LivePerson Inc (LPSN) 2011 Q4 法說會逐字稿

Good afternoon. My name is Allie and I will be your conference operator today. At this time I would like to welcome everyone to the LivePerson fourth quarter year end earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session.

(Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Dan Murphy, CFO.

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

Changes in economic, business, competitive, technological, regulatory and other factors could cause LivePerson's actual results to differ materially from those expressed or implied by 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, 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. Thanks for joining us today. I'm pleased to report that fourth quarter and 2011 were very strong for LivePerson in terms of financial metrics, and more importantly, in executing on our overall strategic goals. During 2011 we began to take the unique parts of our core chat products, namely our data and real-time intelligent layers, and use them to power a number of other homegrown and third-party development applications. Last quarter, during our customer summit, Aspire we formally launched several of our latest innovations, including LP Marketer, LP Insights, and ADE. Our LP marketer product went GA during the fourth quarter. At that time we had about a dozen customers in beta, which presented a great opportunity to discover different use cases and areas of product improvements.

We see a good amount of traction with non-beta customers, as well as converting betas into paid accounts. Overall, 16 customers are using the product. Going forward with LP Marketer, we will continue to build a road map of new features, including mobile enablement, better integration with first-party data, all which will make it easier for companies to target and convert more consumers into paying customers. Our other product, ADE, or analytical driven engagement, leverages website analytics data to maximize the value of our customers' online chat, LP Marketer, and search engine marketing programs. Using a customer's third-party analytics data, such as Google Analytics, ADE creates dynamic business rules that are automatically updated as website visitors' behavior patterns evolve. There is a lot of opportunity in our small-business and mid-market segments for ADE. We currently have over 150 customers using this product. As with ADE, LP Insights is another homegrown product from LivePerson. LP Insights takes a company's unstructured data from chat transcripts, and analyzes these customer conversations from marketing intelligence.

Because the collection and analysis of data is done in near real-time, the insights are actionable and geared for driving conversions, understanding trends, and user sentiment. We have great use cases during the quarter and with some decidedly positive responses from several early proof of concept customers, we now have seven large enterprise customers up and running on LP Insights. With regards to our APIs and our partner applications, we now have around 125 customers using our APIs with either third-party or internally developed apps. Most apps are developed around content, mobile, and social spaces. Our strategy with these applications and open APIs is to expand their reach and usefulness of our core products, driving further adoption and the overall stickiness of our real-time engagement platform. In 2011, we also focused on attracting talent that could align with our overall business strategy of building real-time data and intelligence platform. We hired six new leaders in 2011, including a new CFO, Dan, next to me here, a head of marketing, professional services, platform, network operations, product management, and most recently, a new global head of sales and markets.

Our new Global Head of Sales and Markets is Erica Schultz. Erica was the Group Vice President of Oracle's SaaS organization, where she led Oracle's CRM OnDemand, its SaaS CRM solutions, as well as Oracle's field and telesales teams. Oracle's CRM OnDemand became their fastest growing application product line, and the fastest growing SaaS CRM solution on the market. During her 16 years at Oracle, she also led operation in Oracle's internet sales division, Oracle Direct, and mid-market sales in Latin America and India. With the value-based selling model implemented this year, and the training investments made in building up our sales ranks, I am very excited about current heads of enterprise, mid-market, and international sales working with Erica and leading and growing our sales organization and our expansion into new markets and new product lines. Although we made many changes to the company during 2011, we continue to execute on our business, posting consistently strong growth rates and sector leading operational margins throughout the year. The fourth quarter was no exception. B2B revenues grew by 26% when compared to the previous year, and we posted a 48% increase in income from operations.

We had a record-breaking bookings for the quarter at $6.3 million, and continue to generate solid cash flow, ending the year with over $93 million of cash on the books. We are now focused on bringing our new products more broadly to the market, while extending our data and intelligence platform. 2012 should turn out to be another strong year for LivePerson. I see considerable opportunity in both the core business and the newer lines of revenue streams, especially given all the recent activity in the marketplace. This leads me to our goals of 2012.

Our first and primary goal is to roll out our new products more broadly across our entire customer base. Now that we have introduced our latest data intelligence-driven products, we can now offer customers the ability to leverage the chat implementation that they already have in place for a virtually seamless integration into the new offerings, whether it's one of our new applications, their own applications developed using our APIs, or applications developed by one of our ecosystem partners, there are marginal multiple solutions we can offer our customers so they can better connect with their customers.

