LivePerson, Inc. (LPSN) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon. My name is Blair and I will be your conference operator today. Today's conference is being hosted by Founder and CEO Robert LoCascio as well as CFO, Dan Murphy. At this time, I would like to welcome to the first quarter 2015 earnings conference call. All line has been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Dan Murphy, you may begin your conference.

Thanks very much. Before we begin, I would like to remind listeners that during this conference call, comments that we make regarding LivePerson that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause such statements to differ materially from actual 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. With that, I would like to turn the call over to Rob.

Thank you, Dan, and thank you for joining us on our first quarter 2015 call. For those of you following the story past few years, at LivePerson we have been advancing towards key milestone, not just for our company but for the brands and consumers. We’re now at a really defining moment. This year, we started to accelerate the movement of our customers and new prospects onto the LiveEngage platform and start to execute on the sales and marketing around that. We developed the LiveEngage platform with the understanding that consumers' preferences were shifting to digital and that brands would need a scalable solution that would allow them to message with those consumers through emerging channels, especially in the mobile area and this is something we saw four years ago. Well, the market, it's really validating our strategic vision as we set ourselves up for our future and we have a very simple vision. We want to eliminate the need for a consumer to have to pick up the phone which they barely do with their friends and family today and call an 800 number to connect with the brand. I want you to think about the moment that you have to do this but all of us have to call and in this day and age, with technology that was created in the 60s and we have the press 1, 2 or 3 in order to get through to our brand and how damaging that is for the relationship between the consumer and the brand. So when you ask yourself, how many times have you been on hold, how many hours of your life have you wasted on hold, that's what consumers are asking themselves every day. And today there are still 270 billion phone calls that are happening through 800 numbers and it is about $1.2 trillion spent on supporting those 800 numbers with brands. So why don't brands change? The answer is really, I think, simple. It's that there is no clear alternative. They feel stuck. And so what we believe is that LivePerson is that alternative. The consumers, they are ready. They have moved on. In their personalized lives, they are messaging their friends and family everyday, 90% of the time and that's not just for millennials or young people it's for adults also. The number one and two uses of a mobile device is messaging. The number sixth use of a mobile device is a voice phone call. So for us today and for LiveEngage platform, mobile is in fact our fastest-growing channel of interaction. In the first quarter of 2015, our mobile interactions increased approximately 83% sequentially and 900% year-over-year and it's part of the cornerstone to the LiveEngage platform. Last quarter, we signed and deployed our first large greenfield enterprise customer onto the LiveEngage platform. We are starting to see some very strong results. This customer, their name is TalkTalk and they are one of the leading U.K. based telecommunications company. And we actually replaced an incumbent chat solution with LiveEngage. And the reason is that TalkTalk really wanted to scale the number of engagements they were handling. They want to deflect more voice calls, more of those 0-800 calls. They wanted to enhance that consumer experience through intelligence and they want to drive an increase in lifetime value and revenue. And while TalkTalk was a highly complex deployment, many different divisions across a few different countries, both sales and service, we were able to complete the deployment within a few weeks versus a few months with the old platform and we talked about this two years ago that the old platform was really, when you look at the technology, it was slowing down our ability to scale. But the new platform we are able to go time to live much quicker and this will allow us to grab the demand that's in the market. We are monitoring with this customer tens of millions of visitors on their website and we have already powered over hundreds of thousands of interactions on the platform. So our platform is ready for prime time and we are moving more and more of the enterprise and the mid-markets as we speak. Within the first three weeks of launching LiveEngage, they saw a sharp increase in engagement rates for the service campaigns and they reduced in-chat abandonment. They had, like in the previous provider, about 20% abandonment. Those are people who want to chat but couldn't. And with us, it was less than 2%. So we look forward to the next level of integration with TalkTalk in implementation as we look to deflect more and more of those 800 calls from their company. We expect to see more successes with companies like TalkTalk over the next few quarters and as were moving our customers we are seeing that today. We kicked off -- we decided to take Q1, because the platform is really available for these customers, inside of focus the field sales team and the services team on really about educating those enterprise and mid-markets and pushing to get them up and running quicker. So we are going to accelerate that pace of movement of the base onto the LiveEngage platform. In fact, we already have 100 enterprise and mid-market brands on LiveEngage and that happened mostly in the quarter. And we have over 1,000 customers total on that platform. Approximately 20% of our overall