SEC Filing | LivePerson, Inc.

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lpsn-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission File Number: 000-30141


LIVEPERSON, INC.
(Exact name of registrant as specified in its charter)


Delaware						13-3861628
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

530 7th Ave, Floor M1
New York, New York						10018
(Address of principal executive offices)						(Zip Code)

(212) 609-4200

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	LPSN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On August 5, 2022, 75,012,352 shares of the registrant’s common stock were outstanding.

LIVEPERSON, INC.

June 30, 2022

FORM 10-Q

INDEX


		PAGE
	PART I. Financial Information	4

Item 1.	Financial Statements (Unaudited):	4

	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	4

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	6

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021	7

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	8

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	10

	Notes to Condensed Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57

Item 4.	Controls and Procedures	59

	PART II. Other Information	59

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 3.	Defaults Upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	61

Signatures		62

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q about LivePerson, Inc. (“LivePerson”, the “Company”, “our”, “we” or “us”) that are not historical facts are forward-looking statements. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about LivePerson and our industry. Our expectations, assumptions, estimates and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, assumptions, estimates and projections will be realized. Examples of forward-looking statements include, but are not limited to, statements regarding future business, future results of operations or financial condition (including based on examinations of historical operating trends), management strategies and the COVID-19 pandemic. Many of these statements are found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Quarterly Report on Form 10-Q. When used in this Quarterly Report on Form 10-Q, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. However, not all forward-looking statements contain these words. Forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include those set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2022 in the section entitled Part I, Item 1A. “Risk Factors.” It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we are under no obligation to inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter. We do not undertake any obligation to revise forward-looking statements to reflect future events or circumstances. All forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Part I. Financial Information

Item 1. Financial Statements

LIVEPERSON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	June 30, 2022		December 31, 2021
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	425,944	$	521,846
Accounts receivable, net of allowances of $8,204 and $6,338 as of June 30, 2022 and December 31, 2021, respectively	121,728		93,804
Prepaid expenses and other current assets	26,799		20,626
Total current assets	574,471		636,276
Operating lease right of use assets (Note 10)	3,064		1,977
Property and equipment, net (Note 6)	133,709		124,726
Contract acquisition costs	43,387		40,675
Intangibles, net (Note 5)	86,002		85,554
Goodwill (Note 5)	303,268		291,215
Deferred tax assets	4,600		5,034
Investment in joint venture	3,651		—
Other assets	2,521		1,199
Total assets	$	1,154,673	$	1,186,656

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,615	$	16,942
Accrued expenses and other current liabilities (Note 7)	120,916		104,297
Deferred revenue (Note 2)	110,594		98,808
Operating lease liability (Note 10)	4,100		3,380
Total current liabilities	258,225		223,427
Deferred revenue, net of current portion (Note 2)	—		54
Convertible senior notes, net (Note 8)	735,530		574,238
Operating lease liability, net of current portion (Note 10)	1,167		2,733
Deferred tax liability	2,541		2,049
Other liabilities	36,455		34,718
Total liabilities	1,033,918		837,219
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.001 par value - 5,000,000 shares authorized, none issued	—		—
Common stock, $0.001 par value - 200,000,000 shares authorized, 77,559,927 and 74,980,546 shares issued, 74,813,684 and 72,234,303 shares outstanding as of June 30, 2022 and December 31, 2021, respectively	78		75
Additional paid-in capital	740,132		871,788
Treasury stock - 2,746,243 shares	(3)		(3)
Accumulated deficit	(607,390)		(516,859)
Accumulated other comprehensive loss	(12,062)		(5,564)
Total stockholders’ equity	120,755		349,437
Total liabilities and stockholders’ equity	$	1,154,673	$	1,186,656

See accompanying notes to unaudited condensed consolidated financial statements.