Our second goal is to continue to improve and scale our data intelligence platform. We are working on some really interesting ways to enable our customers to leverage more of the data we capture in a scalable manner, and we will continue our investments in this area, as it is foundational for our entire product strategy. We have a unique opportunity to take the structured data we capture from the website, the unstructured data from the chat transcripts, and other third party data sources and use them to predict, and in real-time, act on driving conversion.

Our third goal is to continue to significantly grow our core chat products. There is still a great opportunity for growth in real-time chat products. Even in our best enterprise customers, approximately 5% to 10% of the total agent population is using chat, with the majority of agents still taking inbound voice calls. More of these voice agents are shifting to chat, SMS, and other digital forms of communication, as companies are more holistically engaging their customers online through mobile and social channels. Whether organically, or through new customer acquisition, we believe our chat business still has tremendous opportunity in a market that is far from saturated.

Finally, our fourth goal is to continue to build the systems needed to deliver on our mission of creating meaningful connections. The goal of creating meaningful connections between each of us as LivePerson employees, between us and our customers, and between our customers and their customers is something that is unique to our Company. Today, companies want to create connections that inspire their customers to become brand advocates, and this is where LivePerson can really help. At our Aspire customer conference last year, I would say that the main theme was around engaging customers online in a more meaningful way. When we say meaningful, we mean a connection that is personal, a connection that is made when the consumer wants it in real-time, and can happen from any location, and from any device. The brand in meaningful connections is something we live in our day-to-day lives here at LivePerson, and is at the core of what authentically drives our products and services.

As you can tell, I am really excited about our future, as we continue this period of innovation and growth. I hope that all of you as shareholders will take the time to get connected with us, to better understand our long-term vision, our products, and our culture. I want to once again thank all of the LivePerson employees, who have showed tremendous passion and dedication over the past year in laying the foundation for a better company in the future. With that, I will turn the call over to Dan.

Thanks, Rob. As Rob mentioned, 2011 was an important year for LivePerson, both in terms of strategic accomplishments and financial performance. We continued to deliver solid growth rates and strong operating margins throughout 2011, and had a strong bookings and cash flow for the quarter and year. As we reflect on 2011, and look forward to 2012, we are taking a close look at the long-term plan in terms of revenue growth and operating margins, including the recent investments we've made in people, processes, and products. We continue to fine tune our model in terms of internal expectations for revenue growth, as well as margin and EPS measures over the next few years, and align that with how we intend to propel the business forward. I will get into more detail once we review the year and the quarter.

We were pleased with the performance of the year as a whole. Revenue for the year was in-line with guidance, and EPS were slightly ahead of guidance, and adjusted EPS at the top of our guidance range. We demonstrated solid quarter-over-quarter revenue growth, and also reached record revenue, and exceeded EPS and EBITDA per share expectations for the fourth quarter. Fourth quarter B2B revenue was $32.9 million, a 26% increase as compared to the prior-year quarter, and a 7% sequential increase as compared to the third quarter of 2011. Total revenue increased 6% sequentially to $36.5 million, and increased 22% as compared to the prior year. B2B revenue for the full year was $118.6 million, a 24% increase from 2010. Total revenue for the full year was $133.1 million, a 21% increase from 2010. Revenue from the consumer operations for the fourth quarter was $3.6 million, which is relatively flat compared to the first 3 quarters of 2011, as well as compared to the fourth quarter of 2010. Full year consumer revenues were up 2% to $14.5 million.

EBITDA per share for the fourth quarter 2011 was $0.17, as compared to $0.15 per share in the fourth quarter of 2010, and $0.01 above the upper end of our guidance range for the quarter. Fourth quarter 2011 GAAP earnings per share were $0.07, compared to $0.05 in the fourth quarter of 2010, and $0.01 ahead of our guidance range. Adjusted net income per share was $0.10, compared to $0.09 in the fourth quarter of 2010, and it was at the top end of our guidance range for the quarter. All three measures were helped by an increase in gross margins and positive currency fluctuation. Full year 2011 EBITDA per share was $0.62, as compared to $0.51 in 2010. Both adjusted net income per share and GAAP EPS came in at the high end of our guidance range for 2011, and adjusted EPS of $0.36, as compared to $0.30 in 2010, and GAAP EPS at $0.22, as compared to $0.18 in 2010.

