LivePerson, Inc. Q1 2009 Earnings Call Transcript

| About: LivePerson, Inc. (LPSN)

LivePerson, Inc. (NASDAQ:LPSN)

Q1 2009 Earnings Call Transcript

May 6, 2009 5:00 pm ET


Tim Bixby – President and CFO

Robert LoCascio – CEO and Chairman


Richard Baldry – Canaccord Adams

Brad Whitt – Broadpoint AmTech

Nathan Schneiderman – Roth Capital Partners


Good afternoon. My name is Jason and I will be your conference operator today. At this time, I would like to welcome everyone to the LivePerson First Quarter 2009 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions) Thank you.

Mr. Bixby, you may begin your teleconference.

Tim Bixby

Alright. Thank you very much. Before we begin I would like to remind our 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.

The statements we make are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time and we undertake no obligation to inform you if they do.

Results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, 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 Web site.

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

Robert LoCascio

Thanks, Tim. Good afternoon, everyone and thank you for joining us. During the first quarter of 2009 we generated $19.9 million in revenue, (inaudible) from a year ago and up 2% sequentially as compared to the fourth quarter of 2008, which was at the high end of our guidance range.

EBITDA per share came in at $0.11, well above our guidance range of $0.05 per share to $0.06 per share. EPS was $0.03 and also exceeded our guidance range of zero to $0.01 per share.

Tim will provide you more detail on the financials shortly.

During Q1 we signed 33 new enterprise customers, including companies like Patagonia, Sky Italia, and Thomas Cook along with hundreds of small business customers. Within our customer base, we currently serve five of Business Week's top 10 most innovative companies, the top five U.S. telecommunication Web sites, eight of the Fortune 25, five of the top 10 commercial banks, four of the top seven computer software companies, five of the top seven hardware companies, Fortune 500s.

We are very pleased with our Q1 results from each business unit, especially given the challenging macroeconomic environment. It is a testament to the underlying strength of our teams, our product lines and overall business model.

Within our business operations, enterprise revenue was flat sequentially and represents solid gross revenue that countered the somewhat higher attrition we experienced in the fourth quarter and grew 20% as compared to the prior year, while our small business group revenue increased 4% sequentially and 22% from the prior year. We believe that our overall addressable market remains large.

And according to our estimates we currently serve more than 300 of approximately 3,000 potential enterprise customers and more than 7,000 of approximately 200,000 small business customers. There is a large untapped online opportunity. And companies both large and small are increasingly focusing their efforts on improving their Web site traffic conversions, while simultaneously attempting to create a direct personal relationship with their customers by the most efficient real time channel today, which is chat.

As in prior quarters, the Enterprise Group focused on expansion opportunities in the U.S. and in Western Europe, expanded the pay-for-performance model globally, and continued expansion in our strong industry verticals of telecommunications, financial, services and hardware, software.

The proportion of our enterprise revenues driven by pay-for-performance more than doubled from less than 5% to more than 10% of enterprise revenue over the course of 2008 and remains on a current pace to represent 12% to 15% of enterprise revenue yearend 2009.

In an environment where companies are focused on managing spending, the pay-for-performance program, where we supply the labor with a partner and our technology meets the needs of potential customers. We currently have 17 direct sales reps and the team as a whole is running at approximately 70% quota. We will look to add about 2 to 3 quota carrying sales executives over the remainder of 2009.

Our SMB group also had a very good quarter, increasing revenue by 4% sequentially and 22% as compared to the prior year. Our small business offering provides a complete communication suite that includes chat, e-mail, knowledge base, website analytics and voice. And our strategy offering this complete communications platform is driving adoption by new customers and is helping to minimize attrition within the existing customer base.

During Q1, our Consumer group made some significant progress in increasing revenue and reducing expenses. The Consumer group's revenues increased 4% sequentially in an environment where consumer spending has obviously significantly slowed.

So we continue to generate significant activity within the core categories of personal advice, programming and education and tutoring. This operation is also on track to achieve cash flow breakeven during Q2 and we expect sequential growth of 6% to 8% in the second quarter.

We continue to test the concept of integrating the experts within the Web sites of existing B2B customers. And the first of these was Sun Microsystems Web site. This deployment, which is about six months old, where visitors go to the Java Web site and they can pay for real time advice from one of our independent Java experts, is now generating annualized gross revenue exceeding $100,000. This gross revenue is shared between Sun, the experts themselves and LivePerson and this is a significant milestone and a potential model for other enterprise customers.

