LivePerson Inc (LPSN) 2011 Q3 法說會逐字稿

Welcome to the Third Quarter 2011 LivePerson Conference Call. With us today are Robert LoCascio, CEO of LivePerson and Dan Murphy, Chief Financial Officer of LivePerson. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Now, I'd like to turn the call over to Mr. Murphy.

Thanks, Kristen. Before we begin, I'd like to remind listeners that during this conference call comments that we make regarding LivePerson that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. These statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time, and we undertake no obligation to inform you if they do.

Results that we report today should not be considered an indication of future performance. Changes in economic, business, competitive, technological, regulatory, and other factors could cause LivePerson 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.

Now I would like to turn the call over to LivePerson's Chief Executive Officer, Robert LoCascio.

Thanks, Dan. Good afternoon, everyone. Glad you could join us today. I'm pleased to report third quarter was another solid one with revenues reach record levels once again, increasing 22% from the prior year quarter to $34.3 million, an 8% sequential quarter-over-quarter basis.

More importantly, we're on track with our goal of delivering our platform for intelligent engagement. We unveiled our new platform and products two weeks ago at our Global Customer Summit called Aspire, which took place in New York City. The summit represent a very important moment for LivePerson from both a cultural and product strategy standpoint.

For those of you who did not attend or watch the live, online broadcast, I want to share some highlights of Aspire with you. Over 400 people attended, a mix of customers, partners, and employees scattered from across the country and the world eager to share and experience the latest innovations in intelligent engagement. Some highlights from the conference were Frank Eliason, SVP of Social Media at our long-standing customer, Citibank, shared how LivePerson's chat-based social media integration enabled Citi to securely provide high-quality, high-touch customer service through this increasingly important channel. Bell Canada shared the long-term successes they realized as LivePerson customer over the past seven years. Another customer, a major global electronics provider, shared their remarkable results just a few months after deploying LP Marketer.

We've been very focused on leveraging all the great assets around our LP Chat product to ultimately provide a unified way for companies to deliver all their customer engagements, whether it's through chat, click-to-call, or LP Marketer. Our new platform is engineered to help customers drive conversions and create meaningful connections to a variety of different online channels. I'm incredibly excited about what the future holds as our new products take hold over the next several years.

During the quarter, our core real-time engagement products continued to grow at a strong pace. Excluding our consumer business, revenue from business operations were up 25% from the previous year's quarter. LivePerson has more than 8,500 customers right now and during 2011, we've seen a considerable amount of growth, including some of our largest deployments. There's still a great deal of opportunity inherent in the value proposition of our core chat products.

According to a recent Forrester survey, most companies cited that chat solutions as being critical to their future success. More than 75% named improved online customer experience a top priority when making investments in their customer engagement strategy. As LivePerson continues to transform the depth and usability of our product offerings, we should be in a strong position to capitalize on this trend.

We're also deepening the breadth of our offerings through our API partner, Ecosystem. As of the third quarter, we had a total of 25 partners developing on our platform and added 29 new API integrations during the quarter, several of which were the -- some of our bigger enterprise deployments in the financial and technology verticals. API is a great way to creating stickiness with our customers' base as many APIs are being used to integrate with other customer application.

One of the many great examples is a new mobile chat application implemented by our long-time customer, Cisco, which leverages our APIs to integrate technology from our platform partner, Trilibus. All the chat interactions on Cisco's mobile site are powered by our platform APIs.

During Aspire, we formally launched three new products; LP Marketer, LP Insights and ADE or Analytics Driven Engagement. These products are a mix of real-time applications as well as data and intelligence tools that leverage our core platform and existing infrastructure. LP Marketer is a content delivery tool that enables our customers to engage consumers with customized content and offers anywhere on their website. What we've heard from customers already using LP Marketer is that they're viewing it as much more than just a tool to increase conversions and average order values, but also a valuable way to deliver personalized customer service and improve overall user experience. Currently, LP Marketer is deployed with several LivePerson customers, including some of our enterprise customers.

A few weeks ago we had a large internet retailer use the already existing LP Chat tags on their site to deploy LP Marketer. The goal was to send our targeted messaging to promote the adoption of their new service, which was achieved through -- with solid success. At the same time, they also encouraged -- used to download their mobile application.

