LivePerson Inc (LPSN) 2014 Q4 法說會逐字稿

Good evening and welcome to the LivePerson fourth-quarter 2014 earnings conference call. My name is Tracy and I will be facilitating the audio portion of today's interactive broadcast.

(Operator Instructions)

On the call today will be LivePerson Founder and CEO Rob LoCascio and CFO Dan Murphy. Thank you. Mr. Dan Murphy, you may begin your conference.

Thanks very much. Before we begin, I'd 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.

The results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory and other factors could cause LivePerson'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'll 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'd like to the call over to Rob LoCascio.

Thanks, Dan, and thanks everyone for joining us.

I'm very excited to report that we achieved our 50th consecutive quarter of growth. We delivered record revenue in 2014, with our growth rate accelerating to 18%, up from 13% in 2013. Adjusted EBITDA increased 21% year-over-year.

2014 was a great year. With strong growth in our core business, we hit some important milestones in the launching of our LiveEngage platform and we did three successful acquisitions. And this really provides us with, I think a really strong foundation going into 2015 and also the scale over the next several years.

We have a really clear vision about what the future is going to look like and how our Company's going to play into it when it comes to customers communicating with their consumers. We're obviously out there, what I say is, bridging the gap between the consumer who is messaging and communicating on mobile and all these ways to their friends and family the brands that are communicating primarily by voice. And what we really want to do is bring that together. And that's why we built the LiveEngage platform, to go ahead and do that, to bring messaging between consumer and brand, to do it at scale, and to deliver that meaningful connection between those two audiences.

We're clearly the leader in what we do today. We monitored over 8.3 billion visitors in Q4 alone and more than 25 billion in total of 2014. We did over 300 million web messages, or chats, both on web and mobile in 2014, also. So at the heart of our strategy is obviously mobile, and we doubled those interactions in the last quarter. And if you look to the beginning of 2014, we did 100,000 a month of interactions through mobile; at the end, in December, we did 1 million.

And so the platform which we put out in May of 2014 is really at the heart of driving our future. Today we have about a little over 1,000 customers on the LiveEngage platform. We tripled the number of enterprise and mid-market customers who signed up to go onto LiveEngage, and we even in the quarter signed our first seven-figure deal on that platform. And it was a really interesting thing, because competitively, we brought together all the capabilities that are in the platform around data and analytics, including the things we do with predictive targeting, sentiment analysis, and that won the day in the deal.

And what's more important is that we really sat with that customer, who's a very large telco in the UK, and we said, what's the future look like? And when you think about one of our enterprise customers, on average when they sign up, they're with us for 10 years. And so when this customer looks at, where am I going, it's not about the quarter or even the year, it's the commitment they're making to us and the commitment we make to them is about plotting that communication strategy, how are you going to connect with your customers. And LiveEngage spells that out clearly. So we're very excited about it. And obviously, we continue to deliver that to the market.

We spoke about one of the things we wanted to do, which was deliver LiveEngage as a way to scale the business. And one of those parts was deployment. If you remember a couple of years ago, we talked about deployment sort of like extending out. And you'll see this with a lot of SaaS companies. What's supposed to be about ease-of-use and get up, but what happens over time is as you get more enterprise customers, the products become more complex. They become harder to integrate.

So what we did is we took all of our knowledge and when we rebuilt the platform, we put that in, that knowledge, into the platform. What we're seeing now, based on these 1,000 or so customers, is we're getting to market -- so implementation times are 32% faster than with the previous platform. So if you think of our future and how we can scale and how we can get the revenue quicker, we can do that much more efficiently on the LiveEngage platform.

So overall, this platform's about scaling with much larger customers. It's about getting to market quicker. And it's really about changing the game overall in the market. We've always been a leader. We dominate in what we do. And we're going to continue that leadership. But three years ago, we set out to invest in something that I think would guarantee us growth over the next 10-plus years, and we've delivered that. So it's a game changer, not only for us but also for our customers.

We're working -- when we think about our customers, we've got two sets. We've got our existing base and then we've got the green field, the new ones. And we have some of the best customers in the world in our base. And they're our asset. They're the ones that help us build our business.

One of these customers is the Royal Bank of Scotland. And they're one of the top 20 banks in the world. They've been with us for many years. But we recently did a major expansion with them in using the parts in LiveEngage to deliver a whole different way that they're engaging their consumers through the digital channels.

And this is all about the journey of the consumer. They come to a website, they're on a mobile device, they want to do something. They want to pay a bill. And it's hard. And a lot of times, that just generates a phone call. But with our platform, we can get them from A to B in a digital channel, which drives down costs, because the consumer doesn't pick up the phone call and call. And it also creates a higher lifetime value. So when I look at a customer like Royal Bank of Scotland, I can see them being 5 or 10 times bigger over the next few years, just because of what we can do strategically with them.

I was also recently in a meeting with a customer who's one of the big banks here in the US. And we've had them for 11 years. And they were actually our first enterprise customer on our Proactive Chat. And I remember, I was sitting with the woman who's been there 11 years. And I said, we built, basically, Proactive Chat together, as an industry. And today, we're at a different place, though. We have the ability now to build something different. Consumers have changed. They're not just on the web. They're on mobile devices. They're obviously on social. But more importantly, they're still making phone calls.

