LivePerson Inc (LPSN) 2014 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the LivePerson first-quarter 2014 earnings conference call.

(Operator Instructions)

After the speakers' remarks, there be a question and answer session.

(Operator Instructions)

Joining us today for the conference are Mr. Robert LoCascio, CEO; and Mr. Dan Murphy, CFO. I'll now turn the call over to Mr. Murphy. Sir, you may begin.

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. 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 the 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 report our GAAP results, as well as provide a reconciliation of these non-GAAP measures to GAAP financial measures, in our earnings release. You can obtain a copy of our earnings release by visiting the Investor Relations section of our website. Now I would like to take a few minutes to review the results of the quarter before turning the call over to Rob.

We will start the call with a review of the financial and operational highlights, and then Rob will discuss the go-forward vision for LivePerson. For the first quarter, revenue and diluted GAAP EPS exceeded our guidance range. In addition, our diluted adjusted EBITDA and diluted adjusted net income were within our guidance range. Our sales team delivered another solid quarter of bookings. We closed several large deals during the first quarter that continue to validate the value proposition we are bringing to market with our LiveEngage platform. Our first-quarter revenue was $47.8 million, B2B revenue was $43.9 million, and revenue from our consumer segment was $3.9 million.

Our B2B revenue, excluding the small business segment, grew 17% over the first quarter of 2013, as mid-market and enterprise segments grew at a faster pace than our small business and consumer segments. As previously reported, first-quarter bookings came in at $9 million, a 20% increase over the same period last year. In the first quarter, approximately 60% of our bookings came from existing customers, and 40% came from new customers. During Q1, we signed our biggest enterprise deal to date, a three-year deal with one of the largest cable telecommunications companies in the US. We also signed expansions with two of the largest financial services firms in the US.

As a reminder, LivePerson defines bookings as a new contractual commitment for new or existing customers, and excludes nonrecurring revenue. This metric generally represents contracts with committed, recurring subscription fees, and does not capture usage, one-time or performance-based contracts. As in the past few quarters, during Q1, we continued to deepen and expand relationships with existing customers. In 2013, we started the year with 39 customers spending more than $500,000 on an annualized basis. And we ended 2013 with 48 customers spending more than $500,000 on an annualized basis.

In the first quarter of 2014, we added an additional three customers, for a total of 51 customers spending more than $500,000 on an annualized basis. In addition, we still have 26 customers spending more than $1 million annually. We signed 109 deals during the quarter, and added 26 new customers during the first quarter. The average deal size for all deals was $82,000. The average deal size for new customers was $139,000, while the average for existing customers signing up for an up-sell or expanded business was $65,000. In each case, the average deal metrics for the quarter were helped by the signing of a few larger deals in our enterprise and mid-market segments.

Similar to our booking metric, this metric generally represents contracts with committed recurring subscription fees, and does not capture usage, one-time or performance-based contracts. Customer attrition for enterprise and mid-market accounts averaged 1.2% per month during the first quarter, down from Q4's 1.7% and Q1 of 2013's 2.9%. Small business attrition rates averaged 2.3% per month, which was also down from Q4's 2.6% and Q1 of 2013's 2.6%. Pay-for-performance generated approximately 14% of total enterprise revenue and 8% of total revenue. The revenue breakdown by industry verticals was consistent with prior quarters.

Telecommunications made up approximately 31%, financial services approximately 25%, retail approximately 15%, technology 14%, and other approximately 15% for the quarter. Revenue coming from outside the US was approximately 35% of total revenue, with the UK representing the largest revenue concentration outside of the US. During the quarter, we signed our first partner deals in Hungary and Mexico, and following a successful pilot, signed a deal in the Netherlands with a major telecommunications company. We were [responsive] to hire this customer and partner conference in Munich during the quarter, with over 1,200 partners from 40 different countries.

