LivePerson (NASDAQ:LPSN) took a beating on May 9th, the day after the Q1 numbers were released. The numbers were pretty surprising. The Street had expected .07c a share with revenue of $42.54M. LivePerson hit the revenue but failed on the EPS, and pretty badly, coming in with a 0 goose egg EPS. The stock went from over $12 a share to under $9 in one day. So is LivePerson dead? I don't think so and I will show why the drop was an overreaction.
To explain the massive miss, this is what LivePerson had to say during the earnings call:
"Q1 is typically a higher attrition quarter, as customers are resetting their budgets for the year. In addition, the increase in attrition is predominantly driven by one large customer cancellation and some softening in the European market. While the attrition had minimal impact on Q1, it will have an impact in Q2 through Q4. We do not currently anticipate that the higher than expected attrition in Q1 is a trend, but we're monitoring closely. Small business attrition rates average 2.6%, which is consistent with prior quarters."
When the call got to the Q&A session, one caller asked what kind of impact that one lost customer had. Here is the response:
"So from the customer perspective, there's a large customer -- we don't normally talk about specific customers and their spend, but it was a large customer that had an impact on our attrition rate. And so, if they cancel in the first quarter, we had a minimal impact in the first quarter, but that customer won't be there in Q2, Q3 and Q4, hence, the adjustment of the guidance. As far as the product metrics -- as far as new product metrics are concerned, as we roll out the platform, our customers will have access to all of our offerings and all of our products. And as we move through 2013, it's a metric that doesn't have as much of an impact on the business as it previously had."
And there was more explanation:
"...it was a PFP customer, so the total attrition is a little over $5 million, the impact through the year between this one customer and a couple of small ones. So it's not a trend, but we got caught a little off-guard on the PFP. It's not our largest PFP, it's a bigger-sized one. And so that has the impact, which we can't get back. So, and it wasn't a competitive loss."
Another quote from LivePerson on this. I can picture his head down as he said it:
"Yes. We're not seeing anything with other customers. We have customers we give the concentration $2 million bucket $5 million and a couple, 1 or 2 about $10 million. But we don't see anything right now. It's an unusual case. Usually we get some notice that it was part of the negotiation, and then they just -- we can't get from there where we need to go. So it's what it is, but it wasn't planned, and we're keeping a focus on all the other enterprise customers, and we have very low attrition rate over the last 5 years. So things haven't changed. But we got hit with this one surprise, and we got to suck it up and it's going to impact the year. But it's not like a trend, so, like we have a bunch of customers leaving it just was -- it was a one specific case and a couple small things."
To sum that up - LivePerson lost a large customer and the effect of that will be felt all year as that will be money they figured they would have. This helps explain why they also lowered guidance for the year. If you notice the revenue guidance and the $5 million they say they have lost, it about adds up. LivePerson also mentioned that the European market was "soft" and that also hurt.
And that was the big blow to LivePerson. One big customer and the European market did their quarter and full year in, right? I'm not so sure.
LivePerson lowered guidance, sure. But they HAD to, they lost money they thought was going to be on the books. But, they have more coming that they were not going to be foolish enough again to count money before they banked it. A caller asked about this:
"(Caller): You'd mentioned a couple slipped deals in the first quarter from last quarter, I was just wondering of the progress and have you signed all of those, have they gone away?"
And the response:
"So we're still in pursuit of those deals. We're still actively going after them, and we're still in active discussions."
LivePerson did not disclose who these deals are with or when they anticipate them signing but it was also a hit to them as they hoped to have them in Q1 to help with the numbers. But if they sign up in Q2, that will only help the quarter. While I am mentioning the customers, there is this that gives optimism:
"During the quarter, our B2B revenue were $38.9 million, 18% higher than last year's $32.9 million. Bookings came in at $7.5 million, a 22% increase over last year's first quarter. We signed more than 50% new logos during the quarter when compared to last year between new and existing customers, signed 26% more deals overall. We also continue to see solid uptakes surrounding new product adoption. Although we had an unusual spike in attrition stemming from a few enterprise customers in the first quarter, our overall growth rate for Q1 in B2B, excluding SMB, was 23% year-over-year."
None of this got much notice though as the news was the numbers themselves. But it is important to note that LivePerson is gaining more customers, even if a big one left. Once more sign this and maybe next quarter, the loss of the big client will begin to be absorbed and LivePerson will be back to where it was last year. I think this will happen within the next quarter or two if enough clients are signed.
I believe LivePerson did a wise thing with their guidance. After subtracting the big client, they didn't pad it with hopes and dreams. They know they got hit and told us all about it. But their business model is still good. They continue to sign more clients and their balance sheet still has a lot of cash and no debt. Because of this, they can absorb that big hit and move on.
LivePerson may be down right now, but they will get up pretty soon. Matter of fact, management believes this because they just bought shares around the 52 week low. They didn't want to pass up on such a bargain. Maybe you shouldn't either.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.