customer base is now on LiveEngage, excluding our recent acquisition of Contact At Once! They are still on their own platform. We are also seeing a solid increase in activity. Interactions grew by approximately 75% sequentially in the first quarter. We are seeing solid usage trends and customers on the platform over multiple quarters. The activity levels overall on the platform are growing. The number of interaction on LiveEngage rose approximately 75% quarter-over-quarter, for the period ending March 31, 2015. So our focus now is gearing up the organization to continue with moving as many customers as we can onto the platform, once again aligning with our vision of really reducing the amount of dependency on phone calls. As we saw probably in the press release that we have a clear vision of our company and we are going to stay true to that vision, but that also requires a commitment from both us and our customers. It became evident that one of our large enterprise customers had a very different view of the future of the market. It's not surprising it's a telco and actually they are very focused on voice and actually it was a company that created the 800 number. And they really were not aligned to where we are going. This customer was always was misaligned in a few ways. One way, which is a major difference, is they no longer want to look at a cloud SaaS model but bring it on-premise and it's not really where we are going nor would we ever go nor where the industry is going. Over the past 10 years this customer has been with us and we have done a lot of development that's been very custom to them. Obviously, as we developed LiveEngage, we tried to put most of our resources onto the platform and that does not allow us to do as much customization nor do I believe the customizations that this customer wanted would align with the rest of our enterprise customers. And we have hundreds of them and we know what they want and we just cannot afford to take our resources on just a single customer. Once again, I think our current base is much more aligned to where we are going. It also became clear that economically that this wasn't going to be, I think, good for us on the financial side. So with that, we did negotiate. We went through a lot and we decided to part ways beginning of April. This obviously has a short-term impact on our outlook for the year. And Dan will review the updated guidance with that the reduction in revenue from this customer. It would be disingenuous for me not to acknowledge the fact that parting ways with a large customer has an impact on us, but sometimes these decisions are necessary in order for us achieve our long-term vision. I believe we have only few years or even months to lead and drive the greater change that is happening between consumer and brand. And we are in the best position to win it, but we have to have everything aligned at this point in order to do that. And I don't take this as a joke. This is very serious. If you saw, even in the quarter, Facebook they announced during their conference with their developers, Mark Zuckerberg stood up and said, why do we have to call brands? Why do we have to do that? Why can't we message them? And when you think about our company, LivePerson, we are in the best position to capitalize on the change and we must focus now and read that and we can't be left behind and we can't have one customer change our future. When we look at our other customers and here is a few examples, the other big large telecommunications provider in the U.S. that we have, they signed a seven-figure expansion deal with us in the quarter. And this brand is now one of our largest customers and they have been with us for 10 years also. The number of agents that they are going to expand is they are going to double the amount that they are going to use during the year. And they have also moved to CPI pricing model. So they like where we are going and it aligns to where we think the industry is going. Also during the quarter, we had a major financial institution in Australia actually shut down their email and shut down their voice and just take as much as they could through our platform, through messaging and they really did phenomenal results. And they are looking to move 80% of all their interactions onto our platform. So once again, another big enterprise customer. This is outside the U.S. that is focused on and aligned to our vision. In the U.S., we also had one of the leading cable companies really demonstrate a great use of our product, once again against the vision in mobile. And nearly 50% of all their messages that get placed off the platform went through their mobile app. So we are integrating with their mobile app. And so by the end of 2015, the majority of the messages we expect to be on mobile, not less. So once again, our vision aligned with that customer. Last week, we won the CODiE award for LiveEngage, which is one of the highest honors in the software industry. And we won it in the category for the best customer success management solution. There are hundreds of entries, all of the major SaaS companies compete for this and we won the award. And I think it really validates the product, the beauty of the product, the power of the product and where we are going as a company. The progress we are making with our messaging platform with LiveEngage, it really aligns to where market is going and we are the leader in the industry and we still have the best customer base out there. We have the largest enterprises in the world working with us who are sharing in that experience and we are driving the vision with them. There will be a day with consumers will hold no more. And it will be LivePerson eliminate the thing that creates the most disconnection between consumers and brands, the 800 number. And so with that, I would like to now turn the call over to Dan, who will review our first quarter 2015 results in more detail and provide the full-year outlook. Dan?

