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LivePerson, Inc. (NASDAQ:LPSN)

Q2 2012 Earnings Conference Call

Aug 01, 2012 5:00 PM ET

Executives

Robert LoCascio – Chairman and CEO

Dan Murphy – CFO

Analysts

Nathan Schneiderman – Roth Capital

Brandon Pickett – Raymond James

Richard Fetyko – Janney Montgomery Scott

Jeff Van Rhee – Craig-Hallum

Michael Latimore – Northland Securities

Richard Baldry – Wunderlich Securities

Brian Murphy – Sidoti & Company 

Craig Nankervis First Analysis

Brian Schwartz – ThinkEquity

Operator

Good afternoon, and welcome to the LivePerson’s Second Quarter 2012 Earnings Call. My name is Diane, and I will be facilitating the audio portion of today’s interactive broadcast. With us today, we have Mr. Dan Murphy, CFO; and Robert LoCascio, CEO. 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)

At this time, I would now like to turn this call over to Mr. Dan Murphy. Sir, you may begin.

Dan Murphy

Thanks, Diane. 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 or 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’s 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 to everyone for joining us. I’m pleased to report that we had another strong quarter. BEV revenues grew 23% over last year. We signed a record 136 deals, up from 117 in Q1. During the quarter bookings came in at $6.9 million. This was a record for our quarter and almost 20% increase over the prior year quarter of $5.8 million.

New product pipeline continue to make up a large percentage of bookings with 17% of total bookings coming from new products compared to 10% in Q1 and 5% in Q4.

My high level observation is that the continued strength in our booking’s numbers and the changing mix of new to existing products indicates we are on the right path towards executing on our overall vision of delivering a platform for intelligent engagement. We now focused on how to optimize execution on our go-to-market strategy so we can scale our product sales to our 8,500 customers.

We now have some great used cases coming from customers who are using our new products. As many of you experienced firsthand, our customers, some at Aspire went global this year, as we hosted events in the U.K., Australia and New York. Nearly 500 customers gathered across several continents to witness of some of the world’s leading brands are utilizing LivePerson’s technology to more meaningfully engage their customers online. It was exciting to see some examples of customers leveraging more than one LivePerson product to successfully drive their overall engagement strategies.

At Aspire, Petco shared a case study of how using multiple LivePerson products in tandem can create a holistic customer engagement strategy. Petco has been an LP chat customer since 2010 and then when on to the Play LP Marketer and recently implemented LP Insights. After launching their new P.A.L.S. customer awards program, they wanted to drive adoption while deflecting more costly interaction. They deployed LP Marketer to engage customers with targeted messaging to sole tape the P.A.L.S. log in process. And this helped Petco deflect expensive time consuming voice calls and improve overall customer experience. When Petco implemented the voice to the customer capabilities of LP Insights, they were able to identify problems in the P.A.L.S. log in process that was preventing conversion and then use LivePerson Marketer to optimize the process and help customers locate their P.A.L.S. account number. Petco is a great example of how our customers can use multiple products to improve the overall online experience.

Home Depot also presented at our New York Aspire event. And Home Depot talked about how important it was for them to ride an interconnected brand experience for their customers both on and offline. With about 45% to 50% of their in-store purchases starting with the visit to homedepot.com, its vital for them to connect the online and offline customer experience, and they are utilizing LivePerson products to make that connection. A great example was a highly segmented awareness campaign, which Home Depot ran around their installation services by using the geo-location data we capture on a visitor, they were able to target consumers in 11 specific markets using LP Marketer and further narrowed the segment with product offerings that had a higher propensity for installation, which increased conversion rates. With over 300,000 FKUs on homedepot.com, the ability to run highly targeted campaign provide significant value.

The global Aspire event gave our customers a strong sense of the LiveEngage platform and the innovative products we are offering to execute a more holistic strategy for effective customer engagement. There is also a validation of our platform vision to see more customers developing a multiproduct strategy approach. I think we are really starting to see this resonate with our customer base.

We made two acquisitions during the quarter that support our goal of delivering complete platform for intelligent engagement with the acquisition of Look.io and Amadesa. Both acquisitions will help strengthen and expand our core technology offering. Look.io has built a mobile chat application that can be integrated into LivePerson platform providing some innovative features such as mobile screen sharing, pre-imposed chat surveys and overall integration into .msites, IOS applications and soon we are going to be delivering the Look.io application on Android devices.

According to e-marketer, mobile commerce sales are expected to reach $1.6 billion this year, with an estimated 64% of Smartphone owners using their mobile devices to shop online. Mobile is a very important part of overall strategy especially as we move into Asia, where they have a higher penetration of mobile commerce users. The acquisition of Look.io will help us to accelerate our go-to-market strategy in the overall mobile space.

