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LivePerson, Inc. (NASDAQ:LPSN)

Q3 2011 Earnings Call

November 3, 2011 5:00 p.m. ET

Executives

Robert LoCascio – CEO

Daniel Murphy – CFO

Analysts

Nathan Schneiderman – Roth Capital

Richard Baldry – Wunderlich Securities

Richard Fetyko – Janney Capital

Jeff Van Rhee – Craig-Hallum Capital

Brian Schwartz – Thinkequity

Craig Nankervis – First Analysis

Ron McDowell – Northland Capital Management

Jon Hickman – Ladenburg

Operator

Welcome to the third quarter 2011 LivePerson conference call. With us today, we have Robert LoCascio, CEO of LivePerson, and Dan Murphy, Chief Financial Officer of LivePerson. After the speakers remarks, there will be a question and answer session. (Operator Instructions).

Now, I like to turn call over to Mr. Murphy.

Daniel Murphy

Thanks Kristen. Before we begin, I would like to remind listeners that during this conference call, comments that we make regarding LivePerson that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual or 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 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 relation section of our website.

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

Robert LoCascio

Thanks, Dan. Good afternoon, everyone, glad you could join us today. I’m pleased to report third quarter was another solid one with revenues reach record levels once again, increasing 22% from the prior year quarter to 33.4 million, and 8% sequential quarter-over-quarter basis.

More importantly, we’re on track with our goal of delivering our platform for intelligent engagement. We unveiled our new platform and products two weeks ago at our Global Customer Summit called Aspire, which took place in New York City. The summit represents a very important for LivePerson from both a cultural and product strategy standpoint.

For those of you who did not attend or watch the live online broadcast, I want to share some highlights of Aspire with you. Over 400 attended, a mix of customers, partners, and employees gathered from across the country and the world, eager to share and experience the latest innovations in intelligent engagement.

Some highlights from the conference were Frank Eliason, SVP of social media at our longstanding Citibank, shared how LivePerson’s chat based social media integration enabled Citi to securely provide high quality, high touch customer service through this increasingly important channel.

Bill Canada shared the long-term successes they realized as LivePerson customer over the past seven years. Another customer, a major global electronics provider shared their remarkable results just a few months after deploying LP Marketer.

We’ve been very focused on leveraging all the great assets around our LP chat product, to ultimately provide a unified way for companies to deliver all their customer engagements, whether it’s through chat, click-to-call, or LP marketer.

Our new platform is engineered to help customers drive conversions and create meaningful connections through a variety of different online channels. I’m incredibly excited about what the future holds, as our new products take hold over the next several years.

During the quarter, our core real-time engagement products continue to grow at a strong pace. Excluding our consumer business, revenue from business operations were up 25% from the previous year’s quarter. LivePerson has more than 8,500 customers right now, and during 2011, we seen a considerable amount of growth including some of our largest deployments.

There’s still a great deal of opportunity inherent in the value proposition of our core chat products. According to a recent Forrester Survey, both company’s cited that chat solutions as being critical to their future success. More than 75% named improved online customer experience a top priority when making investments in their customer engagement strategy. As LivePerson continues to transform into depth and usability of our product offerings, we should be in a strong position to capitalize on this trend.

We’re also deepening the breath of our offerings through our API partner ecosystem. As of the third quarter we had a total of 25 partners developing on our platform and added 29 new [inaudible] integrations during the quarter. Several of which were some of our bigger enterprise deployments in the financial technology verticals. APIs are a great way to create stickiness with our customers base, as many APIs are being used to integrate with other customer application.

One of the many great examples is the new mobile chat application implemented by our long-time customer Cisco, which leverages our APIs to integrate technology from platform partner Filibus. All the chat interactions on Cisco’s mobile site are powered by our platform APIs.

During Aspire, we formally launched three new products, LP Marketer, LP Insights and AD or analytics driven engagements. These products are a mix of real-time applications, as well as data in intelligence tools that leverage our core platform and existing infrastructure.

LP Marketer is a content delivery tool that enables our customers to engage consumers with customized content and offers anywhere on their website. What we’ve heard from customers already using LP Marketer, is that they’re viewing it as much more than just a tool to increase conversions and average order values, but also a valuable way to deliver personalized customer service, and improve overall user experience. Currently, LP Marketer is deployed with several LivePerson customers, including some of our enterprise customers.

A few weeks ago, we had a large internet retail use the already existing LP Chat tags on their site to deploy LP Marketer. The goal is to send our targeted messaging to promote the adoption of their new service, which achieved a – which was achieved with solid success. At the same time, they also encourage you to download their mobile application.

