LivePerson Inc (LPSN) 2012 Q2 法說會逐字稿

Good afternoon and welcome to the LivePerson second quarter 2012 earnings call. My name is Diane and I will be facilitating the audio portion of today's interactive broadcast.

With us today we have Mr. Dan Murphy, CFO and Robert LoCascio, CEO. (Operator Instructions) After the speakers' remarks, there will be a question and answer session. (Operator Instructions) At this time, I would like to turn the call over to Mr. Dan Murphy. Sir, you may begin.

Thanks, Diane. Thank you very much. Before we begin, I'd like to remind listeners that during the 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 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. And thanks, everyone for joining us. I'm pleased to report Glad you could join us today. I'm pleased to report that we had another strong quarter. BV revenues grew 23% over last year, we signed a record 136 deals, up from 117 in Q1. During the quarter, bookings came in at $6.9 million. This was a record for a quarter and almost 20% increase over the prior year quarter of $5.8 million.

New product pipeline continue to make up a large percentage of bookings with 17% of total bookings coming from new products, compared to 10% in Q1 and 5% in Q4.

My high-level observation is that the continued strength in our bookings numbers and the changing mix of new to existing product indicates we're on the right path towards executing on our overall vision of delivering a platform for intelligent engagement. We are now focused on how to optimize execution on our go-to-market strategies so we can scale our product sales to our 8,500 customers.

We now have some great use cases coming from customers who are using our new products. As many of you experienced firsthand, our customer summit Aspire went global this year as we hosted events in the UK, Australia and New York. Nearly 500 customers gathered across several continents to witness how some of the world's leading brands are utilizing LivePerson's technology to more meaningfully engage their customers online.

It was exciting to see some examples of customers leveraging more than one LivePerson product to successfully drive their overall engagement strategies. At Aspire, Petco shared a case study of how using multiple LivePerson products in tandem can create a holistic customer engagement strategy. Petco's been an LPChat customer since 2010 and then went onto deploy LPMarketer and recently implemented LPInsights.

After launching their new Pals customer awards program, they wanted to drive adoption while deflecting more costly interactions. They deployed LP Marketer to engage customers with targeted messaging to facilitate the Pals login process. And this helped Petco deflect expensive, time-consuming voice calls and approve overall customer experience.

When Petco implemented the voice of the customer capabilities of LP Insights, they were able to identify problems in the Pals log-in process that were preventing conversion and then use LivePerson Marketer to optimize the process and help customers locate their Pals account number. Petco's a great example of how our customers can use multiple products to improve the overall online experience.

Home Depot also presented at our New York Aspire event and Home Depot talked about how important it was for them to provide an interconnected brand experience for their customers, both on and off line. With about 45% to 50% of their in-store purchases starting with a visit to HomeDepot.com, it's vital for them to connect the online and offline customer experience and they're utilizing LivePerson products to make that connection.

A great example was a highly segmented awareness campaign, in which Home Depot ran around their installation services. By using the geo location data we capture on a visitor, they were able to target consumers in 11 specific markets using LP Marketer and further narrowed the segment with product offerings that had a higher propensity for installation, which increased conversion rates. With over 300,000 SKUs on HomeDepot.com, the ability to run highly targeted campaigns provides significant value.

The global Aspire events gave our customers a strong sense of the LiveEngage platform innovative products we are offering to execute a more holistic strategy for effective customer engagement. It is also a validation of our platform vision to see more customers developing a multi-product strategy approach. I think we're really starting see this resonate with our customer base.

We made two acquisitions during the quarter that support our goal of delivering a complete platform for intelligent engagement with the acquisition of Look.io and Amadesa. Both acquisitions will help strengthen and expand our core technology offerings.

Look.io has built a mobile chat application that can be integrated into LivePerson platform providing some innovative features, such as mobile screen sharing, pre and post chat surveys and overall integration into dot M sites, IOS applications and soon we're going to be delivering the Look.io application on Android devices.

According to eMarketer, mobile commerce sales are expected to reach $11.6 billion this year with an estimated 64% of smart phone owners using their mobile devices to shop online. Mobile is a very important part of our overall strategy, especially as we move into Asia, where they have a higher penetration of mobile commerce users. The acquisition of Look.io will help us to accelerate our go-to-market strategy in the overall mobile space.

We also announced the acquisition of Amadesa, which will allow us to extend our predictive targeting capabilities to a larger base of our customers across multiple engagement channels in a more frictionless automated manner. Amadesa technology improves our ability to track correlations between behavioral patterns and a propensity for a specific outcome to buy, for example, in order to determine the best opportunities for interaction. With both acquisitions we also gain some very strong talent in both the R&D and product functions.

We've been making significant progress against our four strategic goals, which I'll quickly review with you right now. For the remainder of the year we'll be very focused on executing against these goals. First is what we call Plus 1. Our goal is to have everyone of our 8,500 customers use more than one product, as we believe this will give us the ability to scale our business to the next level. The progress of this goal is reflected in our growing sales pipeline and our customers themselves are starting to use our new products.

As of the end of the second quarter, we have approximately 550 customers using more than one LivePerson product, which compares to about 275 at the end of 2011.

Our second goal is to find new ways to accelerate the growth of our core chat products. Last quarter -- or previous quarter to Aspire we introduce our new connection framework of engaging customers with video, voice, chat, mobile, desktop sharing. And Apple is the first customer to use this new innovation and their goal is to replicate the in-store experience online. I think it's something that's going to resonate well with many of our large enterprise customers, especially as we continue to closely integrate with existing voice based contact centers.

The third goal is to continue to improve in scale the data intelligence layers of our platform. We're driving towards a vision of delivering a platform for real time data intelligent around LiveEngage and we've been working to enhance how we monitor, organize and access the data we're collecting. We want to make our data as valuable as possible for real time engagement and insights. We started to monetize it through obviously our LPInsights product and we're enhancing that data now also with our acquisition of Amadesa and our other predictive technologies that we built in-house.

And the fourth goal is to continue to build the systems that will help us deliver on our core values of being owner and help others. And our mission of creating meaningful connections in the world. As LivePerson grows, we're working hard to maintain and scale our culture as it is unique and defines us in the world.

Two years ago we set out on this journey to create an outstanding Company where our products and culture are a platform to deliver on our unique mission of creating meaningful connections in the world. We made tremendous progress towards this goal and we have a strong team in place now to execute on our go-to-market strategy.

With that, I'd like to now turn the call over to Dan to review the numbers in greater detail. Dan?

Thanks, Rob. Strategically the first half of the year was important for us as we continue to invest in the business, specifically in the products, people and process necessary to continue to drive our platform strategy forward. As Rob discussed, we have made good progress explaining the reach of both our core and latest intelligent engagement applications across the base. And we'll continue to focus on that for the remainder of the year.

We also made a number of important moves during the quarter aimed at strengthening our core technology platform, specifically with two technology focused acquisitions that we announced in the second quarter, Look.io and Amadesa. While there was certainly a lot that went on during the quarter, our efforts were aimed at driving towards our goal of delivering a platform for intelligent engagement to our customers.

We are busy building the pipeline, increasing sales and marketing capacity, and ensuring we have the right team in place to execute against our long-term strategy. During the quarter, we successfully staged three Aspire customer summits showcasing our latest intelligent engagement applications, as well as our new connection framework.

During the second quarter, B2B revenue was $34.5 million, a 23% increase as compared to the prior year quarter. Total revenue was $38.5 million, a 21% increase compared to the prior year. Revenues from consumer operations for the second quarter was $4 million, which was a 6% increase over second quarter of 2011.

We also completed two acquisitions during the quarter and the associated accounting and legal costs, as well as costs related to litigation were not part of our original guidance. Those items impacted the quarter by approximately $2.5 million. For comparison purposes, I'll present the next few metrics both with and without those items.

Adjusted EBITDA per share for the second quarter of 2012 was $0.08. Excluding the previous discussed M&A and litigation costs, pro forma EBITDA, for the second quarter of 2012 was $0.13 per share, which would have been in line with our Q2 guidance and is compared to actual adjusted EBITDA of $0.13 per share in the second quarter of 2011 and $0.16 per share in the first quarter of 2012.

Second quarter GAAP earnings per share was $0, excluding the impact of M&A and litigation costs outlined above. Pro forma net income for the second quarter of 2012 was $0.03 per share, which also would have been in line with our Q2 guidance and as compared to actual net income of $0.04 per share in the second quarter of 2011, and $0.06 per share in the first quarter of 2012.

Adjusted net income for the second quarter of 2012 was $0.05 per share. Excluding the M&A and litigation costs we just discussed, pro forma adjusted net income for the second quarter of 2012 was $0.08 per share. Again, this is in line with our Q2 guidance and is compared to actual adjusted net income of $0.08 per share in the second quarter of 2011 and $0.09 in the first quarter of 2012.

Bookings continue to trend higher, reaching $6.9 million in the second quarter. And as Rob mentioned, new products represent 17% of bookings during the quarter, up from 10% in Q1. As of the end of the quarter we had approximately 39 customers using LPMarketer, 12 on LPInsights, 270 on ADE and 235 customers using our APIs.

We signed 136 deals in the quarter compared to 117 in the first quarter of 2012. During the quarter, we added 34 new enterprise and mid-market customers, including 1-800 CONTACTS, GMC and Majestic Wine. We also continued to deepen and expand relationships with existing customers, including TXU Energy, Jetstar and one of the largest healthcare providers in the US.

Our small business group's revenue grew 2% in the second quarter when compared to the first quarter of 2012 and 16% over the prior year period. As Rob mentioned earlier, we rolled out a beta version of our LiveEngage platform to our small business customers during the quarter and currently have approximately 400 customers on the LiveEngage platform.

Small business customers continue to be strong adopters of our APIs, as well as some of our new products, including Keyword Lift, LP Marketer and our ADE product offering.

Average deal size for all deals was $50,000. 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 $55,000. Average sales of customer service chat were approximately $24,000 and sales of our proactive sales product were $61,000.

The breakdown of enterprise and mid-market bookings in revenue terms was approximately 82% existing customer expansion and about 18% to brand new customers. The breakdown between sales and customer service revenue was approximately 87% weighted towards sales deployments and 13% towards customer service. Both metrics are relatively consistent with prior quarters.

Customer attrition for enterprise and mid-market accounts averaged 1.2 % in the second quarter, which is down slightly from 1.3% in the first quarter. Small business attrition rates average 2.6%, down from 2.8% in the first quarter.

Pay for performance generated approximately 16% of total enterprise revenue and 9% of total revenue, which is consistent with the first quarter.

Revenue from outside the US remained consistent at approximately 24% of revenue with the UK again making up the largest percent and representing our largest concentration outside of the US.

In Europe, we continue to further develop relationships in the region with existing clients signing expansions with T-Mobile Deutschland and Virgin Mobile Australia. We'll continue to seek opportunities to expand our global presence with three key areas of focus being Asia Pacific, Latin America and Europe. This initiative, as I mentioned, is also factored into our revised 2012 guidance.

The breakdown by industry verticals was consistent with prior quarters. Financial services made up approximately 22%, telecommunications 34%, retail at 13%, and technology at approximately 12%, with other at 19% for the quarter.

In terms of the scope of our customers, we continue to make progress, expanding several of our larger customers relationships. As of the end of the quarter, we had 35 plus customers spending above $500,000 in annualized spend. We now have a total of 26 customers spending more than $1 million annualized, with two of those spending over $5 million and one above $10 million in annualized spend.

Second quarter gross margins came in stronger than anticipated at 78%, which compares to 73% in the second quarter of 2011 and 78% in the first quarter of 2012. Similar to the first quarter, gross margin continues to be positively impacted from currency fluctuation, specifically the shekel.

We ended the quarter with a cash balance of approximately $101 million as compared to $108 million at the end of the first quarter. We generated $2.6 million in cash from operations during the quarter, which was offset by capital expenditures and the two acquisitions completed in the second quarter.

Second quarter accounts receivable were $19.6 million. Our DSO metric for the second quarter of 2012 is 46 days, slightly up from the first quarter of 44. As discussed in prior calls, we're comfortable with a DSO in the range of 50 to 55 days.

Our tax rate for the first six months is 40%. We expect the full-year tax rate to be approximately 39%.

Now I would like to discuss financial expectations for the third quarter of 2012, which includes costs associated with the acquisitions, litigation and international expansion, including operating expenses and deal related amortization expenses related to the acquisitions of the first half of 2012.

We expect revenue between $40.5 million and $41.5 million. EBITDA between $0.11 and $0.13 per share. Adjusted net income between $0.07 and $0.09 per share, GAAP EPS of $0.01 to $0.04 per share and a fully diluted share count of approximately 58 million shares.

We are also adjusting our full-year guidance to reflect the costs related to the acquisitions, litigation and international expansion, which totaled $5 million for the full year -- which will total $5 million for the full-year, of which $3 million was incurred in the first half of 2012.

In addition, we expect to incur operating expenses related to Amadesa and Look.io acquisitions of $1.5 million and amortization expenses related to the acquisition of $700,000 in the second half of 2012.

Revised expectations are as follows. Revenue of $160 million to $165 million, which remains unchanged. Adjusted EBITDA of $0.53 to $0.57 per share. Adjusted net income of $0.30 to $0.34 per share. GAAP EPS of $0.09 to $0.13, and a fully diluted share count of approximately 57.5 million shares.

During the second quarter we made good progress with our hiring plans for the year. During the first half of the year, we continued to build our overall headcount, adding approximately 100 heads, bringing our total headcount to approximately 650 at the end of the second quarter. We continue to focus on the areas of technology, specifically on production and R&D, and also concentrated on expanding sales capacity and marketing capacity. We added three additional sales heads during the quarter and now have a total of 46 quota carrying reps.

As I did last quarter, I'd like to take a moment and explain how these investments will impact some of the financial metrics for the year. We expect gross margin on a GAAP basis to remain more consistent with last year's levels of about 76% to 77% for the year. But it is sensitive to foreign currency fluctuations, specifically the shekel.

Furthermore, as a percent of revenue for the year, we anticipate sales and marketing to be approximately 32%, G&A of approximately 20% and R&D of approximately 18%.

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?

(Operator Instructions) Nathan Schneiderman.

I wanted to start off just on the guidance with the increased expenses. And I understand that we're pushing up the expense structure for the year by $6.5 million for acquisitions, litigation and international expansion. But across those three categories, I was hoping you could share with us the dollar amount of the $6.5 million that's associated with each one.

And then also, can you drill down into the incremental plans for international expansion? Just what's going on there and what are the investments in that area?

Sure. So for the $6.5 million, $5 million is related to the deals, litigation and international expansion. And the $1.5 million is related to operating expenses associated with the acquisitions of Amadesa and Look.io, primarily people related expenses. So that's the breakdown of the two components and Rob will expand on the international portion of your question, Nate.

Yes, where we see obviously I think a pretty substantial opportunity in Australia where we are today, so we want to expand our operations there. We had a very successful Aspire event and today, as I mentioned on the last time I think on the call, we have the top four banks or customers in one of the biggest airlines, Jetstar, and we continue to really grow over there.

We see opportunity in Japan and China. There's some stuff in Singapore. So I spent about a month over there and just feel like it's time that we make some investments, probably starting with Japan and then expanding from there. So we want to put some dollars in to take advantage of it.

The good thing about it, like in Australia we've grown very quickly there over the last 24 months because we -- our message, even our older message without the platform is so needed there because there's really no other products to help with just engaging with chat. And then we've got all the platform stuff too. So that's why we really want to now make the investments a go.

And Dan, just to go back to that breakdown again. So, of the $5 million that was acquisitions, litigation and international, can you break it across those three categories?

No, we haven't broken it out between those three categories, Nate. We had three current litigations going on and we were actually able to disclose -- two matters resolved of the three. In one, the court ruled in our favor for our earn out dispute. And the other was a patent matter, which is in the process of being dismissed. So with that we have one outstanding patent suit ongoing at this point.

Or are you able to share with us just how much of the incremental investment is on the international build out?

We think it's going to be about $500,000.

And my final question for you. Obviously the relationship with Apple sounds really encouraging and on the new connect product. Is that currently your only beta customer there? And can you share with us how the rollout is going with Apple? Is it still just in the one country or have they pushed it out more broadly and just what is your understanding of their plans there? Thanks very much.

So, it is expanding. I think we're in three countries now. We have a handful of other customers, very large enterprises that want the same sort of set up that we're doing for Apple. So I think we're really excited about the fact that we can combine chat video, voice, screen sharing language translation on the fly and bring that all together and as I -- you would have seen at the Aspire events, it's really about can we mirror what's happening in the store experience online? And I think it's going to game change the way retailers are selling online.

So all these big retailers that we have are all like, okay great. I want to create that deeper engagement and a more holistic strategy with our customers, so we're very excited with it obviously. In the world of commerce Apple is an amazing brand to have and to be rolling this out with, so.

Shyam Patil.

This is Brandon Pickett, filling in for Shyam today. I was just wondering, I have a couple of questions. The first one is would you mind breaking out the revenue contribution from enterprise versus mid market for the quarter?

We don't disclose that.

As far as LPMarketer goes, I wonder if you could just talk to us a little bit about the competitive landscape, like which players are you running into the most right now?

Well, there's -- Adobe has their tests in target product that's out there. It doesn't really have the intelligence behind it. It's more like AV testing. But we do see them in the market. And then there's three or four smaller competitors out in the market today.

What's really the advantage of our product is one, it's using our intelligence, it's using the same intelligence that drives the product of chat. So it's a very good, obviously engine to drive conversions. That's the first thing.

The second thing is that to get up and running with it, if you're an existing customer, you don't have to do anything, you don't have to re-tag your site. Just got to log in and go and create the campaign. And the other part it can integrate very closely with chat, so you can run a chat campaign, you can run a marketer campaign. We have reporting behind it. So it really gives the marketer a lot of flexibility to get up and running quickly without having to get IT resource and all that.

So, one of the things we're seeing is a propensity for more enterprise sales with this and mid market than small business, where those guys want more flexibility on how to drive content on their site. So that's where we're seeing it sort of play out in those market spaces.

And do you think it makes sense for you guys to eventually build out a broader AV or multi-variate testing product?

Well, we have basically I think the capability you need to do the AV testing. We also have that in our chat product. The acquisition of Amadesa actually gives us some of that horsepower. The front end of their behavioral targeting engine that they built was an AV testing tool and it was square at the test and target Omniture product. So -- or the Adobe product. And so we have those capabilities. But we do already have a lot of that built in to what we're doing today with the LPMarketer product.

And then how about a recommendation engine?

Yes, I mean I think on a recommendation engine I think for us it may make sense to partner and allow third parties, because a lot of those guys out there to integrate onto our data and intelligence, like we have 24, 25 partners right now, so I think that's been sort of played out in many ways. And I think that may be a better third party partner than us building it.

Richard Fetyko.

A couple of questions. Curious about the pay for performance expectations relative to the rest of your business segment and your guidance? What kind of growth rates? Are you sort of at par with the rest of the business? (Inaudible) par or slower growth rates or higher growth rates?

And then secondly, you mentioned that you're looking to optimize your go-to-market strategy at this point. I'm wondering if you could elaborate as to what you're thinking there?

On the first question, you broke up a little bit. So we got the second one, optimize go-to-market strategy. What was the first one?

The first one was around the PFP expectations relative to the rest of the rest of the business segment growth rates in your guidance. What does that sort of imply PFP?

We're assuming that from a PFP perspective, first the business -- we're happy with where the business is from a PFP perspective. We've actually tried or tested one of our new products on a PFP model as well. And so from as far as an expectation standpoint is concerned, we expect it to be in the 9% to 10% of overall revenue as we move forward. And Rob will answer the optimize the go-to-market strategy question.

Yes, so on the go-to-market there's really two things that are taking place. Now that we have a good set of case studies, we kind of know where these products are playing out, which bases are taking each of these products, two things are sort of coming together. One is every product will collapse down onto the LiveEngage platform starting in a few months from now. So today in order to get LPMarketer, you log in to an LPMarketer interface. LPInsights is an insight interface. ADE and ADE interface. And our core chat products.

Chat is now on LiveEngage and LPMarketer is on the LiveEngage platform. And we've started to roll that out in the small business. We have about 400 small businesses. So what that'll do from a product perspective is that every one of our customers is going to go onto the Engage platform and they'll have access to all the products. So they don't have to be sold different products. So the product will drive more of an integrated sale.

The second part is what we find, instead of selling each individual product, is marketers want a set of products together and people who run call centers want a set of products together and analytics people want a set of products. So, the way we want to do is really combine two or three of these products and have more of a marketing suite, a contact center suite and an analytics suite, but take three or four of these of these products and sell them together.

So these are the things that we've learned over the last six months and we think it'll align better to what our customers want and give us more opportunity to now -- it's all about scaling now that we have the basic success stories. So that's what we're focused on.

Jeff Van Rhee.

A couple of questions. First, maybe just at a high level from a growth perspective, if you look at the success of the new products, clearly climbing as a percent of bookings, the offset would seem to be slowing elsewhere. The goal with the new products is obviously to accelerate the top line and the top line isn't necessarily accelerating, even though the new products are. Do you find in terms of sales or sale cycles that they tend to be, I don't know, if one's cannibalizing the other? Or if you could just fill in some color there, that would be great.

Yes, I think a lot of it has to do with the first half goals, which is we want to show that we can sell these other products, so a lot of it has to do with a little bit of focus. And so I think we should see now a shift in that. That's what we'd like to see, but really the first half was like okay, there's a budget out there and we want to get that budget and we really want to focus on getting them into these other product lines.

We don't want it to be at the expense of the core obviously and people still want core products. But I think you'll start seeing more of a shift, but really the first half was its focus. The sales guys are like their quotas are tied to those new products, they've got to get them out the door. If they don't, and they end up at the latter half of the year with just chat and not too much of the new products, they don't make their numbers.

So, that was what we were focused on and we should see much more of a shift coming up in that.

Just as a follow-up then, can you talk to the pipeline? Obviously I would assume you're continuing to see the mix shift increase from the new products, but in conjunction with that, what's the holistic view of the pipeline? How would you describe it in terms of the change here?

Yes, from a pipeline perspective, our goal was to build up capacity in the first half of the year from a selling perspective. Obviously while continuing to work on adoption of our products and selling of our new products. But to build up that pipeline and move into the back half of the year.

So our goal is still to do that and we're on the right path. But our focus is continuing to build that pipeline and continuing to ramp up the sales capacity that we added throughout the year.

And then last one. Just in terms of the guidance, so the $40.5 million to $41.5 million for Q3 leaves an implicit range for Q4. And given the overall width of ranges that's implicit in Q4, obviously much wider than you've guided for any specific quarters. Any thoughts or reasons why such a wide and variable range implied for Q4?

Yes, Q4 is historically one of our stronger quarters and it has been last quarter and the previous quarter. And again, our expectation of building up the sales force was to build that pipeline and close more deals in Q3 and then have them come live in Q4. So our goal is from a bookings perspective to continue to drive the bookings number forward and to get those customers live as quick as possible in the back half of the year.

Mike Latimore.

It's just on that last comment. So is the general view that bookings should continue to grow quarterly throughout the year here?

Yes, I mean we don't guide for bookings, but we've had three quarters of increasing bookings. And again, our expectation is that some of the horsepower that we've put in from a sales perspective in the first half of the year starts to become productive in the back half of the year.

And then how were bookings in Europe in the second quarter here?

It's a good question. I mean there's a lot going on from a macroeconomic perspective in Europe. But we haven't seen any surprises or wholesale stopping or not purchasing. So the bookings out of Europe, we had a good quarter and we haven't seen any signs of a slowdown as of this point.

What was the FX influence either in revenues under EPS in the quarter -- or income?

Yes, we don't disclose the FX. I mean as far as revenue is concerned, we mostly bill in US dollars, but we do have operating expenses in shekels and obviously sterling. So, but we don't disclose those numbers.

And just to be clear on the EPS guidance for the year, is that including or excluding the $6.5 million of costs that you highlight?

That is -- so the guidance that I gave is including the $6.5 million and don't forget about the $700,000 of amortization, (inaudible) amortization, or amortization, sorry, of IP associated with the acquisitions.

So we should the 30 to 34, that would be using basically the $0.05 EPS estimate for the second quarter?

I didn't understand the question. I'm sorry, Mike.

I guess there was an adjusted net income number of $0.05 in the second quarter. Are you using the $0.05 one or the $0.08 one?

Oh, for the second quarter you're talking about?

Yes, for the second quarter, yes.

Yes, we're using -- yes, I'm sorry. We're using the $0.05.

Richard Baldry.

If you look at the sequential growth implied in Q3 guidance between $2 million to $3 million, at the upper end of that, the $3 million would be your best sequential growth result ever. So I'm just curious about the factors, sort of the way the upper versus the lower end of for Q3. Is it pay for performance or is it the time to ramp on some of the newer deals? Thanks.

Yes, I think it's the ramping of some of the newer deals, strong bookings in Q1 and Q2. It takes some time for chat bookings to go live. So, the expectation is bookings from Q2 will have an impact in Q3 and more of an impact in Q4. Bookings in Q1 will have a little bit of an impact in Q2 and an impact in Q3. So, that's part of the guidance from -- in that range.

Brian Murphy.

Dan, I don't know if you mentioned this. I know you've aggressively added to the sales force so far here. Is the plan to continue to add in the back half of the year?

So we've added -- we're up to 46 people so I think that's a total for the year of about 16 or 17 if I'm not mistaken. In an earlier call our expectation is to get to around approximately 50 sales people, 50 quota carrying sales people. So we're at 46 now, so we've got about 4 to add between now and the end of the year. And depending on the strength of the bookings and how we see the market, if it makes sense to plus that up we'll obviously give guidance on that. But right now our expectation is to get to the 50 range.

And just to swing back to the connection framework, is that still on track to be a standard offering sometime here in Q3?

Yes, that will become a standard offering and then once again, as I mentioned, everything goes into the platform so that you'll be able to segment your customers and then pick based on a segment I'm going to give that person a video or I'm going to give that person a chat. I'm going to offer that person a voice call or I'm going to offer that person content. So all that is coming into the platform also at the same time.

And I think at the end of the March quarter you had 25 development partners. Can you just give us an update on where that stands?

We're still focused on it. It's about that number, maybe a couple more. But our goal was really to take the ones we had and make them very successful and not just try to build a big ecosystem. So we feel really good that the partners we have are making real money from us. They're being successful. There's two partners that are in that -- the Connect framework as a matter of fact that we're using as part of that offering. So the goal is not to lose partners, make sure they're successful and that's really what we're achieving right now, so we feel good about it.

(Operator instructions) Craig Nankervis.

Are you recognizing, Dan, are you guys recognizing revenue from new products?

Are we recognizing revenue from new products? Yes.

And has that been going on four quarters now or -- it wasn't clear when the bookings for new products was starting to translate into revenue and --

Yes, so different products translate at different rates. We launched ADE and APIs back in 2011, so we've been ramping up those products through 2011 and then Insights and LPMarketer were launched in the fourth quarter, December of 2011. So when I talk about bookings, it's primarily for those four major new product offerings. And we've been (inaudible) revenue. So we had revenue -- a little bit of revenue in 2011 and obviously it's continuing to grow in 2012.

And is there an update on the strategic partner front and what you're doing there and how that's progressing and where you think that's going?

On more of the -- we did the two acquisitions over the last quarter and we kind of think these types of acquisitions are interesting where there's -- we get a handful of employees, some technology and we can apply that straight into our customer base. So that's one thing.

Right now there's -- we're going to shift a little bit, which is one is indirect channels, so I see some opportunity to be selling indirect, so we'll have some partnerships on that level. And the second is international. So the way we've been very successful internationally is by really having a strong partner in an international market, putting some people who have some history with LivePerson on the sales side in that office and then we expand. So I would assume that what we're going to do in let's say Japan will be the same sort of setup. And that will require a partner and a certain commitment for us for resources.

I think I was -- I didn't make it clear, but I was mainly focused on the indirect channel partner front. And is there anything you can elaborate on that?

Nothing specific. I mean we have a couple of indirect partners who do financial services. We have one that sells our platform connected to an online banking overall product. And then we have a few others, but you should see more action in that area over the next two quarters.

We also have some new resources that are focused on that that have joined us. And they'll be focused now on sort of building that out. So we're still predominantly focused on the direct model, but we should see that start to move too.

Brian Schwartz.

I apologize if these are repeat questions. I've been hopping and forth here. But Rob, first with you I really wanted to dig into the core business here. I was wondering did you update us on really the timing of the OpConnect release, when you expect to start selling that product into the base?

Yes, it's going to be in the next few months. We're putting another handful of customers that want to be on it. After the Aspire event everyone saw it and they're like -- so there's a handful of customers that we're going to put on it now and have another wider set of beta customers and then we'll go to GA on that.

We're syncing it really with the LiveEngage platform and the overall rollout of the platform, which is going to happen later this year. And that brings all the capabilities onto the platform. So that's where we're focused today.

And Rob, also in my research here I've noticed recently, it was actually on a blog, there was a screenshot that one of your larger technology customers -- looks like they're currently beta testing a Live Chat extension with their AdWord service. To me this sounds different since customers could now potentially engage a visitor even before they come to the website. Again, I don't know if that's your technology or not, but is this a potential shift in the market that you see here over the next three to five years where potentially your customers and really you, your Company could extend your solution directly to the Internet search pages?

Yes, that is our solution. Obviously the potential of bringing engagement up into searches has some significance. So we're going through sort of a testing period right now and that's all I can say.

And then Dan, from a metric standpoint here, I've noticed on the balance sheet it looked like the deferred revenue and the billing, they both actually picked up, accelerated for first time in a little while here from last quarter. Just wondering if there were any changes in the invoice durations or if there are any other factors that kind of helped you out on those metrics?

No, nothing specific on those metrics. I mean we haven't changed payment structures or invoicing structures. My guess is it's just timing around quarter and some of the invoices that went out for specific customers. But there's nothing specific that I could point to.

And then last question really on the sales productivity. I guess if I look at the metric, as I look at your new enterprise in mid market customer counts, new logos that you signed up, it looks like it's almost doubled here in the first half compared to the first half of last year. Is this a sign -- is this mostly due to increasing capacity here or is there something else going on? Is the competitive pressure potentially easing out there? Just wondering, maybe Rob, you can comment on why we've seen such a dramatic lift in new enterprise and mid market logos?

Yes, I mean the capacity I would say of the new reps is -- they're new. Half the sales team is just new. So we're just at the beginning of the capacity of all those new reps. So I wouldn't say that's driving it.

I think what's driving it is really the excitement around the new products and for our sales guys, it'll take the existing guys that are here. For many years they were selling the same product and it does well and they've done great, but now they go in with this offering of Connect and Marketer and Insights and there's just a different level of excitement. And that's why the bookings are starting to increase. Obviously those will start hitting as revenue on the out quarters, but it's really, I think, based on the excitement around new products.

And I would say we're still looking forward to the capacity of those new reps to come onboard and start generating their full quotas, which they're not at today. And so that's really -- which I think will give us leverage on another level. And then once again, I firmly believe that product combined with good sales execution will drive where we want to go and that's around the engage platform and the single way to get all the products should really help with the acceleration and that's what we're focused on.

So it's been a really, I think, a fascinating shift from two years ago we were the single product and still doing great. And if you see the platform and what's happening today and all these new use cases, I think for us internally it's exciting because we feel like we've made the transition as a Company to selling multiple products. And we're on the right path now to work on accelerating that with our base.

I'll say it again, if you went to our 8,500 customers and gave them a survey and said tell me what LivePerson does, they're going to tell you they're the leader in chat. And they won't tell you that they are the leader in providing different solutions around engagement. So we have a huge opportunity to educate them and sell to them. And that's what we're focused on today, so.

There are no further questions from the telephone lines.

Thank you, guys, and we'll see you on the Q3 2012 call.

Thanks, everybody.

This concludes today's presentation. You may now disconnect.