LivePerson, Inc. (LPSN) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the LivePerson Second Quarter Earnings Call. My name is Jennifer, and I will be facilitating the audio portion of today's interactive broadcast. [Operator Instructions] At this time, I would like to turn the show over to Dan Murphy, CFO of LivePerson; and Robert LoCascio, Chairman and CEO of LivePerson. You may begin.

Thanks, Jennifer. 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 Relations section of our website. Now, I would like to turn over the -- turn the call over to LivePerson's Chief Executive Officer, Robert LoCascio.

Thanks, Dan, and thanks, everyone, for joining us today. During the quarter, we saw a continued strength in several key areas of our business. Second quarter B2B revenues were $39.5 million, 14% higher than last year's $34.5 million. Bookings remained solid at $7.1 million, which compares to $6.9 million in last year's second quarter. We added 34 new logos and signed 139 new deals, consisting of last year's second quarter, and saw B2B attrition returned to normalized levels of 1.1%. More importantly, we continue to deepen and expand relationships with our existing base of customers, make significant progress in our channel strategy and further expand their global footprint. We also continued to advance the rollout of our LiveEngage platform, working towards our goal of providing customers with a powerful, multi-engagement solution that'll enable rich, meaningful connections across all digital channels. Our core chat intelligence capabilities are at the heart of the platform, so our product strategy is just to make it easier to access new features like content, video and voice in a unified interface. Our small business customers are early adopters of LiveEngage. Initial feedback has been positive, especially surrounding use of personalized targeted content and increased reporting capabilities. We've made LiveEngage available to about 4,000 small business customers, and we're focused on driving adoption and exposing those customers to the increased capabilities and use cases. In addition, we just started training our enterprise and mid-market sales reps on LiveEngage, and shortly, they'll be going to market with our multi-engagement, value-based product offering. During the quarter, we stepped up marketing initiatives to build momentum behind LiveEngage by taking our annual customer summit Aspire, to a global audience for the second time. We kicked off the series in Australia, followed by the U.K., and attendance levels increased significantly at both events. We saw more than a 70% increase in attendance level at Australia, and the turnout nearly doubled in the U.K., which indicates a growing appetite for discussion and thought leadership around customer engagement in our global base of prospects and customers. The accelerating demand for digital engagement was a common thread at both customer events. Companies are taking a closer look at their overall conversion rates and realizing there's a huge opportunity to better engage their customers digitally. Bankwest is a customer of ours in Australia with a keynote in the Aspire APAC and is in the middle of shifting from more of a traditional call center, where they do chats and voice, and now what they're doing is they're taking the chats from their website and they're going to route them straight to local branches, so this is really about combining the online and offline experience and making it consistent across all touch points. So really, by working with LivePerson, Bankwest is able to strategically think differently, and this is what we're seeing across most of our enterprise customers. Our customers are increasingly looking to LivePerson for thought leadership, especially as call centers are facing growing pressure to lower costs and improve customer satisfaction. A large part of our strategy is growing and deepening relationships within our existing base. Today, we're working with many of the world's largest companies. We're at about 1/3 of the Fortune 100 customers, including 4 of the 5 largest telecommunications companies, 10 of the top 15 commercial banks and 2 of the top 4 of computer software companies. Since the beginning of the year, we've added 77 new logos. This quarter, we signed one of the world's leading toy retailers, a major retail home improvement chain and an international online travel company. At the end of the second quarter, we had 40 customers with an annualized spend of over $0.5 million, which is up 4 from the first quarter and up 30% from 2 years ago. This quarter, we expand the relationships with some of our larger and more strategic accounts, including a multinational financial services company, one of the largest mobile telecommunications companies in the world and an international airline. We're bringing to the table the different stakeholders from these organizations, identifying their business issues and offering digital solutions and use cases that will help them achieve their objectives of higher conversion, return on investment and a deeper engagement with their customers. And this lies with our enterprise sales strategy of going wider into new departments and deeper into more areas of our customers' digital presence, including not only their websites, but in mobile and also social. We've also seen some good traction in our Pay for Performance business. Over the past few months, we've widened the scope of services in several existing accounts, especially telecom, and