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands, except share and per share amounts)
Revenue	$	132,565	$	119,605	$	262,762	$	227,496
Costs and expenses: (1) (2)
Cost of revenue (3)	45,049		40,063		94,616		73,582
Sales and marketing	59,983		38,622		118,115		75,575
General and administrative	30,246		16,105		59,981		30,591
Product development	55,752		37,526		111,824		70,981
Restructuring costs	10,861		493		10,838		3,225
Amortization of purchased intangibles	923		374		1,822		749
Total costs and expenses	202,814		133,183		397,196		254,703
Loss from operations	(70,249)		(13,578)		(134,434)		(27,207)
Other (expense) income, net:
Interest expense, net	(682)		(9,281)		(2,114)		(18,410)
Other (expense) income, net	(3,266)		2,338		(3,206)		3,050
Total other expense, net	(3,948)		(6,943)		(5,320)		(15,360)
Loss before provision for (benefit from) income taxes	(74,197)		(20,521)		(139,754)		(42,567)
Provision for (benefit from) income taxes	1,214		598		1,021		(253)
Net loss	$	(75,411)	$	(21,119)	$	(140,775)	$	(42,314)

Net loss per share of common stock:
Basic	$	(0.98)	$	(0.31)	$	(1.84)	$	(0.62)
Diluted	$	(0.98)	$	(0.31)	$	(1.84)	$	(0.62)

Weighted-average shares used to compute net loss per share:
Basic	77,290,465		69,057,129		76,555,518		68,482,653
Diluted	77,290,465		69,057,129		76,555,518		68,482,653

(1)Amounts include stock-based compensation expense, as follows:
Cost of revenue	$	4,120	$	1,386	$	6,251	$	3,281
Sales and marketing	5,942		3,373		12,591		7,155
General and administrative	13,231		3,110		23,669		5,760
Product development	13,224		7,218		25,872		13,502

(2)Amounts include depreciation expense, as follows:
Cost of revenue	$	2,463	$	2,634	$	4,996	$	5,168
Sales and marketing	605		615		1,157		1,218
General and administrative	96		28		233		88
Product development	3,963		3,696		7,965		7,104

(3)Amounts include amortization of purchased intangibles and finance leases, as follows:
Cost of revenue	$	4,561	$	1,184	$	8,977	$	2,359

See accompanying notes to unaudited condensed consolidated financial statements.

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands)
Net loss	$	(75,411)	$	(21,119)	$	(140,775)	$	(42,314)
Foreign currency translation adjustment	(4,799)		565		(6,498)		(1,181)
Comprehensive loss	$	(80,210)	$	(20,554)	$	(147,273)	$	(43,495)

See accompanying notes to unaudited condensed consolidated financial statements.

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)



	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Shares	Amount		Shares	Amount								Total
	(In thousands, except share data)
Balance as of December 31, 2021	74,980,546	$	75	(2,746,243)	$	(3)	$	871,788	$	(516,859)	$	(5,564)	$	349,437
Cumulative adjustment due to adoption of ASU 2020-06	—	—		—	—		(209,651)		50,244		—		(159,407)
Common stock issued upon exercise of stock options	40,483	—		—	—		506		—		—		506
Common stock issued upon vesting of restricted stock units (“RSUs”)	444,043	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		20,522		—		—		20,522
Cash awards settled in shares of the Company’s common stock	735,519	1		—	—		17,298		—		—		17,299
Common stock issued under Employee Stock Purchase Plan	82,100	—		—	—		1,415		—		—		1,415
Issuance of common stock in connection with acquisitions	779,946	1		—	—		17,636		—		—		17,637
Net loss	—	—		—	—		—		(65,364)		—		(65,364)
Other comprehensive loss	—	—		—	—		—		—		(1,699)		(1,699)
Balance as of March 31, 2022	77,062,637	$	77	(2,746,243)	$	(3)	$	719,514	$	(531,979)	$	(7,263)	$	180,346
Common stock issued upon exercise of stock options	25,295	—		—	—		389		—		—		389
Common stock issued upon vesting of RSUs	372,500	1		—	—		—		—		—		1
Stock-based compensation	—	—		—	—		18,826		—		—		18,826

Common stock issued under Employee Stock Purchase Plan	99,495	—		—	—		1,403		—		—		1,403
Net loss	—	—		—	—		—		(75,411)		—		(75,411)
Other comprehensive loss	—	—		—	—		—		—		(4,799)		(4,799)
Balance as of June 30, 2022	77,559,927	$	78	(2,746,243)	$	(3)	$	740,132	$	(607,390)	$	(12,062)	$	120,755

See accompanying notes to unaudited condensed consolidated financial statements.

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

(UNAUDITED)



	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Shares	Amount		Shares	Amount								Total
	(In thousands, except share data)
Balance as of December 31, 2020	70,264,265	$	70	(2,709,830)	$	(3)	$	635,672	$	(391,885)	$	80	$	243,934
Common stock issued upon exercise of stock options	209,185	—		—	—		2,617		—		—		2,617
Common stock issued upon vesting of RSUs	454,508	1		—	—		(1)		—		—		—
Stock-based compensation	—	—		—	—		9,225		—		—		9,225
Cash awards settled in shares of the Company’s common stock	400,700	—		—	—		25,925		—		—		25,925
Common stock issued under Employee Stock Purchase Plan	22,544	—		—	—		1,257		—		—		1,257
Net loss	—	—		—	—		—		(21,195)		—		(21,195)
Other comprehensive loss	—	—		—	—		—		—		(1,746)		(1,746)
Balance as of March 31, 2021	71,351,202	$	71	(2,709,830)	$	(3)	$	674,695	$	(413,080)	$	(1,666)	$	260,017
Common stock issued upon exercise of stock options	252,155	—		—	—		3,999		—		—		3,999
Common stock issued upon vesting of RSUs	252,218	1		—	—		(1)		—		—		—
Stock-based compensation	—	—		—	—		9,524		—		—		9,524
Cash awards settled in shares of the Company’s common stock	137,300	—		—	—		7,578		—		—		7,578
Common stock issued under Employee Stock Purchase Plan	24,270	—		—	—		1,128		—		—		1,128
Net loss	—	—		—	—		—		(21,119)		—		(21,119)
Other comprehensive loss	—	—		—	—		—		—		565		565
Balance as of June 30, 2021	72,017,145	$	72	(2,709,830)	$	(3)	$	696,923	$	(434,199)	$	(1,101)	$	261,692

See accompanying notes to unaudited condensed consolidated financial statements.

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended
	June 30,
	2022		2021
	(In thousands)
OPERATING ACTIVITIES:
Net loss	$	(140,775)	$	(42,314)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock-based compensation expense	68,383		29,698
Depreciation	14,351		13,578
Amortization of purchased intangibles and finance leases	10,799		3,108
Amortization of debt issuance costs	1,885		1,228
Accretion of debt discount on convertible senior notes	—		16,374
Allowance for credit losses	3,477		1,599
Gain on settlement of leases	—		(3,322)
Deferred income taxes	926		(1,408)
Changes in operating assets and liabilities:
Accounts receivable	(32,734)		(11,665)
Prepaid expenses and other current assets	(7,981)		(3,938)
Contract acquisition costs noncurrent	(4,758)		(3,557)
Other assets	(111)		597
Accounts payable	6,816		(6,548)
Accrued expenses and other current liabilities	3,941		20,527
Deferred revenue	13,049		20,126
Operating lease liabilities	(1,721)		(3,312)
Other liabilities	86		(157)
Net cash (used in) provided by operating activities	(64,367)		30,614

INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized software	(25,197)		(23,172)
Investment in joint venture	(3,651)		—
Payments for acquisition, net of cash acquired	(3,458)		—
Payments for intangible assets	(1,129)		(1,375)
Net cash used in investing activities	(33,435)		(24,547)

FINANCING ACTIVITIES:
Principal payments for financing leases	(1,849)		(1,728)
Proceeds from issuance of common stock in connection with the exercise of options and ESPP	895		9,001
Payments on conversion of convertible senior notes	—		(2)
Net cash (used in) provided by financing activities	(954)		7,271
Effect of foreign exchange rate changes on cash and cash equivalents	1,578		(1,882)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(97,178)		11,456
Cash, cash equivalents, and restricted cash - beginning of year	523,532		654,152
Cash, cash equivalents, and restricted cash - end of period	$	426,354	$	665,608


	Six Months Ended
	June 30,
	2022		2021
	(In thousands)
Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets
Cash and cash equivalents	$	425,944	$	664,334
Restricted cash in prepaid expenses and other current assets	410		1,274
Total cash, cash equivalents, and restricted cash - end of period	$	426,354	$	665,608

Supplemental disclosure of other cash flow information:
Cash paid for income taxes	$	2,237	$	686
Cash paid for interest	985		1,041