Bookings were particularly strong, reaching $6.3 million in the fourth quarter. This represents a 22% increase from the third quarter, and 2% increase from the prior-year fourth quarter, which was helped by one large deal. We signed 123 large deals in the quarter, compared to 102 deals in the third quarter of 2011. During the quarter, we added 25 new enterprise and mid-market customers, including BMC Software, a major utility company in the Northeast, and a top motor vehicle manufacturer. We also continued to deepen and expand relationships with existing customers, including Petco, Hewlett-Packard, and the Royal Bank of Scotland.

Our small business groups revenue grew 7% percent in the fourth quarter when compared to the third quarter 2011. Small business customers continue to be early adopters of our API and ADE product offering. In addition, we signed several LP marketing deals in the small business segment during the quarter. Average deal size for all deals was $51,000. New customers signing up for initial deployment, the average was $41,000. The average for existing customers signing up for an upsell or expanded business was $53,000. Sales of customer service chat were approximately $23,000, and sales of our proactive sales product were $63,000. The breakdown of enterprise and mid-market bookings in revenue terms is approximately 84% existing customer expansions, and about 16% to brand-new customers. The breakdown between sales and customer service was approximately 87% towards sales deployments, and 13% towards customer service. Both metrics are consistent with prior quarters. Customer attrition for enterprise accounts averaged 1.6% in the fourth quarter, while small business attrition rates averaged 2.8%. Up timing again exceeded 99.99%.

Pay-for-performance generated approximately 17% of total enterprise revenue, and 10% of total revenue, which is slightly lower than the third quarter, but in line with the prior-year quarter. For the full year, PFP revenue was 18% of enterprise revenue as compared to 18% in 2010, and 11% of total revenue versus 10% in 2010.

Revenue coming from outside the US remained consistent at approximately 24% of revenue, with the UK making up the largest percent, and representing our large concentration outside of the US. In Europe, we continued to further develop relationships in the region with existing clients. We've expanded systems Telfonica 02, [EDF] and Aviva. The revenue breakdown by industry verticals was consistent with prior quarters. Financial services made up approximately 22%; telecommunications, 32%; retail, 13%; and technology at approximately 13%; with other rounding out for 19%. Overall, we experienced a sequential growth across all three B2B segments. Enterprise revenues increased 7% over the third quarter and grew 30% compared to the prior-year quarter. Our mid-market segment completed another solid quarter, as well, with revenue growing 6% over the third quarter, and 36% over the prior-year quarter.

In terms of the scope of our customers, we continued to make progress, expanding several of our larger customer relationships. As of the end of the year, we had 30-plus customers above $500,000 in annualized spend. We have a total of 23 customers spending more than $1 million annualized, which is 7 more than Q4 of 2010. We have one customer over $5 million, and one above $10 million in annualized spend. Gross margin for the year finished at 75%, which is up from 73% in 2010. Fourth quarter margins came in stronger than anticipated at 78%, which compares to 73% in the quarter of 2010. The fourth quarter gross margin expansion can be attributed to two primary factors; a positive benefit from currency fluctuation, specifically the shekel, and the intangible assets related to consumer business were fully amortized as of the end of Q3. In 2011, we added approximately 75 net new headcount, with our overall headcount increasing by approximately 15%. We ended the year at 546 people. The majority of the new headcount added during the year were in the areas of technology and sales and marketing. In terms of 2012, as Rob said, we will focus on attracting individuals with multi-product data intelligence backgrounds, concentrating on expanding sales capacity, and expanding marketing efforts to support our new product rollouts, and grow our existing chat business.

We ended the quarter with a cash balance of approximately $93.3 million, as compared with $80.9 million as of September 30, 2011, and $61.3 million as of December 31, 2010. For the year, we generated $31.9 million of cash. Fourth quarter accounts receivable were $21 million, a 7% increase compared to the prior quarter, and a 27% increase over the prior-year period. Although our accounts receivable balance has trended up, our DSO metric for Q4 was 52 days, unchanged from Q3, and within our target range. In the fourth quarter, our tax rate was consistent at 37%.

