LivePerson, Inc. (LPSN) Q4 2015 Earnings Report, Transcript and Summary

Good evening. My name is Nicole and I will be your conference operator today. At this time I would like to welcome everyone to the LivePerson Fourth Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Dan Murphy, CFO and Robert LoCascio, you may begin your conference.

Thanks very much. Before we begin, I’d like to remind listeners that during this conference call, comments that we make regarding LivePerson that are not historical facts are forward-looking statements, and are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. These statements are made pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act of 1995. The internal projections and beliefs upon which we base our expectations today may change over time and we undertake no obligation to inform you if they do. The results that we report today should not be considered as an indication of future performance. Changes in economic, business, competitive, technological, regulatory, and other factors could cause LivePerson’s actual results to differ materially from those expressed or implied from the projections of 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’ll turn the call over to Rob LoCascio, CEO of LivePerson.

Thanks Dan. Thank you for joining fourth quarter 2015 conference call. The company is pleased to report record revenue of 239 million in 2015 and our 54th consecutive quarter of year-over-year revenue growth. Adjusted EBITDA increased by more than 55% in the second half of 2015 as compared to the first half. 2015 was a year of marked achievements. We successfully advanced three initiatives that will be critical to the execution of our vision this year and beyond. We might have created nearly half of our customer base to LiveEngage. We began delivering renewed operating leverage on the bottom line. We took our first steps towards transforming customer care by signing our largest mobile enterprise customer on LiveEngage. 2016 is a very important year for LivePerson as we will migrate our enterprise customers onto LiveEngage and we will begin to see our vision of eliminating the 800 number become a reality. We have this clear vision of disrupting analog voice industry which represents a large opportunity, today analog voice is about $1.4 trillion a year business. Transforming the relation between consumer brands from analog voice to digital will go down as the third major disruption in digital behind search and social. And we are in the haunt for this great disruption as we now have in our hand the first enterprise customer to execute on the vision. This opportunity is big 41% and big enough like companies like Facebook with their Messenger and WhatsApp products are focusing on it also. Just a few weeks ago, the CEO of WhatsApp spoke about a desire to enable businesses to connect to consumers through WhatsApp. Although these messenger services have hundreds of millions of consumers, what they need as back-end to handle scale, security, and the needs of the mid-market and enterprise. We built LiveEngage just for this and we already have some customers using Facebook Messenger with LiveEngage on the backend. This joint offer will be more focused on the SMB market versus the enterprise where we have the advantage. We more than doubled the number of brands on LiveEngage in 2015 to nearly 50% of our base from 18% at the beginning of the year. We now have more than 100 mid-market enterprise customers already migrated on to the platform and the platform is performing superbly. Here are some stats based on customer activity. Brands that have migrated on average generate 10% more usage in four to six months and 20% more in seven to nine months. Mobile usage goes from less than 10% of interactions on legacy to close to 20% and we expect this to climb to 40%. The use of the content future to engage consumers that up nearly 3X from a year-ago to approximately 5 million impressions per month, so this is using all of our content targeting features. Our largest enterprise on the platform is growing interaction 33% quarter-over-quarter our growing interaction 204% quarter-over-quarter. Our ARPU is 5% higher quarter-over-quarter 41% and 20% year-over-year, so deal size is much larger on Live Engage. This very much reaffirms that brands are willing to pay for and expand on the platform that offers strategic value to their business. We built LiveEngage to exponentially grow our company and go after the large market opportunities ahead of us. The market is getting giving us solid signals that this is aligned to our vision. In Q4, we signed a mid-seven figure deal on the LiveEngage platform purely around our mobile offering and this customer is aligned 100% to our vision. We lost our first customer Logitech in EMEA using mobile SMS capabilities on LiveEngage. This important part of the deal because it’s mobile focused and only mobile focused. In our strong vertical of automotive among 7,000 automotive dealers are using our mobile messaging product we saw a 60% increase in engagement with consumers over traditional voice. And from our thought leadership perspective in a recent issue of Inc Magazine it features LivePerson in its disruptive column. It is entitled to meet the $250 million start-up there was end customer service calls for good. With solid results in the platform and strong signals from market we are committed to moving our customers onto LiveEngage quickly. And absolutely during any platform transition we expect to have some customer impact. In order to determine where our core revenue should baseline during the migrations we spent the past several months connecting with the majority of our brands regarding their plans for migration. We now have a solid handle on the impact as reflected on our 2016 guidance which calls for adjusted revenue to be roughly flat for 2015 after excluding a $1.5 million foreign currency headwind and the previously disclosed customer relationship that ended in the second quarter of 2015. Although the migration will cause some pressure on the top line, we expect to capture additional margin benefit from the LiveEngage migration and our ability to streamline our overall operations. We have seen some of this flow-through in the second half of 2015 where adjusted EBITDA margin increased 380 basis points over the first half of 2015. We will continue to march towards low to mid-teens EBITDA margin by the end of 2016and in subsequent years onwards to our historical peak of 20% plus margins. We understand this because we built LiveEngage to scale at a different rate than our old platform, and that’s what’s giving us our improvement in our margins. We’re also seeing some good progress from our field organization as they get back in stride with the current leadership that’s in place, nearly 10 people come back to that group who were here previously and have returned, and they’re some of the best people we had are now in our field organization. In Q3, Q4 when we look at our bookings we had very strong bookings and a lot of those customer contracts will deploy in Q2, so we’ll start so see that revenue impact from Q2 forward. We are now accelerating the migration of our customers to LiveEngage and believe we have solid visibility into the migration of our entire base in 2016. 2015 was a very important year for LivePerson because of several converging factors. Consumer behavior shifted from voice to messaging. Mobile internet traffic shift to scale versus desktop, and our company delivered the platform that offers brand ability to provide messaging as an alternative to calling the 800 number. This sets a solid foundation for strong execution in 2016. We’ll migrate our entire enterprise customer base in 2016 for that we are setting the stage for return to stronger revenue growth, and steady margin improvements in years to come. As our recent wins attest, leading brands are adopting LiveEngage and its mobile capabilities to move beyond voice in order to more meaningfully connect with their consumers. With our vision in hand, we now will execute with expedience towards our big disrupting the call center once and for all. With that I will now turn the call over to Dan who will review our fourth quarter 2015 results and our outlook in more detail.

