Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Dan Murphy – CFO

Robert LoCascio – Chairman and CEO

Analysts

Nathan Schneiderman – ROTH Capital

Shyam Patil – Raymond James

Richard Fetyko – Janney Capital

Ryan McDonald – Northland Capital

LivePerson, Inc. (LPSN) Q1 2012 Earnings Call May 8, 2012 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen. My name is Martina and I will be your conference operator today. At this time I would like to welcome everyone to LivePerson’s First Quarter 2012 Earnings 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)

I would now like to turn the call to LivePerson’s CFO, Dan Murphy; and Robert LoCascio, Chairman and CEO. You may begin your conference.

Dan Murphy

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. 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 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 and thanks everyone for joining us today. I’m pleased to report we are starting the year off on a strong note. During the quarter, our core business demonstrated continued strength with B2B revenue increasing 23% over the prior year period. We also had a very strong bookings quarter.

First quarter bookings came in an unseasonably high at $6.1 million, which represents more than a 60% increase from the prior year’s first quarter and around 10% of the pipeline consisted of new products.

As we have discussed in the past, in the first half of 2012, we are focused on continue to build our new product pipeline. We remain focused on rolling out the products more broadly across our customer base, while expanding the depth and reach of our core chat product offerings.

Along those lines, we continue to make considerable investment in building out our sales team and training them on the value-based selling model we implemented last year.

During the quarter, we added six quota-carrying sales reps, which is in addition to six head during the fourth quarter. We’re also starting to increase our overall marketing investment in order to build awareness and demand in the marketplace. To that end, I just got back from UK, where we kicked off the first three Aspire customers summits.

Our Aspire events bring customers together to share success stories and best practices and to learn about our latest innovations. With over 300 people on attendance, it was an important opportunity for us to connect with these leading European companies and really give them an opportunity to exchange ideas, learn about our new products and connect with each other. It definitely was one common threat among these organizations, a strong desire to create deeper, more meaningful relationships with their customers. And they are looking to LivePerson to help achieve this.

We look forward to continue to connect with our customers and will be hosting our next Aspire event in Australia at the end of May and then one in New York during mid-June. As part of our overall strategy, we continue to evolve our core chat products. We are in the process of launching a new connection framework that combines chat with full integration of voice, video, screen sharing and even real-time language translation.

From the consumer’s perspective, they are able to switch between these communication channels seamlessly and from our customer’s perspective, all these technologies easily plug into the agent console. We preview this connection framework at our EMEA Aspire event last week.

An early adopter of this new connection framework is a major consumer electronics company. They launched a very exciting deployment a few weeks ago on a few of their emerging market websites. Our technologies enabling them to create an online customer experience that very much replicates the same high-touch experience that consumer get when they are in one of their stores. They’re also going to use the video webcam to conduct sales, support and product configurations in real-time.

They will feel very much like their in-store experience and this enables them to cover markets where they don’t have significant store penetration. Our goal with the connection framework is to accelerate the adoption of our technologies among contact centers where voice 1-800 numbers are still the dominant form of communication. Our expectation is to rolling up the connection framework to the standard offering with our chat products starting at the beginning of Q3.

Moving on, I want to tell you about some of the interesting use cases we’ve been seeing with our new products during the quarter. With regards to LP Marketer, we continued to see an expanded set of use cases beyond just driving sales conversions. And one of our original beta customers, the large home improvement retailer has expanded to use LP Marketer to build awareness campaigns around lesser known products and services.

They want to be sure to expose customers to the whole range of diverse services they offer such as in-home installation. And they are now deploying up to six campaigns a week using LP Marketer in different departments across the website, it sort of serving as a real-time merchandising tool.

At the end of the quarter, we had approximately 30 customers using LP Marketer, up from 16 in the fourth quarter. Another product LP Insights takes the unstructured chat transcript data and turns it into structured data in near real-time. The results are actually insights that enable customers to make in form product and program improvements. In fact, we recently had a major enterprise customer win an internal award for accomplishment using Insights and they took the Insights provided by our product and use it to optimize their agent training program. The results are compelling, conversion rate increased by 2.5% and (inaudible) 30% increase in customer satisfaction with their overall chat program. During the quarter, we had about 10 customers using LP Insights, up from seven in the prior quarter.

