LivePerson Inc (LPSN) 2012 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 2012 earnings conference 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 hosts for today, Mr. Dan Murphy, Chief Financial Officer; and Mr. Robert LoCascio, Chairman & Chief Executive Officer. (inaudible)

(inaudible) are not historical facts (inaudible) 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. The results that we report today should not be considered an indication of future performance.

Changes in economic, business, competitive, technological, regulatory and other factors could cause LivePerson'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 & Exchange Commission.

Also, please note that on the call today 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 today.

During the fourth quarter we remain focused on executing our overall strategic plan for the year, and I'm pleased to report we continue to see a strong trajectory and bookings growth and number of deals signed while exceeding our top line projections for the quarter. During the fourth quarter, our B2B revenues were $38.8 million, 18% higher than last year's revenues of 32.9%. We also posted our third straight quarter of record-breaking bookings.

Fourth-quarter bookings came in at $8.7 million, which compares to $6.3 million from the same period last year, and compares to the third quarter's [eighteen] strong uptakes surrounding new products. New product pipeline represent 22% of overall bookings, which compares to 17% in each of the past two quarters. We saw the mix of bookings between existing and new normalize a bit doing the quarter as we focused on expanding some of our larger global accounts. We signed 170-plus deals during the fourth quarter, which was consistent with the third quarter and ahead of last year's 123 deals.

2012 was about positioning the business for long-term growth, with the introduction of several new engagement products and developing a go-to-market strategy to deliver them. The results were very strong bookings, and we now have over 600 customers using more than one LivePerson product. We went through several development cycles with each of the products and we came out of the year with a lot of insights and learnings. With LP Marketer alone, we had over 25 use cases expanding far beyond our initial use case of being a simple online couponing tool as our customers integrated more diverse functions such as video, surveys, and social widgets into their overall engagement strategies.

Our number one goal during 2012 was what we called Plus One, where we wanted all of our customers to have more than one product. And during 2013, we will continue to focus on this goal as we roll out our LiveEngage platform. LiveEngage will bring all the products onto one integrated interface, including chat, content, video, voice, and intelligence, and really widen the engagement possibilities. Over the next few months, we will start to place less focus on each individual product and more on the overall use of the platform and its broader engagement capabilities. The road map for 2013 includes adding proactive customer connection functionality within the platform to ease onboarding and reduce friction. Making the platform more intuitive to use will also allow us to better leverage our PS, which are Professional Services, and customer basing resources.

With the integration of our enhanced predictive targeting capabilities gained from the Amadesa acquisition, we're also getting ready to launch predictive targeting 2.0 on the platform. With these machine running capabilities, customers will be able to leverage PT 2.0 across different lines of business and improve targeting capabilities to chat and voice, as well as through the enterprise, all the way down to the small business lines. By the mid year, we expect to have about 4 (inaudible) platform, experiencing increased functionality such as on-the-fly segmenting capabilities.

During 2013, we'll also be building proactive capabilities into our mobile offering, which will feed into the intelligence we have now. Mobile chat is becoming an increasingly important component of our customer's overall engagement strategy, and we even have a customer in the UK that currently is handling over 200,000 mobile chats a month, which is more than 20% of their total chat volume. If you remember, in 2012 we acquired a company called Look.io, which is now the focus of developing the mobile engagement products.

The next goal in 2013 is how we deliver our mission of meaningful connections to our customers. And really over the past 18 months, we've been very internally focused on delivering the value of being an owner and helping others in our mission of creating meaningful connections between ourselves as employees, and we are now ready to expose our values on a day-to-day basis to our customers. And the goal is to have all of our customers understand what it is like to have meaningfully connected relationships with us, and then how we can provide that through our platform and allow them to provide that to their customers. We're also going to be building some functionality into the LiveEngage platform that will allow us to deliver that mission on a day-to-day basis, which I think will give us a lot more scale.

And our third goal is the continuation on going global. Our global expansion has become a large part of our focus, and early in the quarter we began exploring opportunities in several non-English-speaking markets, with Japan, Germany, and France being among the key target markets for us. We also added senior leadership to help drive our channel business, and we're in the process of opening an office in the Netherlands. But with the launch of LiveEngage, we will also be rolling out a global development platform which allows us to have greater flexibility and our opportunity to expand our internal development globally and our partner development around the world.

