LivePerson Inc (LPSN) 2012 Q1 法說會逐字稿

Welcome to LivePerson's first quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be question and answer session.

(Operator Instructions).

I would now like to call over to LivePerson CFO, Dan Murphy and Robert LoCascio, Chairman and CEO. You may begin your conference.

Thanks very much. 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 as an indication of future performance. Changes in economic, business, competitive, technological, regulatory and other factors could cause LivePerson's actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the reports and documents filed from time to time by LivePerson with the Securities and Exchange Commission.

Also please note that on the call today we will discuss some non-GAAP financial measures and 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, everyone for joining us today. I'm pleased to report we have started the year off on a strong note. During the quarter, our core business demonstrated continued strength, with B2B revenue increasing 23% over the prior-year period. We also had a very strong bookings quarter. First-quarter bookings came in unseasonably high at $6.1 million, which represents more than a 60% increase from the prior-year's first quarter and around 10% of the pipeline consisted of new products.

As we've discussed in the past, in the first half of 2012 we are focused on continuing to build our new product pipeline. We remain focused a rolling out the new products more broadly across our customer base, while expanding the depth and reach of our core chat product offerings. Along those lines, we continue to make a considerable investment in building out our sales team, and training them on the value-based selling model we implemented last year. During the quarter, we added a six quota-carrying sales reps, which is in addition to the six hired during the fourth quarter. We are also starting to increase our overall marketing investment in order to build awareness and demand in the marketplace.

To that end, I just got back from the UK, where we kicked off the first of three Aspire customer summits. Our Aspire events bring customers together to share success stories and best practices, and to learn about our latest innovations. With over 300 people in attendance, it was an important opportunity for us to connect with these leading European companies and really give them an opportunity to exchange ideas, learn about our new products, and connect with each other. This was definitely one common thread among these organizations, a strong desire to create deeper, more meaningful relationships with their customers, and they are looking to LivePerson to help achieve this. We look forward to continuing to connect with our customers, and be hosting our next Aspire event in Australia at the end of May and then one in New York during mid-June.

As part of our overall strategy, we continue to evolve our core chat products. We are in the process of launching a new connection framework, that combines chat with full integration of voice, video, screen sharing, and even real-time language translation. From the consumers perspective, they are able to switch between these communication channels seamlessly, and from our customers' perspective, all these technologies easily plug into the agent console. We previewed this connection framework at our EMEA Aspire event last week. An early-adopter to this new connection framework is a major consumer electronics company. They launched a very exciting deployment a few weeks ago on a few of their emerging-market websites. Our technology is enabling them to create an online customer experience that very much replicates the same high-touch experience that consumers get when they're in one of their stores.

They are also going to use video web cam to conduct sales, support, and product configurations in real time. It will feel very much like their in-store experience, and this enables them to cover markets where they don't have significant store penetration. Our goal with the connection framework is to accelerate the adoption of our technologies among contact centers, where voice 1-800-numbers are still the dominant form of communication. Our expectation is to start rolling out the connection framework as a standard offering with our chat products starting at the beginning of Q3.

Moving on, I want to tell you about some of interesting use cases we've been seeing with the new products during the quarter. With regards to LP Marketer, we continue to see an expanded set of use cases beyond just driving sales conversions, and one of our original beta customers, a large home improvement retailer, has expanded use of LP Marketer to build awareness campaigns around lesser-known products and services. They want to be sure to expose customers to the whole range of diverse services they offer, such as in-home installation, and they are now deploying up to six campaigns a week, using LP Marketer in different departments across the website. It's sort of serving as real-time merchandising tool.

At the end of the quarter, we had approximately 30 customers using LP Marketer, up from 16 in the fourth quarter. Another product, LP Insights, takes the unstructured chat transcript data, and turns it in to structured data in near real-time. The results are actual insights that enable customers to make informed product and program improvements. In fact, we recently had a major enterprise customer win an internal award for an accomplishment using Insights, and they took the insights provided by our product and used it to optimize their agent training program. The results were compelling, conversion rates increased by 2.5%, and Insights also helped to drive a 30% increase in customer satisfaction with their overall chat program.

During the quarter, we had about ten customers using LP Insights, up from seven in the prior quarter. During the quarter, we also continued to see broad adoption of our ecosystem partner products on our platform. We currently have 25 partners developing on the platform, and we had 50 new API integrations during the quarter. The biggest interest areas continue to surround mobile deployment and chat enhancement.

I would now like to review the four main goals that we are trying to achieve this year that I outlined on the previous quarter's call. The first goal is to deliver multi-product deployments to a greater number of customers, so they can more-broadly leverage LivePerson's data and intelligent capabilities to connect with their customers in more meaningful ways. I feel that we are making solid progress towards this goal, and it is reflected in the mix of new and existing products in our bookings number. We're still in the early stages, and we continue to learn as we sign each and every new paying customer.

Our second goal is to find new ways to accelerate the growth of our core chat products. The opportunity really lies in the fact that, even in our best customers, only about 5% to 10% of the total agent population is using chat, and the majority of agents are still taking inbound 1-800 voice calls. This opportunity becomes even more apparent as companies begin shifting away from more traditional channels, such as e-mail and phone, to more digital ones, such as chat, video, and communication; and this is really driven, I think, a lot by what's happening in the social media space, with people wanting to connect online in different ways. We are really going to use our connection framework, the combination of chat, video, voice, to really drive towards the achieving of this goal.

The third goal is to continue to improve and scale the data in intelligent layers of our platform, in order to drive towards our long-term product strategy. Our aim is to transition from a chat company solely, to a platform for real-time data intelligence, with chat being just one app of several on the platform. We're making really good progress with the launch of our new products, and are in the middle of developing to major enhancements to our overall data and intelligence layers, which will support this seamless deployment between LP Marketer, LP Insights, ADE, and now the overall connection framework.

And the fourth and final goal is to continue building the systems that will help us deliver on our core values of being an owner, help others and our mission of creating meaningful connections. If you'd like to get a better sense of what meaningful connections looks like, feel free to watch one of our Aspire customer events online. They are truly a unique experience, and will be webcasting the one coming up in New York City between June 12 and June 14 off of our website. So before I turn the call over to Dan, I want to say that we continue to be in uniquely strong position to execute on our overall strategy, by becoming a real-time data and intelligence platform for delivering meaningful connections. The new world of online communication and connection is moving in our direction, and we have a tremendously strong core and customer base to build from.

And with that, I will turn the call over to Dan. Dan?

Thanks Robert. Last year was a big year for LivePerson, as we put in place the building blocks that will ultimately drive the long-term vision of the Company. We've made, and continue to make, investments in the business, specifically from a people-and-product perspective. While we have world-class chat products, we've also been able to bring to market this next generation of intelligent engagement solutions that we introduced last year.

As we discussed in last quarter's call, while we are building the new product pipeline with the goal of setting the stage for growth in 2013, the dynamics of some of our financial metrics have become more closely aligned with our growth goals. I'll address that a bit further, in terms of how we are setting expectations around both top- and bottom-line growth, as well as from a margin perspective.

Let's get into the details of the quarter first. Overall, we are pleased with the performance of the quarter as a whole, we demonstrated solid quarter-over-quarter revenue growth, had another strong quarter from a bookings perspective, and continue to generate steady cash flow. EPS came in at the top of our guidance range, adjusted EPS and EBITDA per share came at the mid-point of our guidance range. First quarter B2B revenue was $32.9 million, a 23% increase as compared to the prior-year quarter. Total revenue was $36.8 million, a 21% increase as compared to the prior year.

Revenue from consumer operations for the first quarter was $3.9 million, which is a 5% increase over the first quarter of 2011. EBITDA per-share for the first quarter of 2012 was $0.16, in line with the first quarter of 2011. First-quarter GAAP earnings per share were $0.06, also on par with first quarter of 2011. Adjusted net income per share was $0.09, which was consistent with the first quarter of 2011. All three measures were helped in delayed timing of new hires, stronger gross margin, and by positive foreign currency fluctuations, primarily the shekel.

Bookings continue to be particularly strong, reaching $6.1 million in the first quarter. We signed 107 total deals -- 117 total deals in the quarter, compared to 123 deals in the fourth quarter of 2011. During the quarter, we added 28 new enterprise and mid-market customers, including Discount Tire Direct, Ross-Simons, and a major luxury goods retailer. We also continued to deepen and expand relationships with existing customers including, T-Mobile and SAP.

Our small business group revenue grew 4% in the first quarter, when compared in the fourth quarter of 2011. Small business customers continue to be early adopters of our API and ADE product offerings, and we also signed several LP Marketer deals in the small business segment during the quarter. Average deal size for all deals was $52,000; the average for new customers signing up for initial deployment was $36,000; the average for existing customers signing up for an up-sell or expanded business was $58,000. Sales of customer service chat were approximately $31,000, and sales of our proactive sales products were $58,000. The breakdown of enterprise and mid-market bookings in revenue terms is approximately 82% existing customer expansion, and approximately 18% to brand-new customers.

The break-down between sales and customer service revenue was approximately 88% weighted towards sales deployments, and 12% towards customer service. Customer attrition for enterprise accounts averaged 1.3% in the first quarter, which is down from both the fourth quarter and first quarter of 2011 average of 1.6%, and small business attrition rates averaged 2.8%, compared to prior year of 2.2%, and prior quarter of 2.8%. Pay-for-performance generated approximate 16% of total enterprise revenue, and 9% of total revenue, which is down from the fourth quarter and the prior-year quarter.

Revenue coming from outside of the US remained consistent, at approximately 23% of revenue, with the UK making up a large percent, and representing our largest concentration outside of the US. In Europe, we continued further develop relationships in the region with existing clients, signing an expansion with BSkyB, and Foxtons as new customer. The revenue breakdown by industry verticals was consistent with prior quarters, financial services made up approximately 22%, telecommunications 34%, retail 12%, and technology at approximately 14%, and other at 19% for the quarter.

In terms of the scope of our customers, we continue to make a progress expanding several of our larger customer relationships. As of the end of the quarter, we had 35-plus customers above $500,000 in annualized spend, we have a total of 25 customers spending more than $1 million annualized, and 2 of the 25 customers now spending over $5 million, which is up from 1 in the fourth quarter, and we have 1 above $10 million in annualized spend. First quarter margins came in stronger than anticipated at 78%, which compares to 73% in the first quarter of 2011, and 78% in the fourth quarter of 2011. The first quarter margin can be attributed largely to continued positive benefit from currency fluctuations, specifically the shekel.

During the quarter we continued to add to our overall headcount, with a continued focus in areas of technology, and sales and marketing. We're continuing to concentrate on expanding sales capacity and marketing efforts to support our new-product rollouts, and the continued growth of our existing core business. We ended the quarter with a cash balance of approximately $108 million, as compared to $93 million at the end of 2011. We generated $11.6 million in cash from operations during the quarter, which is offset by $1.7 million in capital expenditures.

First-quarter accounts receivable were $17.8 million, down from $21 million in Q4. Our DSO metric for the first quarter was 44 days, which is down from 52 in the fourth quarter. I expect the DSO of 44 days to be temporary, as we work diligently to clear up year-end balances with our customers. As discussed in prior calls, we are comfortable with a DSO in the range of 50 to 55 days. In the first quarter, our tax rate was at 40% due to timing differences, while we expect the full-year tax rate to be between 37% and 38%; the first quarter also tends to trend bit higher.

Now I would like to discuss financial expectations for the second quarter of 2012. We expect revenue of between $38.5 million and $39 million; EBITDA between $0.12 and $0.14 per share; adjusted net income between $0.07 and $0.09 per share; GAAP EPS of $0.03 to $0.05; and a fully-diluted share count of approximately 56.5 million shares. We are also reaffirming our full-year guidance of revenue of $160 million to $165 million; adjusted EBITDA of $0.66 to $0.70 per share; adjusted net income per share of $0.40 to $0.44; GAAP EPS of $0.21 to $0.25; and fully-diluted share count of approximately 57 million shares.

We're excited about what lies ahead in 2012. As Rob mentioned earlier, our primary goal this year revolves around building momentum and pipeline behind the new products, and continuing to evolve and grow our existing core business. We will continue to invest in the business in order to drive long-term growth. To that end, last year we hosted our global customer event, Aspire, in New York City. Building off that success this year, we kicked off a global Aspire series. These events present tremendous opportunity for us to connect with our customers, and for customers to collaborate and share their success stories about the value they derive of working with LivePerson. As Rob mentioned, we just got back from the UK, where we hosted our first Aspire event of the year. We have two additional Aspire events plan during the year, the second quarter; one in Australia, and another in New York City. Throughout 2012 we will continue to be proactive in both the marketing and customer-facing activities.

During the first quarter, we continued investment in sales, adding six heads in the first quarter, and we currently expect to hire several more in the second quarter, as well as throughout the remainder of 2012. I'd like to take a moment and explain how these investments will impact some of the financial metrics for the year. Although trending higher the past few quarters, we expect gross margin on GAAP basis to remain more consistent with last year's levels of approximately 76% to 77% for the remainder of the year. Furthermore, we anticipate sales and marketing as percent of revenue for the year to be approximately 31%, G&A of approximately 17 % of revenue over the course of the year, and R&D to be approximately 18% of revenue for the year. That covers all the operational and revenue highlights, and now if the Operator could rejoin the call, we would be happy to take questions from folks participating. Operator?

(Operator Instructions) Nathan Schneiderman, ROTH Capital.

Hi, Rob and Dan, thanks very much for taking the questions. It looks like you had a really terrific start to the year, in terms of bookings and in deal counts. My sense is that maybe the business segment revenue was, perhaps, a little bit light of what you were thinking, given your results versus the guidance, but I was hoping you could clarify, what do you think happened there? And, just give us a little more details on why you think there was a little bit of a shortfall in that particular line-item?

Thanks, Nate. So, the short answer is PFP is a variable portion from a revenue perspective, and it came up a little bit short of expectations in the first quarter, primarily related to timing of clients that we expected to go live, and volume.

Okay. And maybe just to clarify on that, if the PFP had come in line, maybe you could share with us, what was your expectation as a percent of revenue? I think it was, this year it was 16% in the quarter, last year it was 17%, but what was your expectation as a percent, and what was the negative impact on revenue by being at 16%, versus that particular number?

Sure. Our expectation was to be approximately 10% of overall revenues, slightly under. And from a guidance perspective, we missed the revenue by about $200,000 from a revenue perspective, and one of our larger customers didn't meet the volumes that they anticipated as well.

Okay. And then I guess my final question area for you, Rob, I hoping you could give us a little more detail on this new connection framework that you discussed. Do you see it as a product offering that, kind of in general, fits into a new product category, like an Insights or a Marketer? And then can you clarify, is this a product meant for enterprise customers -- enterprise and end market customers, small business customers, or both, and how you see it impacting your business, and the kind of demand you think you will see for this particular product? Thanks very much.

So, yes, this product actually has been -- is driven by the product owner who owns chat. So what's happening now is we are going to start expanding chat as a product, to include all these other things like video and voice, so really it is the chat product, were not going to introduce -- we're going to put name on and everything, but it is going to be chat that is now morphing to extend into these other areas.

And as I mentioned on example with the consumer electronics company, it is very neat with what they are doing. They really wanted to replicate the store experience, and so we basically put all of these pieces together for them in a very integrated approach, so you can go online, you can do video with someone who works at their company. You can ask questions, they even have a way in which you can see products getting configured by video, or you can go to chat and then upgrade it to audio, or then they can screen share, and they can even do a translation on-the-fly speaking one language, and that would translate on-the-fly and do another language.

So we know that the majority of contact centers are still voice-enabled, and so what we want to do is really get more of those seats. With the integration of voice and video and chat, we think this is a good strategy and the chat -- and the person who owns chat thinks it's a good strategy and product to do that. So you should see chat now morph into this, and it will go across enterprise, mid-market and small business. So it'll be offered across all three areas.

Shyam Patil, Raymond James

Hi, thanks. Dan, following up on your comment earlier about the slight shortfall on the PFP business, it seems like AT&T is going through some changes right now and companies exposed to them have seen some weakness. Can you talk about maybe telco in general, and AT&T specifically, and if you expect to be impacted with any of the changes they are making, either positively or negatively?

Sure, from a telco perspective, it continues to be one of our strongest verticals, and our customers are actually growing with us, and AT&T specifically is one of our larger customers, and from a volume perspective, there's a lot more competition in telco space. But from a volume perspective, we didn't reach the volumes we expected from AT&T in the quarter.

Great. And then you've built up a pretty nice cash balance now, can you talk a little bit about how you plan to deploy that, maybe what areas you are looking at for M&A?

There's nothing that we can specifically comment on as of this point. We are generating nice cash from business and the cash is going up a decent amount of money, and we've been investing organically in the business, as we've talked about on previous calls, and putting money into customer-facing activities, and obviously our product and headcount.

Got it. And just my last question, I missed the enterprise and mid-market growth rates that you may have given. I was wondering if you could give those again?

So from a B2B perspective, we grew the business 23% quarter-over-quarter -- year-over-year, sorry, and the overall business grew 21% year-over-year.

Richard Fetyko, Janney Capital.

Hey, guys, thanks. Just on the sales process of the new products versus the core products, how that's coming along. I know you had some product specialists running around selling LP Marketer and LP Insights, and just what's the strategy there, if you're going to have the broader sales force pitch these products in the future as well?

Yes, I think we feel things are progressing nicely. As I said close to 10% of the bookings number was new products, and we had about, close to 5% in Q4, and they are just an overlay. They are the product owners, but the entire sales force is out selling. We're definitely not at capacity, so we are very far from capacity. We've got a lot of new reps who are getting up to speed on just the overall product lines. So we definitely have not -- don't have leverage right now, like it is a sales and marketing machine. But they are doing a really good job in tactically getting out there, getting in front of customers and there's demand.

Part of it is, there is demand in our customer base to just get these products, so even if you're a rep who isn't fully up to speed, you're calling on customers and you're telling them what we have, and we are seeing some nice demand. So I think our goal of getting the multi-product strategy going, we feel really good with, and we are -- this has been our best Q1 bookings quarter in the history of our company. Which is a real, I think a sign, for what's going on. And the capacity of where we could go.

So, just to be clear, all customer -- all sales reps are selling all products at this point? They are?

Yes. Every rep has been -- is being trained in with new selling methodology called Isis, and everyone is out selling it. But there's a lot of new reps, so these reps are going to come up to speed just on the core products, but everyone has to sell it, and everyone has in the quota new products, so they've got to make their quota by selling new products.

(Operator Instructions)

Mike Latimore, Northland Capital.

Hi, guys this is Ryan MacDonald in for Mike Latimore. I'm just curious, roughly what percent of revenue in bookings do expect from new products this year? Is it similar to the 10% that you're currently at?

We expect less than 5% to come from -- revenue, to come from new products, and we haven't given guidance on bookings, but approximate 10% of our bookings in the first quarter were for new products.

Okay. Then do you see pay-for-performance growing at the same rate as the overall business this year?

Right now it is slightly behind. We expect a few customers to get up and running. But we will continue to drive PFP, and our expectation was that it would grow closer or slightly behind the overall business as we've rolled out some of our new products.

Okay. And then just one follow-up to that, have you seen any interest in pay-per-performance for LP Marketer yet?

We have had customers that have talked to us about it, a PFP model for the new products, and we are actively engaged in some discussions, but our goal is to get as much product adoption, or new product adoption, as possible. We will work with our customers around the pricing, and if a pay-for-performance is right for us on our end customer, we will absolutely take a look at it.

There are no further questions in the queue; I turn the call back to the presenters.

Thank you, and we will see you on the Q2 call.

This concludes today's conference call. You may now disconnect.