First-quarter gross margins came in at 75%. We ended the quarter with a cash balance of approximately $79 million, which compares to $92 million at the end of the fourth quarter. In addition, we have approximately $1.5 million in capital expenditures for the quarter, related to servers, computers, and the build-out of office space. In addition, we spent approximately $7.8 million repurchasing stock in the first quarter. First-quarter accounts receivable came in at $28.9 million, and our DSO metric for the first quarter was 54 days, which is a normalized level for LivePerson. The first-quarter tax rate was 23%. From a financial perspective, our first-quarter diluted adjusted net income per share was $0.05, diluted GAAP loss per share was $0.01, and diluted adjusted EBITDA per share was $0.09. That covers the highlights from the quarter.

Now I would like to discuss the financial expectations for the second quarter and full year 2014. As we discussed on our last earnings call, during 2014, we will continue to invest in the business and the rollout of the LiveEngage platform. Our current expeditions for Q2 2014 are as follows. Revenue of $49 million to $50 million, diluted adjusted EBITDA of $0.07 to $0.09 per share. Diluted adjusted net income of $0.04 to $0.06 per share, and diluted GAAP EPS loss of $0.04 to $0.02, with a fully diluted share count of approximately 56 million shares.

Current expectations for the full year 2014 are, revenue of $199 million to $204 million, diluted adjusted EBITDA of $0.37 to $0.41 per share, diluted adjusted net income of $0.21 to $0.25 per share, and a diluted GAAP EPS loss of $0.11 to $0.07, with a fully diluted share count of approximately $56.5 million. Other full year 2014 assumptions includes amortization of purchased intangibles of approximately $4 million, stock compensation expense of approximately $14 million, depreciation of approximately $10 million, an effective tax rate of approximately 23%, a cash tax rate of approximately 23%, and capital expenditures of approximately $11 million.

We expect gross margin on GAAP base to be approximately 76%, and as a reminder, out 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 38% of sales -- of revenue, G&A approximately 21%, and R&D to be approximately 20%. That covers all of the operational and revenue highlights.

Now I'd like to turn the call over to Rob, who will provide insights around the market and LivePerson's strategic direction. Rob?

Thanks, Dan. As Dan mentioned, we delivered really strong results during the quarter. This was our, also, 47th consecutive quarter of revenue growth, and I think it is a testament to the focus of our team on execution, and also around our strategy of delivering on our platform. As I mentioned on the last call, the digital experience online has really not changed from a shopping perspective; it is the same as it was in the 1990s. And as a matter of fact, I was recently on a panel at DLD, which is a technology conference here in New York City last week, and I was there with four or five other CEOs of ad companies, mobile ad companies and data companies. And everyone was talking about all of the things they are doing in prediction and data. We were telling them about Google and Facebook.

Yet, the results are still less than 1% of the people who come from one of these places will convert to a buyer on a website. As much of all the focus is on there, I think there is a disruption that I am starting to see in the industry. And I think it plays into where we are going as a business. Customers know this. They see the statistic. What they're looking for is, how do they get closer to the customer, their consumers? How do they create a relationship with those consumers? I really think there is going to be a shift now from content and the focus on delivering content in advertising to a focus on engagement and connection. That is really what is at the heart of the LiveEngage platform.

When you look at LiveEngage, it is about driving conversions. It is about driving a deeper connection with the consumer. And some of the statistics that we know is that 25% of the people who chat will turn into a sale. So the conversion rate is 25%. And when you look at that, obviously, we deliver that two ways. One is, we can target that chat with intelligence and data. We can invite the right people on the website. The second part is really the relationship that the consumer has with the person who is answering that chat at the business.

We see these great conversations, and we have been reading them. We actually are doing workshops now around the country with the operators. We listen to their stories, and they are fantastic stories, and we see the deep relationship that they are building with their consumers. It is important to understand, a couple of months ago, Facebook bought WhatsApp for $19 billion, a the company doesn't have any revenues. We can all say, why did they do that? But really, when you look at the importance of that, it is that the connection in real time that two consumers even have with each other to share information, share ideas. I think Facebook is saying that is very important. We see it in our business. Nobody wants to pick up the phone anymore and dial an 800 number.