Now I would like to discuss the financial expectations for the first quarter of 2012, as well as full year 2012. In the first quarter of 2012, we expect revenue between $37 million and $37.5 million, EBITDA between $0.15 and $0.17 per share, adjusted net income between $0.08 and $0.10 per share, GAAP EPS of $0.04 to $0.06, and a fully diluted share count of approximately 56 million shares for Q1. For the full year of 2012, we expect revenue between $160 million and $165 million, EBITDA per share of $0.66 to $0.70, adjusted net income per share of $0.40 to $0.44, GAAP EPS of $0.21 to $0.25, and a fully diluted share count of approximately 57 million.

A couple of other full year 2012 assumptions; we expect an effective tax rate of approximately 37%, and a cash tax rate of approximately 37%. We expect capital expenditures to be approximately $10 million, which is up from prior year on a total spend basis, primarily due to several office expansions in the US, UK, and Israel, but in line as a percent of revenue. We expect depreciation of approximately $8.5 million, amortization of intangibles of $500,000, and stock compensation expense of approximately $10.5 million. As Rob mentioned earlier, our goal in 2012 is to invest in the business in order to drive longer-term future revenue growth. In Q4 of 2011 we successfully launched LP Insights and LP Marketer, and will now focus on building a sales pipeline and driving adoption into our existing customer base. It is an exciting time seeing these products enter the marketplace, but growth takes investments. So in 2012, we're focusing on continuing top line growth, while adding to our customer facing and delivery sources, specifically sales and marketing professional services, as well as continuing to invest and innovate from a product and technology perspective. As Rob also discussed, we will remain focused on continued growth and innovation in our core products.

We began ramping up sales efforts in the fourth quarter, training the sales team on multi-product selling, and hiring additional six sales heads in Q4, with the expectation to hire several more in Q1, as well as throughout the rest of 2012. We also aligned our enterprise sales organization around industry verticals such as telecommunications, financial services technology, and consumer and retail. From a marketing perspective, we will continue build on the success of our Aspire 2011 event. Our plan is to hold additional customer events in 2012, as well as invest in headcount and proactive marketing activities throughout 2012. We expect gross margin on a GAAP basis about 75% for the year. Sales and marketing as a percent of revenue in the quarter to be approximately 30%. G&A at approximately 17% of revenue over the course of the year. And R&D to be approximately 16%. That covers all the operational and revenue highlights, and now if the operator could rejoin the call, we would be happy to take any questions from folks participating.

(Operator Instructions)

And your first question comes from the line of Nathan Schneidermeier.

Hi. That's Nate Schneiderman from Roth Capital. Hi, Rob and Dan. Thanks for taking my questions on nice job on wrapping up the year.

Hi Nate.

First question for you, I was curious, when you look to your 2012 guidance, what assumptions are you making for the dollar contribution of new product revenue, and when are you expecting the bulk of that to kick in, if you were to kind of look at that new product revenue, how much would be in the second half versus the first half of the year?

We think the majority will come in the second half of the year. Our expectation is we're ramping up the sales organization in Q4 and Q1, and as we all know it takes time for salespeople to become productive. Our expectation is to build pipeline in the first half of the year, and start to generate revenue in the second half of the year.

Do you have a certain dollar amount from these new products that you can share with us that's kind of embedded in your 2012 guidance?

It's less than 10%, now, overall they are starting to ramp revenues, and I think by next quarter we will be able to give a little more clarity, as we've already started to sell some, but we are starting to see the build up in that pipeline.

Okay. I understand you added six reps during Q4, I was curious if you could share with us, where did you end in terms of number of midmarket reps versus number of enterprise? And where do you expect that number to go to by the end of 2012 in both of those subareas?

As far as reps are concerned, hold on one second, Nate. We ended the year with 25 in enterprise in 12 and midmarket. Our goal is to -- we have actually added several in the first quarter already, and we will continue to build up the sales organization. Part of this is from a target perspective. Our goal is to add them in the first half of 2012 as we built up the pipeline for revenue. As far as the target is concerned, we expect to be North of 50 sales -- quota carrying sales heads by the end of the year.

Okay. Great. Final question for you, I was just curious, my understanding and correct me if I'm wrong, but my understanding is that in that $6.3 million of bookings for the quarter, that did not include any contribution from the new products market or ADE Insights or the API? I was just curious, though, if you look at that new product bookings, what was that bookings in Q4? Thanks very much.

So, the Q4 bookings from new products was approximately 5%.

And it's within the number of the overall bookings number. There is some new product revenue in there, about 5% of that is new product revenue.

Okay. Great. Thank you very much.

(Operator Instructions)

Your next question comes from Shyam Patil.

Great job on the year. In terms of the new products, particularly LP Marketer and Insights, can you talk at all about how to think about pricing, and even for those two, how to think about, in a relative contribution, of the 5% bookings, what you might expect for the balance of the year?

As far as pricing model, the pricing model is pretty straightforward for LP Insights. We don't have enough data to talk specifically about the pricing around LP Marketer. But from LP Insights perspective, it's based on the number of chats that our customers would like to use in our software, and so it's a usage-based model with a fixed fee, and as far as LP Marketer is concerned, we are still working with the pricing with our customers. We think we have got a pretty solid pricing model, and we think we will be ready to share more in the next quarter's call.

Great. And then for the guidance, for the year, how are you thinking about growth from enterprise and midmarket versus small business?

The growth between the 3 segments, we actually expect all 3 segments to grow quite a bit. From a growth of perspective percentage perspective, we expect, in 2012, our B2B to grow approximately 26% to 27% in the business.

My last question on the margins, you guys get great color for 2012 margins, but if we want to think about the intermediate term margins, should we think about the 2012 guidance kind of being a good range to stay in, or should we expect modest expansion beyond that?

I would expect the guidance to be in that 75% range.

Got it. Thanks.

Your next question comes from Richard Baldry.

Thanks. Congrats on a good quarter. We've seen some other chat companies dipping forward profitability to try to talk about accelerating the top line. Can you talk philosophically? You have not done that here, you are seeing good earnings growth next year on a solid top line number. Can you talk about how you weigh the two, and if you were to see the top line accelerating through the year, do you think you'd really push that back into the expense side versus an earnings upside scenario to keep funneling to faster growth? Thanks.

It's always a balance. Obviously we are looking at growth. The interesting part about our growth, though, is that the new products are built off of fixed infrastructure. So I think that gives us a unique play on the margins side. Right now we are just balancing that, and growth rates will pick up a little bit this year, and we are excited about that, and maybe margins tick down a little bit, but we want to keep it within a range that we think keeps the company healthy. The other thing is that our entire business is driven by headcount, and effectively, hiring people, bringing them in, training them, especially people that fit the culture that we are building takes time. You can only really ramp at a certain pace, but once again, I think one of the things of getting leverage on our overall fixed costs in our platform of the data intelligence stacks that are there with chat, and just leveraging those to driving these other products. LP Insights is basically just taking chat transcripts and analyzing them. We store those transcripts, and there is already a cost of storing them, and now we are making a revenue stream off of them. So that's a unique situation compared to other SAS companies, where they may have a second or third product line that have a different infrastructure cost associated with them.

If we look at the balance sheet, you're up almost double since September, 2010 from $50 million to just under $100 hundred million, so pretty quickly. Are there some other partners that are working with either the data side of your business that you would look at as interesting acquisition targets, and how should we really think about that cash balance as it continues to scale pretty quickly?

We are always looking at the different strategic opportunities out there. Right now, we are really focused, as you can see, organically building our products. We are, obviously, the data intelligence stacks, there's some technology out in the world, but we've built a pretty strong set of technologies today, but we are always looking at stuff, and if we can accelerate our pace of development or open up some new markets and there's opportunities, we may look at that, but we like cash and we like generating it.

Thanks a lot.

Your next question comes from Richard Fetyko.

[Multiple Speakers.] Thanks, Rob. Good evening. Quickly, on the sales approach for the new product, I think you mentioned you are looking for salespeople were able to sell multiple products. I was just wondering if you are also looking to hire product specialists, and going forward, just how do you see this selling process of the new products versus the core products, whether having salespeople selling multiple products, how do we get comfort that that doesn't take away from the focus on the core products?

We have developed a pretty interesting structure that seems to be working and that's why the products are going out in the market. So there's two sides to it; one is the distribution challenge, which is midmarket, small business, enterprise, and international, and those guys, there's heads who lead that. On the other side, there's product owners. So there are guys -- there's a guy who dreamt up LP Insights, and he has his team, and he's got his own P&L, he's got his own goal, his team has a goal, and they're really like subject matter experts like SME's. So they are pushing the teams and working with the sales teams, and so there's a nice balance there, because you're right, people may drift toward one product or another, especially core chat products that we have a lot of experience in. But the sales team now has all trained in with the new Isis methodology that was developed by our current sales guys and head of enterprise, so they know how to sell multiple products, and then we're layering in the product owners, and that's what's getting us our traction into the market today, and so I feel really good about the structure of the balance between product owners and sales heads.

Secondly, if I may, in the opening remarks you mentioned that LP Marketer has how many customers now using it? And are they actually paying customers?

There are 16 paying customers.

Okay. Thanks.

Your next question comes from Brian Schwartz.

Things are taken my questions. I, too, will add my compliments on a very strong year. A couple questions here. Rob, just want to tap into what's behind this accelerating growth, revenue growth trajectory that your business has been experiencing here for a couple quarters now, and it looks based on guidance that that's going to continue. It doesn't seem like it's necessarily the ASP's out there, but is it possible to comment maybe proportionally what percentage do you think is starting to come from sales productivity gains? What percentage is from the traction you are getting on the new product cycles? And also, Rob, just wondering if you can comment on how you're feeling about the pipeline when you look at the size of it and the quality of it compared to 3 months ago. And then I have a follow-up.

There is a couple dynamics that are going on that make me feel very confident in the business. One is, chat as an overall communication tool, it's going much broader now, and what happens, because I really think social has taken off. Businesses now want to connect with their customers online in real time, and that's really Facebook and Twitter has driven that globally in people's minds. We are the leading provider of that technology, so that's one part. The second part is some of our competitors, like Right Now and ATG got acquired, and I think those products aren't as important to a company like Oracle, and that really opens up our ability to just continue to rollout into the core. The other thing is, as I mentioned, our best customer, and this is our best customer, we only have 10% penetration of the overall operators headcount.

So there's still, if you take that it's a multi-billion dollar industry, if you converted everyone from voice into chat, and chat's the place to be now, so we are accelerating in the core, and that's really what's making up, I think, a lot of the growth. So that's one part. The second part is there has been a shift in the conversation with our business and our sales team with our customers, and talking about intelligent engagement and stimulating that conversation of new products. The new products haven't yet contributed, obviously, significantly on the revenue side, but it's stimulating good conversation, and its getting our customers to think, and they are seeing a lot of cool innovations coming from us. So, all of that is really what's making the company grow in the last couple quarters. That's why I feel great about 2012, because I can honestly say we have an aligned organization. Everyone who is here is focused on the new products and delivering the platform, or focused on the core products, and so its like an aligned Company around intelligent engagement on our platform and that's a good feeling for me.

Great. And then the follow-up I had for you, Rob, and then also can I just one here for Dan. You did mention a couple of competitors that have exited the market here, and I'm wondering if you look at your win loss ratio, or maybe, again, looking at your pipeline growth, have you seen any changes maybe over the last 3 or 4 months, now that Right Now Technologies is being absorbed into Oracle? I remember when ATG had gone into Oracle, they had kind of disappeared from the market place for a while, and I'm wondering if you are starting to see, I guess it's still early days here, maybe a similar effect, where you are getting a benefit in your win loss ratios and pipeline growth from them exiting.

I can't attribute it directly to Right Now exiting. We still see them in deals every now and then. But we have actually done a good job of bringing in some of the right people and growing the organization. So I can't attribute it directly to Right Now, but we feel comfortable with our pipeline. As far as ATG is concerned, they have been absorbed into Oracle, and we have been able to, obviously, make some headway against ATG. But most of it is coming from organic and pipeline growth from our existing sales organization.

Great. Thanks Dan. And then just two metric follow-ups for you, one, was there any currency effect on the revenue, or the deferred revenue in the quarter, if you had any adverse affects from that, and then also on that record bookings number, congratulations to you and the team on that. Did you have any large deals, any 10% customer in that bookings number, like you did the following -- the previous Q4? Thanks again.

Thanks Brian. As far as currency is concerned, minimal fluctuation from a revenue perspective, from a revenue from foreign currency. And to answer the second question, sorry I'm drawing a blank on what the question was. Brian are you still on the line? Sorry Brian. I know what it was, it was the $6.3 million pipeline growth. There was there wasn't a big customer, it was basically, it was spread out from a bunch of different customers, so there wasn't one big impactful customer, and that's what I think makes the bookings more significant than even last year. Next question?

Your next question comes from Mike Latimore.

