What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-28 compared with 2021-03-08 · 797 added, 701 removed, 753 unchanged (67% of the section changed)

Quantitative and Qualitative Disclosures About Market Risk

Currency Rate Fluctuations

As a result of the scope of our Israeli operations, there is currency rate fluctuation risk associated with the exchange rate movement of the U.S.

dollar against the New Israeli Shekel (“NIS”).

For the year ended December 31, 2020, the U.S dollar appreciated as compared to the NIS by an average of 4% as compared to December 31, 2019.

Foreign Currency Exchange Risks

Our Israeli operations have currency rate fluctuation risk associated with the exchange rate movement of the U.S.

dollar against the NIS.

For the year ended December 31, 2021, the U.S.

dollar depreciated as compared to the NIS by an average of 6% as compared to December 31, 2020.

For the year ended December 31, 2021, expenses generated by our Israeli operations totaled approximately $69.5 million.

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and the functional currency of our operations in Japan is the Japanese Yen.

Collection Risk

Collection Risks

Our accounts receivable are subject, in the normal course of business, to collection risks.

We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks.

we increased our allowance for doubtful accounts from $3.1 million to approximately $5.3 million.

During 2019, we increased our allowance for doubtful accounts by approximately $2.3 million to approximately $3.1 million.

During 2021, we increased our allowance for doubtful accounts from approximately $5.3 million to approximately $6.3 million.

During 2020, we increased our allowance for doubtful accounts from approximately $3.1 million to approximately $5.3 million.

A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles.

We base our allowance for doubtful accounts on specifically identified credit risks of customers, historical trends and other information that we believe to be reasonable.

Receivables are written-off and charged against the applicable recorded allowance when we have exhausted collection efforts without success.

We adjust our allowance for doubtful accounts when accounts previously reserved have been collected.

An allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances.

Judgment is required in the estimation of the allowance and we evaluate the collectability of our accounts receivable and contract assets based on a combination of factors.

If we become aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer.

For all other customers, we use an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and our historical collection experience adjusted for current expectations for the customer or industry.

Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.

Interest Rate Risk

Our investments consist of cash and cash equivalents.

Therefore, changes in the market’s interest rates do not affect in any material respect the value of the investments as recorded by us.

Inflation Rate Risk

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

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial conditions or results of operations.

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Consolidated Financial Statements and Supplementary Data

Report of BDO USA, LLP, An Independent Registered Public Accounting Firm 73

Index to Financial Statements

Report of Independent Registered Public Accounting Firm (BDO USA, LLP New York, New York;

PCAOB ID 243 )

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 8, 2021 expressed an unqualified opinion thereon.

Change in Accounting Principle

On January 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic 842, Leases.

The effects of the adoption are described in Note 1 to the consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 28, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Contracts with Multiple Performance Obligations

As described in Note 1 to the consolidated financial statements, certain of the Company’s revenue contracts contain multiple performance obligations primarily relating to the sale of hosted subscription and professional services.

For these revenue contracts, the Company accounts for the individual performance obligations separately if they are distinct.

The transaction price is allocated to the performance obligations based on their relative standalone selling prices.

The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and

other factors, including the value of its contracts, the cloud applications sold, and the number and types of users within its contracts.

As described in Note 1 to the Company’s consolidated financial statements, certain of the Company’s revenue contracts contain multiple performance obligations primarily relating to the sale of hosted subscription and professional services.

For these revenue contracts, the Company is required to assess all services promised in its contracts with customers and identify separate performance obligations.

The Company accounts for the individual performance obligations separately if they are distinct or represent a series of distinct services that are substantially the same and that have the same pattern of recognition.

We identified revenue recognition related to contracts that contain multiple performance obligations as a critical audit matter.

The determination of whether multiple services within a contract are distinct performance obligations that should be accounted for separately and the estimates of the standalone selling price for each distinct performance obligation require management to exercise significant judgment that includes a high degree of subjectivity.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.

The determination of whether multiple services within a contract are distinct performance obligations that should be accounted for separately requires management to exercise significant judgment that includes a high degree of subjectivity.

Auditing this element involved especially challenging auditor judgment due to the nature and extent of audit effort required to address this matter.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of certain controls relating to management’s determination of standalone selling prices for each of the performance obligations.

• Evaluating management’s technical accounting positions and assessing the reasonableness of management’s judgments and assumptions in the determination of whether the products and services are distinct performance obligations and the determination of the standalone selling prices for each of the performance obligations.

• Testing the reasonableness of the identification of distinct performance obligations and determination of the standalone selling prices through review of a sample of revenue contracts.

Convertible Senior Notes

As described in Note 7 to the consolidated financial statements, the Company issued $517.5 million aggregate principal amount of 0% Convertible Senior Notes (the “2026 Notes”) in a private placement in 2020.

In acc ounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature.

The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2026 Notes.

We identified the accounting evaluation, including the related fair value determinations, of the 2026 Notes as a critical audit matter.

The principal considerations for our determination were:

(i) the evaluation of the potential derivatives that needed to be bifurcated, and (ii) considerations related to determination of the fair value of the 2026 Notes and the conversion option including complex valuation models and assumptions utilized by management.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

• Testing the design and operating effectiveness of certain controls relating to management’s determination of separately identified performance obligations.

• Evaluating management’s technical accounting conclusions and assessing the reasonableness of management’s judgments and assumptions in the determination of whether the services are distinct performance obligations.

• Testing a sample of revenue contracts to evaluate the determination of the identification of distinct performance obligations made by management.

Business Combinations – Valuation of Acquired Intangible Asset and Accounting for Contingent Consideration

As described in Note 9 to the Company’s consolidated financial statements, during fiscal year 2021, the Company completed acquisitions of e-bot7, VoiceBase, Inc.

and Callinize, Inc.

dba Tenfold for $50.7 million, $111.4 million and $112.2 million, respectively.

The Company accounted for these acquisitions under the acquisition method of accounting for business combinations.

Accordingly, the purchase price of each acquisition was allocated to the assets acquired and liabilities assumed based on their respective fair values, including intangible assets related to acquired technology and customer relationships and liabilities related to contingent consideration.