During the quarter we also continue to see broad adoption of our ecosystem partner products on our platform. We currently have 25 partners developing on the platform. We have 50 new API integrations during the quarter. The biggest interest area is continues to drive mobile deployment and chat enhancement.

I’d now like to review the four main goals that we’re trying to achieve this year that I outlined on the previous quarter’s call. The first goal is to deliver multi-product deployments to a greater number of customers so they can more broadly leverage LivePerson’s data and intelligent capabilities to connect with their customers in more meaningful ways. I feel that we are making solid progress towards this goal and this reflected in the mix of new and existing products in our bookings number. We are still in the early stages and we continue to learn as we sign each and every new paying customer.

Our second goal is to find new ways to accelerate the growth of our core chat products. The opportunity really lies in the fact that even in our best customers only about 5% to 10% of the total agent population is using chat. And the majority of agents are still taking inbound 1-800 voice calls. This opportunity becomes even more apparent as company is again shifting away for more traditional channels such as e-mail and phone to more digital ones such as chat, video and communication and this has really driven, I think, a lot by what’s happening in the social media space with people wanting to connect online in different ways. And we’re really going to use our connection framework, the combination of chat, video, voice to really drive towards achieving this goal.

The third goal is to continue to improving the scale of data and intelligent layers of our platform in order to drive towards our long-term product strategy. Our aim is to transition from a chat company solely to a platform for real-time data intelligence with chat being just one app of several on the platform.

We are making really good progress with the launch of our new products, are in the middle of developing some major enhancements to our overall data and intelligent layers which will support the seamless deployment between LP Marketer, LP Insights, ADE and now the overall connection framework.

And the fourth and final goal is to continue building the systems that will help us deliver on our core value of being an owner, help others and our mission of creating meaningful connections. If you like to get a better sense of what meaningful connections looks like, feel free to watch one of our Aspire customer events online, they are truly a unique experience and we’ll be webcasting the one coming up in New York City between June 12 and June 14 off of our website.

So before I turn the call over to Dan, I want to say that we continued to be in a uniquely strong position to execute on our overall strategy of becoming a real-time data and intelligence platform for delivering meaningful connections. The new world of online communication and connection is moving in our direction and we are tremendously strong core and customer base to build from.

And with that, I’ll turn the call over to Dan.

Dan Murphy

Thanks, Robert. Last year was a big year for LivePerson as we put in place the building blocks that will ultimately drive the long-term vision of the company. We’ve made and continue to make investments in the business specifically from a people and product perspective. While we have world class chat products, we’ve also been able to bring to market this next generation of intelligent engagement solutions that we introduced last year.

As we discussed in last quarter’s call, while we are building the new product pipeline with the goal of setting the stage for growth in 2013, the dynamics of some of our financial metrics become more closely aligned with our growth goals. I will just add a bit further in terms of how we’re setting expectations around both top and bottom line growth as well as from a margin perspective.

Let’s get into the details of the quarter first. Overall, we are pleased with the performance of the quarter as a whole. We demonstrated solid quarter-over-quarter revenue growth, had another strong quarter from a bookings perspective and continue to generate steady cash flow. EPS came in at the top of our guidance range, adjusted EPS and EBITDA per share came in at the midpoint of our guidance range.

First quarter B2B revenue was $32.9 million, a 23% increase as compared to the prior-year quarter. Total revenue was $36.8 million, a 21% increase as compared to the prior-year. Revenue from consumer operations for the first quarter was $3.9 million, which is a 5% increase over the first quarter 2011. EBITDA per share for the first quarter of 2012 was $0.16, in line with the first quarter of 2011.

First quarter GAAP earnings per share were $0.06, also on par with the first of quarter 2011. Adjusted net income per share was $0.09, which was consistent with the first quarter of 2011. All three measures will help them delay timing of new hires, stronger gross margin and by positive foreign currency fluctuations, primarily the shekel.

Bookings continued to be particularly strong, reaching $6.1 million in the first quarter. We signed 117 total deals in the quarter compared to 123 deals in the fourth quarter of 2011. During the quarter we added 28 new enterprise and mid-market customers, including Discount Tire Direct, Ross Simons and a major luxury goods retailer.