also start 2 proof of concepts with 2 major retailers. We also started enabling our Pay for Performance customers on the new predicted targeting algorithms developed by Amadesa, and this is the company we acquired last year. Results, so far, in these accounts have been very positive, and we're now focused on scaling it more broadly across our customer base. On average, customers have seen about a 5% to 20% increase in conversions and in some cases higher, using the new predictive targeting algorithms. The automated nature of the technology allows us to place less focus on implementation and more on incremental conversions, replacing what was in the past, a very manual process. Our predictive targeting engine seamlessly adjust to website changes, traffic changes and operational changes. For example, funnel changes and changes in the age and sizing, which allows our customer to quickly capitalize and make -- and capitalize on increasing their return on investment. I think we should start seeing return to growth in the Pay for Performance segment of our business with some of the changes we've seen recently with accounts and also what we're doing with the new predictive targeting algorithms. Global market expansion continues to be an important focus, and we've made substantial progress since the beginning of the year. International now accounts for about 29% of our total revenue as compared to 24% a year ago. About 12 months ago, we started our expansion outside of our core European and U.S. markets, and we are entering these markets through a combination of strategic partnerships, as we did in Australia, and through acquisitions. In Australia, we're seeing great traction with our solutions and are working with 4 of the largest banks in the region, several of which presented how they're driving business success and customer satisfaction at that Aspire conference I spoke about with Bankwest. And last quarter, we announced our entry into the Japanese market with our partner Vixia, which is jointly owned by Moshi Moshi, one of the largest call center companies in Japan, and Dentsu, one of Japan's largest advertising agencies. Although we just announced the partnership with Vixia, in late Q2, we've already signed a handful of enterprise clients and expect to add 2 more partners in Q3 to service the mid-market and small business segments in the Japanese market. We see a lot of potential globally, especially in greenfield markets like Asia and Latin America, where we don't have any substantial local competitors. In order to scale our company, it's important that we have solid distribution channel partners. 12 months ago, we hired a person to build a channels group, and since that time, we expanded to about 13 people in the channels group today. This team is focused on developing relationships with BPOs and call center providers, as well as digital agencies. And since the beginning of the year, channel bookings have grown about 100%, and we added 7 net new partners in the Asia Pacific region, 5 in North America and 3 in South America. During the quarter, we signed agreements with both Afni and Teleperformance, bringing LivePerson solutions to a broad base of the business process outsourcing firms' accounts. Afni has the largest dedicated chat center in North America, one that was built using LivePerson technology, and Teleperformance is a $5 billion BPO with global footprint. Our goal is that by leveraging the sales forces of these organizations, we add a considerable amount of feet on the street, broadening our revenue opportunity and building pipelines and market share. Building relationships with digital agencies is also important part of our channel strategy as we look to target the marketers within our large customers, so they can use the marking capabilities and content features of the LiveEngage platform. During the quarter, we began a partnerships with Razorfish, one of the large e-commerce digital agencies and a division of Publicis. We kicked off this partnership with a thought leadership event a few weeks ago Razorfish and hybris, which is now part of the SAP called the new commerce experience. We gathered about 20 CMOs to discuss what the convergence of technology and marketing means for their brand, how it's driving customer expectation and how, by working with LivePerson, they can deliver the optimized multi-channel experience that customers expect. We're planning more of these regional events to drive awareness of how our engagement solution provide marketers with tools to create more consistency between the offline and online brand experience for their customers. This is really about an expansion into a whole new buying group that we normally -- or traditionally didn't touch. So once again, where companies like Razorfish and hybris have strong relationships, we can leverage those and work with them as partners. In closing, I'm pleased with the progress we're making with the company. We have a clear view into how all the roads of product, sales, marketing, et cetera, are coming together. We have great customers. We're growing around 14% annually and throwing off a healthy amount of cash flow even while we are investing and executing on the strategy, which brings me to the reason of why we bought about $30 million of our own stock or approximately 4% of the company since the beginning of the year over the last 6 months. So we continue to be positive. And with that, I'd like to turn the call over to Dan, who can review the numbers in greater detail. Dan?

