LivePerson Inc (LPSN) 2013 Q2 法說會逐字稿

Good afternoon. And welcome to the LivePerson, Inc. second earnings conference call. My name is Jennifer, and I will be facilitating the audio portion of today's interactive broadcast. All line have had been placed on mute to prevent any background noise. For those of you on the stream, please take note of the options available in your event console. At the time I would like to turn the show over to Dan Murphy, CFO of LivePerson, and Robert LoCascio, Chairman and CEO of LivePerson. You may begin.

Thank you, Jennifer. Before we begin, I would 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 such statements to differ materially from actual future events or results. These statements are made pursuant to the safe harbor provisions of the Privates 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 we report today Should not be considered 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 of 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 will 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 investors relations section of our website.

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

Thanks, Dan. And thanks, everyone for joining us today.

During the quarter we saw continue strength in several key areas of our business. Second quarter B2B revenues were $39.5 million, 14% higher than last year's $34.5 million. Bookings remained solid at $7.1 million, which compared to $6.9 million in last year's second quarter. We added 34 new logos and signed 139 new deals, consistent with last year's second quarter, and saw B2B attrition return to normalized levels of 1.1%. More importantly, we continue to deepen and expand relationships with our existing base of customers, made significant progress in our channel strategy, and further expanded our global footprint.

We also continued to advance the roll out of our LiveEngage platform, working towards our goal of providing customers with a powerful multi-engagement solution that will enable rich, meaningful connections across all digital channels. Our core chat, intelligence, and data capabilities are at the heart of the platform, so our product strategies just to make it easier to access content, video, and voice, in a unified interface.

Our small business customers are early adopters of LiveEngage, and initial feedback has been positive, especially surrounds use of personalized, targeted content, and increased reporting capabilities. We made LiveEngage to about 4,000 small customers and we are focused on driving adoption exposing those customers to the increased capabilities and use cases. In addition, we just started training our enterprise and mid-market sales reps on LiveEngage, and shortly they will be going to market with our multiengagement value-based product based product offering.

During the quarter, we stepped up marketing initiatives to build momentum behind LiveEngage, by taking our annual customer summit, Aspire, to a global audience for the second time. We kicked off the series in Australia, followed by the UK, and attendance levels increased significantly in both events. We saw more than a 70% increase in attendance level at Australia, and the turn out nearly doubled in the UK, which indicates a growing appetite for discussion and thought leadership around customer engagement in our global base prospects and customers.

The accelerating demand for digital engagement was a common thread at both customer events. Companies are taking a closer look at their overall conversion rates and realizing there's a huge opportunity to better engage their customers digitally. Bankwest is a customer of ours in Australia with a keynote in the Aspire APAC, and is in the middle of shifting from more of a traditional call center, with they do chats and voice, and now what they are doing is taking the chats from their website and they are going to rout them straight to local branches. So this is really about combining the online and offline experience, and making it consistent across all touch points. So really, by working with LivePerson, Bankwest is able to strategically think differently, and this is what we are seeing across most of our enterprise customers.

Our customers are increasingly looking to LivePerson for thought leadership, especially as call centers are facing grower pressure to lower costs and improve customer satisfaction. A large part of our strategy is growing and deepening relationships within our existing base. Today we are working with many of the world's largest companies. We are in about a third of the Fortune 100 companies including four of the five largest telecommunications companies, ten of the top 15 commercial banks, two of the top four computer software companies.

Since the beginning of the year, we have added 77 new logos. This quarter we signed one of the world's leading core retailers, a major retail home improvement chain, and an international online travel company. At the end of the second quarter we have 40 customers with an annualized spend of over $0.5 million, which is up four from the first quarter and up 30% from two years ago. This quarter we expanded relationships with some of our larger, more strategic accounts, until a multinational financial services company, one of the largest mobile telecommunications companies in the world, and international airline.

We are bringing to the table the different stakeholders from these organizations, identifying their business issues, and offering business solutions and use cases that is will help them achieve their objective of higher conversion, return on investment, and a deeper engagement with their customers. And this lies with our enterprise sales strategy, of going wider into new departments and deeper into more areas of our customer's digital presence including not only their website, but in mobile and also social.

We have also seen some good traction in our pay for performance business. Over the past few months, we have widened the scope of services in several existing accounts, especially telecom, and also started two proof of concepts with two major retailers. We also started enabling our pay for performance customers on our new predictive targeting algorithm developed by only Amadesa, and this was a company we acquired last year. Results so far in these accounts have been very positive, and we are now focused on scaling it more broadly across our customer base.

On average, customers have seen about a 5% to 20% increase in conversions and in some cases, hired using the new predictive algorithms. The automated nature of the technology allows us to place less focus on implementation and more on incremental conversions replacing what was in the past a very manual process. Our predictive targeting engine seamlessly adjusts to website changes, traffic changes and operational changes. For example, subtle changes and changed in the agent sizing which allowed our customer to quickly capitalize and make -- the capitalize on increasing the return on investment. I think we should start seeing a return to growth in the pay for performance segment of our basements with some of the changes we have seen recently with accounts and also what we are doing with the new predictive targeting algorithms.

Global market expansion continues to be an important progress, and we have made substantial progress since the beginning of the year. International now accounts for 29% of our total revenue, as compared to 24% a year ago. About 12 months ago we started our expanse outside of our core European and US markets. We are entering these markets through a combination of strategic partnerships, as we did in Australia, and through acquisitions.

In Australia, we have seen great traction with our solution. We are working with four of the largest banks in the region, several of which presented how they are driving success and customer satisfaction, at that Aspire conference I spoke about with Bankwest.

And last quarter we announced our entry into the Japanese market with our partner Vixia, which is jointly owned by Moshi Moshi, one of the largest call center companies in Japan, and Dentsu, one of Japan's largest advertising agencies. Although we just announced the partnership with Vixia in late Q2, we have already signed a handful of enterprise clients, and expect to add two more partners in Q3 to service the midmarket and small business segment in the Japanese market. We see a lot of potential globally, especially in greenfield markets like Asia and Latin America, where we don't have any substantial local competitors.

In order to scale our company, it is important that we have solid distribution channel partners. Twelve months ago we hired a person to build our channels group, and since that time we have expanded to about 13 people in the channels group today. This team is focused on developing relationships with BPOs and call center providers as well as digital agencies. Since is the beginning of the year, channel bookings have grown about 100%, and we added seven net new partners in the Asia Pacific region, five in North America, and three in South America.

During the quarter we signed agreements with both AFNI and Teleperformance to bring LivePerson solutions to a broad base of the business process outsourcing firms account. AFNI has the largest dedicated chat center in North America, one that was built using LivePerson technology. Teleperformance is a $5 billion BPO with a global footprint. Our goal is that by leveraging the sales sources of these organization, we add considerable amount of feet on the street, broadening our revenue opportunities, and building pipeline and market share.

Building relationships with digital agencies is also an important part of channel strategy as we look to target the marketers within our large customers, so they can use the marketing capabilities and content features of the LiveEngage platform. During the quarter, we began a partnership with Razorfish, one of the large e-commerce digital agencies, and a division of Publicis. We kicked off this partnership with a leadership event two weeks ago, with Razorfish and hybris, which is now part of SAP, called the New Commerce Experience. We gathered about 20 CMOs to discuss what the convergence of technology and marketing means for their brand, how it is driving customer expectation, and how by working with LivePerson they can deliver the optimized multichannel experience the customers expect. We are planning more of these regional events to drive awareness of how our engagement solutions provide markets with tools to create more consistency between the off line and online brand experience for their customers.

This is really about an expansion into a whole new buying group that we normally, or traditionally, didn't touch. So once again companies like Razorfish and hybris have strong relationships we can leverage those and work with them as partners.

In closing I'm pleased with the progress we are making with the company. We have a clear view into how overall the product sales, marketing et cetera, are coming together. We have great customers, we are growing around 14% annually, and throwing off a healthy amount of cash flow, even while we are investing and executing on the strategy. Which brings me to the reason why we bout about $30 millions of our own stock, or approximately 4% of the company, since the beginning of the year, over the last six months.

So we continue to be positive, and with that, I'd like to turn the call over to Dan who can review the numbers in greater detail. Dan.

Thanks Rob. During the second quarter, we continued to focus on initiative designed to support the long-term growth potential of the business. As Rob mentioned, we made solid progress on the international front. In addition to growing business with existing customers, we have now established a presence in Japan, recently opened an office in Amsterdam, intended to be a hub for EMEA think operations, and in the near future, we plan to have a team on the ground in Germany. We also took steps to further our indirect selling capabilities, signing a number of new partners and two large BPO players.

We expect these relationships will build in the revenue opportunity LivePerson can be exposed to and allow us to leverage the sales force of these larger organizations. We also signed an agreement with the leading digital marketing agency Razorfish, which we believe will allow us to target an additional audience and align more broadly to be digital engagement strategies of the leading brands. Of course, the big focus during the quarter was putting resources behind the LiveEngage roll out, especially surrounding marketing and sales enablement.

Taking a closer look at the quarter, B2B revenue was $39.5 million, a 14% increase compared to the prior year quarter. Total revenue came in within our guidance range increasing 12% as compared to the prior year, to $43.2 million. Revenue from consumer operations for the second quarter 2013, was $3.8 million which is down 5% from the prior year quarter.

Our bottom line metrics, including adjusted net income and adjusted EBITDA came within our previously issued guidance. Second quarter adjusted net income per share was $0.03 as compared to $0.05 in 2012. GAAP loss per share was $0.03 for the second quarter of 2013, as compared to zero in 2012, and adjusted EBITDA per share, was $0.06 compared to $0.08 per share in the second quarter of 2012. In the second quarter of 2013, the impact of foreign currency fluctuation was immaterial.

Bookings were $7.1 million in the second quarter, ahead of last year's second quarter, which came in at $6.9 million. As a reminder, LivePerson has defined booking new contractual commitments from new or existing mid-market or enterprise customers that exclude nonrecurring revenue. This metric generally represents contracts with committed current subscription fees, but does did not capture usage or performance based contracts. The breakdown of enterprise and mid-market bookings and revenue turns is approximately 74% existed customer expansions, and approximately 26% to new customers.

As Rob mentioned earlier, we saw attrition rates come down in the quarter, customer attrition for mid-market accounts average 1.1% during the second quarter, which compared to 2.9% in the first quarter. We are certain that attrition for the rest of the year will be consistent with Q2 attrition levels. Small business attrition rates averaged 2.1%, which is down from the prior year second quarter.

During the quarter, we signed 139 total deals compared to 136 deal in the second quarter of 2012. We also added 34 new enterprise and mid-market logos the the same as in the second quarter 2012. Average deal for all deals was $51,000. The average deal size for new customers was $47,000, while the average for existing customers signed for a upsell or expanded business was $52,000. Similar to our booking metric, this generally represents contracts with committed recurrent subscription fees and does not capture onetime usage or performance based contracts.

Pay per performance generated approximately 15% of total enterprise revenue and 9% of total revenue. Revenue coming from outside the US was approximately 29% of total revenue, with the UK represents our largest concentration outside of the US. This compares to 24% in last year's second quarter and as we discussed in Q1, was primarily driven by increased presence in Asia Pacific region.

The revenue break down in the industry verticals was consistent with prior quarters. Telecommunications made up 31%, financial services 26%. Retail approximately 11%. Technology 14%. And other at 18% for the quarter.

In terms of the scope, as Rob mentioned we are seeing some real traction in terms of widening and deepening the relationships with existing customers. At the end of the second quarter, 2013, we had 40 customers above $500,000 in annualized spend which is up from four from Q1, and we had more than $1 million in annualized spend which is up two from Q1. We believe there is further opportunity for the larger accounts to grow organically, especially with the shifting dynamic we are seeing in the marketplace for digital channels.

Second quarter gross margins came in as anticipated at 76%, which compared to 78% in the quarter same quarter 2012, and 76% this the first quarter this year. This is the second quarter where we had amortization of the Look.io and [inaudible] acquisitions, and we also began the amortization of the Amadesa acquisition.

We ended the quarter with cash balance of approximately $75 million which compares to $103 million at the end of 2012. We purchased approximately $19 million of common stock in our corporate buyback program, for the second quarter. In addition, we have $3 million of capital expenditures for the quarter related to servers, computers and the build out of office space.

Second quarter accounts receivable of $26.7 million, and the DSO metric for the second quarter of 2013 was 56 days. The increased in DSO is related to a couple of specific accounts, which were subsequently collected after the end of the second quarter.

We expect an increased tax impact for the balance of the year, due to the decrease in employee option exercises, which normally produces a tax benefit, together with the impact of the incentive of stock option compensation expense which is not tax deductible. Therefore, we expect our effective tax rate for the year will be a negative 20%, reducing a tax liability for 2013. The combined effect of this tax impact and our share buyback program, which decreased the amount of shares outstanding, is included in our updated Q3 and annual GAAP EPS adjusted net income and adjusted EBITDA share guidance for 2013.

Now I would like to discuss the financial expectations for the third quarter and full year of 2013. Our current expectations for Q3 2013 are as follows. Revenue of $44 million to $45 million, adjusted EBITDA of $0.06 to $0.08 per share. Adjusted net income of $0.04 to $0.06 per share. And GAAP EPS loss of $0.01 to $0.03 per share, with a fully diluted share count of approximately 56 million.

Current expectations for the full year are revenue of $174 million, to $179 million. Adjusted EBITDA of $0.33 to $0.36 per share. Adjusted net income of $0.18 to $0.21 per share, and GAAP EPS loss of $0.02 to $0.05 per share, with a fully diluted share account of approximately 57.3 million. Other full year 2013 assumptions include amortization intangibles of approximately $3 million, stock compensation expense of approximately $3 million, depreciation of approximately $10 million, an effective tax rate of approximately negative 10%. The cash tax rate of approximately negative 20%, reducing our tax liability for 2013. Capital expenditures is approximately $12 million. We expect gross margin on a GAAP basis to be about approximately 76%, and as a reminder, our costs of goods sold continue to be sensitive to the foreign currency fluctuation.

Furthermore, as a percent of revenue for the year, we continue to anticipate sales and marketing to be approximately 37% of sales, G&A approximately 21%, and R&D to be approximately 20%.

That covers all the operational and revenue highlights. Now if the operator can rejoin the call, we would be happy to take questions from people participating in the call. Operator.

(Operator Instructions). And your first question comes from the line of Shyam Patil with Wedbush.

Great quarter. First question, for Rob. The business, the revenue came in at 14%, in year-over-year growth. In the past you talked about 20% plus growth as being your expectation at least for this part of the business. Do you still kind of feel that way and when do you think that the business can return do that type of growth?

Yes, I mean -- I think we're doing 14% on close to a $200 million run rate right now. So I think it is very healthy. We are obviously -- what we're doing with our large enterprise customers, which drive a lot of uptick, is going wider and deeper with that, and started them with the platform. The core business continues to be very healthy, and so we're just executing on the strategy in doing that -- so I think the growth rate is even where we are today, are strong in the quarter, we are signing a lot of new names and things like that.

Great, thank. And then on the LiveEngage rollout, can you just talk about what the plans are for this terms of conversion? I know you started with the smaller customers and then you were expecting to ramp to the mid to enterprise customers at some point, can you maybe update us on that and what the plans are for the rest of next year?

So we're currently on plan for small business up to 4,000, we actually just kicked off this week in New York. A teach-in for the sales team here, and that will be separate teach-ins around the world. And that's for enterprise and mid-market. So they will start selling the 1.3 version, the version that is out there right now, and they will start going out with that as we said around Q3, Q4. That's what we predicted, and we are on target for that right now. And that will just continue into next year. I think we've got updated versions coming of the product in Q3, Q4. Q1. So it's all rolling right now, and they will just continue to roll.

Great, thank you, guys.

Your next question comes from the line of Nathan Schneiderman from Roth Capital.

Hi, guys. Thanks a lot for taking my questions. Sounds like things are starting to pick up and improve again, which is encouraging. Just on that idea, it did look like your bookings and customer accounts decelerated sequentially, and they were kind of flattish, year over year but it sounded like even within the context of that, you were encouraged by these numbers. And maybe there's something underlying that. And just can you share with us your thoughts on how we should view those particular metrics?

Yes, I mean we -- we feel really good about where we are with the bookings and looking into obviously what is coming up in the future quarters. So I think we feel strong about it, we like that we are implementing. We have the predictive technology. There is a lot of stuff going on that we are actually starting to execute on the things we talked about. We have channels going now. We've got internationals so I think even though it's -- I guess we could have had a higher number, we feel like it is in the range that we were predicting for ourselves. So we feel good about the year and where we stand right now. And then, obviously, we are looking into 2014, and then we want obviously to keep moving and have the momentum continue forward.

It sounds like, based on what you have shared with us, you are increasingly confident in pay for performance. You had really a nice rebound, in your improvement sequentially in your attrition rates to more normal levels. But can you speak to some of these issues that hit you last quarter and give us a update. So last quarter, the small business segment growth slowed a lot year-over-year, maybe you can update us there. And then I think you were also hit with some deals pushing particularly in Europe. Can you give us a update on how those aspects of your business fared? Were there any improvements there?

Sure. Just so from -- last quarter as far as attrition is concerned we talked about the attrition last quarter and it's improved significantly. We had a customer cancel a couple of deals push in the first quarter. And question experienced a little bit of weakness in Europe.

Coming back into the second quarter the attrition rate is back to where we expected it to be, or back to a normalized level. And we expect that continue throughout the year. As far as small business is concerned, it's an area of the business we would like to do better. The growth was a little bit slow in the first quarter and a little bit slow in the second quarter. We are doing work in the group to restructure it, put it back on track, and get it going in the right direction.

So it's about the momentum, and the investments we are making in the business for the long term, and we think we are putting in the right pieces in the right places.

I think some of the interesting things on small business, they are leading with the roll out, and they are getting good feedback, and moving customers to use chat, obviously plus more. So they are going through an interesting evolution right now. They are the first group out there, and they are excited about the product, what they have to offer, and competitively in the market. They have a lot more now to deal with, because it isn't just chat, it is chat plus content, plus VDE, plus all the stuff we have. So I think they have a good sense of excitement.

Got it, and just to clarify, did Europe improve sequentially from last year's kind of rough pattern? Thanks very much.

From a European perspective, I'm sorry Nate, I don't know if you are talking about from revenue or bookings perspective, but from a revenue perspective it is going in the right direction. And then from a bookings perspective, we are headed in the right direction. We have the office in the Netherlands now. We are putting people on the ground in Germany, we are putting right investments in right places to take advantage of the broader European market, as opposed to where a good portion of the business is in the UK today. So we expect that momentum to continue.

Your next question comes from the line of Richard Fetyko of ABR Investments.

Hey, you guys. Thank you for taking my question. Can you repeat the PFP as the result of total or enterprise revenues for me again? And on the higher level, you made some changes through the sales organization a year ago, I think you brought in a new head of sales from Oracle. Just curious what she has done so far in terms of the structure of the sales force, and the sales strategy?

To answer your first question, Richard, PFP was 15% of enterprise and 9% of overall, and we have -- we kicked off two concepts in the second quarter for two larger retailers. And Rob can expand on the other piece.

Yes, so she is effectively built a new leadership team, we have a new head of EMEA. We have someone who is going to take over the small business now. We have a new mid-market person. And also we're having -- we are going to be someone new into the Americas into the US/North America market. So basically, been building all the blocks with a team that is her team, so she can really drive the business to where we all think it can go from an opportunity, and perspective.

So she is in the middle of that. She has had those leaders. The mid-market leaders have been there, almost 2-quarters. Small business coming in. EMEA just started. So she has that team now, and obviously below that is a rep structure. So we have the account execs, we have the regional sales directors, those are new. Some of the regional sales directors. She also recruited the channel person who came the a year ago, and his team. So I think we feel like -- she's got her team, and now it is about execution, and that's why with just starting right now, with the teach-in of the enterprise and the mid-market sales forces on the messaging and the product line.

So we feel good about where we are right now with her, and so she is -- I think she has the foundation in place.

Thanks. So then on the PFP side, looks like based on what you gave me, I just want to double check, the PFP revenues were essentially flat, despite the loss of that customer.

Yes, it does take time for a PFP customer to wind down, and so they still had some revenue in Q2. But like I said, we are expecting to replace that revenue with some of the new concepts we are working on currently.

I see. Okay, thanks.

Your next question is from the line of Michael Nemeroff of Credit Suisse.

Howard Chen in for Michael Nemeroff. Thank you for taking the question. I was wondering if you can update us relative to the 4,000 SMB customers you have on the LiveEngage platform, approximately what percentage of those customers are using more than one product? Or are they still a significant majority still just using core chat? And historically you have talked about potentially changing the pricing model moves from a C base metric to a more performance based pricing model, wondering if you can update us there and any potential impacts of the model?

So, from an SMB perspective, we rolled out LiveEngage to 4,000 customers. They predominately had chat, and some had content, but we are seeing expanded usage of our other offerings. And that's part of a goal. And as we are here in 2013, we talked about driving adoption of our products through the platform. That's our focus, in order to get that feedback and continue the momentum of LiveEngage, as we move towards mid-market and enterprise. So that's a key piece from small business, from the LiveEngage.

As far as the pricing model. We are testing a couple different pricing models. We have tested interaction based pricing model and testing the PPA pricing model as well as the C model. And we are continuing to test different models in the marketplace, seeing good results and feedback on some of the pricing models we have out there. And so we are getting good feedback.

We want to do is we are in a position right where we think we can obviously simplify the business, and have it that our customers can get and use any of our products that we built over the last year and a half, and pay for them in a unified way. And that's really the goal, making it easy for them to use, and easy for them pay, easy for them to scale. And that's what we have been testing with the interactive base pricing.

Obviously on the flip side of that, we have a recurring revenue model we want to maintain that. We want to keep that. So we are just being careful, being smart about it, getting a lot of feedback, and we continue to move forward, so that's what we are focused on.

Just to clarify, we do have an existing set of customers on an interaction-based model already as part of our core offing.

Great. I was wondering if you can update us a little bit about the competitive environment, if there is any notable competitive wins and loss that you would like to highlight?

No. It's still -- we have some great names in Q2, we got one of the biggest travel sites and one of the biggest toy companies. We continue with having the best customer base, and we keep adding more. So we are clearly the leader our market, and I think we are in the middle of game changing our market. We are using our strength of our intelligence and our chat, to drive other applications. So I think where competitors are still trying to compete with us in our core, and we still beat them, fairly well, now we're offering something the core plus. And it's allowing us to have a different conversation.

What that is doing for us is it will open up more competitive as we enter content. There's adobe out there, obviously Oracle is out there, with the acquisitions they did. But we don't see any real change on the competitive side today.

Great, thank you.

Your next question comes from the line of Dov Rozenberg with Clal.

Hi. Thank you for taking my call. As a follow up on the bookings, I was trying to understand, you sound very positive, or being in mind with expectations this quarter. To pare down sequentially, and maybe you could expect it to go up in the first half of this year or the second half of last year.

Thanks, Dov. As far as talking about the booking perspective, we don't give guidance on bookings but we think we have some of the building blocks in place in order to drive the momentum of the business. And we are looking to continue to expand in our enterprise-level customers. There is still plenty of opportunity there to expand with those customers.

From a building perspective, we are continuing to like I said build that momentum, and drive the bookings as much as we can into the business. As far as Q2 is concerned. As Rob talked about, putting some of those building blocks in place, and we want to drive that momentum in the back half of the year and into 2014.

[Inaudible] 35% of sale, in R & D, you had 19, I am wondering, first of all, not so much guidance but what a normalized rate would be, and when you think -- assuming lower than where we are today, when do you think you will try to push sales on [Inaudible].

So as far as where the expenses are today, it's a little tough to hear you, so as far as the experiences are as far as revenue, we are comfortable with where they are today. We had some currency fluctuation in the first quarter that ran through G&A. but we're comfortable with where the percentages are today, and we have talked about investing in the business for the long term growth strategy. And as rob talked about earlier, making those investments in 2013, and our goal is to drive the business, and continue to push our product and offering out there and expand our market opportunities.

Okay, thank you very much.

Your next question comes from the line of Jeff Emery with Craig-Hallum.

Just first, I guess last quarter you had commented that you had a couple of big deals that pushed out, did those end up closing?

A couple of deals that did get pushed out from Q1. We are still actively working on a couple of them, and a couple of them did close. So we are still actively working on some of those deals at present.

I thought you had said there were two big ones, I don't know how to break it down. Did the two big ones you referenced closed?

No, they did not chose in the second quarter. But they are still actively pursuing them.

Okay. And then on the sales side, as it relates to the new sales leadership that's come in, if I look back, I think she has been there a year and a half, and it sounded like from your commentary today, a lot of this significant leaders are just getting put in place. Over that time period, why the delay? I would have thought that would have happened much sooner.

So, again. From a channels perspective, the head of channels came in well over a year ago. And the head of mid-market came in, he has been here for about 2.5 quarters. And in EMEA. we just put a new person in there as well.

And she came -- when she came on, she actually had a couple of months with us and then had maternity leave. So just give it the Melissa Mayer twist. She didn't really get started until she came back after a couple of months and then she had the team in place she that she had there from the past, evaluated them, worked with them, and then quickly made the change. So we lost a couple of months but she is worth having even with that.

Got it. And then the migration path, I think you had jumped out to this big number on the SMB on customers in terms of migrating them to the new platform, and I was unclear from what you were saying earlier, you are going to start selling the new platform in enterprise shortly, but in terms of migrating existing customers to the new platform, enterprise customers to the new platform, what's the latest thinking there?

Yes, we'll start moving them in Q4. There's not really a migration because if they are on chat, with the version -- the 1.3 version, they basically log into the same chat interface, except when they log in they get access to the other products. So it's got like they have to make some big migration grace in the current version of the platform. That's one part.

We know in Q4, traditionally, obviously, people go into lock down, so we hit October, just traditionally, our customers go in, they won't change their code. They won't want to do too many new things. They just focus on the chat. So the migration is not that big, but the focus on it realistically won't happen in Q4, because of the nature of -- they are all focused on the holiday season.

And just to clarify, I think you said the guidance prior quarter was for an effective tax rate of 40%, and this quarter can you just touch on that again? You were saying negative rates? Just help me understand that briefly.

Yes, so I will try to keep it a brief point. From the a tax perspective, we'll have a net loss this year, but we will end up having a tax liability, and it is due primarily to nondeductible ISOs, And a lack of stock option exercise by employees where you get the tax benefit. So it has an impact where you have a tax liability for 2013.

Okay, and the last one I will let somebody jump on, in terms of the bookings the bookings growth has decelerated. I know you don't want to get precise, is it safe to say at least the growth rate on bookings out to be higher going forward given these new products? The training we will be kicking into market next quarter, year over year next quarter versus what we posted this quarter.

Yes. Obviously that's the goal. That's what we are focused on, so of course. Obviously it is like flattish from Q1, to now. It's not a huge sequential downturn, so it isn't like we are sitting here going oh my God, we're decelerating. It is our natural, sometimes we bring big deals in, sometimes we don't. But I am looking at the overall health of the business for the year, and what we can book and recognize, so we feel confident with that right now.

Okay, thank you.

Your next question comes from the line of Bryan Schwartz with Oppenheimer.

Yes, hi, thank you for taking my questions today. Rob, got a strategic question I want to tap your brain on. The digital marketing space is red hot right now. There's been a lot of acquisitions in the space recently. And I am wondering if you think LivePerson will be a beneficiary in the market moving forward because of the consolidation we have seen.

Yes, I mean -- look, we are clearly moving a portion of our business our focus in that space. So the marketers is where it starts. They are the ones driving traffic, then it goes to a sales person, then to customer support person. So even for us, the partnership of Razorfish, that we did in Q2, we put on this event -- so it's definitely, we know the CMOs are getting a lot more power. They have got big budgets, and so we want to obviously have our product line associated with them, and they will. That was something we planned two years ago.

So I think we feel good that we have a good integrated suite. I think what is interesting about our company, actually, is you have seen a lot of consolidation, and a lot of even some peer companies bought technologies. This is a problem. If you have separate platforms running and you can run those separate businesses and separate technologies. The greatest challenge for the business owner is when a consumer hits website, if they are being hit by one marketing technology, and the next thing is chat, and then the next thing is customer support, there's a form to fill out, they do a survey. It becomes very unwieldy.

And so our approach is, organically, we want to build it off of one platform, with our own hands using our own technologies can are very strong, and give a unified experience to the marketing people, the sales people, and the customer support people. And that's what I think is very different from our strategy, is we aren't going to cobble together technology, because you can't in a hosted environment. It is very hard to cobble together technology. So I think we have a good strategy to actually compete and drive some of these markets to a different place than what even peer companies are doing.

Thank you. And Dan, I wonder if you can update us on the sales capacity currently? Just wondering if you have added any heads here in Q2, and if you have plans to add more heads here.

As we talked about from a sales capacity perspective. We added quite a few heads in 2012, and into 2013, you know we are going to add a couple more, but the plan is to again double the sales force. So that's the goal from the sales capacity perspective.

I think what we are focused on right now, is because we hired under the previous leadership, there's a fair amount of hiring. There's -- we have to get some of those people are here, some are not. The current leadership has brought in new people. We've got to get people productive. I don't want to add people on top of a machine that's not at least 100% productivity, or at least 80% We want our reps to get to at least 80% quotas as minimum. So that's where we're focused on right now, is how do we create a more efficient machine with the people we have. And that's what we're doing right now.

Thank you. And last question for me, is Rob, I did want to tap in with you, I wanted to tap in to the Razorfish partner announcement. I think that is new, and certainly interesting for the business. Can you maybe talk through just the timing how long it would take to get that partnership off from a training perspective, and when they can go out and start promoting the LivePerson products? Thanks.

So we kicked it off with this event two weeks ago, here in New York City. And so we do have some joint customers already. We also have hybris that we are working with too as a partner. And so they just started also.

So I would say -- I think the channel see as trickling of stuff happening because of even joint customer projects. So I would think we would start to gain momentum through the latter half of the year, into next year as they build that strategy. The exciting point is the leverages out the relationships that we don't have with the marketers. So instead of trying to knock down the doors and get a relationship, obviously digital agencies have those relationships in place. And it allowed us to really leverage that, and in this case we had 20 CMOs coming to this event, and we had access to them. For us to get 20 CMOs without Razorfish would have been harder. So I think it is a benefit. And they had their CTO there. Razorfish had their CTO doing their presentation. They have a very high solid relationship with them.

Sounds very exciting, thank you for taking my questions.

Thanks, Bryan.

Your next question comes from the line of Jon Hickman with Ladenburg.

Thank you for taking my question. I'll try to be brief. Dan, can you tell us out of the $30 million dollars can you tell us your average price of the buyback?

It will be in the filing. The average price was in different places. We were buying back in Q1, and Q2. So there was a portion purchased in Q1 and a portion purchased in Q2, but the details are in the Q.

Okay. Then just on a high level, I don't want you to give guidance here, but for next year, do you envision that your spending will be less -- or more muted that you will let some of the revenue growth fall more to the bottom line is that -- is that kind of the thinking for next year? Could you -- would that turn you back to more of a GAAP profitability?

Sure. Our job is to build momentum in 2012, 2013, into 2014. and drive the top line growth. We don't -- we give guidance a year in advance and quarter by quarter, so it would be tough to say we would let everything fall through to the bottom line. We know there's an opportunity here, and we are still striving for that opportunity for growth. And we want to invest in the business in 2013, and obviously we continue to reassess our business and look at things going forward, but I would expect an opportunity for margin expansion in the future.

Okay, one more question, the it looks like your guidance, combining the guidance for next quarter and then the year-end, it looks like you are anticipating this the fourth quarter might be break even, or slightly positive, on a GAAP basis.

If you do the math you can get there. It is close to breakeven give or take, but I didn't give fourth quarter guidance. I gave a full year and a third quarter, so you can back into the fourth quarter.

Okay, I just wanted to make sure I was reading that right, thank you.

Your next question comes from the line of Mike Latimore with Northland Capital.

Thanks. I just wanted to be clear, once the sales force is trained on the new platform, are you going to sell the new platform to current customers or will they sell -- if I'm a current customer and I want to buy more chat capacity, will I be buying the Engage platform at that point, or the standard chat product at that point?

Yes, so basically everything is on one product. So that's the Engage platform. So the chat is -- that's just the shift, the that everything is on that platform now, the core chat is on there. So you are only going to get really let's call it one product. We are trying to simplify the company, it is one product, you buy it, you have access to the whole platform, and you are paying for that access.

So that's what is going to be sold to mid-size enterprise customers second half of the year? So if I said I want chat, I would be getting the Engage platform?

Exactly, yeah.

Okay and then -- you said current customers although they have to do is log on to get the current platform, so there's no real IT work they have to do on their end? Just more logging in and spending a few minutes to get access to it.

Exactly. What happens is really the admin console changed. When they log in instead of them getting this sort of chat admin console, now they get a LiveEngage front end, which gives them their chat, and also gives them all the stuff that's outside of chat. So we made this leg of the journey quite easy. We are -- we have a tag, that is a new tag, that we are asking people to put on their website. They can roll that out. They don't need it to use the platform, but we are starting to look into the future around unified data structure, so is we are starting to also -- that's been rolled out. Starting about a quarter ago, but that's not part of what's necessary to go live. So we are making it quite easy for our customers to get up.

Got you. And then I know you are not providing bookings for the market or inside products but any update on how those have done recently?

Yes, it's the platform now. So where we could like to go with the guidance is just giving you what type of interactions we're having, or the amount of interactions on the platform. And that's what we'll end up -- right now we are not giving any real perspective. People are still buying and using the obviously -- stuff outside of chat now. So they are still buying -- what is the LP marketer product, but you get them through LiveEngage right now.

Okay, thanks.

Your next question comes from the line of Richard Baldry with Wunderlich Securities.

Thanks. At the midrange of guidance in the second half, your revenue growth sequentially would look a lot like last year. The bookings are a little lighter it looks like than we may have expected. Does that really predicate on PFP picking up in the second half, or is there still a certain number of deployments backed up that you think breakthrough in the second half that give you that type of growth? And at the upper end you would have much better growth sequentially than what we saw, would be the scenario at the upper end?

I think we are confident in the overall annual guidance we gave. $174 million to $179 million. There are a couple of impacts and they will be varying. PFP has the potential to be an opportunity for us, and obviously there is backlog in getting booking live also has the potential. There are a couple of different components, but we are comfortable with the guidance that we gave for the year.

Thanks.

Your next question so from the line with Richard Fetyko with ABR Investments.

Richard.

It's always the same.

Every quarter.

Are you seeing any changes in the usage patterns from the small business that is have migrated to LiveEngage thus far?

Yeah, we are seeing some what is called average order impact, in a positive way. It's still early. And also the sales guys are really focused on developing programs from getting our customers to use the content. Especially content. They like the fact that if they are not on line, they can't chat, that they can go ahead and use the content portion of the platform. So that seems to be where there's an area of demand right now, and that's what we are seeing on the small business side.

This is sort of best practices programs?

Exactly.

The overall line right now, we are driving -- it is predominately chat, we are doing about $20 million interaction as month off of the platform. Predominately chat, it is a very large number. I think we are about $15 million, somewhere at the end of last year, so we have moved significantly, some of that -- is obviously content.

Good. Thanks.

Your next question comes from the line of Craig Nankervis Russ with First Analysis.

Thanks, my questions really have been mostly asked. Maybe Dan I will just ask you, the new international opportunities, how do you rank maybe the best one or two over the next say two years as having the most potential in the next couple of years?

So, from a growth opportunity, and obviously they have done a great job in Australia, and we think from a Japan perspective, as Rob talked about. There's limited to no competition in the Japanese market, and we already announce add partnership and sends a handful of deals. So I think we are off to the races in Japan, and there's an opportunity there. And without saying in specific order, Craig, you know we are starting to dip our toe into Germany, and as I said on the script, we will have an office there. It will take time to build up the revenue stream, but we will have an office there. I think in the short term Japan has a decent opportunity to start generating revenue fairly quickly, and then Germany quickly behind that.

Thank you.

And your final question comes from the line of Michael Nemeroff, with Credit Suisse.

Hi, I just had a quick follow up, if you can give us a update relative to your implementation cycles if they are still 120 days plus, or if they have returned to normal cycle levels. Thanks.

The implementation timeframes are still in the 90 to 120 daytime frame, we have been making some head way in making the process a little bit smoother and a little bit simpler for our customers to get live. And when you go all-out live, the processes become significantly easier and more frictionless.

Great, thanks.

And we have no further questions in the queue at this time.

Take care Everybody, thank you for joining the call, see you in Q3. Thanks.

Thank you, and this does conclude today's conference. Caller, you may now disconnect.