We also announced the acquisition of Amadesa, which will allow us to extend our predictive targeting capabilities to a larger base of our customers across multiple engagement channels in a more frictionless automated manner. Amadesa technology improves our ability to tech correlations between behavioral patterns and a propensity for a specific outcome to buy for example in order to determine the best opportunities for interaction. With both acquisitions we also gained some very strong talent in both the R&D and product functions.

We’ve been making significant progress against our four strategic goals, which I will quickly review with you right now. For the remainder of the year we’ll be very focused on executing against these goals. First is what we call PLUS one. Our goal is to have every one of our 8,500 customers use more than one product as we believe this will give us the ability to scale our business to the next level. The progress of this goal is reflected in our growing sales pipeline and our customers and sellers are starting to use our new products. As of the end of the second quarter we had approximately 550 customers using more than one LivePerson product, which compares to about 275 at the end of 2011.

Our second goal is to find new ways to accelerate the growth of our core chat products. Last quarter – previous quarter at Aspire we introduced our new connection framework of engaging customers with video, voice, chat, mobile, desktop sharing. And Apple is the first customer to use this new innovation, and their goal is to replicate the in-store experience online. I think it’s something that is going to resonate well with many of our large enterprise customers especially as we continue to closely integrate with existing voice based contact centers.

The third goal is to continue to improve in scale the data intelligent layers of our platform. We are driving towards the vision of delivering a platform for real-time data intelligent around live engaging, and we’ve been working to enhance how we monitor, organize and access the data we are collecting. We want to make our data as viable as possible for real-time engagement and insights. We start to monetize it through obviously our LP Insights prog and we are enhancing that data now also with our acquisition of Amadesa and other predictive technologies that we’ve built in-house.

And the fourth goal is to continue to build the systems that will help us deliver on our core values of being the owner and help others. And our mission of creating meaningful connections in the world. As LivePerson grows, we are working hard to maintain and scale our culture as it is unique and defines us in the world.

Two years ago we set out on this journey to create an outstanding company where our products and culture are our platform to deliver on our unique mission of creating meaningful connections in the world. We made tremendous progress towards this goal and we have a strong team in place now to execute on our go-to-market strategy.

With that, I’d like to now turn the call over to Dan to review the numbers in greater details. Dan?

Dan Murphy

Thanks, Rob. Strategically the first half of the year was important for us as we continued to invest in the business specifically in the products, people and process necessary to continue to drive our platform strategy forward. As Rob discussed we have made good progress to reach both our core and latest intelligent engagement applications across the base and we’ll continue to focus on that for the remainder of the year.

We also made a number of important moves during the quarter aimed at strengthening our core technology platform, specifically with two technology focused acquisitions we announced in the second quarter Look.io and Amadesa. While there was certainly a lot that went on during the quarter, our effects were aimed at driving towards our goal of delivering a platform on intelligent engagement to our customers. We were busy building the pipeline, increasing sales and marketing capacity and ensuring that we have the right team in place to execute against our long term strategy. During the quarter, we successfully staged three Aspire customer summits showcasing our latest intelligent engagement applications as well as our new connection framework.

During the second quarter B2B revenue was $34.5 million, a 23% increase as compared to the prior year quarter. Total revenue was $38.5 million, a 21% increase compared to the prior year. Revenues from consumer operations for the second quarter was $4 million, which was a 6% increase over the second quarter of 2011.

We also completed two acquisitions during the quarter and the associated accounting and legal costs as well as costs related to litigation were not part of our original guidance. Those items impacted the quarter by approximately $2.5 million. For a comparison purposes, I’ll presented to next few metrics both with and without those items.

Adjusted EBITDA per share for the second quarter of 2012 was $0.08. Excluding the previous discussed M&A and litigation costs, Pro Forma EBITDA for the second quarter of 2012 was $0.13 per share, which would have been in line with our Q2 guidance and as compared to actual adjusted EBITDA of $0.13 per share in second quarter of 2011 and $0.16 per share in the first quarter of 2012.

Second quarter GAAP earnings per share was zero. Excluding the impact of M&A and litigation costs outlined above, Pro Forma net income for the second quarter of 2012 was $0.03 per share, which also would have been in line with our Q2 guidance, and as compared to actual net income of $0.04 per share in the second quarter of 2011 and $0.06 per share in first quarter of 2012.

Adjusted net income for the second quarter of 2012 was $0.05 per share. Excluding the M&A and litigation costs we’ve just discussed, Pro Forma adjusted net income for the second quarter of 2012 was $0.08 per share. Again, this is in line with our Q2 guidance and as compared to actual adjusted net income of $0.08 per share in the second quarter of 2011 and $0.09 in the first quarter of 2012.

Bookings continued to trend higher reaching $6.9 million in the second quarter. And as Rob mentioned, new products represents 17% of booking during the quarter, up from 10% in Q1.

As of the end of the quarter we had approximately 39 customers using LP Marketer, 12 on LP Insights, 270 on ADE and 235 customers using our APIs.

We signed 136 deals in the quarter compared to 117 deals in the first quarter of 2012. During the quarter we had a 34 new enterprise and mid-market customers including 1-800 contacts, GNC and Majestic Wine.

We also continued to deepen and expand our relationships with existing customers including TXU Energy, Jetstar and one of the largest healthcare providers in the U.S.

Our small business group’s revenue grew 2% in second quarter when compared to the first quarter of 2012 and 16% over the prior year period. As Rob mentioned earlier, we rolled out a data version of our LiveEngage platform to our small business customers during the quarter and currently have approximately 400 customers on the LiveEngage platform. Small business customers continue to be strong adopters of our APIs as well as some of our new products including Keyword Lift, LP Marketer and our ADE product offering.

Average deal size for all deals was $50,000, the average for new customers signing up for initial deployment was $36,000, the average for existing customer signing up for an up sale or expanded business was $55,000. Average sales of customer service chats were approximately $24,000 and sales for our proactive sales products were $61,000.

The breakdown of enterprise and mid-market bookings in revenue terms was approximately 82% existing customer expansions, and about 18% to brand new customers. The breakdown between sales and customer service revenue was approximately 87% weighted towards sales deployment and 13% towards customer service. Both metrics are relative consistent with prior quarters.

Customer attrition for enterprise and mid-market accounts averaged 1.2% in the second quarter, which is down slightly from 1.3% in the first quarter. Small business attrition rates averaged 2.6%, down from 2.8% in the first quarter. Pay-For-Performance has generated approximately 16% of total enterprise revenue and 9% of total revenue, which is consistent with the first quarter.

Revenue from outside the U.S. remain consistent at approximately 24% of revenue, with the U.K. again making up the largest 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 signing expansions with T-Mobile Deutschland and Virgin Mobile, Australia. We’ll continue to seek opportunities to expand our global presence with three key areas of focus being Asia-Pacific, Latin America and Europe. This initiative as I mentioned is also factored into our revised 2012 guidance.

The breakdown by industry verticals was consistent with prior quarters. Financial services made up approximately 22%, telecommunications 34%, retail at 13% and technology at approximately 12%, with other at 19% for the quarter.

In terms of the scope of our customers we continue to make progress expanding several of our larger customer relationships. As of the end of the quarter, we had 35 plus customers spending above $500,000 in annualize spend. We now have a total of 26 customers spending more than $1 million annualized, with two of those spending over $5 million and one above $10 million in annualized spend.

Second quarter gross margins came in stronger than anticipated at 78%, which compares to 73% in the second quarter of 2011 and 78% in the first quarter of 2012. Similar to the first quarter, gross margin continue to be positively impacted from currency fluctuations specifically the Shackle.

We ended the quarter with a cash balance of approximately $101 million as compared to $108 million at the end of the first quarter. We generated $2.6 million in cash from operations during the quarter which was offset by capital expenditures and the two acquisitions completed in the second quarter.

Second quarter accounts receivable were $19.6 million. Our DSO metric for the second quarter of 2012 was 46 days, slightly up from the first quarter of 44. As discussed in the prior calls we are comfortable with the DSO in the range of 50 to 55 days.

Our tax rate for the first six months is 40%. We expect the full year tax rate to be approximately 39%.

Now, I would like to discuss financial expectations for the third quarter of 2012, which includes costs associated with the acquisitions, litigation and international expansion including operating expenses and deal related amortization expenses related to the acquisitions of the first half of 2012. We expect revenue between $40.5 million and $41.5 million. EBITDA between $0.11 and $0.13 per share, adjusted net income between $0.07 and $0.09 per share, GAAP EPS of $0.01 to $0.04 per share and a fully diluted share count of approximately 58 million shares.

We are also adjusting our full year guidance to reflect the cost related to the acquisitions, litigation and international expansion which will total $5 million for the full year, of which $3 million was incurred in the first half of 2012. In addition, we expect to incur operating expenses related to Amedesa and Look.io acquisitions of $1.5 million, and amortization expenses related to the acquisition of $700,000 in second half of 2012.