Thanks, Rob. During the second quarter, we continue to focus on initiatives designed to support the long-term growth potential of the business. As Rob mentioned, we made solid progress in the international front. In addition to growing business with existing customers, we've now established a presence in Japan, recently opened an office in Amsterdam intended to be a hub for our new operations. In a near future, we will plan to have a team on the ground in Germany. We also took steps to further our endorsed selling capabilities, signing a number of new partners and 2 large BPO players. We expect these relationships will broaden the revenue opportunity LivePerson gets exposed to and allow us to leverage the sales force of these organizations. We also signed an agreement with a leading digital marketing agency, Razorfish, which we believe will be -- will allow us to target an additional audience and aligns more broadly with the digital engagement strategies of their leading brand. Of course, the big focus during the quarter was putting resources behind the LiveEngage rollout, especially surrounding marketing and sales enablement. Taking a closer look at the quarter, B2B revenue was $39.5 million, a 14% increase compared to the prior year quarter. Total revenue came in within our guidance range, increasing 12% as compared to the prior year of $43.2 million. Revenue from the consumer operations for the second quarter of 2013 was $3.8 million, which is down 5% from the prior year quarter. Our own bottom line metrics included adjusted net income and adjusted EBITDA came within our previously issued guidance. Second quarter adjusted net income per share was $0.03 as compared to $0.05 in 2012. GAAP loss per share was $0.03 for the second quarter of 2013 as compared to 0 in 2012, and adjusted EBITDA per share was $0.06 as compared to $0.08 per share in the second quarter of 2012. In the second quarter of 2013, the impact in foreign currency fluctuation was immaterial. Bookings were $7.1 million in the second quarter, ahead of last year's second quarter, which came in at $6.9 million. As a reminder, LivePerson defines bookings as new contractual commitment from new or existing mid-market or enterprise customers that excludes nonrecurring revenue. This metric generally represents contracts with committed to current subscription fees and does not capture usage for performance-based contracts. The breakdown of enterprise and mid-market bookings and revenue turns is approximately 74% existing customer expansions and approximately 26% to new customers. As Rob mentioned earlier, we saw attrition rates come down in the quarter. Customer attrition for enterprise and mid-market accounts averaged 1.1% during the second quarter, compares to 2.9% in the first quarter. We're assuming that the attrition for the rest of the year will be consistent with Q2 attrition levels. Small business attrition rates averaged 2.1%, which is down from the prior year's second quarter. During the quarter, we signed 139 total deals compared to 136 deals in the second quarter of 2012. We also added 34 new enterprise and mid-market logos, the same as in the second quarter of 2012. Average deal size for all deals was $51,000. The average deal size for new customers was $47,000 while the average per existing customers signing up for an up-sell or expanded business was $52,000. Similar to our booking metric, this metric generally represents contracts with committed to current subscription fees and does not capture usage onetime or performance-based contracts. Pay for Performance generated approximately 15% of total enterprise revenue and 9% of total revenue. Revenue coming from outside the U.S. was approximately 29% of total revenue with the U.K. representing our largest concentration outside of the U.S. This compares to 24% in last year's second quarter and, as we discussed in Q1, is primarily being driven by increased presence in the Asia Pacific region. The revenue breakdown by industry verticals was consistent with prior quarters. Telecommunications made up 31%; financial services, 26%; retail, approximately 11%; technology, 14%; and other, at 18% for the quarter. In terms of the scope, as Rob mentioned, we're seeing some real reaction -- real traction in terms of widening and the deepening relationships with existing customers. At the end of the second quarter of 2013, we had 40 customers above $500,000 in annualized spend, which is up from 4 from Q1. And there are 23 customer spending more than $1 million in annualized spend, which is up 2 from Q1. We believe there's further opportunity for larger accounts to grow organically. Especially with the shifting dynamic we're seeing in the marketplace to digital channels. Second quarter gross margins came in as anticipated at 76% as compared to the 78% in a quarter -- same quarter of 2012 and 76% in the first quarter of this year. This is the second quarter where we had amortization, both Look.io and ENGAGE acquisitions, and we also began amortization of the Amadesa acquisition. We ended the quarter with cash -- with a cash balance of approximately $75 million, which compares to $103 million at the end of 2012. We purchased approximately $19 million of common stocks in a corporate buyback program in the second quarter. In addition, we had $3 million of capital expenditures for the quarter related to servers, computers and a buildout of office space. Second quarter accounts receivable was $26.7 million, and our DSO metric for the second quarter of 2013 was 56 days. The increase in DSO is related to a couple of specific accounts that were subsequently collected after the end of the second quarter. We expect an increase tax impact for the balance of the year due to the decrease in employee option exercises, which normally produces a tax benefit, together with the impact of incentive stock option compensation expense, which is not tax deductible. Therefore, we expect that our effective tax rate for the year will be a negative 20%, producing a tax liability for 2013. The combined effect of this tax impact and our share buyback program, which decrease the amount of shares outstanding, is included in our updated Q3 and annual GAAP EPS, adjusted net income, and adjusted EBITDA per share guidance for 2013. Now I'd like to discuss the financial expectations for the third quarter and full year of 2013. Our current expectations for Q3 2013 are as follows: revenue of $44 million to $45 million, adjusted EBITDA of $0.06 to $0.08 per share, adjusted net income of $0.04 to $0.06 per share and GAAP EPS loss of $0.01 to $0.03 per share with a fully diluted share count of approximately 56 million. Current expectations for the full year 2013 are: revenue of $174 million to $179 million, adjusted EBITDA of $0.33 to $0.36 per share, adjusted net income of $0.18 to $0.21 per share and GAAP EPS loss of $0.02 to $0.05 a share with a fully diluted share count of approximately 57.3 million. Other full year 2013 assumptions include: amortization of intangibles of approximately $3 million; stock compensation expense of approximately $13 million; depreciation of approximately $10 million; an effective tax rate of approximately negative 20%, producing a tax liability for 2013; a cash tax rate of approximately negative 20% producing a tax liability for 2013; capital expenditures is approximately $12 million. We expect gross margin in GAAP basis to be approximately 76%. And as a reminder, our cost of goods sold continues to be sensitive to foreign currency fluctuation. Furthermore, as a percent of revenue for the year, we continue to anticipate sales and marketing to be approximately 37% of sales, G&A approximately 21% and R&D to be approximately 20%. That covers all the operational and revenue highlights. Now if the operator could rejoin the call, we'd be happy to take questions from people participating on the call. Operator?

[Operator Instructions] And your first question comes from the line of Shyam Patil with Wedbush.

My first question -- for Rob. The business revenue came in at 14% in year-over-year growth. In the past, you had talked about 20%-plus growth as being kind of your expectation, at least, for this part of the business. Do you still kind of feel that way? And when do you think the business can return to that type of growth?

Yes. I mean, I think we're doing 14% on close to a $200 million run rate right now, so I think it's very healthy. We're obviously -- what we're doing with our large enterprise customers, which drive a lot of uptick, is the -- we're going wider and deeper with that on the start of that with the platform. So the core business continues to be very healthy, and so we're just executing on the strategy and doing that. So -- but I think the growth rates, even where we are today, are strong in the core, and we're signing a lot of new names and stuff like that.

Okay. And then on the LiveEngage rollout, can you just talk a little bit about what the plans are for this year in terms of conversion? I know you started with the smaller customers and then you were expecting to ramp to the mid to enterprise customers at some point. Can you maybe update us on that, and what the plans are for the rest of this year and next year?

Yes. So we're currently on plan for small businesses up to 4,000. We actually just kicked off this week in New York, teach-in for the sales team here and that'll -- there'll be separate teach-ins around the world, and that's for enterprise and mid-market. So they'll start selling the 1.3 version, the version that's out there right now, and they're going to start going out with that, as we said, around Q3, Q4 that's what we predicted and that -- we're on target for that right now and they'll just continue into next year. They -- we've got updated versions coming of the products in Q3, Q4, Q1. So it's all rolling right now, and they'll just continue to roll.

Your next question comes from the line of Nathan Schneiderman with Roth Capital.

It sounds like things are starting to pick up and improve again, which is encouraging. Just on that idea, it did look like your bookings in customer accounts decelerated sequentially, and they were kind of flattish year-over-year. But it sounded like even within the context of that, you were encouraged by these numbers, and maybe there's something underlying that. And just can you share with us your thoughts on how we should view those particular metrics?

Yes. I mean, we feel really good about where we are at the bookings and looking into, obviously, what's coming up in future quarters. So I think we feel strong about it. We like that we're implementing. We've got the predictive technology. There's a lot of stuff going on and we're actually starting to execute on things we've talked about. We've got channels going now. We've got international. So I think even though it's -- I guess we could've had a higher number, we feel like it was in the range that we're predicting for ourselves. So we feel good about the year and where we stand right now. And then, obviously, we're looking into 2014 and then we want obviously to keep moving and have the momentum to continue forward.

It sounds like based on what you've shared with us, you're increasingly confident in Pay for Performance. You had a really nice rebound in your improvement and, sequentially, in your attrition rates to more normal levels. But can you speak to some of these issues that hit you last quarter and give us an update? So last quarter, the small business segment growth slowed a lot year-over-year. Maybe you could update us there. And then I think you were also hit with some deals pushing, particularly in Europe. Can you give us an update on how those aspects of your business fared? Were there any improvements there?

Sure. It's -- so from last quarter, as far as attrition is concerned, we talked about the attrition last quarter and it's improved significantly. We had a customer cancel, a couple of deals pushed in the first quarter, and we experienced a little bit of weakness in Europe. And coming back into the second quarter, the attrition rate is back to where we expected it to be or back to normalized levels, and we expect that to continue throughout the year. As far as small business is concerned, it's an area of the business that we'd like to do better. The growth was a little bit slow in the first quarter, and it's a little bit slow in the second quarter. We're doing some work in the group to restructure it and put it back on track and get it going in the right direction. So it's about the momentum and the investments that we're making in the business for the long term, and we think we're putting some of the right pieces in the right places.

Yes. And I think some of the -- I think, also, some of the interesting things on small business there, they're leading with the rollout and they're getting good feedback and they're moving customers to use chat up to plus [ph] more. So they're going through an interesting evolution right now. They're the first group out there, and they're excited about the product, what they have to offer competitively in the market. They have a lot more now to deal with because it's just not chat, it's chat plus content, plus ADE, plus all the stuff that we have. So they have, I think, a good momentum, a good sense of excitement.

Got it. And just to clarify, did Europe improve sequentially from last quarter's kind of rough pattern?

From a European perspective -- I'm sorry, Nate. I don't know if you're talking about from a revenue or bookings perspective. But from a revenue perspective, it's going in the right direction. And then from the bookings perspective, we're heading in the right direction. We've got the office in the Netherlands now. We're putting some people on the ground in Germany. So again, we're putting some of those right investments in the right places to take advantage of the broader European market as opposed to where a good portion of our business is in the U.K. today. So we expect that momentum to continue.

Your next question comes from the line of Richard Fetyko [ph] with ABR Investments.

Could you repeat the PFP as a percentage of total or enterprise revenues for me again? And then on a higher level, you made some changes through the sales organization a year ago. I think you brought in a new Head of Sales from Oracle. Just curious what she's done so far in terms of the structure of the sales force and the sales strategy.

So first of all, to answer your first question, Richard, PFP was 15% of enterprise and 9% of overall. And we have kicked off 2 proof of concepts in the second quarter for 2 larger retailers, and Rob can expand on the other piece.

Yes. So she's effectively built a new leadership team. We have a new head of EMEA. We have someone who's going to take over the small business now. We have a new mid-market person. And also, we're having -- we're going to have to be putting someone new into the Americas, into the U.S. North America market. So basically, she's building all the blocks with a team, it's her team, so she can really drive the business to where we all think it can go from opportunity perspective. So she's in the middle of that. She's had those leaders, the mid-market leaders have been there almost 2 quarters, small business coming in, EMEA just started. So she's got that team now, and obviously, below that is a rep structure. So we've got the account execs, we've got the regional sales directors, those are new, some of the regional sales director. She also recruited the channel person who came in a year ago and his team. So I think we feel like we -- she's got her team and now it's obviously about execution. And that's why we're just starting right now with the teaching of the enterprise and mid-market sales forces on the messaging and the product line. So we feel good about where we are right now with her, and so she's, I think, got the foundation in place.

So, Dan, on the PFP side, it looks like based on what you gave me, which is what I had, I just want to double check, the revenues were -- PFP revenues were essentially flat despite the loss of that customer?

Yes. It does take time for a PFP customer to wind down, and so they still have some revenue in Q2. But like I said, we're expecting to replace that revenue with some of the new proof of concepts that are -- that we're working on currently.

Your next question is from the line of Michael Nemeroff with Crédit Suisse.

Kyle Chen in for Michael Nemeroff. I was wondering if you can update us relative to the 4,000 SMB customers that you have on LiveEngage platform. Approximately what percentage of those customers are using more than one product, or are they still a significant majority still just using core chat? And historically, you've talked about potentially changing the pricing model moving from a fee-based metric to a more performance-based pricing model. Wondering if you can update as there and, if any, potential impacts to the model.

Sure. So from an SMB perspective, we rolled out LiveEngage to 4,000 customers. They predominantly had chat and some had content, but we are seeing expanded usage of our other offerings, and that's part of the goal. And as we're -- here, in 2013, we talked about driving adoption of our products through the platform. And that's our focus, in order to get that feedback and continue the momentum of LiveEngage as we move towards mid-market and enterprise. So that's a key piece from small business -- from the LiveEngage. As far as...

The pricing model.

The pricing model. We're testing a couple of different pricing models. We have -- we are testing linear action-based pricing, and we're testing a CPA pricing model, as well as a fee model. So we're continuing to test different models in the marketplace, and we've -- now we're seeing some good results on -- and feedback on some of the pricing models that we have out there. And so we're getting good feedback.

I mean, we ultimately want to do is that we're in a position right now where we think we can obviously simplify the business and have it that our customers can get and use any of our products, I mean, built over [ph] the last 1.5 years or so, and pay for them in a unified way. And that's really the goal, make it easy for them to use, easy for them to pay, easy for them to scale, and that's what we've been testing with the interactive-based pricing. Obviously, on the flip side of that is we have a recurring revenue model. We want to maintain that. We want to keep the momentum. So we're just being careful, we're being smart about it. We're getting a lot of feedback, and we continue to move forward. So that's what we're focused on.

And just to clarify, we do have an existing set of customers that are on an interaction-based model already as part of our core offering and the price, I think, [indiscernible].

Good. And I was wondering if you can update us a little bit about the competitive environment, if there's any noticeable or notable competitive wins and losses that you'd like to highlight.

No. I mean, it's still -- we have some great names in Q2. We signed like one of the biggest travel sites and one of the biggest tour companies and we've got -- continue with having, I think, the best customer base, and they -- we keep adding more. So we're clearly the leader in our market, and I think we're in the middle of game-changing our market. We're using our strength of our intelligence and our chats to drive other applications. And so I think where -- competitors are still trying to compete with us in our core, and we still beat them fairly well. Now we're offering something, the core plus, and it's allowing us to have a different conversation. What's that doing for us is it will open up more competitors as we enter, let's say, content, because they'll be out there. Obviously, Oracle is out there with the acquisitions they did. But we don't see any real change on the competitive side today.

Your next question comes from the line of Dov Rozenberg with Clal.

I have a follow-up on the bookings. I was trying to understand -- and you guys are -- sound very positive. And I was just interested a little bit more on the times ahead or being in mind with expectations this quarter, because it's a pare down sequentially. And the sell-on to that maybe is you expect it to go up, let's say, within the first half of this year or the second half of last.

Yes, thanks, Dov. As far as talking about on a forward from a bookings perspective, we don't give guidance on bookings. But we think we've got, as Rob talked about, some of the building blocks in place in order to drive the momentum of the business. And we're looking to continue to expand in our enterprise-level customers. We think there's still plenty of opportunity there to expand those customers. From a bookings perspective, we're continuing to, like I said, build that momentum and drive the bookings as much as we possibly can in this business. As far as Q2 is concerned, as Rob talked about, Erica has been putting some of those building blocks in place, and we want to drive that momentum into the back half of that year and into 2014.