ADE is a product that leverages customers third-party analytic data like Google analytics to automatically drive real-time actions by chat and LP Marketer. This is a good example of where we can inject third-party data, enhancing the overall data set in value proposition of our platform.

We currently have about 150 customers using ADE predominately in the small business and mid-market segments. We also introduced LPN sites at Aspire, which is our business intelligence tool. Prior to LPN sites, it was a timely and tedious process to analyze chat transcripts from marketing and service insights. Increasingly, companies are beginning to realize the value asset they have hidden in their unstructured chat data.

In terms of use case, I think we’re just beginning to see the potential, especially in the areas of website product and agent optimization. We currently have several paid proof of concepts signed right now with LPN sites, majority of which are enterprise clients and have a large volume of [inaudible] transcripts to mind.

One example LPN insights in action is a large online retailer that was trying to figure why certain products had a lower conversion rate. After using insights, it was determined something as simple as not providing all the physical dimensions of certain products was deterring customers from buying. Hitting these insights from chat conversations, what will equip our customers to better engage the consumers online.

Turning to the business, overall we experience sequential growth across all three B2B market segments, with revenue from our enterprise business turning in its strongest performance. Enterprise revenue increased 13% over the second quarter and grew 25% as compared to the prior year quarter.

During the quarter we added 22 new enterprise and mid-market customers to our customer base including Experian, U.S. Nay, and Siemens USA. We also deepened relationships with key customers with expansion in several large deployments including Hewitt Packard, our largest Tellico customer and a major OEM of personal computers. We also had a solid quarter from a bookings perspective totalling 5.2 million.

In Europe we continue to grow existing deployments in the region. During the quarter, we had major expansions at both Telefonica 02 and KPN and the Netherlands. We also signed a major global expansion with the division of a large international shipping group, as well as expanded business with a leading utility company in the U.K. with added customer service applications.

Our big market segment completed another solid quarter as well with revenue growing 8% over the second quarter, including a few I mentioned earlier, mid-market also signed a number of new clients across a variety of verticals as well as deployed a number of significant expansions. For example, we signed a big four accounting firm, another client in the government sector for use of online recruiting, and a number of companies in the retail sector.

Our expansions with existing customers in midmarket were also across a number of verticals, including healthcare provider in the south, and companies at both financial and energy sectors.

Our small business group revenue grew 1% compared to the second quarter, as Q3 is traditionally a lighter growth quarter because of seasonality. The small business customers continue to be strong adopters of our API and ADE products, as wait increase clicks the rates on their chat and LP market are deployed. The fourth quarter pipeline looks strong. We’ve also implemented a small price increase in this segment.

As I mentioned in past few calls, connecting with our community is a priority, and part of our core values. In September our Israeli office held the first annual volunteer day, and over 220 employees participated in 13 [inaudible] programs.

Also as Thanksgiving is around the quarter, employees are getting ready for FeedingNYC, which I’m proud to say is now in its tenth year. We started the organization ten years ago on the Thanksgiving after 9-11 because we deeply felt a need to connect with our local community. So that year, we decided to hand deliver full Thanksgiving meals to 40 families in need in New York. Since then, we’ve fed over 22,000 families and hope to continue this mission.

I invite you to join us November 22, at Chelsea Piers starting at about 5 a.m to help us pack boxes and deliver them to shelters, and more importantly to connect with your local community.

Before I turn the call over to Dan, I just want to note that for me, Aspire signified all the possibilities that lie ahead for LivePerson and for our customers over the next several years. We’ve deeply vested in providing our customers with the insides in products they need, to build stronger and meaningful relations with their customers.

Now I’d like to do is turn the call over to Dan Murphy, our CFO. Dan?

Daniel Murphy

Thanks, Robert. We are pleased with the strong performance we delivered in the year this far, and we were in line in Q3 with our stated revenue, adjusted EBITDA per-share, EPS and adjusted EPS guidance provided last quarter. I will provide further details on these metrics in a minute.

As Rob discussed, we had another strong quarter in all of our key financial metrics, and in late October we hosted Aspire, which was our first large scale customer event, where we brought together thought leaders from our customer base representing some of the world’s leading brands to share successes and best practices in customer engagement.

We also officially launched [inaudible], our new product innovation, and showcased leading-edge applications from our partner ecosystem. Our new products continue to gain awareness with our existing customers. We also continue to see strong sequential and year-over-year growth in our core business.