Whether you are 72 years old, or 50 or 20 or 15 years old, the shoppers of today, they do message. They do things differently. They don't pick up the phone. And they want to be engaged online. More importantly, they've got their mobile devices, they've got their tablets, they're on the web, and they want a unified experience. And that is really the vision of LiveEngage. Where WhatsApp is really about the consumer to consumer connection, we're about powering the consumer to company connection. Mobile is very important to us, and we made an acquisition two years ago of a company, and we've been focused on really investing in there. And we're seeing, obviously, more and more growth with the use of mobile with the platform.

For instance, about 2.3% of our overall chat volume is coming through mobile. About 17.5% of the traffic that we're monitoring right now -- we monitor hundreds of millions of people a month -- is coming through mobile. And of our top 25 customers deploy mobile, they see 50% higher propensity to engage when presented a chat invitation versus on the web. And recently, one of our telcos in Europe, one of the largest telcos, in the last three months, 20% of their interactions were used to be mobile. Now it has gone to 45% of their total interactions on the platform. So mobile is not just a channel of communication. It is fundamental to our strategy, and how we're stitching the online and off-line journey together in the digital space.

What we see today is really -- in our business internally -- is really two parts. One is our strategic enterprise customers, and these are our -- the largest banks, telcos, and we have the biggest brands in the world who work with us. And they've been working with us for many years. They're asking for more from us. As we put out two days ago, we have a new leader, who is running now global sales, and is very focused on that area of the business. Alan Banks ran our EMEA operation. He has taken over the job, he did a great job in the last year. He has really expanded the business and Europe.

It's got our highest growth rates in the company was coming at that area. And previously, before being here at LivePerson, he was at Adobe, and he ran their European operation on the -- especially in the digital marketing and digital media products that they sell. He was very focused. About $500 million business. So we are excited to have Alan take it over and drive it. In that area, we closed, in the quarter, a -- one of the largest cable companies in the United States. We continue to close companies in the segment. But I think is a real testament to the platform and to the company strategy. Obviously, there is a bake off with competitors.

We tend to win these deals, because we have the best product; we're the most innovative. And we have our vision on really how to shape a future with them when it comes to, how do you engage the company? As we have said for many years, is not about the chats. The chats is just a channel telecommunication. It's really about the intelligence in the data that we're using to power that. And so when you look at the platform, why they chose us, it is really that we can intelligently deliver that. We can create higher conversions and higher customer satisfaction. Also, when you look at the business internally, outside of the enterprise strategics, we also have what we call our small business, which is really shaping up to be a little different now.

As of a couple weeks ago, now you can get LiveEngage on the web. You don't have to call us; you can put your credit card in; you pay by usage. And we just launched that. And that is the first time we've had a self-service product. We have a new head of that. He started a couple of months ago, and Tom Byun, who was the GM of Yahoo small business division before he came here, ran their entire small business group. It was about 2 million customers, about $150 million business. And he is doing great things with that. But that is going to become something that I think transformative.

We just don't see the small business anymore. I think mid-market and even enterprise customers can potentially just self-service. And that is what we're focused on, on growing that. He has had some good results, average order value under him so far has grown by about 25%. So Tom is doing a great job. A little bit of a case study there. They is a company called INKKAS, which is a new LiveEngage customer, and they make shoes from Peru. It is a cool, hip company, and they are out there.

And there's some interesting statistics we see from the use of LiveEngage. First one is, 44% of the chats are turning into sales. They had 100% higher average order value when someone chatted over when they just self-service. 23% of their purchases actually were outside of chat, and was content targeting. So once again, the platform had video, voice chat and content. 23% of the overall sales on the platform were from things outside of chat, and 29% of -- they had a 29% higher average order value. So when they were able to chat with somebody, they were cross-selling and up-selling.