So we sat and we talked about what's the future over the next 10 years where you as a bank can use service as a strategic weapon? How do you lead with service to say, we're not like every other bank. You don't have to call us, be on hold and all that. You can connect with us instantly. We care about you. We want a meaningful connection. So those are the things we're doing with the existing base, and obviously, we're bringing that same vision to the new customers.

When we think about that vision, it's just not about the United States or parts of Europe. We're a global company now. About 35% of our revenues are outside the US. We have a strong presence in different markets outside the US. And when we look in one of our newest markets, Japan, we closed one of the largest telcos in the quarter. That's followed up from a close with one of the biggest banks the quarter before, one of the top 20 banks.

And when you think about why they chose us, one is our vision for the platform, but also because of our presence there, our established base of customers around the world. And so we're very excited about that region, because -- in Japan, the country -- because obviously, it's the third largest economy. But more importantly, if we get the start with a large fi serv, with a large telco, it usually sets the foundation for growth. And so Asia as a whole is very excited. But the team in that region's doing a great job. Obviously, we have Australia. But looking at other areas, but they're doing a fantastic job.

As we mentioned on the last call, we acquired a company called Contact At Once! And we're very excited about this acquisition. They share a very similar vision and platform that we do. In fact, they're leading us in certain ways, like mobile. They've done some very interesting things in mobile over the past three or four years that we're about to deliver. And so there's really a good synergy there. Obviously, they're focused on the vertical of automotives and they're focused on the vertical of real estate. And they've got those verticals really secure and they're a leader in there.

On the mobile side, that's where we're putting a lot of our focus and attention on the R&D, in the product side, they also are doing great. They saw their mobile messaging grow by 44% in Q4. And that's up from 21% a year ago. So their performance -- they're driving a lot of interactions there. They did a great job in the quarter. They met and exceeded their targets. So I think it's really great acquisition for us.

They've had some nice international expansions. We just put out a press release that they signed a big automotive group in the UK called Arnold Clark, and they've just signed one of the large manufacturers of cars in the Canadian division. So they continue to expand outside of the region.

There's a lot of opportunity here, not only within the United States, but outside the US, not only within automotives, but we're just starting the vertical of housing, so rentals and home sales. So we're just starting what that. So obviously, I think the important part here, too, is we've got the wind at our back because of the macro environment of auto and homes. There's obviously a lot of things going on there, so it's a good acquisition.

You remember, this acquisition is both accretive on the bottom and top line. And I still think there's a lot of value that we're going to allot from it. And they have a great culture, and we're really excited about Contact At Once! and their team being a part of the overall business.

We ended 2014, I think, very strong. The overall growth and the delivery of our LiveEngage platform really was the center of that. In 2015, we're very excited about what we need to do and how we can deliver on the vision. We had a -- our field organization got together a couple of weeks ago, over 300 people we had at this meeting. It was a lot of excitement around the things like what we're doing with RBS and the LiveEngage platform. And it's here now. They're successes. There's a confidence with it.

And there's a confidence also in the leader that we have now, Dustin Dean, who we announced a few weeks ago, a quarter ago. Dustin has been with us for 10 years. He knows the business. He knows the people in the business. And he's a great leader, I think, for this group. If I could wind back two years ago, I probably should have put him into the role. I think he understands the business.

And we're not like any other company. We don't sell commodity software. We need someone who understands innovation, who knows how to sell innovation and get value out of it. We don't go in and we're not the cheapest. So we need leaders who understand that and are not just trying to book the quarters, but are trying to build big, strategic deals with our customers. The average tenure in that team is about five years. So there's a lot of relationships that he's had with this team, and we're excited with him. And he's got a great leadership team under him to move forward.

So we've got a clear vision. We've got our platform. We've got the strong group of leaders. And I'm very excited about what we did in 2014, but I'm even more excited about our future. And with that, I'd like to turn the call over to Dan to talk a little bit about the financial progress we've made between 2014 and what's coming up in 2015. Dan?

Thanks, Rob.

We will start with a review of the operational and financial highlights of 2014 and finish with our guidance for the first quarter of 2015 and the full year 2015. We entered 2014 with a set of strategic goals. And although we continue to focus on the future, it is worth taking a moment to review the many accomplishments achieved by LivePerson in the past year.

We accelerated revenue growth to 18% in 2014, from 13% in 2013, and exceeded our initial guidance of $199 million to $204 million by delivering $210 million in revenue. Sales from our enterprise and mid-market segment continue to show strong growth, rising on an annual basis by 21% over 2013.

We completed three acquisitions, Nextraq, which added a team of data science experts to enhance our leadership in intelligent digital engagement, Synchonite, which added code value technology to our platform, and Contact At Once!, a unique messaging platform with leading market share in the automotive industry. We rapidly advanced our mobile strategy, accelerating mobile interactions to nearly 1 million a month by year-end 2014, which is up from about 100,000 a month at the beginning of 2014.

We launched the LiveEngage platform to our customer base and added more than 1,000 brands. In addition, we moved several mid-market accounts to the platform, which was ahead of schedule.