Okay. Now operating expenses were up a little bit. In South American already at 35% or so, and R&D, is at 19%. I'm wondering, first of all, is -- not so much guidance, but what a normalized rate would be, and when do you think that you would be assuming that a little lower than where we are today? When do you think you'll try a push also on margin?

So as far as where the expenses are today, it's a little tough to hear. So as far as the expenses are as a percentage of revenue, we're comfortable with where they are today. As you know, we had some currency fluctuation in the first quarter that ran through G&A, but we're comfortable with where the percentage are today. And we talked about investing in the business for the long-term growth strategy. And as Rob talked about a little bit earlier, making those investments in 2013 and our goal is to drive the business and continue to push our product and our offering out there and expand our market opportunity.

Your next question comes from the line of Jeff Van Rhee with Craig-Hallum.

My first question. So just first -- I guess last quarter, you had commented that you had a couple big deals that have pushed out. Did those end up closing?

There's a couple of deals that didn't get pushed out from Q1. We're still actively working on a couple of them, and a couple of them did close. So we're still actively working on some of those deals that some of them did [indiscernible].

The -- I thought you had said there were 2 big ones, though. I don't know how to break it down. Did the 2 big ones you referenced close?

No, they did not close in the second quarter, but we're still actively pursuing them.

Okay. And then on the sales side, as it relates to the new sales leadership that's come in, if I look back, I think she's been there 1.5 years, and it sounded like from your commentary today, a lot of the significant leaders are just getting put in place over that time period. Why the delay? I would have thought that would happen much sooner.

So again, from a channels perspective, the head of channels came in well over a year ago and the head of mid-market came in, he's been here for about 2.5 quarters. And in EMEA, we just put a new person in EMEA as well so.

And she came -- when she came on, she actually had a couple of months with us and then had maternity leave. So just give it to [indiscernible]. So she really didn't get started until she came back after a couple of months. And then she had the team in place that she had there from the past, evaluated them, worked with them and then quickly made the changes. So we lost a couple of months, but she's worth having even with that.

Got it, okay. And then the migration path, I think you had jumped out to this big number on the SMB customers in terms of migrating to the new platform. And I was unclear from what you were saying earlier. You're going to start selling the new platform in enterprise shortly, but in terms of migrating existing customers to the new platform -- enterprise customers to the new platform, what's the latest thinking there?

Yes. We'll start moving them in Q4. There's not really a migration because if they're on chat with this version, the 1.3 version, they basically log in to the same chat interface. Except when they log in, they now get access to the other products. So it's not like they have to make some big migration in the current version of the platform. That's one part. We know in Q4 though, traditionally, obviously, people go into lock down. So when we hit October, just traditionally our customers go on, -- they won't change their code, they won't want to do too many new things. They just staff for the focus on the chat. So the migration is not that big, but the focus on it, realistically, won't happen in Q4 because of the nature of they're all focused on the holiday season.

Okay. And then just to clarify, Dan, you had said -- I think the guidance prior quarter was for an effective tax rate of 40%, a cash tax rate of 40%. And this quarter, can you just touch on that again? You were saying negative rates, or are you talking -- just help me understand that real briefly.

Yes. So I'll try and keep it a brief point. So from a tax perspective, we'll have a net loss this year, but we will end up having a tax liability, and it's due primarily to the nondeductible ISOs and a lack of stock option exercise by employees where you get the tax benefit. So it has a impact where you have a tax liability for 2013.

Okay. And the last one, I'll let somebody jump on, in terms of the bookings. The bookings growth has decelerated. I know you don't want to get precise. But is it safe to say, at least, the growth rate on bookings ought to be higher going forward given these new products, the training, we're going to be kicking into the market next quarter -- year-over-year next quarter versus what we posted this quarter?

Yes. Obviously, that's the goal. That's what we're focused on, so of course. It was -- obviously, it's sort of like flattish from Q1 to now. I mean, it's not a huge sequential downturn. So it's not like we're sitting here going, "Oh my God! We're decelerating." It's like our natural -- sometimes we bring big deals in, sometimes we don't. But I'm looking at the overall health of the business for the year and what we can book and recognize, and so we feel confident with that right now.

Your next question comes from the line of Brian Schwartz with Oppenheimer. Brian J. Schwartz - Oppenheimer & Co. Inc., Research Division: Rob, got a strategic question I want to tap your brain on. The digital marketing space is red hot right now. There's been a lot of acquisition in the space recently. And I'm wondering if you think LivePerson will be a beneficiary in the market moving forward because of the consolidation we've seen.