And that is the power of the platform. And the power of that platform, and why we are delivering those results, once again, is the data and intelligence. We continue to invest in that area. The insights that we get from the platform, the data that we provide, the predictive capabilities off the platform are obviously very, very important. We monitor about 1.5 billion sessions, about 600 million uniques a month, and we do about 22 million chats, so we are at a very large scale. During the holiday season, we will be one of the most trafficked domains in the world, because of all of the data and all the behavioral data that we are capturing.

As you know, in 2012, we bought a copy called Amadesa in Israel, and that gave us a bunch of data scientists and some technology around machine learning and predictive technology. And then recently, we just acquired a company called NexGraph. NexGraph is a series of data scientists who have been focused in the area of social and advertising targeting. They are led by a gentleman, Key Compton. I've known Key for years. He is a great entrepreneur. He has done many things in the space. He recently sold his company, which is called XGraph, to an ad targeting company.

So we're going to have some good capabilities in there to even look at products outside of the current core, or taking our data, maybe doing some targeting integration with social. So we are excited to have him on board. This is our 14th year, actually, as of April, of being a public company. And I think it is actually one of the most exciting times in the Company's history. Three years ago, we started to reshape where we wanted to go. We wanted to build a platform that was called LiveEngage. A couple of weeks ago, the 2.0 version came out, which is really the thing we have been working on for the last 2.5 years.

It's a great product. It is self-service, it has got great data reporting capabilities in it, and it has got a very integrated approach to engaging consumers. We wanted to make it as easy as setting up a campaign on Google, as you can set up a campaign to engage consumers on your website. So we have got a great group of people here. Obviously, the promotion of Alan, the hiring of Tom, Key, all of the things we're doing around shaping, with our customers, the future of digital engagement. I think we're in a really great position, and we're thinking big.

Honestly, when you think big, you can take some risks, and honestly, we want to change how people are shopping online. We fundamentally believe that the way commerce is being done today, which is an advertisement is there, you click on it, you land on some page on the website, you scramble around, and 99% of the people just leave. And that is the digital experience. We have a greater vision, and we really believe that when a brand truly connects in real time with the consumer, and they maintain that connection. Even if the consumer leaves the website and goes into a store, we can maintain that connection with them through mobile and other ways. We think there will be a better way to deliver the vision, and what I think is the power of digital commerce. And that is what we're after.

So I look forward to giving you updates on that. If you haven't tried LiveEngage, go on the website and put your credit card in and try it. And I will now turn the call over to the operator and we will take questions from our analysts.

(Operator Instructions)

Richard Fetyko, ABR Investments.

Good evening, guys. Congrats on the numbers. And first, I'm just curious on the small business side. What things are you doing, working on to revive the growth in that segment, as well? And then, with respect to LiveEngage rollout, give us an update on the rollout to the enterprise clients? And on the new enterprise clients that you are adding -- being added on the LiveEngage platform?

So on the small business side, we have the 2.0 version that just came out a couple of weeks ago. So now, we have a basic way in which you can put your credit card in, you get live within minutes. And that allows us to really scale that business at a different clip than they are doing previously, which was -- we had a direct sales force against it.

So we're going to be very focused on increasing marketing spend there. And really driving that business, I think, to a greater place than where it has been so far. It's all about self-service, get marketing campaigns, and we're also looking at doing some integrations with partners, maybe web hosting companies and things like that.

So Tom is focused in those two areas right now. On the enterprise side, we continue to roll out the 1.2 version of LiveEngage, with the recent win with the cable company is going on there. So everything is going as planned with moving our customers onto LiveEngage, and also the LiveEngage pricing being part of -- by usage, so we just converted one of our largest banks into that model recently. S

o everything so far is going well. The 2.0 version that we have out that is just online is very focused on the small business. The 1.3 version is focused on the enterprise. In the next couple of months, we will have everyone up to the 2.0 version.

Thank you.

Brian Schwartz, Oppenheimer.

Thanks, guys, for taking my question. This is Koji Ketter for Brian Schwartz. Looks like total enterprise mid-market deal count came in a little bit lower than what we were expecting. I was wondering if you could talk a bit about the environment from where these deals are coming from?