Last quarter we announced the acquisition of our Australian reseller partner ENGAGE, which gives us a greater exposure to the fast growing A-PAC market, and we are working hard to strengthen our foothold in the region. We recently went live with SMS chat for one of the largest mobile companies in Australia, adding Webjet, a major regional airline as a new customer, and expanded some key relationships in the region with major companies like Mantraonline, eBank, and Westpac. We've made a lot of investments in people, processes, and technology over the past 18 months as we deliver our platform for intelligent engagement.

We ended 2012 with just over 700 employees, increasing our net headcount by about 30%. We went through a period of rapid product development during that time; we put a lot of resources into the R&D departments, and we built out the LiveEngage platform. In 2013, we'll continue to staff in areas of product sales and marketing, but we feel we have a lot of capacity from last year's hires that need to come up to speed in terms of being fully productive. So this year we'll be hiring at a lower rate than we did last year. We believe we have a solid base of employees to deliver on the strategic goal of delivering the LiveEngage platform and expanding globally and delivering on our mission of meaningful connections.

So this year will be a little bit different of a hiring plan than last year. And I'm really excited about the rollout of the LiveEngage platform. It is something we've been looking forward to for a while. And it is really a way for us to create a much more strategic partnership with our customers. As they start looking at their businesses and thinking about how they're going to engage their customers in the digital space, it is becoming apparent that we have a greater voice with them because we have ways in which they can touch people in mobile, social, online, through chat, video, voice, and that is giving us a lot more gravitas at the table.

So 2013 is a place I think we're going to make significant progress in delivering on the strategic plan that we crafted 2.5 years ago with our core values, delivering our mission, and the LiveEngage platform.

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

Thanks Rob.

2012 was a busy year for LivePerson. As an organization we effected a lot of change that will be important in executing our long-term growth plans. During your we added headcount, transformed our selling and go-to-market strategies, furthered our global expansion plan, and completed three acquisitions. Most important, we made significant progress towards the delivery of the LiveEngage platform with our team.

Fourth-quarter B2B revenue was $38.8 million, an 18% increase as compared to the prior-year quarter, and a 7% sequential increase as compared to the third quarter of 2012. Total revenue exceeded guidance, increasing 7% sequentially to $42.5 million and 16% growth as compared to the prior year. B2B revenue for the full year was $142.3 million, a 20% increase from 2011. Total revenue for the full year was $157.4 million, an 18% increase from 2011. Revenue from consumer operations for the fourth quarter was $3.7 million, which is up 4% compared to both the third quarter and the same period last year. Full-year consumer revenues were up 4% to $15.1 million.

EBITDA per share for the fourth quarter of 2012 was $0.14, as compared to $0.17 per share in the fourth quarter of 2011 and at the upper end of our guidance range for the quarter. Fourth-quarter GAAP earnings per share were $0.03, compared to $0.07 in the fourth quarter of 2011. Adjusted net income per share was $0.08, compared to $0.10 in the fourth quarter of 2011. Both metrics were at the midpoint of our guidance range for the quarter. EBITDA per share was $0.51, as compared to $0.62 in 2011. Adjusted net income came in at $0.31 as compared to $0.36 in 2011, and GAAP EPS at $0.11 compared to $0.22 in 2011. Looking to continue to trend higher, reaching $8.7 million in the fourth quarter, which is 38% higher than the fourth quarter of 2011 and continued our positive trend throughout 2012.

LivePerson defined the booking as a new contractual commitment for new or existing mid-market or enterprise customers that exclude (technical difficulty ) and does not capture usage or performance-based contracts. As Rob mentioned, (inaudible) new quarter, which compares to the prior two quarters' 17%. As of the end of the quarter we had approximately 72 customers using LP Marketer, approximately 17 customers using LP on site, 300 plus customers using ADE, and approximately 400 customers using our APIs. Our small-business group revenue grew by 2% in the fourth quarter when compared to the third quarter of 2012, and grew 14% over full-year 2011.

As Rob mentioned earlier, we currently have about 1,000 small business customers on our LiveEngage platform. Average deal size for all deals was $49,000. The average deal size for new customers was $31,000. The average deal size for existing customers signing up for an upsell of extended business, which are generally represents contract (inaudible) were committed to current subscription fees, and does not capture (inaudible). Customer attrition for enterprise and mid-market accounts averaged 0.9% during the fourth quarter, which compares to 1.2% in the third quarter.

Small business attrition rates averaged 2.6%, which is consistent with prior quarters. Pay per performance generated approximately 16% of total enterprise revenue, and 9% of total revenue, consistent with the third quarter. Revenue coming from outside the US was approximately 25% of total revenue, with the UK representing our largest concentration outside of the US.