ADE is a product that leverages customers' third-party analytics data like Google Analytics to automatically drive real-time actions by chat and LP Marketer. This is a good example of where we can inject third-party data, enhancing the overall data set and value proposition of our platform. We currently have about 150 customers using ADE, predominantly in the small business and midmarket segments.

We also introduced LP Insights at Aspire, which is our business intelligence tool. Prior to LP Insights, it was a timely and tedious process to analyze chat transcripts for marketing service insight. Increasingly, companies are beginning to realize the valuable asset they have hidden in their unstructured chat data.

In terms of use case, I think we're just beginning to see the potential, especially in the areas of website product and agent optimization. We currently have several paid proof of concepts signed right now with LP Insights, the majority of which are enterprise clients that have a large volume of chat transcripts to mine.

One example of LP Insights in action is a large online retailer that was trying to figure out why certain products had a lower conversion rate. After using Insights, it was determined something as simple as not providing all the physical dimensions of certain products were deterring customers from buying. Getting these insights from chat conversation is what will equip our customers to better engage their consumers online.

Turning to the business, overall we experienced sequential growth across all three B2B market segments, with revenue from our enterprise business turning in the strongest performance. Enterprise revenue increased 13% over the second quarter and grew 25% as compared to the prior year quarter. During the quarter, we added 22 new enterprise and midmarket customers to our customer base including Experian, US Navy and Siemens USA. We also deepened relationships with key customers with expansions in several large deployments including Hewlett Packard, our largest Telco customer, and a major OEM of personal computers. We also had a solid quarter from a bookings perspective totaling $5.2 million.

In Europe, we continued to grow existing deployments in the region. During the quarter, we had major expansions at both Telefonica O2 and KPN in the Netherlands. We also signed a major global expansion with the division of a large international shipping group as well as expanded business with a leading utility company in the UK with added customer service applications.

Our midmarket segment completed another solid quarter as well with revenue growing 8% over the second quarter. Including a few I mentioned earlier, midmarket also signed a number of new clients across a variety of verticals as well as deployed a number of significant expansions. For example, we signed a "big four" accounting firm, another client in the government sector for use in online recruiting and a number of companies in the retail sector. Our expansions with existing customers in midmarket will also cross a number of verticals including healthcare provider in the south and companies of both financial and energy sectors.

Our small business group revenue grew 1% compared to the second quarter, as Q3 is traditionally a lighter growth quarter because of seasonality. The small business customers continued to be strong adopters of our API and ADE products as a way to increase click-through rates on their chat and LP Marketer deployments. The fourth quarter pipeline looks strong. We've also implemented a small price increase in this segment.

As I mentioned in past few calls, connecting with our community is a priority and part of our core values. In September, our Israeli office held the first annual volunteer day and over 220 employees participated in 13 philanthropic programs. Also, as Thanksgiving is around the corner, employees are getting ready for Feeding NYC, which I'm proud to say is now in its tenth year. We started the organization ten years ago on the Thanksgiving after 9/11 cause we deeply felt a need to connect with our local community. So that year, we decided to hand deliver full Thanksgiving meals to 40 families in need in New York. Since then, we've fed over 22,000 families and hope to continue this mission. I invite you to join us November 22nd at Chelsea Peers, starting at about 5 am, to help us pack boxes and deliver them to shelters and more importantly to connect with your local community.

Before I turn the call over to Dan, I just want to note that for me Aspire signified all the possibilities that lie ahead for LivePerson and for our customers over the next several years. We're deeply vested in providing our customers with the insights and products they need to build stronger and meaningful relations with their customers.

Now, what I'd like to do is turn the call over to Dan Murphy, our CFO. Dan?

Thanks, Robert. We are pleased with the strong performance we delivered in the year thus far and we were in line with -- in Q3 with our stated revenue, adjusted EBITDA per share, EPS, and adjusted EPS guidance provided last quarter. I'll provide further details on those metrics in a minute.