Are there specific industries that were underperforming more than others? Or is a certain size of the customer that were performing less than expected? Or maybe it was a combination of both? Thanks.

No, I think it is no -- we don't look at is as under-performance, we think of it as a seasonal issue. We usually have a drop from Q4 to Q1, in the number of deals and from a bookings perspective. So we are excited, we signed the large deal with the cable company.

Several expansions with financial service companies. And from an enterprise and mid-market perspective, I give the stat that that portion of the businesses has actually grown quite well quarter over quarter, about 17%. So nothing unusual from a bookings perspective. And nothing to point out.

Thanks, guys, thanks for the color.

Jean Peto, Wedbush.

Good job on the quarter. Rob, thanks for your prepared remarks. In terms of driving a broader adoption of your newer technology, what do you think the hurdle is? When do you think you'll start to see more of a pickup in sales of your newer technology, especially around division that you talked about on the call earlier?

It's happening. That's what we're selling. We are all selling the new platform, so it's actually going. The interesting thing is, our largest customer now, I think could really double or triple -- not that specific customer, but as an overall - our large customers to be 30 million or 40 million in the future, because we are seeing much more deeper thinking about a global approach to digital engagement.

So -- and our platform allows us to do that. So that is on the high-end strategic, and their action is to help them shape how we're going to do that, online and off-line, where they have stores or branches, they're really asking us to do that. So that is all (inaudible) to LiveEngage.

And then more on the self-service model, if you go on the website and get a product with a credit card, that is all marketing effort. That is really front-end marketing, making sure the funnel, that someone can come through, get on it, put it on their website and go.

And so far, we have seen some good results there. So the platform is powering all this for us, and that is what is happening.

Great. And then Dan, I may have missed this, but what was the small business growth this quarter?

We didn't talk about it, but it was relatively flat quarter over quarter, year over year.

Okay, great. And then, on attrition, I believe I heard you mention that the trend there was downward year over year and quarter over quarter. Can you talk about what is driving that?

And is that the right way to think about it going forward? I know you don't got that specific metric, but just from a high level?

For sure, from an attrition perspective, we get hit in Q1 last year, and we have been focusing on attrition, and it has been dropping over 2013 and into the early part of 2014. So it has been a focus of our business, and a focus of the sales organization.

So the 1.2% attrition in the enterprise and mid-market segment, we're very happy about. So it is going in the right direction; I think we're doing some of the right things as the organization.

Great. Thank you.

Richard Baldry, Roth Capital Partners.

Could you talk a little bit about the ASPs you'd see of would expect for the LiveEngage platform in the enterprise? And maybe a little deeper on the levers or the drivers of that? I know it's not necessarily a [per seat], but a transaction-driven model, just so we can understand what will push and pull those ASPs.

Yes, so we haven't disclosed anything on the ASPs around LiveEngage, but everything that we're selling from the small business and starting greenfield customer is on the LiveEngage platform. So we had high ASPs for the quarter. It was helped by the large deal that we talked about with the cable company.

But as far as the pricing model, we are excited about the pricing model, and we think there is a good opportunity from a customer perspective. And it aligns -- our pricing model aligns with the value that we are generate for those end customers.

So we have had the pricing models in play for a little over four months, through the end of the first quarter, and we're seeing positive results and acceptance from a client perspective. So we think we are aligned -- the business that we have -- LivePerson is aligned with our customers interest in driving value.

We look at the drivers of the platform, it is really about using -- people come in because we are the leader in our real time engagement like chat and video and voice and things like that. But there is the content, there's the data, so every one of our customers now gets access to 100% of the platform.

We're not bifurcating by size or anything. So it simplifies our business model. And what we are driving is, like that example with the shoe company.

22% of the engagements they are doing are coming through content targeting. So we're really looking for them to use more than chat, but then obviously we are the leader in it.

There is more adoption of it right now, even on the enterprise side. There's just an adoption and we want to move voice into chat. And so that is definitely a focus, and we want to keep expanding in that area.

And could you talk about your comfort level on the sales transition? In particular, you've been doing strongly in Europe. So with him coming out of production into the management side, can you talk a little bit about the team underneath him? Whether you think that will be able to continue the strength you have seen in Europe through that transition?

Yes, I think we have a good team, very engaged group of leaders there, and we have Alan, who I think has done a very good job. He has been in global roles before. He has run bigger groups than even our previous head of sales.

And then we have a bunch of people who are working with him who have some have been here for a while, some of them are new in the next two years. But they are really excited about the opportunity. We have the leading product, we have got a platform that is out that's working. We've got big customers to reference.

So it sort of a dream for the sales. And he is excited. And he knows the business. So we don't need any, trying to find someone externally. We can make it a very seamless -- I don't want to even use the word transition, because he has been in the business long enough to just know the business, and he knows everyone in the business. So he is just taking it over.

And lastly, it looks like the buyback was maybe a little bit more aggressive in the quarter. Could you talk a bit about your comfort with your cash level? Whether you think you could be more aggressive, given the general market pullback?

You really seem to be more of an execution stage on the sale side rather than an investment stage on the product side. So do you think you continue to be aggressive on the buyback? Or do you think cash preservation or some strategic acquisitions might take priority over the balance of the year? Thanks.

We're comfortable with where the cash position. We saw an opportunity to buy back some stock in the first quarter, so we took advantage of it. We still have about $5 million authorized in our buyback program. And we've been relatively aggressive in 2013 and the first quarter of 2014 in buying back that stock.

But you are right, we are in execution mode, and it's focused on the rollout of LiveEngage and the adoption of LiveEngage. So we comfortable with where the cash balance is, and we will continue to use it in strategic manners, whether that is looking at acquisitions or the opportunity to presents itself to buy back stock.

Thanks.

Brad Sills, Maxim Group.

Thanks for taking my question. Just one on the coming LiveEngage cycle within larger accounts. Now that things are more bundled, do you see an opportunity to expand the offering to a wider user base within the marketing department, now that marketing is included in the pricing. Analytics, I know, is still priced separately, but even on analytics being better integrated now with the platform. How do you view those two marketing analytics, in terms of potential expansion within the marketing department to more users and use cases?

Yes, I'm definitely -- the platform was built -- and actually the platform -- the 2.0 platters of the platform -- it's a very beautiful platform. The user interface is really quite nice, and we spent 2.5 years designing this one. And it's made for marketers. It is campaign focused, so you actually set up a campaign, and in that campaign, you can say, I want to target my VIP customers, and you can define who those are, or we can define it.

And then you can say, I am willing to give them a piece of content, maybe a chat. So it's really marketing-centric is the way the platform was designed.

And then all of the analytics now, the analytics are really broken into three pieces. One is the analytics of the operator, if you someone chatting or doing voice or video.

The analytics of the campaign, so we can see how our campaign is running that content, and then we can see the analytics of the program. How is the actual entire program or all of the campaigns running?

So it is quite even very graphical, because we want to attract more of that -- those users in the group. And the pricing model is, everyone can have it. So there is no seat, so we can give it to everyone, and they are going to pay as they draw those interactions down.

Got you. Thanks Rob, very helpful.

Michael Nemeroff, Credit Suisse.

Mike Anderson on behalf of Michael. First of all, with respect to the large cable customer order that you signed, can you give us some insight into how long that sales process took and compare it to what your normal sale process might look like?

It's interesting -- it was a normal sales process, about six to eight months for the whole thing. It's a three-year deal. So it is a multi-year deal.

So it (inaudible) fit into the normal sales process on a large enterprise, and then it's a three-year deal. Which we're trying to push more and more of our customers into that, into a line to the new pricing model too, so they can obviously use all of the platform. And so those are the three parts to it.

And with respect to the billing on that, is there going to be an annual billing charge? Because I think I noticed your long-term deferred revenue went to zero. So will that be -- how will that get recognized on the financial statements?

It will get recognized pro rata. We bill it on a monthly basis, but it will get recognized pro rata, so you wouldn't see it on the large increase in deferred revenue.

Okay. And then, just as a follow-up, would you expect -- how long would you expect it to take to implement that customers, since it sounds like it is a -- it has a pretty sizable base.

So we expect it to be around the normal implementation cycles. It should take somewhere between two and four months, but most likely around three months or less.

Okay. And general, on the other implementations which had crept up, have you started to see any improvement on that metric as well?

Sure. It has been a focus since we talked about it about a year ago. And we have seen the go live timeframe shorten between when we signed the contract when we actually go live. So we're getting -- we are back in our normalized levels that we were -- experienced back in 2012.

So anywhere between two and three months, and we're actually actively trying to drive that timeframe down. And as Rod spoke about with the LiveEngage platform, our goal with the LiveEngage platform is to make that go live even easier, from a customer perspective, and even internally to LivePerson.

That is very helpful. Thanks a lot guys.

Thank you.

Mike Latimore, Heartland Capital Markets.

The large cable customer, are they going to be using all of the applications, or will they start with chat, or how are they going to be using it?

They will start with the -- obviously, our core chat, because they have a lot of voice calls that they want to shift over into the chat side. And then obviously, we will expand from there. And that is how it is working today. But we will start them, because they have an immediate need, which is, how do we get closer to our customers, keep them online to do an interaction and decrease the voice calls that we're getting.

And how are you feeling about the sales force productivity? What kind of additional productivity could they get and are you planning to hire more people this year?

I think we have still a lot of capacity in the sales force. So we will be hiring probably some more people, but we do have a lot of people right now. We hired a lot in the last 24 months.

And I just think we can get a lot more. And when you look at Alan, and the leadership team as a whole over there, I think they have some really good ideas about how to get a lot out of the people we have and change the game with some of our large enterprise customers. And we just got to support them and them get out there, and that's what they're doing.

And do you -- implied in your guidance, are you are assuming some improvement in the small business growth rate?

We are expecting some improvement in the small business growth rate. It was relatively flat year over year, quarter over quarter. But we are expecting some modest growth in the small business sector.

Thanks, nice quarter.

Thanks Mike.

Craig Nankervis, First Analyst.

How are you guys measuring your success with LiveEngage at this point? What metrics do you look at? And what data points that you see today give you -- how do you look at your success with where you are at this point on the rollout?

It's really -- there is a couple of different. One is, we want to see if the customer can get online, and talk about -- this is small business and mid-market, some mid-markets, which is that go online, put your credit card in, get yourself tagged and go live and start taking a chat or doing something with content. So we are measuring how fast that happens, and then we want to measure the usage on the platform and adoption on the platform.

So that is one thing. We want to see things like mobile being used and content and things that are you people use in the entire platform.

On the enterprise side, it's more like average order, if we looked at the metric of average order value, how big of deals are we doing, because those deals are dictating the usage of the platform in the same way. So the things where the programs we're presenting to our customers, they're about using all the pieces of the platform, and that is why average order values can go up a little bit.

We're looking at much bigger deals in the future, and we're starting that. That's how we're measuring between the self-service and the large enterprises

That is very helpful. Are you willing to share any color on any of those things, or is it premature to do that?

It's premature. I would love to share stuff with you guys, but when I do, I have 26 quarters of, why did it go up and down, and up and down, and sideways and up and down. We're -- I want to just focus on the goal of getting LiveEngage out the door. We're measuring that stuff. We will give that to you guys in the future, but I want to get a really good set of metrics that we feel, and we are focused on the execution of that now.

Okay. That's all I have. Thank you very much.

Thanks.

Jon Hickman, Ladenburg.

Hello?

Hi Jon.

Could you repeat the pay for performance statistics there. It was 8% of total revenue and 13% of --

No, it was 14% of enterprise and 8% of total.