The revenue breakdown by industry verticals was consistent with prior quarters. Telecommunications made up approximately 34%, financial services 23%, retail at approximately 14%, tech (technical difficulties), and other at 18% for the quarter.

In terms of our scope of our customers, at the end of the fourth quarter of 2012 we had 39 customers above 500K in annualized spend, up one from the third quarter; and we have 15 customers spending more than $2 million in annualized spend at the end of the fourth quarter of 2012 which is up three from the third quarter. This continued opportunity within our larger accounts to grow organically, and build more strategic relationships.

Fourth quarter gross margins came in (inaudible) an anticipated at 76% which compares to (technical difficulties) 77% in the third quarter of 2012. In Q4 we had a full quarter of amortization for the Look.io acquisition and we began to amortize the ENGAGE acquisition midway through Q4. We anticipate the amortization of intangibles from the Amadesa acquisition to begin midway through the first quarter of 2013. We ended the year with a cash balance of approximately $103 million, which compares to $93 million at the end of (technical difficulties) $11.2 million in capital expenditures for the year related to servers, computers, and the build out of office space. Fourth quarter accounts receivable were $23.8 million.

Our DSO metric for the fourth quarter of 2012 was 52 days, in line with the third quarter. As discussed in prior calls, we are comfortable with the DSO in a range of 50 to 55 days. Our full-year tax rate was 41%.

Now I would like to discuss the financial expectations for the first quarter of 2013. As in 2012, the guidance reflects the expectation of the cost of current litigation, and current international expansion plans as well as deal amortization related to the acquisitions that were completed in 2012. Revenue of $42 million to $43 million, adjusted EBITDA of $0.11 to $0.13 per share, adjusted net income per share of $0.06 to $0.08, GAAP EPS of $0.01 to $0.03, and fully (inaudible).

The full-year guidance is also reflective of the expansion, expectation of current litigation related expenses, current international expansion plans, as well as the amortization of intangibles from the acquisitions completed in 2012. Revenue of $181 million to $186 million, adjusted EBITDA of $0.52 to $0.55 per share, adjusted net income per share of $0.30 to $0.33, GAAP EPS of $0.06 to $0.09, and a fully diluted share count of approximately $60 million. Other full year 2013 assumptions include amortization of intangibles of approximately $5 million, stock compensation expense of approximately $13 million, depreciation of approximately $10 million, an effective tax rate of approximately 37%, cash tax rate of approximately 37%, capital expenditures of approximately $12 million.

We expect gross margin on a GAAP basis be approximately 75% due to the amortization of Look, Amadesa, and ENGAGE acquisitions running through cost of goods sold. As a reminder, our cost of goods sold (inaudible) currency fluctuation. Furthermore, as a percent of revenue for the year, we anticipate sales and marketing to be approximately 35%, G&A approximately 18%, and R&D to be approximately 19%. In 2013, we are continuing our evolution from a single product to a multi product, ultimately to an integrated platform.

We are continuing to invest (inaudible) business, and expect 2013 will be an important year to integrate and automate the developments of the last two years in order to roll out our LiveEngage platform. Our expectation is that the underlying B2B business excluding PFP will continue to grow [in the] 20% plus range in 2013 and the longer term. PFP performance remains solid and the model continues to be an attractive offer to certain segments of our customers. It will continue to be a focus and opportunity over the long-term.

That covers all the operational and revenue highlights and now if the operator could rejoin the call, we are happy to take any questions of folks participating. Operator?

(Operator instructions)

Nathan Schneiderman, Roth Capital.

Hi, Rob and Tim, hey nice job on the quarter, a great way to end the year. Congratulations. I wanted to start out with a few (inaudible) with us the revenue contribution from that customer in 2012, how that compared with 2011? And what you are expecting from this customer in 2013?

So our largest customer, we have a strategic relationship with our largest customer and for 2011 to 2012 the customer has grown from a revenue perspective. We don't disclose the actual number for that specific customer. But it has grown year-over-year.

Okay. And do you expect further growth in contract renewal associated with that? Could you share with us the timing of that or any risk you see associated with this customer?

We do expect the customer to continue to grow in 2013. We don't give out exact dates of renewals or timing of renewals. But they are a strategic partner of ours and we're continuing to work with them and we expect to continue to work with them in 2013.