Supplemental disclosure of non-cash investing and financing activities:
Increase in convertible senior notes, net upon adoption of ASU 2020-06 (Note 1)	$	159,407	$	—
Purchase of property and equipment recorded in accounts payable	837		640
Issuance of shares of common stock to settle cash awards	17,298		33,503
Right of use assets obtained in exchange for operating lease liabilities	2,417		—
Issuance of 776,825 shares of common stock in connection with the WildHealth transaction in February 2022	17,675		—

See accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Description of Business and Basis of Presentation

LivePerson, Inc. (“LivePerson”, the “Company”, “we”, “our” or “us”) is a leading Conversational Artificial Intelligence (“AI”) company creating digital experiences that are Curiously Human. Conversational AI allows humans and machines to interact using natural language, including speech or text. During the past decade, consumers have made mobile devices the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers. The Company’s technology enables consumers to connect with businesses through these same preferred conversational interfaces, including Facebook Messenger, short message service (“SMS”), WhatsApp, Apple Business Chat, Google Rich Business Messenger and Alexa. These messaging conversations harness human agents, bots and AI to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and increasingly marketing, social, and brick and mortar engagements. For example, consumers can look up product info like ratings, images and pricing, search for stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or payments - all without ever leaving the messaging channel. These AI and human-assisted conversational experiences constitute the Conversational Space, within which LivePerson has strategically developed one of the industry’s largest ecosystems of messaging endpoints and use cases.

The Conversational Cloud, the Company’s enterprise-class cloud-based platform, enables businesses to become conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of customers and many thousands of agents. The Conversational Cloud powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, SMS, social media and third-party consumer messaging platforms. Brands can also use the Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to navigate interactive voice response systems (“IVRs”) and wait on hold. Similarly, the Conversational Cloud can ingest traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages. Agents can manage all conversations with consumers through a single console interface, regardless of where the conversations originated.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment Card Industry (“PCI”) compliance, co-browsing and a sophisticated proactive targeting engine. An extensible application programming interface (“API”) stack facilitates a lower cost of ownership by facilitating robust integration into back-end systems, as well as enabling developers to build their own programs and services on top of the platform. More than 40 APIs and software development kits are available on the Conversational Cloud.

LivePerson’s Conversational AI offerings put the power of bot development, training, management and analysis into the hands of the contact center and its agents, the teams most familiar with how to structure sales and service conversations to drive successful outcomes. The platform enables what the Company calls “the tango” of humans, AI and bots, whereby human agents act as bot managers, overseeing AI-powered conversations and seamlessly stepping into the flow when a personal touch is needed. Agents become ultra-efficient, leveraging the AI engine to serve up relevant content, define next-best actions and take over repetitive transactional work, so that the agent can focus on relationship building. By seamlessly integrating messaging with the Company’s proprietary Conversational AI, as well as third-party bots, the Conversational Cloud offers brands a comprehensive approach to scaling automations across their millions of customer conversations.

LivePerson’s consumer services offering is an online marketplace that connects independent service providers (“Experts”) who provide information and knowledge for a fee via mobile and online messaging with individual consumers (“Users”). Users seek assistance and advice in various categories including personal counseling and coaching, computers and programming, education and tutoring, spirituality and religion, and other topics.

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. The Company completed an initial public offering in April 2000 and is currently traded on the Nasdaq Global Select Market (“Nasdaq”) and the Tel Aviv Stock Exchange (“TASE”). LivePerson is headquartered in New York City. In light of the COVID-19 pandemic and the Company’s strong performance working remotely, LivePerson has adopted an “employee-centric” workforce model that does not rely on traditional offices. During the second quarter of 2021, the Company decided to reoccupy some of its leased space to provide its employees with the option of working in an office space environment if they choose to do so.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Basis of Presentation

The accompanying condensed consolidated financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the condensed consolidated financial position of LivePerson as of June 30, 2022, and the condensed consolidated results of operations, comprehensive loss, and cash flows for the interim periods ended June 30, 2022 and 2021. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at that date.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2022.

Principles of Consolidation

The condensed consolidated financial statements include the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

Equity Method Investment

The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20.0% of the voting interests of the investee, and conversely, the ability to exercise significant influence is presumed not to exist when an investor possesses 20% or less of the voting interests of the investee. These presumptions may be overcome based on specific facts and circumstances that demonstrate an ability to exercise significant influence is restricted or demonstrate an ability to exercise significant influence notwithstanding a smaller voting interest, such as with the Company’s 19.2% equity method investment in Claire Holdings, Inc. (“Claire”), due to the Company’s seat on the entity’s board of directors which provides the Company the ability to exert significant influence. In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. The Company assesses the carrying value of equity method investment on a periodic basis to see if there has been a decline in carrying value that is not temporary. When deciding whether a decline in carrying value is more than temporary, a number of factors are considered, including the investee’s financial condition and business prospects, as well as the Company’s investment intentions.

Variable Interest Entities

The condensed consolidated financial statements include the financial statements of LivePerson, its wholly owned subsidiaries, and each variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company consolidates entities in which it has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

The Company evaluates whether an entity in which it has a variable interest is considered a variable interest entity. VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights and a right to receive the expected residual returns of the entity or an obligation to absorb the expected losses of the entity).

Under the provisions of Accounting Standards Codification (“ASC”) 810, “Consolidation”, an entity consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses or

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company periodically reassesses whether it is the primary beneficiary of a VIE. See Note 18 – Variable Interest Entity for the Company’s assessment of VIEs.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Significant items subject to such estimates and assumptions include:

•revenue recognition;

•stock-based compensation;

•accounts receivable;

•valuation of goodwill;

•valuation of intangible assets;

•income taxes; and

•legal contingencies.

As of the date of issuance of the financial statements, the Company is not aware of any material specific events or circumstances that would require it to update its estimates, judgments, or to revise the carrying values of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.

Foreign Currency Translation

The Company’s operations are conducted in various countries around the world and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting currency) for inclusion in the Company’s condensed consolidated financial statements. Income, expenses, and cash flows are translated at weighted average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive loss in stockholders’ equity. Foreign exchange transaction gain or losses are included in other expense, net in the accompanying condensed consolidated statements of operations.

Recently Issued Accounting Pronouncements

Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03 to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

separate unit of account, recognize and measure a contractual sale restriction. The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions:

1.The fair value of equity securities subject to the contractual sale restrictions reflected on the balance sheet.

2.The nature and remaining duration of the restriction(s).

3.The circumstances that could cause a lapse in the restriction(s).

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company does not expect the adoption of ASU 2022-03 to have a significant impact on its condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued ASU 2020-06 which simplifies the accounting for convertible instruments by eliminating existing accounting models that require separation of a cash conversion or beneficial conversion feature from the host contract. Accordingly, a convertible debt instrument will be accounted as a single liability measured at its amortized cost and a convertible preferred stock will be accounted as a single equity instrument measured at its historical cost, as long as no other embedded features require bifurcation as derivatives and the convertible debt was not issued at a substantial premium. The ASU also simplifies the derivative scope exception for accounting for contracts in an entity’s own equity by:

•removing certain conditions required to meet the settlement criterion;

•clarifying that instruments that are not indexed to the issuer’s own stock must be remeasured at fair value through earnings at each reporting period; and

•clarifying the scope of reassessment guidance and disclosure requirements in Subtopic 815-40.

The ASU also makes targeted improvements to the disclosure requirements for convertible instruments and earnings per share guidance.

For SEC filers, excluding smaller reporting companies, the ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The ASU specifies that the guidance should be adopted as of the beginning of the annual fiscal year. In connection with the adoption of ASU 2020-06, the Company recognized a $50.2 million decrease to accumulated deficit, a $209.7 million decrease to additional paid-in capital, and a $159.4 million increase to convertible senior notes, net. See Note 8 – Convertible Senior Notes, Net and Capped Call Transactions for a description of the convertible senior notes, net on the condensed consolidated balance sheet. With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the quarter ended June 30, 2022, that are of significance or potential significance to the Company.

Note 2. Revenue Recognition

The majority of the Company’s revenue is generated from monthly service revenues, which is inclusive of its platform usage pricing model, and related professional services from the sale of its services. Revenues are recognized when control of these services is transferred to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services. No single customer accounted for 10% or more of the Company’s total revenue for the three and six months ended June 30, 2022 and 2021.

Remaining Performance Obligation

As of June 30, 2022, the aggregate amount of the total transaction price allocated in contracts with original duration of one year or greater to the remaining performance obligations was $408.8 million. Approximately 92% of the Company’s remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered.

Deferred Revenues

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company records deferred revenues when cash payments are received or due in advance of its performance. The increase in the deferred revenue balance as of June 30, 2022 is primarily driven by cash payments received or due in advance of its performance obligations, partially offset by $95.8 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2021.

The following table presents deferred revenue by revenue source:


	Deferred Revenue
	June 30, 2022		December 31, 2021
	(In thousands)
Hosted services – Business	$	108,284	$	94,107
Hosted services – Consumer	818		870
Professional services – Business	1,492		3,831
Total deferred revenue - short term	$	110,594	$	98,808


Professional services – Business	$	—	$	54
Total deferred revenue - long term	$	—	$	54

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands)
Revenue:
Hosted services – Business	$	94,856	$	95,092	$	201,180	$	178,732
Hosted services – Consumer	9,129		9,810		18,251		18,821
Professional services – Business	28,580		14,703		43,331		29,943
Total revenue	$	132,565	$	119,605	$	262,762	$	227,496

Revenue by Geographic Location

The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands)
United States	$	90,433	$	80,924	$	177,570	$	149,706
Other Americas (1)	2,975		3,995		8,014		7,908
Total Americas	93,408		84,919		185,584		157,614
EMEA (2) (4)	17,963		22,933		41,783		44,693
APAC (3)	21,194		11,753		35,395		25,189
Total revenue	$	132,565	$	119,605	$	262,762	$	227,496

—————————————

(1)Canada, Latin America and South America

(2)Europe, the Middle East and Africa (“EMEA”)

(3)Asia-Pacific (“APAC”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(4)Includes revenues from the United Kingdom of $13.8 million and $14.8 million for the three months ended June 30, 2022 and 2021, respectively, and from the Netherlands of $2.2 million and $1.2 million for the three months ended June 30, 2022 and 2021, respectively. Includes revenues from the United Kingdom of $28.5 million and $28.1 million for the six months ended June 30, 2022 and 2021, respectively, and from the Netherlands of $3.5 million and $2.5 million for the six months ended June 30, 2022 and 2021, respectively.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company’s deferred revenue balance is related to Hosted services - Business revenue.

In some arrangements, the Company allows customers to pay for access to the Conversational Cloud over the term of the software license. The Company refers to these as subscription transactions. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable on the condensed consolidated balance sheet. Contract acquisition costs represent prepaid sales commissions. The opening and closing balances of the Company’s accounts receivable, unbilled receivables, contract acquisition costs, and deferred revenues are as follows:


	Accounts Receivable		Unbilled Receivable		Contract Acquisition Costs (Non-current)		Deferred Revenue (Current)		Deferred Revenue (Non-current)
	(In thousands)
Opening balance as of December 31, 2021	$	69,259	$	24,545	$	40,675	$	98,808	$	54
(Decrease) increase, net	24,262		3,662		2,712		11,786		(54)
Ending balance as of June 30, 2022	$	93,521	$	28,207	$	43,387	$	110,594	$	—

Accounts Receivable, Net

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts receivable are written off against the allowance for uncollectible accounts when the Company determines amounts are no longer collectible.



	Allowance for Doubtful Accounts
	(In thousands)
Balance as of December 31, 2021	$	6,338
Additions charged to costs and expenses	3,477
Deductions/ write-offs	(1,611)
Balance as of June 30, 2022	$	8,204

Note 3. Net Loss Per Share

Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. All options, warrants, or other potentially dilutive instruments issued for nominal consideration are required to be included in the calculation of basic and diluted net income attributable to common stockholders. Diluted EPS is calculated using the “if-converted” method. The “if-converted” method is only assumed in periods where such application would be dilutive. In applying the “if-converted” method for diluted net income per share, the Company would assume conversion of the 2024 Notes at a ratio of 25.9182 shares of its common stock per $1,000 principal amount of the 2024 Notes. The Company would assume conversion of the 2026 Notes at a ratio of 13.2933 shares of its common stock per $1,000 principal amount of the 2026 Notes. Assumed converted shares of the Company’s common stock are weighted for the period the 2024 Notes and 2026 Notes were outstanding. The shares of common stock underlying the conversion option of the 2024 Notes and 2026 Notes were not included in the calculation of diluted income per share for the three and six months ended June 30, 2022.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS