LPSN Update: Impressive Q3 - Consumer Segment Now Cash Positive - Raising Target Price

11/06/2009

MDB issued a research update today on LivePerson Inc. (LPSN) reiterating its BUY recommendation and $7.00 Price Target.

LivePerson reported record financial results for the third quarter of 2009 with revenues of $22.3 million (up 15% year-over-year and 8% sequentially) and $0.05 per share in GAAP earnings. Revenues were noticeably above our $21.5 million estimate and at the high end of company’s guidance. Revenue from business operations totaled $19.1 million, up 14% year-over-year while revenue from the consumer segment (liveperson.com) climbed to $3.1 million, increasing 9% sequentially and 18% from the prior year quarter. Moreover, the consumer group turned cash flow positive and generated about $150,000 in cash during the quarter. Gross margins improved 230 bps year-over-year and 80 bps sequentially to 75.3%. Along with higher gross margins, operating expenses were notably lower than anticipated at $13.1 million, down 3% sequentially and 4% versus the year ago period. The resulting GAAP net income was nearly $2.3 million or $0.05 per share, considerably better than our $0.7 million or $0.01 per share forecast. This result was also $0.03 per share higher than the high end of management’s guidance. Non-GAAP cash earnings totaled $4.7 million or $0.10 per share, again higher than our $3.1 million estimate. Other highlights from the quarter included:

• the signing of 43 new enterprise deals including two of the five largest retailers in the U.S., with the average enterprise deal size climbing to $90,000
• 75% of new revenues came from contract extensions with existing enterprise clients, up from 70% in Q2 and the company now has 11 customers generating more than $1 million annually;
• the consumer business was cash flow positive in all three months of the 3rd quarter; and
• management raised its 2009 revenue guidance and now anticipates GAAP eps of $0.13 to $0.14 for the year as a whole.

Given the company’s expanding pipeline of large clients and improving revenue growth in the Consumer segment, we anticipate a strong finish to the year and expect that the company could grow revenues into 2010 at a rate similar to calendar 2009. In line with management’s revised guidance for the year, we now estimate 2009 revenues to reach $86 million and now expect non-GAAP cash earnings to reach more than $16.0 million or $0.34 per share. As such we are reiterating our Buy rating and raising our six to nine month target price from $5.50 to $7.00