Thanks, Rob. I will begin with an assessment of our start of the year, review our first quarter 2015 financial and operational highlights and finish with an update to our guidance for full year 2015. LivePerson has significantly advanced its strategic priorities year-to-date in 2015. We delivered key enhancements to LiveEngage and increased the number of enterprise and mid-market brands on the platform to more than 100, including our first large scale new enterprise customer. We kicked off a companywide initiative to accelerate the adoption of LiveEngage into the market with a focus on customer education, field organization training and intensified migration effort. We aligned our sales, marketing, customer success and development teams to go to market with unique LiveEngage value proposition that centers on disrupting the antiquated 1-800 ecosystem while still supporting 270 billion calls each year. We are leading with mobile and in the first quarter, we increased our mobile interactions 83% sequentially and by nearly 900% year-over-year. We strengthened our global infrastructure by adding two new data centers in the Asia-Pacific region. Turning your attention to our first quarter 2015 operating results we delivered record high total revenue of $59.8 million, a 25% increase versus the same period last year, despite an approximate $1.4 million or 3% drag from foreign exchange. B2B revenue advanced 28% to $56.1 million or 31% to $57.5 million in constant currency. Revenue from our consumer segment declined 5% to $3.7 million. As announced on the fourth quarter call, we have been reviewing the metrics that the company reports in order to better capture our evolving business model and provide more meaningful insights to the investment community. Therefore, in addition to customer renewal rate we introduced last quarter, we are also reporting average revenue per enterprise and mid-market customer and LiveEngage traction. The trailing 12-month customer renewal rate for LivePerson's enterprise and mid-market business remained healthy at 89% in the first quarter of 2015. This compares to 91% reported during the period ended in fourth quarter of 2014. The customer renewal rate represents the number of enterprise and mid-market customers that renewed contracts with us over the trailing 12-months as a percent of total enterprise and mid-market contracts that came up for renewal. Revenue per enterprise and mid-market customer averaged $174,000 over the trailing 12-months ending the first quarter of 2015 a 3% sequential increase as compared to $168,000 calculated for the period entered in the fourth quarter of 2014. We signed 147 transactions in the first quarter and 30 of those were with new enterprise and mid-market brands. To recap, on some of the items around LiveEngage, some of the metrics around LiveEngage, our intensified focus on bringing LiveEngage to market is yielding solid results as the vast majority of our new customer wins and a significant portion of our existing customer wins were on the new platform. As Rob said, approximately 20% of LivePerson's customer base, excluding Contact At Once! is now on the LiveEngage platform. The initial stats for LiveEngage are highly encouraging. Customers on average went live on the platform more quickly than with our legacy product. They also showed solid increases in activity, interactions grew by approximately 75% sequentially in the first quarter and we are seeing solid usage trends for customers on the platform over multiple quarters. Use of content has also increased with 85% growth in impressions in the first quarter, as compared with the same period last year. We have over 1,000 customers on the LiveEngage platform, including more than 100 enterprise mid-market customers as of the end of first quarter. B2B revenue breakdown by industry. Telecommunications was 23%, financial services 22%, retail 16%, technology 15% and other 24%. Sales coming from outside the U.S. were approximately 31% of total revenue. First quarter gross margins came in approximately 73% as compared to approximately 75% in the comparable period in 2014. The decrease reflects investments tied to insurance fees deployments to our first LiveEngage enterprise and mid-market customers and spending to build the new data centers in the Asia-Pacific region. Although investments in LiveEngage deployments and infrastructure are impacting our cost of goods sold, we are generating solid leverage within our operating expenses which fell to approximately 76% of revenue in the first quarter of 2015 from greater than 77% in the comparable period of 2014. First quarter per share adjusted EBITDA of $0.10, adjusted net income of 40.04 and GAAP net loss of $0.04 were all near the mid-point or high-end of our guidance ranges. The company's cash balance was $41 million as of March 31, 2015, compared to $49 million as of December 31, 2014. The difference primarily reflecting the data center buildout, timing of accounts receivable collections and share repurchases. We are pleased with the strategic progress we have made so far in 2015. However, we are updating our guidance to reflect the customer left that Rob discussed earlier in the call, the temporary loss of sales we experienced from our focus on the retraining for a LiveEngage launch for our mid-market and enterprise customers and a higher than plain drag from foreign exchange. We are anticipating an approximately $21 million reduction revenue for 2015 versus our original guidance when comparing the midpoint of our prior and current guidance ranges. The majority of this reduction is driven by the customer relationship that ended, with the remainder due to foreign exchange headwinds and the impact of sales from focusing on first quarter on of retraining and realigning our organization to accelerate the LiveEngage rollout. LivePerson adjusted its expense plan to mitigate the bottom line impact. We are reprioritizing on areas showing the highest growth potential and reallocating resources previously dedicated to helping only one customer to multiple brands that are deeply aligned with our vision. We will incur a one-time charge of approximately $2.5 million in the second quarter tied to these initiatives. However, we are targeting approximately $13 million of expense savings from these initiatives in 2015. The following are our updated financial expectations for LivePerson. In the second quarter of 2015, we expect revenue of $58.5 million to $59.5 million, which includes a negative foreign currency impact of nearly $2 million, adjusted EBITDA of $2.3 million to $3.5 million or $0.04 to $0.06 per share, adjusted net income of $0.00 to $0.02 per share and a GAAP net loss of $0.14 to 0.12 with a fully diluted share count of approximately 57.5 million shares. For the full year 2015, we are revising our expectations as follows. Revenue of $243 million to $247 million from previous guidance of $263 million to $269 million. We now expect a negative foreign currency impact of more than $6 million versus approximately $4 million previously. Adjusted EBITDA of $19 million to $22 million or $0.33 to $0.38 per share from previous guidance of $26.5 million to $29.5 million or $0.46 to $0.51 per share, adjusted net income per share of $0.10 to $0.15 from previous guidance of $0.27 to $0.32 and a GAAP net loss per share of $0.29 to $0.24 from previous guidance for a net loss of $0.12 to $0.07 with a fully diluted share count of approximately 57.8 million shares. Furthermore, as a percent of revenue for the year, including Contact At Once!, we anticipate gross profit to be approximately 70%, sales and marketing 40%, G&A 18% and R&D to be 18%. Please refer to LivePerson's earning release issued earlier today for details on our other full year 2015 assumptions. As the updated guidance suggests, we expect to generate 20% constant currency revenue growth in 2015, despite the one large customer loss and a slow start to the year. Furthermore, our adjusted expense plan and reprioritization will mitigate a meaningful portion of the lost revenue by delivering adjusted EBITDA of $19 million to $22 million. We are also having $8 million remaining in previously approved stock buyback fund. We expect to expand upon the momentum we have with our LiveEngage deployments and to capitalize on field organization that is now going to market with a differentiated selling approach for LiveEngage. I feel this is on value, vision, the culture and vastly improved consumer experience. Our platform also continues to improve as we bring key products delivered to market. As such, we expect the execution to strengthen as we move through 2015. In fact, in the second quarter we have already signed an agreement with one of the largest telecommunication providers in Asia and Africa and we are actively moving additional enterprise and mid-market customers to the LiveEngage platform. We remain steadfast and focused on LivePerson's vision of aligning brands with how consumers are connecting today, through messaging and capturing the substantial market opportunity. With that, I open the call to questions. Operator?