We executed on our international expansion strategy, opening offices in Germany, strengthening our presence in Japan, and building a regional data center in Australia. International sales now account for 84% of revenue, up from 24% just three years ago. We maintained strong connections with our customers, fueling a 91% customer renewal rate in 2014.

We focused on returning capital to our shareholders, repurchasing 1.2 million shares of stock for approximately $13 million in 2014. This is in addition to the 2.4 million shares we repurchased in 2013. In all, LivePerson retired approximately 6% of its shares outstanding over the last two years.

2014 has been an amazing year, and we're proud of our accomplishments. I'd like to take a moment and thank our employees for all their hard work and effort over the past year.

Turning your attention to the fourth quarter of 2014, revenue exceeded the high end of our guidance range, despite a 1.3% drag from foreign exchange. Adjusted EBITDA and adjusted net income were within our guided ranges. GAAP net income came in just under our guidance.

Total revenue of $58.2 in the fourth quarter increased 24% versus the same period last year. B2B revenue, including Contact At Once! for the sub period, was $54 million, and revenue from our Consumer segment was $4.2 million.

The following metrics exclude the impact of Contact At Once! Revenue from our enterprise and mid-market segment continued to deliver strong growth, climbing 20% over the fourth quarter of 2013. Bookings were $11 million in the fourth quarter of 2014, a record for the Company and capping a year where our total bookings increased 19%.

Approximately 54% of bookings in the fourth quarter came from existing customers and 36% of bookings came from new customers. Our average deal size was $68,000, consistent with the third quarter of 2014 and up 28% versus prior year.

We include in our bookings metric new or incremental contractual commitments for the first year of the contractual relationship from either new or existing customers for recurring subscription-based fees, but we exclude from such amounts non-recurring fees, such as one-time implementation costs or one-time consulting fees. The bookings metric generally does not include or represent usage-based and/or pay-for-performance based contracts, month-to-month contracts, transaction-based services, or subsequent years of multi-year contractual arrangements.

While we are on the subject of bookings, I want to inform the investment community that we will no longer be providing a booking metric. As our business continues to evolve, we note that the bookings is becoming a less meaningful metric. We feel this is the right time to discontinue the metric, especially in light of the recent acquisition of Contact At Once! and the changing of our business model to [per action] pricing. We will still provide detailed financial quarterly and annual forecasts and we're also examining more meaningful metrics that will help illustrate our progress and performance with LiveEngage.

As in the past few quarters, during the fourth quarter we continued to expand relationships with new and existing customers. In the fourth quarter 2014, we had 52 customers spending more than $500,000 on an annualized basis, which is up from 48 in the fourth quarter of 2013. In addition, we had 31 customers spending more than $1 million annually, up from 26 in the fourth quarter of 2013.

The average deal size for new customers was $95,000, more than double the year-ago period. And the average for existing customers signing up for an upsell for expanding business was $59,000.

Revenue based attrition for enterprise and mid-market accounts averaged 2% per month in the fourth quarter of 2014. For the full year 2014, revenue based attrition narrowed to 1.3% from 1.7% in 2013. The largest driver of revenue based attrition is not customer losses, but customers right sizing their contract based on our customers' estimates of visitor traffic, their product launches and their specific marketing campaigns.

Our customer renewal rate for our enterprise and mid-market segment was very healthy, at 91% in 2014. Small business monthly attrition rates continued to decline, reaching a new low of 0.7% in the fourth quarter of 2014, compared to 2.6% in the fourth quarter of 2013. The revenue breakdown by industry vertical was telecommunications made up approximate 28%, financial services 26%, retail 16%, technology 18%, and other at 12%. Revenue coming from outside the United States was approximately 34% of total revenue.

Fourth quarter gross margin came in at 75.1%, which is up sequentially from 74.8% in the third quarter of 2014. Our fourth quarter adjusted EBITDA per share of $0.09 and adjusted net income per share of $0.02 were within our guided range. The GAAP net loss of $0.08 per share was just under our guidance, largely due to an income tax expense of $0.03 per share, which was slightly higher than our expectation. GAAP net loss also included $0.02 of acquisition expenses, as previously guided.

The Company's cash balance was $49 million as of December 31, 2014, compared to $87 million as of September 30, 2014, the difference primarily reflecting the cash payment for the Contact At Once! acquisition. As Rob discussed earlier, we are pleased with the performance of Contact At Once! Our 2015 guidance for Contact At Once! is unchanged. We expect the company to increase revenue by approximately 30%, to $31 million in 2015. We also forecast that Contact At Once! will generate adjusted EBITDA margins above the corporate average and be accretive to earnings in its first full year.

The following is our financial expectations for LivePerson, inclusive of Contact At Once! For the first quarter of 2015, we expect revenue of $60 million to $61 million, which includes a negative foreign currency impact of nearly $1 million, adjusted EBITDA of $0.08 to $0.11 per share, adjusted net income of $0.03 to $0.06 per share, and a GAAP net loss per share of $0.06 to $0.03, with a fully diluted share count of approximately 56.9 million shares.

Current expectations for the full year 2015 are revenue of $263 million to $269 million, which includes a negative foreign currency impact of nearly $4 million, adjusted EBITDA per share of $0.36 to $0.51, adjusted net income share of $0.27 to $0.32, and a GAAP net loss per share of $0.12 to $0.07, with a fully diluted share count of approximately 57.5 million. Furthermore, as a percent of revenue for year, including Contact At Once!, we anticipate sales and marketing to be approximately 40%, G&A to be 19%, and R&D to be 17%.

Overall, 2015 will continue our trajectory of accelerating growth, with our revenue forecasted to increase 27% to 30% in constant currency. Excluding an expected 2% currency headwind and contributions from Contact At Once!, we're projecting mid- to high teens organic growth, with another strong year of 20%-plus growth in our enterprise and mid-market segment. We are also targeting a 20% growth in adjusted EBITDA per share. In addition, [to separate] the LivePerson earning release, issued earlier today, for details on other full-year 2015 assumptions.

We entered 2014 with a set of goals, and we delivered a strong success across our top line and against our strategic plan. 2015 is shaping up to be an equally aggressive year. We've already signed our first seven-figure enterprise contract for the LiveEngage platform, we will continue to invest in the LiveEngage platform and accelerate the process of upgrading enterprise and mid-market customers.

We are continuing our investment in mobile over the LiveEngage platform, with an expectation to drive deeper adoption of mobile within our user base. We're also investing more in real-time analytics and voice of the customer, which are areas that further differentiate our platform and are generating overwhelmingly positive feedback from our customers. Finally, we will continue our international expansion, where we expect strong results from continental Europe and Asia.

LivePerson is at an exciting point in its evolution, in the midst of rolling out its next generation platform, which positions us not to only better penetrate the existing market, but also to catch the broader funnel of the 800- calls made each year.

With that, I will open the call to questions. Operator?

(Operator Instructions)

Rich Baldrey, ROTH Capital Partners.

Thanks. Could you maybe talk a little bit about the $0.03 tax drag, where that came in from, and how would you think about taxes in 2015? I think without the numbers, it would have looked significantly better. So I'm curious how that plays for 2015.

We have an issue with our business. While we generate an overall loss, we do have income in certain jurisdictions where have to pay taxes, but the overall loss in jurisdictions where it doesn't benefit us. So we actually provided a little bit more income in those regions than we originally anticipated and expected, with our setup in the Netherlands, international or outside of the US. So that's what had an impact on the taxes for 2014 in the fourth quarter.

As far as looking forward, we guided that we would have a, maybe a 30% tax rate. So we will be generating a loss in 2015 that will have an impact on taxes. And again, that's driven by having income in jurisdictions where we do pay taxes.

And on the R&D cost side, it was actually down sequentially, even when you put the two companies together. So was a lot of that because of foreign currency benefit? Is there any other one-time issues in there? And again, how should we think about that on our run rate?

Great question. Some of it was related to foreign currency benefit, and part of it was related to the acquisition. As far as the acquisition is concerned, Contact At Once has a decent size sales organization and comparatively, as a percentage of revenue, a smaller R&D portion. So that also had an impact on bringing that overall number down.

Then maybe last thing from me would be could you talk a bit, now that you've had the sales organization all brought together, whether there was, or you've seen any sort of cross-pollination capabilities between the acquisition, which direction those would be mostly taking, either them working with your guys on leads or being able to use your customer base for their own benefit? Thanks.

Yes. Well, actually, the teams were together at that off-site. So we definitely see some synergies between us. There's really two levels of it.

One is on the housing side, we've got some very large housing contractors, homebuilders on our side. So we'll be working together on actually deals where they're also listed in search engines and things like, where Contact At Once is.

We also have an international footprint. So there's really an opportunity to utilize that.

So the team has been out to our different areas around the world to look at the opportunities. And so that's really where the leverage points are today.

Technically, we're still -- remain separate platforms, and we're just continuing on sales execution. And then we'll look at tying platforms together over time. But today, it's really on the sales. Co-selling is really where the focus is.

Great. Thanks.

Michael Nemeroff, Credit Suisse.

This is Kyle Chen in for Michael Nemeroff. Thanks for taking the question.

I guess, Robert, based on the strength of your pipeline from where you sit today, can you comment qualitatively on how much visibility you have into your guidance, the level of conservatism that could be baked in, maybe due to some of the sales organization changes? And is the achievement of the guidance depending on any significant factors or milestones?

From a guidance perspective, we guided to where we are comfortable with, based on the information that we have. We obviously don't give pipeline or bookings guidance. But from the guidance we pulled together, we're comfortable in the direction that we're going, and rolling out LiveEngage and further adoption of mobile. So right now, all systems go and it's going in the right direction

Great. Great to hear.

And quickly, on the small uptick in the enterprise and mid-market attrition, you mentioned that it had to do with the right sizing of contracts from existing customers. Does that imply a reduction in utilization? How should we think about that as we move into 2015?

So what's important to note is there will be mix between the quarter, depending on how many customers come up for renewal. But overall, our attrition rate dropped from 1.7% down to 1.3%.

