Annual Statements Open main menu

LIVEPERSON INC - Quarter Report: 2022 September (Form 10-Q)


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 September 30, 2022
or
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)
Delaware13-3861628
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareLPSNThe 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 FilerAccelerated Filer
Non-accelerated FilerSmaller 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 November 3, 2022, 75,328,068 shares of the registrant’s common stock were outstanding.
1


LIVEPERSON, INC.
September 30, 2022
FORM 10-Q
INDEX
PAGE
   
Item 1.
   
 
as of September 30, 2022 and December 31, 2021
   
 
for the Three and Nine Months Ended September 30, 2022 and 2021
   
 
for the Three and Nine Months Ended September 30, 2022 and 2021
   
for the Three and Nine Months Ended September 30, 2022 and 2021
   
 
for the Nine Months Ended September 30, 2022 and 2021
 
   
Item 2.
   
Item 3.
   
Item 4.
   
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
2


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 “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects” 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.


3


Part I. Financial Information
Item 1. Financial Statements
LIVEPERSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 September 30,
2022
December 31,
2021
(In thousands)
ASSETS  
Current assets:  
Cash and cash equivalents$393,330 $521,846 
Accounts receivable, net of allowances of $8,511 and $6,338 as of September 30, 2022 and December 31, 2021, respectively
100,741 93,804 
Prepaid expenses and other current assets31,919 20,626 
Total current assets525,990 636,276 
Operating lease right of use assets (Note 10)
2,270 1,977 
Property and equipment, net (Note 6)
135,830 124,726 
Contract acquisition costs39,903 40,675 
Intangibles, net (Note 5)
81,457 85,554 
Goodwill (Note 5)
300,578 291,215 
Deferred tax assets4,570 5,034 
Investment in joint venture3,993 — 
Other assets2,487 1,199 
Total assets$1,097,078 $1,186,656 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$11,975 $16,942 
Accrued expenses and other current liabilities (Note 7)
118,421 104,297 
Deferred revenue (Note 2)
103,219 98,808 
Operating lease liability (Note 10)
3,221 3,380 
Total current liabilities236,836 223,427 
Deferred revenue, net of current portion (Note 2)
287 54 
Convertible senior notes, net (Note 8)
736,475 574,238 
Operating lease liability, net of current portion (Note 10)
698 2,733 
Deferred tax liability2,355 2,049 
Other liabilities30,916 34,718 
Total liabilities1,007,567 837,219 
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, 77,934,440 and 74,980,546 shares issued, 75,188,197 and 72,234,303 shares outstanding as of September 30, 2022 and December 31, 2021, respectively
78 75 
Additional paid-in capital757,162 871,788 
Treasury stock - 2,746,243 shares
(3)(3)
Accumulated deficit(650,638)(516,859)
Accumulated other comprehensive loss(17,088)(5,564)
Total stockholders’ equity89,511 349,437 
Total liabilities and stockholders equity
$1,097,078 $1,186,656 
         See accompanying notes to unaudited condensed consolidated financial statements.
4


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
    
Three Months EndedNine Months Ended
September 30,September 30,
 2022202120222021
(In thousands, except share and per share amounts)
Revenue$129,561 $118,327 $392,323 $345,823 
Costs and expenses: (1) (2)
  
Cost of revenue (3)
43,681 38,795 138,297 112,377 
Sales and marketing49,448 40,852 167,563 116,427 
General and administrative32,171 17,193 92,152 47,784 
Product development44,744 41,734 156,568 112,715 
Restructuring costs7,111 44 17,949 3,269 
Amortization of purchased intangibles920 488 2,742 1,237 
Total costs and expenses178,075 139,106 575,271 393,809 
Loss from operations(48,514)(20,779)(182,948)(47,986)
Other income (expense), net:
Interest income (expense), net401 (9,442)(1,713)(27,852)
Other income (expense), net5,114 (48)1,908 3,002 
Total other income (expense), net5,515 (9,490)195 (24,850)
Loss before provision for income taxes(42,999)(30,269)(182,753)(72,836)
Provision for income taxes249 2,538 1,270 2,285 
Net loss$(43,248)$(32,807)$(184,023)$(75,121)
Net loss per share of common stock:
Basic $(0.56)$(0.47)$(2.39)$(1.09)
Diluted $(0.56)$(0.47)$(2.39)$(1.09)
Weighted-average shares used to compute net loss per share:
Basic 77,784,346 69,798,839 76,969,629 68,926,203 
Diluted77,784,346 69,798,839 76,969,629 68,926,203 
(1) Amounts include stock-based compensation expense, as follows:
Cost of revenue $2,905 $1,337 $9,156 $4,618 
Sales and marketing 6,021 4,228 18,612 11,383 
General and administrative 12,034 4,103 35,703 9,863 
Product development 10,980 8,601 36,852 22,103 
(2) Amounts include depreciation expense, as follows:
Cost of revenue $2,402 $2,552 $7,398 $7,720 
Sales and marketing 637 602 1,794 1,820 
General and administrative 109 15 342 103 
Product development 3,915 3,724 11,880 10,828 
(3) Amounts include amortization of purchased intangibles and finance leases, as follows:
Cost of revenue $4,811 $1,343 $13,788 $3,702 
See accompanying notes to unaudited condensed consolidated financial statements.
5


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)

Three Months EndedNine Months Ended
September 30,September 30,
 2022202120222021
(In thousands)
Net loss$(43,248)$(32,807)$(184,023)$(75,121)
Foreign currency translation adjustment(5,026)(3,056)(11,524)(4,237)
Comprehensive loss$(48,274)$(35,863)$(195,547)$(79,358)

See accompanying notes to unaudited condensed consolidated financial statements.

6


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Common StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Equity
SharesAmountSharesAmount
(In thousands, except share data)
Balance as of December 31, 202174,980,546 $75 (2,746,243)$(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 options40,483 — — — 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 stock735,519 — — 17,298 — — 17,299 
Common stock issued under Employee Stock Purchase Plan82,100 — — — 1,415 — — 1,415 
Issuance of common stock in connection with acquisitions779,946 — — 17,636 — — 17,637 
Net loss— — — — — (65,364)— (65,364)
Other comprehensive loss— — — — — — (1,699)(1,699)
Balance as of March 31, 202277,062,637 $77 (2,746,243)$(3)$719,514 $(531,979)$(7,263)$180,346 
Common stock issued upon exercise of stock options25,295 — — — 389 — — 389 
Common stock issued upon vesting of RSUs372,500 — — — — — 
Stock-based compensation— — — — 18,826 — — 18,826 
Common stock issued under Employee Stock Purchase Plan99,495 — — — 1,403 — — 1,403 
Net loss— — — — — (75,411)— (75,411)
Other comprehensive loss— — — — — — (4,799)(4,799)
Balance as of June 30, 202277,559,927 $78 (2,746,243)$(3)$740,132 $(607,390)$(12,062)$120,755 
Common stock issued upon exercise of stock options134,423 — — — 343 — — 343 
Common stock issued upon vesting of RSUs161,272 — — — — — — — 
Stock-based compensation— — — — 15,843 — — 15,843 
Common stock issued under Employee Stock Purchase Plan78,818 — — — 844 — — 844 
Net loss— — — — — (43,248)— (43,248)
Other comprehensive loss— — — — — — (5,026)(5,026)
Balance as of September 30, 202277,934,440 $78 (2,746,243)$(3)$757,162 $(650,638)$(17,088)$89,511 

See accompanying notes to unaudited condensed consolidated financial statements.
7


Common StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Equity
SharesAmountSharesAmount
(In thousands, except share data)
Balance as of December 31, 202070,264,265 $70 (2,709,830)$(3)$635,672 $(391,885)$80 $243,934 
Common stock issued upon exercise of stock options209,185 — — — 2,617 — — 2,617 
Common stock issued upon vesting of RSUs454,508 — — (1)— — — 
Stock-based compensation— — — — 9,225 — — 9,225 
Cash awards settled in shares of the Company’s common stock400,700 — — — 25,925 — — 25,925 
Common stock issued under Employee Stock Purchase Plan22,544 — — — 1,257 — — 1,257 
Net loss— — — — — (21,195)— (21,195)
Other comprehensive loss— — — — — — (1,746)(1,746)
Balance as of March 31, 202171,351,202 $71 (2,709,830)$(3)$674,695 $(413,080)$(1,666)$260,017 
Common stock issued upon exercise of stock options252,155 — — — 3,999 — — 3,999 
Common stock issued upon vesting of RSUs252,218 — — (1)— — — 
Stock-based compensation— — — — 9,524 — — 9,524 
Cash awards settled in shares of the Company’s common stock137,300 — — — 7,578 — — 7,578 
Common stock issued under Employee Stock Purchase Plan24,270 — — — 1,128 — — 1,128 
Net loss— — — — — (21,119)— (21,119)
Other comprehensive loss— — — — — — 565 565 
Balance as of June 30, 202172,017,145 $72 (2,709,830)$(3)$696,923 $(434,199)$(1,101)$261,692 
Common stock issued upon exercise of stock options191,693 — — — 3,036 — — 3,036 
Common stock issued upon vesting of RSUs142,867 — — — — — — — 
Issuance of common stock in connection with acquisitions351,462 — — 20,012 — — 20,013 
Stock-based compensation— — — — 12,148 — — 12,148 
Common stock issued under Employee Stock Purchase Plan19,882 — — — 1,083 — — 1,083 
Net loss— — — — — (32,807)— (32,807)
Other comprehensive loss— — — — — — (3,056)(3,056)
Balance as of September 30, 202172,723,049 $73 (2,709,830)$(3)$733,202 $(467,006)$(4,157)$262,109 
See accompanying notes to unaudited condensed consolidated financial statements.
8


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)    
Nine Months Ended
September 30,
 20222021
(In thousands)
OPERATING ACTIVITIES:  
Net loss$(184,023)$(75,121)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:  
Stock-based compensation expense100,323 47,967 
Depreciation21,414 20,471 
Amortization of purchased intangibles and finance leases16,530 4,939 
Amortization of debt issuance costs2,831 1,858 
Accretion of debt discount on convertible senior notes— 24,770 
Allowance for credit losses4,669 2,431 
Changes in fair value of contingent consideration(8,568)— 
Gain on settlement of leases— (3,483)
Deferred income taxes770 (1,129)
Changes in operating assets and liabilities: 
Accounts receivable(13,856)(5,827)
Prepaid expenses and other current assets(13,519)(10,269)
Contract acquisition costs noncurrent(2,842)(4,765)
Other assets(123)741 
Accounts payable(4,229)(354)
Accrued expenses and other current liabilities(12,234)22,176 
Deferred revenue7,450 14,925 
Operating lease liabilities(2,148)(4,018)
Other liabilities8,084 330 
Net cash (used in) provided by operating activities(79,471)35,642 
INVESTING ACTIVITIES:  
Purchases of property and equipment, including capitalized software(35,212)(33,821)
Investment in joint venture(3,993)— 
Payments for acquisition, net of cash acquired(3,458)(23,014)
Repayment of debt acquired in acquisition— (1,955)
Payments for intangible assets(1,394)(1,931)
Net cash used in investing activities(44,057)(60,721)
FINANCING ACTIVITIES:  
Principal payments for financing leases(2,785)(2,604)
Proceeds from issuance of common stock in connection with the exercise of options and ESPP1,238 13,127 
Payments on conversion of convertible senior notes— (2)
Net cash (used in) provided by financing activities(1,547)10,521 
Effect of foreign exchange rate changes on cash and cash equivalents(4,713)(5,072)
Net decrease in cash, cash equivalents, and restricted cash(129,788)(19,630)
Cash, cash equivalents, and restricted cash - beginning of year523,532 654,152 
Cash, cash equivalents, and restricted cash - end of period$393,744 $634,522 
9


Nine Months Ended
September 30,
 20222021
(In thousands)
Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets
Cash and cash equivalents$393,330 $633,042 
Restricted cash in prepaid expenses and other current assets414 1,480 
Total cash, cash equivalents, and restricted cash - end of period$393,744 $634,522 
Supplemental disclosure of other cash flow information:
Cash paid for income taxes$3,079 $2,219 
Cash paid for interest1,895 1,981 
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 payable113 581 
Issuance of shares of common stock to settle cash awards17,298 33,503 
Right of use assets obtained in exchange for operating lease liabilities2,417 1,856 
Supplemental disclosure of non-cash financing activities related to the WildHealth acquisition in February 2022 (Note 9):
Issuance of 776,825 shares of common stock
$17,675 $— 
Fair value of contingent earn-out recorded in connection with WildHealth transaction38,151 — 
Supplemental disclosure of non-cash financing activities related to the e-bot7 acquisition in July 2021:
Issuance of 351,462 shares of common stock
$— $20,012 
Fair value of contingent earn-out recorded in connection with e-bot7 transaction6,113 6,026 

See accompanying notes to unaudited condensed consolidated financial statements.
10

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. 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.


11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Basis of Presentation

The accompanying condensed consolidated financial statements, and the financial data and other information disclosed in the notes to the condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 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 for a fair presentation of the Company’s condensed consolidated financial position, results of operations, comprehensive loss, and cash flows for the interim periods presented. 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 accounts of 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
12

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 Entities 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.
Goodwill
The Company evaluates goodwill for impairment on an annual basis in the third quarter, and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that the carrying value of reporting unit exceeds its fair value in accordance with ASC 820, “Fair Value Measurement.” In performing the goodwill impairment test, the Company first assesses qualitative factors to determine the existence of impairment. If the qualitative factors indicate that the carrying value of a reporting unit more likely than not exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative test.

In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value. The Company determines the fair value using the income and market approaches.

Under the income approach, the fair value of a reporting unit is the present value of its future cash flows as viewed from the eyes of a hypothetical market participant in an orderly transaction. These future cash flows are derived from expectations of revenue, expenses, tax deductions and credits, working capital flows, capital expenditures, and other projected sources and uses of cash, as applicable. Value indications are developed by discounting expected cash flows to their present value using a discount rate commensurate with the risks associated with the reporting unit subject to testing.