At the end of the third quarter, LP marketer had roughly a dozen customers in data, in addition, we tested additional use cases beyond couponing, such as free shipping, registrations, up sales, cross-sales, and inventory in customer service notifications.

LP Insights continue to gain traction and as of the end of the third quarter, we had five signed proof of concepts. In addition, Analytics Driven Engagement continues to gain momentum in our small business segment.

While we are excited to see our new offerings into the marketplace, we are at the very early stages of their introductions to the market. I’ve said in the past, we expect minimal revenue contribution from these products during 2011.

Revenue in the quarter was $34.3 million, an increase of 22% as compared to the prior year and 8% sequentially quarter-over-quarter. Year-to-date our revenue grew by 21% over the same period last year.

Revenue from business operations for the third quarter was 30.8 million, and 25% increase as compared to the third quarter of 2010 and a 10% sequential increase as compared to the second quarter of 2011.

Revenue from consumer operations for the third quarter was 3.6 million, which is relatively flat compared to the third quarter of 2010 and a 5% decrease over the second quarter of 2011. Q3 is typically a slow quarter for the consumer business due to summer holidays, and we expect the consumer business to be in line with prior years sequential growth in the fourth quarter.

Adjusted EBITDA margins expanded by expanded by 161 basis points in the first three quarters of 2011 compared to the first three quarters of 2010 and by 395 basis points in the current quarter compared to Q2 of 2011. Adjusted EBITDA margins benefited from positive [inaudible] movement in the Israeli shekel and the increase in gross margin.

Adjusted EBITDA per share for the third quarter was $0.16, an increase of 13% as compared to the $0.14 per share in the third quarter of 2010 and in line with expectations.

Third quarter EPS was $0.05 per share, equal to EPS per share from the third quarter of 2010. In the current quarter, we experienced a 9% increase in the exchange rate of the U.S. dollar against the Israeli Shekel. At the end of each quarter, we revalue the Shekel denominated balance sheet in to U.S.D. functional currency, which created a non-cash expense in the current quarter.

Adjusted net income per share was $0.09, same as adjusted net income per share from a year ago. Bookings were solid in the quarter of 5.2 million, which [inaudible] is a slight decrease in the second quarter of 2011 and up .6 million – 600,000 against the third quarter of 2010, and in line with internal expectations.

We signed 22 new enterprise midmarket clients in the second quarter, in addition we signed 102 large deals in the quarter compared to 96 deals in the second quarter of 2011.. Customer attrition for the enterprise accounts averaged 1.4% in Q3, which is which is improved from Q2 of 2011, small business attrition rates held study in the quarter at an average of 2.3%. Up-time exceeded, again exceeded 99.9%.

Pay per performance continued to be a solid contributor to revenue in the quarter generating 20% of total enterprise revenue, which is slightly higher than it has been in previous quarters. Average deal size for Q3, for all deals 50,000. For new customers, it was 43,000, for existing customers it was 53,000, for proactive sales was 55,000 and for customer service deals it was 35,000.

The breakdown of enterprise bookings in revenue terms were 22% for new customers, 78% to existing customers expansion. 75% of our bookings were for sales deployments and 25% were for customer service deployments.

Revenue breakdown by industry verticals was consistent with Q1 and Q2. Fin-serve represented 21%, telco represented 34%, retail 13%, tech 13% and all other approximately 19%.

We continue to walk our customers up the value chain, and increase the overall count of customer who are spending more than 500,000 annualized per year with LivePerson. We have 30 plus customers above 500,000 annualized spend per-year. We moved four customers from the 500 to $1 million range, to the greater than 1 million in annualized spend, and we have one customer over 10 million per-year in annualized spend.

Our SMB business delivered 1% sequential growth as compared to the second quarter, although the sequential growth in the quarter was minimal, there is – this is consistent with Q3 seasonality in prior years and we do see a strong pipeline for Q4.

In addition, as Rob had mentioned, we implemented a modest price increase in Q4 that should push growth back in line with prior quarters.

For detailed financial review, gross margin for the quarter was approximately 76%, which is higher as compared to most of 2011. We do not expect the gross margin to stay at the 76% level, as we had a positive benefit from currency fluctuation as the shekel moved 9% from Q2 to Q3, and most of our network operations in customer service groups are located in Israel. We expect our gross margin in Q4 to be consistent with prior quarters.

Total company head count increased from 472 at December 31, 2010 to 540 as of September 30, 2011. We were behind our hiring plan for Q1 but we made up some of the short-fall in Q2 and Q3. In Q3, we increased headcount by approximately 15 employees. We expect to end the year with approximately 565 to 575 heads, which is in line with our plan.

As discussed on last call, we added several sales heads at the end of Q2, and spent Q3 ramping up new hires, in addition to training the sales team to sell multi-product solutions as we move towards 2012. Our plan is to add additional sales head count in Q4 and Q1 of 2012.

As we continue to grow the business overall, revenue outside the United States represent approximately 24% of our total revenue, which is in line with previous quarters. We ended the quarter with a cash balance of 80.9 million as compared to 61.3 million as of December 31, 2010 and 74.4 million as of June 30 2011.

In the quarter, we had strong cash flow from operations and also had cash inflows related to option expense partially offset by capital investment. Accounts receivable of 19.7 million is comparable to first quarter and an increase from Q2 of 17.7 million. The increase from Q2 to is due to quarter-over-quarter revenue growth in the business. Our DSO metric for Q3 is 52 days compared to 58 days in Q1 of 2011 and 50 days in Q2 of 2011. 52 days is within our target range given the higher proportion of business with larger accounts and the level of pay per performance revenue that impacts AR disproportionally – accounts receivable disproportionally to revenue. In Q3, our tax rate was consistent at 37%.

The following is our updated guidance. We are giving you a review for the fourth quarter for the first time, and we are tightening our prior year full-year guidance, our prior full-year guidance given at the beginning of 2011. In the fourth quarter, we expect to see revenue between 36.5 million and 37 million. We expect adjusted EBITDA between $0.14 and $0.16 per-share, adjusted net income between $0.08 and $0.10 per-share, GAAP EPS between $0.04 and $0.06, and a fully diluted share count of approximately 56.5 million for the quarter.

For the full-year we expect revenue of 133 million to 133.5 million and adjusted EBITDA of $0.60 to $0.63 per-share. Adjusted net income of 33 to 36% per-share, and GAAP EPS of between $0.20 and $0.22 per-share, and a fully diluted share count of approximately 50 million.

For the full-year, the effective tax rate is expected to be approximately 38% with the cash tax rate of the same. Capital expenditures remain unchanged from our prior guidance at the 8 million level for the year. And for the year, we expect GAAP gross margin of about 74% which corresponds to a cash gross margin of approximately 4 points better.

We expect sales and marketing as a percent of revenue to be approximately 29% for the full-year, and G&A to be about 16%, and R&D remaining consistent at approximately 15%. Full-year depreciation we expect to be roughly 7 million with full-year amortization intangibles approximately 1 million, and full-year stock compensation we expect to be approximately 7 million.

As Rob discussed, we continued to deliver growth in our core products, and we are on track as we deliver platform for intelligence engagement.

That covers the operational and revenue highlights. And we’d now be happy to take any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions).

The first question is from the line of Nathan Schneiderman with Roth Capital.

Nathan Schneiderman – Roth Capital

Hey, Rob and Dan. Thanks very much for taking my questions. In the press release, you highlight that you’re seeing more and more standardization deals. And I was curious to what – maybe if you could share with us how many standardization deals you did achieve in the quarter. And I was wondering if you could mention some of the customers that have standardized on your platform. And how new is this dynamic just in general?

Robert LoCasaio

More and more of our customers are starting to get on the platform. But what standardization I’m just digging into exactly what you’re talking about. Relating to chat or to platform?

Nathan Schneiderman – Roth Capital

It was just something in your press release. More customers were choosing to standardize on your technology. What I was interpret your meaning like enterprise standardization deals or just customers that chose your solution?

Robert LoCasaio

No, it was the general statement of just that when people are looking at chat across the organization, in the past, they may have looked at there was a couple different vendors. Maybe they have an email vendor doing one, and they put the chat in on one division. But what they’re doing now is just standardizing. We’ve had a couple of places where they took out competitors in certain divisions and said, “Okay, we want you across the whole enterprise.” So it’s really on the core products and going across. I think there was two or three in the quarter that do that. And that’s kind of what’s naturally happening now. They want to stick with one vendor with a leading provider. And they move the other vendors out.

Nathan Schneiderman – Roth Capital

Got it. In terms of the pipeline and how that’s looking, what percent has that grown on a sequential and a year-over-year basis?

Robert LoCasaio

The overall pipeline for the normal deals? $5.2 million was the bookings.

Nathan Schneiderman – Roth Capital

I’m talking more about pipeline rather than bookings.

Robert LoCasaio

I mean the pipelines remain strong just for all products across the board. And as we ramp up our sales guys and start to sell multi-product solutions, our expectations of the pipeline will continue to increase.