Yes. I mean, look, we're clearly moving a portion of our business or focus in that space. So the marketer is where it starts, right. They're the ones driving traffic, bringing it to a landing page, then it goes to a salesperson, then it goes to a customer support person. So even for us, I mean, with the partnership with Razorfish that we did in Q2 -- we put on this event. So it definitely -- we know the CMOs are getting a lot more power. They've got big budgets, and so we want obviously have our product line associated with them, and they will. That was something we planned a few years ago. So I think we feel good that we've got a good integrated suite. I think what's interesting about our company actually is that you've seen a lot of consolidation and a lot of even some peer companies bought technologies. This is a problem. If you have separate platforms running, and you can run those businesses, separate businesses in their separate technologies, the greatest challenge for the business on there is when a consumer hits a website, if they're being hit with one marketing technology, then the next thing is a chat, next thing is customer support, there's a form to fill out, they do a survey, it becomes very unwieldy. And so the --- our approach is organically, we want to build it off of one platform with our own hands, using our own technologies, which are very strong, and give a unified experience to the marketing people, the salespeople and the customer support people. And that's what I think is very different from our strategy is we're not going to cobble together technologies, because you can't in a hosted environment. It's very hard to cobble together technologies. So I think we've got a good strategy to actually compete and drive some of these markets through a different place than what even peer companies are doing. Brian J. Schwartz - Oppenheimer & Co. Inc., Research Division: And, Dan, I'm wondering if you could just update us on the sales capacity current leg. Just wondering if you've added any heads here in Q2 and if you have plans to add more heads here in the second half of the year.

Yes. As we talked about from the sales capacity perspective, we added quite a few heads in 2012, and into 2013, we'll add a couple more. But our plan is to, again, double the sales force. So that's the goal from the sales capacity perspective.

I think what we're focused on right now is because we hired -- under the previous leadership, there's a fair amount of hiring. There's -- we got to get -- some of the people are here, some people are not. The current leadership has brought in new people. We got to get people productive. I mean, I don't want to add people on top of a machine that's not at a 100% productivity, or at least 80%. We want to get our reps to get to 80% quotas as a minimum. So that's where we're focused on right now is how do we create a more efficient machine with the people we have, and that's what we're doing right now. Brian J. Schwartz - Oppenheimer & Co. Inc., Research Division: And last question for me is, Rob, I did want to tap in with you. I want to tap into the Razorfish partner announcement. I think that's new and certainly interesting for the business. Can you maybe talk through just the timing? How long it would take to get that partnership off from a training perspective, and when they can go out and start promoting the LivePerson product?

Well, we -- so we kicked it off with this event 2 weeks ago here in New York City. And so and we do have some joint customers already. We also have hybris that we're working with, too, as a partner, and so they just started also. So I would say I think the challenges I see are trickling of stuff happening because of even joint customer projects. So I would think we'd start to gain momentum towards latter half of the year where they -- into next year as they build that strategy. The exciting part is it leverages, obviously, relationships that maybe we don't have with the marketers. And so instead of trying to like knock down the doors and get a relationship, obviously, the digital agencies have those relationships in place and allows us to really leverage that. And in this case, we had 20 CMOs coming to this event and we had access to them. For us to get 20 CMOs without Razorfish would have been harder. So I think it's really benefit. And they had their our CTO there. Razorfish had their CTO doing their presentation. So we have a very -- obviously, a very solid, high-level relationship with them.

Your next question comes from the line of Jon Hickman with Ladenburg. Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division: Dan, could you tell us -- out of the $30 million, can you tell us your average price of the buyback?

It'll be in the filing. The average price was in different places. We're buying back in Q1 and Q2. So there's portion that was purchased in Q1. There's a portion purchased in Q2. But they're detailed in the Q. Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division: Okay. Then just on the high level, I don't want you to give guidance here. But for next year, do you envision that your spending will be less or more muted, that you'll let some of the revenue growth fall more to the bottom line. Is that kind of a thinking for next year, or could you -- and that would return you back to kind of -- to more of a GAAP profitability?

Sure. I mean, our job was to build momentum in 2012, 2013 and into 2014 and drive the top line growth. We give guidance year in advance and quarter-by-quarter, so I think it would be tough for me to say that we'll let everything fall through to the bottom line. But we know there's an opportunity here, and we're still striving towards that opportunity for growth. And we want to invest in the business during 2013, and obviously, we continue to reassess our business and look at things going forward. But I would expect an opportunity for margin expansion in the future. Jon R. Hickman - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then one more question. It looks like from your guidance for -- combining the guidance for next quarter and then the year end, it looks like you're anticipating that the fourth quarter might be breakeven or slightly positive on a GAAP basis.

If you do the math, you can get there. I mean, it's close to breakeven, give or take. But I didn't give fourth quarter guidance yet. But I gave the full year and the third quarter here, so you can back into the fourth quarter.

Your next question comes from the line of Mike Latimore of Northland Capital.

Yes. I just want to be clear. Once the sales force is trained on the new platform, are you going to sell the new platform to current customers, or will they sell -- if I'm a current customer and I want to buy more chat capacity, let's say, over the fourth quarter, will I be buying kind of the ENGAGE platform at that point or will I be buying a standard chat product to that point?

Yes. So the -- basically, everything's on one product, so -- and that's the ENGAGE platform. So the chat is -- and that's just a shift to that. Everything's on that platform now. The core chat's on there. So you'll only going to get really, let's call it, one product. Once again, we're trying to simplify the company. It's like -- it's one product, but you have access to the whole platform and you're paying for that access.

Okay. So that's what's going to be sold to mid-size and enterprise customers for the next year [ph]. So let's say, if I just want chat, I will be getting the ENGAGE platform?

Exactly, yes.

Okay. And then you said current customers, all they have to do is log on to get the current platform. So there's no real IT work they have to do on their end. It's more of just logging in and spending a few minutes to get access to it?

Exactly. So -- and then what happens is really the admin console changed. So when they log in, instead they would just get sort of chat admin console, now they get a LiveEngage front end, which gives them their chat and also gives them all the stuff that's outside of chat. So we made this leg of the journey quite easy. We are -- we have a tag, that is a new tag that we're asking people to put on their website. They can roll that out. They don't need that to use the platform, but we starting to look into the future around unified data structure. And so we're starting to also -- that's been rolled out starting about a quarter ago. But that's not part of what's necessary to go live. So we're making it quite easy for our customers to get up.

Okay. And I know you're not providing bookings for the market or insight products, but any update on how those have done recently?

Yes. Those are -- it's just -- it's the platform now. So I think where we like to go with the guidance in the future is just giving you what type of interactions we're having or the amount of interactions on the platform, and that's where we'll end up. Right now, we're not giving any real perspective, but people are still buying and using the, obviously, stuff outside of chat now. So they're still buying what is called ADE in the past, whether it's the LP Marketer product. But you get them through LiveEngage right now.

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

The midrange of guidance in the second half, your revenue growth sequentially would look a lot like last year, but the bookings are a little lighter, it looks like, than we might have expected. Is that really predicated on PFP picking up in the second half, or is there still, say, a certain number of deployments, I guess, backed up and hitting breakthrough in the second half that could give you that type of growth? And at the upper end, you'd have much better grow sequentially than we saw. So what would be the scenario just at the upper end?

So I mean, I think we're confident in the overall annual guidance that we gave, $174 million to $179 million. There is a couple of impacts and we'll be varying PFP. It has a potential to be an opportunity for us. And obviously, the backlog and getting bookings live also has the potential. So there's a couple of different components, but we're comfortable with the guidance that we gave for the year.

Your next question is from the line of Richard Fetyko [ph] with ABR Investments.

Richard Fetyko [ph]. Richard?

Did you see any changes in the usage patterns in the small businesses that have migrated to LiveEngage thus far?

Yes. We were seeing some, are called average order, impact in a positive way. It's still early. And also, the sales guys aren't really focus on developing programs for getting our customers to use the content, especially content. Small business guys seem to really like the fact that if they're not online or they can't take a chat, that they can go ahead and really use the content portion of the platform. So that seems to be where there's an area of demand right now, and that's what we're seeing in the -- in small business line.

This is sort of best practices programs and sort of...

Exactly. it's driving more usage into content. So overall, right now, we're driving -- we're doing about -- just predominantly, chat. We're doing about 20 million interactions a month off of the platform, predominantly, obviously, chat. It's a very large number. I think we're about 15 million somewhere at the end of last year. So we view it as significant. Some of that is some voice, some of it is obviously content.

Your next question comes from the line of Craig Nankervis with First Analysis.

My questions really have been mostly asked. Maybe, Dan, I'll just ask you the new international opportunities. How do you rank maybe the best 1 or 2 over the next, say, 2 years as having the most potential in the next couple of years?

So from a growth opportunity, I mean, obviously, we've done a great job in Australia and I think from a Japan perspective as Rob talked about, there's a limited to no competition in the Japanese market, and we already announced a partnership and signed a handful of deals. So I think we're off to the races in Japan and there's an opportunity there. And without saying these in specific order, Craig, we're starting to dip our toe into Germany. And as I said on the script, we'll have an office there. It'll take a little bit of time to build up a revenue stream, but we'll have an office there. So I think in the short term, Japan has a got a decent opportunity to start generating revenue fairly quickly and then Germany quickly behind that.

And your final question comes from the line of Michael Nemeroff with Crédit Suisse.

I just had a quick follow-up. If you can just give us an update relative to your implementation cycles, if they are still 100-day -- 120 days plus or they have the return to a normal historical levels?

The implementation high frames [ph] is still in the 90 to 120 days timeframe. We've been making some headway in making the process a little bit smoother and a little bit simpler for our customers to get live. And as we roll out LiveEngage, that process will become significantly easier and more frictionless.

And we have no further questions in queue at this time.

Thank you, everybody, for joining the call. See you in Q3. Thanks.

Thank you. And this does conclude today's conference call. You may now disconnect.