Under the market approach, the Company uses market multiples derived from comparable companies based on measures salient to investors in those companies.
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
13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





exchange transaction gain or losses are included in other income (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 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 September 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 nine months ended September 30, 2022 and 2021.
14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)






Remaining Performance Obligation

As of September 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 $430.5 million. Approximately 88% 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

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 September 30, 2022 is primarily driven by cash payments received or due in advance of its performance obligations, partially offset by $67.2 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
September 30,
2022
December 31,
2021
(In thousands)
Hosted services – Business$101,113 $94,107 
Hosted services – Consumer795 870 
Professional services – Business1,311 3,831 
Total deferred revenue - short term$103,219 $98,808 
Hosted services – Business171 — 
Professional services – Business$116 $54 
Total deferred revenue - long term$287 $54 
    
Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(In thousands)
Revenue:
Hosted services – Business$89,491 $93,234 $290,671 $271,966 
Hosted services – Consumer9,460 9,123 27,711 27,944 
Professional services – Business30,610 15,970 73,941 45,913 
Total revenue$129,561 $118,327 $392,323 $345,823 

Revenue by Geographic Location

The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented:
15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(In thousands)
United States$89,619 $80,096 $267,189 $229,802 
Other Americas (1)
2,470 4,009 10,484 11,917 
Total Americas92,089 84,105 277,673 241,719 
EMEA (2) (4)
16,107 23,399 57,890 68,092 
APAC (3)
21,365 10,823 56,760 36,012 
Total revenue$129,561 $118,327 $392,323 $345,823 
—————————————
(1)Canada, Latin America and South America
(2)Europe, the Middle East and Africa (“EMEA”)
(3)Asia-Pacific (“APAC”)
(4)Includes revenues from the United Kingdom of $13.1 million and $14.3 million for the three months ended September 30, 2022 and 2021, respectively, and from the Netherlands of $1.3 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively. Includes revenues from the United Kingdom of $41.6 million and $42.4 million for the nine months ended September 30, 2022 and 2021, respectively, and from the Netherlands of $4.8 million and $3.7 million for the nine months ended September 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 (in thousands):
Accounts ReceivableUnbilled ReceivableContract Acquisition
Costs
(Non-current)
Deferred Revenue (Current)Deferred Revenue
(Non-current)
Opening balance as of December 31, 2021$69,259 $24,545 $40,675 $98,808 $54 
Increase (decrease), net5,863 1,074 (772)4,411 233 
Ending balance as of September 30, 2022$75,122 $25,619 $39,903 $103,219 $287 

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.
16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Allowance for Doubtful Accounts
(In thousands)
Balance as of December 31, 2021$6,338 
Additions charged to costs and expenses4,669 
Deductions/write-offs(2,496)
Balance as of September 30, 2022$8,511 
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 $1,000 principal amount of the 2026 Notes. Assumed converted shares of the Company’s common stock are weighted for the period the 2024 Notes and 2026 Notes were outstanding. The shares of common stock underlying the conversion option of the 2024 Notes and 2026 Notes were not included in the calculation of diluted income per share for the three and nine months ended September 30, 2022 and 2021.
See Note 8 – Convertible Senior Notes, Net and Capped Call Transactions for a description of the 2024 Notes and 2026 Notes.
A reconciliation of shares used in calculating basic and diluted net loss per share follows:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Net loss (in thousands)$(43,248)$(32,807)$(184,023)$(75,121)
Weighted average number of shares outstanding, basic and diluted77,784,346 69,798,839 76,969,629 68,926,203 
Net loss per share, basic and diluted$(0.56)$(0.47)$(2.39)$(1.09)
The anti-dilutive securities excluded from the shares used to calculate diluted net loss per share are as follows:
As of September 30,
20222021
Shares subject to outstanding common stock options and employee stock purchase plan4,514,229 4,291,829 
Restricted stock units5,246,300 3,063,156 
Fair value of earn-outs11,996,072 697,133 
Conversion option of the 2024 Notes5,961,186 5,961,186 
Conversion option of the 2026 Notes6,879,283 6,879,283 
     Total34,597,070 20,892,587 
Note 4. Segment Information

The Company is organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage the Conversational Cloud’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between Experts and Users seeking information and knowledge for a fee via mobile and online messaging. Both segments currently generate their revenue primarily in the United States. The chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income (loss) of each segment. The reporting segments follow the same accounting
17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





polices used in the preparation of the Company’s condensed consolidated financial statements which are described in Note 1 – Description of Business and Basis of Presentation. The Company allocates cost of revenue, sales and marketing, and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses, restructuring costs, or income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.
Summarized financial information by segment for the three months ended September 30, 2022, based on the Company’s internal financial reporting system utilized by the Company’s CODM, follows:
BusinessConsumerCorporateConsolidated
(In thousands)
Revenue:
Hosted services – Business$89,491 $— $— $89,491 
Hosted services – Consumer— 9,460 — 9,460 
Professional services – Business30,610 — — 30,610 
Total revenue120,101 9,460 — 129,561 
Cost of revenue42,392 1,289 — 43,681 
Sales and marketing42,826 6,622 — 49,448 
Amortization of purchased intangibles920 — — 920 
Unallocated corporate expenses— — 84,026 84,026 
Operating income (loss)$33,963 $1,549 $(84,026)$(48,514)

Summarized financial information by segment for the three months ended September 30, 2021, based on the Company’s internal financial reporting system utilized by the Company’s CODM, follows:
BusinessConsumerCorporateConsolidated
(In thousands)
Revenue:
Hosted services – Business$93,234 $— $— $93,234 
Hosted services – Consumer— 9,123 — 9,123 
Professional services – Business15,970 — — 15,970 
Total revenue109,204 9,123 — 118,327 
Cost of revenue37,057 1,738 — 38,795 
Sales and marketing34,640 6,212 — 40,852 
Amortization of purchased intangibles488 — — 488 
Unallocated corporate expenses— — 58,971 58,971 
Operating income (loss) $37,019 $1,173 $(58,971)$(20,779)

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Summarized financial information by segment for the nine months ended September 30, 2022, based on the Company’s internal financial reporting system utilized by the Company’s CODM, follows:
BusinessConsumerCorporateConsolidated
(In thousands)
Revenue:
Hosted services – Business$290,671 $— $— $290,671 
Hosted services – Consumer— 27,711 — 27,711 
Professional services – Business73,941 — — 73,941 
Total revenue364,612 27,711 — 392,323 
Cost of revenue134,229 4,068 — 138,297 
Sales and marketing148,370 19,193 — 167,563 
Amortization of purchased intangibles2,742 — — 2,742 
Unallocated corporate expenses— — 266,669 266,669 
Operating income (loss)$79,271 $4,450 $(266,669)$(182,948)

Summarized financial information by segment for the nine months ended September 30, 2021, based on the Company’s internal financial reporting system utilized by the Company’s CODM, follows:
BusinessConsumerCorporateConsolidated
(In thousands)
Revenue:
Hosted services – Business$271,966 $— $— $271,966 
Hosted services – Consumer— 27,944 — 27,944 
Professional services – Business45,913 — — 45,913 
Total revenue317,879 27,944 — 345,823 
Cost of revenue106,932 5,445 — 112,377 
Sales and marketing96,758 19,669 — 116,427 
Amortization of purchased intangibles1,237 — — 1,237 
Unallocated corporate expenses— — 163,768 163,768 
Operating income (loss) $112,952 $2,830 $(163,768)$(47,986)

Geographic Information

The Company is domiciled in the United States and has international operations around the globe. The following table presents the Company’s long-lived assets by geographic region as of the dates presented:
September 30,
2022
December 31,
2021
(In thousands)
United States$476,244 $444,318 
Germany42,927 52,342 
Israel23,161 20,754 
Australia12,031 12,771 
Netherlands3,320 4,566 
Other (1)
13,405 15,629 
Total long-lived assets$571,088 $550,380 
——————————————
(1)United Kingdom, Japan, France, Italy, Spain, Canada, and Singapore.
19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Note 5. Goodwill and Intangible Assets, Net
Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 are as follows:
BusinessConsumerConsolidated
(In thousands)
Balance as of December 31, 2021$283,191 $8,024 $291,215 
Adjustments to goodwill:
Acquisitions15,511 — 15,511 
Foreign exchange adjustment(6,148)— (6,148)
Balance as of September 30, 2022$292,554 $8,024 $300,578 

During the third quarter of 2022, the Company performed a quantitative analysis to determine whether it was more likely than not that goodwill impairment existed as of the annual impairment test date. As a result of this assessment, the Company concluded that the estimated fair values of each reporting unit exceeded their respective carrying values. Therefore, the Company did not record goodwill impairment for the three and nine months ended September 30, 2022. The Company also did not record goodwill impairment for the three and nine months ended September 30, 2021.

Intangible Assets, Net

Intangible assets, net, are summarized as follows:
As of September 30, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying AmountWeighted
Average
Amortization
Period
(In thousands)
Amortizing intangible assets:
Technology$97,143 $(41,938)$55,205 5.0 years
Customer relationships31,795 (16,795)15,000 10.0 years
Patents10,234 (1,332)8,902 12.8 years
Trademarks1,275 (312)963 5.0 years
Trade names1,040 (273)767 2.8 years
Other914 (294)620 4.1 years
Total intangible assets$142,401 $(60,944)$81,457 
    

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





As of December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying AmountWeighted
Average
Amortization
Period
(In thousands)
Amortizing intangible assets:
Technology$90,626 $(30,757)$59,869 5.1 years
Customer relationships32,162 (15,164)16,998 10.0 years
Patents7,988 (1,137)6,851 11.8 years
Trademarks1,474 (135)1,339 5.0 years
Trade names460 (43)417 2.1 years
Other314 (234)80 2.2 years
Total intangible assets $133,024 $(47,470)$85,554 
 
Amortization expense is calculated over the estimated useful life of the asset. A portion of this amortization is included in cost of revenue. Aggregate amortization expense for intangible assets, net was $4.8 million and $0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $13.8 million and $2.2 million for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, estimated annual amortization expense for the next five years and thereafter is as follows:
Estimated Amortization Expense
(In thousands)
Remainder of fiscal 2022$4,626 
202317,753 
202415,965 
202515,567 
202612,901 
Thereafter14,645 
Total$81,457 
Note 6. Property and Equipment, Net

The following table presents the detail of property and equipment, net for the periods presented:
September 30,
2022
December 31,
2021
(In thousands)
Computer equipment and software$123,237 $120,685 
Internal-use software development costs150,831 122,479 
Finance lease right of use assets3,998 6,797 
Furniture, equipment, and building improvements519 258 
Property and equipment, at cost278,585 250,219 
Less: accumulated depreciation(142,755)(125,493)
Property and equipment, net$135,830 $124,726 
21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Note 7. Accrued Expenses and Other Current Liabilities
The following table presents the detail of accrued expenses and other current liabilities for the periods presented:
September 30,
2022
December 31,
2021
(In thousands)
Professional services and consulting and other vendor fees$42,381 $58,811 
Payroll and other employee related costs22,373 29,855 
Short-term contingent earn-out36,109 — 
Sales commissions2,010 4,269 
Finance lease liability3,412 3,738 
Unrecognized tax benefits2,377 2,424 
Restructuring5,710 1,694 
Taxes other than income tax1,196 918 
Other2,853 2,588 
Total accrued expenses and other current liabilities$118,421 $104,297 
Note 8. Convertible Senior Notes, Net and Capped Call Transactions

Convertible Senior Notes due 2024 and Capped Calls

In March 2019, the Company issued $230.0 million aggregate principal amount of its 0.750% Convertible Senior Notes due 2024 (the “2024 Notes”) in a private placement, which amount includes $30.0 million aggregate principal amount of such Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional 2024 Notes. Interest on the 2024 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019.

The 2024 Notes will mature on March 1, 2024, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the offering of the 2024 Notes, after deducting debt issuance costs, paid, or payable by the Company, was approximately $221.4 million.

Each $1,000 in principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $0.001, which is equivalent to an initial conversion price of approximately $38.58 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2024 Notes in connection with such a corporate event. The 2024 Notes are not redeemable prior to the maturity date of the 2024 Notes and no sinking fund is provided for the 2024 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2024 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their 2024 Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, holders may convert all or any portion of their 2024 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the
22

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election.

During the three and nine months ended September 30, 2022, the conditions allowing holders of the 2024 Notes to convert were not met.

The 2024 Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2024 Notes; equal in right of payment with the Company’s existing and future liabilities that are not so subordinated; effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that did not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $52.9 million and was determined by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an effective interest rate over the contractual term of the 2024 Notes. This accounting treatment no longer applies under ASU 2020-06.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total amount incurred of approximately $8.6 million to the liability and equity components of the 2024 Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $6.6 million, were recorded as an additional debt discount and were amortized to interest expense using the effective interest method over the contractual term of the 2024 Notes. Issuance costs attributable to the equity component were approximately $2.0 million and recorded as a reduction of additional paid in capital in stockholders’ equity. This accounting treatment no longer applies under ASU 2020-06.

In accounting for the 2024 Notes after the adoption of ASU 2020-06, the 2024 Notes are accounted for as a single liability, and the carrying amount of the 2024 Notes is $227.5 million as of September 30, 2022, consisting of principal of $230.0 million, net of unamortized debt issuance costs of $2.5 million. The 2024 Notes were classified as long term liabilities as of September 30, 2022. The remaining term over which the 2024 Notes’ debt issuance costs will be amortized is 1.4 years. The effective interest rate on the debt was 1.53% for the three and nine months ended September 30, 2022.

In connection with the offering of the 2024 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2024 capped calls”). The 2024 capped calls each have an initial strike price of approximately $38.58 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. The 2024 capped calls have initial cap prices of $57.16 per share, subject to certain adjustment events. The 2024 capped calls cover, subject to anti-dilution adjustments, approximately 5.96 million shares of common stock. The 2024 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2024 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2024 capped calls expire on March 1, 2024, subject to earlier exercise. The 2024 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2024 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2024 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2024 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $23.2 million incurred to purchase the 2024 capped calls was recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet.

Convertible Senior Notes due 2026 and Capped Calls

In December 2020, the Company issued $517.5 million aggregate principal amount of its 0% Convertible Senior Notes due 2026 (the “2026 Notes” and together with the 2024 Notes, the “Notes”) in a private placement, which amount includes $67.5 million aggregate principal amount of such Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional 2026 Notes.

23

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





The 2026 Notes will mature on December 15, 2026, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the offering of the 2026 Notes, after deducting debt issuance costs, paid or payable by the Company, was approximately $505.3 million.

Each $1,000 in principal amount of the 2026 Notes is initially convertible into 13.2933 shares of the Company’s common stock par value $0.001, which is equivalent to an initial conversion price of approximately $75.23 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event. The 2026 Notes are not redeemable prior to the maturity date of the 2026 Notes and no sinking fund is provided for the 2026 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2026 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their 2026 Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.

Holders of the 2026 Notes may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2026 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2026 Notes) per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2026 Notes on each such trading day; (3) with respect to any 2026 Notes that the Company calls for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after August 15, 2026, holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

During the three and nine months ended September 30, 2022, the conditions allowing holders of the 2026 Notes to convert were not met.

The 2026 Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2026 Notes; equal in right of payment with the Company’s existing and future liabilities that are not so subordinated; effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2026 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that did not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $162.5 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an effective interest rate over the contractual term of the 2026 Notes. This accounting treatment no longer applies under ASU 2020-06.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total amount incurred of approximately $12.2 million to the liability and equity components of the 2026 Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $8.5 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes. Issuance costs attributable to the equity component were approximately $3.7 million and recorded as a reduction of additional paid in capital in stockholders’ equity. This accounting treatment no longer applies under ASU 2020-06.
24

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)






In accounting for the 2026 Notes after the adoption of ASU 2020-06, the 2026 Notes are accounted for as a single liability, and the carrying amount of the 2026 Notes is $509.0 million as of September 30, 2022, consisting of principal of $517.5 million, net of issuance costs of $8.5 million. The 2026 Notes were classified as long term liabilities as of September 30, 2022.The remaining term over which the 2026 Notes’ debt issuance costs will be amortized is 4.2 years. The effective interest rate on the debt was 0.40% for the three and nine months ended September 30, 2022.

In connection with the offering of the 2026 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2026 capped calls”). The 2026 capped calls each have an initial strike price of approximately $75.23 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes. The 2026 capped calls have initial cap prices of $105.58 per share, subject to certain adjustment events. The 2026 capped calls cover, subject to anti-dilution adjustments, approximately 6.88 million shares of common stock. The 2026 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2026 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2026 capped calls expire on December 15, 2026, subject to earlier exercise. The 2026 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2026 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2026 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2026 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $46.1 million incurred to purchase the 2026 capped calls was recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheet.

The net carrying amount of the liability component of the Notes as of September 30, 2022 (post-ASU 2020-06 adoption) and as of December 31, 2021 (pre-ASU 2020-06 adoption) was as follows:
September 30,
2022
December 31,
2021
(In thousands)
Principal$747,500 $747,500 
Unamortized discount— (162,960)
Unamortized issuance costs(11,025)(10,302)
Net carrying amount$736,475 $574,238 

The net carrying amount of the equity component of the Notes as of September 30, 2022 (post-ASU 2020-06 adoption) and as of December 31, 2021 (pre-ASU 2020-06 adoption) was as follows:
September 30,
2022
December 31,
2021
(In thousands)
Proceeds allocated to the conversion options (debt discount)$— $215,434 
Issuance costs— (5,783)
Net carrying amount$ $209,651 

The following table sets forth the interest expense recognized related to the Notes:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(In thousands)
Contractual interest expense$431 $431 $1,294 $1,294 
Amortization of issuance costs946 630 2,831 1,858 
Amortization of debt discount— 8,396 — 24,770 
Total interest expense$1,377 $9,457 $4,125 $27,922 

Interest expense of $1.4 million and $4.1 million are reflected as a component of interest expense, net in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively.
25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Note 9. Acquisitions

In February 2022, the Company completed the acquisition of 100% of the equity of WildHealth, Inc. (“WildHealth”), a precision medicine company operating in the United States, for a total purchase price of $22.3 million. The purchase price consisted of approximately $4.6 million in cash and $17.7 million in shares of common stock of the Company. As part of the purchase price, the Company issued 776,825 common shares that had a total fair value of $20.8 million based on the closing market price of $26.81 on the acquisition date of February 7, 2022. This acquisition is part of the Company’s strategy to accelerate its technology-driven healthcare offerings by combining a rich healthcare data platform with Conversational AI to enable B2B healthcare brands to scale and personalize patient engagement. The transaction was accounted for as a business combination. In connection with the acquisition, the Company entered into stock forfeiture agreements with certain employees of WildHealth, under which a portion of the purchase price will be subject to vesting conditions based on continuing employment post acquisition. The Company has allocated the purchase consideration subject to the stock forfeiture agreements between pre and post combination periods.

Former stockholders of WildHealth have the right to receive in the aggregate up to an additional $120.0 million earn-out (to be settled in the Company’s equity or cash at the Company’s election, but with the cash election restricted to 18.0 percent of the total earn-out) based upon satisfaction of certain financial milestones over the period from October 31, 2022 through December 31, 2025. The Company has accounted for the earn-out as a compensation arrangement in accordance with ASC 718, “Compensation - Stock Compensation,” pursuant to which such earn-out payments are liability classified to be recognized over the requisite service periods. For the earn-outs, the Company accrued $14.7 million and $38.2 million for the three and nine months ended September 30, 2022, respectively, which is reflected as a component of other liabilities and accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets and as a component of stock-based compensation expense in the accompanying condensed consolidated statements of operations.
The purchase price allocation resulted in approximately $15.5 million of goodwill and $8.3 million of intangible assets. WildHealth is part of the Business Segment and is a separate reporting unit. Goodwill is primarily attributed to synergies from future expected economic benefits, including enhanced revenue growth from expanded capabilities. The goodwill will not be deductible for tax purposes. The intangible assets are being amortized over their expected period of benefit. A deferred tax liability for the identified intangibles has been recorded for $1.6 million. The Company recorded an indemnification asset of $1.2 million relating to a pre-acquisition liability assumed.
The following table summarizes the fair value amounts of identifiable assets acquired and liabilities assumed at the acquisition date:
26

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





WildHealth Acquisition
(In thousands)
Assets acquired
Cash
$1,353 
Other current assets
382 
Fixed assets
248 
Intangible assets
8,300 
Other assets
1,037 
Total assets acquired
$11,320 
Liabilities assumed
Current liabilities assumed
$(1,463)
Deferred tax liabilities
(1,603)
Other liabilities assumed
(1,500)
Total liabilities assumed
(4,566)
Net assets acquired
6,754 
Total acquisition consideration
22,265 
Goodwill
$15,511 
Other current assets acquired in connection with the acquisition consisted primarily of accounts receivable and other short term assets. Current liabilities assumed in connection with the acquisition consisted primarily of accounts payable, deferred revenue and other short term liabilities. The following is the breakout of the intangible assets acquired:
Fair ValueUseful life
(In thousands)
Amortizing intangible assets:
Developed technology$7,100 5.0 years
Trade name600 5.0 years
Fellowship content600 5.0 years
    Total amortizing intangible assets$8,300 

The Company applied a multi-period excess earnings method of the income approach to estimate the fair values of the intangible assets acquired. The intangible assets acquired in the business acquisition were developed technology, trade name, and fellowship content for the fair value of $8.3 million, determined based on the estimated fair value of expected after-tax cash flows attributable to annual recurring revenue from customers. The Company applied various estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the existing customers over time and the discount rate. The fair values assigned to the other tangible and identifiable intangible assets acquired and liabilities assumed as part of the business combination were based on management’s estimates and assumptions. The Company began amortizing the intangible assets on the date of acquisition over a period of five years based on expected future cash flow. The amortization expense is recorded to amortization of purchased intangibles in the condensed consolidated statements of operations.
The Company incurred $0.3 million in acquisition costs related to the WildHealth transaction that was expensed in the period incurred, of which the amount expensed for the three months ended September 30, 2022 was immaterial, and is included in general and administrative expense in the accompanying condensed consolidated statements of operations.
Note 10. Leases

The Company has operating and finance leases for its corporate offices and other service agreements. Its leases have remaining lease terms of less than one to four years, some of which include options to extend.

In connection with the leases, the Company recognized operating lease right of use assets of $2.3 million and $2.0 million and an aggregate lease liability of $3.9 million and $6.1 million in its condensed consolidated balance sheet as of September 30, 2022 and December 31, 2021, respectively.
27

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)






On July 13, 2020, the Company announced its decision to transition to an employee-centric model under which employees work remotely rather than in traditional offices. In connection with this decision, the Company abandoned 14 leases in its global portfolio of office leases during 2020. As a result, the Company recognized accelerated amortization to fully reduce the carrying value of the associated right of use assets between the decision date and the cease use date. 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. There were no changes to the accounting for the lease liabilities associated with the leased office spaces. During the nine months ended September 30, 2021, the Company had a $3.5 million gain resulting from the settlement of leases.

As of September 30, 2022, in connection with a lease in Israel, the Company was required to pledge cash as collateral security to be maintained at an Israeli bank. The collateral security would remain in control of the bank, to be available in order to satisfy outstanding obligations under the lease contracts. Accordingly, the Company had cash at an Israeli bank of approximately $0.2 million at September 30, 2022, which is recorded as restricted cash in Prepaid expenses and other current assets in the condensed consolidated balance sheets. In the third quarter of 2021, the Company entered into a new lease in Australia and was required to pledge $0.2 million in cash as collateral security, which is also recorded as restricted cash in Prepaid expenses and other current assets in the condensed consolidated balance sheets.

The Company continues to actively assess its global lease portfolio. However, any additional de-recognition of right of use assets and incurrence of various one-time expenses in connection with early termination of additional leases are not expected to be material to its financial condition or results of operations.

Supplemental cash flow information related to leases for the periods listed are as follows:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows for operating leases$1,201 $651 $3,584 $1,894 
   Operating cash flows for finance leases44 77 162 256 
   Financing cash flows for finance leases936 876 2,785 2,604 

The components of lease costs for the periods listed are as follows:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(In thousands)
Finance lease cost
   Amortization of right of use assets$929 $908 $2,762 $2,696 
   Interest44 77 162 256 
Operating lease cost1,211 2,324 5,621 5,805 
   Total lease cost$2,184 $3,309 $8,545 $8,757 

28

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





September 30,
2022
September 30,
2021
Weighted Average Remaining Lease Term:
Operating leases1.5 years2.7 years
Finance leases1.3 years2.1 years
Weighted Average Discount Rate:
Operating leases%%
Finance leases%%

Supplemental balance sheet information related to leases was as follows:
Classification on the Condensed Consolidated Balance SheetSeptember 30,
2022
December 31,
2021
(In thousands)
Assets
Operating right of use assetsOperating lease right of use assets$2,270 $1,977 
Finance right of use assetsProperty and equipment, net3,998 6,797 
Liabilities
Current liabilities:
Operating lease liabilityOperating lease liability$3,221 $3,380 
Finance lease liabilityAccrued expenses and other current liabilities3,412 3,738 
Non-current liabilities:
Operating lease liabilityOperating lease liability, net of current portion$698 $2,733 
Finance lease liabilityOther liabilities277 2,780 

Future minimum lease payments under non-cancellable operating and finance leases (with an initial or remaining lease term in excess of one year) are as follows:
September 30, 2022
Operating
Leases
Finance
Leases
(In thousands)
2022 (remaining three months at September 30, 2022)
$1,256 $980 
20232,242 2,609 
2024268 109 
2025304 81 
2026127 — 
Total minimum lease payments4,197 3,779 
Less: present value adjustment(278)(90)
Present value of lease liabilities$3,919 $3,689 
Note 11. Fair Value Measurements

The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:
29

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

Financial Assets and Liabilities

The carrying amount of cash, accounts receivable, and accounts payable approximate their fair value due to their short-term nature. The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of September 30, 2022 and December 31, 2021, are summarized as follows:
September 30, 2022
Level 1Level 2Level 3Total
(In thousands)
Assets
Cash equivalents:
Money market funds$321,553 $— $— $321,553 
Total assets$321,553 $ $ $321,553 
Liabilities
Earn-outs treated as contingent consideration$— $— $23,282 $23,282 
Earn-outs treated as liability awards  41,843 41,843 
Total liabilities$ $ $65,125 $65,125 
December 31, 2021
Level 1Level 2Level 3Total
(In thousands)
Assets
Cash equivalents:
Money market funds$416,178 $— $— $416,178 
Total assets$416,178 $ $ $416,178 
Liabilities
Contingent earn-out$— $— $29,830 $29,830 
Total liabilities$ $ $29,830 $29,830 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.

The Company’s money market funds are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as Level 1 within the fair value hierarchy. The Company’s contingent earn-out liability is measured at fair value on a recurring basis and is classified as Level 3 within the fair value hierarchy. On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on
30

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. The Company uses an income approach and inputs that constitute Level 3.

As of September 30, 2022, the fair value of the Notes, as further described in Note 8 – Convertible Senior Notes, Net and Capped Call Transactions above, was approximately $486.9 million. Management determines the fair value by utilizing an independent valuation specialist using the antithetic variable technique which is considered a Level 2 fair value measurement.
The changes in fair value of the Level 3 liabilities are as follows:

September 30,
2022
December 31,
2021
(In thousands)
Balance, beginning of year$29,830 $— 
Additions in the period45,017 29,830 
Change in fair value of contingent consideration(8,568)— 
Change in fair value of liability awards(1,154)132 
Payments— (132)
Balance, end of period$65,125 $29,830 
Certain former stakeholders of the Company’s acquisitions are eligible to receive additional cash or share considerations based on the attainment of certain operating metrics in the periods subsequent to the acquisitions. These earn-out arrangements are accounted for as either contingent considerations arrangements or compensation arrangements. Contingent considerations are fair valued using significant inputs that are not observable in the market.
The earn-outs determined to be compensatory is remeasured each reporting period based on whether the performance targets are probable of being achieved and recognized over the related service periods. For the three and nine months ended September 30, 2022, $15.5 million and $42.9 million, respectively, was recognized as a component of stock-based compensation expense in the accompanying condensed consolidated statements of operations.
Note 12. Commitments and Contingencies

Employee Benefit Plans

The Company’s 401(k) policy is a Safe Harbor Plan, whereby the Company matches 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation. Furthermore, the match is immediately vested. Salaries and related expenses include $2.8 million and $1.0 million of employer matching contributions for the three months ended September 30, 2022 and 2021, respectively, and $5.8 million and $2.8 million for the nine months ended September 30, 2022 and 2021.

Letters of Credit

As of September 30, 2022, the Company had a letter of credit totaling $0.9 million as a security deposit for the due performance by the Company of the terms and conditions of a supply contract.

Sales Tax Liabilities

The Company is in the process of finalizing its sales tax liability analysis for states in which it has economic nexus. During the first quarter of 2020, the Company determined it was probable it would be subject to sales tax liabilities, plus applicable interest in these states, and the Company has estimated the potential exposure to range between $2.5 million to $6.3 million. The Company determined that its best estimate of what would be reasonably expected for it to settle the potential exposure was $2.5 million and accordingly, the Company accrued this amount with a corresponding charge to earnings as of March 31, 2020. As of September 30, 2022, there is a $1.1 million accrual balance for sales tax liabilities. The decrease in the balance of this accrual is primarily due to payments made for the sales tax liabilities.
31

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Note 13. Stockholders’ Equity

Common Stock

As of September 30, 2022, there were 200,000,000 shares of common stock authorized, 77,934,440 shares issued, and 75,188,197 shares outstanding. As of December 31, 2021, there were 200,000,000 shares of common stock authorized, 74,980,546 shares issued, and 72,234,303 shares outstanding. The par value for shares of common stock is $0.001 per share.

Preferred Stock

As of September 30, 2022 and December 31, 2021, there were 5,000,000 shares of preferred stock authorized, and no shares were issued or outstanding. The par value for shares of preferred stock is $0.001 per share.

Stock-Based Compensation

Stock Option Plans

The Company’s 2019 Stock Incentive Plan, as amended and restated (the “2019 Plan”), became effective on April 11, 2019. The 2019 Plan allows the Company to grant incentive stock options and restricted stock units to its employees and directors to participate in the Company’s future performance through stock-based awards at the discretion of the board of directors. On April 19, 2021, the Company’s board of directors amended the plan and authorized 5,000,000 new shares for issuance. The number of shares authorized for issuance is 40,067,744 shares in the aggregate. Options to acquire common stock granted thereunder have ten-year terms. As of September 30, 2022, approximately 2.0 million shares of common stock remained available for issuance (taking into account all option exercises and other equity award settlements through September 30, 2022).

Employee Stock Purchase Plan

There are 1,000,000 shares authorized and reserved for issuance under the 2019 Employee Stock Purchase Plan. As of September 30, 2022, approximately 0.5 million shares of common stock remained available for issuance under the 2019 Employee Stock Purchase Plan (taking into account all share purchases through September 30, 2022).

Inducement Plan

There are 6,159,009 shares of common stock authorized and reserved for issuance under the Inducement Plan. As of September 30, 2022, approximately 1.4 million shares of common stock remained available for issuance under the Inducement Plan (taking into account all option exercises and other equity award settlements through September 30, 2022).

Stock Option Activity

A summary of the Company’s stock option activity and weighted average exercise prices follows:
Stock Option ActivityWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Options Weighted
Average
Exercise Price
(In thousands)(Per share)(In years)(In thousands)
Balances outstanding at December 31, 20214,782 $27.52 6.77$62,300 
Granted802 22.75 
Exercised(200)6.27 
Cancelled or expired(870)38.52 
Balances outstanding at September 30, 20224,514 25.28 6.581,471 
Options vested and expected to vest 1,187 31.64 8.48895 
Options exercisable at September 30, 20222,680 $20.67 5.21$476 

32

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





The total fair value of stock options exercised during the nine months ended September 30, 2022 was approximately $7.4 million. As of September 30, 2022, there was approximately $24.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.6 years.

Restricted Stock Unit Activity

A summary of the Company’s RSU activity and weighted average exercise prices follows:
Restricted Stock Unit Activity
Number of SharesWeighted Average
Grant Date Fair Value
Aggregate Fair Value
(In thousands)(Per share)(In thousands)
Balances outstanding at December 31, 20213,732 $43.63 $133,308 
Awarded4,205 19.76 
Vested(1,711)30.07 
Forfeited(980)42.43 
Non-vested and outstanding at September 30, 20225,246 $29.17 $49,420 
Expected to vest 3,233 $29.43 $30,459 

RSUs granted to employees generally vest over a three to four-year period or upon achievement of certain performance conditions. As of September 30, 2022, total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested RSUs was approximately $130.1 million and the weighted-average remaining vesting period was 2.8 years.

For the three months ended September 30, 2022 and 2021, the Company accrued approximately $0.0 million and $5.1 million in cash rewards, respectively, and for the nine months ended September 30, 2022 and 2021, the Company accrued approximately $11.9 million and $15.5 million in cash awards, respectively, to be settled in shares of the Company’s stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021, respectively.

Stock-based compensation expense recognized in the Company’s condensed consolidated statements of operations and cash flows was $31.9 million and $18.3 million for the three months ended September 30, 2022 and 2021, respectively, and $100.3 million and $48.0 million for the nine months ended September 30, 2022 and 2021, respectively.

The per share weighted average fair value of stock options granted was $7.35 and $29.13 during the three months ended September 30, 2022 and 2021, respectively. The per share weighted average fair value of stock options granted was $11.16 and $26.98 during the nine months ended September 30, 2022 and 2021, respectively. The fair value of each option grant is estimated on the date of grant, adjusted for estimated forfeitures, using the Black-Scholes option-pricing model with the following weighted average assumptions:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
Dividend yield0.00%0.00%0.00%0.00%
Risk-free interest rate
2.82% - 3.05%
0.72% - 1.02%
1.62% - 3.38%
0.46% - 1.02%
Expected life (in years)5555
Historical volatility
59.74% - 61.22%
53.51% - 53.67%
53.87% - 61.22%
53.51% - 54.55%

A description of the methods used in the significant assumptions used to estimate the fair value of stock-based compensation awards follows:
Dividend yield – The Company uses 0% as it has never issued dividends and does not anticipate issuing dividends in the near term.
33

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Risk-free interest rate – The Company uses the market yield on U.S. Treasury securities at five years with constant maturity, representing the current expected life of stock options in years.
Expected life – The Company uses historical data to estimate the expected life of a stock option.
Historical volatility – The Company uses a trailing five year from grant date to determine volatility.
Note 14. Restructuring

During the second quarter of 2022, LivePerson began a restructuring initiative to realign the Company’s cost structure to better reflect significant product and business model innovation and changes over the past year due to acquisitions and factors outside the control of the Company. As part of the restructuring initiative, the Company reoriented its global product and engineering organization for greater efficiency and focus, and reallocated some spending to increase its investment in customer success and go-to-market initiatives. The Company believes these initiatives will better align resources to provide further operating flexibility and position the business for long-term success. In connection with the restructuring initiatives, the Company recognized restructuring costs of $7.1 million and $17.9 million, respectively, during the three and nine months ended September 30, 2022, respectively, which is included in restructuring costs in the accompanying condensed consolidated statements of operations. The majority of these costs relate to the Company's Business segment. Such costs primarily include severance and compensation costs.

In 2020, the Company went through a re-evaluation of its real estate needs. In connection with this re-evaluation it was decided in July 2020 that the Company would significantly reduce the real estate space it leases. This decision resulted in the significant reduction of the real estate space the Company leases and the removal of the associated right of use assets. Furthermore, this resulted in various one-time expenses in connection with the abandonment of the majority of the Company’s leased facilities. The lease restructuring costs noted below are a result of this transition to an employee-centric model.

The following table presents the detail of the liability for the Company’s restructuring charges, which is included within accrued expenses and other current liabilities within the accompanying condensed consolidated balance sheet, for the periods presented:

September 30,
2022
December 31,
2021
(In thousands)
Balance, beginning of year$1,694 $4,732 
Lease restructuring costs339 724 
Severance and other compensation associated costs17,610 2,673 
Cash payments(13,933)(6,435)
Balance, end of period$5,710 $1,694 

The following table presents the detail of expenses for the Company’s restructuring charges for the periods presented:

Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(In thousands)
Restructuring costs:
Lease restructuring costs$— $44 $339 $594 
Severance and other compensation associated costs7,111 — 17,610 2,675 
Total restructuring costs$7,111 $44 $17,949 $3,269 
Note 15. Legal Matters

The Company filed an intellectual property suit against [24]7 Customer, Inc. (“[24]7”) in the Southern District of New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and misappropriated the Company’s technology to develop competing products and misused the Company’s business information. On June 22, 2015, [24]7 filed suit
34


against the Company in the Northern District of California alleging patent infringement. On December 7, 2015, [24]7 filed a second patent infringement suit against the Company, also in the Northern District of California. On March 16, 2017, the New York case was voluntarily transferred and consolidated with the two California cases in the Northern District of California (the Court) for all pre-trial purposes. Rulings by both the Court and the United States Patent and Trademark Office in the Company’s favor have invalidated the majority of [24]7 patents that were asserted in the patent cases.
The Company believes the remaining claims filed by [24]7 are entirely without merit and intends to defend them vigorously. Trial for the Company’s intellectual property and other claims asserted against [24]7 related to three of the customers at issue occurred on May 24, 2021 and the jury awarded approximately $30.3 million in favor of the Company, including approximately $6.7 million in compensatory damages and approximately $23.6 million in punitive damages. After the jury reached its verdict, additional post-trial motions were filed by [24]7 and LivePerson, including [24]7 asking the Court to order a new trial, overturn the jury’s verdict, or reduce the amount of punitive damages the jury awarded, and LivePerson requested interest on the judgment.
The Company and [24]7 also reached agreement on the terms of a permanent injunction, and that additional costs are owed to the Company in the amount of $0.4 million, which the Court has entered. On July 28, 2022, the Court denied [24]7’s post-trial motions and granted LivePerson’s motion for interest, awarding approximately an additional $4.3 million. On August 26, 2022, [24]7 elected to appeal these matters. Accordingly, no amounts for the judgment have been reflected in the Company’s financial statements. Trial for [24]7’s patent infringement claims has been set for late October 2023 and trial for the Company’s remaining trade secret claims asserted against [24]7 has been set for early March 2024.
From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands, and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matter as appropriate and in compliance with ASC 450, “Contingencies.”
The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. From time to time, third parties assert claims against the Company regarding intellectual property rights, privacy issues, and other matters arising in the ordinary course of business.
Note 16. Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
The Company includes interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. The Company recorded a valuation allowance against its U.S. deferred tax asset as it considered its cumulative loss in recent years as a significant piece of negative evidence. Since valuation allowances are evaluated by jurisdiction, the Company believes that the deferred tax assets related to LivePerson Australia Holdings Pty. Ltd., LivePerson (UK) Limited, Kasamba Inc., LivePerson Japan and LivePerson Limited (Israel) are more likely than not to be realized as these jurisdictions have positive cumulative pre-tax book income after
35


adjusting for permanent and one-time items. During the year ended December 31, 2021, there was an increase in the valuation allowance recorded of $51.7 million.
For the three months ended September 30, 2022, the Company recorded a tax provision of $0.2 million. This amount consists of a tax provision of $0.1 million on operating earnings coupled with a stock compensation tax deficiency of $0.1 million related to stock compensation arrangements of LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel). For the nine months ended September 30, 2022, the Company recorded a tax provision of $1.3 million. This amount consists of a tax provision of $2.7 million on operating earnings coupled with a stock compensation tax deficiency of $0.2 million related to stock compensation arrangements of LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel), partially offset by a tax benefit of $1.6 million related to the release of a valuation allowance in conjunction with the WildHealth transaction.
The Company had a valuation allowance on certain deferred tax assets for the year ended December 31, 2021 of $107.1 million. Inherent in the Company’s 2022 annual effective tax rate is an estimated increase in the valuation allowance of $38.1 million, all of which will be recorded as an expense. During 2021, an increase in the valuation allowance in the amount of $34.3 million was recorded as an expense and an additional increase to the valuation allowance of $17.4 million was recorded to goodwill against acquired federal and state net operating losses.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA establishes a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022, and imposes a 1% excise tax on the repurchase after December 31, 2022 of stock by publicly traded U.S. corporations. We currently do not expect the tax-related provisions of the IRA to have a material impact on our financial results.
Note 17. Equity Method Investment

On February 13, 2022, the Company and Pasaca Capital Inc. (“Pasaca”) entered into a joint venture agreement (the “JV Agreement”) to form Claire, a joint venture to build, create, and administer a marketplace for health and well-being diagnostic testing. Claire is intended to operate an app store-like platform to make medical testing and accessing results easier and more informative. Claire is being developed with the goal of creating a single place to shop for testing services from numerous testing providers, including Claire-branded tests and at-home tests. Pursuant to the terms of the JV Agreement, the Company agreed to contribute a total of $19.0 million over a five-year period in exchange for a 19.2% ownership interest in Claire. Pasaca agreed to contribute $80.0 million to Claire over a five-year period in exchange for an 80.8% ownership interest in Claire. As of September 30, 2022, $10.6 million remained to be contributed to Claire by the Company under the terms of the JV Agreement. The Company accounts for its 19.2% interest in Claire using the equity method of accounting. The Company recorded its ownership percentage of losses of Claire in Other income (expense), net for $0.6 million and $0.7 million for the three and nine months ended September 30, 2022, respectively.
As of September 30, 2022, the Company’s equity method investment was $4.0 million and was included in investment in joint venture on the condensed consolidated balance sheet.
Note 18. Variable Interest Entities

The Company prepares its condensed consolidated financial statements in accordance with ASC 810, which provides for the consolidation of VIEs of which the Company is the primary beneficiary.

In February 2022, the Company acquired WildHealth as well as certain variable interests that WildHealth has in four Professional Corporations (“PCs”). The PCs are owned by a medical practitioner in accordance with certain state laws which restrict the corporate practice of medicine and require medical practitioners to own such entities. WildHealth provides management and other services to the PCs in exchange for a management fee and provides financial support to the PCs through a revolving credit arrangement. WildHealth also has separate agreements with the equity holder of the PCs where it may acquire and assign such equity interests for certain PCs. WildHealth consolidates the PCs as VIEs. The Company determined that the PCs are VIEs as WildHealth is the primary beneficiary of the PCs.
The assets, liabilities, revenues, and operating results of the VIEs after elimination of intercompany transactions were not material as of and for the three and nine months ended September 30, 2022.
Note 19. Related Parties

36


Related parties are defined as entities related to the Company’s directors or main shareholders as well as equity method affiliates. The Company provides services to Claire, an equity method affiliate (refer to Note 17 – Equity Method Investment for additional information on the equity method affiliate), through the Master Service Agreement (the “MSA”). These services are identified within the MSA’s scope of work and include marketing, end user features, custom software development, and business/management services. Revenues for the services provided to related parties included in the Company’s consolidated statements of operations were $12.9 million and $26.2 million for three and nine months ended September 30, 2022, respectively. Deferred revenues for amounts billed to related parties less recognized revenue included in the Company’s consolidated statements of operations were $20.7 million as of September 30, 2022. Total billings were $34.1 million and accounts receivable were $13.9 million as of September 30, 2022 included in the Company’s condensed consolidated balance sheet.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

General

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates and assumptions relate to estimates of the carrying amount of goodwill, intangibles, depreciation, stock based-compensation, valuation allowances for deferred income taxes, accounts receivable, the expected term of a customer relationship, accruals and other factors. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. In addition, our actual results could differ from our estimates and assumptions based upon impacts on our business and general economic conditions.

Overview

LivePerson is a leading Conversational 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, 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 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, PCI compliance, co-browsing and a sophisticated proactive
37


targeting engine. An extensible 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.

For your reference:
Conversational AI: Conversational AI allows humans and machines to interact using natural language, including speech or text.
Conversational Space: In the Conversational Space, consumers message with brands on their own schedule, using natural language, to resolve their intents - all on their preferred messaging service. The core capabilities of the Conversational Space are voice and text-based interfaces, powered by AI and humans working together. Conversational Space is the simplest, most intuitive interface of all.
Conversational Cloud: LivePerson’s enterprise-class, AI-powered Conversational Cloud platform empowers consumers to message their favorite brands, just as they do with friends and family.

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 we call “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.

Complementing the Company’s proprietary messaging and Conversational AI offerings are teams of technical, solutions and consulting professionals that have developed deep domain expertise in the implementation and optimization of conversational services across industries and messaging endpoints. The Company is a leading authority in the Conversational Space. LivePerson’s products, coupled with its domain knowledge, industry expertise and professional services, have been proven to maximize the effectiveness of the Conversational Space and deliver measurable return on investment for LivePerson’s customers. Certain of the Company’s customers have achieved the following advantages from its offerings:
the ability for each agent to manage as many as 40 messaging conversations at a time, as compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots provides even greater scale to the number of conversations managed;
labor efficiency gains of at least two times that of voice agents, effectively cutting labor costs by at least 50%;
improving the overall customer experience, thereby fueling customer satisfaction score increases of up to 20 percentage points, and enhancing retention and loyalty;
more convenient, personalized and content-rich conversations that increase sales conversion by up to 20%, increase average order value and reduce abandonment;
more satisfied contact center agents, thereby reducing agent churn by up to 50%;
a valued connection with consumers via mobile devices, either through native applications, websites, text messages, or third-party messaging platforms;
leveraged spending that drives visitor traffic by increasing visitor conversions;
refining and improving performance by understanding which initiatives deliver the highest rate of return; and
increased lead generation by providing a single platform that engages consumers through advertisements and listings on branded and third-party websites.
        
As a “cloud computing” or software-as-a service (“SaaS”) provider, LivePerson provides solutions on a hosted basis. This model offers significant benefits over premise-based software, including lower up-front costs, faster implementation, lower total cost of ownership, scalability, cost predictability, and simplified upgrades. Organizations that adopt a fully-hosted, multi-tenant architecture that is maintained by LivePerson eliminate the majority of the time, server infrastructure costs, and information technology (“IT”) resources required to implement, maintain, and support traditional on-premise software.

38


To further enhance our platform, in September 2020 we signed a partnership with a digital services and consulting company to transform our technology infrastructure on the public cloud, to build integrated solutions and a global practice around our Conversational Cloud to sell into this company’s channels and global enterprise customer base, and to redefine how the world’s top brands communicate.

More than 18,000 businesses, including HSBC, Orange, and GM Financial use our conversational solutions to orchestrate humans and AI, at scale, and create a convenient, deeply personal relationship with their customers.

LivePerson’s consumer services offering is an online marketplace that connects Experts who provide information and knowledge for a fee via mobile and online messaging with 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.

The key elements of LivePerson’s business solutions strategy include:
Build awareness and drive adoption of the Conversational Space. LivePerson brought our first customer live on messaging in June 2016. Since that time, we have been focused on building awareness for conversational experiences and driving adoption. We have educated businesses on the financial and operational transformation that occurs when a contact center shifts to an asynchronous messaging environment, where the consumer controls the pace of the conversation, which can last minutes, hours or days, from a synchronous call or chat center, where conversations occur in real-time and have a distinct start and end.

A key component of our industry awareness marketing strategy has been to hold multiple global customer summits each year (events in 2020 and 2021 were held virtually in light of the COVID-19 pandemic) that target executives from enterprise customers and prospects, and feature a key theme within the Conversational Space, such as Apple Business Chat, Google Rich Business Messenger, IVR deflection or AI. LivePerson customers are the center point of these summits, presenting why they chose LivePerson for conversational experiences, how they achieved success, and what type of return on investment they have realized. Each attendee then receives a blueprint for how they can pursue similar outcomes. We have found this strategy to drive strong results for LivePerson, as we have seen a greater than 40% conversion rate on opportunities that were created or advanced as part of the customer summits. By year-end 2021, nearly 75% of messaging conversations had automation attached. We will continue to focus on building awareness for the Conversational Space and driving adoption of messaging and AI across our customer base.

Increase messaging volumes by developing a broad ecosystem, expanding customer use cases, and focusing on AI and automation. Our strategy is to drive higher messaging volumes by going both wide across messaging endpoints, deep across consumer use cases, and focusing on AI and automation as the means to deliver powerful scale. We will continue to focus on building awareness for the Conversational Space and driving adoption of messaging and AI across our customer base. LivePerson offers a platform usage pricing model, where customers are offered access to our entire suite of messaging technologies across their entire agent pool for a pre-negotiated cost per interaction. We believe that over time this model will drive higher revenue for LivePerson by reducing barriers to adoption of new messaging endpoints and use cases.

In order to drive broad messaging adoption, it is imperative that the Conversational Cloud integrates to all of the messaging apps that consumers prefer to use for communication and addresses all key use cases. For example, if a consumer is an avid WhatsApp user, and a brand only offers SMS as a messaging option, that consumer may be reluctant to try messaging the brand. Therefore, a key strategy of ours has been to build one of the industry’s broadest ecosystems of messaging endpoints and use cases. In June 2016, we launched with In-App messaging. In 2017, we introduced Facebook Messenger, SMS, Web messaging and IVR deflection integrations. In 2018, we added Apple Business Chat, Google Rich Business Messenger, Line, WhatsApp, Alexa, Google Home, Google Ad Lingo and Twitter. In 2019, we added email, allowing brands to manage emails through the same console they use for messaging, and to convert legacy emails into messaging conversations. We also added social monitoring and conversational tools for Twitter and Facebook, and introduced proactive messaging, allowing brands to transform traditional one-way notifications such as flight cancellations or phone plan overage alerts into two-way conversations. Finally, we connected to Facebook and WhatsApp digital advertisements, enabling consumers to initiate messaging conversations for marketing and customer care directly within the advertisement. In 2020, we added Instagram and Google’s Business Messages, allowing brands to bring customer-initiated conversations into the Conversational Cloud directly from Instagram, Google Search, and Google Maps. In 2021, we acquired Callinize, Inc. (dba Tenfold) (“Tenfold”), which allows our brands to bring the LivePerson Conversational Cloud into other applications, starting with Salesforce and expanding into other leading CRM and Helpdesk platforms. The ability to power conversational experiences beyond our own workspace opens up further messaging volumes and workflows for LivePerson to participate in.
39



Each channel and use case added opens the door to new consumers, providing brands a greater opportunity to shift share away from their legacy contact center channels into messaging. For example, in 2019, leading airlines launched on WhatsApp and Apple Business Chat with the ability to make secure payments; a baseball stadium launched an automated conversational concierge providing answers to a wide range of questions from restroom locations to player stats; and a multinational telecommunications company used proactive two-way messaging for outbound campaigns. In 2020, one of the largest Telcos in Australia fully virtualized their contact centers, a leading U.S. quick-serve restaurant launched on Facebook Messenger to help customers order meals, one of the biggest banks in the world launched an Apple Business Chat channel to provide a secure way to perform day-to-day banking, and one of the world’s largest jewelry retailers used the Conversational Cloud and QR codes to sell millions of dollars of product. In 2021, one of the ten largest healthcare companies in the world launched web messaging to enable their customers to check the status of their orders and request prescription refills with ease, and a multi-billion-dollar entertainment and media company enabled their consumers to plan trips, buy tickets or change reservations with in-app messaging.

LivePerson makes the management of all these disparate channels seamless to the brand. AI-based intelligent routing, queuing and prioritization software orchestrates these conversations at scale, regardless of which messaging endpoint they originated from, so that human and bot agents can engage with all customers through just one console.

We believe LivePerson is leading the structural shift to Conversational AI. LivePerson is powering Conversational AI, automation and messaging strategies across a growing number of use cases from care and sales, to marketing, social, conversational advertising and brick and mortar. Our Conversational AI leadership and the increase in adoption have influenced LivePerson’s enterprise and mid-market revenue retention rate, (the trailing-twelve-month change in total revenue from existing customers after upsells, downsells and attrition) which was above 100% but just below our target range of 105% to 115%. The benefit can also be seen in LivePerson’s average revenue per user (“ARPU”) for our enterprise and mid-market customers, which increased approximately 18% for the trailing twelve months ended September 30, 2022 to $675,000 from approximately $570,000 for the trailing twelve months ended September 30, 2021. We believe these ARPU trends are a clear indication of how LivePerson’s strategy to drive messaging adoption has successfully influenced our revenue growth by taking share from legacy communication channels.

Attract the industry’s best AI, machine learning and conversational talent. We believe that AI and machine learning are critical to successfully scaling in the Conversational Space, and that in order to develop the industry’s leading technology, we need to attract the industry’s best talent. We have hired some of the industry’s brightest data scientists, machine learning engineers and automation engineers, many from firms such as Nike, Amazon.com, Microsoft and Target, who are working exclusively on applying AI to the Conversational Space. LivePerson also expanded its development talent base in Germany, and added key development talent through the acquisitions of BotCentral in Mountain View, California; e-bot7 GmbH (“e-bot7”) in Munich, Germany; and VoiceBase, Inc. (“VoiceBase”) in San Francisco, California.

Bring to market best-in-class AI and machine learning technologies designed for the Conversational Space. We believe that in the last decade many vendors introduced AI and bot offerings that created frustrating experiences for consumers and businesses alike, which in turn has eroded trust in automation. Many of these solutions have proven difficult to build and scale, and have been limited by stand-alone implementations that lacked the measurement, reporting and human oversight of conversational platforms such as the Conversational Cloud. In December 2018, LivePerson announced its patent-protected AI engine that is designed to overcome these shortcomings and help brands rapidly bring to market conversational AI that can scale to millions of interactions, while increasing customer satisfaction and conversion rates.

Unlike alternative solutions designed solely for IT departments, LivePerson’s Conversational AI was built to be used by developers and contact center agents. By putting the power of conversational design and bot management in the hands of contact center agents, LivePerson’s Conversational AI gives brands the ability to leverage the employees closest to the customer, those who are most versed in the voice of the brand, and with the most expertise in how to craft successful outcomes for customer service and sales journeys.

Some of the key innovations behind LivePerson’s Conversational AI include:
a holistic approach to scaling AI by combining consumer facing bots, agent facing bots, intelligent routing and real-time intent understanding, with an analytics dashboard that helps users focus on the intents that are impacting their business and prioritize which intents to automate next;
40


bot building software that is based on dialogue instead of workflow or code, so non-technical employees like contact center agents can design automations;
leveraging a data moat from hundreds of millions of conversations to feed the machine learning that rapidly and accurately detects consumer sentiment and intents in real-time. Customers of LivePerson can use intent understanding for advanced routing, next-best actions, and to fully contain conversations with automation;
the establishing of contact center agents as bot managers, ensuring that every conversation is safeguarded by a human and that agents are continuously training the AI to be smarter and drive more successful outcomes;
powerful Assist technology that multiplies the efficiency of agents by analyzing intents in real time and then suggesting next best actions, predefined content, and bots that can take over transactional work;
pre-built templates for target verticals that provide out of the box support for the top intents and back-end integrations;
the ability to bootstrap conversations with existing transcripts, reducing design effort and speeding time to market;
third-party AI natural language understanding (“NLU”) integration, so customers are not boxed into one vendor; and
AI analytics and reporting tailored to the Conversational Space, providing brands with immediate, actionable insights about their businesses and contact center operations.

Our strategy is to continue to enhance the Conversational AI engine and related products, by leveraging our global research and development (“R&D”) footprint and substantial library of mobile and online conversational data, with the aim of increasing agent efficiency, decreasing customer care costs, improving the customer experience and increasing customer lifetime value.

Sustain our leadership position by aligning brands to a vision that transforms how they communicate with consumers and delivers a superior return on brands’ investment. Over the past four years we have made good progress in developing our conversational AI platform and within the next 12 months, we expect to have a solution in place for our automations to self-heal, which is the ultimate goal of any AI platform. Our acquisitions of VoiceBase and Tenfold provide us with a mechanism for data capture in the voice channel. This additional data and the associated analytics and system integration give us an even greater ability to scale the usage of our platforms, by building on our strength in messaging. Brands must adapt their contact centers to an asynchronous messaging environment and leverage a combination of human agents, bots, and AI to achieve scale and efficiencies. When done correctly, the entire consumer lifecycle with a brand will be maintained within the Conversational Space, and traffic will steadily shift away from lower returning traditional voice calls, websites, emails, and apps to higher returning messaging endpoints.

We believe that LivePerson is uniquely positioned to deliver this transformation due to our technology and expertise:
The Conversational Cloud, LivePerson’s enterprise-class, automation-first, cloud-based platform, was designed for AI-assisted and human-powered messaging in mobile and online channels. The platform offers best-in-class security and scalability, offers the broadest ecosystem of messaging endpoints, is designed for ease of use, and features an AI engine custom built for the Conversational Space, intent recognition, robust real-time reporting, role-based real-time analytics, predictive intelligence, and innovations in customer satisfaction and connection measurement. Additionally, the Conversational Cloud is an open platform with pre-built, enterprise-grade integrations into back-end systems as well as the ability to work across NLU providers.
The Company believes it has a data moat built on hundreds of millions of conversations across industries, geographies and use cases that is feeding the machine learning engines that power intent understanding.
The platform has expanded to power conversations across a broad spectrum of channels and use cases, from traditional sales and customer service, to marketing, social, email, advertising and brick and mortar.
LivePerson has deep domain expertise across verticals and messaging endpoints, a global footprint, referenceable enterprise brands and a team of technical, solutions and consulting professionals to assist customers along their transformational journeys. We are positioned as an authority in the Conversational Space. We have developed a Transformation Model that is introduced to existing and prospective customers to help guide them on their journeys from legacy and oftentimes inefficient legacy voice, email and chat solutions to modern conversational ones powered by messaging and AI.
41


The Company has developed Gainshare - a Transformation Model that is introduced to existing and prospective customers to help guide them on their journeys from legacy and oftentimes inefficient legacy voice, email, and chat solutions to modern conversational ones powered by messaging and AI. Gainshare is a fully managed solution where LivePerson not only provides the messaging and AI automation technology, but also the labor, automation, and end-to-end program management, leveraging the Company’s expertise with Conversational AI and messaging operations. Gainshare is an option for brands that want to accelerate a transformation to Conversational AI, or that want a worry-free solution where LivePerson manages the entire operation, from staffing to automation building and optimization, to conversation design and consumer experience. Gainshare pricing is bespoke, and is typically structured around a brand’s desired goals, whether driving incremental revenue or reducing operational costs.

We believe that LivePerson’s differentiated approach to the Conversational Space, combined with our unique technology and expertise, has established us as a market leader with an ability to deliver superior returns on investment. LivePerson customers manage as many as 40 messaging conversations at a time, as compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots provides even greater scale to the number of conversations managed. Our customers often see labor efficiency gains of at least two times that of voice agents, effectively cutting labor costs by at least 50%. Furthermore, our ability to deliver more convenient, personalized and content-rich conversations often drives increases in customer satisfaction of up to 20 percentage points and increases in sales conversions of up to 20%, while enhancing average order value, customer retention and loyalty.

Strengthen our position in both existing and new industries. We plan to continue to develop our market position by increasing our customer base, and expanding within our installed base. We plan to continue to focus primarily on key target markets: consumer/retail, telecommunications, financial services, travel/hospitality, technology and automotive within both our enterprise and mid-market sectors, as well as the small business sector (“SMB”). In 2021, we continued to grow in verticals such as healthcare and financial services. We plan to continue experimenting with new conversational businesses, including some that are in regulated industries, like online banking and healthcare. We are increasingly structuring our field organization to emphasize our domain expertise and strengthen customer relationships across target industries.
Continue to build our international presence. We are focused on continuing to build our international presence through expansion of our international revenue contribution, which accounted for 35% of total revenue in 2021. We are generating positive results from our recent investments in the Asia-Pacific, Europe, and Latin America regions. Expanding go-to-market capacity in international theaters is one of our key strategic focuses and also part of our motivation for our recent acquisition of e-bot7.
Leverage our open architecture to support partners and developers. In addition to developing our own applications, we continue to cultivate a partner eco-system capable of offering additional applications and services to our customers. We integrate into third-party messaging endpoints including SMS, Facebook Messenger, Apple Business Chat, Google Rich Business Messenger, Line, WhatsApp, Alexa, Google Home, WeChat, Google Ad Lingo, Google Search, Google Maps, Instagram and Twitter, multiple IVR vendors, and dozens of branded apps. The Conversational Cloud integrates our proprietary messaging and Conversational AI with third-party bot offerings, empowering our customers to manage a mix of different bots, human agents and technologies from one control panel, thereby optimizing contact center efficiency. LivePerson’s proprietary and third-party AI/bots enable brands to partially or fully automate communications with their customers.

In addition, we have opened up access to our platform and our products with more than 40 APIs and software development kits that allow customers and third parties to develop on top of our platform. Customers and partners can utilize these APIs to build our capabilities into their own applications and to enhance our applications with their services. In 2019, we launched LivePerson Functions, a serverless function as a service (“FaaS”) integration which enables brands to develop custom behaviors within LivePerson’s conversational platform to easily and rapidly tailor conversation flows to their specific needs. In 2022, we launched our partnership with Celonis to embed VoiceBase analytics and Celonis conversation mining into an application capable of analyzing omni-channel conversational data to enable operational improvements and automate the customer journey.

Expand sales partnerships to broaden our presence and accelerate sales cycles. We are focused on broadening our market reach and accelerating sales cycles by partnering with systems integrators, technology providers, business process outsourcers, value added resellers and other sales partners. We formalized a relationship with IBM Global Business Services in 2017 and Accenture in 2018. In 2019, we announced strategic partnerships with TTEC, a leading BPO focused on customer experience, and DMI, a digital transformation company, to redefine the customer experience with digital engagement, messaging, and AI-driven automation. In 2020, a digital services and consulting company joined LivePerson’s network with a
42


first-of-its-kind 360 degree partnership focusing not only on capturing the global rising demand for conversational commerce and building a personalized experience for customers, but also driving the transformation for internal corporate messaging and the employee experience through Conversational AI. In 2021, we announced strategic integration partnerships with Google Cloud, Adobe and Medallia to help brands make contact center agents more efficient and effective, and empower and enrich the management of customer and employee experience through the power of AI. Our network also expanded with the Tech Mahindra partnership to help brands deliver personalized conversational experiences to consumers at scale.

Maintain market leadership in technology and security expertise. As described above, we are devoting significant resources to creating new products and enabling technologies designed to accelerate innovation. We evaluate emerging technologies and industry standards and continually update our technology in order to retain our leadership position in each market we serve. We monitor legal and technological developments in the area of information security and confidentiality to ensure our policies and procedures meet or exceed the demands of the world’s largest and most demanding corporations. We believe that these efforts will allow us to effectively anticipate changing customer and consumer requirements in our rapidly evolving industry.

Evaluate strategic alliances and acquisitions when appropriate. In July 2021, we acquired German conversational AI company e-bot7, which propels our self-service capabilities and continued growth across Europe. In October 2021, we acquired VoiceBase, a leader in real-time speech recognition and conversational analytics; and Tenfold, an advanced customer engagement platform for integrating communication systems with leading CRM and support services. In February 2022, we acquired WildHealth, a precision medicine company. Once fully integrated, we expect these acquisitions to allow LivePerson to deliver our AI and automation capabilities, insights, and integration as a single integrated product offering across all channels including voice and messaging.


Key Metrics

Financial overview of the three months ended September 30, 2022 compared to the three months ended September 30, 2021:
Total revenue increased 9% to $129.6 million from $118.3 million.
Revenue from our Business segment increased 10% to $120.1 million from $109.2 million.
Gross profit margin decreased to 66% from 67%.
Cost and expenses increased 28% to $178.1 million from $139.1 million.
Net loss increased to $43.2 million from $32.8 million.
Average annual revenue per enterprise and mid-market customer increased approximately 18% to $675,000 for the trailing-twelve-months ended September 30, 2022, as compared to $570,000 for the trailing twelve months ended September 30, 2021.
Our target for enterprise and mid-market revenue retention in third quarter of 2022 matches 2021, and is a range of 105% to 115%. Revenue retention rate for enterprise and mid-market customers on the Conversational Cloud was just below our target range for the third quarter of 2022 and the comparable period in 2021. Revenue retention rate measures the percentage of revenue retained at quarter end, from full service customers that were on the Conversational Cloud at the same period a year ago.

Adjusted EBITDA and Adjusted Operating Income (Loss)

To provide investors with additional information regarding our financial results, we have disclosed adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and adjusted operating income (loss), which are non-GAAP financial measures. The tables below present a reconciliation of adjusted EBITDA and adjusted operating income (loss) to net income (loss), the most directly comparable GAAP financial measures.
We have included adjusted EBITDA and adjusted operating income (loss) in this Quarterly Report on Form 10-Q because these are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and adjusted operating income (loss) can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial
43


measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA and adjusted operating income (loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•    adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•    adjusted EBITDA does not consider the impact of acquisition related costs;
•    adjusted EBITDA does not consider the impact of restructuring costs;
•    adjusted EBITDA does not consider the impact of other costs;
•    adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
•    other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various pre-tax GAAP loss and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated.
Three Months EndedNine Months Ended
September 30,September 30,
Reconciliation of Adjusted EBITDA2022202120222021
(In thousands)
GAAP net loss$(43,248)$(32,807)$(184,023)$(75,121)
Amortization of purchased intangibles and finance leases5,731 1,831 16,530 4,939 
Stock-based compensation31,940 18,269 100,323 47,967 
Contingent earn-out adjustments(8,568)— (8,568)132 
Restructuring costs (1)
7,111 44 17,949 3,269 
Depreciation7,063 6,893 21,414 20,471 
Other litigation, consulting and other employee costs (2)
4,772 602 12,643 4,784 
Provision for income taxes249 2,538 1,270 2,285 
Acquisition costs1,002 — 3,124 — 
Interest (income) expense, net(401)9,442 1,713 27,852 
Other expense (income), net (3)
3,454 48 6,660 (3,002)
Adjusted EBITDA (loss)$9,105 $6,860 $(10,965)
(4)
$33,576 
——————————————
(1)Includes severance costs and other compensation related costs of $7.1 million for the three months ended September 30, 2022. Includes severance costs and other compensation related costs of $17.6 million and lease restructuring costs of $0.3 million for the nine months ended September 30, 2022. Includes lease restructuring costs of $0.6 million and severance costs and other compensation related costs of $2.7 million for the nine months ended September 30, 2021.
(2)Includes consulting costs of $0.3 million, litigation costs of $3.3 million and accrued expenses and fees of $1.2 million for the three months ended September 30, 2022. Includes litigation costs of $0.4 million, consulting costs of $0.7 million, and reversals of reserve for sales and use tax liability of $0.5 million for the three months ended September 30, 2021. Includes litigation costs of $6.4 million, accrued expenses and fees of $1.8 million, consulting costs of $1.0 million, and an increase to the reserve for sales and use tax liability of $0.3 million for the nine months ended September 30, 2022, along with $1.0 million of additional litigation costs and $2.1 million of employee-related costs not previously included in adjusted EBITDA (loss) for the periods ended March 31, 2022 and June 30, 2022. Includes litigation costs of $3.2 million, employee benefit cost of $0.6 million, consulting costs of $1.3 million and a reversal of reserve for sales and use tax liability of $0.3 million for the nine months ended September 30, 2021. The treatment of litigation costs in the table above is now consistent with treatment of litigation costs in periods prior to 2022.
(3)Includes $0.2 million of other income related to the settlement of leases, offset by $2.5 million of costs related to elimination entries for our Equity Method Investment, for the three and nine months ended September 30, 2022. The remaining amount of other expense (income) for the three and nine months ended September 30, 2022 is attributable to currency rate fluctuations. Includes $0.2 million and $3.5 million of other income related to the settlement of leases for the three and nine months ended September 30, 2021, respectively. The remaining amount of other expense (income) for the three and nine months ended September 30, 2021 is attributable to currency rate fluctuations.
44


(4)If the items identified in a footnote 2 as not previously included in adjusted EBITDA for the periods ended March 31, 2022 and June 30, 2022 had been included in adjusted EBITDA for those periods, adjusted EBITDA losses would have been $15.2 million and $20.1 million for the three months ended March 31, 2022 and the six months ended June 30, 2022, respectively.
Our use of adjusted operating income (loss) has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•    although amortization is a non-cash charge, the assets being amortized may have to be replaced in the future, and adjusted operating income (loss) does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•    adjusted operating income (loss) does not consider the impact of acquisition related costs;
•    adjusted operating income (loss) does not consider the impact of restructuring costs;
•    adjusted operating income (loss) does not consider the impact of other costs;
•    other companies, including companies in our industry, may calculate adjusted operating income (loss) differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted operating income (loss) alongside other financial performance measures, including various pre-tax GAAP loss and our other GAAP results. The following table presents a reconciliation of adjusted operating income (loss) for each of the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
Reconciliation of Adjusted Operating Income (Loss)2022202120222021
(In thousands)
Loss before provision for income taxes $(42,999)$(30,269)$(182,753)$(72,836)
Amortization of purchased intangibles and finance leases5,731 1,831 16,530 4,939 
Stock-based compensation31,940 18,269 100,323 47,967 
Restructuring costs (1)
7,111 44 17,949 3,269 
Other litigation, consulting and other employee costs (2)
4,772 602 12,643 4,784 
Contingent earn-out adjustments(8,568)— (8,568)132 
Acquisition costs1,002 — 3,124 — 
Interest (income) expense, net(401)9,442 1,713 27,852 
Other expense (income), net (3)
3,454 48 6,660 (3,002)
Adjusted operating income (loss)$2,042 $(33)$(32,379)
(4)
$13,105 
——————————————
(1)Includes severance costs and other compensation related costs of $7.1 million for the three months ended September 30, 2022. Includes severance costs and other compensation related costs of $17.6 million and lease restructuring costs of $0.3 million for the nine months ended September 30, 2022 Includes lease restructuring costs of $0.6 million and severance costs and other compensation related costs of $2.7 million for the nine months ended September 30, 2021.
(2)Includes consulting costs of $0.3 million, litigation costs of $3.3 million and accrued expenses and fees of $1.2 million for the three months ended September 30, 2022. Includes litigation costs of $0.4 million, consulting costs of $0.7 million and a reversal of the reserve for sales and use tax liability of $0.5 million for the three months ended September 30, 2021. Includes litigation costs of $6.4 million, employee benefit costs of $1.8 million, consulting costs of $1.0 million, and an increase to the reserve for sales and use tax liability of $0.3 million for the nine months ended September 30, 2022, along with $1.0 million of additional litigation costs and $2.1 million of employee-related costs not previously included in adjusted operating income (loss) for the periods ended March 31, 2022 and June 30, 2022. Includes litigation costs of $3.2 million, employee benefit costs of $0.6 million, consulting costs of $1.3 million and an increase to the reserve for sales and use tax liability of $0.3 million for the nine months ended September 30, 2021. The treatment of litigation costs in the table above is now consistent with treatment of litigation costs in periods prior to 2022.
(3)Includes $0.2 million of other income related to the settlement of leases, offset by $2.5 million of costs related to elimination entries for our Equity Method Investment, for the three and nine months ended September 30, 2022. The remaining amount of other expense (income) for the three and nine months ended September 30, 2022 is attributable to currency rate fluctuations. Includes $0.2 million and $3.5 million of other income related to the settlement of leases for the three and nine months ended September 30, 2021, respectively. The remaining amount of other expense (income) for the three and nine months ended September 30, 2021 is attributable to currency rate fluctuations.
(4)If the items identified in a footnote 2 as not previously included in adjusted operating income (loss) for the periods ended March 31, 2022 and June 30, 2022 had been included in adjusted operating income (loss) for those periods, adjusted operating losses would have been $22.4 million and $34.4 million for the three months ended March 31, 2022 and the six months ended June 30, 2022, respectively.

45


Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

We believe that the assumptions and estimates associated with revenue recognition, depreciation, stock-based compensation, accounts receivable, the valuation of goodwill and intangible assets, income taxes and legal contingencies have the greatest potential impact on our consolidated financial statements. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating the reported consolidated financial results include the following:

Revenue Recognition

The majority of our revenue is generated from monthly service revenues, which is inclusive of our platform usage pricing model, and related professional services from the sale of our services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. A large proportion of our revenue from new customers comes from large corporations. These companies typically have more significant implementation requirements and more stringent data security standards. Such customers also have more sophisticated data analysis and performance reporting requirements, and are likely to engage our professional services organization to provide such analysis and reporting on a recurring basis.
We determine revenue recognition through the following steps:
identification of the contract, or contracts, with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when, or as, we satisfy a performance obligation.

Total revenue of $129.6 million and $118.3 million was recognized for the three months ended September 30, 2022 and 2021, respectively, and $392.3 million and $345.8 million during the nine months ended September 30, 2022 and 2021, respectively.

We defer all incremental commission costs to obtain the contract (contract acquisition costs). The contract acquisition costs consist of prepaid sales commissions and have balances as of September 30, 2022 and December 31, 2021 of $39.9 million and $40.7 million, respectively. We amortize these costs over the related period of benefit using the expected life of the customer contract, which we determine to be three to five years, consistent with the transfer to the customer of the services to which the asset relates. We classify contract acquisition costs as long-term unless they have an original amortization period of one year or less.

Hosted Services - Business Revenue

Hosted services - Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to the Conversational Cloud. We have determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. We recognize this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by our performance. Subscription contracts are
46


generally one year or longer in length, billed monthly, quarterly or annually in advance. Additionally, for certain of our larger customers, we may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, we pass the fee we incur with the labor provider and its fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions. For these Gainshare arrangements, we act as a principal in a transaction if we control the specified goods or services before they are transferred to the customer.

Revenue attributable to our monthly hosted Business services accounted for 69% and 79% of total revenue for the three months ended September 30, 2022 and 2021, respectively, and 74% and 79% for the nine months ended September 30, 2022 and 2021, respectively.

Professional Services Revenue

Professional Services revenue primarily consists of fees for deployment and optimization services, as well as training delivered on an on-demand basis which is deemed to represent a distinct stand-ready performance obligation and is recognized at a point in time. Professional Services revenue is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for such services. Control for the majority of our Professional Services contracts passes over time to the customer and is recognized ratably over the contracted period, as the passage of time is deemed to be the most faithful depiction of the transfer of control. For certain deployment services, which are not deemed to represent a distinct performance obligation, revenue will be recognized in the same manner as the fee for access to the Conversational Cloud platform, and as such will be recognized on a straight-line basis over the contract term. For services billed on a fixed price basis, revenue is recognized over time based on the proportion performed using time and materials as the measure of progress toward complete satisfaction of the performance obligation. Our Professional Services contracts are generally one year or longer in length, billed monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements.

Revenue attributable to Professional Services accounted for 24% and 13% of total revenue for the three months ended September 30, 2022 and 2021, respectively, and 19% and 13% for the nine months ended September 30, 2022 and 2021, respectively.

Hosted Services - Consumer Revenue

For revenue from our Consumer segment generated from online transactions between Experts and Users, revenue is recognized at an amount net of Expert fees primarily because the Expert is the primary obligor. We do not act as a principal in a transaction since we do not control the specified goods or services before they are transferred to the customer. Additionally, we perform as an agent without any risk of loss for collection, and we are not involved in selecting the Expert or establishing the Expert’s fee. We collect a fee from the consumer and retain a portion of the fee, and then remit the balance to the Expert. Revenue from these transactions is recognized at the point in time when the transaction is complete and no significant performance obligations remain.

Revenue from our Consumer segment accounted for 7% and 8% of total revenue for the three months ended September 30, 2022 and 2021, respectively, and 7% and 8% for the nine months ended September 30, 2022 and 2021, respectively.

Remaining Performance Obligation

As of September 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 $430.5 million. Approximately 88% of our 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. We have elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of less than one year. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606, “Revenue from Contracts with Customers.”

Contracts with Multiple Performance Obligations
47



Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the cloud applications sold, and the number and types of users within our contracts.

Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of our performance. The increase of $4.6 million in deferred revenue balance as of September 30, 2022 from the deferred revenue balance of $98.9 million as of December 31, 2021 is primarily driven by cash payments received or due in advance of our performance obligations, partially offset by $67.2 million in revenues recognized that were included in the deferred revenue balance as of December 31, 2021.

Stock-Based Compensation

We follow ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

Our forfeiture rate assumptions, which estimate the share-based awards that will ultimately vest, requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period of change and could be materially different from share-based compensation expense recorded in prior periods.

For the nine months ended September 30, 2022 and 2021, we accrued approximately $11.9 million and $15.5 million in cash awards, respectively, to be settled in shares of our stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying condensed consolidated financial statements respectively. For the three months ended September 30, 2022, there was no accrued liability for cash awards, and we accrued approximately $5.1 million in cash awards for the three months ended September 30, 2021.

As of September 30, 2022, there was approximately $24.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.6 years.

As of September 30, 2022, there was approximately $130.1 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over the remaining weighted average period of approximately 2.8 years.

Accounts Receivable
We perform ongoing credit evaluations of our customers’ financial condition (except for customers who purchase the LivePerson services by credit card via Internet download) and have established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information that we believe to be reasonable, although they may change in the future. If there is a deterioration of a customer’s credit worthiness or actual write-offs are higher than our historical experience, our estimates of recoverability for these receivables could be adversely affected. Although our large number of customers limits our concentration of credit risk, if we experience a significant write-off from one of our large customers, it could have a material adverse impact on our consolidated financial statements.
No single customer accounted for 10% or more of our total revenue for the three and nine months ended September 30, 2022 and 2021. One customer exceeded 10% of our total accounts receivable as of September 30, 2022, while no single customer accounted for 10% or more of our total accounts receivable as of December 31, 2021. During the nine months ended September 30, 2022, we increased our allowance for doubtful accounts from $6.3 million as of December 31, 2021 to approximately $8.5 million. A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles. Accounts receivable is presented net of an allowance for doubtful accounts and sales reserve of $8.5
48


million and $4.0 million as of September 30, 2022, respectively, and $6.3 million and $4.1 million as of December 31, 2021, respectively.
An allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances. Judgment is required in the estimation of the allowance and we evaluate the collectability of our accounts receivable based on a combination of factors. If we become aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, we use an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and our historical collection experience adjusted for current expectations for the customer or industry. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We have determined that we operate as three reporting units and have selected September 30 as the date to perform our annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from our business. If these estimates or their related assumptions change in the future, we may be required to record impairment for these assets.

We have the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, we may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The impairment test involves comparing the fair value of the reporting unit to its carrying value, including goodwill. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value. The impairment is limited to the carrying amount of goodwill.

No goodwill impairment charges have been recorded for any period presented.

Impairment of Long-Lived Assets

The carrying amounts of our long-lived assets, including property and equipment, lease right of use assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful lives are shorter than originally estimated. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future undiscounted net cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life. 

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
The Company includes interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. The Company recorded a valuation allowance against its U.S. and Germany deferred tax assets as it considered its cumulative loss in recent years as a significant piece of negative evidence. Since valuation allowances are evaluated on a jurisdiction by jurisdiction basis, we believe that the deferred tax assets related to LivePerson Australia Holdings Pty. Ltd., LivePerson (UK) Limited, Kasamba Inc., LivePerson Japan and LivePerson Limited (Israel) are more likely than not to be realized as these jurisdictions have positive cumulative pre-tax book
49


income after adjusting for permanent and one-time items. During the year ended December 31, 2021, there was an increase in the valuation recorded of $51.7 million.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA establishes a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022, and imposes a 1% excise tax on the repurchase after December 31, 2022 of stock by publicly traded U.S. corporations. We currently do not expect the tax-related provisions of the IRA to have a material impact on our financial results.

Legal Contingencies

We are subject to legal proceedings and litigation arising in the ordinary course of business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of accruals recorded are based only on the information available at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations. See Note 15 – Legal Matters in the Notes to the Condensed Consolidated Financial Statements for additional information on our legal proceedings and litigation.

Recently Issued Accounting Standards

See Note 1 – Description of Business and Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements for a full description of recently issued accounting standards.
Recently Adopted Accounting Pronouncements

See Note 1 – Description of Business and Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements for a full description of recently adopted accounting pronouncements.

Results of Operations

We are organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage the Conversational Cloud’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between Experts and Users seeking information and knowledge for a fee via mobile and online messaging.

Comparison of the Three and Nine Months Ended September 30, 2022 and September 30, 2021

Revenue

The following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.    
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Revenue by Segment:
Business$120,101 $109,204 10 %$364,612 $317,879 15 %
Consumer9,460 9,123 %27,711 27,944 (1)%
Total revenue$129,561 $118,327 10 %$392,323 $345,823 13 %

Business revenue increased by 10% to $120.1 million and by 15% to $364.6 million for the three and nine months ended September 30, 2022, respectively, from $109.2 million and $317.9 million, respectively, for the comparable periods in 2021. The increase in Business revenue is primarily driven by increases in professional services of $14.6 million and $28.0 million during the three and nine months ended September 30, 2022, respectively. Hosted services decreased by $3.7 million and
50


increased by $18.7 million for the three and nine months ended September 30, 2022, respectively, from $93.2 million and $272.0 million for the comparable periods in 2021. Included in hosted services is a net increase in revenue that is variable based on interaction and usage of approximately $11.5 million and $12.5 million during the three and nine months ended September 30, 2022, respectively.

The total increase in Business revenue was primarily due to expansions from existing customers and increased volume from new customers as LivePerson generated greater demand for its Conversational Commerce software. LivePerson is powering Conversational AI, automation and messaging strategies across a growing number of use cases from care and sales, to marketing, social, conversational advertising and brick and mortar. As adoption increases, we are seeing higher revenue per customer. Our average annual revenue per enterprise and mid-market customer increased approximately 18% year-over-year to $675,000 for the trailing twelve months ended September 30, 2022, as compared to $570,000 for the trailing twelve months ended September 30, 2021. Revenue retention for our enterprise and mid-market customers on the Conversational Cloud was just below our target range of 105% to 115% for the third quarter of 2022 and comparable period in 2021. However, we are seeing sequential revenue growth as result of sales cycles driven by current macro-environmental factors.

Consumer revenue increased by 4% to $9.5 million and decreased by 1% to $27.7 million for the three and nine months ended September 30, 2022, respectively, from $9.1 million and $27.9 million for the comparable periods in 2021. This decrease was driven by slightly lower demand by consumers to engage with experts and advisors through conversational messaging channels.

Cost of Revenue - Business

Cost of revenue - business consists of compensation costs relating to employees who provide customer service to our customers, compensation costs relating to our network support staff, outside labor provider costs, the cost of supporting our server and network infrastructure, and allocated occupancy costs and related overhead.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Cost of revenue - business$42,392 $37,057 14 %$134,229 $106,932 26 %
Percentage of total revenue33 %31 %34 %31 %
Headcount (at period end)346 241 44 %346 241 44 %

Cost of revenue - business increased by 14% to $42.4 million for the three months ended September 30, 2022 from $37.1 million for the comparable period in 2021. This increase in expense is primarily attributable to an increase in amortization expense of approximately $3.5 million, an increase in contingent consideration of approximately $2.3 million, an increase salary and related employee expenses of approximately $1.8 million, an increase in software expenses of approximately $0.2 million, partially offset by a decrease in business services and outsourced contracting of approximately $2.4 million.

Cost of revenue - business increased by 26% to $134.2 million for the nine months ended September 30, 2022 from $106.9 million for the comparable period in 2021. This increase in expense is primarily attributable to an increase in salary and related employee expenses of approximately $12.0 million, an increase in amortization expense of approximately $10.1 million, an increase in software expenses of approximately $4.3 million, and an increase in business services and outsourced contracting of $0.9 million.

51


Cost of Revenue - Consumer

Cost of revenue - consumer consists of compensation costs relating to employees who provide customer service to Experts and Users, compensation costs relating to our network support staff, the cost of supporting our server and network infrastructure, credit card and transaction processing fees and related costs, and allocated occupancy costs and related overhead.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Cost of revenue - consumer$1,289 $1,738 (26)%$4,068 $5,445 (25)%
Percentage of total revenue%%%%
Headcount (at period end)15 18 (17)%15 18 (17)%

Cost of revenue - consumer decreased by 26% to $1.3 million for the three months ended September 30, 2022 from $1.7 million for the comparable period in 2021. This decrease in expense is primarily related to decreases in business services and outsourcing, and software expenses.

Cost of revenue - consumer decreased by 25% to $4.1 million for the nine months ended September 30, 2022 from $5.4 million for the comparable period in 2021. This decrease in expense is primarily related to decreases in business services and outsourced contracting, salary and employee related expenses.

Sales and Marketing - Business

Sales and marketing - business expenses consist of compensation and related expenses for sales and marketing personnel, as well as advertising, marketing events, public relations, trade show exhibit expenses and allocated occupancy costs and related overhead.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Sales and marketing - business$42,826 $34,640 24 %$148,370 $96,758 53 %
Percentage of total revenue33 %29 %38 %28 %
Headcount (at period end)558 339 65 %558 339 65 %

Sales and marketing - business expenses increased by 24% to $42.8 million for the three months ended September 30, 2022 from $34.6 million for the comparable period in 2021. This increase was primarily attributable to an increase in salary and related employee expenses of approximately $9.2 million, an increase in software expenses of approximately $1.5 million, partially offset by a decrease in marketing expenses of approximately $3.1 million.

Sales and marketing - business expenses increased by 53% to $148.4 million for the nine months ended September 30, 2022 from $96.8 million for the comparable period in 2021. This increase was primarily attributable to an increase in salary and related employee expenses of approximately $41.3 million, an increase in software expenses of $4.8 million, an increase in marketing expenses of approximately $3.4 million, and an increase in business services and outsourced contracting of $2.2 million.

52


Sales and Marketing - Consumer

Sales and marketing - consumer expenses consist of compensation and related expenses for marketing personnel, as well as online promotion, public relations and allocated occupancy costs and related overhead.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Sales and marketing - consumer$6,622 $6,212 %$19,193 $19,669 (2)%
Percentage of total revenue%%%%
Headcount (at period end)15 18 (17)%15 18 (17)%

Sales and marketing - consumer expenses increased by 7% to $6.6 million for the three months ended September 30, 2022 from $6.2 million for the comparable period in 2021. This increase is primarily attributable to an increase in marketing expenses of approximately $0.4 million.

Sales and marketing - consumer expenses decreased by 2% to $19.2 million for the nine months ended September 30, 2022 from $19.7 million for the comparable period in 2021. This decrease is primarily attributable to a decrease in outsourced subcontracting of approximately $0.5 million.

General and Administrative

Our general and administrative expenses consist of compensation and related expenses for executive, accounting, legal, human resources and administrative personnel, professional fees and other general corporate expenses.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
General and administrative$32,171 $17,193 87 %$92,152 $47,784 93 %
Percentage of total revenue25 %15 %23 %14 %
Headcount (at period end)169 137 23 %169 137 23 %

General and administrative expenses increased by 87% to $32.2 million for the three months ended September 30, 2022 from $17.2 million for the comparable period in 2021. This increase is primarily attributable to an increase in contingent compensation of approximately $10.3 million, an increase in legal services of approximately $4.4 million and an increase in taxes of approximately $0.2 million.

General and administrative expenses increased by 93% to $92.2 million for the nine months ended September 30, 2022 from $47.8 million for the comparable period in 2021. This increase is primarily attributable to an increase in contingent consideration of approximately $30.5 million, an increase in legal services of approximately $9.2 million and an increase in depreciation and amortization expense of approximately $4.6 million.

53


Product Development

Our product development expenses consist of compensation and related expenses for product development personnel as well as allocated occupancy costs and related overhead and outsourced labor and expenses for testing new versions of our software.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Product development$44,744 $41,734 %$156,568 $112,715 39 %
Percentage of total revenue35 %35 %40 %33 %
Headcount (at period end)552 574 (4)%552 574 (4)%

Product development costs increased by 7% to $44.7 million for the three months ended September 30, 2022 from $41.7 million for the comparable period in 2021. This increase is primarily related to increases in salary and employee related expenses of approximately $2.1 million, an increase in software expenses of approximately $1.1 million, partially offset by a decrease in business services and outsourcing subcontracted labor of approximately $0.4 million. We also made investments in public cloud migration, and in enhancing and expanding new features of the Conversational Cloud. Further, we invested in hiring more data scientists and machine learning engineers to focus on Conversational AI.

Product development costs increased by 39% to $156.6 million for the nine months ended September 30, 2022 from $112.7 million for the comparable period in 2021. This increase is primarily related to an increase in salary and employee related expenses of approximately $30.4 million, an increase in business services and outsourcing subcontracted labor of approximately $7.6 million, an increase in software expenses of approximately $4.8 million, and an increase in depreciation expenses of approximately $1.1 million.

We continue to invest in new product development efforts to expand the capability of the Conversational Cloud. Upon completion, the project costs will be depreciated over five years. For the three and nine months ended September 30, 2022, $9.3 million and $28.4 million was capitalized, respectively, compared to $9.2 million and $26.6 million, respectively, for the comparable periods in 2021.

Restructuring Costs

Restructuring costs consist of re-prioritizing and reallocating resources to focus on areas believed to show high growth potential.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Restructuring costs$7,111 $44 16,061 %$17,949 $3,269 449 %
Percentage of total revenue%— %%%

The restructuring cost for the nine months ended September 30, 2022 was driven by a restructuring initiative commenced during the second quarter of 2022. The purpose of this restructuring plan was to realign our cost structure to better reflect significant product and business model innovation and changes over the past year due to acquisitions and other factors. As part of the restructuring initiative, we reoriented our global product and engineering organization for greater efficiency and focus, and reallocated some spending to increase our investment in customer success and go-to-market initiatives. We believe these initiatives will better align resources to provide further operating flexibility and position the business for long-term success.
    
54


Amortization of Purchased Intangibles
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Amortization of purchased intangibles$920 $488 89 %$2,742 $1,237 122 %
Percentage of total revenues%— %%— %

Amortization expenses for purchased intangibles increased by 89% to $0.9 million and by 122% to $2.7 million for the three and nine months ended September 30, 2022, respectively, from $0.5 million and $1.2 million for the respective comparable periods in 2021, primarily driven by additional amortization of intangibles obtained during acquisitions of e-bot7 in July 2021, Tenfold and VoiceBase in October 2021 and WildHealth in February 2022.

Additional amortization expenses in the amount of $4.8 million and $13.8 million for the three and nine months ended September 30, 2022, respectively, and $1.3 million and $3.7 million for the three and nine months ended September 30, 2021, respectively, is included in cost of revenue.

Other income (expense), net

Other income (expense), net consists of interest income on cash and cash equivalents, investment income and financial (expense) income which is a result of currency rate fluctuations associated with exchange rate movement of the U.S. dollar against the New Israeli Shekel (“NIS”), British Pound, Euro, Australian Dollar, and Japanese Yen.
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Interest income (expense), net$401 $(9,442)104 %$(1,713)$(27,852)94 %
Other income (expense), net5,114 (48)10,754 %1,908 3,002 (36)%
Other income (expense), net$5,515 $(9,490)158 %$195 $(24,850)101 %

Other income (expense), net decreased by 158% to $5.5 million for the three months ended September 30, 2022 from $9.5 million for the comparable period in 2021 primarily due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of the Notes, partially offset by other expense associated with the Company’s equity method investment.
Other income (expense), net decreased by 101% to $0.2 million for the nine months ended September 30, 2022 from $24.9 million for the comparable period in 2021 primarily due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of the Notes, partially offset by other expense associated with the Companys equity method investment.

Provision for Income Taxes
Three Months EndedNine Months Ended
September 30,September 30,
20222021% Change20222021% Change
(Dollars in thousands)
Provision for income taxes$249 $2,538 (90)%$1,270 $2,285 (44)%

We had a tax provision of $0.2 million and $1.3 million for the three and nine months ended September 30, 2022, respectively. Provision for income taxes was $2.5 million and $2.3 million for the three and nine months ended September 30, 2021, respectively. Our consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate.    

55


For the three months ended September 30, 2022, the Company recorded a tax provision of $0.2 million. This amount consists mainly of a tax provision of $0.1 million on operating earnings for the period coupled with a stock compensation tax deficiency of $0.1 million related to stock compensation arrangements for LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel).

For the nine months ended September 30, 2022, the Company recorded a tax provision of $1.3 million. This amount consists of a tax provision of $2.7 million on operating earnings for the period coupled with a stock compensation tax deficiency of $0.2 million related to stock compensation arrangements for LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel), offset by a tax benefit of $1.6 million related to the release of a valuation allowance in conjunction with the WildHealth transaction.
Net Loss

We had a net loss of $43.2 million and $184.0 million for the three and nine months ended September 30, 2022, respectively, compared to a net loss of $32.8 million and $75.1 million for the three and nine months ended September 30, 2021, respectively.

Liquidity and Capital Resources

Nine Months Ended
September 30,
20222021
(In thousands)
Consolidated Statements of Cash Flows Data:
Net cash (used in) provided by operating activities$(79,471)$35,642 
Net cash used in investing activities(44,057)(60,721)
Net cash (used in) provided by financing activities(1,547)10,521 

As of September 30, 2022, we had approximately $393.7 million in cash, cash equivalents, and restricted cash, a decrease of approximately $129.8 million from December 31, 2021. The decrease is primarily attributable to non-cash operating expenses such as stock-based compensation, depreciation, amortization of purchased intangibles and finance leases as well as investing activities such as the acquisition costs of WildHealth and capital expenditures.

Net cash used in operating activities was $79.5 million for the nine months ended September 30, 2022. Our net loss of $184.0 million includes the effect of non-cash expenses related to stock-based compensation of $100.3 million, depreciation of $21.4 million, amortization of purchased intangibles and finance leases of $16.5 million as well as an increase in deferred revenue of $7.5 million. This was further driven by an increase in accounts receivable of $13.9 million, an increase in prepaid expenses of $13.5 million, and a decrease in accrued expenses of $12.2 million. Net cash provided by operating activities was $35.6 million for the nine months ended September 30, 2021.
Our net loss of $75.1 million for the nine months ended September 30, 2021 includes the effect of non-cash expenses related to stock-based compensation of $48.0 million, depreciation of $20.5 million, an increase in deferred revenue of $14.9 million and an increase in accrued expenses of $22.2 million. This was partially offset by increases in accounts receivable of $5.8 million and prepaid expenses of $10.3 million.

Net cash used in investing activities was $44.1 million for the nine months ended September 30, 2022 and was primarily driven by the acquisition costs for the purchase of WildHealth, the purchase of fixed assets for our co-location facilities, and capitalization of internally developed software. Net cash used in investing activities was $60.7 million for the nine months ended September 30, 2021 and consisted primarily of the purchase of fixed assets for our co-location facilities and capitalization of internally developed software.

Net cash used in financing activities was $1.5 million for the nine months ended September 30, 2022, consisting of principal payments related to finance leases of $2.8 million, partially offset by proceeds from issuance of common stock in connection with the exercise of stock options by employees of $1.2 million. Net cash provided by financing activities was $10.5 million for the nine months ended September 30, 2021 and consisted primarily of proceeds from issuance of common stock in connection with the exercise of stock options by employees.

56


We have incurred significant expenses to develop our technology and services, to hire employees in our customer service, sales, marketing and administration departments, and for the amortization of purchased intangible assets, as well as stock-based compensation costs. Historically, we have incurred net losses and negative cash flows for various quarterly and annual periods since our inception, including during numerous quarters and annual periods in the past several years. As of September 30, 2022, we had an accumulated deficit of approximately $650.6 million.

Our principal sources of liquidity are the net proceeds from the issuance of our convertible senior notes, after deducting purchaser discounts and debt issuance costs paid by us, issuance of common stock in connection with the exercise of options, and payments received from customers using our products. We anticipate that our current cash and cash equivalents will be sufficient to satisfy our working capital and capital requirements for at least the next 12 months. However, we cannot assure you that we will not require additional funds prior to such time, and we would then seek to sell additional equity or debt securities through public financings, or seek alternative sources of financing. We cannot assure you that additional funding will be available on favorable terms, when needed, if at all. If we are unable to obtain any necessary additional financing, we may be required to further reduce the scope of our planned sales and marketing and product development efforts, which could materially adversely affect our financial condition and operating results. In addition, we may require additional funds in order to fund more rapid expansion, to develop new or enhanced services or products or to invest in or acquire complementary businesses, technologies, services or products.

The Company may from time to time, subject to board authorization and any applicable restrictions under contracts to which it may be or become a party, depending upon market conditions and the Company’s financing needs, use available funds to refinance or repurchase its outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms the Company deems appropriate (which, in the case of debt securities, may be below par) and subject to the Company’s cash requirements for other purposes and other factors management deems relevant.

We do not engage in off-balance sheet financing arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risks

Our Israeli operations have currency rate fluctuation risk associated with the exchange rate movement of the U.S. dollar against the NIS. During the three and nine months ended September 30, 2022, the U.S. dollar appreciated on average by approximately 6% and 2%, respectively, against the NIS as compared to the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2022, expenses generated by our Israeli operations totaled approximately $13.8 million and $46.2 million, respectively. We actively monitor the movement of the U.S. dollar against the NIS, Pound Sterling, Euro, Australian dollar, and Japanese Yen and have considered the use of financial instruments, including but not limited to derivative financial instruments, which could mitigate such risk. If we determine that our risk of exposure materially exceeds the potential cost of derivative financial instruments, we may in the future enter in to these types of arrangements. The functional currency of our wholly-owned Israeli subsidiaries, LivePerson Limited (Israel) and Kasamba Inc., is the U.S. dollar; the functional currency of our operations in the United Kingdom is the Pound Sterling; the functional currency of our operations in the Netherlands, Germany, France, and Italy is the Euro; the functional currency of our operations in Australia is the Australian Dollar; and the functional currency of our operations in Japan is the Japanese Yen.

Collection Risks

Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. During the nine months ended September 30, 2022, our allowance for doubtful accounts increased by $2.2 million to approximately $8.5 million. During the nine months ended September 30, 2021, we increased our allowance for doubtful accounts by $0.3 million to approximately $5.6 million. A large proportion of our receivables are due from larger corporate customers that typically have longer payment cycles. We base our allowance for doubtful accounts on specifically identified credit risks of customers, historical trends and other information that we believe to be reasonable. Receivables are written-off and charged against the applicable recorded allowance when we have exhausted collection efforts without success. We adjust our allowance for doubtful accounts when accounts previously reserved have been collected.

An allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances. Judgment is required in the estimation of the allowance and we evaluate the collectability of our accounts receivable and
57


contract assets based on a combination of factors. If we become aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, we use an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and our historical collection experience adjusted for current expectations for the customer or industry. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.

Interest Rate Risk

Our investments consist of cash and cash equivalents. Therefore, changes in market interest rates do not affect in any material respect the value of the investments as recorded by us.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial conditions or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
58


Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022 to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2022 identified in connection with the evaluation thereof by our management, including the Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, have been detected.

Part II. Other Information

Item 1. Legal Proceedings

The Company filed an intellectual property suit against [24]7 Customer, Inc. (“[24]7”) in the Southern District of New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and misappropriated the Company’s technology to develop competing products and misused the Company’s business information. On June 22, 2015, [24]7 filed suit against the Company in the Northern District of California alleging patent infringement. On December 7, 2015, [24]7 filed a second patent infringement suit against the Company, also in the Northern District of California. On March 16, 2017, the New York case was voluntarily transferred and consolidated with the two California cases in the Northern District of California (the “Court”) for all pre-trial purposes. Rulings by both the Court and the United States Patent and Trademark Office in the Company’s favor have invalidated the majority of [24]7 patents that were asserted in the patent cases.
The Company believes the remaining claims filed by [24]7 are entirely without merit and intends to defend them vigorously. Trial for the Company’s intellectual property and other claims asserted against [24]7 related to three of the customers at issue occurred on May 24, 2021 and the jury awarded approximately $30.3 million in favor of the Company, including approximately $6.7 million in compensatory damages and approximately $23.6 million in punitive damages. After the jury reached its verdict, additional post-trial motions were filed by [24]7 and LivePerson, including [24]7 asking the Court to order a new trial, overturn the jury’s verdict, or reduce the amount of punitive damages the jury awarded, and LivePerson requested interest on the judgment. The Company and [24]7 also reached agreement on the terms of a permanent injunction, and that additional costs are owed to the Company in the amount of $0.4 million, which the Court has entered. On July 28, 2022, the Court denied [24]7’s post-trial motions and granted LivePerson’s motion for interest, awarding approximately an additional $4.3 million. On August 26, 2022, [24]7 elected to appeal these matters. Accordingly, no amounts for the judgment have been reflected in the Company’s financial statements. Trial for [24]7’s patent infringement claims has been set for late October 2023 and trial for the Company’s remaining trade secret claims asserted against [24]7 has been set for early March 2024.

From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands, and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
59


Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. From time to time, third parties assert claims against the Company regarding intellectual property rights, privacy issues, and other matters arising in the ordinary course of business.

Although the Company cannot be certain of the outcome of any litigation or the disposition of any claims, nor the amount of damages and exposure, if any, that the Company could incur, the Company currently believes that the final disposition of all existing matters will not have a material adverse effect on results of operations, financial condition, or cash flows.

In addition, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 28, 2022, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes to the risk factors described in our most recent Annual Report on Form 10-K.

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

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities by the issuer during the three months ended September 30, 2022.

Purchase of Equity Securities by the Issuer

There were no repurchases of equity securities by the issuer during the three months ended September 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

60


ITEM 6. EXHIBITS

10.1*
31.1*
31.2*
32.1**
32.2**
101.INS*Inline XBRL Instance Document -- The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL)
*    Filed herewith
**    Furnished herewith


61


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LIVEPERSON, INC.
(Registrant)
Date:November 8, 2022By:/s/ ROBERT P. LOCASCIO
Name:Robert P. LoCascio
Title:Chief Executive Officer (Principal Executive Officer)
Date:November 8, 2022By:/s/ JOHN D. COLLINS
Name:John D. Collins
Title:Chief Financial Officer (Principal Financial Officer)


62