Revised expectations are as follows; revenue of $160 million to $165 million, which remains unchanged, adjusted EBITDA of $0.53 to $0.57 per share, adjusted net income of $0.30 to $0.34 per share, GAAP EPS of $0.09 to $0.13 per share and a fully diluted share count of approximately 57.5 million shares.

During the second quarter we made good progress with our hiring plan for the year. During the first half of the year we continued to build our overall headcount adding approximately 100 heads, bringing our total headcount to approximately 650 at the end of the second quarter. We continue to focus on the areas of technology, specifically on production and R&D, and also concentrating on expanding sales capacity and marketing capacity. We had a three additional sales heads during the quarter and now have a total of 46 quota carrying reps.

As I did last quarter, I would like to take a moment and explain how these investments will impact some of the financial metrics for the year. We expect gross margins on a GAAP basis to remain more consistent with last year’s levels of about 76% to 77% for the year. But it is sensitive to foreign currency fluctuations specifically with Shackle. Furthermore, as a percentage of revenue for the year, we anticipate sales and marketing to be approximately 32%, G&A of approximately 20% and R&D of approximately 18%.

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

Question-And-Answer Session

Operator

Yes Sir. (Operator instructions). We’ll pause for just a moment to compile the Q&A roster. Your first question comes from Nathan Schneiderman.

Nathan Schneiderman – Roth Capital

Hi Rob and Dan, thanks in advance for taking my questions. I wanted to start off just on the guidance with the increased expenses and I understand that we are pushing up the expense structure for the year by $6.5 million for acquisitions, litigation and international expansion. But across those three categories, I was hoping you could share with us the dollar breakdown of the $6.5 million that is associated with each one. And then also can you drill beyond into the incremental plans for international expansion. Just what’s going on there and what are the investments in that area?

Dan Murphy

Sure. So for the $6.5 million, $5 million is related to the deals, litigation and international expansion. And the $1.5 million is related to operating expenses associated with the acquisition of Amedesa and Look.io, primarily people related expenses. That’s the breakdown of the two components, and Rob will expand on the international portion of our question Nathan.

Robert LoCascio

Yeah. We see I think a pretty substantial opportunity in Australia where we are today. So we want to expand our operations there. We had a very successful Aspire event and today – as I mentioned on the last time I think on the call, we have the top four banks are our customers and one of the biggest airlines Jetstar and we continue to really grow over there. We see opportunity in Japan, in China; there are some stuff in Singapore. So I spent about a month over there and just feel like it’s time that we make some investments probably starting with Japan, and then expanding from there. So we want to put some dollars in to take advantage of it. The good thing about it, like in Australia we’ve grown very quickly there over the last 24 months because where we are message, even our older message without the platform is so needed there because there’s really no other products to help with just engaging with chat and then we’ve got all the platform stuff too. So that’s why we really wanted now make the investments and go.

Nathan Schneiderman – Roth Capital

Got it. And Dan, just to go back to that breakdown again. So of the $5 million that was acquisitions, litigation and international. Can you break it across those three categories?

Dan Murphy

No. we haven’t broken out between those three categories Nathan. We had three current litigations going on and we were actually able to disclose two matters resolved of the three. In one the court ruled in our favor for an earn-out dispute, and the other was a patent matter which is in the process of being dismissed. So with that we have one outstanding patent suit ongoing at this point.

Nathan Schneiderman – Roth Capital

Or are you able to share with us just how much of the incremental investment is on the international build out?

Dan Murphy

We think it’s going to be about $500,000.

Nathan Schneiderman – Roth Capital

Okay. And my final question for you. Obviously the relationship with Apple sounds really encouraging on the new connect product. Is that currently your only beta customer there? And can you share with us how the rollout is going with Apple? Is it still just in the one country or have they pushed it out more broadly and just what is your understanding of their plans there? Thanks very much.

Robert LoCascio

Yes. So it’s expanding. I think we’re in three countries now. We have a handful of other customers, very large enterprises that want the same setup that we’re doing for Apple. So I think we’re really excited about the fact that we can combine chat, video, voice, screen sharing, language translation on the fly and bring that all together and as you would have seen at the Aspire event, it’s really about can we mirror what’s happening in the store experience online. And I think it’s going to game change the way retailers are selling online. So all these retails that we have are all like okay, great. I want to create that deeper engagement and a more holistic strategy with our customer. So we’re very excited with it and obviously in the world of commerce Apple is an amazing brand to have and to be rolling this out with.

Nathan Schneiderman – Roth Capital

Thank you.

Operator

Your next question comes from Shyam Patil.

Brandon Pickett – Raymond James

Hi guys. This is Brandon Pickett filling in for Shyam today. I was just wondering, I have a couple of questions. The first one is, would you mind breaking out the revenue contribution from enterprise versus midmarket for the quarter?

Dan Murphy

We don’t disclose that.

Brandon Pickett – Raymond James

Okay. As far as LP Marketer goes, I wonder if you could just talk to us a little bit about the competitive landscape, like which players are you running into the most right now?

Robert LoCascio

Well, Adobe has their testing target product that’s out there. It doesn’t really have the intelligence behind it. It’s more like AB testing. But we do see them in the market and then there’s three or four smaller competitors out in the market today. What’s really the advantage of our product is one, it’s using our intelligence. It’s using the same intelligence that drives the proactive chat. So it’s a very good obviously engine to drive conversion. That’s the first thing. The second thing is that to get up and running with it if you’re an existing customer, you don’t have to do anything. You don’t have to retag your site. You’ve just got to log in and go and create the campaign. And the other part is it can integrate very closely with that so you can run a chat campaign. You can run a Marketer campaign. We have reporting behind it. So it really gives the Marketer a lot of flexibility to get up and running quickly without having to get IT resource and all that. So one of the things we’re seeing is a propensity for more enterprise sales with this in mid market than small business where those guys want more flexibility on how to drive content on their site. So that’s where we’re seeing it play out in those market spaces.

Brandon Pickett – Raymond James

All right. And do you think it makes sense for you guys to eventually build out a broader AB or a multi varied testing product?

Robert LoCascio

Well, we have – I think the capabilities you need to do the AB testing, we also have that in our chat product. The acquisition of Amadesa actually gives us some of that horsepower. They’re the frontend of their behavioral targeting engine that they built was an AB testing tool and it was square at the testing target on the chat product or the W product. And so we have those capabilities. But we do already have a lot of that built into what we’re doing today with the LP Marketer product.

Brandon Pickett – Raymond James

And then how about a recommendation engine?

Robert LoCascio

I think on a recommendation engine, I think for us it may make sense to partner and allow third parties because a lot of those guys out there to integrate onto our data and intelligence like we have 24, 25 partners right now. So I think that’s been sort of played out in many ways and I think that may be a better third party partner than us building it.

Brandon Pickett – Raymond James

Okay, great. Thanks for taking my question.

Operator

Your next question comes from Richard Fetyko.

Richard Fetyko – Janney Montgomery Scott

Hey guys. Sorry, can you hear me?

Robert LoCascio

Yeah, we can hear you.

Richard Fetyko – Janney Montgomery Scott

A couple of questions. Curious about the pay-for-performance expectations relative to the rest of your business segment and your guidance, what kind of growth rates you saw at par with the rest of the business (inaudible) on the par are or a slower growth rates or higher growth rates. And then secondly you mentioned that you’re looking to optimize your go-to-market strategy at this point. I’m wondering if you could elaborate as to what you’re thinking there.

Dan Murphy

Hey Richard, on the first question you broke up a little bit. So we got the second one optimized go-to-market strategy. What was the first one?

Richard Fetyko – Janney Montgomery Scott

The first one was around the PFP expectation relative to the rest of the business segment growth rates in your guidance. What does that sort of imply (inaudible).

Dan Murphy

We’re assuming that from a PSP perspective, first we’re happy with where the business is from a PFP perspective. We’ve actually tried or tested one of our new products on the PFP model as well. And so as from as far as an expectation standpoint is concerned, we expect it to be in that 9% to 10% of overall revenue as we move forward. And Rob will answer the optimized go-to-market strategy question.

Robert LoCascio

So for on the go-to-market there’s really two things that are taking place. Now that we have a good set of case studies, we kind of know where these products are playing out, which bases are taking each of these products. Two things are sort of coming together. One is every product will collapse down onto the live engage platform starting in a few months from now. So today in order to get LP Marketer you log into an LP Marketer interface. LP insight’s interface AD interface and our core chat products. Chat is now on live engage and LP Marketer is on the live engage platform and we’ve started to roll it out in the small business. We have about 400 small businesses. So what that will do from a power perspective is that every one of our customers is going to go onto the engage platform and they’ll have access to all the products. So they don’t have to be sold different products. So the product will drive more of an integrated sale.

The second part is what we find instead of selling each individual product is marketers want to set our products together and people who run call centers want to set our products together and analytics people want to set our products. So the way we want to do is really combine two or three of these products and have more of a marketing suite, a contact center suite and an analytics suite, but take three or four of these products and sell them together. So these are the things that we’ve learned over the last six months and we think it will align better to what our customers want and give us more opportunity to now – it’s all about scaling now that we have the basic success stories. So that’s where we’re focused on.