Finally, we received an increasing amount of press coverage during the quarter. We were featured in the Wall Street Journal and New York Times. And we received, mention on the talk show, The View and we were featured with a five minute segment on CBS Early Show, which you can see online today. And that was a really good, I think example of the future of our Company.

And what CBS did is they featured one of our leading counseling experts, who makes about $50,000 a year and then did a live interview with Harry Smith to discuss how LivePerson is helping consumers find expert advice in a time when they are seeking out expert advice, and how experts are making the equivalent of full time salary or even more using our platform in a time when just having a job is tough enough.

So the world in which we live in today is really looking for other channels online and we are definitely getting a lot of press for this. And this level of press coverage is increasing our traffic on both the consumer registration side and the registration of new experts.

We will continue to focus on executing on our overall strategy and we will continue to make the tactical changes necessary to go after this unique opportunity of providing real time services to businesses and also to consumers.

As a note, we are aggressively expanding our use of several social networking platforms for both internal and external communication. For example, we have a lot of activity on our Facebook corporate page that we encourage all of you to participate in and there are dozens of LivePerson Twitter streams happening with our experts and our employees and even customers.

I think these avenues of social communication are a great place for our fans, customers, and especially, our shareholders to exchange ideas and become an integral part of our expanding online community.

With that, thank you for your time. I would like to now hand the call over to Tim. Tim?

Tim Bixby

Thanks, Rob. We posted sequential revenue growth overall of 2% in the first quarter. This is a good result especially given the overall economy. And especially the pressure we are seeing on financial institutions. We are still seeing some very strong performance in both of those areas.

We also performed extremely well in expense management, gross margin improvement as well as generating cash flow from operations. EBITDA per share ended quite strong at $0.11 per share. This was well ahead of our guidance and was driven by several factors that we will discuss in a moment. EPS was $0.03 a share; also well ahead of our guidance, which was between zero and $0.01 a share.

During the first quarter we signed 33 new enterprise deals, again a very strong showing. We signed 11 new names. This was our best tally on this metric in the last two years. The second quarter is also off to a good start on this same metric.

Pricing held relatively well, as the average annual revenue per deal was about $50,000. This is a little bit lower on average, but the decrease was driven not by pressure on pricing, but just a higher proportion of deals done at lower prices. Most quarters we have one very large deal that tends to support and raise that number. This was not the case in the first quarter and so we feel that those metrics in Q1 are outliers and that we are quite confident about returning to historical norm rates, hopefully, in the remainder of 2009. Q2 has started pretty well on all of these metrics.

We added several new clients, as Rob mentioned, including Patagonia, Sky Italia, Thomas Cook in the UK. We also added one of the top four U.S. banks to our very strong roster of financial institutions. We added one of the world's leading consumer audio equipment manufacturers and we added a leading European cellular service provider.

We expanded business with existing customers as we typically do each quarter, with many, including among them Capital One as well as 1-800-FLOWERS.COM and one of the top three U.S. banks as well.

In terms of how the deal flow within our Enterprise Group broke down, we saw about 50% of the new deal revenue impact from new customers, new deals, and remaining 50% from existing customer expansion. And this is a more balanced split than we have seen in prior quarters.

In terms of comparing our sales and the proactivity aspect of enterprise revenue versus service, about 90% was driven by sales. And this is in line with what we saw in the prior quarter.

Enterprise attrition saw some improvement as we expected, as compared to the fourth quarter. It is starting to look like the fourth quarter may have been the trough in terms of the difficulty and the impact that can drive attrition higher. We saw about a 2.7% attrition rate in Q4. This has improved to 2.2% in the first quarter and Q2 also looks to be off to a fairly strong start. We may see even more decline in Q2, but probably a little early in the quarter to be certain on that.

Pay for performance continues to expand. We ramped up to about 10% of enterprise revenue at yearend '08 and are still on track to end up in the 12% to 15% range as a percent of our overall enterprise revenue by the end of 2009.

Our direct sales force within our Enterprise Group remained at 17. As you know, we grew from 13 to 17 over the course of 2008. So the team is well filled out. The new folks are ramping up nicely. We are also looking to add a few more in the back half of this year, probably within the next several months. And the opportunity there is both in the U.S. and potentially in Western Europe.