But from a bookings perspective on a quarterly basis, we’re comfortable with the bookings being in that $5 million range. I mean we’re on track for the year, more on track with our pipeline and where it stands.

Nathan Schneiderman – Roth Capital

Great, and my final question area for you, that was a pretty impressive number on the sequential growth in the enterprise business of 13%. I don’t think I recall seeing that kind of growth out of you in a long, long time. And that’s obviously the most important sub-segment you sell into. So if you can talk about what specifically you feel drove that unusually strong growth. And are you, do you feel like you’re at an inflection? Do you think this kind of unusually strong growth will continue, or is this more of an anomaly? Thanks very much.

Daniel Murphy

So I’ll start and Rob can jump in. Just on the growth, I mean we talked a little bit about last call with mid markets starting to ramp up and continue to grow. So we’ve seen opportunity in midmarket. And at the enterprise level as Rob eluded to before, we’re seen some of our larger customers standardize on one platform. And so we have an opportunity to displace a couple of competitors to continue to grow our core business within a few best customers.

Robert LoCascio

And I think as we’ve seen, some competitors who have had chat as just a part of a bigger solution, they’re starting to get some consolidation happening in the industry. I think that creates a lot of opportunity for us because for us, it’s our focus. And real time engagement is very important. Even a lot of you guys were at the Aspire conference, you could see a lot of our customers just thinking how can they engage their customers in different ways whether it’s mobile, social, or on the web on their site. So I think we’re in a really good place to continue expanding the pipeline and expanding it with new products.

Daniel Murphy

And just one other point, the third quarter typically is a quarter where our customers are ramping up and getting ready for the Q4 selling season. So it was a good opportunity for us as well.

Operator

Your next question is from the line of Richard Baldry with Wunderlich.

Richard Baldry – Wunderlich Securities

Can you talk a little bit about how you follow up the Aspire to move those products and to other GA’s or into broader deployments? Maybe qualitatively or quantitatively where you’d expect to see I think like the dozens of customers and could that up 50% in the fourth quarter? Could that double or triple? It sounds like attendance is pretty strong in that event. Thanks.

Robert LoCasaio

I think we’re very happy with out of that conference came up a lot of activity for all three new products. And so the follow-up is now each rep takes that and goes after the customers and now we’re doing demos with them. And as we mentioned before, Aspire was really our coming out for the platform in new products. We have a whole new website. If you go to our website, it’s totally different and it has all the new products in it. So all the marketing activities will start to kick in, so we going into the beginning of next year, and that was our goal, we’re on track right now to really start bringing those new products and start building a pipeline in Q1. So we feel we got a very good reception at the Aspire.

The other thing is we’re lucky to have a couple of those beta customers gave presentations of their successes. So it wasn’t like we were just presenting when we had customers actually present their results, which were really pretty tangible and exciting.

Richard Baldry – Wunderlich Securities

And could you talk about each of the three new product lines in terms of ASP’s or how you think those will price, or fold into the revenue line from volume or thing etcetera to give us an idea of how that will loop it dial as the number of live contracts start to grow? Thanks.

Robert LoCasaio

Yeah, as I said a little bit earlier, I mean we have minimal revenue in 2011 for our new products. And we’re continuing to build a pipeline and we’ll expect to see revenue in 2012. But right now, we’re not giving projections on 2012.

I’m sorry, was there another part to that question too?

Richard Baldry – Wunderlich Securities

That’s it. Thanks.

Robert LoCasaio

Okay, thank you.

Operator

The next question is from the line of Richard Fetyko with Janney Capital.

Richard Fetyko – Janney Capital

Good evening, gents. A couple of questions on the PSP. It looks like it was quite strong in the third quarter. Just curious, the source of that strength, if that was the same customer you had, the large customer, or perhaps new customers contributed to that.

And then secondly, with respect to fourth quarter guidance, what kind of PFP assumptions are you banking in?

Robert LoCasaio

So from a PFP perspective, we did have a strong quarter. The nature of PFP is customers do cycle into PFP and they also cycle out at points in time. So we have a strong quarter from the PFP perspective. There was no one specific customer that carried the quarter as far as growth is concerned. They actually all did fairly well.

As far as looking ahead to Q4, we don’t actually give specific guidance on PFP in Q4. But we would expect as in prior quarters for PFP to be in that 17% to 19% range, probably not as high in Q4 of 2011.

Richard Fetyko – Janney Capital

Thank you.