Richard Fetyko – Janney Montgomery Scott

Thanks. Appreciate it.

Operator

Your next question comes from Jeff Van Rhee.

Jeff Van Rhee – Craig-Hallum

Great, thanks. A couple of questions. First, maybe just at a high level from a growth perspective, you look at the success of the new products clearly climbing as a percent of bookings. The offset would seem to be slowing elsewhere. The goal of the new products it obviously to accelerate the top line isn’t necessarily accelerating even though the new products are. Do you find in terms of sales or sales cycles that they tend to be I don’t know, if one’s cannibalizing the other? Or if you could just fill in some color there that would be great.

Robert LoCascio

Yeah. I think a lot of it has to do with the first half goals which is we want to show that we can sell these other products. So a lot of it has to do with a little bit of focus. And so I think we should see now a shift in that and that’s what we’d like to see. But really the first half was like okay there’s a budget out there and we want to get that budget and we really want to focus on getting them into these other product lines. We don’t want to be the expense of the core obviously and people still want the core products. But I think you’ll start seeing more of a shift, but really the first half was, it’s focus on the sales guys. Like their coders are tied to those new products. They’ve got to get them out the door. If they don’t and they end up at the latter half of the year with just chat and not too much the new products they don’t make their numbers. So that was what we’re focused on and we should see much more of a shift coming up in that.

Jeff Van Rhee – Craig-Hallum

Just as a follow up then. Could you talk to the pipeline? Obviously I would assume you’re continuing to see the mix shift increase from the new product, but in conjunction with that, what’s the holistic view of the pipeline? How would you describe it in terms of the change here?

Dan Murphy

Yes. From a pipeline perspective our goal was to build up capacity in the first half of the year from a selling perspective obviously while continuing to work on adoption of our products and selling of our new products. But to build up that pipeline and move into the back half of the year. So our goal is still to do that and we’re on the right path. But our focus is continuing to build that pipeline and continuing to ramp up the sales capacity that we added throughout the year.

Jeff Van Rhee – Craig-Hallum

Okay. And then last one, just in terms of the guidance so the 40.5 to 41.5 for Q3 leaves an implicit range for Q4 and given that the overall width of range that’s implicit in Q4, obviously much wider than you’ve guided for any specific quarters. Any thoughts or reasons why such a wide and variable range implied for Q4?

Dan Murphy

Q4 is historically one of our stronger quarters and it has been, last quarter and the previous quarter and again our expectation of building up the sales force was to build that pipeline and close more deals in Q3 and then have them come live in Q4. So our goal is from a bookings perspective is to continue to drive the bookings number forward and to get those customers live as quick as possible in the back half of the year.

Jeff Van Rhee – Craig-Hallum

Got it. Thank you.

Operator

Your next question comes from Michael Latimore.

Michael Latimore – Northland Securities

Thanks. Just on that last comment, so is the general view that bookings should continue to grow quarterly throughout the year here?

Dan Murphy

Yeah. We don’t guide for bookings, but we’ve had three quarters of increase in bookings and again our expectation is that some of the horsepower that we’ve put in from a sales perspective in the first half of the year starts to become productive in the back half of the year.

Michael Latimore – Northland Securities

And then how were bookings in Europe in the second quarter here?

Dan Murphy

It’s a good question. There’s a lot going on from a macroeconomic perspective in Europe. But we haven’t seen any surprises or wholesale stopping or not purchasing. So the bookings out of Europe we had a good quarter and we haven’t seen any signs of a slowdown as of this morning.

Michael Latimore – Northland Securities

Great. And what was the FX influence either on revenues under EPS in the quarter income?

Dan Murphy

We don’t disclose the FX as far as revenue is concerned. We mostly bill in US dollars, but we do have operating expenses and check alls and obviously Sterling. But we don’t disclose those numbers.

Michael Latimore – Northland Securities

Okay. And just to be clear on the EPS guidance for the year, is that including or excluding the $6.5 million cost that you highlight?

Dan Murphy

So the guidance that I gave is including the $6.5 million and don’t forget about the $700,000 of deal amortization or amortization sorry of IP associated with the acquisitions.

Michael Latimore – Northland Securities

So the 30 to 34, that would, using basically the $0.05 EPS that’s from the second quarter?

Dan Murphy

I didn’t understand the question I’m sorry Mike.

Michael Latimore – Northland Securities

I guess there was an adjusted net income number of $0.05 in the second quarter. Are you using the $0.05 one or the $0.08 one?

Dan Murphy

Oh, for the second quarter you’re talking about?

Michael Latimore – Northland Securities

Yeah, for the second quarter.