The fair value determination of the intangible assets required management to make subjective estimates and assumptions, specifically related to forecasts of future cash flows and the selection of the discount rates.

Additionally, management had to evaluate the accounting for contingent consideration to determine if the amounts should be included as a component of the purchase price or as transactions separate from the business combinations.

We identified the valuation of the intangible assets and the accounting for contingent consideration as a critical audit matter.

The principal consideration for our determination included the subjectivity and judgment required to determine the fair value of acquired technology and customer relationships and the judgment management uses to determine the accounting for contingent consideration.

Auditing the valuation of acquired technology and customer relationships and evaluating the application of the accounting standard for contingent consideration involved a high degree of auditor judgment due to the subjectivity and judgment used in evaluating management’s assumptions used in determining the fair value of acquired technology and customer relationships and the evaluation of management’s accounting assessment of contingent consideration.

The primary procedures we performed to address this critical audit matter included:

• Utilizing personnel with specialized knowledge and skill in technical accounting to assist in:

(i) evaluating the relevant terms and conditions of the 2026 Notes' agreements, and (ii) assessing the appropriateness of conclusions reached by the Company with respect to the accounting for the 2026 Notes and identification, assessment and accounting for potential derivatives.

• Utilizing personnel with specialized knowledge and skill in valuation to assist in assessing the appropriateness of the valuation models utilized by management to determine the fair value of the 2026 Notes and assessing the reasonableness of assumptions incorporated into the valuation models.

• Testing the design and operating effectiveness of controls over the valuation of the intangible assets, including management’s controls over forecasts of future cash flows and selection of discount rates and management’s evaluation of the accounting for contingent consideration.

• Testing assumptions used to develop forecasts of future cash flows such as revenue growth rates and operating margins.

• Utilizing personnel with specialized knowledge and skill with valuation to assist in:

(i) assessing the reasonableness of discount rates incorporated into the various valuation models (ii) assessing the appropriateness of various valuation models utilized by management to determine the fair values of the acquired technology and customer relationships.

• Evaluating the application of the accounting standard in the determination of the recording of contingent consideration.

• Testing the mathematical accuracy of the future cash flows used in the fair value calculations of acquired technology and customer relationships.

/s/ BDO USA, LLP

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New York, New York

March 8, 2021

February 28, 2022

LIVEPERSON, INC.

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Cash and cash equivalents $ 521,846 $ 654,152

$ 654,152 $ 176,523

Accounts receivable, net of allowance for doubtful accounts of $ 5,344 and $ 3,070 , in 2020 and 2019, respectively

Accounts receivable, net of allowances of $ 6,338 and $ 5,344 , as of December 31, 2021 and 2020, respectively

93,804 80,423

Prepaid expenses and other current assets 20,626 14,236

14,236 13,964

Total current assets 636,276 748,811

Operating lease ROU asset (Note 10)

Property and equipment, net (Note 6)

124,726 106,055

Operating lease right of use asset 614 15,680

Property and equipment, net 106,055 76,236

Contract acquisition costs 40,675 41,021

Intangibles, net 10,927 11,812

Goodwill 95,192 94,987

Intangibles, net (Note 5)

85,554 10,927

Goodwill (Note 5)

291,215 95,192

Deferred tax assets 5,034 2,032

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Accounts payable $ 16,942 $ 14,115

$ 14,115 $ 12,302

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities (Note 7)

104,297 99,870

Deferred revenue

Deferred revenue (Note 2)

98,808 88,848

Operating lease liability

Operating lease liability (Note 10)

Total current liabilities 223,427 208,551

Deferred revenue, net of current portion (Note 2)

Convertible senior notes, net (Note 8)

574,238 538,432

Deferred revenue, net of current portion

Convertible senior notes, net 538,432 179,012

Other liabilities

Operating lease liability, net of current portion 7,180 12,865

Operating lease liability, net of current portion (Note 10)

Deferred tax liability 2,049 1,622

Other liabilities 34,718 6,304

Total liabilities 837,219 762,498

762,498 364,175

Commitments and contingencies (See Note 9)

Commitments and contingencies (Note 12)

Stockholders’ equity:

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Additional paid-in capital 871,788 635,672

635,672 436,557

Treasury stock, at cost;

2,709,830 shares

2,746,243 and 2,709,830 shares as of December 31, 2021 and 2020, respectively

Accumulated deficit ( 516,859 ) ( 391,885 )

( 391,885 ) ( 283,562 )

Accumulated other comprehensive income (loss) 80 ( 4,524 )

Accumulated other comprehensive (loss) income ( 5,564 ) 80

Total stockholders’ equity 349,437 243,934

243,934 148,535

Total liabilities and stockholders’ equity $ 1,186,656 $ 1,006,432

$ 1,006,432 $ 512,710

See notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Year Ended December 31,

2021 2020 2019

(In thousands, except share and per share amounts)

Revenue $ 469,624 $ 366,620 $ 291,609

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Sales and marketing 165,421 149,773 156,814

149,773 156,814 103,344

General and administrative 76,757 60,557 56,967

60,557 56,967 45,873

Product development 158,390 108,414 82,145

108,414 82,145 55,707

Restructuring costs 3,397 29,420 2,043

29,420 2,043 4,468

Amortization of purchased intangibles 2,045 1,639 1,794

1,639 1,794 1,670

Total costs and expenses 562,890 456,071 378,641

456,071 378,641 273,541

Loss from operations ( 93,266 ) ( 89,451 ) ( 87,032 )

( 89,451 ) ( 87,032 ) ( 23,703 )

Other (expense) income, net

Interest (expense) income

( 14,334 ) ( 7,407 ) 22

Other (expense) income, net ( 1,343 ) 1,213 ( 493 )

Total Other (expense) income, net ( 15,677 ) ( 6,194 ) ( 471 )

Loss before provision for income taxes ( 105,128 ) ( 93,226 ) ( 24,174 )

Provision for income taxes 2,466 2,845 858

Other expense, net:

Interest expense, net ( 37,406 ) ( 14,334 ) ( 7,407 )