We also continue to deepen and expand relationships with existing customers including T-Mobile and SAP. Our small business group revenue grew 4% in the first quarter when compared to the fourth quarter of 2011. Small business customers continued to be early adopters of our API and ADE product offerings and we also signed several LP Marketer deals in the small business segment during the quarter.

Average deal size for all deals was $52,000. The average for new customers signing up for initial deployment was $36,000. The average for existing customers signing up for an up-sell or expanded business was $58,000. Sales of customer service chat were approximately $31,000 and sales of our proactive sales product were $58,000.

The breakdown of enterprise and mid-market bookings and revenue terms is approximately 82% existing customer expansion and approximately 18% to brand new customers. The breakdown between sales and customer service revenue was approximately 88% related to our sales deployments and 12% towards customer service.

Customer attrition for enterprise accounts average 1.3% in the first quarter, which is down from both the fourth quarter and first quarter of 2011 average of 1.6%. And small business attrition rates averaged 2.8% compared to prior year of 2.2% and prior quarter of 2.8%. Pay-for-Performance generated approximately 16% of total enterprise revenue and 9% of total revenue, which is down from the fourth quarter and the prior year quarter. Revenue coming from outside of the U. S remain consistent at approximately 23% of revenue with the UK making up the larger percent and representing our largest concentration outside of the U. S.

In Europe, we continue to further develop relationships in the region with existing clients, signed an expansion with BSkyB and Foxtons as a new customer. The revenue breakdown by industry verticals is consistent with prior quarters. Financial services made up approximately 22%, telecommunications 34%, retail 12% and technology approximately 14% and other at 19% for the quarter.

In terms of the scope of our customers, we continue to make a progress expanding several of our larger customer relationships. As of the end of the quarter, we have 35 plus customers above $500,000 in annualized spend. We have a total of 25 customer spending more than $1 million annualized and two of the 25 customers now spending over $5 million, which is up from $1 million in the fourth quarter and we have one above $10 million in annualized spend.

First quarter margins came in stronger than anticipated at 78%, which compares to 73% in the first quarter of 2011 and 78% in the fourth quarter of 2011. The first quarter margin can be attributed largely to continue positive benefit from currency fluctuations specifically the shekel.

During the quarter, we continue to add to our overall head count with a continued focus in areas of technology and sales and marketing. We continue to concentrate on expanding sales capacity and marketing efforts to support our new product rollouts and the continued growth of our existing core business.

We ended the quarter with a cash balance of approximately $100 million as compared to $93 million at the end of 2011. We generated $11.6 million of cash from operations during the quarter, which is offset by $1.7 million in capital expenditures. First quarter accounts receivable were $17.8 million, down from $21 million in Q4.

Our DSO metrics of the first quarter was 44 days, which is down from 52 in the fourth quarter. I expect the DSO of 44 days to be temporary as we work diligently to clear up year-end balances with our customers. As discussed in prior calls, we are comfortable with DSO in a range of 50 to 55 days.

In the first quarter, our tax rate was up 40% due to timing differences, but we expect the full-year tax rate to be between 37% and 38%. The first quarter also tends to trend a bit higher. Now I’d like to discuss financial expectations for the second quarter of 2012.

We expect revenue of between $38.5 million and $39 million, EBIDTA between $0.12 and $0.14 per share. Adjusted net income between $0.07 and $0.09 per share. GAAP EPS of $0.03 to $0.05. And a fully diluted share count of approximately 56.5 million shares. We are also reaffirming our full-year guidance of revenue of $160 million to $165 million, adjusted EBITDA of $0.66 to $0.70 per share, adjusted net income per share of $0.40 to $0.44, GAAP EPS of $0.21 to $0.25, the fully diluted share count of approximately 57 million shares.

We’re excited about what lies ahead in 2012. As Rob mentioned earlier, our primarily goal this year revolves around building momentum and pipeline behind the new products and continuing to evolve and grow our existing core business. We will continue to invest in the business in order to drive long-term growth. To that end, last year we hosted our global customer event Aspire in New York City. Building of that success, this year we kicked off the global Aspire series. These events present tremendous opportunity for us to connect with our customers and for our customers to collaborate and share their success stories about the value they derive working with LivePerson.

As Rob mentioned, we just got back from the UK, where we hosted our first Aspire event of the year. We have two additional Aspire events planned during the year, in second quarter, one in Australia and another in New York City. Throughout 2012, we’ll continue to be proactive in both our marketing and customer facing activities.