Dan Murphy

Yeah, we’re using the $0.05.

Michael Latimore – Northland Securities

Okay. Thank you.

Operator

Your next question comes from Richard Baldry.

Richard Baldry – Wunderlich Securities

Thanks. If you look at the sequential growth implied in Q3 guidance it’s between $2 million to $3 million. At the upper end of that, the $3 million would be your best sequential growth result ever. So I’m just curious about the factors at all for the where the upper versus the lower end for Q3. Is it pay-for-performance or is it at the timed around upon some of the newer deals? Thanks.

Dan Murphy

Yeah. I think it’s the ramping of some of the newer deals. Strong bookings in Q1 and Q2. It takes some time for chat bookings to go live. So the expectation is bookings from Q2 will have an impact in Q3 and more of an impact in Q4 bookings than Q1. We’ll have a little bit of an impact in Q2 and an impact in Q3. So that’s part of the guidance in that range.

Richard Baldry – Wunderlich Securities

Thanks.

Operator

Your next question comes from the line of Brian Murphy.

Brian Murphy – Sidoti & Company 

Hi, thanks for taking my question. Dan, I don’t know if you mentioned this. I know you’ve aggressively added to the sales force so far here. Is the plan to continue to add in the back half of the year?

Dan Murphy

So we’ve added, we’re up to 46 people so I think that’s a total for the year of about 16 or 17 if I’m not mistaken. In an earlier call our expectation is to get to around approximately 50 sales people, 50 quota carrying sales people. So we’re at 46 now so we’ve got about four to add between now and the end of the year. And depending on the strength of the bookings and how we see the market if it makes sense to plus that up we’ll obviously give guidance on that. But right now our expectation is to get to the 50 range.

Brian Murphy – Sidoti & Company

Okay, great. And just to swing back to the connection framework, is that still on track to be a standard offering sometime here in Q3?

Robert LoCascio

Yeah. That will become a standard offering and then once again as I mentioned, everything goes into the platform so that you’ll be able to segment your customers and then pick based on the segment I’m going to give that person a video, I’m going to give that person a chat, I’m going to offer that person a voice call or I’m going to offer that person content. So all that is coming into the platform also at the same time.

Brian Murphy – Sidoti & Company

Okay. And I think at the end of the March quarter you had 25 development partners. Can you just give us an update on where that stands?

Robert LoCascio

We’re still focused on it. It’s about that number, maybe a couple more. But our goal is really to take the ones we had and make them very successful and not just try to build a big ecosystem. So we feel really good that the partners we have are making real money from us. They’re being successful. There’s two partners that are in the Connect framework as a matter of fact that we’re using as part of that offering. So the goal is not to lose partners, make sure they’re successful and that’s really what we’re achieving right now. So we feel good about it.

Brian Murphy – Sidoti & Company

Okay. Thanks very much.

Operator

(Operator instructions). Our next question comes from Craig Nankervis.

Craig Nankervis – First Analysis

Yes, good afternoon from First Analysis. Thank you. Are you recognizing – Dan, are you guys yet recognizing revenue from new products?

Dan Murphy

Are we recognizing revenue from new products? Yes.

Craig Nankervis – First Analysis

Okay. And has that been going on for quarters now or – I wasn’t clear when the bookings for new products was starting to translate into revenue and…

Dan Murphy

Yeah, it’s a different product – yeah, different products translate at different rates. We launched AD and APIs back in 2011. So we’ve been ramping up those products for 2011 and then Insights and LP Marketer were launched in the fourth quarter December of 2011. So when I talk about bookings it’s primarily for those four major new product offerings. So we have revenue, a little bit of revenue in 2011 and obviously it’s continuing to grow in 2012.

Craig Nankervis – First Analysis

And is there an update on the strategic partner front and what you’re doing there and how that’s progressing and where you think that’s going?

Robert LoCascio

On one of the – we did the two acquisitions over the last quarter and we kind of think these types of acquisitions are interesting where we get a handful of employees, some technology and we can apply that straight into our customer base. That’s one thing. Right now we’re going to shift a little bit which is one is in direct channel. So I see some opportunity to be selling indirect. So we’ll have some partnerships on that level and the second is international. So the way we’ve been very successful internationally is by really having a strong partner in the international market, putting some people who have some history with LivePerson on the sales side in that office and then we expand. So I would assume that what we’re going to do let’s say in Japan would be the same sort of setup and that will require a partner and a certain commitment for us for resources.

Craig Nankervis – First Analysis

Okay. And I think I didn’t make it clear, but I was mainly focused on the indirect channel partner front. And is there anything you can elaborate on that?