Our splits of revenue coming from the U.S. and outside the U.S. has remained unchanged. About 25% of our revenue in the quarter came from outside the U.S., primarily the UK and Western Europe, but from all regions of the globe.

And in the breakdown of our business between verticals also remained fairly steady with financial services and telecommunications each representing about 25% of our revenue flow. Retail and technology each representing about 15% and then the balance of all other categories combined making up the remaining 20% of our revenue base.

In terms of large customers and how they break down, we saw some improvement in that metric as well. There were 22 customers that generated an annual revenue run rate of more than $0.5 million in the first quarter. That's an increase from 17 customers in the prior quarter. We now have two customers over the $4 million mark and a total of about 22 customers over the $0.5 million mark. So that's another solid improvement on that metric.

Now for a sort of a quick review on each of the other groups. Enterprise had a strong quarter. SMB and consumer both increased their revenue of 4% sequentially. And as compared to the prior-year, our business operations combined grew more than 20% as compared to the prior year.

Gross margin overall showed a very strong improvement to 78% in the first quarter and this was driven by a couple of factors. One, operating leverage due to revenue growth, which is as you might expect. We also saw reduced hosting costs that we continue to see improvement based on our transition to co-location. And then we also saw lower compensation costs for support personnel and network personnel in the quarter.

The net of all these was a little bit better than our expectations. Some of this will likely not recur, but has the potential to recur. So we are being cautious about Q2. We will likely not see a repeat of the 78% although it is possible but we do expect to see continued improvement on the pace that we saw in 2008. So we would expect 75% plus gross margins going forward.

Operational costs, overall, were actually 5% lower than the prior quarter on an absolute basis. This improvement was driven primarily by reduced sales and marketing and R&D expenses in the consumer operations. But we also saw similar though slightly lesser improvements in the business side as well.

Impacts on our cost structure from exchange rates have stabilized over the past two quarters. And that also contributed somewhat to our better than expected bottom-line results in the first quarter. The result of all this, EBITDA per share of $0.11, EPS of $0.03 a share.

In terms of cash flow from operations, we generated $2.8 million of cash from operations. And it's notable to mention that this is after our payment of annual incentive compensation, which happens once a year for the entire Company. And so that's a sizable expense and all happens in one month. So net of that we generated cash flow right in line with EBITDA at about the $5 million mark for the quarter.

We had relatively small capital expenditures as we manage our purchases of equipment quite carefully and the total capital expense in the quarter was approximately 500,000.

Global headcount is currently at 355. This is actually down from its peak in the mid-part of last year. We are actually back down to where we were at the end of Q2 2008. So we are finding ways to be very productive in many areas of the Company. We are able to support year-on-year growth of more than 20%, while actually keeping headcount flat in most cases and actually reducing it in some areas within the Company.

Now if you want to turn forward to Q2 and our expectations as well as the rest of the year. In the second quarter, and this is the first time we have given specific guidance for the second quarter, we expect between $20.5 million and $21 million in revenue. And this represents overall 3% to 5% sequential growth.

And we also expect EBITDA per share between $0.06 and $0.08, and this would represent $3 million to $4 million. GAAP EPS that would be generated in line with that guidelines would be between zero and $0.01 per share.

So if some of the favorable impacts we saw in Q1 repeat themselves, we could see some upside to these numbers. But nonetheless, these represent definitely solid improvements even from just Q4 of 2008.

We are reiterating our full year revenue guidance and we are actually increasing our expected bottom line EBITDA and EPS for the full year. So based on the results for the first quarter as well as what I think is a firming up of what we know about the second quarter as well as what we expect for the remainder of the year, we are comfortable with the guidance that we are putting out today.

Revenue is unchanged between $84 million and $86 million. Gross margin, somewhat better based on the first quarter results, for the full year we would expect to be at 75% or better. GAAP EPS of between $0.05 a share and $0.07 a share, and that's an increase from our prior guidance. And EBITDA per share of between $0.25 per share and $0.30 per share. That is also an increase from our prior guidance.

There are a couple of other metrics and assumptions that I think are helpful for those of you who are building models. Most of these are included in the press release from today. The share count that we would expect you might use is 49 million. You should expect a book tax rate of approximately 55%. This is a slight decrease from our prior guidance of 65%.

Cash tax rate, no change, of approximately 40%. Full year GAAP gross margin of 75% or better and that would represent a cash gross margin of 78% or better.

In terms of the cost lines, sales and marketing, we expect at about 32% of revenue for the year. G&A at approximately 19% of revenue for the year. Research and development at approximately 16% of revenue for the full year.

In terms of the non-cash items that really drive the EBITDA calculation, full year depreciation we expect to be $4 million. Amortization of intangibles, approximately $2 million and non-cash stock comp expense for the year approximately $4 million.

Capital expenditures, we still expect to be approximately $7 million to $9 million for the full year. And that covers the specific metrics. I would refer you back to our press release for essentially all of those.

So with record EBITDA, again in the first quarter, we've got a debt-free balance sheet as you know. More than $28 million in cash, and the reliability and stability of our recurring revenue model we are, I think, really positioned well heading into the rest of 2009. That covers our operational and financial highlights. And now we will be happy to take any questions you may have. If we could request that the operator come back to the call and give us directions, we will be happy to take questions.

Question-and-Answer Session


(Operator instructions) Your first question comes from the line of Richard Baldry of Canaccord Adams.

Richard Baldry – Canaccord Adams

Thanks. Congrats on a really strong quarter at the bottom line. I'm curious if you could talk a little bit about the split between the sales deals or sales oriented deals versus service oriented deals? And then maybe a little bit about the line items. It looks like on the cost side going forward, you would see a little bit of leverage on sales and marketing, but you would actually delever on both G&A and R&D while with a sequential growth at the top line it might seem like that could be an overly conservative assumption. So are there some sort of one-time things that allow those to go under, maybe a little more specifically line by line that would help us understand why that would happen? Thanks.

Tim Bixby

So on the first question in terms of the activity between sales and service, so just a reminder that I think that's important is that there is quite a bit of business that we do today that is somewhat of a combination of sales and service, whether it's proactive service or whether we're in both types of operations within a specific account. So it's not a hard and fast line, but nonetheless, there is usually a driver when we do a deal, either sales or service. And the decision-maker is usually focused on more on one than the other. In the quarter, we saw about 90% of the new business, so whether it was a new customer, new deal or expansion within existing customer, that body of business about 90% of that was really sales driven, about 10% service driven. And that was in terms of revenue. In terms of deals, a number of deals, its pretty close, about 85% sales and 15% for service.

On the second question, I think, yes, it's important to note that we are very pleased with the bottom-line in the first quarter. There were several things that came in, in our favor that pushed us to the top end of our range. And then there were a couple of things that pushed us above the top end of the range that while we are certainly aware that they can happen, we don't bake them into the guidance. So I would say $0.02 of the overage. So our top end of our guidance was $0.06. We did $0.11. That's about a $0.05 difference. $0.02 of that I think is we would not expect to recur although it's possible. And that's just a reduction in overall expense related to accruals related to personnel. That's things like incentives, bonus and those kinds of accruals.

On the flip side, the remaining $0.03 was things where we were just able to sort of perform at the high end of our plan. Things that headcount adds that we were able to hold off, we were able to hold off. We had some conservatism built into the exchange rates, because of our significant operations in Israel and that obviously stabilized and actually moved somewhat in our favor and that supported some of the overage. So, you're correct, some of that may recur and we could see an overage again in the second quarter, but I would not expect the magnitude that we saw in the first quarter.

Richard Baldry – Canaccord Adams

And looking at the consumer side a little more deeply, the revenues were up successfully even as you were pulling back spending in that. So, obviously, a good performance here. I'm sort of wondering if you can drill into how you think that happened. I think last quarter you had mentioned, as an aside that you were adding something like 100 new experts a day or seeing applications I think it was. Whether that's really ticked up maybe because of macro environment or something, just a little more color around that would be helpful. Thanks.

Robert LoCascio

Yes, I think the starting Q1 we just took the team and the team got very focused on the core categories that we know work well versus in Q4 we went out and tested general brand building, which has a risk that it may not return. We went straight out to categories we know are working and then the team worked very hard on getting to a cost of acquisition for a customer and bringing that cost of acquisition down across the channel. So, we are seeing good activity in SEM affiliates, media, our retention activities with e-mail and they can continue to go. We topped off at about I think close to 1,600 profiles in a day we hit when we're on the view.

