfaction rates. Our success to date has been driven by our leadership in intelligent real-time chat which were created by combining chat with a sophisticated behavioral targeting engine.

Last year we began to invest in ways to leverage our leadership in intelligent chat and expand it into new products. Our behavioral [engine] processes an enormous amount of data; nearly 100% of the visitors on our customer's website.

Though we process and analyze all of this traffic, chat is typically used by less than 2% of these visitors. We have the opportunity to engage in much greater portion of website visitors beyond those in need of chat assistance through a broader set of engagement tools. Our goal now is to leverage our behavioral intelligence and data capabilities and provide a platform that will enable companies to intelligently gauge their consumers, wherever and how ever they want to connect in the cloud, whether it's on or off the website and with or beyond chat.

Today's customer is a connected customer, and companies need to be able to interact in real-time with their customers on mobile devices, social networking sites, and on their own website in a more holistic and unified way. Our goal now is to provide the technology to help engage the connect customer in real-time. As a company we have identified several priorities that guide our business decisions and will help us achieve the strategic goal of providing a platform for intelligent engagement.

Our key priority is to increase the value of each monthly visitor we monitor. As I mentioned, we only touch about 2% of all the visitors on our customers' websites. So our goal is to engage and generate value from a broader set of visitors beyond the 2% who chat. To accomplish this we are working to create other products and make our behavioral intelligence available to third-parties, so they can build applications to help our customers engage more consumers on their website and through other channels in new and innovative ways.

The next priority is to invest in intelligent real-time products. Our ability to process and analyze hundreds and millions of unique visitors per month and tens of millions of chats per month in a secure and reliable way is one of our greatest assets. Turning visitors into buyers can only be effectively done in real-time and we tend to provide the strongest platform and the best set of tools for real-time intelligent data driven engagement.

The next priority is in delivering our products in a more frictionless way. In order to scale our business to an even greater degree globally and into new marketplaces we will continue to deliver our products in the cloud with the goal of increasing ease of distribution deployment and driving greater operating leverage on our resources.

The last priority ties into our mission. Continue to have our people provide meaningful connections with our customers in order to ensure the strength of our overall business and our recurring revenue model. As our Company has grown we now play key roles in expert to our customers and how they can drive more value in higher conversions on their website. We will continue to leverage this expertise as we roll out new products and partner offerings, and provide our customers with the personal connection that they need in order to be successful.

I want now to move from our strategic goals to speaking about some of the things we have been doing with our products and customers in the quarter. As I mentioned before, this year we are focused on delivering a set of new intelligent engagement products to our customers. We're already seeing some new and exciting results from our recent activity in Q1.

We are entering the beta phase or LP Marketer product and are making good progress as we have signed four large customers for paid beta tests and we expect to have a few more signed shortly. LP Market is an application that delivers personalized content like coupons to an online visitor and our goal is to enable our customers to reach and monetize a much larger portion of visitors hopefully well beyond the 2% reached through chat by leveraging current code and rules on sites with no agent labor required.

It was deployed in alpha phase on our consumer website in the fourth quarter and demonstrated double-digit conversion lift. Meaning we observed more than 16% lift in conversion improvement with no decrease on average order value. We're on track with our roll out plan that we outlined last call as we are in beta for the second quarter and we will release the product into [GA] in the second half of the year.

With the release of our platform we developed a set of APIs that enable third parties to build applications that leverage our real-time date and intelligence to deliver a new set of products to our customers. We recently started our developer program and as of Q1 we have about 1,200 developers registered in our developer community. More than a dozen customers are now using paid third party apps, or have built their own apps to expand their intelligent engagement capabilities to other channels of communication such as mobile devices and social media.

One such partner is Demandbase, a provider website conversion optimization solution. Demandbase provides visitor intelligence capabilities to our customers chat agents, so they can see valuable company level data about the consumers they are chatting with. Additionally, customers can write rules in our intelligence layer to further segment users based on this data.

Our internal labs team has also been working on developing applications off the platform and are seeing some early successes. They built some very interesting innovations to support our core products and launched a tool in March called Analytics Driven Engagement, or ADE.

ADE creates and updates the business rules using the customer's web analytics data captured by Google Analytics, and in the future Omniture, to drive proactive chat invitations. ADE improves invitation acceptance rates and makes a chat program more dynamic by refreshing business rules regularly to reflect actual visitor behavior. This innovation originated from someone who works in our small business professional services team, and we have 11 customers already paying to use it and we see a lot of interest, especially in the small business and mid-market segments of our business.

Finally, I would like to mention that we are in development with a transcript analysis product that we expect to introduce in the second half of the year. This product will deliver real-time marketing intelligence from the unstructured information captured from the chat conversations. Several of our big name customers have already expressed high interest in the product.

Now we talked about the innovations in our products and platform activities. I would like to review the performance of our core chat product. Our core business performed very well last quarter. We achieved a high-end of our guidance range with $30.4 million in revenue. We saw further expansion in our customers base with an addition of 12 new enterprise and mid-market customers. All segments of the business contributed to the top-line growth with revenue from business operations increasing by 22% as compared to the first quarter of 2010. Overall revenue for our enterprise business increased 2% over the last quarter and grew 22% as compared to the prior year.

We had strong bookings in Q1 totaling $3.7 million. We signed several major financial services organization, a software and information technology services company, and had a major upsell of one of the largest makers of security software for computers. We also expanded with a PFP customer in the Telco space, and in Europe we signed one of the largest independent investment managers in the UK expanded with a major Telco company in that region.

Mid-market finished a strong quarter with some key customer signings. We expanded with a major retail customers, also one of the beta users for LP Marketer. We signed a deal with a major reseller, a leading provider of banking platforms for regional banks and credit unions where they will offer our chat as part of a bundle offering of their core products to their customer base.

In our small business group revenue grew 11% year-over-year from Q1 of 2010, increased 3% from Q4 of 2010. Average monthly attrition in Q1 ended at 2.2% of revenue which is a 15% improvement over the 2010 average of 2.6%. This is primarily due to improved sales and delivery methodologies of our small business product.

Our small business has been important, has been an important early driver for our platform business, as they sold 13 API adapter packs during the quarter. The most common use cases are for extensions of LivePerson's core chat offerings to our chat API and integration with partner apps.

We're making strong and steady progress in Asia-Pacific market which we just entered last year. Our first and largest customer in the region signed an agreement to increase their total investment in LivePerson and we also signed a large financial service company in the region.

Our consumer business had a very solid quarter and delivered $3.7 million revenue, in line with Q4 of 2010. We've increased our new customer acquisition in Q1 due to promotional campaigns implemented through a new billing system that was put in place last year,and we expect the consumer business to generate almost $4 million in cash flow this year. So it's definitely now a strong contributor to the overall cash flow of the Company.

I would like to now turn to some of the activities that each office is doing in their local community. Building meaningful connections in the communities we live in is very important to our employees and really resonates with our core value of helping others. Investments we make in our local communities are also driven by our mission of building personal meaningful relations that we believe will create a positive and lasting impact in the lives of others and our own.

We already planned our 11th annual Feeding NYC event this fall. Last year we provided Turkey dinners for over 8,000 families in need and we will be again doing this in Thanksgiving which will be a special day for many local families here in New York. Our London office is gearing up for a big charity event in June. Where all proceeds will benefit the Naomi House Hospice for which they take care of terminally ill children. And another project that we're really excited to support is an Israeli/Arab diversity at the workplace initiative led by the Israeli president, Shimon Peres. Other major US tech companies with offices in Israel are also a part of this amazing initiative, including Google, Microsoft and IBM.

The idea of being meaningfully connected is a very powerful one, and is something that I would like, one day, to see our Company known for globally. It is a value that we can bring, uniquely, to the world as a company, and as individuals for our products and our relationships.

And finally, I want to take a minute to introduce our new CFO, Dan Murphy, who is here today with us for the first time. I'm happy to welcome Dan to the LivePerson family. Dan is an accomplished finance and accounting executive with over 20 years of experience and he brings additional and relevant experience in data intelligence and interactive businesses. Who spent most of his career at Thomson Reuters where he led several business units, including the $1.6 billion Sales Marketing and Services organization. This is a very exciting time, for LivePerson as it continues to make progress in expanding our Company into some new product areas, and as we take hold in creating a culture of meaningful connections.

I would like to especially thank, Tim Bixby, my good friend and CFO and President of LivePerson for the past 11 years who is with us today for his last call. Through Tim's leadership and dedication LivePerson has come a long way. We will really miss him, and on behalf of the entire staff of LivePerson, we wish you the best of luck. So now I would like to turn the call over to Tim who will highlight our financial results. Tim?

Thank you so much, Rob, for the kind words as well, and I would also like to take the opportunity to welcome Dan Murphy to the team. So welcome aboard, Dan. I am happy to report, as Rob did as well, we delivered strong performance in the first quarter hitting our revenue expectations and exceeding our profit guidance. We expanded our developer network and made good progress against our new product launch timeline. Revenue in the quarter increased 20% as compared to the prior year in what is traditionally the slowest growth quarter due to seasonality for LivePerson.

Our EBITDA margin expanded fully 200 basis points as compared to the fourth quarter which is great progress, and more than 400 basis point versus a year ago to more than 28%, demonstrating the continuing opportunity for leverage that we have in our cost structure. Customer retention continues to be strong at more than 93% for enterprise accounts, uptime again exceeded four nines, 99.99% plus while small business attrition rate improved in the quarter.

First quarter revenue increased 1% sequentially to $30.4 million. EBITDA per share for the quarter was $0.16 which is a new high for the Company, as Rob mentioned. This is an increase of 33% as compared to $0.12 per share in the first quarter one year ago. First quarter EPS is $0.06 a share up $0.02 per share from the first quarter of 2010, and adjusted net income was likewise up $0.02 per share as compared to a year ago.

Revenue from our business operations, as Rob mentioned, was 22% higher than the first quarter a year ago and a 2% sequential increase. While revenue from our consumer operations was $3.7 million, in line with the prior quarter and up 6% versus the prior year quarter.

Bookings were solid in the quarter, especially given the record level that we achieved for bookings in the fourth quarter at $3.7 million which is down slightly from the first quarter of 2010. It's important to note that if we normalize bookings by looking at Q4 and Q1 combined, the average booking amount for the combined quarters averages out to about $5 million per quarter which is 15% above the bookings run rate from Q1 through Q3 of 2010. So it's important to normalize those two quarters to get a real picture of the amount of business that we're bringing in and signing.

We signed 12 new larger clients in the first quarter. We signed 72 total deals, including new customers and upsells to existing customers.

Our pay per performance pricing model continues to be a solid contributor to revenue in the quarter; generated 17% of total enterprise revenue. This is in line with prior quarters, increasing also, nearly 20% as compared to the prior year. PFP is currently growing at the same rate as the core enterprise business, but it does have the potential to exceed that rate in the second half of the year as we have seen in the prior couple of years, as we've gotten the PFP program up and running.

I will now give you a feel for the average selling price for the different types of deals that we provide metrics on. So for all deals combined, our average deal size was $52,000; for new customers only, average selling price was $65,000; these are all annualized figures. Existing customers only, upsell averaged $50,000; proactive sales and marketing deals only, $53,000 and customer service deals only, about $47,000. So the net of all that is just about all of the business in the quarter was within a fairly tight range, which is an interesting -- as compared to prior quarters and a good indicator of the strength of the business.

In terms of the breakdown between new and existing customers, about 20% of the booked revenue was a result in the quarter of business with new customers and 80% or the balance from existing customer expansions. This is just a slight shift from 10% new, 90% existing in the prior quarter. If we breakdown the booked revenue between sales and service about 80% of the bookings was driven by primarily sales oriented deployments, whereas 20% came from customer service. Again, just a slight shift from 90%, 10% that we saw in the prior quarter.

Enterprise attrition ended the quarter at about 1.8% per month and does look improved to date from that rate in the first part of the second quarter. Attrition by customer count is well less than this as we have seen in the past; at about 0.6% per month, and small business attrition improved quite a bit; about 15%, as Rob mentioned.

Our split revenue coming from outside the US remains steady at about 22% of our revenue with the UK portion of that being the largest, making up about 12% of the total revenue for the Company.

And our vertical revenue breakdown was essentially unchanged as compared to the prior quarter with financial services at 22% of revenue, telecommunications at 32%, retail at 14%, tech hardware and software combined at about 14% and all other at about 18%, and the trend there continues to be a slight shift toward the all other category which means we're making good progress in the verticals outside of the four largest verticals as the Company continues to grow.

If we look at individual customers in terms of the revenue breakdown, we now have 20 customers that are generating revenue to us over the $1 million revenue per year mark. This is up from 16 in the fourth quarter. We have 32 that are above $0.5 million per year. This is versus 33 last quarter,so a very minor shift there. And in the prior quarter we had one customer over $10 million per year and two above the $5 million run rate and that's in line with what we saw the prior quarter.

The consumer group continued to improve cash flow this quarter. Revenue was up to $3.7 million. The driver of the revenue growth versus the prior year was volume primarily. So in the past several quarters when we've experienced growth in revenue in the consumer group, we have seen it primarily driven by pricing. This quarter we actuality saw a nice uptick in the volume of minutes billed as compared to the prior year. The commission rate, which is the portion of the revenue that LivePerson keeps, was up slightly, but the main driver was volume. EBITDA margin for consumers, Rob mentioned, was very strong; running at about 30% of revenue.

Our gross margin overall for the Company in the quarter was right around 73%, up just a few basis points versus the prior quarter and the prior year, and we expect that to continue roughly at that level in the coming quarters.

Total Company headcount increased from 472 at the end of the year to 495 at the end the first quarter and we're right around that level today. Just up a couple heads from the end of March. We're slightly behind our hiring plan for Q1 and for April, but we'll make up some of that shortfall over the next couple of quarters.

The profit variance in the guidance in the quarter was driven by slower than planned hiring, as we've mentioned, as well as less than planned non-personnel related spending, primarily in the G&A and the Sales and Marketing areas. R&D is essentially on track in terms of overall spending and overall pace of hiring. Though we did have these favorable variances in the first quarter, we expect to offset most of that with greater spending as we bring on planned headcount in the subsequent thee quarters such that our full year profit outlook is essentially unchanged from our guidance from 90 days ago.

We ended the quarter with a cash balance of $67.1 million, up from $61.4 million at the end of the first quarter. We had strong cash flow in the quarter from operations somewhat offset by the higher level of receivables, and we also had significant cash in-flows related to some option exercises in the quarter.

Accounts receivable, metric we are watching very closely, increased as compared to the fourth quarter where we had a very nice result. It's running at about 58 days in terms of our DSO metric, at about $19.6 million. This level is a little bit above our target range given the higher proportion of our business with larger accounts and the level of pay per performance revenue that impacts our AR a little bit disproportionately to our revenue. Its important to note however that roughly 90% of our receivables derived from blue chip global corporations with very strong payment and credit standings.

Our bad debt risk and profile continues to be very strong with minimal to no bad debt exposure historically. We continue to focus resources on maintaining DSOs in the target range. We also would highlight that our target range and our current range is better than nearly all of the comparable public SaaS leaders that we track.

Following we want to give you our first view of guidance for the second quarter and reaffirm the full year guidance. In the second quarter we expect to see revenue between $31.3 million and $31.8 million. We expect EBITDA between $0.13 and $0.15 per share, adjusted net income between $0.06 and $0.08 per share, GAAP EPS between $0.04 and $0.05 and a fully diluted share count of approximately $55.5 million for the quarter.

Our full year guidance is unchanged from the prior quarter. Revenue of $133 million to $136 million and EBITDA of $0.60 to $0.63 per share, adjusted net income of $0.33 to $0.36 ashare; GAAP earnings, EPS of between $0.20 an $0.22 and a fully diluted share count of approximately $56 million.

A couple of other assumptions that we think you will find helpful in modeling the business for the rest the year. An effective tax rate of about 36%, cash tax rate of the same. It was slightly higher than that in the first quarter, but we anticipate, as in past years, that will normalize somewhat over the remainder of the year.

Capital expenditures unchanged from our prior guidance. We expect to hit about $8 million level for the year. We expect GAAP gross margin of about 73% which corresponds to a cash gross margin of about 4 points better, about 77%.

We expect sales and marketing as a percent of revenue to be approximately 31% in Q2 and about 30% for the full year. G&A about 15% of revenue in Q2 and coming down to about 14% for the full year. R&D running consistently, we expect to be about 15% of revenue in both second quarter and the full year.

Full year depreciation we expect to be $8 million, roughly. Full year amortization and tangibles just above $1 million, and full year stock compensation expense we expect to be about approximately $6 million. That's it for the operational review.

I would like to also take the opportunity to thank the Board of Directors and the employees and especially Rob for giving me the opportunity for what I think has been an outstanding run of 11 or so years with the Company, and we feel we're in great hands -- working through a transition -- handing over the financial operations and a great team to Dan Murphy and we're glad you're all onboard to be with us on the journey.

So that covers all of the highlights for the quarter and now we would like the operator, if you could rejoin the call and give instructions for the question-and-answer, we would be happy to take any questions that you might have.

Yes, sir. (Operator Instructions). Your first question comes from the line of Richard Baldry.

Thanks. I was hoping you could expand a little bit on the beta program for the LP Marketer. So the times of customers that are the early signed, on what types of scale you think those betas will come in, as far as what they're targeting or looking out for positive results out of those things? Just any more data to flesh out around that. Thanks.

Yes. There's one big financial software company, big retail company;so it kind of fits what our general segments are right now and until we go live which we haven't gone live yet. We will go live in this quarter with them. Don't have many details on how big they can be, so we just need to get through the beta. The first part is just signing them up and we're seeing some good traction there across all the segments, so.

Thanks.

Your next question comes from the line of Nathan Schneiderman.

Hi, Rob and Tim. Thanks for taking my questions, and Dan, welcome aboard.

Thank you.

I thought actually I will just throw one out to Dan. Maybe you could speak with us about your decision to come to the Company and what do you see as the biggest maybe low hanging fruit opportunities on the strategic side as well as the financial side, and to what extent were you involved in the guidance for this quarter?

That's funny. We told Dan -- we're like, "Dan, don't talk on the call."

I'm sorry.

We have trained him. He's ready to go, so.

As far as guidance, absolutely none. As far as low hanging fruit, I think its way too early for me to even offer up an opinion, but as far as my background; Thomson Financial Marketing Technology Solutions and Conductor, and the things that got me excited about joining are the people, the opportunity and the direction that the business is going. So, I'm looking forward to joining Rob and the team and it should be fun. Okay. Welcome aboard. Back to Rob, I guess assuming that you do about the mid-point of the guidance you've laid out for the second quarter that would be about $62 million for the first half the year. I'm curious is that slightly below what you had envisioned back when you originally gave guidance for the full year about three months ago, or not? And I am just wondering if perhaps we mis-modeled the business, or if the business is off to a little slower start at the beginning of the year than we thought because the guide is a little below consensus on revenue for Q2.

Yes it's in-line with the way we always see the business which is a little bit lower in the first half and things pick up in the second half, So it's pretty much within the range. So that's how we look at it right now.

Okay. A question on the Verizon relationship in particular. There was a disclosure in the press release that you had some existing customer business with Verizon. I was just curious if that was incremental to the discussion you had last quarter and maybe if you could speak to the nature of the increased business there, and is it PFP, or is it something else?

Yes. It was an upsell. We're looking at expanding in the pay per performance area with them right now, but we think -- obviously they're a very big customer, a very big Telco, but it was just an upsell from last quarter, so they're doing well right now.

Okay. Thank you very much.

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

Good evening guys. Just to expand on the prior call. This conversation regarding guidance. At $6.2 million bookings in the fourth quarter I would have thought that combined with some strong bookings in the prior quarter would have at some point flown through the first half 2011 revenue, and it doesn't seem like a big lift in some of the growth rates or at least in dollar terms, certainly. I'm just curious if there is a bigger lag between bookings and billings than historically, or you churn seems to be stable, so you're not churning off more customers or revenues than in the past. So I'm just curious if there is anything changed there? And the bookings level in the first quarter seems a little weakish relative to the last seven quarters, seems lower since basically the prior six quarters. Just curious if -- I mean I know there is some lumpiness in the bookings, but do you expect the bookings to ramp up higher considering you've added more sales people in the last 12-months?

So I'll take a shot at several of those. In terms of the how the guidance shakes out for the course of the year, I think its similar to what we've seen in prior years which is a stronger second half than the first half and its holding steady. A couple of notes on the bookings and the guidance and how they interact. So our bookings, as you recall, only enterprise and mid-market booked agreements, booked contracts that are contractual.

PFP is not captured as part of that because that's performance driven. Small business is not captured there because that ebbs and flows with the course of the business, but is not long-term contractually driven, and then the consumer business we're seeing as -- though year-on-year growth is quite steady, we're seeing that flat to slightly up in Q1 and Q2. And so the net of all that I think is you get this what appears to be slightly lesser increase going into the second quarter, but none of those are really anomalies. It's more of just how the nature of how our bookings are captured between the different revenue streams.

Enterprise attrition I think was fairly low in Q4, a little bit higher in Q1. That provides a little bit of an offset. And then the overall bookings transition, I think if a couple deals, especially the largest deal we did in Q4, if that had moved to Q1 we would be here talking about $5 million average booking rate which I think is quite strong. So you're right in that the lumpiness can drive the quarters around a little bit.

Thanks. If we look at the full year guidance of $133 million to $136 million in revenues, considering the first half the year what could happen or needs to happen for you to hit the high end of the revenue guidance?

I think the variance in the range is really driven by the usual upside performers. So if we're able to generate from new products and revenue right now we're really not banking on that. We don't have that any of that baked into the guidance that would certainly push us towards the higher end of the range. PFP performance is always a potential for more variable performance in Q3 and Q4, and we're modeling the consumer business essentially flat to slightly up for the year. And so if we replicate prior years where we have seen 5% to 15% sequential growth in that business that would definitely push us to the top end of that range. There's definitely three or four levers that would move us to the top.

Got you. Okay. Thanks, guys.

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

Hey guys. Tim, you commented on this some, butcan you just remind us your definition of bookings?

Yes. Bookings are contracts that are signed which means our enterprise customers and our mid-market customers sign long-term agreements, one year terms or greater, and we annualize the monthly recurring revenue represented in those deals, and we include both upsells, incremental revenue from an upsell, as well as 100% of the revenue from a new deal. If we have a recurring revenue renewal where there's no upsell, no incremental revenue, we would count that as $0 in the bookings number.

Okay. I think that's a big difference from a lot of companies is you're not counting just a regular renewal if there's no upsell involved.

Yes. There are some companies that will count that but we don't.

Okay.

Yes. We don't.

Okay. Can you give us some more color -- looking at your accounts receivable -- looks like it's up 55% year-over-year and almost 20% sequentially which is obviously much faster than your revenue growth. Can you help us understand that a little better?

Yes. Quarter-to-quarter we had a significant drop from Q3 to Q4, so I think again if you normalize it, two things have increased.

One, a greater proportion of our revenue driven by large blue chip enterprise accounts as well as by pay per performance. So larger companies pay us a lot more money. We've got two customers above $5 million a year, one above $10 million a year. On the downside they pay more slowly and we have longer collection terms, longer receivable terms with those customers.

Pay per performance is the second item because we book -- recognize pay per performance revenue net of costs that go through to the labor partners, our receivables can over state what that number is, and that is pay per performance has grown that number has gone up. So the number has increased. It's increased for reasons that are good and tied to the growth of the business and are not tied to any greater concern about the collectability of those receivables.

Okay. And just so I am clear. These three large customers, two of them that are $5 million run rate and one that's $10 million customer are those being billed monthly, or?

Yes.

Yes.

Okay. And then getting back to the revenue acceleration that's built into the guidance for the second half of the year. On a percentage basis it would be comparable to what you did last year, but the actual revenue amount would obviously be more because you're working off a larger base. What is it that's going to be different in the second half of this year versus last year that's going to give you that incrementally more revenue? Is there more pay per performance customers?

Yes. I think there's just more of everything. So more pay per performance customers, a couple more that fall into that high end category where, as you know, our largest customers is a PFP customer. We've got a couple more who fall into that category of potential high growers.

We've got more business coming from new geographical territories, so more opportunity coming in Western Europe and the Asia-Pacific region. That's new as compared to a year or two years ago. We've got an established mid-market team that's been in place for a year.

A year ago that team was just getting up and running, and was just getting out of the gate and getting warmed up. And we have an opportunity with some of the newer products, although we're not baking that into the guidance, but that certainly is helping with conversations with larger customers, and so there's some overflow value of that as we go out and try to drive more business in the second half.

Okay. Thanks for taking my questions. I appreciate it.

Thanks, Brad.

And your next question comes from the line of Mike Latimore.

Good evening. What was the final sales headcount at the end of the quarter?

I'm sorry? You broke up a little bit there.

What was the final sales headcount at the end of the quarter?

In terms of the reps it's unchanged versus last quarter so it's five mid-market reps and 23 enterprise accounting executives.

And is part of the investments over the next three quarters, are you looking to add more to that headcount?

Yes. Both of those headcount lines should increase between now and of the end of the year, yes.

And I guess just on the bookings growth again, if we're talking 15% bookings growth that you normalize over a couple quarters. It's a fair amount below, I think, the sales headcount growth, so can you help me understand a little bit how you think about sales headcount growth versus bookings growth?

Well again, because bookings only represents a subset of the business it's not always going to track exactly, but as new reps ramp up and get the full productivity, we would expect those numbers to fall more in-line. We are focused on PFP customers in that our largest deal in Q4 was a customer who now may become a strong PFP customer. So, I don't know that in any given quarter you will see it exactly map to the sales capacity or the growth in the sales team, but directionally in the second half we should see them track more closely.

Got it. Okay. And then just on the Verizon addition in the quarter, expanded business with Verizon. I guess you mentioned around pay per performance. I think on the last earnings call you had talked about Verizon in the pay per performance realm. Are you launching with a new product there? Or can you help me understand the expansion on pay per performance there because you had talked about that I think last quarter as well for Verizon.

And we're going after their normal wireless business, and then they, obviously, have iPhones and other stuff, so we're just tracking with the core business, what they do today.

(inaudible) Great. And then in terms of the head of sales, I know you're looking for some -- potentially a new head of sales here. I guess any thoughts on the time frame for that?

We have a firm that's doing the search and they're just starting, so you hope to get it within 90 days, maybe a little longer, but we're just starting the process, so we'll know shortly.

Okay. Great. My last question. I know you're coming out with your couponing service later this year. When will you have something around mobile couponing?

We're looking at mobile across all the products, so we have mobile chat already, and so we're already starting to look at it. I would think this year we would look to have some offering, but the first they thing we want to do is just get the core part out which is just the onsite part, and then we will look at the mobile pieces to it. When you look at it our biggest opportunity is still within the website. Our customers are only generating 1%, 2% conversions of their overall traffic, so there is still a huge amount of opportunity within going after website traffic before you even touch mobile, so.

Great. Thanks a lot.

(Operator Instructions). Your next question comes from the line of Craig Nankervis.

Thank you very much. Really most of my questions have been asked. I guess just to go back over a couple items on the DSO side. I mean this is an area that you had specifically been focused on addressing, though it went the other direction than hoped. Do we just infer from that it's really very hard for you to control that? What is the conclusion on that?

I think the conclusion is now that we've got customers that are getting up into over $5 million and we're getting a fair amount of them, I think we should conclude that maybe the new normal is a little higher than the old past. Where we are much more of a mid-market, small business focused which is, for instance, if you're a small business customer and you don't pay us, we'll pop up a window and shut you down. But if you are a late and you're very large customer, we're not going to pop up onto your operator screens. if you don't pay us we're going to shut you down.

Right.

Because it's just normal terms of service and they're late and everything. So I think as we get larger customers, we should assume DSOs may go up more towards the industry average than what we've seen in the past where it's more a mid-market, small business. That's my guess, but that's the focus now.

Okay. Can you talk about on the bookings result and the fact that you had the head of sales leave in the same quarter where we get a little bit lighter bookings, we felt. Can you just talk about where the organization is with the existing sales leadership and the transition there operating without the head of sales? Is there any color that might be reasonable to give us a little insight about the whole sales management side of the organization?

Yes. First I don't think the bookings number is a reflection of the sales leadership and as we have seen in the past, quarter by quarter things go up a little bit, they go down a little bit, and so I know we're always heroes when things go up and we're not as hero as things go down, but it's quarter by quarter view. So we don't see it as a huge problem, and it's definitely not related to any leadership issues. There has always been four guys that have run the sales teams tactically. There is a head of North America, there is actually a head of East and a head of West in North America. There's a head of AMEA who has been with us five years, head of North America has been with us for close to five years. We have head of small business who has been with us for about seven. He just took that over two years ago. So those guys actually run the day to day of that, and then we have a head of mid-market who used to be our head of marketing and he's been at that role since we fired it up close to two years ago. So those guys run it day to day, and the previous head of sales is more looking up strategic opportunities and looking global and international expansion, stuff like that. So I wouldn't infer anything of the bookings being something related to a problem in sales.

Thank you for that color and that's all I have.

And your next question comes from the line of Jeff Van Rhee.

Great. Thanks. Just a couple questions. Maybe in terms of the revenue guidance, maybe you can just touch on. I know you had said in the last call very minimal expectations built in for the new product. At the smallest levels, was there any change in terms of what you built into the guidance this year from those new products?

Not yet. I mean we want to see a little bit more activity. If I could take a step back for a second and talking about the new products. Even on the Board level when we went through with the Board a couple week ago, I think we're really excited here for a couple of reasons, and maybe I can talk a little high level.

One is, up until the end of last year we were simply focused on delivering chat as a product, and in a very short period of time we re-architected our entire software to become a platform which was a major piece of technology that we did last year. And very quickly we're starting to monetize, and I think the interesting part about it is we went out into the world and we said we've got this platform. We hired a guy from Salesforce.com who was over at AppExchange and he quickly got out there and people heard about us, and we already have 14, 15 deals that are paid on products that never existed as of a quarter ago. So I think that's real exciting.

The second part is internally we really are fostering a different culture of innovation. And someone, who just basically is a small business professional services person, came up with an idea for taking Google analytics because he saw a lot of small business customers use Google analytics. And said, "What if we imported that data into our system? Would that provide a better source of data combined with our behavioral date?", and found yes, it did. It increased quick through rate. So that came out of nowhere. And they sold -- how many of those did they sell in the quarter, Tim? About 15 of those? 15 of those in the quarter. In one quarter.

And then, obviously, we have LP marketer that's coming out. So I think the important part of this call is the flip from being a chat company to being a platform for intelligent engagement. I'm hoping to hit the high end of the range and we would like to go beyond that. That was the goal. And I think we've shown in a very short period of time that we've got new stuff coming that didn't exist three months ago.

So that's the part we're excited about here right now, and I just want to align the people on the call and the shareholders with that, too. And that I think will provide you with a bigger future.

That's fair. As you touched on the bookings number captures, part of the revenue flow, but not all of it, but it's the part that we have some reasonable ability to measure. As you guys think about the year on the bookings front, and you compare it to the revenue growth rate, how should we think about it? I mean is it safe to be thinking of bookings that we can see? Essentially tracking in line with revenue growth for the year?

Well, I think you have to combine the bookings with the revenue guidance. I mean the reason we give revenue guidance and the reason our record on revenue guidance is quite strong is because we are giving you everything we can around those pieces that aren't measured as well. So we're giving you what we can see in trend lines for small business, in consumer operations and PFP. So I think you have to triangulate between those two, but our revenue guidance is definitely the stronger support in Q3 and Q4 because we can kind of see where we expect bookings to be.

Okay. Two other last questions. On the G&A front. Tim, I think you mentioned that there were some non-headcount related expenses that pushed -- obviously the hiring has gone a little slower -- but what were the non-headcount related things that pushed?

So in two areas. So in G&A we've upped our investment levels in training and support for both existing and new employees. Those programs and expenses didn't start on January 1, but they are getting up and running late in Q1. Will flow for the rest of the year,so that's a general overhead expense that didn't hit fully in Q1. And then in the sales and marketing area, some of the advertising tradeshow type areas, we came in a little bit under budget in that category as well, and then the rest were pretty small items.

Okay. And then the last one I guess on the sales headcount. Thoughts where you would end the year, direct rep wise?

Right now, in line with our on goal which I think we can see two or three in each of mid-market and enterprise, so that would put us probably four or five by year end. But that's one where we definitely look and measure each month and each quarter as we go through the year to see where we think that number should go, but right now that's where I would see it at year end.

Okay. Thank you.

(Operator Instructions). And there are no further questions. Do you have any closing comments?

Yes. Thank you for being on the call and I will see you with Dan on the Q2 call. Thank you.

Ladies and gentlemen, this does concludes today's conference. Thank you for your participation. You may now disconnect.