But on the right sizing of contracts, the point that I was trying to make there is we've actually had a healthy customer renewal rate, but the revenue attrition rate, we try and estimate the best we possibly can, in conjunction with our customers, based on the number of seats or the number of interactions that they would need. And sometimes, the traffic doesn't materialize. Sometimes, the product launch doesn't materialize, or maybe the marketing campaign that they expected wasn't as effective.

So they might have bought some inventory ahead of one of those launches or one of those factors happening. And what typically happens is they'll try and right size the contract, and we'll obviously work with them to make sure that they're being as efficient and effective as possible dealing with our software.

Got it. Thanks. Very helpful.

Shyam Patil, Wedbush Securities.

This is Andy Chang for Shyam Patil. Thanks for taking my questions.

On Contact At Once, can you talk about some of the early synergies you're seeing with the acquisition?

Yes. As I mentioned before, the synergies we're seeing is really two or three levels. One is we're obviously co-selling with them in certain verticals. Like right now, we're opening up the home building area.

We've got, I think, 8 out of the top 10 home builders between us. And so we've got these home builders where they've always been using LivePerson product on their website. And then obviously, Contact At Once, their platform is used where the home builder would be advertising inventory, or the homes. So we're really joint selling on providing those services connected between the two.

We're also opening up other regions. We've done things in Canada now. But we're looking at the UK. Obviously Australia, Germany. There's other regions where there's automobile selling and home selling that's similar to here, that we have offices that they can leverage.

And then the third part is really some technology -- it's not about putting the platforms together as much as there's some real knowledge sharing going on, especially on the mobile side, of how to deliver a greater mobile experience. And they've done some very interesting things on that side. We're doing some interesting things.

So we're definitely doing a lot of sharing there. Their founders [Indiscernible] at our R&D center with their technical leads, and we're definitely making progress. And then culturally, it's a very great acquisition. They're very similar to us.

We're bringing some of the things that we do with our culture that's a little bit more of a format for delivering meaningful connection between employees to them, and they're, I think, enjoying the benefit of that. So far, it's a good acquisition, a very, very good acquisition.

Great. That's very helpful.

And also, can you just talk a little bit about your small business segment and how changes you made there are impacting the business? And also how should we think about this segment in 2015, as well as in your 2015 guidance, are you assuming some improvement in growth area there?

Yes. We're looking to obviously improve the growth rate. I think there's some innovative things we're going to do there that are going to be first out of the gate in some new capabilities, especially on the mobile side.

So we're very excited about, I think, how that segment can impact the vision. And so we expect some, obviously, pick up in growth. The goal there is to do that, but also along the lines of how do we get to the strategy of delivering the connection between consumer and brand on a platform.

And we want to give them some flexibility, because we can, because with their revenue size, they can play around a little bit more and experiment a little bit more. But obviously, the person who runs that group, and that group is looking at growth, we're all focused on it, and we have good leadership there. So we're also very bullish about what that can be.

Great. And just lastly, philosophically, how do you think about margins at this point? Should we expect to see margin expansion, or is it still the primary focus to continue to reinvest?

From a margin perspective, we talked about some of the investments we're making from the mobile. We think there's a real opportunity there. And then further investments, the LiveEngage platform coming out, there's some investment in order to start moving, or upgrading, mid-market and enterprise customers. So we have that investment in our business, as well.

So margins are holding relatively steady to slightly improving in 2015, based on the guidance that I gave. But we're still driving the business and driving the adoption of the LiveEngage platform and continue to push on revenue growth, where we talked about 27% to 30% revenue growth in constant currency.

Great. Thanks very much.

Thank you

Brian Schwartz, Oppenheimer.

Yes. Hello. Thank you for taking my questions here today.

Robert, Dan, wanted to see if you could dig in a little bit into just the bookings trend. I know we're no longer going to give this metric. But if I look at the second half of the year, the growth was 7% year-over-year and down from 30%-plus in the first half of the year. And some of that is much tougher comps that you were facing in the second half of the year.

But I'm just curious if you can walk through some of the dynamics? Obviously, giving larger customers and bigger deals that you're now doing, there should certainly understand to be some lumpiness quarter-to-quarter. But is there anything else that you saw that maybe caused that type of deceleration in the growth in the back half?

I think you're hitting up on it. We are looking for those bigger deals.

We've increased our average deal size quite a bit over the last year. We've got our sales guys looking for those bigger opportunities and working with our customers. And that'll cause some lumpiness, from a bookings perspective.

Despite what you're talking about from a 7% second half increase, we still hear our revenue numbers and we're still excited about the growth of our opportunity that we have in 2015. And part of that's going to be driven by usage in other areas of our business that maybe don't have bookings associated with them, inclusive of Contact At Once

Great. Thanks, Dan.

And then Rob, just wanted to ask you here a strategy question. I was wondering if you could talk about any go-to-market changes that maybe you hope Dustin will make here in 2015 to continue to optimize the sales productivity for the business.

It's pretty -- the best thing about the business, where I think we're looking at the simplicity, how do we simplify the things that we're doing. There is a lot of good stuff that's happening there. I can only give so much about what we're doing, just from a competitive perspective. I think there's some unique things from a marketing perspective and from sales and from product that we're going to bring together this year.

For me, from my perspective, we've been waiting three years to get here. And a lot of the work we've been doing is just internal. It's our culture and our platform, and it's a lot about us and our customer, internal.

Now it's external. We have our platform. We've got the things we need, and we want to externalize this.

So you should expect a lot more on the public facing side of marketing, on the sales execution. And I'm excited. I've worked with Dustin for 10 years. And I've worked with a lot of the leadership team.

And I think one of the lessons learned for me is really about we do sell uniquely. We don't sell a commodity product. We don't copy other people and deliver it cheaper. And if you have had the sales that are used to that, it's a different sale.

And Dustin understands. We sell our products for multi-million dollars a year, because we understand how to extract value. And he was a quota carrying rep and closed some of the biggest deals. And then he went out and built Asia, and he built it up a big deal.

So we know how to get the value from our products. And I think we're just going to continue that.

The cool thing is with the LiveEngage platform, I think everyone's very excited because there's no doubt it's out. There's no doubt it really works. And there's no doubt even big customers can find better value than even our old platform, which is still the leading platform. So we're replacing the leading platform with the next leading platform, which is a good place to be.

And we even had a deal in the quarter where we started off six months ago selling the old platform, and we brought the new platform in to close it. And they were so excited about some of the things that we're bringing in it, they're like, we want to close on that. And so this was that enterprise deal I spoke about out of the UK.

We're in a really good position and I think it gives the team something to execute on with the platform. So like I said, I think we feel very good about what he's doing.

Rob, thanks a lot for that color on the strategy. You mentioned competition in your commentary. And I just wanted to ask you if you're noticing any changes here in the competitive landscape now that you are selling a platform. I'm kind of curious if you're running into more of the suite vendors than you did in the past.

No. We're dominating in our field. And I know the next competitor to us that's a pure play, not part of, let's say, Oracle, we book more in two quarters than they do as an entire company.

And so we're really executing on that level. I think the strategy that we have in place to go beyond the web, especially in mobile, is exciting. So we're invented this area, and we continue to dominate in it.

So I don't know if the suite vendors are. There's Adobe out there. Obviously, there's Salesforce and there's Oracle.

But they're really focused on more back-end and some marketing technologies. We're all about the connection and communication between consumer and brand. And so we continue to get out there.

And once again, if I could let you guys on the inside of LiveEngage as a platform and be in these meetings with our customers, and you're listening to what they say and what they're seeing, we're looking to replace the leading platform with the leading platform. It's a great feeling, because we're not replacing our competitors, we're replacing ourselves. And they're excited about what we're replacing it with. So that, for me, is a good place to be in competitively, because we are our biggest competitor, I guess.

Last question for me, and then I'll hop in the queue. Dan, was hoping that you could share with us what the CapEx was in Q4?

And then the follow-up question on CapEx here is it looks to me like it's going to take a step up here in 2015. It looks to be about 6% of revenue, based on the midpoint of your guidance, and 2014 I think is running about 4% of revenue. So I'm wondering if you can help flesh that out.

Is there a higher amount of maybe capital software from development that you're doing in 2015 or offices expansion that's occurring next year? And what should we expect on a go forward basis terms of percent of revenues on CapEx? Thanks.

Thanks, Brian. From a CapEx perspective, I didn't call it out in my script, but in the press release we said it would be about $14 million. So it is a step up from 2014.

In the fourth quarter, there are some investments in our data centers, primarily around equipment. We also launched related to data centers in Australia, so that's part of the capital expenditures that we had in the fourth quarter of 2014.

As we move into 2015, again, with the amount of data that we're collecting and the amount of information that we have for our customers, we need to expand our data centers and continue to have cutting-edge and fast response and uptime. So it's continued investment in our data centers and our infrastructure to support our customers.

Dan, do you have what you spent in Q4? I didn't see that in the press release, just on a dollar basis, for CapEx.

I think it was $3.9 million, Brian. I don't have it directly in front of me. I apologize.

But I can try and confirm that number. It was $3.9 million? $3.9 million

Thanks again for taking all my questions this afternoon. Thank you.

Thanks, Brian.

Mark Chapelle, Benchmark Company.

Good evening. Nice job on the quarter. Dan, starting with you, I was wondering if you could just repeat the revenue expectations for Contact At Once for next year, for 2015?

So we said it would be about $31 million in 2015.

$31 million. Okay. Great. Thank you.

And then Robert, I know it's still a little bit early days yet, but could you talk a little bit about how your relatively new usage-based pricing model is working out so far?

It's working out quite well. I don't know what the percentage terms are of our customer contacts that have converted. It's quite high now.

It's just north of 50% of our customers.

Although 50% of our customers are on it, it aligns to what they're looking for, which is really tied to the value of the interaction to what we provide to them, on a cost basis. So far, so good.

Obviously, where we're shifting that model, I think it's going to shift the industry, which will force competitors to have to do the things we've had to do. And it gives us a lot more flexibility off the platform, because it's not just about messaging and chats. There's a lot more interactions that are happening, like on content, obviously things with our data, which allows the price around usage versus just interaction of chat. So as we shifted our focus and expand the platform, is just aligns with the value we can provide.

So Mark, just to clarify, it's 50% of customers, but it's about 65% of revenue. So we have small business customers that haven't all quite moved over yet. But we've been focused on the mid-market and enterprise to get them over to the interaction-based pricing.