[Operator Instructions]. Your first question comes from the line of Richard Baldry from ROTH Capital Partners. Your line is open.

Thanks. I know a lot of us are going to ask about the major customer [indiscernible], but I have got a lot of background noise [indiscernible]. Could you just give us an update on Contact At Once!? Thanks.

Yes. Contact At Once! was performing as we expected and as we guided. There is a lot of background noise. So Contact At Once! was performing as previously guided and they are doing everything that we need them to do from a focus perspective and bottom line and revenue generation.

Thanks.

Your next question comes from the line of Michael Nemeroff from Credit Suisse. Your line is open.

Yes. So I am going to ask about AT&T. Was there an RFP? Or was the contract at its end? And when did you learn that you are going to lose this customer?

We did go through an RFP process. It was an extended RFP process with back-and-forth negotiations and as Rob talked about, they weren't aligned with our ultimate vision and economically it was unfortunately a deal that didn't make financial sense for us. And so we decided to part ways and it was a relatively short period of time over which we decided to part ways. We didn't want to put in --

Was it the alignment or was it the financial reasons? Because I don't understand why you would still be negotiating with them if didn't align with the strategic vision of the company? So if it made financial sense, you would have changed your strategic alignment of the company?

No. We wouldn't have. And maybe we would even kept them on line down, but the way it worked is, we didn't want to keep them, because financially it wouldn't work for us and they don't fit with where we are going. So it was the combination of the two things. So we made a very quick decision with them to just part ways quickly and move on and take these resources, which to us, is a significant amount of resources and move them into stuff that will get us momentum in the way we want to go.

How much revenue, specifically, did this customer generate in 2014 and did that grow over 2013?

We don't break out specific customer revenue amounts, Michael. It did grow in 2014, but we don't breakout specific amounts.

So of the $21 million reduction to the guidance, what percentage of it will be stemming from specifically from this customer loss?

A good majority of it.

Can you specify exactly what percentage of the $21 million is going to be from this customer loss?

No, Michael. We don't break out specific amounts for customers.

What specifically are your expectations around the FX impact of the $21 million?

We expect overall on the year to have a negative impact of about $6 million.

And then the third part of the $21 million reduction, I think you said stemmed from retraining. I couldn't hear it very clearly. Is that the third part of the $21 million reduction?

There are three components, the customer reduction, the foreign exchange impact and the retraining and slow start to the year from a sales perspective, retraining.

Are there any other customers that you are aware of that are, let's say, north of 2% of revenue that are up for renewal in the first half or second half of 2015?

No. This was a very isolated kind of incident. It's been a rough customer for probably two years. We have been working with them, trying to get them aligned to where we are going and it's a very specific type of customer. They are PFP predominantly. If you know, PFP has not grown also over last couple of years. It has been very flat. So there is not a lot of growth there. And it's over 20 people on that account. So it was just not working anymore for both of us. And we don't want to basically take a huge impact on the financial side when you are not aligned strategically and then it just didn't work. And so, like I said before, it's not like you want to lose a customer like that, but in the end, we have basically every other telco in the world between here and Europe who have a lot of opportunity to grow and some that will pickup that we don't even have today. So we just saw it's a better use of our resources to sort of part ways with them and part ways quickly instead of taking quarter-over-quarter-over-quarter figuring this thing out. And so we made a joint decision with them.

Okay. Then Rob, lastly you had mentioned that you were going to try to accelerate the migration of the enterprise base to the LiveEngage platform. Just a couple of questions around that. How are you going to accelerate it? And do you think that you may run the risk of maybe pushing customers too fast? And to that point, at what point do you expect to have maybe 50% or 100% of the base, the enterprise base, on LiveEngage? At what point in time?

We will have the majority of our customers on LiveEngage by year-end. And so we have the feature set and we have retasked resources. What we did in Q1 was, we really focused on it, we did about 10 road shows where we had customers come and or we went one-on-one to the enterprise to just accelerate this. So we are moving them now quicker. We brought some features in and so there is stuff we are doing on the resource side. And so we decided Q1 and our sales team and say look, we are ready to go here, let's just move it and you can see it. So we moved already 100 enterprise and mid-market customers onto the platform in Q1. We have a large Greenfield, this company TalkTalk, that's scaling. It is doing quite well. So the platform is working quite well and we feel comfortable as a company now just to start moving them on and the majority will go this year. So we want to make that sooner than later, obviously.

Okay. Thanks for taking my questions.

Thank you.

Your next question comes from the line of Brian Schwartz from Oppenheimer & Co. Your line is open.

Yes. Hi. Thanks for taking my questions today. I just have two questions. Rob, on the commentary about the slow start to the year, just wonder if could provide a little more color there, because clearly the macro environment is improving which we would think would be improving the underlying demand environment. I know you have had a Head of Sales transition that's been going on. Can you talk a little bit about what you saw there on the execution side, why you wrote that it was slow start to year?

Yes. Basically and it's a small impact on the overall reduction in revenue, the largest, obviously, is still this enterprise customer, the AT&T. But we basically retasked them into instead of like going out and signing new customers and doing all that, we said let's get into the education of the base so we get it behind us in Q1. And so we took our field teams and did a series of things to have them either do one-on-ones with customers or customers were invited to small seminars and we educated them. So there is a lot of excitement in the base and we start to move and accelerate the movement of the enterprise and mid-market because we are ready to go from a feature set. Like I said, we will get the majority of them across the line this year and we know, once we get everyone on LiveEngage, A, we can reduce our cost because we are running two platforms today, two, we can focus all development on one platform, and three, it allows us to scale our business, like the time to live and all of that. So the platform works really well and there is a confidence in the team, but we have to move those customers and that's what we are doing today.

Thank you. And the follow-up question, Rob, I kept for you too, was really competition, because if I look out there, there have been several new marketing and commerce software companies that have come to the market publicly or they are becoming public soon here over the past couple years and then if we look at the megacap vendors in the space, the Adobe's, the salesforce, Oracle's and SAP et cetera, they have mostly built out their commerce and marketing product suites through acquisitions and organic development. Can you talk through LiveEngage as main differentiation as a key selling point against the competition in the market today? Thanks.

TalkTalk was one of those providers or they were part of salesforce at one time and they use their chat, but they want to scale. So the biggest difference is a couple of things. One is, obviously we have got the intelligence in our platform. The way our platform scales so it can handle hundreds of thousands, millions of connections a month. Our ability to integrate with mobile and mobile messaging and what we are doing in that area and the reporting and everything we are during. We just added, for instance, sentiment analysis. It was one of the key things where you can see in real-time if the consumer is happy or side in this conversation, what their sentiment is. So there is a lot we put into the intelligence side of it and that's what makes us enterprise grade. Obviously when it comes to small business, some small business customers will take free and things that have lightweight, but on the enterprise side, it's where we really dominate. Once again, TalkTalk was a salesforce customer, but when they were ready to scale, they couldn't use it to scale. So that's where we are really accelerating as are things strategically. We are on the edge of where the world is moving, which is communicating by messaging. We are the leader in it and we have to focus our resources now and win that.

Thank you.

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

Hi, guys. This is Jim Fitzgerald, sitting in for Mike Latimore. So the first question here is just from the LiveEngage platform. When can we expect the key features for current customers, such as the large contact center administrator? When would we expect that to be available for LiveEngage?

They are out. So we delivered most of those. There is still some stuff that we have to deliver. We will deliver them over the next couple of quarters. But that's why I was saying is that we have what we need now to move the enterprise and mid-market into the LiveEngage platform. So that's why put our focus in Q1 to go ahead and get everyone educated in the customer base. We are little bit ahead of schedule on the R&D side, on the product side. So we figured, let's, we are ready to go. So we did that in Q1. So we are ready now.

Okay. Great. And then just a clarification question. I think you said that the vast majority of new customer bookings were on the LiveEngage platform. Did I hear that correctly? Was vast majority the phrase you used?

That is correct. The vast majority of the customers of this 30 were on the new LiveEngage platform.

Okay. Great. And then I know historically as far as current customers contributing to bookings, I think it has been some times like 70% plus have come from current customers. Do you expect that split to continue in the future, something like 70% plus coming for current and then the balance coming from new customers?

Yes. We expect that to continue and as part of selling into existing customers as well, a good number of our existing sales into existing customers were on the LiveEngage platform.

Okay. Great. That's it for me, guys. Thanks.

Thank you.

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

Great. Thank you. Rob, with respect to the pay-for-performance customers that was lost, can you just talk about the relationship in general leading into it, namely were there fundamental disagreements about the value being provided, the value proposition? PFP is all about very measurable increases in upsell, crosssell and did you find yourselves at odds about the value you were delivering coming in to latter days of the contract?

I don't know. I think there is going to be a real impact. We can't give you the percentage but we account for a high percentage of new adds, both on mobile and wireline. And that's going to have an impact. I know the platform that they have now, it's not going to produce that and we basically, I think the disagreement was really on the vision and where we were going to scale, how we were going to invest our resources against some one-off developments that they wanted. Bringing the technology into their cloud or in their enterprise versus on our cloud and we are not going to do enterprise software. And it's just not where the future is. So there was a combination of all the stuff. As you work through a deal like this, it has a lot of complexities and we work through it and then we finally got to a place where it just doesn't make sense, as strange as that sounds. Obviously, you want to maintain the revenue, but when you look at our other customers, there is ability to make-up this revenue in the long-term and medium-term. And I would rather focus on customers that can get us to the goal versus being weighed down by this one customer. We had them for 10 years. They were good. I think over the last 24 months, the relationship was very challenging. Some of that was because we retasked a lot of our R&D resources into building LiveEngage instead of doing one-offs. And it's not right for us. And as hard as that sounds, it's just they are not right for us.

On the RFP, I missed a little bit of that. I know you touched on it earlier, but just the RFP process, start to finish, when was it announced that it was going to RFP? When was it awarded? And when did you say the contract stops or the revenue stops?

We don't give specifics around it. It was April where the revenue stopped. We did do our best to negotiate even seeing if there was someway we can work on an orderly transition and we just didn't see it worth our time. And I know that's disruptive to them as a customer, but it's just not worth our time and that's just the way it is. We have so many great customers and so many great things we are working on, but we needed a very and we drove that to some degree, unless they could make it worth our while, it just wasn't worth our while in the end. And so down to the wire, we really believe that maybe they would change their mind and they would, I think, see the value. But it didn't work and we decided to just like cut our losses and move on. And I think it was the best decisions company in the long-term. Obviously on the short-term, we have deal with it and it's not easy. But the long-term, I think you will see as shareholders, it will pay off.

And while you are on PFP side, how should we think of it going forward? Namely, is there any PFP left? Will that will that continue as a segment? Has it been discontinued? Will there be zero PFP from here?

No. Quite the contrary. PFP is still an important part of our business, Jeff and as a matter of fact, we have got several customers that have been doing quite well and we expect them to continue to grow throughout the year. So from a PFP perspective, we still expect it to be in the mid to high single digits as far as percentage of revenue, even with the AT&T leaving us, it will us a little bit of time, but we have some great customers that are growing with us and we are aligned with where we want to go and how to use the product. So it's exciting.

And just to be clear, mid to high single-digit is how you think that as percent of revenue in the next few quarter as opposed to over the year or any other measures, next few quarters when we get the numbers, is that what we should look for?

Next few quarters. That's correct.

Okay. Last one for me then. Just if you would revisit, I am a little confused on the pulling the sales guys from sort of normal course of business to retrain, given the LiveEngage platform has been out for quite a while, it gave you a very extended window for these guys to be trained and to be messaging clearly to the clients and the customers through user conferences in between and daily interactions what's to come. So I am confused, if it took that much effort out of their field selling in the quarter, why there was so much pent-up need for them to go sell and explain at this point?

Yes. If you remember, in October at our Aspire conference, is really where we kicked off for the enterprise and mid-market. So even though the platform has been out there since mid of last year, this LiveEngage 2, we really kicked it off to the enterprise in October and then took in their feedback, accelerated some of the development that we knew we needed to get done. And so we basically took them and put them on, let's get the entire base educated so we can move them to the platform as soon as we can with the early increase of the product. So I think that's really what we did. Like I said, out of the whole picture, I just want to make it clear, it's the third part, it's the small portion of the reduction, the majority is the customer, second one is FX. So it is a small portion on the focus of the sales force on the education and moving for mid-market and enterprise. Obviously, the small business started being educated last year. So we kind of demo the education and now we are in execution. And so you should see a lot of customers moving to LiveEngage in the mid-market and enterprise segments.

Okay. Thank you.

[Operator Instructions]. Your next question comes from the line of Mark Schappel from Benchmark Company. Your line is open.

Hi. Good evening. And thank you for taking my question here. Dan, starting with you. With respect to the expense reductions that you are expecting to make, where can we anticipate the bulk of those savings coming from? Which line items?

Those expense savings will come from a couple of different line items really, as I talked about. We will take a charge of about $2.5 million. Some of that relates to people. Some of that relates to us being more efficient as far as deploying our resources and some of it is just is in relation to deploying back on the line items within the P&L.

So with respect to, say, sales and marketing, for example, we shouldn't expect that to come down any more than any other line-item throughout the rest of the year?

I wouldn't expect anything else to come down more than anything else. We are getting some efficiency in G&A. If you look at my percentages of where I guided currently versus prior, we are taking some efficiencies in G&A and we will have efficiencies in the sales organization would be the sales and marketing line-item as well.

Okay. Great. And then I didn't catch the bookings number for the quarter. Do you have that handy?

We are not giving the bookings metric. We talked about that on the last quarter. It's one of the metrics that we discontinued.

Okay. Thank you. And then, Rob, a final question here, in the press release, the company mentioned that it saw slower than expected start to the year. I think that was in your guidance comments. In your view, were you referring to execution issues or more just general macroeconomic headwinds there?

No, it was really on, as I mentioned before, it was really on focus of we spent most of the quarter just getting out to all of our enterprise and mid-market customers and basically doing very deep dives with them on LiveEngage and then actually putting the plans to move them. So that took a fair amount of work in the quarter, but we have that with our customers now and they are excited. There is actually project plans, there is dates and so October has only kicked it off in Aspire, but we really want to lay out plans of attack with our customers now that we put some of the features and we can move them sooner than later. Like I said, we will get the majority of our entire customer base over our LiveEngage this year.

Okay. Thank you.

There are no further audio questions at this time. I will turn the call back over to the presenters.

Thank you for the Q1 call and we will see you on the next call. Thank you.

Thank you.

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