During the first quarter, we continued our investment in sales, adding six heads in the first quarter and we currently expect to hire seven more in the second quarter as well as throughout the remainder of 2012.

I’d like to take a moment and explain how these investments will impact some of the financial metrics for the year. Although trending higher in the past few quarters, we expect gross margin on a GAAP basis to remains more consistent with last year’s levels of approximately 76% to 77% for the remainder of the year. Furthermore, we anticipate sales and marketing as a percent of revenue for the year to be approximately 31%, G&A approximately 17% of revenue over the course of the year, and R&D to be approximately 18% of revenue for the year.

That covers all the operational and revenue highlights. And now if the operator could rejoin the call, we would be happy to take questions from folks participating. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Nathan Schneiderman from ROTH Capital. Your line is open.

Nathan Schneiderman – ROTH Capital

Hi, Rob and Dan. Thanks very much for taking my questions. It looks like you had a really terrific start to the year in terms of bookings and deal counts. My sense is that may be the business segment revenue was perhaps a little bit light of what you were thinking given your results versus the guidance. But I was hoping you could clarify what you think happened there and just give us a little more details on why you think there is a little bit of a shortfall in that particular line item?

Dan Murphy

Thanks, Nate. So, the short answer is PFP is a variable portion from a revenue perspective and it came up a little bit short of expectations in the first quarter, primarily related to timing of clients that we expected to go live and the volume.

Nathan Schneiderman – ROTH Capital

Okay. And maybe just to clarify on that, if the PFP had come in line with the – maybe you could share with us, what was your expectation as a percent of revenue? I think it was this year was 16% in the quarter, last year it was 17%, but what was your expectation as a percent and what was the negative impact on revenue by being at 16% versus that particular number?

Dan Murphy

Sure. Our expectation was to be approximately 10% of overall revenue slightly under. And from a guidance perspective, we missed the revenue by about $200,000 from a revenue perspective, and one of our larger customers didn’t meet the volumes that they anticipated as well.

Nathan Schneiderman – ROTH Capital

Okay. And then, I guess, my final question area for you. Rob, I was hoping you could give us a little more detail on this new connection framework fit you discussed. Do you see it as a product offering that kind of in general fits into a new product category like an Insights or a Marketer. And then can you clarify is this the product meant for enterprise and mid-market customers, small business customers or both. How you see it impacting your business and the kind of demand you think you’ll see for this particular product. Thanks very much.

Robert LoCascio

So, yeah, this product actually has been – is driven by the product owner who owns chat. And so what’s happening now is we’re going to start expanding chat as a product to include these, all these other things like video and voice. So really it’s the chat product, we’re not going to introduce – we’re going to put a name in everything, but it’s going to be chat that is now morphing to extend into these other areas. And as I mentioned on example of the consumer electronics company, (inaudible) what they are doing, they really wanted to replicate the store experience.

And so we basically put all of these pieces together for them in a very integrated approach, so you can go on line, you can give video with someone who works at their company, they can ask questions and they even have a way in which you can see products getting configured by video. Or you can go to a chat and then upgrade into audio or then they can screen share, they can even do a translation on the fly, speaking one language and they will translate on the fly and do another language.

So we know that the majority of contact centers are still voice-enabled. And so what we want to do is really get more of those seeds, with the integration of voice and video and chat, we think this is a good strategy and the chatter, the person wants to chat thinks it’s a good strategy and product to do that. So you should see chat now more into this and it will go across enterprise mid-market and small business, so it’ll be offered across all three areas.

Nathan Schneiderman – ROTH Capital

Thank you.

Operator

Your next question comes from the line of Shyam Patil from Raymond James. Your line is open.

Shyam Patil – Raymond James

Hi, thanks. Dan, following up on your comment earlier about, slight shortfall in the PFP business, it seems like AT&T is going through some changes right now and companies exposed to them, I’ve seen some weakness. Can you talk about maybe Telco in general and AT&T specifically and if you expect to be impact as many changes they’re making, either positively or negatively?

Dan Murphy

Sure. I mean from a Telco prospective, it continues to be one of our strongest verticals and our customers are actually growing with us. And AT&T specifically is one of our larger customers and from a volume perspective, there is a lot more competition in the Telco space. But from a volume perspective, we didn’t – we didn’t reach the volumes that we expected from AT&T in the quarter.

Shyam Patil – Raymond James

Great. And then you built up a pretty nice cash balance now. Can you talk a little bit about how you plan to deploy that, may be what areas you’re looking at for M&A?

Dan Murphy

There is nothing that we can specifically comment at this point. We’re generating nice cash from the business and the cash is flowing up a decent amount of money. And we’ve been investing organically in the business as we talked about on previous calls, in putting money into customer facing activities and obviously our product and head count.

Shyam Patil – Raymond James

Got it. And just my last question, I missed the enterprise and mid-market growth rates that you may have given. I was wondering if you could give those again?

Dan Murphy

So from a B2B perspective, we grew the business 23% quarter-over-quarter.

Robert LoCascio

Year-over-year.

Dan Murphy

Year-over-year, sorry. And the overall business grew 21% year-over-year.

Shyam Patil – Raymond James

Okay. Thanks.

Dan Murphy

Thank you.

Operator

Your next question comes from the line of Richard Fetyko from Janney Capital. Your line is open.

Richard Fetyko – Janney Capital

Hi, guys. Thanks. Just on the sales process of the new product versus the core products, how that’s coming along? I know you had some products specialists running around, selling LP Marketer and LP Insights and just I guess what’s the strategy there, if you’re going to have the broader sales force that (inaudible) products in future as well?

Robert LoCascio

Yeah, I think we feel things are progressing nicely as I said close to 10% of the bookings number was new products and about close to 5% in Q4. So and they’re just an overlay. They are the product owners, but the entire sales force is outselling. We’re definitely not at capacity, so we’re very far from capacity. We got a lot of new reps who are getting up to speed on just the overall product lines. And so we definitely have not – don’t have leverage right now like I’d say sales and marketing machine. So, but they are doing a really job in tactically getting out there, getting from a customers and their demand. And part of it is, they raise demand in our customer base to just get these products. So even if you’re rep who isn’t fully up to speed, you are calling on customers and you’re telling them what we have and we’re seeing some nice demand. So I think, our goal of getting the multi-product strategy going, we feel really good with and this has been our best Q1 bookings quarter in the history of our company, which is a real little, I think a sign for what’s going and the capacity of where we can go.

Richard Fetyko – Janney Capital

So, just to be clear, all customer – all sales reps are up selling all products at this point or they are?

Robert LoCascio

Yes. So, every rep has been trained in with new selling methodology called ISIS and everyone has been – is out selling it. But there’s lot of new reps. So these reps are going to come up to speed just on the core products, but everyone has to sell it and everyone has in their quota new products, so they got to make their quota by selling the products.

Richard Fetyko – Janney Capital

I see. Okay. Thanks, guys.

Dan Murphy

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.

Ryan McDonald – Northland Capital

Hi, guys. This is Ryan McDonald for Mike Latimore. I’m just curious, roughly what percent of revenue in bookings do you expect from new products this year? I mean is it similar to the 10% that you are currently at?

Robert LoCascio

We expect less than 5% to come from revenue to come from new products and we haven’t given guidance on bookings, approximately 10% of our bookings in the first quarter were for new products.

Ryan McDonald – Northland Capital

Okay. Okay. And then, do you see Pay-for-Performance growing at the same rate as the overall business this year?

Robert LoCascio

Right now slightly behind. We expect to see customers to get up and running. But we’ll continue to drive PFP and our expectation was that it would grow closer or slightly behind the overall business as we rolled out some of our new products.

Ryan McDonald – Northland Capital

Okay. And then just one follow-up with that, I mean, have you seen any interest in Pay-for-Performance for LP Marketer area?

Robert LoCascio

We have had customers that have talked to us about it, PFP model for the new products. And we’re actively engaged in some discussions, but our goal is to get as much product adoption or new product adoption as possible and we’ll work with our customers around the pricing. And if Pay-for-Performance is right for us on our end customer, we’ll absolutely take a look at it.

Ryan McDonald – Northland Capital

All right. Thank you very much.

Operator

There are no further questions in the queue. I’ll turn the call back to the presenters.

Robert LoCascio

Thank you. And we’ll see you on Q2 call.

Dan Murphy

Thanks, everybody.

Operator

This concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: LivePerson's CEO Discusses Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts