LivePerson(LPSN) - 2023 Q4 - Annual Report

Part I Business LivePerson leads in AI-powered digital customer conversations, leveraging its Conversational Cloud platform to enhance efficiency and personalization - LivePerson positions itself as the enterprise leader in digital customer conversations, using its AI-powered Conversational Cloud platform to manage over one billion connections monthly[16] - The company's strategy involves a "tango" of humans, bots, and LLMs to improve agent efficiency and customer experience, leveraging a vast dataset of billions of conversations to train its AI[19][34] - Key target industries include telecommunications, financial services, travel/hospitality, technology, healthcare, automotive, and consumer/retail[39][46] - No single customer accounted for more than 10% of total revenue in 2023, 2022, or 2021[40] - As of December 31, 2023, the company held 286 issued patents and had 307 pending patents globally, covering areas like Conversational AI, messaging, and analytics[58] - The company had approximately 1,095 full-time employees worldwide as of December 31, 2023[62] Risk Factors The company faces significant financial, operational, competitive, and regulatory risks, including a history of losses and substantial debt - The company has a history of losses, with an accumulated deficit of $857.0 million as of December 31, 2023, and may incur future losses[70][105] - There is a significant risk related to refinancing the $517.5 million in 0% Convertible Notes due in December 2026, with no assurance that financing will be available on reasonable terms[92] - The business is highly dependent on retaining existing customers and attracting new ones, as contracts are typically for one year and can sometimes be terminated with 30-90 days' notice[76] - The markets for AI-enhanced customer interaction are intensely competitive, with rivals including Genesys, Oracle, Salesforce.com, and Twilio, as well as large tech companies like Meta and Google[49][118][119] - Failures or security breaches in systems, including cyber-attacks, could harm the business. The company is subject to numerous evolving U.S. and international laws regarding data privacy, data protection, and AI, which could increase costs and liability[71][128][153] - A substantial portion of product development staff is located in Israel, making operations vulnerable to political, economic, and military conditions in the region[217] Unresolved Staff Comments The company has no unresolved staff comments to report - None[243] Cybersecurity LivePerson maintains a comprehensive cybersecurity program with Board oversight, regularly assessing and mitigating threats - The company maintains a cybersecurity program managed by a team led by the Chief Security Officer (CSO), with oversight from the Board of Directors' Cybersecurity and Technology Committee[244][251] - The program includes regular risk assessments, policies aligned with ISO 27001 and PCI DSS, endpoint detection, firewalls, employee training, and a Security Incident Response Plan[246] - The company engages external parties for penetration testing, threat hunting, cyber threat intelligence, and audits against standards like SOC 2, ISO 27001, and PCI[247][248] - As of the report date, the company is not aware of any cybersecurity threats that have materially affected or are reasonably likely to materially affect its business, strategy, or financial condition[249] Properties LivePerson operates with a remote workforce, headquartered in New York City, with leased data centers globally - The company's headquarters are in New York City, but it primarily operates with a globally distributed, remote workforce[252] - Data centers are leased in the United States, Europe, and Australia[253] Legal Proceedings The company is involved in multiple legal proceedings, including stockholder class actions and governmental inquiries - The company is subject to a stockholder class action (Damri v. LivePerson) alleging violations of federal securities laws related to 2022 financial disclosures[535] - Starboard Value LP filed a lawsuit in February 2024 alleging common law fraud and fraudulent inducement related to the settlement of its 2022 proxy contest[538] - The company and its subsidiary WildHealth have been subject to governmental inquiries regarding prior COVID-19 testing services. A Medicare payment suspension was terminated, and reimbursements were released in late 2023[539][540] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[255] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities LivePerson's common stock trades on Nasdaq and TASE, with no history or plans for cash dividends - The company's common stock trades on the Nasdaq (LPSN) and the Tel Aviv Stock Exchange (LPSN TA)[256] - The company has not paid any cash dividends since its inception and does not anticipate paying any in the foreseeable future[257] - There were no repurchases of the Company's equity securities during the three months ended December 31, 2023[258] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue declined by 22% in 2023, but net loss improved due to cost reductions, while liquidity decreased from note repurchases Results of Operations Revenue decreased by 22% in 2023, but net loss significantly improved due to reduced operating expenses and a gain on divestiture Consolidated Statements of Operations Summary | Financial Metric | 2023 (in thousands USD) | 2022 (in thousands USD) | 2021 (in thousands USD) | YoY Change (2022-2023) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $401,983 | $514,800 | $469,624 | (22)% | | Cost of revenue | $142,823 | $184,699 | $156,880 | (23)% | | Sales and marketing | $125,677 | $214,027 | $165,421 | (41)% | | General and administrative | $91,619 | $120,625 | $76,757 | (24)% | | Product development | $124,792 | $193,688 | $158,390 | (36)% | | Impairment of goodwill | $11,895 | $0 | $0 | N/A | | Restructuring costs | $22,664 | $19,967 | $3,397 | 14% | | Loss from operations | ($111,375) | ($221,884) | ($93,266) | 50% | | Net loss | ($100,435) | ($225,747) | ($124,974) | 55% | | Net loss per share (Basic & Diluted) | ($1.28) | ($3.03) | ($1.80) | 58% | - Revenue decreased by 22% in 2023, primarily from a $79.5 million drop in hosted services and a $33.3 million drop in Professional Services. The sale of the Kasamba (Consumer) segment also contributed to the decline[279][280] - The company recorded a non-cash goodwill impairment charge of $11.9 million related to the WildHealth reporting unit in Q3 2023, driven by slower growth and reduced investment plans[274][304] - Restructuring costs increased to $22.7 million in 2023, up from $20.0 million in 2022, including $5.7 million in IT infrastructure contract termination costs and costs related to headcount reduction enabled by LLM efficiencies[300] Liquidity and Capital Resources Cash decreased to $212.9 million due to note repurchases, with an accumulated deficit of $857.0 million, and plans to refinance 2026 notes Cash Flow Summary | Cash Flow Activity | 2023 (in thousands USD) | 2022 (in thousands USD) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(19,765) | $(62,101) | | Net cash used in investing activities | $(18,842) | $(56,860) | | Net cash (used in) provided by financing activities | $(151,142) | $1,618 | - Cash and cash equivalents decreased by $179.3 million to $212.9 million at year-end 2023, primarily due to the cash repurchase of $157.5 million in principal of the 2024 Notes for approximately $149.7 million[313] - The company has an accumulated deficit of approximately $857.0 million as of December 31, 2023[318] - Management plans to refinance the 2026 Notes (due December 2026) on or prior to their maturity and is currently reviewing its capital structure to achieve this[319] - As of December 31, 2023, the company had non-cancellable unconditional purchase obligations of approximately $36.0 million, primarily for IT infrastructure and cloud services[326] Quantitative and Qualitative Disclosures About Market Risk The company faces foreign currency risk, particularly from NIS exposure, and manages credit losses, while interest rate and inflation risks are minimal - The company has foreign currency risk, particularly from its Israeli operations. A 1% change in the U.S. dollar vs. the New Israeli Shekel (NIS) would impact income before taxes by approximately $0.3 million[328] - The allowance for credit losses on accounts receivable was $9.3 million as of December 31, 2023, a slight increase from $9.2 million at the end of 2022[330] - Interest rate risk is considered minimal as investments consist of cash and cash equivalents[332] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2023, with an unqualified auditor's opinion Consolidated Balance Sheets Total assets decreased to $835.5 million, driven by reduced cash and convertible notes, impacting stockholders' equity Consolidated Balance Sheet Summary (in thousands USD) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $321,708 | $533,466 | | Goodwill | $285,631 | $296,214 | | Total assets | $835,513 | $1,088,940 | | Total current liabilities | $267,549 | $251,558 | | Convertible senior notes, net | $511,565 | $737,423 | | Total liabilities | $787,375 | $1,020,852 | | Total stockholders' equity | $48,138 | $68,088 | Consolidated Statements of Operations Revenue declined 22% to $402.0 million, but net loss significantly improved to $100.4 million due to cost reductions Statement of Operations Highlights (in thousands USD, except per share data) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $401,983 | $514,800 | $469,624 | | Loss from operations | $(111,375) | $(221,884) | $(93,266) | | Net loss | $(100,435) | $(225,747) | $(124,974) | | Net loss per share (basic and diluted) | $(1.28) | $(3.03) | $(1.80) | Consolidated Statements of Cash Flows Net cash used in operations improved to $19.8 million, but financing activities led to a $151.1 million cash outflow Cash Flow Summary (in thousands USD) | Cash Flow Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(19,765) | $(62,101) | $3,247 | | Net cash used in investing activities | $(18,842) | $(56,860) | $(140,249) | | Net cash (used in) provided by financing activities | $(151,142) | $1,618 | $11,843 | | Net decrease in cash, cash equivalents, and restricted cash | $(189,284) | $(121,323) | $(130,620) | Notes to Consolidated Financial Statements Notes detail the Kasamba divestiture, goodwill impairment, note repurchases, restructuring charges, legal matters, and NOL carryforwards - The company divested its Consumer segment (Kasamba) on March 20, 2023, for cash proceeds of $16.9 million and a deferred payment of $2.6 million, resulting in a gain of $17.6 million. The company now operates as a single reportable segment[434][574] - In March 2023, the company repurchased $157.5 million in principal of its 2024 Notes for $149.7 million in cash, recognizing a $7.2 million gain on debt extinguishment. As of Dec 31, 2023, $72.5 million of 2024 Notes and $517.5 million of 2026 Notes remain outstanding[467][471] - A goodwill impairment charge of $11.9 million was recorded in Q3 2023 for the WildHealth reporting unit due to slower growth forecasts. An additional $3.0 million impairment was recorded for WildHealth's developed technology[442][447] - The company has federal Net Operating Loss (NOL) carryforwards of approximately $583.1 million to offset future taxable income, though their use may be subject to limitations under Section 382[550] - In January 2024, the company adopted a Tax Benefits Preservation Plan (a "poison pill") to protect its NOLs from being impaired by an "ownership change"[577] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable to the company - Not applicable[580] Controls and Procedures Disclosure controls were effective, and a prior material weakness in internal control over financial reporting has been remediated - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[581] - A material weakness in internal control over financial reporting identified as of December 31, 2022, has been remediated as of December 31, 2023[582][584] - Remediation actions included enhancing policies for journal entries, improving review of complex transactions, and strengthening segregation of duties[584] - The independent auditor, BDO USA, P.C., issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[586][591] Other Information No other information or Rule 10b5-1 trading arrangements were reported for Q4 2023 - No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement in Q4 2023[598] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[601] Executive Compensation Executive compensation information is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[604] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[605] Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[606] Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2024 proxy statement - Required information is incorporated by reference from the definitive proxy statement for the 2024 Annual Meeting of Stockholders[607] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[609] Form 10-K Summary No Form 10-K summary is provided by the company - None[609]