Thanks, Rob. I will begin with a reflection on 2015, provide fourth quarter 2015 operational and financial highlights and finish with an update to our guidance. I would like to highlight four main operational accomplishments for 2015. Revenue increased 19% in constant currency to a record 239 million, which excludes 10 million impacts for foreign exchange. Sales productivity is improving as evidenced by record second half 2015 new contract signings, our largest of initial sale -- initial deals and a record number of large deals. We materially advanced the migration to LiveEngage and in 2015 with 45% of the customers on the platform. We will returned to margin expansion mode, increasing adjusted EBITDA margin 380 basis points to 10.8% in second half of 2015 from 7% in the first half of 2015. We are strongly encouraged by the traction we are seeing for our best-in-class LiveEngage platform and our unique vision for transforming customer care. With our first commitments for mobile only deployments, we think this is an important moment, not just for LivePerson, but for the consumer. The Company is focused on completing the migration to LiveEngage in 2016 as the platform underpins our ability to deliver our vision. As Rob discussed, with any migration there is and associated risk to revenue. The Company’s customer renewal rate was 84% for the trailing 12 months versus our target of 90% or better, reflecting our focus on migration. We had conversations across our customer base for past several months about renewal and migration plans and we’ve had a good handle on retention. We are confident that the migration impacts on revenue run-rate and renewal rate are temporary. We anticipate returning to 90% plus customer renewal rates as we convert more customers to LiveEngage. An indication of LivePerson’s overall customer relationships is our dollar retention rate, which represents the total recurring revenue retained in a period inclusive of attrition, down-sells and up-sells. Our dollar retention rate for the trailing 12 months was in the mid-90% range. Reflecting continued growth from brands that our customer experience focused and truly aligned with our vision. With that, I will turn your attention to our fourth quarter 2015 operating results. Revenue increased 2% year-over-year to 59.2 million leading our guidance range, excluding an approximate 2.1 million drag from foreign currency exchange. Total revenue would have increased 5%. B2B revenue advanced 2% to 55.2 million or 6% year-over-year in constant currency. Consumer revenue declined 5% to 4 million. Revenue from our international operations increased 17% in constant currency in the fourth quarter and accounted for approximately 34% of total revenue. We signed 122 customer contracts in the fourth quarter and 25 of those with new enterprise or mid-market brands. Although our average deals count was slightly down compared to last year, our average selling price for new contracts in the second half of 2015 increased 38% versus the year-ago period. Trailing 12-month average revenue for enterprise and mid-market customer increased 5% sequentially and 20% year-over-year to 197,000 in the fourth quarter of 2015 compared to 187,000 in the third quarter of 2015 and 164,000 in the fourth quarter of 2014. The trailing 12 months revenue figures are pro forma that exclude contributions from the previously disclosed customer contract that ended in the second quarter of 2015. Fourth quarter per share adjusted EBITDA of $0.11 at the high end of our guidance range, adjusted net income was $0.017 per share exceeded our guidance range. GAAP net loss per share of $0.33 was below guidance, but included a negative tax impact of $0.29 per share. LivePerson in consultation with its outside auditors determined that it was appropriate to book at 13.5 million valuation allowance against the deferred tax asset on the balance sheet due to the company’s current cumulative loss over an extended period. Fourth quarter gross margin of 67.5% included a $1.5 million impact from the reallocation of prior period continuing earn-out adjustments to G&A from cost of goods sold. For a simple comparison, the non-GAAP gross margin of 71.7%, which excludes non-cash items, was in line with the third quarter of non-GAAP margin of 71.8%. The company’s cash balance increased to 54.2 million at the end of the fourth quarter of 2015 from 46.2 million at the end of the third quarter. LivePerson generated solid cash flow from operating activities of 11 million. In the fourth quarter of 2015, cash flow from operations totaled 21.8 million for all of 2015. 2015 capital expenditures totaled 13 million, which included cost to build our data centers in Asia-Pacific region and cost to consolidate offices in Atlanta, Georgia. The company repurchased approximately 420,000 shares of stock for $4.2 million in 2015. Turning your attention to LivePerson’s 2016 outlook, they encouraged by the value of customer contracts generated in the second half of 2015, a solid pipeline entering 2016 and [indiscernible] of LiveEngage and our vision around mobile. Nearer term, however, we will continue with the soft start that we had in the first half of 2015 given the annualized revenue recognition of SaaS revenue and our focus on migrations. As such we expect 2016 adjusted revenue to be roughly flat year-over-year excluding foreign exchange impacts and the large customer relationship that ended in the second quarter of 2015. I will walk you through more specific guidance projections in a moment. Our first quarter outlook reflects the timing gap between the roll-off of revenue from attrition, to focus on migration and revenue recognition on some of our large recent wins which we expect to start in the second quarter. Despite the tempered revenue outlook we remain committed to increasing profitability in 2016 just as in the second half of 2015 we planned to optimize our operations and capitalizing the investments made in LiveEngage. Our 2016 guidance implies 8% to 22% growth in adjusted EBITDA as compared to 2015 and a 110 to 210 basis points improvement to our adjusted EBITDA margin. Our detailed 2016 financial expectations are as follows. For the first quarter of 2016 we expect revenue of $55 million to $56 million, adjusted EBITDA of $4 million to $4.9 million or $0.07 to $0.09 per share, adjusted net loss of $0.02 to $0.0 per share and a GAAP net loss per share of $0.08 to $0.06. For the full year 2016 our expectations are as follows. Revenue of $230 million to $235 million, revenue guidance includes a negative foreign currency drag of $1.5 million, adjusted EBITDA of $23 million to $26 million, or $0.40 to $0.45 per share, adjusted net income per share of $0.5 to $0.10 and a GAAP net loss per share of $0.17 to $0.12. Note that in 2016 and for future periods, we’ll be applying a standardized 35% tax rate to all non-GAAP add backs when calculating adjusted net income. For comparison, the tax rate on non-GAAP adds back is effectively 0% in 2015. This change has no effect on cash taxes but accounts for $0.12 per share decrease in our 2016 guidance – adjusted net income guidance as compared to our 2015 actuals. We expect to pay cash takes between 1 million and 3 million in 2016. Furthermore as a percent of revenue for the year, we anticipate gross profit to be approximately 70%, sales and marketing is 40%, G&A is 15%, and R&D is 16%. Please refer to LivePerson’s earnings release issued earlier today for details on our full year 2016 assumptions. We have also published a presentation on the Investor Relations page of our website that reviews key points from the earnings call. LivePerson is entering 2016 with a clear plan for migration of our customers to LiveEngage and for partnering with brands to create meaningful connections with consumers via mobile. We are navigating the final transitory impacts of our business from the platform migration all while delivering higher adjusted EBITDA margins. In fact, we expect to exit 2016 low to mid-teens of adjusted EBITDA margin and we are confident that the company is pursuing the correct long-term strategy. With that, I’ll open the call to questions. Operator?

[Operator Instructions] Your first question comes from the line of Kyle Chen from Credit Suisse. Your line is open.

Hey Rob, hey Dan, how it’s going. Thanks for taking my question. Just wanted to dig into your guidance a little bit. Understanding that the arduous task of migrating your mid and large customers to new platform and the need to be conservative in the current environment, can you help us understand the concept of the guidance? What assumptions are you baking in relative to customer attrition? Why would an enterprise want to migrate to the new platform? And I guess Dan if you can decompose that little bit, what are you embedding for Contact At Once growth versus your core platform?

So I’ll start with the last one first, Kyle, for Contact At Once, that’s been fully integrated into the business from an operational perspective, so it’s difficult for us to break that out. We offloaded some in the automotive vertical and it’s still an important part of our business. But we have combined customers that we have had with LivePerson and Contact At Once are on the same billing system. Back end has been integrated, so that’s around Contact at Once. As far as from a guidance perspective and the way that we’re looking at the business, there’s kind of three relatively important factors as we go into 2016. The first is getting customers on the LiveEngage platform. We started to have those discussions with our customers and talk about moving over to LiveEngage. And that’s an important aspect of our business. Not all customers who want to make that journey, and Rob will talk a little bit more about that. As far as other assumptions that are concerned, as you’re going through the migration we are going to focus our -- some of our current sales people on that migration and moving those customers over to the platform. And as you know a good number of our new contracts signs or existing contracts signings are from existing customers, approximately 70% in any given quarter. So as they are focused on migrating we’re not – our expectation is that we’ll focus on the migrations and some of the sales cycles that have been elongated as we move them over to the LiveEngage platform.

Yes. If chats not strategic and obviously LiveEngage is very focused on the mobile side for our business then it may make no sense to go forward with us because of our price and what we do and how we provide service to our customers, so we’re kind of taking that into measure. The majority of our customers are moving. They like it. We actually signed a lot of Greenfields onto the platform. We’d a very big win with a large enterprise here in the U.S. pure mobile on the platform but some customers that are in the base, we know, they want to a cheaper alternative or something else and we are getting what we get and we have our product and our service we have to provide. So you can see we can grab margin, we have a strategy and we just want to be aligned with the right customers to move forward.

I guess just a follow up, Dan. On gross margins, can you remind us once you migrated customer over to LiveEngage platform, is there a timing differential relative to the gross margin leverage? I was under the impress that just from a cost of service perspective the new platform should be substantially less?

There is a timing aspect to it and we are – as we migrate customers over we do have to keep a lights on the legacy platform and there is a cost to that and that is running through our cost of goods sold. So our goal in 2016 is to move customers on to the LiveEngage platform and reduce that legacy footprint down to zero. When it’s reduced down to zero, you will start to see significant decent impact on to the gross margin.

Could we imagine a scenario in the next year or two where you shut off, “the legacy platform” and just -- we should see that gross margin benefit more and more pronounced.

Yeah. Of course that -- we’re going to -- somewhere we’ll end the life of that platform and because the customers want to move on to the new one and it doesn’t make sense to keep the old one up so.

Okay. Thanks very much. Best of luck, guys.

Thanks.

Your next question comes from the line of Glenn Mattson from Ladenburg Thalmann. Your line is now open.

Hi. Good afternoon. On the customer attrition rate is there any industry where you’re seeing more customers maybe not move over then is there any concentration among industries there?

No, it’s not industry-specific. It’s more -- we see it indifferent industries, but it’s nothing -- just more regional. Like I said we have a focus here, we’re just focused on LiveEngage, the customers that are on it, they’re doing great. They use more. Obviously, we got our vision attached to it with all the features around the mobile side. So, we’re pretty singular focused to get them over. Like I said, some want to make the journey -- majority do and they love the platform. There’s a handful of that they have been with us for a while, maybe they will see something strategic anymore and they’re not aligned to the vision and what we’re doing those other customers that are. I know it’s a little bit of a pain points. So, we just kind of get it over with and that’s what we’re doing. It’s like I said all the indications on the platform the people on it, they love it, it’s great. It has [ph] lot more interactions, it makes our business stronger, it makes their business stronger. So, we’re just going to focus and do it.

Okay. Thanks. That helps. That’s it for me. That’s good. Thanks.

Thanks, Glenn.

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

Thank you. Let’s see a number of questions. I guess just one back to the churn question. Can you give some quantification around the assumed dollars, just total dollars in the year of churn, can you give some sense of the assumptions around percentages and idea what the numbers would be look likes ex the churn, I mean, you don’t have quantification but it sounds like the bookings have been pretty health here just to better dial in what percent of customers actual customer account you expect to go away, what – there was something that put even within a range?

Yes. So, Jeff, we get a couple of those things in the call. You know, we talked about our trailing 12-month customer retention being in that 84% range. We also talked about the dollar retention rate being in the mid-90% range. As far as giving the real specifics around customers and that level of detail, it’s not something we’re ready to share at this point. But we have gone through an extensive process of talking to our customers setting up plans for migration, getting them over to LiveEngage platform. You know, not to look in the past but to look forward our goal during 2015 was to migrate a good number of customers on to the platform gets feedback and inform the product roadmap. And now we’re in 2016 and the goal is to get those mid-market and enterprise customers on to the LiveEngage platform and start looking forward. And like Rob said the feedback has been strong, the usage that we've been seeing that's happening on the platform has been strong, in four to six months you see an increase of 10% of usage of these customers that have may migrated and about seven to nine months you see about 20% increase in usage, and we think as we continue to get those larger customers over, we got the opportunity for them to use more of the platform and, obviously, engage from a mobile perspective.

Yeah. Just to be clear, I mean, I wasn't asking about 2015. I heard those numbers in the script. I was specifically asking for quantification on 2016. Just want to make sure you understood what my specific question was?

Yeah. So we're comfortable with the guidance on where we put it. We've taken into consideration what we think the attrition level is going to be. Our goal is to get back to that 90% customer retention rate on a trailing 12 months, and we know that's going to take a couple of quarters, and as we go into Q1 and Q2 as Rob discussed some of these customers are not going to want to make the journey, and we fully realize that and that's what we've baked into our guidance.

Okay. Rob, the – I appreciate on the prior question a little more color about the type of customers that are going away. Can you just expand a bit more on that, you said they don't see chat as critical as they may have seen it, maybe a year ago or some other prior period, and that's where they're parting ways. Just maybe expand a bit more on that I mean, obviously, you're continuing to bring best-in-class chat capabilities albeit through a different platform, but what is the specific point where they're parting? Is it the price point, is it the breadth of the platform, and it doesn't really plug well with the infrastructure that they have, they don't want to go through the migration? Any other color there?

No, I mean, it's not one thing. In Q4, Francis, we had one enterprise attrition in a vertical. They don't see so it strategic and the flipside -- and they want to go with a cheaper competitor. On a flipside, we picked up another large enterprise in that same vertical and that competitor actually was with that customer. We're going to get four or five times more revenue to start than that competitor gets off that other customer to start, so -- because that customer is aligned with where we're going with the platform. So there's a little bit of trade and we have a bigger vision. We didn't built the platform to go from where we are now to another 100 million to 200 million we want to go from here -- we are in the middle of one huge shift in the contact center world and we're positioned with our platform to go after something big. So if somebody wants a cheaper chat product, they can get it and they're also going to get those capabilities but they are not going to get the performance. So what we're seeing is that we're picking up in the same verticals like this one customer and we swap out that same competitor and we see that that customer could be 10, 15 times larger than our largest customer today. And that's what we're focused on right now, is our future, that platform and the vision we have shared with those customers. So it happens. Obviously we're going to -- we know during a migration we are introducing, they may take a look, it's a small group of customers. We want to sort of like move it of our way, guide to it and be able to focus in our future and just kind of talk about on it on this call so we can set expectations for the year and just move forward and really grow the company at the rate we want to grow it at.

Yes. Appreciate that. Two other brief ones for me. The pricing model as you went to the interactions based model, has that proven to be and impediment? Do you feel like you're comfortable with that pricing model given some enterprise customers I would think would want a little more certainty about what the dollar spend is going to be on an annual basis?

Yes, Jeff. That's a good question. And yes, I mean our interaction price model has been accepted and we obviously do with people who are willing to make a large commitment. It's not all completely variable, right. So they are committing to a certain amount of dollars on spend and locking in that spend. So from that perspective, it's not just pure interaction of variable based person. We obviously work with our customers based on what we expect them to use and how we're using the product.

Yes, and I guess just last one, Dan. Sorry. Would you just repeat. You commented on the tax rate change I missed just a little bit of that?

Yes. So what we're doing, Jeff, is in from an add-back perspective, it doesn't have an impact on cash taxes. It just has an impact on our tax rates that we use. Because we're in that area or looking a little bit of money, the cash tax rate bounces around a little bit. So for adjusted net income we're just using the 35% tax rate for anything that we're adding back, so to give a little bit more certainty around that adjusted net income number and make it a little bit easier for you guys to build your models and understand the impacts.

Okay. Great. Thank you.

And just to clarify, Jeff, the impact is about $0.12 year-over-year on adjusted net income.

Got it.

Your next question comes from the line of Mark Schapp from Benchmark. Your line is open.

Hi. Good evening. Rob, last quarter I believe Contact At Once underperformed or had kind of a shaky quarter. Did that business get back on track this quarter in your view?

Mark, this is Dan. It's tough for us to talk specifically about Contact At Once. We've integrated all lines of business. The automotive vertical is still a strong vertical for us. As far as what we talked about on the real estate vertical, we're waiting for -- we have a deal in place and we're waiting for that to open up and it hasn't opened up to the level that we wanted it yet and we expect that to continue to take some time as we talked about at the end of the third quarter call.