Operator

The next question is from the line of Jeff Van Rhee from Craig-Hallum.

Jeff Van Rhee – Craig-Hallum Capital

Thanks, just a couple clean ups here. The growth rates, I think you gave as being market sequentially. What were they year-over-year?

Robert LoCasaio

For which one?

Jeff Van Rhee – Craig-Hallum Capital

SMB and mid-market.

Robert LoCasaio

So SMB was about 11.5% year-over-year, and the mid-market was I think year-over-year probably about 7% or 8% year-over-year.

Jeff Van Rhee – Craig-Hallum Capital

Okay, and then just circling back to one of the other questions, I just want to make sure that I got it right. I think the question I’d ask you what the pricing looks like on the new products. And you had talked about not giving overall revenue guidance for the products, but I just want to be clear. Can you give us some color around you’ve at least learned some things in the last three to six months about how broadly people are interested in deploying this. You know, how you’re going to price it and what applications it’s really relevant for. What do those data points tell you about potential deal sizes that you can share?

Robert LoCasaio

Sure, just real quick Jeff, I just want to clarify something on the growth rates over mid-market quarter-over-quarter. Sorry, the growth rate in the mid-market quarter-over-quarter was pretty high because we had just started the mid-market probably about 18 months to 21 months ago. So the growth rate was in the double digits probably around the 60% level quarter-over-quarter.

Jeff Van Rhee – Craig-Hallum Capital

Okay, thank you.

Robert LoCasaio

As far as color around the new products, from a pricing perspective, the pricing model around LP market will be fixed fee, a combination of fixed fee with usage. On the insights business, it will be predominately a fixed fee related to how many chats that you actually want to translate. And for ADE, analytics driven engagements, on a perceived basis and then for – I’d say those are just the three from a financial perspective from a model perspective.

And then on the API, we charge in two ways. We charge our customer an API connector fee, and then we do a rev share with a third party that’s developing off of the platform.

So those are kind of the three, four ways that we’ll price our products. As far as adoption is concerned, we’ve got 8,500 customers. We can implement these products, at least LP marketer, without having chat implement it, but we will focus on our existing customer base first where we have relationships, strong relationships, and we’re already deployed. But LP marketer, it’s a little bit easier for us when we go to a chat customer because we’ve got the tags deployed on their site, so it’s easier for us to get the product up and running.

Obviously with LPN sites, we’re translating chat transcripts so it helps when they’re a chat customer. But we can do other types of unstructured data. For the API’s, obviously we’re building off our stack, so again focusing on existing customers.

So most of this will be around existing customers in the short term. And the pricing models you know, fix fee with usage for LP marketer and as I discussed before.

Jeff Van Rhee – Craig-Hallum

Okay, and then I guess one last one. Can you just in terms of sales head count, you’ve got the different breakdowns. Where are we now if you can just clarify that for me?

And then I missed, you talked about intentions to continue hiring. Can you give us a sense of magnitude in terms of where you think headcount’s going to end the year or where you’ll take them in the forward as far out as you’re willing to go, into ’12 in the early quarters at least?

Robert LoCasaio

Sure, so we’re relatively flat quarter-on-quarter on Q3 to Q2. If you remember, I think we added five, maybe six heads in Q2. We spent a quarter adjusting those heads and training those heads as well as training the whole sales force to sell multiple products. And as we look forward to Q4, our goal is to continue to add sales people. Without giving a specific number, we think there’s opportunity to add sales capacity in both the mid-market and enterprise level as we roll our new products and focus on growth for 2012.

Jeff Van Rhee – Craig-Hallum

Okay, thank you.

Operator

The next question is from the line of Brian Schwartz with Thinkequity.

Brian Schwartz – Thinkequity

Yeah, hi, thank you for taking my questions this afternoon. Rob, I was hoping that you could maybe give us some color from what you’re hearing from the sales force at least out on the field. Is there any sense or any signs at all that potentially sales cycles are lengthening or close rates are having to take an additional hurdle? Did you see any variation at all in the most recent quarter?

Robert LoCascio

No, bookings are still quite strong. And right now, we don’t see any real impact. And I kind of feel like during a weakening economy, people are looking for things to increase their sales. And because our tools are really focused on optimization of the traffic and increasing incremental sales, that’s what we’re seeing right now, so we still feel very good about the business.

And I think widening the product lines, what we’re seeing allows us to really go after even things like the LP marketer. What I like about it is it doesn’t have any labor attached to it.

So unlike the core, which is still people want to chat, with marketer, you set it up, and you go, and you can increase sales without adding that headcount. So it has an efficiency element to it too.

So yeah, so far, so good.

Brian Schwartz – Thinkequity

Great, thank you for that additional color. And Dan, I just wanted to follow up on the statement that you had made I think when you were talking about the bookings here this quarter. I think you mentioned that the $5 million range was certainly right on target. When you gave that number, is that a target or a range that you’re looking for here in this current quarter in Q4, or were you specifically just referring to the Q3 net finished?

Daniel Murphy

I was specifically referring to Q3 net finished from a bookings perspective. And when we look at bookings, I’ve explained this I think before. But when we look at bookings, it only really represents a portion of our business. We only, from a bookings perspective in the calculation, we only include committed deals in our mid-market and enterprise space. Professional services, small business, consumer are all on a monthly, and PFP, sorry, are committed from a contractual perspective. But on small business, you have 90 days out. Consumer is transactional. Professional service is transactional. And PFP obviously is transactional and can swing up or swing down.

So we’re comfortable with where the bookings, and we’re on track with our bookings for Q3. So we’re comfortable with where it is.

Brian Schwartz – Thinkequity

Good to hear, and last question just back to Rob. I just wanted to ask you a question really about the management team that you have there and where we’re at right now. I think we saw the press release here that your CPO is moving onto something new. I believe you also still have an opening right now for someone to head up the sales team over there. I guess my question really is around that head of sales position. I was just wondering if it’s possible to get an update on where you’re at there, if you think that you’re getting closer and closer to filling that position here in the near future. Thanks.

Robert LoCascio

So on the technology side, we have a GM whose been with us for many years. And basically runs the operation in Israel. And what we want to do now on the CPO side is really align the leadership side with around data and intelligence and around having a large organization multi-product. So we thought it was a good opportunity now. So right now, the team still reports into Ellie who has been with us for many years, and then that will go out and find another person to lead on this data intelligence stack.

In the sales, we basically divided up this quarter all the regions globally and by size to three different people who have been here. And they’ve been here for many years. And we sort of solidified their position and their leadership, and so far, so good.

So we’re kind of happy with the organizational structure we have right now. As overall business, we’ve gone to more flat structure, and it’s working for us. And so these guys are doing a great job. And we kind of just said, “Okay, let’s divide up everything and continue having you guys expand your roles here.” And that’s kind of what we’re going to do right now.

Brian Schwartz – Thinkequity

Thank you for that information and taking my questions. Thanks.

Robert LoCasaio

Thanks, Brian.

Operator

The next question is from the line of Craig Nankervis with First Analysis.

Craig Nankervis – First Analysis

Yes, thank you very much. First of all I guess tagging on from a couple of the most recent questions. The bookings comment and your comfort, if we look to Q4, the comps for last year is sort of a tall one because I believe you had one particularly large deal. So I guess in your mind, would you not be surprised to have a down bookings quarter year-over-year in the current quarter if maybe you can shed a little bit of light on your thinking on that. Start there.

Robert LoCasaio

From a bookings perspective, we did one large booking in Q4 of 2010. I would not expect our bookings in Q4 of this year to be at that level. I think we reported $6 million last quarter in Q4 of 2010 if I’m not mistaken with one large deal in there. I wouldn’t expect to be at that $6 million level, but we’re comfortable with where we are. And we’re on track for the quarter.

Craig Nankervis – First Analysis

Just in terms of the linearity in Q3 relative to the new business you brought on, is there any particular color that’s worth noting there. How the quarter played out, or how it was towards the end of the quarter in particular, or was it pretty normal from your perspective?

Robert LoCascio

It’s pretty normal. So the new products, the good and bad about the business model as you guys know is that as the new products ramp, they have to ramp. So we’re starting to take in some revenues from these new products, but they’re coming in on a monthly basis. And they’ll start to ramp up, and it takes a little time on the recurring revenue model. So as Dan said, we’re basically not going to see much impact in those numbers, in the overall numbers now. Starting at the beginning of next year, we should see some impact. And then ramping up towards the latter half of the year.

But I think the exciting part is we created these products only a couple quarters ago. And customers just take them. And what we expected was because we don’t have to do any really big implementations because we have those tags on the pages and we have the relationships, we’re able to fire these products up and get them going on them. That’s a huge competitive advantage. There are other companies in the market with, small companies with an LP marketer type of offer, but they don’t have the tags. They don’t have the relationships. They don’t also have chat and other brings they can bring. Because this is ultimately going to be sweet of marketing intelligence, sweeter marketing products, but provide intelligent engagement. So that’s the exciting part about it.

Craig Nankervis – First Analysis

Do you envision closing any LP marketer deals in Q4 regardless of whether you’re generating revenue? Do you think you’re going to be closing LP marketer deals this quarter?

Robert LoCasaio

We already did. So there’s paper out on LP marketer deals. So they’ve started to close and ship betas into contracts. And so that already started. So when we talk about GA, these products, they’re rolling out and they are starting to generate revenue from them. But we did sign our first contracts only a couple weeks ago.

Craig Nankervis – First Analysis

Okay, thank you. And then I guess lastly, maybe for Dan, it strikes me that your revenue guidance range for the current quarter is probably a little bit narrower than I might have envisioned. I think it’s $500,000. And just given the variability of some of your revenue streams whether it’s PSP, whether it’s consumer, whether it’s SMB, or whatever, it seems to me that in general, I would have considered there to be perhaps more latitude to the guidance. And I wondered at least in my mind if you could talk through the narrowness of the guidance range and where you’re coming from on that.

Daniel Murphy

So there is some variability in our products especially on PSP and small business peaks, but we’ve got some good visibility into where we are. We’re in November, so we’ve got some good visibility into the quarter. And it’s still from a sequential growth perspective. It’s still strong sequential growth quarter-over-quarter. So we’re comfortable with where the revenue guidance is as we look at the numbers today.

Operator

Next question is from the line of Mike Latimore with Northland Capital Management.

Ron McDowell – Northland Capital Management

Hi, guys, I’m Ron McDowell in for Mike. Thanks for taking my questions. I was just curious kind of back to the bookings, did you see any region or vertical that was particularly strong or weak during the quarter?

Robert LoCasaio

No, nothing particular. I mean in Q2, we had a very strong quarter out of Europe. Europe wasn’t as high in the third quarter, but that wasn’t for anything other than a specific deal that happened out of Europe in Q2. So it’s in line with what we expected, and good business coming out of the U.S., good business coming out of Europe. And Asia Pacific is still pushing along and growing nicely on a percentage base. But absolute dollars, we’ve got some work to do.

Ron McDowell – Northland Capital Management

Okay, and then I’m looking at the consumer segment. I mean it said it was pretty flat year-over-year and it decreased sequentially. I mean where do you view that going forward? Do you think it will remain relatively stable?

Robert LoCasaio

We think it will remain relatively stable. I mean Q3 typically has been a bit of a down quarter, but we think it will be relatively stable. And we’re still generating a nice amount of cash coming out of the business.

Daniel Murphy

Q3, the down on Q3 is usually around education and tutoring. So that quarter, there isn’t a lot of education and tutoring, and then it bounces back on a nice side on Q4. So we’re seeing sort of the normal pattern back on Q4. And we’re still optimizing that business for cash flow, and so that’s where we’re really focused on that business.

Ron McDowell – Northland Capital Management

Okay, and then I guess just one last clarifying. I think you mentioned during your comments or your statements about the kind of the customer breakdown by annual revenues. Could you kind of clarify that again?

Robert LoCasaio

So as far as the number of customers?

Ron McDowell – Northland Capital Management

Yes.

Robert LoCasaio

Is that what you’re talking about? Sure, let me just get the page real quick. We had 30 plus customers over $500,000 annualized spend. We were able to move four customers from the $500 to $1 million bucket to the above $1 million bucket. And as consistent with prior quarters, we have one customer that’s north of $10 million.

Ron McDowell – Northland Capital Management

All right, thanks a lot guys.

Operator

The final question is from the line of Jon Hickman with Ladenburg

Jon Hickman – Ladenburg

One question for you Dan. Could you just clarify the number of customers or beta customers that you have on LP marketer? I think you gave a – if you can.

Daniel Murphy

Was there more to the question?

Jon Hickman – Ladenburg

No, that’s it. Because you talked about ADA customers and ADI customers.

Daniel Murphy

As of the end of the fourth quarter, we had nine base customers assigned and live. Sorry, in the third quarter. Did I say, end of the third quarter, sorry.

Jon Hickman – Ladenburg

I knew what you meant. That’s okay. Thank you very much.

Operator

There are no further questions at this time. I’d like to turn the call back to management for any closing remarks.

Robert LoCasaio

Thank you for being on the call, and we will see you next quarter.

Daniel Murphy

Thanks everybody.

Robert LoCasaio

Good-bye.

Operator

This concludes today’s conference call. Thank you for your participation. You may now disconnect.

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