Other income (expense), net 3,294 ( 1,343 ) 1,213

Total other expense, net ( 34,112 ) ( 15,677 ) ( 6,194 )

Loss before (benefit from) provision for income taxes ( 127,378 ) ( 105,128 ) ( 93,226 )

(Benefit from) provision for income taxes ( 2,404 ) 2,466 2,845

Net loss $ ( 124,974 ) $ ( 107,594 ) $ ( 96,071 )

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Diluted 69,606,105 65,888,450 62,593,026

(1) Amounts include stock compensation expense, as follows:

(1) Amounts include stock-based compensation expense, as follows:

Cost of revenue $ 6,497 $ 6,511 $ 4,218

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Product development 30,730 27,557 17,661

(2) Amounts include depreciation and amortization expense, as follows:

(2) Amounts include depreciation expense, as follows:

Cost of revenue $ 10,186 $ 10,082 $ 8,557

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Cost of revenue $ 7,282 $ 1,913 $ 1,138

See notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

Year Ended December 31,

2021 2020 2019

(In thousands)

Net loss $ ( 124,974 ) $ ( 107,594 ) $ ( 96,071 )

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Comprehensive loss $ ( 130,618 ) $ ( 102,990 ) $ ( 96,164 )

See notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

Common Stock Treasury Stock Additional

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Shares Amount Shares Amount Total

(In thousands, except share data)

Balance at December 31, 2018 63,676,229 $ 64 ( 2,681,285 ) $ ( 3 ) $ 362,590 $ ( 187,491 ) $ ( 4,431 ) $ 170,729

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Stock-based compensation — — — — 25,083 — — 25,083

Common stock issued under Employee Stock Purchase Plan 150,989 — — — 2,480 — — 2,480

Common stock issued under ESPP 146,250 — — — 4,142 — — 4,142

Common stock repurchase — — ( 28,545 ) — ( 903 ) — — ( 903 )

ASC 606 prior period adjustment — — — — — 676 — 676

Issuance of common stock in connection with acquisitions 379,328 — — — 8,150 — — 8,150

Equity component of convertible senior notes — — — — 52,900 — — 52,900

Equity component of convertible senior notes issuance costs — — — — ( 1,986 ) — — ( 1,986 )

Purchase of capped call option — — — — ( 23,184 ) — — ( 23,184 )

Net loss — — — — — ( 96,071 ) — ( 96,071 )

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Common stock issued upon vesting of restricted stock units 915,827 1 — — — — — 1

Common stock as earnout payment in connection with AdvantageTec Inc.

11,508 — — — 293 — — 293

Stock-based compensation — — — — 36,132 — — 36,132

Common stock issued under Employee Stock Purchase Plan 146,250 — — — 4,142 — — 4,142

Common stock repurchase — — ( 28,545 ) — ( 903 ) — — ( 903 )

Bonus cash payment settled in shares of the Company’s common stock 991,905 1 — — 24,656 — — 24,657

ASU 2016-13 (Topic 326) adjustment — — — — — ( 729 ) — ( 729 )

Common stock issued under ESPP 118,637 — — — 4,002 — — 4,002

Equity component of convertible senior notes — — — — 162,534 — — 162,534

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Common stock issued upon vesting of restricted stock units 1,058,361 1 — — ( 1 ) — — —

Common stock as earnout payment in connection with AdvantageTec Inc.

11,508 — — — 293 — — 293

Stock-based compensation — — — — 58,422 — — 58,422

Bonus cash payment settled in shares of the Company’s common stock 538,000 1 — — 33,502 — — 33,503

ASU 2016-13 (Topic 326) Adjustment (See note 1) — — — — — ( 729 ) — ( 729 )

Common stock issued under Employee Stock Purchase Plan 118,637 — — — 4,002 — — 4,002

Equity component of convertible senior notes — — — — 162,534 — — 162,534

Equity component of convertible senior notes issuance costs — — — — ( 3,797 ) — — ( 3,797 )

Purchase of capped call option — — — — ( 46,058 ) — — ( 46,058 )

Common stock repurchase 30,344 — ( 36,413 ) — ( 709 ) — — ( 709 )

Issuance of common stock in connection with acquisitions (Note 9)

2,130,213 2 — — 128,793 — — 128,795

Common stock issued under ESPP 95,136 — — — 4,409 — — 4,409

Net loss — — — — — ( 124,974 ) — ( 124,974 )

Other comprehensive income — — — — — — 4,604 4,604

Other comprehensive loss — — — — — — ( 5,644 ) ( 5,644 )

Balance at December 31, 2021 74,980,546 $ 75 ( 2,746,243 ) $ ( 3 ) $ 871,788 $ ( 516,859 ) $ ( 5,564 ) $ 349,437

See notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT SHARE DATA)

Year Ended December 31,

2021 2020 2019

(In thousands)

OPERATING ACTIVITIES:

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Stock-based compensation expense 69,656 65,946 44,105

Depreciation and amortization 22,826 16,366 14,188

Depreciation 27,423 22,826 16,366

Loss on disposal — 5,147 —

Amortization of tenant allowance — — ( 516 )

Amortization of purchased intangibles and finance leases 3,552 2,932 2,813

Amortization of purchased intangibles 5,609 2,780 2,932

Amortization of finance leases 3,718 772 —

Amortization of debt issuance costs 2,499 1,340 956

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Change in fair value of contingent consideration — ( 263 ) ( 328 )

Provision for doubtful accounts, net 3,211 2,159 1,788

Allowance for credit losses 4,879 3,211 2,159

Gain on settlement of leases ( 3,483 ) — —

Deferred income taxes ( 6,239 ) 579 ( 1,207 )

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Deferred revenue 7,774 ( 3,118 ) 33,953

Decrease in net operating lease asset and liability 8,276 388 —

Deferred tax liability — — —

Operating lease liabilities ( 4,590 ) 8,276 388

Other liabilities 55 47 ( 209 )

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Purchases of property and equipment, including capitalized software ( 45,703 ) ( 41,641 ) ( 47,582 )

Payments for acquisitions and intangible assets, net of cash acquired ( 1,835 ) ( 924 ) ( 7,286 )

Cash held as collateral — — 1,451

Payments for acquisitions, net of cash acquired ( 70,759 ) — —

Purchases of intangible assets ( 2,610 ) ( 1,835 ) ( 924 )

Repayment of debt acquired in acquisition ( 21,177 ) — —

Net cash used in investing activities ( 140,249 ) ( 43,476 ) ( 48,506 )

( 43,476 ) ( 48,506 ) ( 27,773 )

FINANCING ACTIVITIES:

7 unchanged sentences

Net cash provided by financing activities 11,843 483,843 217,851

483,843 217,851 33,926

Effect of foreign exchange rate changes on cash and cash equivalents ( 5,461 ) 3,657 ( 113 )

CHANGE IN CASH AND CASH EQUIVALENTS 477,629 110,074 10,334

CASH AND CASH EQUIVALENTS - Beginning of the year 176,523 66,449 56,115

CASH AND CASH EQUIVALENTS - End of the year $ 654,152 $ 176,523 $ 66,449

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 130,620 ) 477,629 110,074

Cash, cash equivalents, and restricted cash - beginning of year 654,152 176,523 66,449

Cash, cash equivalents, and restricted cash - end of year $ 523,532 $ 654,152 $ 176,523

Year Ended December 31,

2021 2020 2019

(In thousands)

Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets

Cash and cash equivalents $ 521,846 $ 654,152 $ 176,523

Restricted cash in prepaid expenses and other current assets 1,686 — —

Total cash, cash equivalents, and restricted cash $ 523,532 $ 654,152 $ 176,523

Supplemental disclosure of other cash flow information:

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Purchase of property and equipment recorded in accounts payable $ 470 $ 1,638 $ 1,198

Leasehold improvements funded by landlord $ — $ — $ 1,551

Right of use assets obtained in exchange for operating lease liabilities (1)

$ — $ 21,588 $ —

Right of use assets obtained in exchange for finance lease liabilities $ 10,818 $ — $ —

ROU assets obtained in exchange for operating lease liabilities 2,125 — 21,588

ROU assets obtained in exchange for finance lease liabilities — 10,818 —

Issuance of 38,462 shares of common stock in connection with the Conversable transaction on December 13, 2019

$ — $ 1,000 $ —

Issuance of 85,861 shares of common stock in connection with the BotCentral transaction on January 24, 2018

$ — $ — $ 1,000

Issuance of 115,385 shares of common stock in connection with the Conversable transaction on September 27, 2018

$ — $ — $ 2,850

Issuance of 178,082 shares of common stock in connection with the AdvantageTec transaction on October 11, 2018

$ — $ — $ 4,300

Fair value of contingent earn-out in connection with the acquisition of Conversable recorded in accrued expenses $ — $ — $ 1,496

Fair value of contingent earn-out in connection with the acquisition of AdvantageTec recorded in accrued expenses $ — $ — $ 876

Issuance of 11,508 shares of common stock as earn-out payment in connection with AdvantageTec Inc.

$ 293 $ — $ —

Issuance of 991,905 shares of common stock to settle cash awards

Issuance of 400,700 and 991,905 shares of common stock to settle cash awards for the years 2021 and 2020, respectively

33,503 24,657 —

(1) Includes leases that commenced during the year ended December 31, 2020, as well as balances related to leases in existence as of the date of the adoption of Topic 842.

See notes to consolidated financial statements.

Supplemental disclosure of non-cash financing activities related to the e-bot7 acquisition:

Issuance of 351,462 shares of common stock in connection with the e-bot7 transaction in July 2021

Fair value of contingent earn-out recorded in other long-term liabilities 6,170 — —

Supplemental disclosure of non-cash financing activities related to the Tenfold acquisition:

Issuance of 698,219 shares of common stock in connection with the Tenfold transaction in November 2021

Fair value of contingent earn-out recorded in other long-term liabilities 6,946 — —

Supplemental disclosure of non-cash financing activities related to the VoiceBase acquisition:

Issuance of 1,080,532 shares of common stock in connection with the VoiceBase transaction in November 2021

Fair value of contingent earn-out recorded in other long-term liabilities 16,714 — —

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

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Description of Business and Summary of Significant Accounting Policies

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998.

In April 2000, the company completed an initial public offering and is currently traded on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange.

LivePerson is headquartered in New York City.

In light of the COVID-19 pandemic and the company’s strong performance working remotely, LivePerson has adopted an “employee-centric” workforce model that does not rely on traditional offices.

LivePerson, Inc.

(“LivePerson”, the “Company”, “we” or “our”) makes life easier for people and brands everywhere through trusted Conversational AI.

(“LivePerson”, the “Company”, “we” or “our”) is a leading Conversational AI company creating digital experiences that are Curiously Human.

Conversational AI allows humans and machines to interact using natural language, including speech or text.

During the past decade, consumers have made mobile devices the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers.

This trend has been significantly accelerated by the COVID-19 pandemic and can now be viewed as a permanent, structural shift in consumer behavior.

This trend has been significantly accelerated by the COVID-19 pandemic and we believe can now be viewed as a permanent, structural shift in consumer behavior.

Our technology enables consumers to connect with businesses through these same preferred conversational interfaces, including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger and Alexa.

These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and increasingly marketing, social, and brick and mortar engagements.

These messaging conversations harness human agents, bots and AI to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and increasingly marketing, social, and brick and mortar engagements.

For example, consumers can look up product info like ratings, images and pricing, search for stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or payments - all without ever leaving the messaging channel.

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The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to become conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of customers and many thousands of agents.

The Conversational Cloud powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, short message service (SMS), social media and third-party consumer messaging platforms.

Brands can also use the Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to navigate interactive voice response systems (IVRs) and wait on hold.

The Conversational Cloud powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, SMS, social media and third-party consumer messaging platforms.

Brands can also use the Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to navigate IVRs and wait on hold.

Similarly, the Conversational Cloud can ingest traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages.

Agents can manage all conversations with consumers through a single console interface, regardless of where the conversations originated.

LivePerson's robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine.

An extensible application programming interface (API) stack facilitates a lower cost of ownership by facilitating robust integration into back-end systems, as well as enabling developers to build their own programs and services on top of the platform.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, PCI compliance, co-browsing and a sophisticated proactive targeting engine.

An extensible API stack facilitates a lower cost of ownership by facilitating robust integration into back-end systems, as well as enabling developers to build their own programs and services on top of the platform.

More than 40 APIs and software development kits are available on the Conversational Cloud.

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By seamlessly integrating messaging with our proprietary Conversational AI, as well as third-party bots, the Conversational Cloud offers brands a comprehensive approach to scaling automations across their millions of customer conversations.

LivePerson's consumer services offering is an online marketplace that connects independent service providers (Experts) who provide information and knowledge for a fee via mobile and online messaging with individual consumers (Users).

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

Users seek assistance and advice in various categories including personal counseling and coaching, computers and programming, education and tutoring, spirituality and religion, and other topics.

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998.

The Company completed an initial public offering in April 2000 and is currently traded on the Nasdaq and the TASE.

LivePerson is headquartered in New York City.

In light of the COVID-19 pandemic and the company’s strong performance working remotely, LivePerson has adopted an “employee-centric” workforce model that does not rely on traditional offices.

During the second quarter of 2021, the Company decided to reoccupy some of its leased space to provide its employees with the option of working in an office space environment if they choose to do so.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Summary of Accounting Policies (Continued)

Principles of Consolidation

The consolidated financial statements reflect the operations of LivePerson and its wholly-owned subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation.

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company’s management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period.

Significant items subject to such estimates and assumptions include revenue recognition, stock-based compensation, accounts receivable, the valuation of goodwill and intangible assets, income taxes and legal contingencies.

Actual results could differ from those estimates.

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

Significant items subject to such estimates and assumptions include:

• revenue recognition;

• stock-based compensation;

• accounts receivable;

• valuation of goodwill;

• valuation of intangible assets;

• income taxes;

• legal contingencies.

Many of the Company’s estimates require increased judgment due to the significant volatility, uncertainty and economic disruption of the COVID-19 pandemic.

The Company continues to monitor the effects of the COVID-19 pandemic, and its estimates and judgments may change materially as new events occur or additional information becomes available.

As of the date of issuance of the financial statements, the Company is not aware of any material specific events or circumstances that would require it to update its estimates, judgments, or to revise the carrying values of its assets or liabilities.

These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known.

Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.

Concentration of Credit Risk

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Concentration of credit risk is limited due to the Company’s large number of customers.

No single customer accounted for or exceeded 10% of revenue in 2020, 2019 and 2018 No single customer accounted for or exceeded 10% of the Company’s total accounts receivable in 2020 and 2018.

Two customers exceeded 10% of the Company's total accounts receivable in 2019.

No single customer accounted for or exceeded 10% of revenue in 2021, 2020, and 2019.

Foreign Currency Translation

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Income, expenses, and cash flows are translated at weighted average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates.

Resulting translation adjustments are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Foreign exchange transaction gain or losses are included in Other Income (Expense), net in the accompanying consolidated statements of operations.

Resulting translation adjustments are included as a component of accumulated other comprehensive (loss) income in stockholders’ equity.

Foreign exchange

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transaction gain or losses are included in other income (expense), net in the accompanying consolidated statements of operations.

Cash and Cash Equivalents

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The Company does not have any off-balance sheet credit exposure related to its customers.

The activity in the allowance for doubtful accounts is as follows (amounts in thousands):

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Description of Business and Summary of Accounting Policies (Continued)

The activity in the allowance for doubtful accounts is as follows:

Year Ended December 31,

Beginning Balance Additions

Expenses Deductions /

Write-Offs ASU 2016-13 (Topic 326) Adjustment Ending Balance

2021 2020 2019

2019 $ 2,276 $ 2,159 $ ( 1,365 ) $ — $ 3,070

2020 $ 3,070 $ 3,211 $ ( 1,666 ) $ 729 $ 5,344

(In thousands)

Balance, beginning of period $ 5,344 $ 3,070 $ 2,276

Additions charged to costs and expenses 4,879 3,211 2,159

Deductions/write-offs ( 3,885 ) ( 1,666 ) ( 1,365 )

ASU 2016-13 (Topic 326) adjustment — 729 —

Balance, end of period $ 6,338 $ 5,344 $ 3,070

Property and Equipment

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Internal-Use Software Development Costs

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40, ‘‘Internal-Use Software’’, the Company capitalizes its costs to develop its internal use software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.

In accordance with ASC 350-40, “Internal-Use Software”, the Company capitalizes its costs to develop its internal use software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended.

These costs are included in property and equipment in the Company’s consolidated balance sheets and are amortized on a straight-line basis over the estimated useful life of the related asset, which approximates five years .

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Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination.

During 2021, the Company recorded $ 198.2 million of goodwill with the acquisition of e-bot7, VoiceBase, and Tenfold.

Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company has determined that it operates as two reporting units and has selected September 30 as the date to perform its annual impairment test.

In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company's business.

In the valuation of

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goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company’s business.

If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets.

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Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values.

The Company’s acquisition model typically provides for an initial payment at closing and for

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Description of Business and Summary of Accounting Policies (Continued)

future additional contingent purchase price obligations.

The Company’s acquisition model typically provides for an initial payment at closing and for future additional contingent purchase price obligations.

Contingent purchase price obligations are recorded as deferred acquisition consideration on the balance sheet at the acquisition date fair value and are remeasured at each reporting period.

Changes in such estimated values are recorded in the results of operations.

For further information, see Note 8 of the Notes to the Consolidated Financial Statements included herein.

For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is performed for all such identified assets.

For further information, see Note 9 – Acquisitions.

For each acquisition, the Company undertakes a detailed review to identify intangible assets and a valuation is performed for all such identified assets.

The Company uses several market participant measurements to determine estimated value.

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The Company recognized accelerated depreciation of fixed assets that were determined to no longer be of future economic benefit to the Company based on the decision to vacate the leased office space.

Please refer to Note 14 for additional information regarding this shift to an employee-centric working model.

Please refer to Note 14 – Restructuring.

The Company expenses the cost of advertising and promoting its services as incurred in the sales and marketing expense on the consolidated statement of operations.

Such costs totaled approximately $ 41.2 million, $ 29.1 million, and $ 28.6 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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Stock-Based Compensation

In accordance with ASC 718-10, “Stock Compensation”, the Company measures stock based awards at fair value and recognizes compensation expense for all share-based payment awards made to its employees and directors, including employee stock options.

The Company estimates the fair value of stock options granted using the Black-Scholes valuation model.

This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of time an employee will retain vested stock options before exercising them, the estimated volatility of its common stock price and the number of options that will be forfeited prior to vesting.

The fair value is then recognized on a straight line basis over the requisite service period of the award, which is generally three to four years .

Changes in these estimates and assumptions can materially affect the determination of the fair value of the stock-based compensation and consequently, the related amount recognized in the consolidated statement of operations.

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the related lease.

The difference between the rent expense recognized for financial reporting purposes and the actual payments made in accordance with the lease agreement is recognized as deferred rent liability included in other liabilities on the Company’s consolidated balance sheets.

Income taxes are accounted for under the asset and liability method.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs.

In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations.

We include interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Loss

In accordance with ASC 220, “Comprehensive Income”, the Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources.

Comprehensive loss consists of net loss and accumulated other comprehensive (loss) income, which includes certain changes in equity that are excluded from net loss.

The Company’s comprehensive loss for all periods presented is related to the effect of foreign currency translation.

Recently Issued Accounting Standards

Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation,(Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

In May 2021, the FASB issued ASU 2021-04 to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

The guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

The Company does not expect the adoption of ASU 2021-04 to have a significant impact on its consolidated financial statements.

Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06 which simplifies the accounting for convertible instruments by eliminating existing accounting models that require separation of a cash conversion or beneficial conversion feature from the host contract.

Accordingly, a convertible debt instrument will be accounted as a single liability measured at its

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amortized cost and a convertible preferred stock will be accounted as a single equity instrument measured at its historical cost, as long as no other embedded features require bifurcation as derivatives and the convertible debt was not issued at a substantial premium.

The ASU also simplifies the derivative scope exception for accounting for contracts in an entity’s own equity by:

• removing certain conditions required to meet the settlement criterion;

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

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

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

There will no longer be a debt discount representing the difference between the carrying value, excluding issuance costs, and the principal of the convertible debt instrument and, as a result, there will no longer be interest expense from the amortization of the debt discount over the term of the convertible debt instrument.

The amendments in this update also require the if-converted method to be applied for all convertible instruments when calculating diluted earnings per share.

For SEC filers, excluding smaller reporting companies, the ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The ASU specifies that the guidance should be adopted as of the beginning of the annual fiscal year.

The Company will adopt the standard on January 1, 2022 using the modified retrospective method, which would result in a cumulative effect adjustment as of the date of adoption.

The Company expects a material change on its consolidated balance sheet related to the recognition of convertible senior notes that was previously classified as equity.

The Company also expects interest expense to decrease as non-cash interest expense due to the discount created by the separation of the equity component of its convertible instruments will be eliminated.

The Company will also need to assume share settlement of the entire convertible debt instrument under the if-converted method therefore increasing the potentially dilutive common stock equivalents for the diluted earnings per share calculation.

This will only have an impact on the Company if it is profitable.

Recently Adopted Accounting Standards

Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

In October 2021, the FASB issued ASU 2021-08 which provides guidance for recognizing and measuring contract assets and contract liabilities in a business combination.

This ASU amendment is to improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination beginning after December 15, 2022 for public business entities.

This includes interim periods within those fiscal years.

Early adoption is permitted.

Entities are instructed to apply this ASU prospectively if the business combination occurs after the effective date and/or date of adoption if early adoption is elected.

We elected to early adopt this standard in the third quarter of 2021 and there was no impact on the Company’s consolidated financial statements.

The Company applied the standard prospectively to the acquisitions of e-bot7, VoiceBase, and Tenfold.

With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2021, that are of significance or potential significance to the Company.

Revenue Recognition

The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services.

The majority of the Company’s revenue is generated from hosted service revenues and related professional services from the sale of the LivePerson services.

Revenues are recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

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• Identification of the contract, or contracts, with a customer;

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• Identification of the performance obligations in the contract;

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• Recognition of revenue when, or as, the Company satisfies a performance obligation.

Total revenue of $ 366.6 million, $ 291.6 million, and $ 249.8 million was recognized during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

The Company has made the following accounting policy election and elected to use a practical expedient specific to certain revenue streams, as permitted by the FASB, in applying Topic 606.

The Company utilizes the right-to-invoice practical expedient with regard to the recognition of revenue upon the invoicing of certain revenue streams, as revenue for those streams are billed monthly.

Under Topic 606, the Company defers all incremental commission costs ("contract acquisition costs") to obtain the contract.

Total revenue of $ 469.6 million, $ 366.6 million, and $ 291.6 million was recognized during the years ended December 31, 2021, 2020, and 2019, respectively.

Under ASC 606, the Company defers all incremental commission costs (“contract acquisition costs”) to obtain the contract.

The contract acquisition costs, which are comprised of prepaid sales commissions, have balances at December 31, 2021 and 2020 of $ 40.7 million and $ 41.0 million, respectively.

The Company amortizes these costs over the related period of benefit using the customer expected life that the Company determined to be three to five years which is consistent with the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Summary of Accounting Policies (Continued)

transfer to the customer of the services to which the asset relates.

The Company amortizes these costs over the related period of benefit using the customer expected life that the Company determined to be three to five years which is consistent with the transfer to the customer of the services to which the asset relates.

The Company classifies contract acquisition costs as long-term unless they have an original amortization period of one year or less.

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For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions.

For these Gainshare (formerly “Pay for Performance”) arrangements in accordance with ASC-606, ‘‘Principal Agent Considerations’’, the Company acts as a principal in a transaction if it controls the specified goods or services before they are transferred to the customer.

Professional Services Revenues

Professional services revenue primarily consists of fees for deployment and optimization services, as well as training delivered on an on-demand basis which is deemed to represent a distinct stand-ready performance obligation.

Professional Services Revenues are reported at the amount that reflects the ultimate consideration the Company expects to receive in exchange for such services.

For these Gainshare arrangements in accordance with ASC 606, “Principal Agent Considerations”, the Company acts as a principal in a transaction if it controls the specified goods or services before they are transferred to the customer.

Professional Services Revenue

Professional Services revenue primarily consists of fees for deployment and optimization services, as well as training delivered on an on-demand basis which is deemed to represent a distinct stand-ready performance obligation and is recognized at a point in time.

Professional Services revenue is reported at the amount that reflects the ultimate consideration the Company expects to receive in exchange for such services.

Control for the majority of the Company’s Professional Services contracts passes over time to the customer and is recognized ratably over the contracted period, as the passage of time is deemed to be the most faithful depiction of the transfer of control.

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For services billed on a fixed price basis, revenue is recognized over time based on the proportion performed using time and materials as the measure of progress toward complete satisfaction of the performance obligation.

Professional service contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance.

Our Professional Services contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance.

There is no significant variable consideration related to these arrangements.

Remaining Performance Obligation

As of December 31, 2020, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $ 285.7 million.

As of December 31, 2021, the aggregate amount of the total transaction price allocated in contracts with original duration of one year or greater to the remaining performance obligations was $ 362.8 million.

Approximately 94 % of the Company’s remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter.

The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered.

The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less.

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Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligation pursuant to ASC 606.

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The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the cloud applications sold, and the number and types of users within its contracts.

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Description of Business and Summary of Accounting Policies (Continued)

Hosted Services- Consumer Revenue

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The Company records deferred revenues when cash payments are received or due in advance of its performance.

The decrease in the deferred revenue balance for the year ended December 31, 2020 is primarily driven by satisfying our performance obligations and the revenue recognized of approximately $ 103.2 million that were included in the deferred revenue balance as of December 31, 2019.

The following table presents deferred revenue by revenue source (amounts in thousands):

The increase of $ 9.6 million in the deferred revenue balance for the year ended December 31, 2021 is primarily driven by cash payments received or due in advance of satisfying performance obligations, partially offset by approximately $ 75.5 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2020.

The following table presents deferred revenue by revenue source:

(In thousands)

Hosted services – Business $ 94,107 $ 86,144

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Professional services – Business 3,831 1,869

Total deferred revenue - short term $ 88,848 $ 88,751

Hosted services – Business $ — $ —

Total deferred revenue - current $ 98,808 $ 88,848

Professional services – Business $ 54 $ 409

Total deferred revenue - long term $ 409 $ 438

Total deferred revenue - non-current $ 54 $ 409

Disaggregated Revenue

The following table presents the Company's revenues disaggregated by revenue source (amounts in thousands):

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

Year Ended December 31,

2021 2020 2019

(In thousands)

Hosted services – Business $ 364,231 $ 286,588 $ 225,705

Hosted services – Consumer 37,695 29,764 24,480

Professional services 50,268 41,424 32,811

Professional services – Business 67,698 50,268 41,424

Total revenue $ 469,624 $ 366,620 $ 291,609

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Summary of Accounting Policies (Continued)

Revenue by Geographic Location

The Company is domiciled in the United States and has international operations in the United Kingdom, Asia-Pacific, Latin America and Western Europe, particularly France and Germany.

The following table presents the Company's revenues attributable to domestic and foreign operations for the years ended (amounts in thousands):

The Company is domiciled in the United States and has international operations around the globe.

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

Year Ended December 31,

2021 2020 2019

(In thousands)

United States $ 306,700 $ 230,557 $ 170,815

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91,227 83,326 78,301

39,317 31,031 24,503

APAC 53,569 39,317 31,031

Total revenue $ 469,624 $ 366,620 $ 291,609

——————————————

(1) Canada, Latin America, and South America.

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

(3) Asia-Pacific (“APAC”)

(2) Includes revenue from the United Kingdom of $ 56.7 million, $ 53.4 million, and $ 50.4 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable on the consolidated balance sheet.

The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows (amounts in thousands):

Accounts Receivable (1) Unbilled Receivable (1) Contract Acquisition Costs (noncurrent) Deferred Revenue (current) Deferred Revenue (long term)

The opening and closing balances of the Company’s accounts receivable, unbilled receivables, and deferred revenues are as follows:

Accounts Receivable Unbilled Receivable Contract Acquisition Costs (Non-current) Deferred Revenue (Current) Deferred Revenue

(Non-current)

(In thousands)

Opening balance as of December 31, 2020 $ 61,801 $ 18,622 $ 41,021 $ 88,848 $ 409

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Ending balance as of December 31, 2021 $ 69,259 $ 24,545 $ 40,675 $ 98,808 $ 54

(1) These accounts include the $ 0.7 million adjustment in connection with the adoption of ASU 2016-13 (Topic 326).

The Company expenses the cost of advertising and promoting its services as incurred in the sales and marketing expense on the consolidated statement of operations.

Such costs totaled approximately $ 29.1 million, $ 28.6 million, and $ 17.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock-Based Compensation

In accordance with ASC Topic 718 -10, "Stock Compensation", the Company measures stock based awards at fair value and recognizes compensation expense for all share-based payment awards made to its employees and directors, including employee stock options.

The Company estimates the fair value of stock options granted using the Black-Scholes valuation model.

This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of

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Description of Business and Summary of Accounting Policies (Continued)

time an employee will retain vested stock options before exercising them, the estimated volatility of its common stock price and the number of options that will be forfeited prior to vesting.

The fair value is then recognized on a straight line basis over the requisite service period of the award, which is generally three to four years .

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the related lease.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs.

We include interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Loss

In accordance with ASC 220, ‘‘Comprehensive Income’’, the Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources.