Got it. And then, one question for you related to G&A and with the sequential increase was is pretty heavy in Q4. I just wasn't sure to what extent this may have been affected by the litigation expense? If you could share that. And then also, within your guidance for -- (inaudible), just what is your expectation for litigation costs? And how does that compare with 2012 litigation? And just to clarify that you are not pulling that out of the adjusted net EPS, net income EPS estimate, to be clear on that.

To answer the last question, we are not pulling out of adjusted net income. So from alleviation perspective, as we talked about throughout 2012, we have had litigation deal cost an international expansion, and as you know we also complete an acquisition in the fourth quarter of 2012. [Excludes] the litigation, some of the international expansion Rob talked about, the opening of the Netherlands office, and the litigation as well as the deal costs. We had scoped out that, that number would be $5 million for the year, in that bucket, and it was $5 -- (inaudible). As we look forward to 2013, obviously we don't guide for deal costs. But from an issue perspective, our numbers are inclusive of litigation, and the unfortunate reality is that litigation would be more prevalent in all technology companies. And so we currently have -- we are currently involved in two activities, and we will continue to have that litigation [marked for P&L in] 2013. But we are not giving out specific numbers for that.

Is your assumption that litigation cost is up meaningfully in 2013 versus 2012? That's it for my questions. Thank you.

Our assumption for litigation that it is baked into our 2013 guidance and it is for the two current litigations that we have in place now. That's it.

Shyam Patil, Raymond James

Thanks, congrat's on the quarter, Rob and Dan. Dan, for 2012, is there any way to break out the B2B growth if you x out the PSP revenue?

There is, I don't have it at hand. The overall PFP for the year grew about 4% for the full year, year over year, 2012 over 2011.

And remind me on the large customer. Weren't they also -- aren't they also a large PFP customer?

Yes they are.

Okay. And then for 2013, can you talk a little bit about how you are thinking about the sales force structure and any comp changes in your emphasis on new customer growth and the platform adoption as well?

Sure. So we made an investment in the sales organization throughout 2012. We're up to approximately 52 quarter accounting heads. As we move into 2013, our goal is to make them as productive and as efficient as possible. And as Rob alluded to, we're not expecting some kind of headcount growth in 2013 that we had in 2012. Nothing specific to talk about from a comp perspective that I'm ready to share o the phone today. We will continue to focus on driving adoption and engagement of the LivePerson (inaudible) LiveEngage platform and the sales guys will be incented to drive that adoption throughout 2013.

Great. And then just my last question is how should we think about the gross margins for the year?

We talked about the overall gross margins being about 75%. As you may know, with the deals we did between Amadesa, Look, & ENGAGE, there is amortization that is running through cost of goods sold. So we expect 75% gross margin on the business. But I do want to remind you that it is subject to foreign currency fluctuations since we have a good chunk of operations and customer service throughout the globe.

Great thank you.

Michael Nemeroff, Credit Suisse.

Hi, this is Karl Chen for Michael Nemeroff, thanks for taking the question. I was wondering if you can give us an update as to the lengthening of the implementation cycle that you discussed in the last quarter? If you are seeing a return to normal? Or do they remain extended?

They remain like they have been in the three-month range, or so. They are kind of consistent right now. They're not getting better not getting worse. So we're focused on it, and I think I told you it is delivering the platform so no real change.

Sure. And I guess to build on that, to the extent that -- wondering if you could talk about the timing of the roll out for the LiveEngage platform to your enterprise clients? And how much conservatism are you baking into your guidance account for the potential, the extension of the implementation cycles to new clients once the platform rolls out.

The majority of the focus of the platform model would be in the small business mid market segments during the year. And then once we get past those pieces then we'll move into the enterprise customers. The enterprise customers also have a lot more strategic account management and they're a lot different to serve. So they won't be until potentially the end of the year? But the focus is now just getting the mid market and small business because that is where we can get real volume and that is where we can get real usage on the different products. And then, obviously, the larger customers need customer implementations and learnings and training's. So it is not as much of a focal point as the mid market.

The goal is to get to 4000 midway through the year to, get about 4000 of the small business customers up and going. So we're up to about 1000 right now? So we keep rolling out. And if you are new -- (inaudible) ENGAGE.

Okay great thanks.

Brian Schwartz, Oppenheimer.

Yes, hi Rob and Dan, good (inaudible) -- finish to the year. Dan, have a couple of financial questions from you, and then I wanted to hit Rob on the strategic questions. So, on the financial questions, did I hear you right Dan, that you believe the underlying growth here in this upcoming year for the B2B business is about 20% here? I know we won't see that because of the delay on the revenue recognition. But, is that the right momentum that you guys are thinking that, that segment of the business could potentially exit the year? And continue on that page in the out year?

Yes, we are excited, and so Brian, yes, we expected to grow approximately 20%, excluding the PSP portion of the business. As the question came a little bit earlier. The growth on the PFP business was about 4% year-over-year. It is still an important piece to us, and we'll continue to focus on it in 2013. But the B2B without the PFP we expect to be approaching the 20% plus range.

Thank you for that. And then Dan, one other following ENGAGE acquisition. Just wondering how that business performed, but I guess you only had half a quarter of that. But, wondering if they were able to contribute any revenue here to the business? And then how the integration is coming on the back office into the LivePerson?

Sure. So we completed the acquisition in the fourth quarter. It did contribute some revenue. I would call it a minor contribution of revenue. As far as integration is concerned, we're focusing on the integration in the back office side in 2013. And we had a good relationship already with ENGAGE because they were reseller partners so there is not a lot to do on the back office side, specifically -- (inaudible)

(Audio difficulties) -- Just a kind of question to kind of ask you here. Just about the space in general and specifically the digital marketing analytics space. We have been doing quite a bit of survey work here to the start of the year. And the demand is quite robust out there. At least it is coming in our survey work for spending on marketing analytics. In addition to that, we have seen Oracle now recently becoming, -- (inaudible) there was some chatter that some of those other larger CRM companies were potentially looking to bid for -- (inaudible) [L would too]. So my question really is around this space, this marketing analytics space, and how you think things could shake out?

Do you think that there's a chance that we could see a domino effect here in this space, where these larger CRM software companies start to become more inquisitive on the heels of Oracle. And if that happens, how do you think your business can really fare against some of those very large software companies? Thanks.

A couple of things. One is there is definitely a shift going on. Which is, if I go at the pure the buyer, the marketer in the enterprise now needs more on site weapons to convert. Where there is a real challenge right now using search and media to drive traffic. So when you look at spending even in the core search engines, they've slowed, or they're flat, and so advertisers now, and the marketer's, are turning and saying, okay we've got all this traffic coming to our website, and another interesting statistic is 50% of the traffic that shows up from search, from paid search will bounce off of the first page.

So off of the landing page, so figure about it, .50 of the bulk of -- (inaudible). So the market is now saying look, there's a lot of ability here to optimize and convert on site customers. And so, A, I think the space for on site, the tools are going to start to heat up, because the marketer's need more tools to do on site because they've lost the ability to drive a lot of new traffic. So that is one big piece. I think as in who's going to be players in it, I think when the large guys like Oracle buy someone, I actually think it's not in their DNA to sell to marketer's. It is not in their DNA to sell to digital heads of businesses. They sell primarily to technology heads.

And I think it was Gardner who put out a great report that said that the CMO now is becoming more important in the business then the CIO's. So I think that is a big shift for them to be involved. Ultimately, I think -- (inaudible). And that is why I think we are delivering right now. And especially an intelligence player -- (inaudible) and to say give someone a chat or give someone a video or a voice or a piece of content. So I think it is going to heat up, and I feel good that we're in the middle of it so it should be a pretty robust space this year.

Richard Sachiko, Janney Capital.

Good evening, guys.(Multiple speakers)

It has been 12 years Richard so I had to correct them finally.

Okay I appreciate that. So the revenue guidance for 2013 seems conservative considering the strong bookings you have seen in the last few quarters in the record level bookings. and also concerned the acquisition of ENGAGE, so I'm curious, perhaps within the revenue composition, do feel like you have less visibility perhaps? Were you being more conservative or more cautious? It sounds like the PSP is something that obviously is more difficult to predict. Or anything else that were holding back on?

And then secondly, regarding 2013 EBITDA margins that your guidance implies of about 17% at the midpoint, which is below the 18% in 2012 and also below the 19% levels in the last two quarters. Which seems in contrast with your plans to slow hiring relative to 2012. So again, just curious why would the margins come down relative to 2012 in the last two quarters?

So from the revenue perspective, we obviously talked a little bit about the consumer business, minimal growth coming out of consumer business. We've talked a little bit about PFP, which is a little bit harder as you said to identify. We are comfortable with where the guidance is. Our focus is on rolling out an adoption of the platform throughout 2013. Made a lot of investment in the sales organization and we continue to make some investments in the product organization. So from a revenue perspective, we are comfortable with where the guidance is. And as far as from a margin perspective -- (audio difficulties), our goal is to [act] together, driving up the platform and pushing adoption.

And as far as the bookings are concerned, we have had strong bookings. As we talked about a little bit in the third quarter and talked about here in the fourth quarter, our time to live is a little bit expended, and our focus is on the platform and trying to make that process as frictionless possible. The adopt on-boarding process as frictionless as possible. (inaudible) --.

But the majority of the, you did a lot of headcount last year at the end of the year. So all of that salary is hitting now? Although we're going to decrease new heads probably by about 50% than we did last year. But we have a lot of those people flowing through now is full salaries into this year.

Got you. And then lastly, more a strategic question on the LiveEngage roll out. It sounds like most of the impact of the felt in the small business segment. And in the enterprise segment will roll out perhaps, or start rolling out at the end of 2013, so probably it won't benefit until 2014. So with LiveEngage in 2013 with a small business customer, what are some of the benefits that you expect to see? Whether it is an increase in products per customers? I guess there's no real implementation cycle that I don't believe with the small business customers, that there's probably a minimum impact there. But I assume that maybe -- the implementation processes will be, on the larger enterprise side in 2014?

Yes, one benefit. So, if I look it down in the mid market, it is open market in small business we'll roll it out to primarily. One is their ability to get the new products are instant. So they can just get a new product in and not have to get a different login or sign a different contract and do all that. Also attrition. So if you look at small business attrition, we are focused right now, and we think by delivering the platform, we can stave off some of the attrition, which is, like, it's a huge opportunity for us. So that's in a small business, mid market, their ability to grow quicker.

And on the enterprise side though, although they may not be specifically on the platform, there's benefits to the things we're rolling out, like predictive technology, the thing, 2.0 we're getting from Amadesa, that'll make the automation of where we create rules, we won't have to create rules, we can automate all of that through using the predictive model that we got from Amadesa. So there is a benefit to some of the underlying technologies that are rolled out on the platform. And they're actually -- right now we're using the PT 2.0 in the current chat application (inaudible) results. So we can roll it out in the current application, too. So some of the stuff is going to be rolled out behind-the-scenes, that'll make getting live easier.

All right. Okay thanks. That's all I had.

Jeff Van Rhee, Craig-Hallum.

Great. Just a couple left here. Back to the implementation cycles for a second, I just want to make sure I understand you. When you had talked about implementation last cycle, last quarter, you talked about best practices and some coding as the two channels to address the implementation cycle elongation. Am I understanding you right now, you are pointing to LiveEngage as the catalyst to really streamline those implementation cycles? Maybe just a little clarification there.

Yes, so on the enterprise side, the -- when you look under the covers of LiveEngage, part of it is the predictive model, and that will automate, one of the big things is rules, and all of the rules we have to build around specific use cases on enterprise customers. So there are technologies that are rolling out on the platform that we can use outside of the platform. And so that is some of the stuff that we will be delivering, and that is some the stuff actually we're testing right now, to speed up the implementation cycles. That is specifically around that. On the mid market and enterprise, I mean mid market and small business, yes, it will be all about getting them on LiveEngage and getting them up so that they can grown it is more of a frictionless delivery platform.

And maybe this is repetitive, I might have missed a little bit. But in terms of the enterprise side, and the roll out on LiveEngage, if that experience is key to streamlining the -- implementation cycles, what is assumed in terms of 90 days elevated level back down to the 60 or 90? Can be little bit more precise on when you think you are going to be able to accomplish that?

We're focused on it. Today we are focused on it so we are not helpless sitting here and saying we can't do anything, we can affect some of the things like repeating some of the ways we're doing some of the use cases using the predictive technologies. So there are things where we built to help decrease those cycles. So my goal is that we should start seeing that happening over the next couple of months, quarters. So we do not have to wait for LiveEngage. The PS team doesn't do that. They've got some tools that they can use.

Okay. And then back to the broader competitive landscape. Now that you have got enough experience out there selling both existing and new products, any, even at the edges if you will, any change in the competitors you're seeing and the frequency of seeing them?

No. It is still the same sort of competitive set, there are some small guys out there on the LP Marketer side. But we have not really seen any big changes, even with the Oracles and guys who acquired some of the chat providers, it's been business as usual for us. I do feel though -- when we look at the platform, I think the unique benefits of the platform, I really think we're going to shape a different way to use even our chat products. We pioneered them, but I think you'll see in the upcoming quarters, is some new ways in which we can integrate what we've done with chat with all of the other engagement solutions.