Okay. Thanks. And then Bob I was wondering if you could just review one more time why you expect the renewal rate to decline next year. I mean is this just a function of price and customers moving off of your platform just to go to a cheaper platform -- a cheaper product?

Mark, I understand, rather jump into the second. But we didn't indicated that the renewal rate we thought was going down next year. What we are talk about is you take a look at our 84% trailing 12-month metric. We're just talking about 2015, we're talking about focusing on migrating customers over to LiveEngage platform and as 70% of our new contracts signings come from existing customers and as you're focusing on migration, we're not going in and having a replaced conversation or and an upsell conversation. We're going to focusing on moving them over to the LiveEngage platform. So, that's what we're talk about and what kind of and impact that has on 2016.

Yeah and we wanted to basically just set a floor so from here we can build up and based on what we know about renewals and actually up-sells -- 60% of our revenue is up-sells and what we know because we have to move people across. So, we do sort of want to set a floor where we think the floor is here and how we can build from it, so we can, as a company, just focus on the goal. Obviously, as a public company, every 90 days, we got to give you updates about what's going on. We'd rather set a floor for everyone who’s on the call and our shareholders. So from here we know, okay, this is where we're starting we're going to build up, we're putting people on the platform and this is our year to kind of get done with all this. So we're at the end and it's on the other side once they get on they use it, they love it. We've got some great customers coming on the Greenfield side. So we just want to set the floor for everybody.

Okay. Thank you.

Your next question comes from the line of Richard Baldry from ROTH Capital Partners. Your line is open.

Thanks. Could you talk a bit about why you go this transition maybe how you think that your sales team will react to this or your sales head count retention level you would expect through this or if you have had any changes to that, whether there's some short-term initiatives that sort of change away from a traditional or new booking to focus on this migration pathway to try to hold that 10 year so that as you come out on the other side maybe in 2017 you've got the team still in place that you need? Thanks.

Yes. I mean I -- we -- we had about 10 people come back who were here before the previous leadership was here so we call them boomerangs. They came back and they're leading mostly in North America. So as North America ahead of west coast and then a bunch of sales reps. So we have guys and succeeded know the story they're excited to come back. You know, they actually sold the old product for many years but they're coming back because they see an opportunity far greater. So you know getting sales guys back and getting we do our best and they were leaders of the teams [indiscernible] 2007 to 2011 or so. And they're really I think obviously cemented in the organization and they're building out from there. So I feel good about the team that we have in place. I think they're excited about it. They're selling new deals, bookings are good. Obviously, they like LiveEngage, too. It's something new to sell. They have a good story and so I feel good about the sales team today.

Then maybe talk about the level of cash you feel comfortable sitting on. The reason I'd ask that is with the market weak like it's been, how much do you think you'd be free to use your sort of free cash flow, or even the balance sheet itself in 2016 to pursue opportunistic buybacks like we've seen from time-to-time. Thanks.

Yeah, we have our buy back in place. I think these levels are very low for what we're achieving, so I would expect us to use those buybacks and move forward because of what I feel personally that the – and on the board level, we think the company is precedent pretty undervalued right now, seeing some of the activity level getting on the new platform. So we're interested in getting the market.

Thanks.

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

Thanks. Good afternoon, guys. A couple things more I guess on the migration. Did you meet your migration goal for 2015? Did that play out as you planned or hoped?

Yeah. I mean, we expected to migrate about 40% of our customer base over and we actually ended up with about 45%, and we actually by the end of the year had more than 100 market – mid-market and enterprise customers over on to the platform. So, we feel pretty good about the direction that we're going and the number of customers that we have over. Now it's on to really focusing on the mid-market and enterprise segment as we really move into 2016.

Right. Okay. And then do you envision this other half taking all four quarters? Do you think that there's any chance it spills into 2017 or how do you think about the timing of what's ahead of you?

Yes. I mean we're focused on getting them across the line this year. It's the focus of the company. Obviously things move much quicker now that we have 50% of the base across, so that's what we're focused on getting across the line.

Do you -- I can't remember. Do you have -- if you have said this or maybe it's occurred in the most recent quarter? Do you actually have -- have you actually already moved some of your enterprise customers over? I'm just wondering do you have experience with that.

Yes.

Okay.