So 65% of your revenue is currently on the usage-based model, is that correct?

That's correct

Okay. Super. And then one final question.

Robert, I believe in the last call, you had mentioned that the Company plans to build some the capabilities of Contact At Once into the LiveEngage platform. And I'm just wondering if you could go into a little bit more detail on what maybe some of those capabilities would be that you plan to adopt?

Yes. Right now, we're not focused on it. We've got a full list of things that we need to build for the stuff that we need to do.

So there's nothing imminent that we're building. But the future is really the network effect. They do build a different set of algorithms to handle a communication coming off like an ad unit.

So if you're in Auto Trader, and you can do a chat right from the Auto Trader website and goes and it routes to the dealership. And that dealership can be in 10 different Auto Trader type sites, and also on the manufacturer's website, and it can handle that through a single interface and also report on it.

So that's the capabilities we'd have to bring into the platform with a network effect, which we'll do over time. Today, for this year, we're just all focused on, we've got a lot of features that deliver, especially for our enterprise customers, they've got a lot of stuff they want to deliver. And so somewhere in the future, we'll look at bringing it together.

I think the points that we're really focused on now is on the mobile side. There's some stuff they did on the mobile side that we were looking to do, so we're borrowing that, borrowing some of those platform capabilities. They've got some messaging capabilities that we didn't have, and so we can leverage that. And so the mobile is the place that we're really focused on some joint involvement right now.

Okay. Great. Thank you.

Mike Latimore, Northland Capital Markets.

On small business attrition, that came down a fair amount. Any explanation for that?

It's been a focus over the last couple of quarters. And as we've talked about, we've put new leadership in the group and they've been focusing on retaining those customers. It's also where we've been rolling out LiveEngage. That's where we started, was in the small business sector.

So I can't point to anything specific, other than it's been a focus. So I think that's the main point.

Okay. You talked about implementation times coming down with LiveEngage. What about sales cycles? Has that changed much, if you sell LiveEngage to a new customer?

The sales cycles obviously in mid-market and enterprise are fairly similar. On small business because you can get it instantly on the web and put your credit card in, it's instant now. And we're doing -- we have a trial, a try to buy. So there's a little bit of a different process there.

I would expect in the future we would see some decrease in sales cycles. But today, I don't have any data to support that, except in small business.

You might have said this, but did you give pay for performance as a percent of revenue?

I didn't give that statistic. It's about 9%.

And then I think there's a feature or two that you're looking to roll out in LiveEngage for current customers, like a large call center, that sort of stuff. Do you know the timing on that?

Yes. They're coming out as we speak. So we're on target for the first half needs to deliver the final feature set.

There will never be a final feature set, but the feature set that we know there's two or three things to get us to the enterprise. And so that's coming out this first half. So we're on target for that right now.

Okay. Great. Thanks.

Some of the interesting things, we accelerated some of the data side. The platform is looking very flexible platform compared to, once again, the old platform is (Indiscernible) leading platform, but it's still from different technology.

So we actually started the development of some data features around intelligence in the platform that we got out the door in the quarter. So I think once again, the future of that platform is about speed. And we are responding to our customers' want and delivering on a much quicker basis than we did in the past.

Jeff Van Rhee, Craig-Hallum.

Great. Thank you. Several questions.

If you would, on the seven-figure deal that you mentioned, the first on LiveEngage, what is it with that first engagement that you're doing with the new platform that you couldn't have executed on before with the old product? Give us a little sense of what it's bringing to the table.

The thing that won the deal there was a nearly competitive match-up there, was we really basically delivered some analytics capabilities around voice of the customer in the platform that our pretty interesting and on real-time and in the platform. And so they're very unique, and they allow in real-time to get a sense of negative conversations, positive conversations as a whole, so the dashboard for it.

And they really thought it would be great, because it's all about real-time. The agent is interacting, what's going on, and we can flag positive and negative conversations.

We have that in the old platform which isn't as real-time. But we built it straight into LiveEngage and we actually delivered it early, as I was talking about. So we were able to deliver that and win the deal.

Got it. And then with the migration to the new platform, as you're moving through the mid-market you've got a lot of them now live, would you talk about just any of the detailed metrics? Obviously, you get a real-time dashboard of watching your users and their adoption of the incremental services. That's why you moved to the new pricing model. Can you talk about what you've learned so far, and just how that adoption of incremental features is playing out versus expectations?

Yes, Jeff, just to clarify, we have several mid-market customers on that we put on in 2014. But our work is ahead of us in 2015 to start migrating those customers over.

But as far as usage is concerned from the 1,000-plus customers that we have on it today, we are seeing an uptick in usage across the platform. So it's not just around chat. It's also around the mobile impact that Rob was talking about. At the beginning of 2014, we were doing about 100,000 interactions on mobile on a monthly basis. Now we're doing about 1 million.

The adoption of content, the amount of impressions that we're serving for, content has increased significantly, the click through and the value that we're generating, as well. And then the last piece is just the consumption of data, which is what I talked about a little bit earlier about us making further investments in our data centers to handle the capacity of the data that we're actually collecting for our customers.

