LivePerson Inc (LPSN) 2013 Q4 法說會逐字稿

Good afternoon, my name is Sara and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson fourth quarter 2013 earnings conference call. (Operator Instructions). Mr. Daniel Murphy, CFO and Robert LoCascio, CEO, you may begin your conference.

Thanks very much. Before we begin, I would like to remind listeners that during this conference call, comments that we make regarding LivePerson that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time and we undertake no obligation to inform you if they do. Results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological and regulatory and other factors could cause LivePerson's actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the reports and documents filed from time to time by LivePerson with the Securities and Exchange Commission.

Also, please note that on the call today, we will discuss some non-GAAP financial measures 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 our earnings release by visiting the investor relations section of our website. Now, I would like to take a few minutes to review the results for the quarter and the year before turning the call over to Rob.

Before we get started, I wanted to mention that we are changing our usual order. I will start off by reviewing the financial and operational highlights and Rob will discuss the go-forward vision for LivePerson. 2013 was an important year for LivePerson, as we took the first steps in bringing our multi channel digital engagement platform to market. We made several important changes around people, product and processes all of which have put us in a stronger position to execute on our strategic goals in 2014.We were pleased to end the year on a solid note.

During the four quarter, all our top and bottom line financial metrics were within our guidance range, with revenue and adjusted EPS coming in at the high end of our range. Fourth quarter revenue was $47 million, B2B revenue was $43 million, and revenue from our consumer operations was $3.9 million for the quarter. For the year, total revenue was $177.8 million, B2B revenue was $162.7 million and our consumer segment generated $15.1 million.

Important to note for the full year of 2013, our B2B revenue excluding the small business segment grew 18% over 2012, as mid-market and enterprise revenue grew at a faster pace than our small business and consumer segments. Fourth quarter bookings came in $10 million which compared to $8.7 million in last year's fourth quarter and more in line with last quarter's record of $10.2 million. Approximately 86% of our overall bookings came from existing customers as we continued to strengthen relationships within our existing customer base.

During Q4, we signed our biggest North American mid-market deal to date and in Q3, as a reminder, we signed our largest deal in Europe. LivePerson defines bookings as mutual contractual commitments from new or existing customers and excludes non-recurring revenue. This metric generally represents contracts with (inaudible) current subscription fees but does not capture performance or usage or performance based contracts. In late 2013, we began rolling out our cost per engagement pricing model, which is a departure from our historical pricing model that charged by seat and functionality.

The cost per engagement model is a recurring revenue model that is based on usage tiers or bands of engagements. As an example, a customer will pay a fixed price for a certain number of engagements. An engagement can be a chat, a piece of content, a click-to-call, a video interaction or any type of engagement that our platform offers. The value to the customer is that they immediately have access to the entire feature set of the platform, and our goal is to have a more frictionless way to grow an adoption of the [line] engage platform.

As we continue to take our multi channel digital engagement strategy out to the market, we are starting to see those early investments made in people and process pay off. In 2013, we started the year with 39 customers, spending more than $500,000 on an annualized run rate. And we ended the year with 48 customers spending more than $500,000 on annualized run rate.

In addition, we now have 26 customers spending more than $1 million annually. We signed a record 187 deals during the quarter, which compared to 163 last quarter. And so our larger percentage of our deals come from existing customers as we continue to penetrate our strategic accounts at a deeper level.

We added 31 new enterprise and mid-market clients in the fourth quarter. The average deal size for all deals was $53,000. The average deal size for new customers was $44,000, while the average for existing customers signing up for an upsell or expanded business was $55,000. Similar to our booking metric this metric general represents contracts which committed to current subscription fees and does not capture usage, one-time or performance based contracts.

Customer attrition for enterprise and mid-market accounts averaged 1.7% per month during the fourth quarter which is consistent with the average for the previous three quarters, and small business attrition rates averaged 2.6% per month which is also consistent with the average of the previous three quarters. For 2013, pay-for-performance generated approximately 14% of total annual enterprise revenue and 8% of total annual revenue.

The revenue breakout by industry verticals was consistent with prior quarters. Telecommunications made up 30%, financial services 26%, retail approximately 14%, technology 13%, and other at 17% for the quarter. Revenue coming from outside the US was approximately 31% of total revenue with the UK representing our largest concentration outside of the US. This compares to 26% in the fourth quarter of 2013.

During the quarter, we continued to make progress, growing our footprint in new markets and regions as global expansion remains an important part of our overall strategy. We expanded into three new markets during Q4, adding channel partners in Mexico, Hungary and Italy. We have already seen revenue from these partnerships, including working with one of the largest banks in Italy that is setting up a purely web-based bank. This is in addition to creating a presence in Germany, Japan, and the Netherlands during 2013.

Fourth quarter gross margins came in as anticipated at 76% which is the same as the fourth quarter 2012 and compares to 77% in the third quarter of 2013. In Q3, we began to amortize the purchased intangibles related to the Amadesa acquisition, and in Q4 of 2013, we had our first full quarter of purchase -- intangible amortization from the Amadesa acquisition. We ended the quarter with a cash balance of approximately $92 million which compares to $77 million in the third quarter. In addition we have approximately $1.4 million in capital expenditures for the quarter related to servers, computers and the build out of office space.

Fourth quarter accounts receivable came in at $29.5 million and at 58 daysthe DSO metric for fourth quarter returned to more normalized levels. We had an adjustment to our tax rate due to the expansion of international operations and the impact of transfer pricing allocations to those foreign operations. Therefore, effective tax rate for the quarter was a negative 38% and a positive 15% for the full year.

From the bottom line perspective, our fourth quarter adjusted net income per share was $0.06, and GAAP loss per share was $0.01 and adjusted EBITDA per share was $0.10. For the full year adjusted net income per share was $0.21 and GAAP loss per share of $0.06 for 2013, and adjusted EBITDA per share of $0.34 for 2013. That covers the highlights for the quarter and the year.

Now we would like to discuss the financial expectations for the first quarter and full year of 2014. During 2014, we will continue to invest in the business and the roll out of the LiveEngage platform. Our current anticipations for Q1 2014 are as follows, revenue of $46.5 million to $47.5 million, adjusted EBITDA of $0.07 to $0.09 per share. Adjusted net income of $0.04 to $0.06 per share, and GAAP EPS loss of $0.04 to $0.02 per share. With a fully diluted share count of approximately 45.6 million.

Current expectations for the full year 2014 are revenue of $199 million to $204 million, adjusted EBITDA of $0.37 to $0.41 per share. Adjusted net income of $0.21 to $0.25 per share,and a GAAP EPS loss of $0.11 to $0.07 per share. With a fully diluted share account of 52.6 million.

Other full year 2014 assumptions include amortization of intangibles of approximately $4 million, stock compensation expense of approximately $14 million, depreciation of approximately $10 million, and an effective tax rate of approximately 23% producing a potential tax benefit. Capital expenditures of approximately $11 million, and we expect gross margin on a GAAP basis to be approximately 76%, but as a reminder our cost of goods sold continues to be sensitive to foreign currency fluctuation. Furthermore as a percent of revenue for the year we anticipate sales and marketing to be approximately 37% of revenue, G&A approximately 22%, and R&D to be approximately 20%.

That covers all the operational and revenue highlights and now I would like to turn the call over to Rob who will provide insights surrounding the market and LivePerson's strategic directions. Rob?

Thanks Dan, and I'm really excited about the things that are going on at LivePerson, especially we saw 2013 with LiveEngage rollout, and what we are seeing now are bookings getting stronger during the latter half of last year. I really want to take the opportunity to speak about what is going on in digital commerce and how we are playing into that and our vision here at LivePerson. It became clear to me, briefly, when you look at digital commerce, it really hasn't fundamentally changed since the 1990s when you think about it and basically a website is just like it was back then. It's a web page, it's text, it's got a top navigation and some pictures, and really nothing more.

When you think about other things digital like music or movies or health or the wearables and how we are monitoring our homes and how we are navigating in our cars with GPS, there's extraordinary progress. And yet eCommerce has basically been stuck. Some statistics to reenforcement that, which is about 7% of overall commerce right now in the world is based on digital, and the rest is still offline. It's growing only about 11% a year and most importantly, we always get the stats, only about 2% of the people who actually visit a website will become a paying customer. So when you think about also the online experience, it's still fundamentally is inferior to the experience that we get when we shop in a store in our neighborhoods or offline.

I have been thinking lately, what is attributing this? What is driving this lack of innovation in the space? And when I break it down, I think one of the main things we are seeing right now is search.

When you look at search and its basic proposition, in the past it was awesome and it was about organizing the world's information and when there were all of these websites and we need to find them, going to a search engine helped us find it. And then it made advertising transparent and measurable, but there was some really, I think unintended consequences that we're living with today in the eCommerce space and we have these rules that search created. And that is that a website should be a lot of text, a lot of pictures, and navigation. And it's really made the digital shopping experience for the consumer a challenging experience.

So with search, when you think about it, the inefficiencies that it's driving and these rules make search very powerful. It's very hard to find something on a website, so you go to search to find something that's deeply embedded in a website and I think when you think of that, the result basically today is that advertisers are paying more tore the same clicks that they were paying for in the past. They are not getting any more conversions. They are not getting more leads and it's becoming a very challenging and frustrating situation. I see this with our customers.

As a matter of fact, eBay last year published a really great report that I would recommend you should read and it's entitled "Paid Search Effectiveness of a Large Scale Field Experiment" and what they found is when they went ahead and shut down different key words and they shut down most of them and they spent $51million a year, the impact was less than 3% of the traffic that comes from Google would go down. So they lost basically 3% of traffic. Furthermore, data we see in the industry today and we capture this data also is about 60% to 70% of the traffic that comes from search bounces off the first page. And you pay for that traffic, but the consumer never even made it to the website.

So the eBay search, and there's a quote from that, and the quote is "Our brand keyword experiment shows that there's no short-term value in brand keyword advertising. The results and arguments suggest that the efficacy of (inaudible) is weak and the conclusion that is likely to apply to other large brands that together spend billions of dollars a year on Internet marketing.". So if a brand can no longer buy more qualified traffic through search, then I believe the answer to that lies is the one-on-one experience that the brand can provide to the consumer, whether on site in mobile or social and that's really the heart of the LivePerson strategy.

So strategy of LivePerson is really broken into two parts and those are the following. The first one is we want to really enable the brand to create a direct relationship with their customersso they don't need the things like Google. We see that when a consumer chats with the brand they have a meaningful connection and it drives the conversion or it drives a higher customer satisfaction.

We know on average, 25% of those people who chat will turn into a sale and this is really a foundation of the long-term relationship between the brand and the consumer. And when you look at commerce, as really, put it into a triangle. At the bottom of the triangle is discounts. It's the one click shopping, the overnight shipping, it's the commodity of shopping. In the middle of that triangle is large selection.

At the top of that triangle is the emotional connection that we have with the brand the brand. And when you think about the emotional connection, it's really why we spend the money we do on Apple products or NIKE products. We buy the emotion. So that emotion is really the second thing that we are trying to drive. When we drive that we really drive that by enabling a real time connection between the brand and the consumer. We drive that by reducing the need for the consumer to search for products. That when they come to a website through intelligence and through the behavior of the consumer, we can make offers to them we can customize what they're seeing on the website, and we can provide the consumer with the products that they want.

In the future, I see that they don't have to search anymore. When they want something through our technology, we can deliver it to them. We can deliver that product or service. And the third part is really namely the consumer to have that direct connection with the brand, whether they are in social or they are mobile. They are everywhere now. They don't always go to a website.

So our technology is about proactively engaging them wherever they are and that's at the heart of really what we are doing with the LiveEngage platform. Now, the conversations that happen between the brands and the consumer are powerful and today we actually generate 22 million chats a month. So there's 22 million people in the world that are chatting to our system, and getting help or making a sale or asking a question.

And each month, I pick some transcripts and take a look at them and they are interesting. I mean, I saw one last quarter, which I thought was fascinating. It was between a soldier in Afghanistan and one of our large flower retailers and this person was trying to buy a gift for a birthday for his wife and you watch this conversation and you can see the connection. It's not just about hey, I want to buy flowers and what is the cheapest price?It's the conversation and the help that this operator gave the soldier and ultimately that person bought and ultimately that wife received those flowers. And it's a very powerful thing to see. It's the foundation for the long-term relationship.

And today when we see things like -- two weeks ago I was down with one of our large banking customers in front of 60 of their executives. There's this challenge they have, on the one side, here's a bank and they know the value of a mortgage or a car loan and this is very important. On the flip side, they digital people are thinking we just want to make this easy. Just get people to fill out an application. What we are seeing today is a conversation between both groups saying we want to have a lifetime of value with our customers. We want to create a way in which with they start with the check account that we stay connected with them so when they go for a mortgage, they come back to us.

And that can really only be done through digital engagement. And what we're seeing is more and more brands now are looking to change the game. It's not about buying more keywords or doing more traditional advertising. It's about doing things in which they can really engage their consumers on that one-on-one relationship. So I really feel LivePerson, it's an outstanding position to lead the change to digital commerce and I'm excited that we have the right platform and we will have new versions coming out this year.

We are very excited about and we have the right team of people here now. We have great leaders. We are really out now executing in 2014, and we have a clear strategy on how to drive our Company to the next level, to really provide a way in which our customers can innovate with us and make a change in the way they are doing digital commerce today. So with, that I want to thank you and I want to hand it back to the operator and we can rejoin and open it up for Q&A. Operator?

(Operator instructions). The first question comes from the line of Michael Nemeroff with Credit Suisse.

Hey guys, thanks for taking my question. I wanted to ask about the visibility on the revenue guide into 2014. How does that look right now, if you could give -- maybe Dan give us maybe a percentage of what you are looking at as far as guaranteed revenue or comfort in that 2014 estimate. And then also if you could give us a sense of how that may play out in terms of linearity over the next couple of quarters.

So as far as viewing into the revenue for 2014, we have a pretty good view into the revenue of 2014. There's stats that I talk about, and the underlying business in mid-market and enterprise has actually grown quite well. Small business is lagging a little bit, and as we look towards 2014, we see strong robust growth in the underlying mid-market and enterprise portion of our business. And Michael, I'm sorry, could you give me the second (inaudible -- multiple speakers)

Yes in terms of linearity, of how we should expect that revenue to come on in the quarter. Anything different in terms of the linearity from what it's been previously?

No, I don't think there's anything majorly different. As we talked about before in our sales organization, we got a good second half of the year, as far as the bookings are concerned. We have made -- we invested a lot in the business and we expect on a go-forward basis for them to continue to be able to drive bookings and growth in business.

And then also if I may, what percent of your mid-market customers have been touched with the new platform, and could you give us a sense of what percent have been converted so far? And how you expect that conversion rate to improve over the course of the year?

Sure, so for (inaudible) a small percentage of the mid-market customers have been touched with LiveEngage. As far as looking out forward for the rest of 2014, we will start to move customers over and actually Greenfield customers in 2014 from a mid-market perspective. And I would expect that to happen in the back half of 2014 in a little bit more earnest than it is today.

And is that about the back half of 2014, is that still the expectation for when the large enterprise customers will start to see the new -- be touched by the new product?

Yes, we would expect the new enterprise, Greenfield customers to go onto the LiveEngage platform, and we have some fairly large (inaudible) customers and we will take them on a case-by-case basis but we expect them to be in the back half of 2014 and into 2015.

So, Rob, in listening to your prepared remarks and about the strategy that you are putting forth for the year, so chat was the genesis of the Company, and the core. Just help us understand what types of new products you could bring to market to fill out some of the -- some of what you were talking about in your prepared remarks and how some of the new products that you are thinking about or the direction of where you would like to take some of those products in the future?

It's really when you look at the LiveEngage platform, it has chat now, video, voice and it's got the content targeting. We also have the data and now the links tagging off of it, where you can take a chat transcript and analyze it for voice customer and all of that. We have the platform. It's really about now when we implement a customer, they can -- we can have different ways in which we are engaging consumers. We can say the consumers in the bi-flow, offer them a piece of content and offer them a product. Okay, they're in that, now offer them a chat to get them to convert. So there's more weapons here to do it and then we could also in social and mobile engage the consumer. So there's going to be no more -- there's no really new products you need. It's the LiveEngage platform has them in it, fully integrated and it's just getting our customers now to move. But the core business, the chat business is growing.

There's a big shift still going on in the contact centers from voice to chat. It's happening. I think there's more conversation about it, and there's bigger deals we are doing now with it, so the core is still growing and wrapping around that, and, look, you can do video. I see video coming on now. People want to do video and I see integration of voice and the content. So we have all of those channels. It's just about what is the use cases in which to do it.

Right. Thanks very much for taking my questions.

Thanks, Michael.

Your next question comes from the line of Shyam Patil with Wedbush Securities.

Just a few questions. In terms of the new platform and I understand there's some migration process, how do you guys think about when that will start being reflected in the growth rate? Do you think that's more likely to happen in 2015 and 2016, after your mid and large enterprise customers are rolled out or do you think it's possible to happen in the back half of the year? How do you think about that?

Well, I mean, the small business already on that platform, and now we are moving to the mid-market, as a reminder, there's not that much migration into the platform. They log in, and they can get their core chat product and then everything else is there. So it's a question of selling. Like on the enterprise, we are presenting them with the features of LiveEngage. We are doing use cases around video integrations and voice integrations and chat and content. So there isn't as much of a migration with that side, just a few use cases we are implementing and we can do that today.

On the low end, it's max. It's moving them through and getting the small business to go from chat and use more features. It's much more of a marketing effort. We don't have a sales team that calls on 6,000 small businesses. So that's really where it's more of a marking effort on getting them to use more than one of the products which is primarily chat.

Great. And --

And looking whether it's Q4 or Q3 or Q2. I think right now everyone is focused on it. We are -- it's where the organization is behind. So instead of saying, okay, it's out in the latter half, I think we will go quarter-to-quarter, you'll see, okay here's the results we are showing. So far, obviously our customers want it. It allows them to get access to much more product. It's a much more -- it's a better way for them to strategically engage their customers online.

Great. And in terms of the breakout between B2B and consumer in 2014, should we think of consumer being relatively flattish and B2B the majority of the growth?

Yes, I would expect consumer to be somewhat flat and the growth coming from B2B. That's correct.

Great. And then just a couple of housekeeping things, I missed it if you mentioned it on the call, but what was the mid large enterprise revenue growth in the quarter? I think you typically give a sequential growth rate there and then on the PFP side, how do the 8% internal revenue compare to expectations, and how are you thinking about that in 2014.

So for the underlying mid-market enterprise growth rate, it was 18% and that's a year-to-date number, and that's excluding small business. So that was the growth rate for the B2B portion. And as far as PFP and the 8%,PFP is an important piece of what we are trying to do on a go-forward basis and it's a model that we use for a certain set of customers and works well. So we are still excited about it, and we're continuing to push the PFP model out to our customers.

Great, thank you.

Your next question comes from the line of Brad Sills with Maxim Group.

Hey, guys, thanks for taking my question. Rob, you mentioned analytics and that list of the other offerings outside of chat. Can you just comment a little bit on how the pipelines there are shaping up? Are you getting more interest there? It seems to me like you get a customer that is coming to analytics, they are committing to the bigger platform and running reporting on that. So just curious on color there, please.

Yes, so it's a couple million dollars business right now. It's growing very nicely. I mean, we have a customer that is close to $1 million -- well, a little less than $1 million on the platform, a telco using it for basically two parts. One is analyzing the transcripts to better the operators, even the voice operators so they are using it as a training tool, and on the flip side, they are using it for peer marketing intelligence.

What are they hearing from the customers? What product lines, pricing, all of that. So the heart of those transcripts, it's a very powerful set of information, the conversation. So it's what -- in the enterprise, it's driving bigger deals. And it's making the customer much more sticky, because they are getting value out of that data that we collect and we format.

Got it. Great. Thanks. That's helpful. And now any comments on LP Marketer? I know it's now part of the bundled offerings but just qualitative discussion or color around where you've seen adoption there with Marketer, and running promotions via the chat connection?

Yes, Brad, we done -- we look at LP Marketer as content and that's part of the platform and we are actually pretty excited with it being part of the platform. It has actually made the adoption of content for our customers that much easier and that's part of the goal of the platform to make it frictionless for our customers to adopt our new offerings and our features and functionality. So content is part of the LiveEngage platform, and the increased usage out of the small business customers has been very strong. So we are excited about the content portion being part of the platform.

And interestingly enough, we entered as you guys know the Japanese market a quarter or so ago and the lead product there is content. So our first customers have been only content, and now they are putting chat on. So it's a great -- it's a great way to enter different markets. We can enter new markets with customers. We are testing a performance-based model with that. So there's some interesting stuff that we can do with content. It's definitely a great pillar of the platform.

Great. Thanks, guys.

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

Thanks for taking my questions here this afternoon. A couple of questions on the quarter. Dan, I believe in your commentary, you mentioned that you had a large deal in North America in the quarter. I was wondering what percentage of the bookings came from that deal.

I'm not going to break it out, Brian, but it was a mid-market deal and it was actually a nice, sizable deal for our mid-market business. Just highlighting that it's -- , mid-market, and we are making traction mid-market, it was a nice sized deal for the fourth quarter.

Okay, and then again on the quarter, one metric that was curious to get a little more color was on the new customer adds. It looks a little bit softer than what I had expected given the additional capacity. And I was wonder if you feel that possibly those larger customers are waiting on the next generation platforms and the demand is being pent up right now, where possibly we could see almost a super product cycle happen when you do get that LiveEngage platform deployed in the up market.

So I don't -- it's not our -- customers aren't waiting for the new platform. What actually happens in the fourth quarter, Brian, is we have the opportunity to sell more to existing customers and that's what we took advantage of. We have some great strategic customers on our roster. If you look at our bookings, about 86%, I think I said was related to existing customers.

So we have the opportunity to sell more into existing customers as they geared up for the fourth quarter and into 2014. So not disappointed in the number of new logos, actually, pretty excited and some of those logos are great customers. So I don't think there's been a decision point waiting for the new product. We have been out there actively selling to mid-market enterprise customers and closing deals and we are excited by the opportunity.

That's real helpful. I appreciate that color. Last question for me, just on the strategic maybe looking a little bit longer term out. If I look at the guide that you are giving today for 2014, on the top line, the growth rate, it looks to me that it's still being impacted somewhat by -- by the platform, by the LiveEngage rollout platform. So I'm wondering if it's possible to look beyond that, if it's possible to look over the medium term, and what is -- what do you guys think is the right growth rate for the business? Does it get back into the high teens? Can it get back past 20%? What type of scenarios would that have to occur? And just trying to figure out how you guys are thinking about the process when you look at your medium term plan. Thanks.

Well honestly, I think about 20% is the minimum. I think 20% should be the high -- the low watermark and then we should work from there. And the development we have done on the platform and what we are doing now and a lot of it is the capacity of the sales team, and the bookings, obviously the last two quarters of bookings have been our best two quarters ever. And I think that's a future indicator of some success, obviously, the success we are having on ramping a new team, especially on the enterprise side. We have good growth rates there, 18% with market enterprise. So I would like to get it above that 20% and the platform also gives the way to get customers up much quicker, get them to go deeper with more product. So that -- we didn't develop the platform to go something less than that. And that's really what we are focused on.

Thanks, Rob. If I could just ask one more follow-up as a potential catalyst. It does look to me on the investment front that you have slowed down the sales hiring here this year but it looks like the productivity has picked up here in the second half. Certainly a good trend there. I wonder where we are in terms of the curve on the productivity gains for the sales force, if there you think there's potential here for more improvements to come in 2014. Thanks.

Yes, I mean, I really think we are -- not that I think if I look at the numbers, we are about -- we're about 50% or 60% at capacity right now. So we got 40%, 50% more capacity in the current team. That's why we want to obviously focus on getting the pipelines built, getting marketing out, there and stimulating more within that capacity, and that's really the focus this year. So there's a lot -- I think a lot more capacity that we can get out of this current team.

Thanks, Dan and Rob for taking my questions this afternoon.

Thanks, Brian.

Your next question comes from the line of Mark Chappell with Benchmark.

Hi, good evening. Thanks for taking my questions. Robert, I was wondering if you could give us an update on where your platform deployment times are. I believe they were down to about 90 days last quarter. I wondering if they are still at that level or if they compressed a little bit further.

We are happy with where they are going. It's still around the 90 day level, but we are happy with where they are and think they're going in the right direction. So I think the team is executing very well and, again, part of the goal of LiveEngage is to create a frictionless onboarding process and that's going in the right direction as well.

Okay, thanks. And then, Robert, as LiveEngage becomes a greater part of your sales process, rather than just selling single product chat, I wonder if you could give us an idea if you are seeing a different competitor set.

Not today. I mean, -- and I think the LiveEngage platform and we continue to obviously improve it, I think it would give us a huge jump in the market and we will redefine what this business is all about. We did that back in 2007, with the launch of the proactive chat. And what LiveEngage will give us, and what we're seeing, is a better way to create a digital commerce experience. It's busted. I see it and I see the frustration of our customers and if we could give a way in which we could really create that relationship with their own consumers and create a much more exciting way that the consumers can buy and get support, that's really what our goal is here. And so that's what we're focused on.

Okay,thank you.

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

Yes, thank you. So how many quota carrying salespeople do you have right now?

49 quota carrying salespeople in the mid-market (inaudible - multiple speakers).

Okay. And I guess the plan is to leave it at that level for -- until the capacity gets to 100% or so, is that right? Or are you going to add some?

No, we'll add some,but it won't be as much as we have in the past. We'll add some (inaudible) we were talking. We made a goal to put more dollars behind marketing, and put a little bit more structure around the sales organization and make them more effective but we are opportunistic that we will have salespeople.

I know that a minority of bookings were with new customers this quarter but are all of those new customers that were in bookings, are they all going on LiveEngage?

I couldn't -- I couldn't hear what he said.

Are they going on LiveEngage.

Are they going on LiveEngage? Yes, some of those customers are going on LiveEngage, absolutely.

Okay. And then you mentioned 22 million chats per month. Do you recall what that is? It's a year-over-year growth rate?

15 -- 15 million last year, 16 million last year. So we're up from 15 to 22.

Okay. Got it. Thank you.

Thank you.

You are in next question comes from the line of Jon Hickman with Ladenburg.

Hey, thanks for taking my call. Dan, how -- could you refresh our memory when you anniversary the pay- for-performance customer that went away last year?

If you're talking about on our Q1 call. They went away in Q2 of last year.

Okay. So could you estimate how much -- I mean, without the loss of that one customer that decided to go in-house, your growth rate would be a little bit bigger this year, wouldn't it?

Sure. I mean, if that customer didn't go away, absolutely. We had a little bit more attrition than we expected in the first quarter of last year, and those -- if that didn't happen, of course our growth rate would have been higher.

Okay. And then as far as the small businesses go, the growth rate there, is that a function of adding more small business customers or getting them to take more -- , more product than just chat?

It's a combination of the two, right? It's adding more customers and it's actually giving them more product than just chat and that's part of the goal of the platform as we talked about before. Create a frictionless opportunity for them to use content, use chat, use click-to-call, video, et cetera, through the platform and so that opportunity is there for the small business customers to use more and add more customers.

So how does a small business customer even know that they have got video or co-browse or whatever?

So, when they log into the system, they get a new interface, and so in that interface, they can see the different products that are there, and then there's marketing efforts and sales efforts behind it to get those businesses to use those different functionalities. So if they are a high-end small business they have a salesperson who calls them up and takes them through the system. If they are smaller, they will get marketing messages and webinars and seminars, that type of things.

And how many small businesses do you have right now? I thought it was around 8000. Is that still a--

Yes, there's approximately 7500 small business customers.

Okay. Thank you. That's it for me.

Thanks, John.

(Operator Instructions). Your next question comes from the line of Jeff Van Rhee with Craig-Hallum.

A couple of questions for me, first, just in terms of drivers of the difference in growth rates between SMB, Rob, maybe you could expand on SMB vs. enterprise and the difference in growth?

Yes so the enterprise mid-market grew at about 18% last year excluding small business. Small business grew at --

Small business was about 1% growth.

Right. Yes, I guess what I was asking just the fundamental, the dynamics that drive that disparity in growth rates.

Yes, so the -- there's some changes we made there now with leadership. We've got -- we have taken a much more aggressive approach on marketing with the LiveEngage platform. So we are very focused on getting those small business growth rates back up, and so there's a focus on it right now. It's predominantly a marketing effort. You are generating leads more marketing than where the enterprise is actually up and you call on customers and doing a lot more teleoperations. But the small business is much more of a marketing effort, webinar, seminars, again, trade shows, and that's how they go about their lead flow.

Okay. Great. I guess early on as you laid out the vision of the LiveEngage platform, a big part of it is to drive the stickiness as you enhance all of these various features. As you've gotten a little bit of experience behind you on the SMB side, I guess two questions. One, you are seeing the number of interactions and how they are adopting very clearly, you are seeing how they are adopting your platform. I wonder if you could give any comment or any color around what you are experiencing there so far?

And, along those same lines, the SMB churn, you counted as clearly one of the ancillary benefits you expect. You expect to see that come down. What is a reasonable time line to see that start to flow through the churn numbers?

Yes, I expect a reasonable time line to see the flow through the churn numbers in the back half of 2014. We are excited about the LiveEngage platform and the customers that are on it. We are seeing good quality uses come from a good number of customers and so it's exciting and we get a lot of great feedback and that helps us continue to enhance the products with -- enhance LiveEngage platform with features and functionality. So we are expecting the second half of 2014.

Okay, great and last one for me in 2014, I think you had said previously 2014 was all about farming. What does that look like? What are the goals for that?

Yes, on the enterprise side, we have so many enterprise customers and so we have bifurcated the sales team. So we have a hunter/farmer model now in that there's so much opportunity within that core base and they are looking for more and we are doing -- like, the bigger deals as you can see with the numbers and they are becoming much more strategic. So we need those farmers to go in. There's multiple decision makers now because there's bigger deals at stake, and that's what we are doing on the enterprise. That's why the enterprise right now has what they need.

They've got the different product sets. They have a strategy. They have their customer plans and now we have a lot of new reps but they are coming up to speed and they are starting to build the relationships and starting to do that farming. That's the focus of the focus of the team. I expect to see some good things from this year and that's what we are really excited about.

Okay. Yes, and I guess the last one for me, then. The -- with respect to the bookings, I know you don't guide to the bookings but clearly in the guided revenue is an implicit thought around bookings. I realize pay-for-performance and some other segments don't get caught in the bookings numbers so it isn't always a perfect reflector of what you expect on revenue growth. But that said, can you narrow it all or give us a semblance of how you are thinking about bookings even within a wide range, what you think the bookings growth should look like or any color there would be helpful.

Sure, Jeff, we don't -- as , we don't guide for bookings growth but Rob talked a little bit about capacity and opportunity in the sales organization. And as we look towards 2014, we are excited about taking advantage of some of that capacity and continue to expand our relationships with existing customers and new customers. So -- and you are right, bookings isn't -- doesn't take into account small business or pay for performance but we think there's opportunity there and we think there's capacity there and we are looking to continue to grow the business.

Okay, fair enough. Thank you.

At this time, there are no further questions. Presenters do you have any closing remarks?

No. Thank you, operator, and we'll see you on the Q1 2014 call. Thank you.

Thank you.

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