Robert LoCascio

Nothing specific. We have a couple of indirect partners who do financial services. We have one that sells our platform connected to an online banking overall product and then we have a few others. But you should see more action in that area over the next two quarters. We also have some new resources that are focused on that that have joined us and they’ll be focused now on building that out. So we’re still predominantly focused on a chat – on the direct model, but we should see that start to move too.

Craig Nankervis – First Analysis

I guess that does it for me. Thank you.

Operator

Your next question comes from Brian Schwartz.

Brian Schwartz – ThinkEquity

Yeah, hi guys. Thanks for taking my questions .I apologize if these are repeat questions. I have been half back and forth here. But Rob first with you, I really want to dig into the core business here. I was wondering, did you update us on really the timing of the LP connect release when you expect to start selling that product into the base?

Robert LoCascio

Yeah. It’s going to be in the next few months. We’re putting another handful of customers that want to be on it. After the Aspire event everyone saw it and they’re like – so there’s a handful of customers that we’re going to put on it now and have another wider set of beta customers and then we’ll go to GA on that. We’re sinking it really with the live engage platform and the overall rollout of the platform which is going to happen later this year and that brings all the capabilities onto the platform. So that’s where we’re focused today.

Brian Schwartz – ThinkEquity

Okay, thank you. And Rob, also in my research here I’ve noticed recently, it was actually in a blog, there was a screenshot that one of your larger technology customers, looks like they’re currently beta testing a live chat extension with their Adword service. To me this sounds different since customers could now potentially engage a visitor even before they come to the website. Again I don’t know if that’s your technology or not. But is this a potential shift in the market that you see here over the next three to five years where potentially your customers and really you because your company could extend your solution directly to the internet search pages?

Robert LoCascio

Yeah, that is our solution. Obviously the potential of bringing engagement up into searches has some significance. So we’re going through sort of a testing period right now and that’s all I can say.

Brian Schwartz – ThinkEquity

Fair enough. And then Dan, from a metric standpoint here, I’ve noticed on the balance sheet it looked like the deferred revenue and the billing they both actually picked up, accelerated for first time in a little while here from last quarter. Just wondering if there were any changes in the invoice durations or there are any factors that kind of helped you out on those metrics.

Dan Murphy

No, nothing specific on those metrics. We haven’t changed payment structures or invoicing structures. My guess is it’s just timing around quarter and some of the invoices that went out for specific customers. But there’s nothing specific that I could point to.

Brian Schwartz – ThinkEquity

Great. And then last question really on the sales productivity. I guess if I look at the metric, if I look at your new enterprise in mid market customer accounts, new logos that you signed up, it looks like it’s almost doubled here in the first half compared to the first half of last year. Is this mostly due to increasing capacity here or is there something else going on? Is the competitive pressure potentially easing out there? Just wondering maybe Rob a few comments on why we’ve seen such a dramatic lift in the new enterprise in the market logos.

Robert LoCascio

Yeah. The capacity I would say the new reps – s they’re new. Half the sales team is just new. So we’re just at the beginning of the capacity of all those new reps. So I wouldn’t say that’s driving it. I think what’s driving it is really the excitement around the new products and for our sales guys, take the existing guys that are here, for many years they were selling the same product and it does well and they’ve done great, but now they go in with this offering of connect and Marketer and Insights and there’s just a different level of excitement and that’s why the bookings are starting to increase. Obviously those will start hitting its revenue on the up quarters. But it’s really I think based on the excitement around new products and I would say we’re still looking forward to the capacity of those new reps to come on board and start generating their full quotas which they’re not at today. And so that’s really which I think will give us leverage on another level and then once again I firmly believe that product combined with good sales execution will drive where we want to go and that’s around the engaged platform and a single way to get all the products should really help with the acceleration and that’s where we’re focused on.

So it’s been a really I think a fascinating shift from two years ago. We were the single product and still doing great and if you see the platform and what’s happening today and all these new use cases I think for us internally it’s exciting because we feel like we’ve made the transition as a company to selling multiple products and we’re on the right path now to work on accelerating that with our base. I’ll say it again. If you went to our 8500 customers and gave them a survey that said tell me what LivePerson does they’re going to tell you they’re the leader in chat and they won’t tell you that they are the leader in providing different solutions around engagement. So we have a huge opportunity to educate them and sell to them and that’s where we’re focused on today.

Brian Schwartz – ThinkEquity

Great. Thanks for taking my questions.

Operator

There are no further questions from the telephone lines.

Robert LoCascio

Thank you guys and we’ll see you on Q3 2012 call.

Dan Murphy

Thanks everybody.

Operator

This concludes today’s presentation. You may now disconnect.

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