As Rob discussed, we had another strong quarter in all of our key financial metrics. And in late October, we hosted Aspire, which was our first large scale customer event where we brought together thought leaders from our customer base, representing some of the world's leading brands to share successes and best practices in customer engagement. We also officially launched several of our new product innovations and showcased leading-edge applications from our partner, Ecosystem. Our new products continued to gain awareness with our existing customers. We also continued to see strong sequential and year-over-year growth in our core business.

At the end of the third quarter, LP Marketer had roughly a dozen customers in beta. In addition, we tested additional use cases beyond couponing such as free shipping, registrations, up sales, cross sales and inventory and customer service notifications. LP Insights continued to gain traction. And as of the end of the third quarter, we had five signed proof of concepts.

In addition, Analytics Driven Engagement continues to gain momentum in our small business segment. While we were excited to see our new offerings into the marketplace, we are at the very early stages of their introduction to the markets. I've said in the past, we expect minimal revenue contribution from these products during 2011.

Revenue in the quarter was $34.3 million, an increase of 22% as compared to the prior year and 8% sequentially quarter over quarter. Year to date, our revenue grew by 21% over the same period last year.

Revenue from business operations for the third quarter was $30.8 million, a 25% increase as compared to the third quarter of 2010 and a 10% sequential increase as compared to the second quarter of 2011.

Revenue from consumer operations for the third quarter was $3.6 million, which is relatively flat compared to the third quarter of 2010 and a 5% decrease over the second quarter of 2011. Q3 is typically a slow quarter for the consumer business due to summer holidays and we expect the consumer business to be in line with prior year sequential growth in the fourth quarter.

Adjusted EBITDA margins expanded by 161 basis points in the first 3 quarters of 2011 compared to the first 3 quarters of 2010 and by 395 basis points in the current quarter compared to Q2 of 2011. Adjusted EBITDA margins benefited from positive currency movement in the Israeli shekel and the increasing gross margin.

Adjusted EBITDA per share for the third quarter was $0.16, an increase of 13% as compared to $0.14 per share in the third quarter of 2010 and in line with expectations.

Third quarter EPS was $0.05 per share, equal to EPS per share from the third quarter of 2010. In the current quarter, we experienced a 9% increase in the exchange rate of the US dollar against the Israeli shekel. At the end of each quarter, we revalue the shekel-denominated balance sheet into US [defunctional] currency, which created a non-cash expense in the current quarter.

Adjusted net income per share was $0.09, same as adjusted net income per share from a year ago.

Bookings were solid in the quarter at $5.2 million, which is a slight decrease in the second quarter of 2011 and up $0.6 million against the third quarter of 2010 and in line with internal expectations.

We signed 22 new enterprise midmarket clients in the second quarter. In addition, we signed 102 large deals in the quarter compared to 96 deals in the second quarter of 2011.

Customer attrition for enterprise accounts averaged 1.4% in Q3, which is improved from Q2 of 2011. Small business attrition rates held steady in the quarter at an average of 2.3%.

Up time exceeded, again exceeded 99.99%.

Pay for performance continued to be a solid contributor to revenue in the quarter, generating 20% of total enterprise revenue, which is slightly higher than it has been in previous quarters.

Average deal size for Q3 for all deals was 50,000; for new customers was 43,000; for existing customers, it was 53,000; for proactive sales, it was 55,000; and for customer service deals, it was 35,000. The breakdown of enterprise bookings in revenue terms were 22% for new customers and 78% to existing customer expansion. 75% of our bookings were for sales deployments and 25% for customer service deployments.

Revenue breakdown by industry verticals was consistent with Q1 and Q2. [Fiserv] represented 21%, Telco represented 34%, retail represented 13%, tech represented 13%, and all other represented 19%.

We continue to walk our customers up the value chain and increase the overall count of customers who are spending more than $500,000 annualized per year with LivePerson. We have 30 plus customers above $500,000 in annualized spend per year. We moved 4 customers from the $500,000 to $1 million range to the greater than $1 million in annualized spend. And we have 1 customer over $10 million per year in annualized spend.

Our SMB business delivered 1% sequential growth as compared to the second quarter. Although the sequential growth in the quarter was minimal, this is consistent with Q3 seasonality in prior years and we do see a strong pipeline for Q4. In addition, as Rob had mentioned, we implemented a modest price increase in Q4 that should push growth back in line with prior quarters.

For a detailed financial review, gross margin for the quarter was approximately 76%, which is higher as compared to most of 2011. We do not expect the gross margin to stay at the 76% level as we had a positive benefit from currency fluctuation as the shekel moved 9% from Q2 to Q3. And most of our network operations and customer service groups are located in Israel. We expect our gross margin in Q4 to be consistent with prior quarters.

Total company headcount increasing from 472 at December 31st, 2010, to 540 as of September 30th, 2011. We were behind our hiring plan for Q1 but we made up some of the shortfall in Q2 and Q3. In Q3, we increased headcount by approximately 15 employees. We expect to end the year with approximately 565 to 575 heads, which is in line with our plan.

As discussed on the last call, we added several sales heads at the end of Q2 and spent Q3 ramping up new hires in addition to training the sales team to sell multiproduct solutions as we move towards 2012. Our plan is to add additional sales headcount in Q4 and Q1 of 2012.

As we continue to grow the business overall, revenue outside the United States represented approximately 24% of our total revenue, which is in line with previous quarters.

We ended the quarter with a cash balance of $80.9 million as compared to $61.3 million as of December 31st, 2010, and $74.4 million as of June 30th, 2011. In the quarter, we had strong cash flow from operations and also had cash inflows related to option expense partially offset by capital investment.

Accounts receivable of $19.7 million is comparable to the first quarter and an increase from Q2 of $17.7 million. The increase from Q2 is due to quarter-over-quarter revenue growth in the business. Our DSO metric for Q3 is 52 days compared to 58 days in Q1 of 2011 and 50 days in Q2 of 2011. 52 days is within our target range, given the higher proportion of business with larger accounts and a level pay for performance revenue that impacts accounts receivable disproportionately to revenue.

In Q3, our tax rate was consistent at 37%.

Following is our updated guidance. We are giving you our view for the fourth quarter for the first time and we are tightening our prior year full-year guidance -- our prior full-year guidance given at the beginning of 2011. In the fourth quarter, we expect to see revenue between $36.5 million and $37 million. We expect adjusted EBITDA between $0.14 and $0.16 per share, adjusted net income between $0.08 and $0.10 per share, GAAP EPS between $0.04 and $0.06 and a fully diluted share count of approximately 56.5 million for the quarter.

For the full year, we expect revenue of $133 million to $133.5 million and adjusted EBITDA of $0.60 to $0.63 per share, adjusted net income of $0.33 to $0.36 per share and GAAP EPS of between $0.20 and $0.22 per share, and a fully diluted share count of approximately 50 million.

For the full year, the effective tax rate is expected to be approximately 38% with a cash tax rate of the same. Capital expenditures remain unchanged from our prior guidance at the $8 million level for the year. And for the year we expect GAAP gross margin of about 74%, which corresponds to a cash gross margin of approximately 4 points better.

We expect sales and marketing as a percent of revenue to be approximately 29% for the full year and G&A to be about 16% and R&D remaining consistent at approximately 15%.

Full year depreciation, we expect to be roughly $7 million with full-year amortization of intangibles of approximately $1 million and full-year stock compensation we expect to be approximately $7 million.

As Rob discussed, we continue to deliver growth in our core products and we are on track as we deliver platform for intelligent engagement.

That covers the operational and revenue highlights. And we'd now be happy to take any questions that you may have.

(Operator Instructions) Nathan Schneiderman with Roth Capital.

In the press release, you highlight that you're seeing more and more standardization deals. I was curious to what -- maybe if you could share with us how many standardization deals you did achieve in the quarter? And I was wondering if you could mention some of the customers that have standardized on your platform? How new is this dynamic just in general?

Well, more and more of our customers are starting to get on the platform. So, but when standardization, I'm just digging into exactly what you're talking about. Relating to chat or to platform?

It was just something in your press release. More customers were choosing to standardize on your technology. I wasn't sure if you were meaning like enterprise standardization deals or just customers that chose your solution.

No, it was general statement of just when people are looking at chat across their organization, in the past they may have looked at there was a couple different vendors. Maybe they have an email vendor doing one and they put the chat in on one division. But what they're doing now is just standardizing and we've had a couple of places where they took out competitors in certain divisions and said, okay, we want you across the whole enterprise. So that's what -- so it's really on the core products and going across, I think there was two or three in the quarter that do that and that's kind of what's naturally happening now. They want to stick with one vendor with a leading provider and they move the other vendors out.

Got it. In terms of the pipeline and how that's looking, what percent has that grown on a sequential and year-over-year basis?

The overall pipeline for the normal deals?

Yes.

Well $5.2 million was the bookings.

Right. I'm talking more about pipeline rather than bookings.

I mean the pipeline has remained strong just for all products across the board. As we ramp up our sales guys and start to sell multiproduct solutions, our expectation is that the pipeline will continue to increase. But from a bookings perspective on a quarterly basis, we're comfortable with the bookings being in that $5 million range. I mean we're on track for the year and we're on track with our pipeline and where it stands.

Great. Final question area for you. That was a pretty impressive number on the sequential growth in the enterprise business of 13%. I don't think I recall seeing that kind of growth out of you in a long, long time and that's obviously the most important sub-segment you sell into. So, if you could talk about what specifically you feel drove that unusually strong growth. And are you -- do you feel like you're at an inflection? Do you think this kind of unusually strong growth will continue or is this more of an anomaly? Thanks very much.

Sure. So I'll start and jump in. Just on the growth, I mean it's a -- we talked a little bit about on the last call with midmarket starting to ramp up and continuing grow. So we've seen opportunity in midmarket and at the enterprise level as Rob alluded to before, we're seeing some of our larger customers standardize on one platform. And so we had an opportunity to displace a couple of competitors and continue to grow our core business within a few of those customers.

Yes and I think as we've seen some competitors, they -- who have had chat as just a part of a bigger solution, they're starting to get -- there's some consolidation happening in the industry. I think that creates a lot of opportunity for us because for us it's our focus and real-time engagement is very important. I even -- a lot of you guys were at the Aspire conference, you could see a lot of our customers just thinking how can they engage their customers in different ways, whether it's mobile, social or on the web on their site. So I think we're in a really good place to continue expanding the pipeline and expanding it with new products.

Just one other point, the third quarter typically is a quarter where our customers are ramping up and getting ready for the Q4 selling season. So it was a good opportunity for us as well.

Richard Baldry with Wunderlich.

Could you talk a little bit about how you follow up the Aspire event to move those products into either GA or into broader deployments? Maybe qualitatively or quantitatively where you would expect to see things like the dozens of customers in beta. Could that be up 50% in the fourth quarter? Could it double or triple, like attendance was pretty strong at that event. Thanks.

I think what we're very happy with -- out of that conference came a lot of activity for all three new products. And so the follow up is now each rep takes that and goes after the customers and now we're doing demos with them. And as we mentioned before, Aspire was really our coming out for the platform and the new products. We have a whole new website. If you go to our website, it's totally different and it has all the new products in it. So, all the marketing activities will start to kick in. So we -- going into the beginning of next year and that was our goal. We're on track right now to really start bringing those new products and start building a pipeline into Q1. So we feel we got a very good reception at the Aspire. The other thing is we were lucky to have a couple of those beta customers gave presentations of their successes. So it wasn't like we were just presenting. We had customers actually present their results, which were really pretty tangible and exciting.

Could you talk maybe about each of the three new product lines, sort of in terms of ASPs or how you think those will price or fold into the revenue line for volume or seats etc. to give us an idea of how that'll move the dial as the number of live contracts starts to grow? Thanks.

Yes, so as I said a little bit earlier, I mean we have minimal revenue in 2011 for our new products. We're continuing to build the pipeline and we'll expect to see revenue in 2012. But right now we're not giving projections on 2012. I'm sorry. Was there another part to that question too?

Yes, that's it. Thanks.

Okay, thank you.

Richard Fetyko with Janney Capital.

A couple of questions on the PFP. It looks like it was quite strong in the third quarter. Just curious the source of the strength, if that was the same customer you had a large customer or perhaps new customers contributed to that? And then secondly with respect to fourth quarter guidance, what kind of PFP assumptions are you baking in?

So from a PFP perspective, we did have a strong quarter. You know the nature of PFP is customers do cycle into PFP and they also cycle out at points in time. So we had a strong quarter from a PFP perspective. There was no one specific customer that carried the quarter. As far as growth is concerned, they actually all did fairly well.

As far as looking ahead to Q4, we don't actually give specific guidance on PFP in Q4. But we would expect as in prior quarters for PFP to be in that 17% to 19% range, probably not as high in Q4 of 2011.

Thank you.

Jeff Van Rhee from Craig-Hallum.

Just a couple cleanups here. The growth rates, I think you gave SMB and midmarket sequentially. What were they year over year?

For which ones?

SMB and midmarket?

So SMB was about 11.5% year over year. And the midmarket was I think year over year probably about 7% or 8% year over year.

Okay. Then just circling back to one of the earlier questions. Just want to make sure that I got it right. I think the question had asked you what the pricing looks like on the new products and you talked about not giving overall revenue guidance for the products. But, just want to be clear, can you give us some color around you've at least learned some things in the last three to six months about how broadly people are interested in deploying this, how you're going to price it, what applications it's really relevant for. You know what do those data points tell you about potential deal sizes that you can share?

Sure. Just real quick, Jeff, I just want to clarify something on the growth rates over midmarket. Quarter over quarter, sorry the growth rate in the midmarket piece, quarter over quarter, was pretty high because we had just started the midmarket probably about 18 months to 21 months ago. So the growth rate was in the double digits, probably around the 60% level quarter over quarter.

Okay.

As far as color on the new products, so from a pricing perspective, the pricing model around LP Marketer will be a fixed fee, combination of fixed fee with usage. On the Insights business, it'll be predominantly a fixed fee related to how many chats that you actually want to translate. For ADE, Analytics Driven Engagement, it's on a per seat basis. Then for -- I said those are just the three from a financial perspective, from a model perspective. Then on the API, we charge in two ways. We charge our customer an API connector fee and then we do a rev share with a third party that's developing off the platform. So those are kind of the three, four ways that we'll price our products.

You know as far as adoption is concerned, you know we've got 8,500 customers. We can implement these products, at least LP Marketer, without having chat implemented. But we will focus on our existing customer base first where we have relationships, strong relationships and we're already deployed. For LP Marketer, it's a little bit easy for us when we go to a chat customer because we've got the tags deployed on their site. So it's easier for us to get the product up and running. Obviously, with LP Insights, we're translating the chat transcripts so it helps when they're a chat customer. But we can do other types of unstructured data. For the APIs, obviously we're building off our stack, so, again, focusing on existing customers. So most of this will be around existing customers in the short term and the pricing models, fixed fee with usage for LP Marketer and as I discussed before.

Okay. Okay and then I guess one last one. Can you just, in terms of sales headcount, you've got the different breakdowns. Where are we now, if you can just clarify that for me? Then I missed, you talked about intentions to continue hiring. Can you give us a sense of magnitude in terms of where you think headcounts can end the year or where you'll take them in the forward -- as far as I guess as far out as you're willing to go into '12 and the early quarters at least?

Sure, so we're relatively flat quarter on quarter in Q3 to Q2. If you remember, I think we added five, maybe six heads in Q2. We spent the quarter ingesting those heads and training those heads as well as training the whole sales force to sell multiple products. And as we look forward to Q4, our goal is to continue to add sales people. Without giving a specific number, you know we think there's opportunity to add sales capacity in both the midmarket and enterprise level as we roll out our new products and focus on growth for 2012.

Okay, thank you.

Brian Schwartz with ThinkEquity.

Rob, was hoping that you could maybe give us some color from what you're hearing from the sales force, at least out on the field. Is there any sense or any signs at all that potentially sales cycles are lengthening or close rates are having to take an additional hurdle? Did you see any variation at all in the most recent quarter?

No, the bookings are still quite strong and right now we don't see any real impact. I kind of feel like during even a weakening economy people are looking for things to increase their sales. And because our tools are really focused on optimization of the traffic and increasing incremental sales, it -- that's what we're seeing right now. So we still feel very good about the business. I think widening the product lines and what we're seeing, it allows us to really go after even things like the LP Marketer. What I like about it is it doesn't have any labor attached to it. So unlike the core, which is still people want to chat, with Marketer, you set it up and you go and you can increase sales without adding that headcount. So it's all has an efficiency element to it too. So, yes, so far so good.

Great. Thank you for that additional color. Dan, I just wanted to follow up on a statement that you had made I think when you were talking about the bookings here this quarter. I think you mentioned that the $5 million range was certainly right on target. When you gave that number, is that a target or range that you're looking for here in this current quarter in Q4 or were you specifically just referring to the Q3 that finished?

Specifically referring to the Q3 net finish from a bookings perspective. And when we look at bookings, I've explained this I think before, but when we look at bookings, it only really represents a portion of our business. We only -- from a bookings perspective in the calculation, we only include committed deals in our midmarket and enterprise space. Professional services, small business, consumer are all on a monthly -- and PFP are committed from a contractual perspective, but on small business you have 90 dates out, consumer is transactional. Professional service is transactional. PFP obviously is transactional and can swing up or swing down. So we're comfortable with where the bookings and we're on track with our bookings for Q3. So we're comfortable with where it is.

Good to hear. Last question just back for Rob, just wanted to ask you a question really about the management team that you have there and where we're at right now. I think we saw the press release here that your CTO is moving on to something new. I believe you also still have an opening right now for someone to head up the sales team over there. I guess my question really was around that head of sales position. I was just wondering if it's possible to get an update on where you're at there, if you think that you're getting closer and closer to filling that position here in the near future? Thanks.

Yes, so on the technology side, we have a GM who's been with us for many years and he basically runs the operation in Israel. What we want to do now on the CTO side is really align the leadership side with around data and intelligence and around having a large organization, multiproduct. So we thought it was a good opportunity now. So right now the team still reports into Eli, who's been with us for many years and then now we'll go out and find another person to lead on this data intelligence stack.

In the sales, we've basically divided up this quarter all the regions globally and by size to three different people who have been here and they've been here for many years. We sort of solidified their position and their leadership and so far, so good. So we're kind of happy with the organizational structure we have right now. As overall business, we've gone to a more flat structure and it's working for us. So these guys are doing a great job and we kind of just said okay, let's divide up everything and continue having you guys expand your roles here. That's kind of what we're going to do right now.

Thank you for that information and taking my questions. Thanks.

Craig Nankervis with First Analysis.

First of all, I guess tagging on from a couple of the most recent questions. The bookings comment and your comfort, if we look to Q4, the comp for last year is sort of a tall one cause I believe you had one particularly large deal. So I guess in your mind, would you not be surprised to have a down bookings quarter year over year in the current quarter, if maybe you can shed a little bit of light on your thinking on that, start there.

Yes, I mean from a bookings perspective we did have one large booking in the Q4 2010. I would not expect our bookings in Q4 this year to be at that level. I think we reported $6 million last quarter, Q4 2010 if I'm not mistaken with one large deal in there. So, I wouldn't expect to be at that $6 million level, but we're comfortable with where we are and we're on track for the quarter.

Just in terms of the linearity in Q3 relative to the new business you've brought on, is there any particular color that's worth noting there? How the quarter played out or how it was towards the end of the quarter in particular or was it pretty normal from your perspective?

Yes, it's pretty normal. So we -- the new products, the good and the bad about the business model, as you guys know, is that as the new products ramp, they have to ramp. So we're starting to take in some revenues from these new products, but they're coming in on a monthly basis and they'll start to ramp up. It takes a little time on the recurring revenue model. So, as Dan said, we're basically not going to see much impact in those numbers, in the overall numbers now. You know starting at the beginning of next year we should see some impact and then ramping up towards the latter half of the year.

But I think the exciting part is we created these products only a couple of quarters ago and customers just take them. And what we expected was because we don't have to do really any big implementations cause we have those tags on the pages and we have the relationships, we're able to fire these products up and get them going on them. That's a huge competitive advantage. There are other companies in the market with -- small companies with an LP market or type of offer. But they don't have the tags. They don't have the relationships. They don't have also chat and other things they can bring. Cause this is ultimately going to be a suite of marketing intelligence, a suite of marketing products that provide intelligent engagement. So that's the exciting part about it.

Guys expect -- do you envision closing any LP Marketer deals in Q4, regardless of whether you're generating revenue? Do you think you're going to be closing LP Marketer deals this quarter?

We already did. So there's paper out on LP Marketer deals. So they've started to close and shift betas into contracts. So that already started. So, when we talk about GA, these products are -- they're rolling out and they are starting to generate revenue from them but we did sign our first contracts only a couple of weeks ago.

Okay, thank you. Then I guess lastly, maybe for Dan, it strikes me that your revenue guidance range for the current quarter is probably a little bit narrower than I might have envisioned. I think it's $500,000. Just given the variability of some of your revenue streams, whether it's PFP, whether it's consumer, whether it's SMB or whatever, it seems to me that in general I would have considered there to be perhaps more latitude to the guidance. I'm wondering at least in my mind if you could talk through the narrowness of the guidance range and where you're coming from on that?

Yes, so there is some variability in our products, especially around PFP and the small business piece, but we've got some good visibility into where we are. We're in November, so we've got some good visibility into the quarter. It's still from a sequential growth perspective, it's still strong sequential growth quarter over quarter. So we're comfortable with where the revenue guidance is as we look at the numbers today.

Mike Latimore with Northland Capital Management.

This is Ryan McDonald in for Mike. Thanks for taking my questions. I was just curious kind of back to the bookings. Did you see any region or vertical that was particularly strong or weak during the quarter?

No, nothing particular. I mean it -- you know in Q2 we had a very strong quarter out of Europe. Europe wasn't as high in the third quarter but that wasn't for anything other than a specific deal that happened out of Europe in Q2. So, it's in line with what we expected and good business coming out of the US. Good business coming out of Europe and Asia Pacific still pushing along and growing. Nicely on a percentage basis but absolute dollars, we've got some work to do.

Okay. Then and I'm looking at the consumer segment, I mean you said it was pretty flat year over year and it decreased sequentially. I mean where do you view that going forward? Do you think it'll remain relatively stable?

Yes, I mean we think it'll remain relatively stable. I mean Q3 typically has been a bit of a down quarter. But we think it'll be relatively stable and we're still generating a nice amount of cash coming out of the business.

Yes, Q3 is -- what the down on the Q3 is usually around education and tutoring. So that quarter there isn't a lot of education and tutoring and then it bounces back on a nice side in Q4. So we're seeing sort of the normal pattern back on Q4. And we're optimized, we're still optimizing that business for cash flow. And so that's where we're really focused in that business.

Then I guess just one last clarifying. I think you mentioned during your comments or your statements about the kind of the customer breakdown by annual revenues. Could you kind of clarify that again?

So as far as the number of customers?

Yes.

Is that what you're talking about?

Yes.

Sure. Let me just get the page real quick. Yes, we had 30 plus customers over $500,000 in annualized spend. We were able to move 4 customers from the $500,000 to $1 million bucket to the above $1 million bucket. And as consistent with prior quarters, we have 1 customer that's north of $10 million.

All right, thanks a lot, guys.

Jon Hickmann with Ladenburg.

One quick question for you, Dan. Could you just clarify the number of customers or beta customers that you have on LP Marketer? I think you gave us -- if you can?

Was there more to the question?

No, that's it. Cause you talked about ADE customers and API customers.

Yes, as of the end of the fourth quarter, we had nine beta customers, signed and live.

Okay.

Sorry, end of the third quarter, did I say -- end of the third quarter, sorry.

I knew what you meant. That's okay. Thank you very much.

There are no further questions at this time. I'd like to turn the call back to management for any closing remarks.

Thank you for being on the call and we will see you next quarter.

Thanks, everybody.

Okay, bye.

This concludes today's conference call. Thank you for your participation. You may now disconnect.