Thanks a lot. On the pay-for-performance side of things, any changes there? I think in the fourth quarter you talked about a couple customers going to a standard pricing model, so what's your view on, do you have any other customers that might go from pay-for-performance to standard in the next few quarters here, and what do you think the percent of revenue is for pay-for-performance over the course of the year?

From a pay-for-performance perspective, there's no specific customers I am aware of today that are planning on moving to fixed deals, but if a customer does approach us and wants to move to a fixed deal, we're obviously willing to entertain it and talk to the customer about it. As far as PFP as a percentage of total revenue, we've said consistently we are comfortable with it being between 17% and 20% as the business continues to grow, so it's been in that range for all of 2011. We are pretty excited about PFP. We are about to launch our first LP Marketer PFP deal, and we are doing a mobile PFP pilot with one of our customers as well, so we still think there is obviously plenty of opportunity in PFP, and we are comfortable with being 17% to 20 percent of the enterprise revenue of our business.

Did you say what the currency benefit was to earnings in the quarter?

I did not. We have not stated that in the past. It did have a positive impact on a gross margin perspective. Most of our expenses from a gross margin perspective are located in Israel, so the positive impact on the shekel for the third quarter had a nice benefit from a gross margin perspective.

And then from -- historically I think you had higher expense in the second quarter, are you going to have similar patterns this year? Is that the view?

We do expect that. We have done quite a bit of hiring in the fourth quarter. Our expectation is to do a decent amount of hiring in the first quarter, and so you will have the full quarter effect of that hiring happening in that second quarter. So our expectation is for that to happen, and as we alluded to before, we plan on holding several customer events in 2012, of which one is scheduled for the second quarter.

Great. Last from a bookings perspective, how did Europe perform during the quarter?

They performed actually very well. If the question is about potential weakness in Europe, I don't have the exact number off the top of my head, but they actually performed well pro rata from the $6.3 million in bookings. So Europe is doing very well from a bookings and revenue perspective against our expectations.

Great. Thanks a lot. Nice quarter.

Think you.

Your next question comes from Craig Nankervis.

Thanks, good afternoon. Nice quarter. On the core enterprise chat business, Rob, you talked about chat as going broader. I wonder if you could maybe relate some signs of the newer verticals, perhaps, picking up. Newer verticals you've talked about in the past, I think healthcare was in one, I can't remember the others. Just for starters, I wonder if there's any color on the vertical side in expanding the market?

Yes, I mean the insurance, healthcare, financial services continues to do quite well. So, we are pretty excited about that. There is government that we're just starting to get going in. We don't have a huge penetration in government. So there is that. The other parts are AIPAC, Asia-Pacific, and Latin America, where we have some very small partners, but we are starting to get fairly focused and aggressive. We are doing quite well with our Australian operation with our partner there. And we are going to start to put more focus. So I think there's markets outside the US, then you've got the verticals that are starting to go, and then you've got just growth within customer base all as parties that we think can drive the core business.

Okay. Thank you. I'm just curious on the investment profile for this year, I guess I'm assuming you're going to hire more sales heads this year than you hired last year. Yet, as has been discussed, you are not taking to much of a hit on the margin front. Is there a trade-off in the mix, some sort of offsetting offset to the emphasis on sales heads in your investment mix? Is it lighter R&D than you did last year, or can you give a flavor for the trade-offs in your emphasis on sales and marketing?

I mean, last year or so we put a big emphasis on products to roll these products out. And less on the sales side, because we didn't want to start staffing without having the right focus and processes in place, and the products to support more salespeople. So now that we are there, we are going to start go a little heavy on the sales and marketing. Marketing is a department in which we are going to really start to ramp from a headcount perspective, so we can get some real good lead flow, and the interesting part is that we are entering new markets. We are entering LP Insights, that's a whole different market than what we currently play in. It's the analytics market, and you've got Omniture, you've got some BI tools, it's about a $2 billion market place in its own between the structured Omniture-type stuff and the unstructured voice customer. So that opens up a whole different area to sell into, different decision-makers, and more marketing, and different marketing. So those are the types of things we are going to be investing in now to get the marketplace to understand what we are doing as a business.

I guess lastly, on the consumer front, what is the latest thinking about how you view the business, and the prospects, and sort of just flat with what's going on there?

The consumer business is, as you know, we focused on really cash flow versus growth in that one, and we are working on some things to align it to the core business. We have some time to wait to get to those places. So that's really just doing is optimizing cash flow, until we get, potentially can get that business one way or another aligned with what we are doing as an overall Company. Obviously the majority of our focus those on the core execution of the platform for real-time intelligence and data, and that's where the majority of our focus as a Company, and they are working on optimizing the business today.

Okay. Thank you.

Your next question comes from Jon Hickman.

Hello. Good afternoon. Just a question back on the sales guys that you are hiring. They are not going to be product specific right? They're going to sell everything?

The majority will sell everything. There are, we are testing some, there are some people that come out of the analytics world, and they may come out of some specific verticals, advertising, things like that we may hire, but everyone is expected to sell every product, regardless of their backgrounds.

Okay. And then Dan, you talked too fast for me to write, what was the percentage of the international business?

24%.

For the year?

Yes.

And that pay-for-performance for the year and the quarter?

As far as overall revenue, 10% for 2010 and 11% for 2011.

Okay. And then--

And 18% of enterprise revenues.

Okay. So, going forward, you talked about with LP Marketer, that you are still working on billing model, but you had one for LP Insight, what about ADE?

ADE is on a per-seat per-user basis. Primarily focused on the small business section of our business.

Is there a vertical in the small business section like that product better than, or do you even keep that kind of data?

No. It's across the board. There is no specific vertical that's adopting ADE specifically. It's really around the client and what their needs are.

Okay. And then one more question on competition. People talked about Oracle and Right Now, et cetera. Are you seeing anybody new?

No. Not right now. Not on the chat side, and in the new businesses, there is a couple of startups against LP Marketer. LP Insights, like I said, will go broad against, in the future, Omniture and other analytics types of businesses, but there is more consulting. A lot of what LP Insights goes up against is companies that consult and take data and analyze it, and we are doing it a much more efficient way with data that we capture. ADE is just a total new innovation. We are importing Google analytics and SEM data, and using that to drive behavior and changes in behavior on a website, so that's a whole new innovation that no one is doing today.

Okay. Nice quarter. Nice year.

Thanks a lot.

And your final question comes from Jeff Van Rhee.

Hey Jeff.

Two quick questions for you. Maybe Rob, first as it relates to LP Marketer, when you look at the use cases in the verticals, and how the market for that product is evolving, what has changed in terms of your thoughts on the addressable market? What have you learned, based on the early uptake?

It's interesting. We thought, as I originally discussed, this online coupon and it has got two uses, it drives conversion instantly, and the other one is to just drive sometimes just a change in behavior that's non-conversion related on a real-time basis. It just may be educating someone about a product, or getting someone to sign up for something. That's one part. It's also being connected with ADE to try driving things around increasing conversions around keywords. And optimizing keywords. So there are some new uses there. It's got such broad use, and that's why we are kind of playing it out a little longer, because the business models are evolving. We even have a pay-for-performance model that just launched with a big consumer electronics company, and we are selling laptops and things like that, so we are looking at that. It's got such broad usage that we just continue to evolve it. It definitely has a lot of use, and the beauty of it is that a customer can get up and running instantly. They don't have to re-tag their page, or do anything. They just start working with it.

Is it fair to say your thoughts on the addressable revenue opportunity at this point are that it is a larger market than you thought it was 3 months ago?

I think, because it's got broader use cases, it is definitely, I never really thought about the keyword part of it, and I never really thought about the practical aspects of enabling a marketer to change content on a website without having to go to the designer IT departments to do tagging, so there's just a use flexibility of changing creative instantly, without having to go and get a lot permission, and that's what a marketer has to do today. So there are broader sets of usage beyond just conversion.

The last one, I think you touched on it a few times, but I'm not quite sure I heard any conclusion as to sales cycles, are you seeing any change in sales cycles here, versus maybe 3 or 6 months ago?

No. I think they've been relatively the same. One of our concerns is with what's going on in Europe, we would see a slowdown, but we think from a bookings perspective, we didn't experience that the fourth quarter, and we are keeping a watchful eye as we go through the first quarter.

Excellent. Great quarter. Thanks guys.

Thank you.

And there are no further questions at this time.

Okay. I want to thank everybody for being on the call, and once again I want to thank everyone who's working here for all that tremendous work we did in delivering a bunch of new products that didn't exist last year, and really aligning the company to this goal. So thank you and we will see you next quarter.

Thank you everyone.

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