And then on CBS, we basically went from about 100 to 1,600 a day, and it's come back down. But the cool thing is that we are also seeing a lot more experts in a lot of different categories, we got like gardening experts, more programmers, business experts. Even on May 14, we are doing a whole online career fair, where we will have like 10 experts from 7 to 11 at night; they will do a whole chat and talk to people about online careers. So, we are seeing a lot of stuff even outside the core categories of personal advice. So, you have that. And it is amazing in a recessionary time that business is growing and it's a consumer business and it continues to grow.

Richard Baldry – Canaccord Adams

Last question might be a look on the balance sheet, just sort of now that you're back generating cash pretty substantially from the operations, and things look pretty solid, would you like to revisit the buyback program while your shares appear undervalued? Thanks a lot.

Tim Bixby

We definitely are interested in that. We actually extended the buyback for another year. So it was originally in place for 18 months, expired in March, so it's now reinvigorated for another 12 months. We bought a little bit at the beginning of this quarter. And I think we agree with you that as we get sort of more visibility into the ability to generate cash in next quarter or two, it's definitely still of interest. There is 4 million left to go in the existing plan. So that will be first to go and we have bought historically at right around anywhere from $1.70 up to the $2.90 range on average. So we think those levels have been attractive in the past.

Richard Baldry – Canaccord Adams

Thanks. Congrats.

Robert LoCascio

Thank you.


Our next question comes from the line of Brad Whitt of Broadpoint AmTech.

Brad Whitt – Broadpoint AmTech

Hey, guys, thanks for taking my questions. Just to follow-up on the last question, Rob, a little bit on the consumer side, how should we think about that business? I think at one point it was about a $3 million a quarter run rate. Are we back to that level now? And what gives you confidence that you can grow it to 6% to 8% sequentially of the 4% I think you said you did this quarter?

Robert LoCascio

Yes, I think we are going to continue the growth there. We are guiding what I think we can do, based on what we know right now. We had a very good April and so that sort of sets a good tone. The interesting thing about the business is there is a lifetime value. Customers stay with us from 12 months to 15 months. So once we see them chat once we know they will come in on a certain way during 12 months to 15 months. So as we increase our conversions in Q1 coming into Q2 we already have sort of a backup of people already registered and have started to chat in Q1. And that revenue will continue to come in on Q2. So we feel good about that and April look like another good month. And then we are continuing to expand our spending, but in a profitable way and we are getting more and more, and I think better CPMs and so we got some good things going on the affiliate side so all that together makes us feel confident about Q2.

Brad Whitt – Broadpoint AmTech

Okay, and, Tim, on the gross margin front I think you said lower personnel costs. Can you elaborate on that? Did you reduce headcount there?

Tim Bixby

Yes, there is two pieces here. We have a team that supports the network infrastructure and a team sort of helpdesk support for both enterprise and SMB. So those costs were lower. Headcount control is probably the smallest driver. Lower cost due to the exchange rate in Israel is a somewhat larger impact. So that the sheer dollar cost of the same group of people was less. And then our accrual rate based on our bonus plan, our incentive structure was quite a bit lower in the first quarter as we do the reset for the year. And so that was really what I was referring to something is, is not something you're going to see every quarter. But that's more of an annual adjustment as we review the annual incentive plan.

Brad Whitt – Broadpoint AmTech

Okay. Also the R&D ticked down quite a bit too. Same type of scenario there?

Tim Bixby

Yes, less of an impact on a total dollar basis, but similar driver there. Those are the two larger groups in terms of headcount and they have a significant presence within our Israeli operation.

Brad Whitt – Broadpoint AmTech

Rob, I haven't heard much talk on voice lately. Is there much interest in that lately?

Robert LoCascio

On the consumer side or B2B side?

Brad Whitt – Broadpoint AmTech

I know you said you are doing some testing I think on the consumer side. Maybe you can get an update there, but yes, definitely on the enterprise side as well.

Robert LoCascio

On the consumer side we started testing about six weeks ago a voice platform. And so a certain amount of our traffic off of our SEM buys off of Google is seeing that. So I don't really have enough data yet, because it's only been six weeks, but my gut is telling me that most likely we will offer the voice and chat channel together, because there are some consumers who just prefer to use voice to talk to the experts. We are seeing that. So we would most likely just continue and offer that beyond the test. But next quarter I can come back with some real conversion metrics and stuff like that.

Tim Bixby

On the enterprise side, I would call it definitely opportunistic. It's very interesting, but to a subset of our biggest customers. So what they tend to do sort of two interesting examples, like one is one of our travel, online travel aggregators uses it for specific types of sales. So when they are doing more generic sales, chat works well. But when they are doing either a real focused promotion with a more specific travel type of package, they have chosen to route that to voice. So they're using LivePerson for that. On the technology side, we've got a large sort of a Fortune 10 player that is a customer of ours that uses it more for lead generation. So those are the kinds of examples where we really focus it opportunistically.

And then in terms of sheer numbers, SMB is, within the customer base we got 7,000 customers. 20% of those are using, that's a pretty rapidly growing percentage, are using multiple channels. And that means knowledge base, e-mail and voice. And voice is really the most interesting one to them after chat.

Brad Whitt – Broadpoint AmTech

Okay, that's helpful. Thanks for taking my questions guys.


(Operator instructions) The next question comes from the line of Nathan Schneiderman of Roth Capital Partners.

Nathan Schneiderman – Roth Capital Partners

Hi, Rob and Tim. Thanks very much for taking my questions. I wanted to drill down a little more on the consumer business profitability. And I was just curious if you could share with us your current run rate? Is the business at this point currently profitable or do you still have work to go to get there?

Tim Bixby

In Q2, it'll be flipping to cash flow positive. So during this quarter it will turn.

Nathan Schneiderman – Roth Capital Partners

And would you see improving levels of profitability for that business going forward or do you think it's just going to stay at a fairly low level? And if you see improvement, what sort of margin contribution do you think the business can grow to or how much improvement would you expect to see on an annual basis going forward?

Robert LoCascio

On the profitability, right now, our focus is to stay disciplined and stay cash flow positive. That's one of the things we put in, in Q1. And we did certain things to do that and we want to maintain that. What the level of profitability is, we have to see as we go out into the future quarters because it's just opportunistic. So if we can get a good CPM and buy more traffic we know we can (inaudible) we will do it. And because we are focused on the core categories, it gives us a lot more confidence in getting a real return on our money. But we will remain in that cash flow positive. We are not giving any real margins. The gross margins on the consumer business are near 80%. And because we are just going cash flow positive, there is no real operating margin yet to give you. But the target could be like our other businesses.

Nathan Schneiderman – Roth Capital Partners

A question related to the pay-for-performance offering. I was just curious is this offering proving to be more profitable than standard arrangements? And if so, what's the magnitude of the differences?

Tim Bixby

It's actually fairly close in terms of profitability. There is a couple of key differences that impact that. One is they tend to be larger revenue run rates, because we really focus on larger opportunities, the RMR, the recurring monthly revenue tends to be higher. The partner that we work with gets a share of the revenue and so that's distinct from our standard deals. But we also can rely on them to support some of the efforts versus us doing most of the work ourselves. And then the final thing I would say is they can grow to scale faster than a typical deal. So the net of all that is that within 6 months to 12 months they tend to look fairly similar on a margin basis. So as we go from say 10% to 15% revenue, I wouldn't expect a material impact on our overall gross margin or our operating margin from those.

Nathan Schneiderman – Roth Capital Partners

Okay. And then you did say that the enterprise business was flat sequentially. And I was wondering if there were any special dynamics there. Do you feel that was a macro impact or just how deals queued up or just what are your thoughts there? And anything you can say about the enterprise business thus far in April?

Tim Bixby

Yes, I think it's important to note that flat sometimes can imply nothing happened, but flat in our business means any of the attrition impact that we saw, driven by the economic factors in Q4. We had to sell a significant amount of business to offset that to deliver a flat quarter. While it's not outstanding performance, it's definitely good performance to be able to offset that. What we are actually seeing on the ground of customers is that given the economy, normal expansions from existing customers were more likely to be put on hold. We are starting to see that sort of concern lessen somewhat. And the pipeline so far in April and early May thus far suggest that our assumptions and our expectations are correct in that some of those expansions are now starting to happen. Some of the delayed live dates from the fourth quarter that drove attrition have now come and gone, are now generating revenue. So it's too early to say that Q4 was absolutely the low point. But everything that we're seeing thus far suggests that it definitely may be.

Nathan Schneiderman – Roth Capital Partners

Okay. Thanks very much.

Tim Bixby

Thanks, Nathan.


There are currently no further questions.

Robert LoCascio

Thank you.

Tim Bixby

Thank you.


Ladies and gentlemen, that concludes today's teleconference. You may now disconnect.

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