Financial Data and Key Metrics Changes - For the fourth quarter of 2022, total revenue was $122.5 million, and for the full year, it was $514.8 million, reflecting a year-over-year decline of 18% to 15% for total revenue in 2023 [31][36] - Adjusted EBITDA for the fourth quarter was a loss of $5.2 million, and for the full year, it was a loss of $16.2 million [31] - The company expects total revenue for the first quarter of 2023 to range from $106 million to $109 million, a decrease of 19% to 16% year-over-year [42] Business Line Data and Key Metrics Changes - B2B revenue declined approximately 1% year-over-year, while hosted software revenues declined 8% year-over-year [32] - Professional services revenue grew 30%, driven primarily by a diagnostics project [32] - The consumer segment declined 3% due to decreased marketing spend [32] Market Data and Key Metrics Changes - U.S. revenue grew 3% year-over-year, while international revenue declined 8% due to headwinds in EMEA [33] - The company signed a total of 90 deals in the quarter, including 46 expansions and renewals, and 44 new logo deals [33] - Net revenue retention for total revenue was below the target range of 105% to 115%, while net retention for recurring revenue was above 100% but below the target range [41] Company Strategy and Development Direction - The company is focused on simplifying its business and increasing transparency regarding revenues, with a strong emphasis on the B2B core and AI-led growth [17][20] - The goal is to achieve annualized EBITDA margins of 16% to 19% by year-end, with positive cash flow beginning in Q2 [19][37] - The company aims to leverage its AI capabilities to automate a larger percentage of conversations, targeting 80% to 90% automation [47] Management's Comments on Operating Environment and Future Outlook - Management indicated that Q1 will be the trough for revenue, EBITDA, and cash flow, with expectations for improvement starting in Q2 [17] - The company has reduced its cost structure by 36% or $200 million in annualized costs, which is expected to yield double-digit adjusted EBITDA margins [20][44] - The management expressed confidence in the company's ability to generate strong earnings and cash flow moving forward, particularly through AI initiatives [15][45] Other Important Information - The company has classified the consumer segment as held for sale, with a targeted transaction close date before the end of the month [27] - The company expects to exit the year with at least a 16% adjusted EBITDA margin and up to a 10% free cash flow margin [21][37] Q&A Session Summary Question: What are the expectations for revenue and EBITDA in 2023? - The company expects total revenue to range from $422 million to $436 million, reflecting a decrease of 18% to 15% year-over-year, and adjusted EBITDA to range from $15 million to $32 million, with a margin of 4% to 7% [36][37] Question: How is the company addressing non-core revenue? - The company has wound down non-core business lines, which are expected to decline by more than $70 million year-over-year, focusing instead on the B2B core [21][23] Question: What is the strategy for AI and automation? - The company aims to automate 80% to 90% of conversations using large language models, enhancing efficiency and scalability in customer engagement [47][56]

Operational Efficiency and Customer Engagement - LivePerson's Conversational AI platform allows agents to manage up to 40 messaging conversations simultaneously, compared to one for voice agents, resulting in labor efficiency gains of at least 50%[23] - Customer satisfaction scores have increased by up to 20 percentage points due to improved customer experiences facilitated by LivePerson's solutions[23] - LivePerson's enterprise and mid-market revenue retention rate was within the target range of 105% to 115% for 2022, with ARPU increasing approximately 11% to $680,000[41] - The Conversational Cloud aims to improve customer lifetime value by increasing agent efficiency and reducing customer care costs[49] - LivePerson's solutions have demonstrated increased agent productivity by up to 220% within 12 weeks for a major retail brand[53] - The company’s Conversational AI is built on over 20 years of proprietary conversation data, enhancing its ability to understand consumer intents[80] Market Opportunities and Growth Strategy - The company estimates a $60 billion market opportunity, with nearly half tied to service and the other half to sales, marketing, and social use cases[31] - LivePerson's strategy focuses on driving higher messaging volumes through AI and automation, expanding customer use cases, and integrating with preferred messaging apps[37] - More than 18,000 customers, including Fortune 500 companies, utilize LivePerson's solutions, indicating a broad market presence[60] - The company has made several acquisitions, including AdvantageTec, Conversable, BotCentral, e-bot7, VoiceBase, Tenfold, and WildHealth, to enhance its product offerings and capabilities[113] Financial Performance and Challenges - The company reported an accumulated deficit of $692.4 million as of December 31, 2022[92] - The company recorded a net loss of $225.7 million for the year ended December 31, 2022, with an accumulated deficit of approximately $692.4 million[145] - The allowance for doubtful accounts increased from $6.3 million to approximately $9.2 million in 2022, indicating challenges in predicting operating results due to longer payment cycles[146] - The company relies on monthly fees and interaction-based fees for substantially all of its revenue, with a growing emphasis on interaction-based fee subscriptions, which may introduce revenue variability[104] Technology and Innovation - LivePerson has made strategic acquisitions, including e-bot7 and VoiceBase, to enhance its AI and automation capabilities across channels[47] - The company has expanded its development talent base through acquisitions and partnerships, strengthening its position in AI and machine learning[42] - The company has a significant data advantage with over one billion messaging transcripts, feeding its machine learning engines for intent understanding[74] - As of December 31, 2022, the company holds 207 patents issued and 241 patents pending, with 36 patents awarded in the U.S. during 2022[80] Risks and Operational Challenges - The company faces risks associated with its Gainshare program, where pricing is contingent on customer success, which could lead to operating losses if objectives are not met[105] - The sales cycle for the company's products can extend several months, particularly for enterprise customers, leading to unpredictable operating results[121] - The company has experienced challenges due to the COVID-19 pandemic, which has created economic disruption and uncertainty affecting client demand and operational capabilities[107] - The company may require additional financing to support operations and expansion, which could lead to dilution of existing stockholders if raised through equity[120] Regulatory and Compliance Issues - The company is subject to various U.S. and international laws regarding privacy and data protection, and increased regulation could adversely affect operations and financial condition[188] - The E.U. General Data Protection Regulation (GDPR) imposes fines up to €20 million or 4% of global annual revenue for noncompliance, significantly increasing compliance burdens for companies[190] - The California Consumer Privacy Act (CCPA) expanded compliance obligations effective January 1, 2023, including new rights for consumers and the establishment of a dedicated privacy regulator[196] - New regulations on artificial intelligence are being proposed, which could impose additional obligations and impact how the company provides its services[202] Workforce and Diversity - The company has a global workforce of 1,301 full-time employees, with 731 in the Americas, 454 in EMEA, and 116 in APAC[84] - The company emphasizes diversity, equity, and inclusion in its hiring practices, having hired a dedicated leader for global diversity recruiting in 2021[86] - The company has invested in talent acquisition and development, prioritizing the recruitment of diverse global talent[84] - The company has a commitment to equal pay for equal work and conducts pay equity analyses during annual compensation assessments[87]

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=Part%20I.%20Financial%20Information) Presents LivePerson's unaudited condensed consolidated financial statements and management's discussion for Q3 2022 [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) LivePerson's unaudited condensed consolidated financial statements for Q3 2022, including balance sheets, operations, comprehensive loss, equity, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Snapshot of LivePerson's financial position, detailing assets, liabilities, and equity as of September 30, 2022 and December 31, 2021 Condensed Consolidated Balance Sheets (In thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | **ASSETS** | | | | Cash and cash equivalents | $393,330 | $521,846 | | Accounts receivable, net | $100,741 | $93,804 | | Total current assets | $525,990 | $636,276 | | Property and equipment, net | $135,830 | $124,726 | | Goodwill | $300,578 | $291,215 | | Total assets | $1,097,078 | $1,186,656 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Accounts payable | $11,975 | $16,942 | | Accrued expenses and other current liabilities | $118,421 | $104,297 | | Deferred revenue (current) | $103,219 | $98,808 | | Total current liabilities | $236,836 | $223,427 | | Convertible senior notes, net | $736,475 | $574,238 | | Total liabilities | $1,007,567 | $837,219 | | Total stockholders' equity | $89,511 | $349,437 | | Total liabilities and stockholders' equity | $1,097,078 | $1,186,656 | - Total assets decreased by approximately **$89.6 million** from December 31, 2021, to September 30, 2022, primarily due to a significant reduction in cash and cash equivalents[13](index=13&type=chunk) - Total liabilities increased by approximately **$170.3 million**, largely driven by an increase in convertible senior notes, net, and accrued expenses[13](index=13&type=chunk) - Total stockholders' equity saw a substantial decrease of approximately **$259.9 million**, indicating a significant reduction in shareholder value[13](index=13&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) LivePerson's financial performance, presenting revenues, expenses, and net loss for Q3 and nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Operations (In thousands, except share and per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $129,561 | $118,327 | $392,323 | $345,823 | | Total costs and expenses | $178,075 | $139,106 | $575,271 | $393,809 | | Loss from operations | $(48,514) | $(20,779) | $(182,948) | $(47,986) | | Total other income (expense), net | $5,515 | $(9,490) | $195 | $(24,850) | | Loss before provision for income taxes | $(42,999) | $(30,269) | $(182,753) | $(72,836) | | Provision for income taxes | $249 | $2,538 | $1,270 | $2,285 | | Net loss | $(43,248) | $(32,807) | $(184,023) | $(75,121) | | Basic Net loss per share | $(0.56) | $(0.47) | $(2.39) | $(1.09) | | Diluted Net loss per share | $(0.56) | $(0.47) | $(2.39) | $(1.09) | - Revenue increased by **9.5%** for the three months ended September 30, 2022, and by **13.4%** for the nine months ended September 30, 2022, compared to the respective prior periods[16](index=16&type=chunk) - Net loss significantly widened, increasing by **31.8%** for the three-month period and by **145%** for the nine-month period, primarily due to higher operating costs and expenses[16](index=16&type=chunk) - Total costs and expenses rose sharply by **28%** for the three-month period and **46%** for the nine-month period, with notable increases in sales and marketing, general and administrative, and restructuring costs[16](index=16&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Details LivePerson's comprehensive loss, including net loss and other comprehensive income (loss) items, for Q3 and nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Comprehensive Loss (In thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | 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) | $(79,358) | - Comprehensive loss increased significantly, reaching **$(48.3) million** for the three months and **$(195.5) million** for the nine months ended September 30, 2022, primarily driven by the net loss and negative foreign currency translation adjustments[19](index=19&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Tracks changes in LivePerson's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the nine months ended September 30, 2022 Key Changes in Stockholders' Equity (In thousands, except share data) | Metric | Balance as of Dec 31, 2021 | Balance as of Sep 30, 2022 | | :----------------------------------- | :------------------------- | :------------------------- | | Common Stock Shares | 74,980,546 | 77,934,440 | | Common Stock Amount | $75 | $78 | | Additional Paid-in Capital | $871,788 | $757,162 | | Accumulated Deficit | $(516,859) | $(650,638) | | Accumulated Other Comprehensive Loss | $(5,564) | $(17,088) | | Total Equity | $349,437 | $89,511 | - Total stockholders' equity decreased from **$349.4 million** at December 31, 2021, to **$89.5 million** at September 30, 2022, a reduction of approximately **$259.9 million**[23](index=23&type=chunk) - The accumulated deficit increased significantly from **$(516.9) million** to **$(650.6) million**, reflecting the net losses incurred during the period[23](index=23&type=chunk) - Additional paid-in capital decreased by **$114.6 million**, partly due to a cumulative adjustment from the adoption of ASU 2020-06 and other equity-related transactions[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) LivePerson's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, In thousands) | Metric | 2022 | 2021 | | :----------------------------------- | :----------- | :----------- | | 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 | | 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 - end of period | $393,744 | $634,522 | - Operating activities shifted from providing **$35.6 million** in cash in 2021 to using **$79.5 million** in 2022, primarily due to increased net loss and changes in working capital[28](index=28&type=chunk)[314](index=314&type=chunk) - Investing activities used **$44.1 million** in 2022, a decrease from **$60.7 million** in 2021, mainly driven by acquisition costs for WildHealth and capital expenditures[28](index=28&type=chunk)[316](index=316&type=chunk) - Financing activities used **$1.5 million** in 2022, a significant change from providing **$10.5 million** in 2021, due to principal payments for finance leases and lower proceeds from stock option exercises[28](index=28&type=chunk)[317](index=317&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed explanations supporting financial statements, covering accounting policies, revenue, segments, and other financial matters [Note 1. Description of Business and Basis of Presentation](index=11&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Describes LivePerson's Conversational AI business and the basis for preparing its unaudited condensed consolidated financial statements - LivePerson, Inc. is a leading Conversational AI company, providing digital experiences through its Conversational Cloud platform, which enables businesses to interact with consumers using natural language across various messaging interfaces[32](index=32&type=chunk)[33](index=33&type=chunk) - The company's technology integrates human agents, bots, and AI to manage customer interactions across the entire consumer lifecycle, including sales, service, and support[32](index=32&type=chunk)[35](index=35&type=chunk) - The financial statements are unaudited and prepared in accordance with GAAP, with certain information condensed or omitted per SEC regulations, and the company consolidates wholly-owned subsidiaries and variable interest entities where it is the primary beneficiary[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[45](index=45&type=chunk) - The company adopted ASU 2020-06 on January 1, 2022, simplifying accounting for convertible instruments, resulting in 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[59](index=59&type=chunk) [Note 2. Revenue Recognition](index=16&type=section&id=Note%202.%20Revenue%20Recognition) Details LivePerson's revenue recognition policies, disaggregated by source and geographic location - Revenue is primarily generated from monthly service revenues, including a platform usage pricing model, and related professional services, recognized when control of services is transferred to customers[61](index=61&type=chunk) Disaggregated Revenue by Source (In thousands) | Revenue Source | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Hosted services – Business | $89,491 | $93,234 | $290,671 | $271,966 | | Hosted services – Consumer | $9,460 | $9,123 | $27,711 | $27,944 | | Professional services – Business | $30,610 | $15,970 | $73,941 | $45,913 | | Total revenue | $129,561 | $118,327 | $392,323 | $345,823 | Revenue by Geographic Location (In thousands) | Geographic Region | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $89,619 | $80,096 | $267,189 | $229,802 | | Other Americas | $2,470 | $4,009 | $10,484 | $11,917 | | EMEA | $16,107 | $23,399 | $57,890 | $68,092 | | APAC | $21,365 | $10,823 | $56,760 | $36,012 | | Total revenue | $129,561 | $118,327 | $392,323 | $345,823 | - As of September 30, 2022, the aggregate amount of total transaction price allocated to remaining performance obligations for contracts with original duration of one year or greater was **$430.5 million**, with approximately **88%** expected to be recognized within the next 24 months[66](index=66&type=chunk) [Note 3. Net Loss Per Share](index=20&type=section&id=Note%203.%20Net%20Loss%20Per%20Share) Presents LivePerson's basic and diluted net loss per share, along with anti-dilutive securities excluded from EPS Net Loss Per Share (In thousands, except share and per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(43,248) | $(32,807) | $(184,023) | $(75,121) | | Weighted average shares outstanding, basic and diluted | 77,784,346 | 69,798,839 | 76,969,629 | 68,926,203 | | Net loss per share, basic and diluted | $(0.56) | $(0.47) | $(2.39) | $(1.09) | - Basic and diluted net loss per share increased to **$(0.56)** for the three months ended September 30, 2022, from **$(0.47)** in the prior year, and to **$(2.39)** for the nine months, from **$(1.09)** in the prior year[79](index=79&type=chunk) Anti-Dilutive Securities Excluded from Diluted EPS (As of September 30, In thousands) | Security Type | 2022 | 2021 | | :----------------------------------- | :----------- | :----------- | | Shares subject to outstanding common stock options and ESPP | 4,514,229 | 4,291,829 | | Restricted stock units | 5,246,300 | 3,063,156 | | Fair value of earn-outs | 11,996,072 | 697,133 | | Conversion option of 2024 Notes | 5,961,186 | 5,961,186 | | Conversion option of 2026 Notes | 6,879,283 | 6,879,283 | | Total Anti-Dilutive Securities | 34,597,070 | 20,892,587 | [Note 4. Segment Information](index=20&type=section&id=Note%204.%20Segment%20Information) Provides financial data for LivePerson's Business and Consumer segments, detailing revenue and operating income (loss) - The company operates in two segments: Business (Conversational Cloud for brands) and Consumer (online marketplace for Experts and Users), with performance evaluated based on operating income (loss) for each segment[80](index=80&type=chunk) Segment Revenue and Operating Income (Loss) (Three Months Ended Sep 30, In thousands) | Metric | Business 2022 | Consumer 2022 | Corporate 2022 | Consolidated 2022 | Business 2021 | Consumer 2021 | Corporate 2021 | Consolidated 2021 | | :-------------------------- | :-------------- | :-------------- | :--------------- | :---------------- | :-------------- | :-------------- | :--------------- | :---------------- | | Total revenue | $120,101 | $9,460 | $0 | $129,561 | $109,204 | $9,123 | $0 | $118,327 | | Operating income (loss) | $33,963 | $1,549 | $(84,026) | $(48,514) | $37,019 | $1,173 | $(58,971) | $(20,779) | Segment Revenue and Operating Income (Loss) (Nine Months Ended Sep 30, In thousands) | Metric | Business 2022 | Consumer 2022 | Corporate 2022 | Consolidated 2022 | Business 2021 | Consumer 2021 | Corporate 2021 | Consolidated 2021 | | :-------------------------- | :-------------- | :-------------- | :--------------- | :---------------- | :-------------- | :-------------- | :--------------- | :---------------- | | Total revenue | $364,612 | $27,711 | $0 | $392,323 | $317,879 | $27,944 | $0 | $345,823 | | Operating income (loss) | $79,271 | $4,450 | $(266,669) | $(182,948) | $112,952 | $2,830 | $(163,768) | $(47,986) | - Business segment revenue increased by **10%** for the three months and **15%** for the nine months ended September 30, 2022, while Consumer segment revenue saw a slight increase of **4%** for the three months and a decrease of **1%** for the nine months[83](index=83&type=chunk)[85](index=85&type=chunk) [Note 5. Goodwill and Intangible Assets, Net](index=23&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets%2C%20Net) Details LivePerson's goodwill and intangible assets, including amortization, as of September 30, 2022 Goodwill Carrying Amount (In thousands) | Segment | Dec 31, 2021 | Sep 30, 2022 | | :-------- | :----------- | :----------- | | Business | $283,191 | $292,554 | | Consumer | $8,024 | $8,024 | | Consolidated | $291,215 | $300,578 | - Goodwill increased by **$9.4 million** to **$300.6 million** as of September 30, 2022, primarily due to acquisitions, partially offset by foreign exchange adjustments[88](index=88&type=chunk) Intangible Assets, Net (As of September 30, 2022, In thousands) | Asset Type | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Amortization Period | | :-------------------- | :-------------------- | :----------------------- | :------------------ | :----------------------------------- | | Technology | $97,143 | $(41,938) | $55,205 | 5.0 years | | Customer relationships | $31,795 | $(16,795) | $15,000 | 10.0 years | | Patents | $10,234 | $(1,332) | $8,902 | 12.8 years | | Trademarks | $1,275 | $(312) | $963 | 5.0 years | | Trade names | $1,040 | $(273) | $767 | 2.8 years | | Other | $914 | $(294) | $620 | 4.1 years | | Total | $142,401 | $(60,944) | $81,457 | | - Total intangible assets, net, decreased to **$81.5 million** as of September 30, 2022, from **$85.6 million** at December 31, 2021, with amortization expense of **$4.8 million** for the three months and **$13.8 million** for the nine months ended September 30, 2022[91](index=91&type=chunk) [Note 6. Property and Equipment, Net](index=24&type=section&id=Note%206.%20Property%20and%20Equipment%2C%20Net) Breakdown of LivePerson's property and equipment, net, including software and lease assets, as of September 30, 2022 Property and Equipment, Net (In thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Computer equipment and software | $123,237 | $120,685 | | Internal-use software development costs | $150,831 | $122,479 | | Finance lease right of use assets | $3,998 | $6,797 | | Furniture, equipment, and building improvements | $519 | $258 | | Property and equipment, at cost | $278,585 | $250,219 | | Less: accumulated depreciation | $(142,755) | $(125,493) | | Property and equipment, net | $135,830 | $124,726 | - Property and equipment, net, increased by **$11.1 million** to **$135.8 million** as of September 30, 2022, primarily driven by an increase in internal-use software development costs[93](index=93&type=chunk) [Note 7. Accrued Expenses and Other Current Liabilities](index=25&type=section&id=Note%207.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Details LivePerson's accrued expenses and other current liabilities, including earn-outs and restructuring costs Accrued Expenses and Other Current Liabilities (In thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Professional services and consulting and other vendor fees | $42,381 | $58,811 | | Payroll and other employee related costs | $22,373 | $29,855 | | Short-term contingent earn-out | $36,109 | $0 | | Sales commissions | $2,010 | $4,269 | | Finance lease liability | $3,412 | $3,738 | | Unrecognized tax benefits | $2,377 | $2,424 | | Restructuring | $5,710 | $1,694 | | Taxes other than income tax | $1,196 | $918 | | Other | $2,853 | $2,588 | | Total | $118,421 | $104,297 | - Total accrued expenses and other current liabilities increased by **$14.1 million** to **$118.4 million** as of September 30, 2022, primarily due to the recognition of a short-term contingent earn-out liability of **$36.1 million** and increased restructuring costs, partially offset by decreases in professional services and payroll-related costs[95](index=95&type=chunk) [Note 8. Convertible Senior Notes, Net and Capped Call Transactions](index=25&type=section&id=Note%208.%20Convertible%20Senior%20Notes%2C%20Net%20and%20Capped%20Call%20Transactions) Describes LivePerson's convertible senior notes and related capped call option transactions - The company has **$230.0 million** aggregate principal amount of 0.750% Convertible Senior Notes due 2024 and **$517.5 million** aggregate principal amount of 0% Convertible Senior Notes due 2026[96](index=96&type=chunk)[107](index=107&type=chunk) - Following the adoption of ASU 2020-06, the 2024 Notes are accounted for as a single liability with a carrying amount of **$227.5 million**, and the 2026 Notes as a single liability with a carrying amount of **$509.0 million** as of September 30, 2022[105](index=105&type=chunk)[117](index=117&type=chunk) Interest Expense Related to Convertible Senior Notes (In thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Contractual interest expense | $431 | $431 | $1,294 | $1,294 | | Amortization of issuance costs | $946 | $630 | $2,831 | $1,858 | | Amortization of debt discount | $0 | $8,396 | $0 | $24,770 | | Total interest expense | $1,377 | $9,457 | $4,125 | $27,922 | - Capped call option transactions were entered into for both the 2024 and 2026 Notes to reduce potential dilution, with net costs of **$23.2 million** and **$46.1 million**, respectively, recorded as a reduction to additional paid-in capital[106](index=106&type=chunk)[118](index=118&type=chunk) [Note 9. Acquisitions](index=30&type=section&id=Note%209.%20Acquisitions) Details LivePerson's acquisition of WildHealth, Inc., including purchase price, goodwill, intangible assets, and earn-out arrangements - In February 2022, LivePerson acquired **100%** of WildHealth, Inc., a precision medicine company, for **$22.3 million**, consisting of cash and common stock, aiming to accelerate technology-driven healthcare offerings[121](index=121&type=chunk) - The acquisition resulted in **$15.5 million** of goodwill and **$8.3 million** of intangible assets, primarily attributed to synergies and enhanced revenue growth[123](index=123&type=chunk) - Former WildHealth stockholders are eligible for up to **$120.0 million** in earn-out payments, accounted for as a compensation arrangement, with **$14.7 million** and **$38.2 million** accrued for the three and nine months ended September 30, 2022, respectively[122](index=122&type=chunk) [Note 10. Leases](index=31&type=section&id=Note%2010.%20Leases) Outlines LivePerson's operating and finance lease arrangements, including right-of-use assets and lease liabilities - The company holds operating and finance leases for corporate offices and service agreements, with remaining lease terms of less than one to four years[128](index=128&type=chunk) Lease-Related Balances (In thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Operating right of use assets | $2,270 | $1,977 | | Finance right of use assets | $3,998 | $6,797 | | Operating lease liability (current) | $3,221 | $3,380 | | Finance lease liability (current) | $3,412 | $3,738 | | Operating lease liability (non-current) | $698 | $2,733 | | Finance lease liability (non-current) | $277 | $2,780 | - Cash paid for operating leases increased to **$3.6 million** for the nine months ended September 30, 2022, from **$1.9 million** in the prior year, reflecting ongoing lease obligations[134](index=134&type=chunk) [Note 11. Fair Value Measurements](index=33&type=section&id=Note%2011.%20Fair%20Value%20Measurements) Describes LivePerson's fair value measurements for financial assets and liabilities, including cash equivalents and contingent earn-out liabilities - The company measures cash equivalents at fair value using Level 1 inputs (quoted market prices) and contingent earn-out liabilities using Level 3 inputs (unobservable inputs)[137](index=137&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) Fair Value of Financial Assets and Liabilities (As of September 30, 2022, In thousands) | Metric | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------- | :------ | :------ | :------ | :------ | | **Assets** | | | | | | Money market funds | $321,553 | $0 | $0 | $321,553 | | **Liabilities** | | | | | | Earn-outs treated as contingent consideration | $0 | $0 | $23,282 | $23,282 | | Earn-outs treated as liability awards | $0 | $0 | $41,843 | $41,843 | | Total liabilities | $0 | $0 | $65,125 | $65,125 | - The fair value of the Convertible Senior Notes was approximately **$486.9 million** as of September 30, 2022, determined using a Level 2 fair value measurement[143](index=143&type=chunk) - Changes in Level 3 liabilities include additions from acquisitions and changes in fair value of contingent consideration and liability awards, totaling **$65.1 million** at September 30, 2022[143](index=143&type=chunk) [Note 12. Commitments and Contingencies](index=35&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) Details LivePerson's commitments, including 401(k) plan contributions, letters of credit, and sales tax liabilities - The company's 401(k) plan includes a Safe Harbor match of **100%** on the first **3%** of eligible compensation and **50%** on the next **2%**, with immediate vesting, and employer matching contributions were **$2.8 million** for the three months and **$5.8 million** for the nine months ended September 30, 2022[145](index=145&type=chunk) - As of September 30, 2022, the company had a **$0.9 million** letter of credit as a security deposit for a supply contract[146](index=146&type=chunk) - An accrual balance of **$1.1 million** for sales tax liabilities exists as of September 30, 2022, down from an initial estimate of **$2.5 million** in March 2020, due to payments made[147](index=147&type=chunk) [Note 13. Stockholders' Equity](index=37&type=section&id=Note%2013.%20Stockholders'%20Equity) Information on LivePerson's common stock, stock incentive plan, and stock-based compensation expense - As of September 30, 2022, **77,934,440** shares of common stock were issued and **75,188,197** shares were outstanding, with **200,000,000** shares authorized[149](index=149&type=chunk) - The 2019 Stock Incentive Plan has **40,067,744** shares authorized for issuance, with approximately **2.0 million** shares remaining available as of September 30, 2022[151](index=151&type=chunk) Stock-Based Compensation Expense (In millions) | Period | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $31.9 | $18.3 | | Nine Months Ended Sep 30 | $100.3 | $48.0 | - Total unrecognized compensation cost related to nonvested share-based arrangements was approximately **$24.8 million**, expected to be recognized over **2.6 years**, and **$130.1 million** for nonvested RSUs, expected over **2.8 years**[157](index=157&type=chunk)[158](index=158&type=chunk) [Note 14. Restructuring](index=40&type=section&id=Note%2014.%20Restructuring) Details LivePerson's Q2 2022 restructuring initiatives and associated severance and compensation costs - LivePerson initiated a restructuring in Q2 2022 to realign its cost structure, reorienting its global product and engineering organization and reallocating spending to customer success and go-to-market initiatives[163](index=163&type=chunk) Restructuring Costs (In thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Lease restructuring costs | $0 | $44 | $339 | $594 | | Severance and other compensation associated costs | $7,111 | $0 | $17,610 | $2,675 | | Total restructuring costs | $7,111 | $44 | $17,949 | $3,269 | - Restructuring costs for the nine months ended September 30, 2022, totaled **$17.9 million**, a significant increase from **$3.3 million** in the prior year, primarily due to severance and compensation costs[165](index=165&type=chunk) [Note 15. Legal Matters](index=40&type=section&id=Note%2015.%20Legal%20Matters) Update on LivePerson's intellectual property lawsuit against [24]7 Customer, Inc., including jury awards and appeals - LivePerson is involved in an intellectual property suit against [24]7 Customer, Inc., where a jury awarded LivePerson approximately **$30.3 million** in May 2021, including **$6.7 million** in compensatory damages and **$23.6 million** in punitive damages[168](index=168&type=chunk) - On July 28, 2022, the Court denied [24]7's post-trial motions and granted LivePerson's motion for interest, awarding an additional **$4.3 million**, but [24]7 appealed these matters on August 26, 2022, so no amounts have been reflected in LivePerson's financial statements[169](index=169&type=chunk) - The company accrues for liabilities when a loss is probable and estimable, and continuously reviews and adjusts these estimates based on new information[170](index=170&type=chunk) [Note 16. Income Taxes](index=41&type=section&id=Note%2016.%20Income%20Taxes) LivePerson's accounting for income taxes, deferred tax assets, liabilities, and impact of recent tax legislation - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for future tax consequences[171](index=171&type=chunk) - The company recorded a tax provision of **$0.2 million** for the three months and **$1.3 million** for the nine months ended September 30, 2022, which includes operating earnings and stock compensation tax deficiencies, partially offset by a tax benefit from a valuation allowance release related to the WildHealth acquisition[174](index=174&type=chunk) - A valuation allowance was recorded against U.S. and Germany deferred tax assets due to cumulative losses, while deferred tax assets in Australia, UK, Israel, and Japan are expected to be realized[172](index=172&type=chunk)[265](index=265&type=chunk) - The Inflation Reduction Act of 2022, establishing a **15%** corporate minimum tax and **1%** excise tax on stock repurchases, is not expected to have a material impact on the company's financial results[176](index=176&type=chunk)[267](index=267&type=chunk) [Note 17. Equity Method Investment](index=42&type=section&id=Note%2017.%20Equity%20Method%20Investment) Describes LivePerson's joint venture with Pasaca Capital Inc. to form Claire, detailing investment and proportionate losses - On February 13, 2022, LivePerson entered a joint venture with Pasaca Capital Inc. to form Claire, a marketplace for health and well-being diagnostic testing, agreeing to contribute **$19.0 million** over five years for a **19.2%** ownership interest[177](index=177&type=chunk) - As of September 30, 2022, **$10.6 million** remained to be contributed to Claire, and the company recorded its proportionate share of Claire's losses as **$0.6 million** for the three months and **$0.7 million** for the nine months ended September 30, 2022[177](index=177&type=chunk) - The equity method investment in Claire was **$4.0 million** as of September 30, 2022[178](index=178&type=chunk) [Note 18. Variable Interest Entities](index=42&type=section&id=Note%2018.%20Variable%20Interest%20Entities) Explains LivePerson's consolidation of Professional Corporations as VIEs through its WildHealth acquisition - In February 2022, LivePerson acquired WildHealth, which includes variable interests in four Professional Corporations (PCs), with WildHealth consolidating these PCs as VIEs and LivePerson determined to be the primary beneficiary[180](index=180&type=chunk) - The assets, liabilities, revenues, and operating results of these VIEs were not material for the three and nine months ended September 30, 2022[181](index=181&type=chunk) [Note 19. Related Parties](index=42&type=section&id=Note%2019.%20Related%20Parties) Details LivePerson's transactions with related parties, specifically services provided to Claire, an equity method affiliate - LivePerson provides services to Claire, an equity method affiliate, through a Master Service Agreement, including marketing, software development, and business/management services[183](index=183&type=chunk) - Revenues from related parties were **$12.9 million** for the three months and **$26.2 million** for the nine months ended September 30, 2022[183](index=183&type=chunk) - Deferred revenues for related parties were **$20.7 million**, and accounts receivable were **$13.9 million** as of September 30, 2022[183](index=183&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on LivePerson's financial condition and operational results, highlighting its Conversational AI business model and Q3 2022 performance [Overview](index=43&type=section&id=Overview) Introduces LivePerson as a Conversational AI leader, outlining its platform, strategic focus on messaging, and innovations in AI and automation - LivePerson is a leading Conversational AI company, offering the Conversational Cloud platform to enable businesses to engage with consumers via natural language across various messaging channels (e.g., Facebook Messenger, SMS, WhatsApp)[187](index=187&type=chunk)[188](index=188&type=chunk) - The company's strategy focuses on building awareness and adoption of the Conversational Space, increasing messaging volumes through a broad ecosystem of endpoints and use cases, and investing in AI and automation[198](index=198&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Key innovations in Conversational AI include dialogue-based bot building, leveraging conversational data for intent detection, establishing agents as bot managers, and powerful Assist technology for agent efficiency[208](index=208&type=chunk)[211](index=211&type=chunk) - LivePerson aims to sustain leadership by transforming how brands communicate, expanding into new industries like healthcare and financial services, building international presence, and leveraging open architecture for partners and developers[210](index=210&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) [Key Metrics](index=49&type=section&id=Key%20Metrics) Presents LivePerson's key financial and operational metrics, including revenue, gross profit margin, net loss, and average revenue per customer Key Financial Metrics (Three Months Ended Sep 30) | Metric | 2022 | 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Total revenue | $129.6 million | $118.3 million | 9% | | Business segment revenue | $120.1 million | $109.2 million | 10% | | Gross profit margin | 66% | 67% | -1% | | Cost and expenses | $178.1 million | $139.1 million | 28% | | Net loss | $43.2 million | $32.8 million | 32% | | Average annual revenue per enterprise and mid-market customer (TTM) | $675,000 | $570,000 | 18% | | Adjusted EBITDA (loss) | $9,105 | $6,860 | 33% | | Adjusted operating income (loss) | $2,042 | $(33) | N/A | - Average annual revenue per enterprise and mid-market customer increased by approximately **18%** year-over-year to **$675,000** for the trailing twelve months ended September 30, 2022[225](index=225&type=chunk) - Revenue retention rate for enterprise and mid-market customers on the Conversational Cloud was just below the target range of **105% to 115%** for Q3 2022 and Q3 2021[225](index=225&type=chunk) [Critical Accounting Policies and Estimates](index=52&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Discusses LivePerson's significant accounting policies and estimates, including revenue recognition, goodwill valuation, and legal contingencies - Critical accounting policies and estimates include revenue recognition, depreciation, stock-based compensation, accounts receivable, valuation of goodwill and intangible assets, income taxes, and legal contingencies[237](index=237&type=chunk) - Revenue recognition involves identifying contracts and performance obligations, determining transaction price, allocating it, and recognizing revenue as obligations are satisfied, with contract acquisition costs (sales commissions) deferred and amortized over 3-5 years[238](index=238&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk) - Goodwill is tested for impairment annually or when circumstances indicate potential impairment, comparing fair value to carrying value, with no goodwill impairment charges recorded for any period presented[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk) - The company maintains an allowance for doubtful accounts based on credit risk, historical trends, and current expectations, with a significant increase in the allowance during the nine months ended September 30, 2022[256](index=256&type=chunk)[257](index=257&type=chunk) [Results of Operations](index=56&type=section&id=Results%20of%20Operations) Detailed analysis of LivePerson's revenue and expense performance by segment for Q3 and nine months ended September 30, 2022 Revenue by Segment (In thousands) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change (%) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change (%) | | :-------- | :------------------------------ | :------------------------------ | :--------- | :----------------------------- | :----------------------------- | :--------- | | Business | $120,101 | $109,204 | 10% | $364,612 | $317,879 | 15% | | Consumer | $9,460 | $9,123 | 4% | $27,711 | $27,944 | (1)% | | Total | $129,561 | $118,327 | 10% | $392,323 | $345,823 | 13% | - Business revenue growth was primarily driven by increases in professional services (**$14.6 million** for three months, **$28.0 million** for nine months) and variable revenue from interaction and usage (**$11.5 million** for three months, **$12.5 million** for nine months)[274](index=274&type=chunk)[275](index=275&type=chunk) Key Expense Categories (Three Months Ended Sep 30, In thousands) | Expense Category | 2022 | 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Cost of revenue - business | $42,392 | $37,057 | 14% | | Cost of revenue - consumer | $1,289 | $1,738 | (26)% | | Sales and marketing - business | $42,826 | $34,640 | 24% | | Sales and marketing - consumer | $6,622 | $6,212 | 7% | | General and administrative | $32,171 | $17,193 | 87% | | Product development | $44,744 | $41,734 | 7% | | Restructuring costs | $7,111 | $44 | 16061% | | Amortization of purchased intangibles | $920 | $488 | 89% | - General and administrative expenses increased significantly by **87%** for the three months and **93%** for the nine months, mainly due to increases in contingent compensation (**$10.3 million** for three months, **$30.5 million** for nine months) and legal services[293](index=293&type=chunk)[294](index=294&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=62&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Outlines LivePerson's exposure to market risks, including foreign currency exchange, accounts receivable collection, and interest rate fluctuations - The company faces foreign currency exchange risk, particularly from the U.S. dollar's movement against the NIS, British Pound, Euro, Australian Dollar, and Japanese Yen, with Israeli operations' expenses totaling **$13.8 million** (three months) and **$46.2 million** (nine months) ended September 30, 2022[322](index=322&type=chunk) - Collection risks for accounts receivable are regularly assessed, with the allowance for doubtful accounts increasing by **$2.2 million** to approximately **$8.5 million** during the nine months ended September 30, 2022[323](index=323&type=chunk) - The company's investments primarily consist of cash and cash equivalents, limiting material exposure to interest rate fluctuations[326](index=326&type=chunk) - Inflation has not had a material effect on the business, but significant inflationary pressures could impact financial condition if not offset by price increases[327](index=327&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Evaluation of LivePerson's disclosure controls and procedures, confirming effectiveness as of September 30, 2022, with no material changes - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2022, ensuring timely and accurate reporting of information required under the Exchange Act[330](index=330&type=chunk) - No material changes in internal control over financial reporting were identified during the three months ended September 30, 2022[331](index=331&type=chunk) - The company acknowledges the inherent limitations of any internal control system, which can only provide reasonable, not absolute, assurance[332](index=332&type=chunk) [PART II. OTHER INFORMATION](index=59&type=section&id=Part%20II.%20Other%20Information) Covers additional information not in financial statements, such as legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) Update on LivePerson's legal proceedings, particularly the intellectual property suit against [24]7 Customer, Inc., detailing the jury award and subsequent appeal - A jury awarded LivePerson approximately **$30.3 million** in an intellectual property suit against [24]7 Customer, Inc. in May 2021, including **$6.7 million** in compensatory and **$23.6 million** in punitive damages[335](index=335&type=chunk) - On July 28, 2022, the Court denied [24]7's post-trial motions and granted LivePerson's motion for interest, awarding an additional **$4.3 million**, but [24]7 appealed these matters on August 26, 2022, and thus no amounts have been reflected in LivePerson's financial statements[335](index=335&type=chunk) - The company accrues for legal liabilities when a loss is probable and reasonably estimable, continuously evaluating and adjusting estimates based on new information[336](index=336&type=chunk) [Item 1A. Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) Refers to comprehensive risk factors in the Annual Report on Form 10-K, stating no material changes have occurred - The company's operations and financial results are subject to various risks and uncertainties detailed in its Annual Report on Form 10-K filed on February 28, 2022[341](index=341&type=chunk) - No material changes to the previously described risk factors have occurred[341](index=341&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Confirms no unregistered sales or repurchases of equity securities by LivePerson during Q3 2022 - There were no unregistered sales of equity securities by the issuer during the three months ended September 30, 2022[343](index=343&type=chunk) - There were no repurchases of equity securities by the issuer during the three months ended September 30, 2022[344](index=344&type=chunk) [Item 3. Defaults Upon Senior Securities](index=66&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States LivePerson experienced no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the period[346](index=346&type=chunk) [Item 4. Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Indicates that mine safety disclosures are not applicable to LivePerson, Inc - Mine safety disclosures are not applicable to LivePerson, Inc[347](index=347&type=chunk) [Item 5. Other Information](index=66&type=section&id=Item%205.%20Other%20Information) States that there is no other information to report for the period - No other information is reported in this section[348](index=348&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including certifications, an amended offer letter, and Inline XBRL documents - Exhibits include certifications by the Chief Executive Officer and Chief Financial Officer (pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350)[350](index=350&type=chunk) - An Amended and Restated Offer Letter between LivePerson and John D. Collins, dated August 9, 2022, is filed[350](index=350&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File) are included[350](index=350&type=chunk) [Signatures](index=68&type=section&id=Signatures) Official signatures of LivePerson's CEO and CFO, certifying the report's submission - The report is duly signed on behalf of LivePerson, Inc. by Robert P. LoCascio, Chief Executive Officer, and John D. Collins, Chief Financial Officer, on November 8, 2022[354](index=354&type=chunk)

LivePerson, Inc. (NASDAQ:LPSN) Q3 2022 Earnings Conference Call November 7, 2022 5:00 PM ET Company Participants Chad Cooper - Senior Vice President-Investor Relations Rob LoCascio - Founder and Chief Executive Officer John Collins - Chief Financial Officer Conference Call Participants Ryan MacDonald - Needham Mark Schappel - Loop Capital Siti Panigrahi - Mizuho Zach Cummins - B. Riley Securities Ryan MacWilliams - Barclays Jeff Van Rhee - Craig-Hallum Operator Good afternoon ladies and gentlemen. Thank you ...

| --- | --- | |--------------------------------------------------------------------------------------------------------------------|-------| | | | | | | | | | | Third Quarter 2022 | | | Earnings Call Supplemental Slides | | | Rob LoCascio, Chief Executive Officer John Collins, Chief Financial Officer Chad Cooper, SVP of Investor Relations | | | November 7, 2022 | | Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (th ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 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) Delaware ...

| --- | --- | |-----------------------------------------------------------------------------------------------------------------|-------| | | | | | | | | | | Second Quarter 2022 | | | Earnings Call Supplemental Slides | | | Rob LoCascio, Chief Executive Officer John Collins, Chief Financial Officer Chad Cooper, SVP Investor Relations | | | August 8, 2022 | | Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Act" ...

LivePerson, Inc. (NASDAQ:LPSN) Q2 2022 Earnings Conference Call August 8, 2022 5:00 PM ET Company Participants Chad Cooper – Senior Vice President-Investor Relations Rob LoCascio – Founder and Chief Executive Officer John Collins – Chief Financial Officer Conference Call Participants Arjun Bhatia – William Blair Zach Cummins – B. Riley Securities Peter Levine – Evercore Ryan MacDonald – Needham Siti Panigrahi – Mizuho Ryan MacWilliams – Barclays Operator Good afternoon ladies and gentlemen, and thank you fo ...

[General Information](index=1&type=section&id=General%20Information) [Filing Information](index=1&type=section&id=Filing%20Information) Details LivePerson, Inc.'s Form 10-Q filing for Q1 2022, covering registration, stock exchange listing, and filer status - The registrant is **LIVEPERSON, INC.**, a **Delaware corporation**, filing its **Quarterly Report on Form 10-Q** for the period ended **March 31, 2022**[2](index=2&type=chunk) - The company's **Common Stock**, **par value** **$0.001 per share**, is traded on **The Nasdaq Stock Market LLC**[3](index=3&type=chunk) - **LivePerson, Inc.** is classified as a **Large Accelerated Filer**[4](index=4&type=chunk) - As of **May 2, 2022**, **74.4 million shares** of the registrant's **common stock** were outstanding[4](index=4&type=chunk) [Forward-Looking Statements](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) Outlines forward-looking statements, emphasizing reliance on current expectations and susceptibility to material risks and uncertainties - Statements in this report that are not historical facts are **forward-looking**, based on current expectations, assumptions, estimates, and projections about **LivePerson** and its industry[9](index=9&type=chunk) - **Forward-looking statements** are subject to **risks and uncertainties** that could cause actual future events or results to differ materially, including those detailed in the **Annual Report on Form 10-K**[9](index=9&type=chunk) [PART I. Financial Information](index=4&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents LivePerson, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, with explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $1,204,073 | $1,186,656 | | Total Liabilities | $1,023,727 | $837,219 | | Total Stockholders' Equity | $180,346 | $349,437 | | Cash and cash equivalents | $480,676 | $521,846 | | Convertible senior notes, net | $734,586 | $574,238 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | Change (YoY) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | :------------ | | Revenue | $130,197 | $107,891 | +20.7% | | Total costs and expenses | $195,324 | $121,520 | +60.7% | | Loss from operations | $(65,127) | $(13,629) | -377.9% | | Net loss | $(65,364) | $(21,195) | -208.4% | | Basic Net loss per share | $(0.86) | $(0.31) | -177.4% | | Diluted Net loss per share | $(0.86) | $(0.31) | -177.4% | [Condensed Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | Metric | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | Change (YoY) | | :----------------------- | :------------------------------------- | :------------------------------------- | :------------ | | Net loss | $(65,364) | $(21,195) | -208.4% | | Foreign currency translation adjustment | $(1,699) | $(1,746) | +2.7% | | Comprehensive loss | $(67,063) | $(22,941) | -192.3% | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | December 31, 2021 (In thousands) | March 31, 2022 (In thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $349,437 | $180,346 | | Cumulative adjustment due to adoption of ASU 2020-06 | N/A | $(159,407) | | Net loss | N/A | $(65,364) | | Stock-based compensation | N/A | $20,522 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash (used in) provided by operating activities | $(22,872) | $25,229 | | Net cash used in investing activities | $(19,899) | $(11,437) | | Net cash provided by financing activities | $1,001 | $3,015 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(41,170) | $14,073 | | Cash, cash equivalents, and restricted cash - end of year | $482,362 | $668,225 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Description of Business and Basis of Presentation](index=10&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) LivePerson, a Conversational AI company, presents unaudited GAAP financials, with ASU 2020-06 impacting convertible instrument accounting - **LivePerson** is a leading **Conversational Artificial Intelligence (AI) company**, creating digital experiences that are 'Curiously Human' through its **Conversational Cloud platform** for businesses and an online marketplace for consumer services[24](index=24&type=chunk)[25](index=25&type=chunk)[28](index=28&type=chunk) - The company adopted **ASU 2020-06** on **January 1, 2022**, which simplifies the accounting for **convertible instruments**. This resulted in a **$50.2 million** decrease in **accumulated deficit**, a **$209.7 million** decrease in **additional paid-in capital**, and a **$159.5 million** increase in **convertible senior notes**, net[48](index=48&type=chunk) [Note 2. Revenue Recognition](index=15&type=section&id=Note%202.%20Revenue%20Recognition) Revenue primarily from hosted services (Business segment), recognized over time, with total revenue increasing 21% year-over-year to $130.2 million | Revenue Source | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | Change (YoY) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------ | | Hosted services – Business | $106,324 | $83,640 | +27.1% | | Hosted services – Consumer | $9,122 | $9,011 | +1.2% | | Professional services – Business | $14,751 | $15,240 | -3.1% | | **Total revenue** | **$130,197** | **$107,891** | **+20.7%** | | Geographic Location | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | Change (YoY) | | :------------------ | :------------------------------------- | :------------------------------------- | :------------ | | United States | $87,137 | $68,782 | +26.7% | | Other Americas | $5,039 | $3,913 | +28.8% | | EMEA | $23,820 | $21,760 | +9.5% | | APAC | $14,201 | $13,436 | +5.7% | | **Total revenue** | **$130,197** | **$107,891** | **+20.7%** | - As of **March 31, 2022**, the aggregate amount of the total transaction price allocated to **remaining performance obligations** for contracts with an original duration of one year or greater was **$448.0 million**, with approximately **91%** expected to be recognized within the next **24 months**[51](index=51&type=chunk) | Deferred Revenue | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total deferred revenue - short term | $112,323 | $98,808 | | Total deferred revenue - long term | $188 | $54 | [Note 3. Net Loss Per Share](index=17&type=section&id=Note%203.%20Net%20Loss%20Per%20Share) Basic and diluted net loss per share for Q1 2022 was $(0.86), a significant increase from $(0.31) in the prior year, with anti-dilutive securities excluded | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss (in thousands) | $(65,364) | $(21,195) | | Weighted average shares outstanding, basic and diluted | 75,812,405 | 67,901,809 | | Net loss per share, basic and diluted | $(0.86) | $(0.31) | | Anti-Dilutive Securities (as of March 31) | 2022 | 2021 | | :--------------------------------------- | :--------- | :--------- | | Shares subject to outstanding common stock options and employee stock purchase plan | 5,027,605 | 4,172,765 | | Restricted stock units | 4,292,153 | 2,530,542 | | Conversion option of the 2024 Notes | 5,961,186 | 5,961,186 | | Conversion option of the 2026 Notes | 6,879,283 | 6,879,283 | | **Total Anti-Dilutive Securities** | **22,160,227** | **19,543,776** | [Note 4. Segment Information](index=18&type=section&id=Note%204.%20Segment%20Information) Business segment revenue increased 22% to $121.1 million, but operating income decreased significantly, while Consumer segment revenue remained stable | Metric (Three Months Ended March 31, 2022) | Business (In thousands) | Consumer (In thousands) | Corporate (In thousands) | Consolidated (In thousands) | | :--------------------------------------- | :---------------------- | :---------------------- | :----------------------- | :-------------------------- | | Total revenue | $121,075 | $9,122 | $0 | $130,197 | | Cost of revenue | $48,221 | $1,346 | $0 | $49,567 | | Sales and marketing | $52,283 | $5,849 | $0 | $58,132 | | Amortization of purchased intangibles | $1,841 | $0 | $0 | $1,841 | | Unallocated corporate expenses | $0 | $0 | $85,784 | $85,784 | | Operating income (loss) | $18,730 | $1,927 | $(85,784) | $(65,127) | | Metric (Three Months Ended March 31, 2021) | Business (In thousands) | Consumer (In thousands) | Corporate (In thousands) | Consolidated (In thousands) | | :--------------------------------------- | :---------------------- | :---------------------- | :----------------------- | :-------------------------- | | Total revenue | $98,880 | $9,011 | $0 | $107,891 | | Cost of revenue | $31,610 | $1,909 | $0 | $33,519 | | Sales and marketing | $30,203 | $6,750 | $0 | $36,953 | | Amortization of purchased intangibles | $375 | $0 | $0 | $375 | | Unallocated corporate expenses | $0 | $0 | $50,672 | $50,672 | | Operating income (loss) | $36,692 | $352 | $(50,672) | $(13,629) | | Long-Lived Assets by Geographic Region | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | | United States | $429,761 | $444,318 | | Germany | $96,885 | $52,342 | | Israel | $21,430 | $20,754 | | Australia | $13,094 | $12,771 | | Netherlands | $6,948 | $4,566 | | Other | $16,644 | $15,629 | | **Total long-lived assets** | **$584,762** | **$550,380** | [Note 5. Goodwill and Intangible Assets](index=19&type=section&id=Note%205.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased by $15.3 million to $305.4 million, and total intangible assets, net, rose to $90.2 million, with increased amortization expense | Goodwill | December 31, 2021 (In thousands) | March 31, 2022 (In thousands) | | :----------------------- | :----------------------------- | :----------------------------- | | Business Segment | $283,191 | $282,111 | | Consumer Segment | $8,024 | $23,315 | | **Consolidated Total** | **$291,215** | **$305,426** | | Intangible Assets (Net Carrying Amount) | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :------------------------------------- | :----------------------------- | :----------------------------- | | Technology | $63,272 | $59,869 | | Customer relationships | $16,374 | $16,998 | | Patents | $7,688 | $6,851 | | Trademarks | $1,232 | $1,339 | | Trade names | $942 | $417 | | Other | $674 | $80 | | **Total Intangibles, net** | **$90,182** | **$85,554** | - **Aggregate amortization expense** for **intangible assets** was **$4.4 million** for the three months ended **March 31, 2022**, a significant increase from **$1.6 million** for the comparable period in **2021**[73](index=73&type=chunk) [Note 6. Property and Equipment](index=20&type=section&id=Note%206.%20Property%20and%20Equipment) Total property and equipment, net, increased to $131.8 million, driven by computer equipment and internal-use software development costs | Property and Equipment | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :------------------------------------- | :----------------------------- | :----------------------------- | | Computer equipment and software | $125,609 | $120,685 | | Internal-use software development costs | $132,279 | $122,479 | | Finance lease right of use assets | $5,896 | $6,797 | | Furniture, equipment, and building improvements | $550 | $258 | | Less: accumulated depreciation | $(132,568) | $(125,493) | | **Total Property and Equipment, net** | **$131,766** | **$124,726** | [Note 7. Accrued Expenses and Other Current Liabilities](index=21&type=section&id=Note%207.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Total accrued expenses and other current liabilities increased to $106.8 million, with professional services and consulting fees remaining the largest component | Accrued Expenses and Other Current Liabilities | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :--------------------------------------------- | :----------------------------- | :----------------------------- | | Professional services and consulting and other vendor fees | $60,957 | $58,811 | | Payroll and other employee related costs | $17,926 | $29,855 | | Short-term contingent earn-out | $12,234 | $0 | | Sales commissions | $4,294 | $4,269 | | Finance lease liability | $3,781 | $3,738 | | Unrecognized tax benefits | $2,377 | $2,424 | | Restructuring | $1,603 | $1,694 | | Taxes other than income tax | $1,195 | $918 | | Other | $2,411 | $2,588 | | **Total** | **$106,778** | **$104,297** | [Note 8. Convertible Senior Notes and Capped Call Transactions](index=21&type=section&id=Note%208.%20Convertible%20Senior%20Notes%20and%20Capped%20Call%20Transactions) The company's $230.0 million 2024 Notes and $517.5 million 2026 Notes are now single liabilities, increasing their net carrying amount to $734.6 million - The company issued **$230.0 million** **aggregate principal amount** of **0.750% Convertible Senior Notes due 2024** (**2024 Notes**) and **$517.5 million** **aggregate principal amount** of **0% Convertible Senior Notes due 2026** (**2026 Notes**)[77](index=77&type=chunk)[87](index=87&type=chunk) - The **2024 Notes** are initially **convertible at** **$38.58 per share**, and the **2026 Notes** at **$75.23 per share**[79](index=79&type=chunk)[90](index=90&type=chunk) - After the adoption of **ASU 2020-06**, the **2024 Notes** and **2026 Notes** are accounted for as **single liabilities**. Their **net carrying amounts** as of **March 31, 2022**, were **$226.6 million** and **$507.9 million**, respectively[85](index=85&type=chunk)[97](index=97&type=chunk) | Metric | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Principal | $747,500 | $747,500 | | Unamortized discount | $0 | $(162,500) | | Unamortized issuance costs | $(12,914) | $(10,762) | | **Net carrying amount** | **$734,586** | **$574,238** | | Interest Expense | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | | :-------------------------- | :------------------------------------- | :------------------------------------- | | Contractual interest expense | $431 | $431 | | Amortization of issuance costs | $941 | $609 | | Amortization of debt discount | $0 | $8,118 | | **Total interest expense** | **$1,372** | **$9,158** | [Note 9. Acquisitions](index=25&type=section&id=Note%209.%20Acquisitions) LivePerson acquired WildHealth, Inc. for $22.3 million, aiming to accelerate healthcare offerings, resulting in $15.3 million goodwill and $8.3 million intangible assets - In **February 2022**, **LivePerson** acquired **100%** of **WildHealth, Inc.** for a total **purchase price** of **$22.3 million**, consisting of approximately **$4.6 million** in **cash** and **$17.7 million** in **common stock**[101](index=101&type=chunk) - The **acquisition** is part of **LivePerson's** strategy to accelerate its **technology-driven healthcare offerings** by combining a rich healthcare data platform with **Conversational AI**[101](index=101&type=chunk) | Acquisition Impact (WildHealth, Inc.) | Amount (In thousands) | | :------------------------------------ | :-------------------- | | Total acquisition consideration | $22,265 | | Goodwill | $15,301 | | Intangible assets acquired | $8,300 | | Deferred tax liability | $(1,603) | | Intangible Assets Acquired (WildHealth) | Fair Value (In thousands) | Useful life | | :-------------------------------------- | :------------------------ | :---------- | | Developed technology | $7,100 | 5.0 years | | Trade name | $600 | 5.0 years | | Fellowship content | $600 | 5.0 years | | **Total** | **$8,300** | | [Note 10. Leases](index=26&type=section&id=Note%2010.%20Leases) The company holds operating and finance leases for offices, with total lease cost for Q1 2022 at $4.0 million and total lease liabilities at $7.7 million | Lease Metrics | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating right of use assets | $4,085 | $1,977 | | Finance right of use assets | $5,896 | $6,797 | | Operating lease liability (current) | $4,864 | $3,380 | | Finance lease liability (current) | $3,781 | $3,738 | | Operating lease liability (non-current) | $2,795 | $2,733 | | Finance lease liability (non-current) | $1,829 | $2,780 | | Lease Cost (Three Months Ended March 31) | 2022 (In thousands) | 2021 (In thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Finance lease cost (Amortization + Interest) | $976 | $982 | | Operating lease cost | $3,002 | $1,857 | | **Total lease cost** | **$3,978** | **$2,839** | | Future Minimum Lease Payments (March 31, 2022) | Operating Leases (In thousands) | Finance Leases (In thousands) | | :--------------------------------------------- | :------------------------------ | :---------------------------- | | 2022 (remaining nine months) | $4,188 | $2,955 | | 2023 | $2,744 | $2,627 | | 2024 | $512 | $127 | | 2025 | $608 | $95 | | 2026 | $263 | $0 | | **Total minimum lease payments** | **$8,315** | **$5,804** | [Note 11. Fair Value Measurements](index=29&type=section&id=Note%2011.%20Fair%20Value%20Measurements) Cash equivalents are measured at Level 1, contingent earn-out liabilities at Level 3, and convertible senior notes at Level 2 fair value | Fair Value Item (March 31, 2022) | Level 1 (In thousands) | Level 2 (In thousands) | Level 3 (In thousands) | Total (In thousands) | | :------------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Money market funds | $392,703 | $0 | $0 | $392,703 | | Contingent earn-out | $0 | $0 | $42,456 | $42,456 | - As of **March 31, 2022**, the **fair value** of the **Convertible Senior Notes** was approximately **$622.7 million**, determined using an **independent valuation specialist** with the **antithetic variable technique** (**Level 2 fair value measurement**)[121](index=121&type=chunk) [Note 12. Commitments and Contingencies](index=31&type=section&id=Note%2012.%20Commitments%20and%20Contingencies) The company contributes to a 401(k) plan, with sales tax liabilities accrued at $1.1 million as of March 31, 2022 | Employee Benefit Plan (401k) | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | | :--------------------------- | :------------------------------------- | :------------------------------------- | | Employer matching contributions | $1,600 | $900 | - As of **March 31, 2022**, the accrual balance for **sales tax liabilities** was **$1.1 million**, a decrease from the initial **$2.5 million** accrued as of **March 31, 2020**, due to payments made[126](index=126&type=chunk) [Note 13. Stockholders' Equity](index=31&type=section&id=Note%2013.%20Stockholders'%20Equity) As of March 31, 2022, 74.3 million common shares were outstanding, with Q1 2022 stock-based compensation expense at $31.9 million | Common Stock (as of March 31, 2022) | Shares | | :---------------------------------- | :--------- | | Authorized | 200,000,000 | | Issued | 77,062,637 | | Outstanding | 74,316,394 | | Stock Option Activity (March 31, 2022) | Options (In thousands) | Weighted Average Exercise Price | | :------------------------------------- | :--------------------- | :------------------------------ | | Balance outstanding at December 31, 2021 | 4,782 | $27.52 | | Granted | 445 | $28.73 | | Exercised | (40) | $12.50 | | Cancelled or expired | (159) | $47.31 | | **Balance outstanding at March 31, 2022** | **5,028** | **$27.24** | | Restricted Stock Unit Activity (March 31, 2022) | Number of Shares (In thousands) | Weighted Average Grant Date Fair Value (Per share) | | :---------------------------------------------- | :------------------------------ | :----------------------------------------------- | | Balance outstanding at December 31, 2021 | 3,732 | $43.63 | | Awarded | 2,049 | $24.87 | | Vested | (1,180) | $24.58 | | Forfeited | (309) | $41.16 | | **Non-vested and outstanding at March 31, 2022** | **4,292** | **$40.10** | | Stock-Based Compensation Expense | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | | :------------------------------- | :------------------------------------- | :------------------------------------- | | Total expense | $31,866 | $14,611 | [Note 14. Restructuring](index=34&type=section&id=Note%2014.%20Restructuring) Restructuring costs decreased significantly to less than $0.1 million for Q1 2022, with a $1.6 million liability primarily for lease restructuring | Restructuring Costs | Three Months Ended March 31, 2022 (In thousands) | Three Months Ended March 31, 2021 (In thousands) | Change (YoY) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------ | | Lease restructuring costs | $(23) | $294 | -107.8% | | Severance and other compensation associated costs | $0 | $2,438 | -100% | | **Total restructuring costs** | **$(23)** | **$2,732** | **-100.8%** | | Restructuring Liability | March 31, 2022 (In thousands) | December 31, 2021 (In thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Balance, end of period | $1,603 | $1,694 | [Note 15. Legal Matters](index=35&type=section&id=Note%2015.%20Legal%20Matters) A jury awarded LivePerson $30.3 million in an intellectual property suit, but no amounts are reflected due to anticipated challenges - A jury awarded **LivePerson** approximately **$30.3 million** in an **intellectual property suit** against **[24]7 Customer, Inc.** in **May 2021**, including **$6.7 million** in **compensatory damages** and **$23.6 million** in **punitive damages**[145](index=145&type=chunk) - The company believes the remaining claims filed by **[24]7** are without merit and intends to defend them vigorously. No amounts for the **settlement** have been reflected in the **financial statements** due to anticipated challenges[145](index=145&type=chunk) [Note 16. Income Taxes](index=35&type=section&id=Note%2016.%20Income%20Taxes) The company recorded a $0.2 million tax benefit for Q1 2022, with a $107.1 million valuation allowance against deferred tax assets - For the three months ended **March 31, 2022**, the company recorded a **tax benefit** of **$0.2 million**, which includes a tax provision on operating earnings, a stock compensation tax deficiency, and a tax benefit from the release of **valuation allowance** due to the **WildHealth acquisition**[149](index=149&type=chunk) - As of **December 31, 2021**, the company had a **valuation allowance** of **$107.1 million** on certain **deferred tax assets**, with an estimated increase of **$28.7 million** inherent in the **2022** annual effective tax rate[150](index=150&type=chunk) [Note 17. Equity Method Investments](index=36&type=section&id=Note%2017.%20Equity%20Method%20Investments) LivePerson entered a joint venture with Pasaca Capital Inc. to form Claire Holdings, Inc., with a $2.8 million equity method investment - **LivePerson** and **Pasaca Capital Inc.** entered into a **joint venture** agreement to form **Claire Holdings, Inc.**, a marketplace for health and well-being diagnostic testing. **LivePerson** will contribute **$19.0 million** over **five years** for a **19.2% ownership interest**[151](index=151&type=chunk) - As of **March 31, 2022**, the company's **equity method investment** in **Claire Holdings, Inc.** was **$2.8 million**[152](index=152&type=chunk) [Note 18. Variable Interest Entity](index=36&type=section&id=Note%2018.%20Variable%20Interest%20Entity) Through the WildHealth acquisition, LivePerson consolidated four Physician Corporations (PCs) as VIEs, with WildHealth as the primary beneficiary - In **February 2022**, **LivePerson** acquired **WildHealth**, which consolidates four **Physician Corporations (PCs)** as **Variable Interest Entities (VIEs)**. **WildHealth** is determined to be the **primary beneficiary** of the **PCs**[154](index=154&type=chunk) - The assets, liabilities, revenues, and operating results of the consolidated **VIEs** were not material as of and for the three months ended **March 31, 2022**[156](index=156&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses LivePerson's Q1 2022 financial performance, highlighting revenue growth, increased expenses, and net loss [General](index=37&type=section&id=General) Discussion and analysis are based on GAAP condensed consolidated financial statements, requiring management estimates and assumptions influenced by the COVID-19 pandemic - The discussion and analysis are based on condensed consolidated financial statements prepared in conformity with **GAAP**, requiring management to make estimates and assumptions that may be affected by the **COVID-19 pandemic**[158](index=158&type=chunk) [Overview](index=37&type=section&id=Overview) LivePerson, a Conversational AI company, leverages its platform for business-consumer engagement, focusing on strategic growth, AI talent, and technology integration - **LivePerson** is a leading **Conversational AI company**, leveraging its **Conversational Cloud platform** to enable businesses to engage with consumers through preferred conversational interfaces (e.g., Facebook Messenger, SMS, WhatsApp)[160](index=160&type=chunk)[161](index=161&type=chunk) - Key **strategic elements** include building awareness for the **Conversational Space**, increasing messaging volumes through a broad ecosystem and **AI/automation**, attracting **top AI talent**, and bringing **best-in-class AI/machine learning technologies** to market[170](index=170&type=chunk)[172](index=172&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) - The company's offerings have led to **significant benefits** for customers, including agents managing up to **40 messaging conversations** simultaneously, labor efficiency gains of at least **two times**, and increases in **customer satisfaction** and **sales conversion** by up to **20%**[167](index=167&type=chunk) - **Strategic acquisitions** in **2021-2022** (e-bot7, VoiceBase, Tenfold, **WildHealth**) aim to enhance **self-service capabilities**, real-time speech recognition, conversational analytics, and **technology-driven healthcare offerings**, integrating **AI and automation** across all channels[195](index=195&type=chunk) [Key Metrics](index=43&type=section&id=Key%20Metrics) Total revenue increased 21% to $130.2 million, with gross profit margin at 62% and a net loss of $(65.4) million for Q1 2022 | Financial Overview (Three Months Ended March 31) | 2022 (In millions) | 2021 (In millions) | Change (YoY) | | :----------------------------------------------- | :----------------- | :----------------- | :----------- | | Total revenue | $130.2 | $107.9 | +21% | | Revenue from Business segment | $121.1 | $98.9 | +22% | | Gross profit margin | 62% | 69% | -7 ppts | | Total costs and expenses | $195.3 | $121.5 | +61% | | Net loss | $(65.4) | $(21.2) | -208% | - Average annual revenue per enterprise and mid-market customer increased approximately **32%** to **$645 thousand** for the trailing twelve months ended **March 31, 2022**, compared to **$490 thousand** for the comparable period in **2021**[197](index=197&type=chunk) - Revenue retention rate for enterprise and mid-market customers on the **Conversational Cloud** was within the target range of **105%** to **115%** in **Q1 2022** and exceeded the high end of this range in **Q1 2021**[197](index=197&type=chunk) | Non-GAAP Financial Measures (Three Months Ended March 31) | 2022 (In thousands) | 2021 (In thousands) | | :------------------------------------------------------- | :-------------------- | :-------------------- | | Adjusted EBITDA (loss) | $(17,633) | $13,348 | | Adjusted operating (loss) income | $(24,857) | $6,743 | [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies include revenue recognition, stock-based compensation, goodwill valuation, and income taxes; hosted services generated 82% of Q1 2022 revenue - **Critical accounting policies and estimates** include **revenue recognition**, **depreciation**, **stock-based compensation**, **accounts receivable**, **valuation of goodwill and intangible assets**, **income taxes**, and **legal contingencies**[210](index=210&type=chunk) - The majority of **revenue** (**82%** for **Q1 2022**) is from **hosted services**, recognized over time. **Professional services** accounted for **11%**, and **Consumer segment revenue** for **7%**[211](index=211&type=chunk)[216](index=216&type=chunk)[218](index=218&type=chunk)[220](index=220&type=chunk) - **Deferred revenue** increased as of **March 31, 2022**, primarily due to cash payments received in advance of performance obligations. **Contract acquisition costs** (**prepaid sales commissions**) are amortized over **3-5 years**[223](index=223&type=chunk)[213](index=213&type=chunk) - **Stock-based compensation expense** for **Q1 2022** was **$31.9 million**, with significant unrecognized compensation costs for nonvested share-based awards and **RSUs**. The **allowance for doubtful accounts** increased to **$7.2 million** as of **March 31, 2022**[228](index=228&type=chunk)[227](index=227&type=chunk)[229](index=229&type=chunk) [Results of Operations](index=50&type=section&id=Results%20of%20Operations) Q1 2022 net loss was $65.4 million, compared to $21.2 million in Q1 2021, driven by increased operating expenses despite 21% revenue growth | Revenue by Segment (Three Months Ended March 31) | 2022 (In thousands) | 2021 (In thousands) | % Change | | :----------------------------------------------- | :------------------ | :------------------ | :------- | | Business | $121,075 | $98,880 | 22% | | Consumer | $9,122 | $9,011 | 1% | | **Total** | **$130,197** | **$107,891** | **21%** | | Expense Category (Three Months Ended March 31) | 2022 (In thousands) | 2021 (In thousands) | % Change | | :--------------------------------------------- | :------------------ | :------------------ | :------- | | Cost of revenue - business | $48,221 | $31,610 | 53% | | Cost of revenue - consumer | $1,346 | $1,909 | (29)% | | Sales and marketing - business | $52,283 | $30,203 | 73% | | Sales and marketing - consumer | $5,849 | $6,750 | (13)% | | General and administrative | $29,735 | $14,486 | 105% | | Product development | $56,072 | $33,455 | 68% | | Restructuring costs | $(23) | $2,732 | (101)% | | Amortization of purchased intangibles | $1,841 | $375 | 391% | | Other Expense, net (Three Months Ended March 31) | 2022 (In thousands) | 2021 (In thousands) | % Change | | :----------------------------------------------- | :------------------ | :------------------ | :------- | | Interest expense | $(490) | $(9,129) | (94.6)% | | Other income, net | $60 | $712 | (91.6)% | | **Total Other expense, net** | **$(430)** | **$(8,417)** | **(94.9)%** | - **Net loss** for **Q1 2022** was **$65.4 million**, compared to **$21.2 million** for **Q1 2021**, driven by increased **operating expenses** despite **revenue growth**[270](index=270&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) Cash, cash equivalents, and restricted cash totaled $482.4 million, a $41.2 million decrease, sufficient for 12 months of working capital | Cash Flow Activities (Three Months Ended March 31) | 2022 (In thousands) | 2021 (In thousands) | | :----------------------------------------------- | :------------------ | :------------------ | | Net cash (used in) provided by operating activities | $(22,872) | $25,229 | | Net cash used in investing activities | $(19,899) | $(11,437) | | Net cash provided by financing activities | $1,001 | $3,015 | - As of **March 31, 2022**, **cash, cash equivalents, and restricted cash** totaled **$482.4 million**, a decrease of **$41.2 million** from **December 31, 2021**, primarily due to the **WildHealth acquisition costs**[273](index=273&type=chunk) - The company anticipates current **cash and cash equivalents** will be sufficient to satisfy **working capital** and **capital requirements** for at least the next **12 months**, but may require additional funds for **expansion or acquisitions**[278](index=278&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces foreign currency exchange risks, manages collection risks for accounts receivable, and considers interest rate and inflation risks immaterial - The company faces **foreign currency exchange risk** from operations in Israel, the UK, Netherlands, Germany, France, Italy, Australia, and Japan, with the **U.S. dollar depreciating** approximately **3%** against the **NIS** in **Q1 2022**[282](index=282&type=chunk) - The **allowance for doubtful accounts** increased by **$0.9 million** to approximately **$7.2 million** during the three months ended **March 31, 2022**, reflecting ongoing assessment of **collection risks**[283](index=283&type=chunk) - Changes in market **interest rates** do not materially affect the value of the company's **cash and cash equivalents**, and **inflation** has not had a **material effect** on the business[285](index=285&type=chunk)[286](index=286&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - The **Chief Executive Officer** and **Chief Financial Officer** evaluated the **effectiveness** of the company's **disclosure controls and procedures** and concluded they were **effective** as of **March 31, 2022**[289](index=289&type=chunk) - There were **no changes** in the company's **internal control over financial reporting** during the three months ended **March 31, 2022**, that have materially affected, or are reasonably likely to materially affect, **internal control over financial reporting**[290](index=290&type=chunk) [PART II. Other Information](index=53&type=section&id=PART%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) A jury awarded LivePerson $30.3 million in an intellectual property suit, but no amounts are reflected due to anticipated challenges - A jury awarded **LivePerson** approximately **$30.3 million** in an **intellectual property suit** against **[24]7 Customer, Inc.** in **May 2021**, including **$6.7 million** in **compensatory damages** and **$23.6 million** in **punitive damages**[293](index=293&type=chunk) - The company believes the remaining claims filed by **[24]7** are without merit and intends to defend them vigorously. No amounts for the **settlement** have been reflected in the **financial statements** due to anticipated challenges[293](index=293&type=chunk) [Item 1A. Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - There have been **no material changes** to the **risk factors** described in the **Annual Report on Form 10-K** for the year ended **December 31, 2021**, filed on **February 28, 2022**[299](index=299&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) On February 7, 2022, the company issued 545,629 common shares as partial consideration for the WildHealth acquisition, exempt from registration - On **February 7, 2022**, the company **issued** **545,629 shares** of **common stock** as partial consideration for the **WildHealth acquisition** and an additional **231,194 shares** into escrow accounts, in a transaction **exempted from registration** under **Section 4(a)(2) of the Securities Act of 1933**[301](index=301&type=chunk) [Item 3. Defaults Upon Senior Securities](index=58&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were **no defaults upon senior securities** during the three months ended **March 31, 2022**[304](index=304&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Mine Safety Disclosures** are **not applicable** to the company[305](index=305&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - **No other information** was reported under this item[306](index=306&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and Inline XBRL documents - The **exhibits** include **certifications** by the **Chief Executive Officer** and **Chief Financial Officer** (**31.1**, **31.2**, **32.1**, **32.2**) and various **Inline XBRL documents** (**101.INS**, **101.SCH**, **101.CAL**, **101.DEF**, **101.LAB**, **101.PRE**, **104**)[309](index=309&type=chunk) [Signatures](index=60&type=section&id=Signatures) [Signatures](index=60&type=section&id=Signatures_Details) The report was duly signed on May 10, 2022, by Robert P. LoCascio, Chief Executive Officer, and John D. Collins, Chief Financial Officer - The report was **duly signed** on **May 10, 2022**, by **Robert P. LoCascio**, **Chief Executive Officer**, and **John D. Collins**, **Chief Financial Officer**[313](index=313&type=chunk)

| --- | --- | |-----------------------------------------------------------------------------|-------| | | | | | | | | | | First Quarter 2022 | | | Earnings Call Supplemental Slides | | | Rob LoCascio, Chief Executive Officer John Collins, Chief Financial Officer | | | May 9, 2022 | | Disclaimer This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, as amended. You c ...