Yes. We already moved. We moved 100 mid-market in enterprise. In that number of 100 there's the enterprise is in and then we have all the Greenfield enterprises went live. One of the biggest growers right now is a Greenfield enterprise, big Telco over in the U.K. that's been on it for about almost a year, a little less than a year. So they're doing really well. So we feel good about the whole thing. Obviously the biggest challenge is the platform doesn't work and how is it working and how they are using it 41% and that's going very well. Now we just need to sort of bite the bullet, move forward, get them over because as I said it's not about -- we're just trying to do apples-to-apples with the platform. It isn't replacing a chat platform, it does have those capabilities. But what its focused on really disrupting the contact center. I mean, we literally can go after, you know, and we'll start showing more of this as we go forward, but we can start taking away voice calls and even though chat does that on a certain level, we can really accelerate that and that's where the big spend is. And so, our sales teams are very excited because of the competitions we're having but that allows us to go after a much larger opportunity. I have said this before, even in our best customer and we are the best at what we do, about 10% of interactions will be chat and 90% are voice and the vision from when I started the company was I want to move as much of that to digital. With 90% in analog and I think we've got away now to actually move that 90% and I know we have to prove it and we're just starting, but we have our first enterprise to kind of fire up on the vision and many beyond that. So it's exciting.

And, Rob, is there – is moving an enterprise customer over to the – to LiveEngage somehow involved – it somehow different than moving middle market? Is there something about it that is – I don't know – flex of more nuance? I'm just curious what it is – what happens – what it's about when there's a move toward enterprise?

It's – you know, it's actually similar. They're all similar. It's just that there's a complexity in the enterprise there's more people that may touches more traffic, so we want to take our time with it and we want to make sure we get it, but we can move them very quickly. We can move customers within days, weeks, months. It's really what they want to do. The thing that we did, though, is we secured the dates for everyone to move and so we now have all the information that we need to execute on our plan and we're not just out there figuring it out and we actually have our dates. That's why we're able to sort of get a handle on the business and where it is, but you know--.

Okay. I know for everyone on the call, for you guys it's about the migration. It's very important for us, but that's set the foundation for us to build our vision and that's what we're focused on, too. So we got to move the migration, but we're also not just trying to move them to chat. We want to move them to the vision. We want to get them on mobile. We want to impact the contact center. We want to go after the IDR and so we're not just trying to move them apples-to-apples and we're moving them, but we're not moving to the vision, so that's the opportunity.

Thank you for that. And just so there's actually a pretty definitive schedule for the lion's share of the moves you're going to make this year. That's well mapped.

That's right. So, what we want to do is just kind of get it behind us in many ways and be able to talk to you guys about where we think the business will be so that when we're not every quarter coming up with a different, hey, now we just focus this customer, we really spent the time to map and go through it and understand what the risk are. Now, we understand them and now we can move forward and like I said, the interesting thing is that we can actually generate more operating margin even as we move forward because of what of this platform will do. So, our future is in a place that we're really excited about. We got to move it ahead and we're ready now.

Yes. Okay. And just lastly so how do you think about what happens to new enterprise deal metrics this year? I mean obviously they won't be the same, but I presume -- but can you just share how you think about the pipeline and converting that pipeline this year?

First, I -- it's going to be a much more -- we have a very focused list of customers that we're after because the opportunity is in a very focused set of verticals that we already play in. So, you're going to see larger deals which you've been seeing. Smaller -- not as many deals, but larger size because we're very focused on how to disrupt the contact center that has 20,000 agents, 40,000 agents, a hundred thousand agents, and so that's really where our focus is. On the mid-market small business, we're obviously partnered with Facebook to do some stuff down there, but our focus on the enterprise is a very discrete group that we are after. We already have a handful of them. They are already our customers that were migrating. So that's what you should see. larger deals, fewer deals but much larger deals.

Thanks very much.

Thanks Craig.

Your next question comes from the line of Glenn Mattson from Ladenburg Thalmann. Your line is now open.

Hi. The asynchronous chat did you say you signed a customer on that and was it a pilot or is that in full production, could you give us a little more color about how that's going?

Its full production, full contract.

Okay. And is that -- what kind of customer is in the industry, do you want to see the industry that they're in or anything like that?

No. Not right now. Not until we get live and we'll put it out there when we get live.

Okay. And then I guess just lastly the solid bookings I think you said that there's the second quarter in a row and the kind of growth you see in users that are on the platform for three, six months. You know, I guess wouldn't that lead to the assumption that there would be growth in revenue in the back half of 2016?

I don't think the timing exactly works out that way, Glenn, but obviously with our pricing model the more customers use, we will have the opportunity to go back and talk to them about pricing. But right now our focus is really towards getting them on to the LiveEngage platform and aligning our customers to our vision and driving value.

Okay. Thanks.

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

Yes. Rob, just one follow-up. As you're talking about the vision, you know, in the contact center I mean obviously there's sort of a full-fledged transition going on particularly with some of the cloud vendors coming in and offering AC DIDR [ph], fully integrated unified view of the customer routing chat sessions, routing calls, social mobile, email trying to become that sort of union filed hub, and that collection of vendors has got some pretty good momentum. Certainly mid-market and moving into some of the higher end larger call centers. I thought it maybe make sense if you could just walk through sort of how your vision contrasts with what they're doing, how you would fit side-by-side. Just maybe a little more clarity on the vision and how it maps to the vendors that will ultimately be within the contact center who you expect to be alongside, who you expect at this place?

Well, the displacement is really with the genesis of via Cisco and the traditional call center companies. The way we're approaching, and which is focused on mobile and not this concept of Omni channel, I don't believe on Omni channel works, and we have a lot of funny videos that we put out on the marketing side around, it doesn't work, and the concept around that you're bringing in social and mobile and calls, the reality is we played it out and the majority is still calls. So it's – I feel like it's like it's something that the call center guys put out there, but the only channel that seems to succeed with the call center guys is phone, they don't promote any other channel. They don't want any other channel to make it, so we have a different strategy. I'm not going to go into detail on what makes our platform work specifically for competitive reasons, but I think we have a good strategy. It's proven by I think signing a very large enterprise around it. We are going to look to impact voice tremendously at that enterprise and I – it's not an Omni channel strategy. So, today our real focus and the enemies that we see, it's not the low end chat guys, that's what people have to understand like yourself. We are not looking at the low end chat guys as our competitors. Yes. They have nipped away at non-strategic accounts. They have always, kind of, done that of thing. But we're looking at the guys that are providing calls and they're 264 billion phone calls out there and those companies don't grow, their technology is very old, it's never really been disrupted and so we're very focused on disrupting that and that's really what our key is right now.

Got it. Got it. Appreciate it. Thanks Rob.

[Operator Instructions]. Your next question comes from the line of Mike Latimore from Northland Capital. Your line is now open.

Thanks. Rob, you mentioned that you have secured dates for migrating current customers, I believe. Are those dates more kind of front end load for the year, are they back end loaded or evenly distributed throughout the year?

They are -- we're doing a lot now, so we're trying to get as much as we can now. But they are kind of evenly distributed. So -- because we obviously have some constraints on bandwidth and they have theirs, so we match with those two. But we're not trying to back end load it or anything. We're all focused on just getting it done move on and getting people to the vision.

Are will any kind of key new features that you need to roll out this year to kind of make this migration happen?

No. I mean we've got the features we need in the platform. We continue to innovate around -- especially around some of the data pieces. We have a new scoring algorithm to score the health of a customer called a meaningful connection score, which is very interesting, and it's deploying to see certain MPS so we can score in real-time what the relationship is with consumers. So we keep adding pieces like that, but those are just additions to the platform, but we have what we need right now.

I guess roughly what percent of revenue – revenue is on the LiveEngage platform at this point?

Mike, since we started focusing on these small business customers and we've got about a 100 big market it's less than the 45% that we have over there, but as we move to mid-market enterprise customers you will start to see that revenue pick up quite a bit.

I guess I'm just curious a lot of your current customers I believe bought the original platform that you kind of proactive sales and I guess, if you asked them to migrate to this new platform with the messaging around customer service and getting rid of mobile can you try to distinct those two different potentially different goals up here for me?

Yes. What we did with the platform, so the platform does both sales and service, but the platform is actually built around this idea of a campaign. So you can set a service campaign and you can set a sales campaign and so basically we made it really easy to actually blend both in the system and you can easily set it up yourself and set the goals if you wanted to you can easily – you can also just use our predictive intelligence on both side, sales and service. So it's an integrated system now, but it's all goal based. It feels kind of like – that's why people like it and this is why they're using more of it. It's sort of setting up Google keywords. You set a goal and you see how it operates and you keep setting goals around that and it's all campaign-based so we see service campaigns, we see sales campaigns, marketing campaigns, it's made for different users.

Did you see a migration more towards service from sales with the new platform or is it similar mix?

Well, there's a greater opportunity in service when we come to impacting the contact center because there's a lot more calls happening on the service side. So, I would say that you're right. About -- we have over -- I think it's about 60% of our revenues in the sales side and we'll continue to expand that, but we're also focused on the service side. I used to think that the service side was sort of a commodity and there's always pricing pressure and there's always cutting of budgets. We see service now as a very important thing because companies are looking at the overall experience with the consumer and if you're bank, you're selling similar products; if you're Telco, you're selling similar products. But service can change the difference and how you're connecting with the consumer can change the different. And so we're seeing a renewed investment in service and sales continues to grow, but there's definitely renewed focus on that where it was kind of like a secondary thing, but it's definitely renewed focus.

Great, thanks a lot.

Thanks Mike.

Thanks Mike.

There are no further questions at this time.

Thank you, everyone for joining our call. We'll see you next quarter.

Thanks, everyone.

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