Okay. 14% of it on enterprise. Okay. And then, my -- almost all my other questions were answered, but could you just talk a little bit about the competitive landscape? Is there anything changed, anybody new?

No, it's basically the same as it was. We've got Oracle out there with the acquisition they did a couple years ago right now. And so -- and they are the main guys out there, but we're not seeing any big shifts or changes in the competitive set today.

And I think where we are going, I think where we're going is a really different place than where we have been, and where we've been has been pioneering. But we're going to go now, I think, is going to be like we did with proactive chat back in 2006, which is game change what it means to be engage a consumer.

And we see small companies like [e-gain] out there, but they've got old stories with old technology. We took the risk of re-platforming, and it took about $40 million of our cash. And the changes we've made in the company, but it's going to pay off, and it is paying off.

And we have got a platform out the door in 2.5 years, and it's working, and our customers like it. And what's great is the strategic -- wherever we have these great conversations with them, because we have the product to back it up. And that was something that we planned 2.5, 3 years ago.

So we're in a great position; I think we're about to game change this industry again. We're changing how pricing is happening, and we're changing the different -- how you are going to deliver the platform for digital engagement.

Okay. Thank you. Nice quarter.

Thank you.

Richard Fetyko, ABR Investments.

Hello, guys, just a follow-up. On the largest deal, was that for a sales or service type of engagement that the client is going to use your platform for? And then secondly, since mobile is becoming such a growing portion of traffic and focus for your clients, is there anything else you feel like you need to do or could do to help facilitate the mobile engagement with their clients?

And are you perhaps working or seeing any need for [in apps] since a amount of the traffic or usage actually happens in mobile apps. I was wondering how you are positioned for facilitating engagements within mobile apps as well?

On the first question, it was a service. It's starting out a service with the large cable company. And then we do do both today on the mobile side.

So we do in-app, so we are implementing an in-app, and we're also implementing on m-dot sites, on mobile sites. So we do have both the technologies.

We've got a great group that we acquired two years ago. We continue to invest in that group, and -- they're in Southern California, and they are doing a great job in shaping it.

I think there is a lot of -- not a lot, but there is a couple cool things they are coming up on the mobile side, for the operator consoles, and for some interesting things on the consumer side. So there is definitely an opportunity.

The interesting thing, I think, about mobile is there is really no owner of mobile today when it comes to commerce. I wouldn't say Amazon or Google or anyone owns the mobile space. They definitely only the web space.

So mobile is this greenfield, if we can nail it, where we can create that connection between the consumer and the business, and it's an always-on connection. Someone walks in a store, and we know who they are through the monitoring tag, we know how to engage them in the store, and then they are online, and we know how to engage them online. We are -- that is the vision that we're painting, and that is the execution that we will do on the product side around that. So we -- I think mobile is very integral for our strategy, and I think it is this greenfield for who can win there on the commerce side.

Is it fair, Rob, to say that consumer behavior changes oftentimes a lot faster than the enterprise and clients can keep up with? That a fair amount of the in-app activity I think is on the gaming side.

But are you seeing much on the commerce side, in terms of in-app activity? Or just even customers having an app to take advantage of and to facilitate that? Or is that sort of very early stages?

We should -- we're seeing in-app -- actually, it's more popular than the end-outside communications, look at the -- especially the big brands. So we're seeing a lot of activity there, and that is why we're actually integrating it into it, so I am seeing that. I think the challenge, though, is within app, is that everyone -- think about it -- you've made -- how many apps can you have on your mobile device?

So how many branded apps do you want? If you've got someone from your telco, from your retailer. So I really got to believe -- I actually believe there's an integrated approach to bringing these customers together, and that's some of the stuff we are exploring.

But I think consumers are using, and we're seeing usage. We're seeing usage on our chat in-app, so I think they are gaining traction, definitely.

Thanks.

Thanks Richard.

There seem to be no further questions. I will now turn the call back over to Management for closing remarks.

Thanks, everyone, for being on the call, and we will speak to you on the next quarter. Have a good day.

Thank you.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may all disconnect.