Okay. And on the metrics front, I didn't catch the total deal and new deal count. And then, can you give us some thoughts on the forward year in terms of how we should think about pay-for-performance in consumer?

So from a pay-for-performance basis, as a percentage of revenue, it's gone in conjunction with the overall business. We've done some things differently in the group, and we still think it has a strong place in our revenue stack and we're continuing to push it to our customers. As a matter of fact, we actually just did a very nice deal with a company where it is tied to value generation and it's based on the gross margin that we generate, which is a unique type of PFP deal for us. So we're excited about that piece of it.

As far as new deals, it's 161 total deals, and about 42 of those are with new -- brand new mid-market enterprise level customers.

Okay. And your thoughts on consumer?

Consumer, it's a business that generates a decent amount of cash for us. It's a slow grower. And we have our team focused on the consumer business and they're doing some interesting things, working within the constraints that we've provided for them. And it's still an asset, still a part of LivePerson, and it generates a good amount of cash.

I guess last one for me then, the metrics going forward with the bookings number going away, can you give us any at least initial thoughts on what may replace it to give us a sense of current conditions? And maybe similar but somewhat different along the pipeline, any expanded commentary you could give us about the breadth and depth of the pipeline at this point, changes? LiveEngage is out there, and just a sense of how that pipe may be changing in a little more detail.

Yes. So our expectation is to continue to grow the revenue stack, with the 27% to 30% growth that we talk about in constant currency. We don't comment on the size of the pipeline, but we've got a very strong sales force that's got tenure, good investment in place, again, step in the direction. So we're excited as we look to 2015.

We are only selling the LiveEngage platform to brand new customers, to green field customers in 2015. And as Rob talked about a little bit earlier, our focus is to start upgrading our mid-market and enterprise customers from legacy to the LiveEngage platform. So those are the focuses in 2015.

And any thoughts on a metric to replace bookings?

No. I'm not ready to share them yet. We're closing out 2014.

We've still got our work ahead of us in 2015. So we'll share some more of those metrics on the first quarter call.

Got it. Thanks

Jon Hickman, Ladenburg Thalmann.

Hello. Thanks for taking my questions, and really nice revenue quarter. Could you walk through a little bit what it takes to move some mid-market customer from the old platform to the new LiveEngage, time, expense, that kind of thing?

Basically, there's a tag that they could change out if they want to get the enhanced data package. They basically just have to swap out some JavaScript code. The data's already migrated, everything's there.

So the rules will migrate. We have a different structure on how we do the intelligence right now. But all of that's migrated. So we have a script and a group of people that are focused on that.

So it's pretty seamless. It's really up to their time frames, where they are. But we are using it really as a selling event that allows us to tell the division. And that's the most important part of it.

Moving them over, it's about setting a future with them that can allow us to grow and get to that vision. As I mentioned, our average enterprise customer can be with us for 10 years. Same with mid-market, it's close to that. For small business, it's four years, five years.

So when people are with us, they're with us for a long time. And so we want to start mapping, this is day one with them, and then how do we move forward.

So that's the most important part of the sales cycle versus if they want to swap out code, they can have it tomorrow. And that's what we did for small business. Some of them, they go live in an hour. So that's how we view this.

And then is it correct to say that your new head of sales, Dustin Dean, is that his name?

Yes.

So he is actually primarily responsible for your success and the Asia marketplace, right?

Yes. He built that out. He went over there a couple years ago, when we had zero. And he built it out.

We did an acquisition of a company called Engage that he was working with. And then he opened up Japan. And before that, he was a quota carrying rep here. He worked in partnerships. he was actually in the consumer division for a while with me. And then he went on to Asia, and so he's been in and out of a couple different areas.

So obviously has the background to go forward as your sales leader here.

Yes.

Okay. And then one last question for me. You quoted, right at the beginning of your remarks, you said something about the number of visitors that you were tracking over the year. And then I think it was the number of chats that you processed for the year. Can you just give me that number one more time?

So we monitored 25 billion total visitors in 2014, which generated 300 million chats, messages. Some were mobile. They're not web chat, they're mobile. So basically, it's 300 million.

So 65% of your revenues are coming from the usage model and 9% are from pay-for-performance. So that's well into the 70 -- high 70%. So that's the reason why bookings are not really relevant anymore, right?

They're not relevant because they don't account for all the revenue that we have, like pay-for-performance and small business. Now that we have Contact At Once, we'd have to include them in there. And it would get also -- we just felt it doesn't have real relevance anymore.

If it accounted for a large group of our revenue, like 90% of our revenues, it would give some perspective on our future of what the sales could be. And we just felt it doesn't quite do that anymore. And if anything, it becomes more confusing for our investors and our analysts to figure out what's going on. So we figure we'll just stick with revenue and guidance. That's just the easiest thing to do.

Okay. And again, congratulations on a really nice year.

Thanks very much.

Thanks, Jon.

There are no further questions in queue at this time. I turn the call back over to the presenters for any closing remarks.

Thank you for being on the call and we'll see everybody next quarter.

Thanks, everybody.

Thank you for joining, ladies and gentlemen. This now concludes today's conference call. You may disconnect.