So I think it is going to change the conversation. It is, it is changing the conversation now with our customers. And I think from a competitive set, it changes how we can define a space, and it's going to change how our competitors will be viewed. So we're just focused on getting the platform out and seeing the successes from it.

Okay thanks.

Jon Hickman, Ladenburg Thalmann

Hey, thanks for taking my questions. Dan, could you go back over your guidance for the percentage of revenues? Your operating expenses? You said sales and marketing would be 35%, et cetera?

Sales and marketing approximately 35%, G&A approximately 18%, and R&D approximately 19%.

So the sales and marketing, that is a fairly significant jump. Is that all around the LiveEngage implementation and getting that rolled out?

We hired quite a few sales people throughout the year, so you've got a full-year impact of all of those people, of all of the headcount. Then obviously you've got some cost associated with the roll out of the LiveEngage platform.

Okay. And then -- as far as the amortization expenses go, -- (inaudible).

That's correct.

And you say that part of that acquisition is going to hit in this first quarter. So, could we assume that this first quarter is going to be something like $500,000, $600,000, and then it ramps to like $1.5 million going forward?

Yes, I'm not giving specific numbers for the amortization by quarter. But look, we have had a full quarter in Q4 for ENGAGE. We had about a half a quarter in Q4 from an amortization perspective, and on the decel you start to roll out the PT 2.0 from an integration perspective, you'll get about half a quarter from the Amadesa acquisition.

Okay. Then, that's it for me. Thanks, most of my questions were answered by the other participants. Thank you.

Mark Schappel, Benchmark

Hi, good evening. Dan I was wondering if you could speak your overseas bookings. I believe last quarter your European bookings held up rather well, and I was wondering if you're still seeing that phenomenon?

Yes. For our European perspective we are dealing with a weakness, and as we look toward 2013, we expect the macro economic environment and look at different areas or different regions. We think there's opportunity to expand on the continent into Germany, France. So we are making an effort to push outside, further outside the UK than today. But, there are pockets of weakness in Europe but we still think there's good opportunity.

Okay thanks. And Rob, with respect to the Apple roll out, have you had a chance to start your US deployments yet?

We are in the middle of it. So we're just still focused on the international portions of it so that's what we're focused on today.

Okay thank you.

Richard Baldry, Wunderlich Securities.

Thanks. With the revenue from our position really being minimal in the fourth quarter, you had one of your best sequential quarters really ever. So on the back of that and some great bookings in the second half, I'm surprised that guidance theoretically the lower end of Q1 guidance you could be -- (audio difficulties) negative sequentially which we have really never seen before, things that were missing in that picture. Is there any way to even talk about what the difference between the upside of the guidance -- and the bottom side would be, what different factors would have to play into that?

Nothing specific I could point to that happened in the fourth quarter. Normally fourth quarter is one of our better quarters and we normally we have pick up in usage based, or, to a certain extent, PFP type deals. Obviously we were benefited, there was some revenue from ENGAGE acquisition but again, it was minimal. So there's nothing specifically can point to other than usual fourth-quarter pickup from a pure revenue perspective.

Thanks.

Brad Sills, Maxim Group.

Hey guys. Thanks for taking my question. Just one on pipeline builds. Can you comment on little bit on where you are seeing strength potentially in some of the verticals? Maybe stand-outs between LP Marketer your and LP Insights? Are there any verticals that those two in the pipeline that you are seeing better traction?

We saw some good traction on the telco [deals] -- (inaudible) protocol on the Insights product in Q4. (inaudible) -- board right now. So it is even across-the-board on customer size. So marketer's, obviously, more widely adopted and then Insight is much more for enterprise so there'll be much bigger deals. But the Insights, we had a really large telco deal in Q4 with it. So it is bigger than some of our normal chat products, chat implementations. So it is good to see that a secondary product can have that sort of [SAS].

Great thanks. And then how much of the pipeline builds hedges on the LiveEngage release in the middle of the year? I suspect there are a lot of customers waiting to see the integration there?

No. We are now putting in overhang on the Company. Like, oh we've got to get LiveEngage out the door. I think the focus point to make things better incorporates all of the products that we have today. So we're just being smart about it. If you're a new customer coming through small business, you're going to go right on the LiveEngage. Some customers are still going on LP Marketer as we speak and Insights, and so it's not everything's hinging on the LiveEngage roll out. It is a way to get much more frictionless.

Look, I think if you look at overall SAS businesses and if you take a step back we're all growing around 20%. And we all have very similar operating margins. Even our margins are stronger than most. But the question here is how do grow at another rate? I think we fundamentally have to change the way we're delivering our software. We talk about being hosted, and we're web based, but we grow at certain rates and I think we can grow at a greater rate. So that is the goal of LiveEngage. But in between then and now, we still have a lot of products to sell, they can be sold in their current format.

So I am not creating an over -- (inaudible)

Richard Fetyko, Janney Capital.

She did it again. (Laughter) (Multiple speakers)

Just a follow-up on the PFP. You guys used to be pretty excited about that and I was wondering if the level of interest from 10 clients perhaps has diminished, something changed in the attractiveness, the value proposition of the business model, or just the focus of the clients, or maybe focus of your sales force perhaps in pitching? I think you also mentioned that you had a couple of LP Marketer deals that were trialing in the PFP mode. So just curious what has changed.

I think that one is we are starting to experiment with more performance-based models, because I think they're interesting, outside of the core chat one, and those will start to roll out in this quarter. So we are testing some new models outside of the quarter. The sales force is, I think a lot of it is about focus. And a lot of the focus in 2012 was sell more than one product. We have to get these new products out the door and they did a very good job with that, if you look at bookings numbers. So, I think a lot is focus, and then the last part is what we see with PFP is it's good for certain customers, like, we can see the telco space, cable space.

But it does not seem highly applicable to a ton of other customers outside of some of these pieces, I'm talking about larger deals. So it just may be what it is. It may be really strong for certain customers in certain verticals. But I don't know if it's a widely adopted model in its current format. But performance-based models, I think, can be widely adopted, especially on the marketing side where they're used to being paid on a cost per acquisition where they are performance-based. But I'm sure PFP that we have today, it just may be what it is.

Got it. Thank you.

Brian Murphy, Sidoti and Company.

Hi, thanks for taking my question. Dan, on the consumer side of the business in 2013, should we look for margins to be in a similar range as 2012?

Specifically for the consumer business, Brian? Is that the question?

Right.

Yes.

Okay thank you.

Mike Latimore, Northland Capital.

Great thanks. So when you roll out LiveEngage to the mid market, are you going to change your pricing models for the mid market folks then?

It will be sort of a hybrid model. Some things are seat based and something will be more interactive base like LP Marketer. So we will keep very similar to we have now. I think eventually, we'll have more of the integrated model. But for now it'll stick where it is.

Okay. And then just on a implementation time-frame, just looking back to last quarter, I thought you had mentioned that the implementation time went from 60 to 90 days up to 4 months or so. And then on the call here you said it was three months. Can you just tell me -- this is maybe apples to apples comparison there from what you said last quarter?

Yes. It is three to four months. It's four months. I had it wrong in the beginning.

Okay. And in terms of bookings, what percent of bookings came from new customers?

The percent of bookings from new customers was about 15%.

(Multiple speakers) 25%?

No, I'm sorry, 15% in the quarter.

Right, okay. Got it. And then in terms of the professional services group, (inaudible) grow with the overall expense base, faster, slower this year?

Well, we put a lot of headcount into that. Once again I think we can -- we've got to focus on automating things and using technology to solve some of the implementation times. So we're not looking to over staff there right now. It just doesn't make sense? So I think we have a good plan to, like -- we've already started automating some things and bringing technology to use and we can replicate accounts quickly and we can replicate rules and we can use predictive technology. So there's things coming out versus I over staffed and then we have technologies that are coming out to solve some of the challenges. And then I have got to do something about staff. So I would rather just not over staff it right now.

Got it, okay. Last one, you gave a stat on millions of chats per month last quarter. Do have that for this quarter too?

I don't have it at my fingertips. I'm sorry Mike.

It was over 18 million now I think. It was about 18 million we reached in the quarter.

Okay. Thank you.

Brian Schwartz, Oppenheimer.

Hello. I just had a quick question, Dan, financial. I think you guys put in a stock buy-back in place after last quarter, and was just wondering if you had bought any shares back during the quarter? And then, if you still have authorization left in that buy-back to buy additional shares here moving forward? Thanks.

There was a very small number of shares purchased first in the fourth quarter, and we still have funds allocated for the repurchase.

Great thank you.

And there are no further questions at this time. I would now like to turn it back over to your presenters for any closing remarks.

Thank you, everybody, for being on the call, and we will see you on the Q1 2013 call. Have a great night.

Thanks everybody.

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating, you may now disconnect.