Comprehensive income (loss) consists of net income (loss), and accumulated other comprehensive income (loss), which includes certain changes in equity that are excluded from net income (loss).

The Company’s comprehensive loss for all periods presented is related to the effect of foreign currency translation.

Recently Issued Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity”, which simplifies the accounting for convertible instruments by eliminating existing accounting models that require separation of a cash conversion or beneficial conversion feature from the host contract.

Accordingly, a convertible debt instrument will be accounted as a single liability measured at its amortized cost and a convertible preferred stock will be accounted as a single equity instrument measured at its historical cost, as long as no other embedded features require bifurcation as derivatives and the convertible debt was not issued at a substantial premium.

The ASU also simplifies the derivative scope exception for accounting for contracts in an entity's own equity by:

• removing certain conditions required to meet the settlement criterion

• clarifying that Instruments that are not indexed to the issuer's own stock must be remeasured at fair value through

earnings at each reporting period;

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

The ASU also makes

targeted improvements to the disclosure requirements for convertible instruments and earnings-per-share guidance.

For SEC filers, excluding smaller reporting companies, the ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The ASU specifies that the guidance should be adopted as of the beginning of the annual fiscal year.

The Company is assessing and evaluating the impact ASU 2020-06 will have on its consolidated financial statements.

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Description of Business and Summary of Accounting Policies (Continued)

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around franchise taxes, goodwill recognized for tax purposes, the allocation of current and deferred tax expense among legal entities, among other minor changes.

The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is assessing what impact ASU 2019-12 will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit.

ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses.

Such required disclosures include, but are not limited to, the Company's methodology for estimating its allowance for credit losses.

The Company adopted ASU 2016-13 effective January 1, 2020 and applied the guidance using a modified retrospective approach requiring that the Company recognize the cumulative effect of initially applying the impairment standard as an adjustment to opening accumulated deficit for the incremental increase in its allowance for credit losses as of January 1, 2020 over its allowance for bad debts as of December, 31, 2019, which amounted to $ 0.7 million.

The Company will continue to actively monitor the impact of the recent COVID-19 pandemic on expected credit losses.

As of December 31, 2020, there has not been an impact to accounts receivable from the recent pandemic.

In January 2017, the FASB issued Accounting Standards Update ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which eliminates the computation of the implied fair value of goodwill to measure a goodwill impairment charge.

Instead, entities will record a goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its fair value.

The guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2017-04 in the first quarter of 2020 which reduced the complexity surrounding the evaluation of goodwill for impairment.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which clarifies the accounting for implementation costs in cloud computing arrangements.

The new standard aligns the treatment of implementation costs incurred by customers in cloud computing arrangements that are service contracts with the treatment of similar costs incurred to develop or obtain internal-use software.

Under the new standard, implementation costs are deferred and presented in the same financial statement caption on the condensed consolidated balance sheet as a prepayment of related arrangement fees.

The deferred costs are recognized over the term of the arrangement in the same financial statement caption in the condensed consolidated income statement as the related fees of the arrangement.

The Company adopted ASU 2018-15 in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Loss Per Share

The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10 and the guidance of SEC Staff Accounting Bulletin (“SAB”) No.

Under ASC 260-10, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.

Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

All options, warrants, or other potentially dilutive instruments issued for nominal consideration are required to be included in the calculation of basic and diluted net income attributable to common stockholders.

Diluted EPS is calculated using the treasury stock method and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.

Diluted net loss per common share for the year ended December 31, 2020 does not include the effect of options to purchase 7,283,938 shares of common stock as the effect of their inclusion is anti-dilutive.

Diluted net loss per common share for the year ended December 31, 2019 does not include the effect of options to purchase 8,848,907 shares of common stock as the effect of their inclusion is anti-dilutive.

Diluted net loss per common share for the year ended December 31, 2018 does not include the effect of options to purchase 8,957,672 shares of common stock as the effect of their inclusion is anti-dilutive.

A reconciliation of shares used in calculating basic and diluted earnings per share follows:

Diluted EPS is calculated using the “if-converted” method.

The “if-converted” method is only assumed in periods where such application would be dilutive.

In applying the “if-converted” method for diluted net income per share, the Company would assume conversion of the 2024 Notes at ratio of 25.9182 shares of our stock per $1,000 principal amount of the 2024 Notes.

The Company would assume conversion of the 2026 Notes at a ratio of 13.2933 shares of our stock per $1,000 principal amount of the 2026 Notes.

Assumed converted shares of our common stock are weighted for the period the Notes were outstanding.

The shares of common stock underlying the conversion option of the Notes were not included in the calculation of diluted income per share for the year ended December 31, 2021.

See Note 8 – Convertible Senior Notes and Capped Call Transactions for a full description of the Notes.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of shares used in calculating basic and diluted net loss per share follows:

Year Ended December 31,

2021 2020 2019

Basic 65,888,450 62,593,026 59,203,400

Effect of assumed exercised options — — —

Diluted 65,888,450 62,593,026 59,203,400

Net loss (in thousands) $ ( 124,974 ) $ ( 107,594 ) $ ( 96,071 )

Weighted average number of shares outstanding, basic and diluted 69,606,105 65,888,450 62,593,026

Net loss per share, basic and diluted $ ( 1.80 ) $ ( 1.63 ) $ ( 1.53 )

The anti-dilutive securities excluded from the shares used to calculate diluted net loss per share are as follows:

Shares subject to outstanding common stock options and employee stock purchase plan 4,782,487 4,330,686

Restricted stock units 3,732,013 2,953,252

Conversion option of the 2024 Notes 5,961,186 5,961,186

Conversion option of the 2026 Notes 6,879,283 6,879,283

21,354,969 20,124,407

Segment Information

3 unchanged sentences

The Business segment enables brands to leverage the Conversational Cloud sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies.

The Consumer segment facilitates online transactions between independent service providers (“Experts”) and individual consumers (“Users”) seeking information and knowledge for a fee via mobile and online messaging.

The Consumer segment facilitates online transactions between Experts and Users seeking information and knowledge for a fee via mobile and online messaging.

Both segments currently generate their revenue primarily in the United States.

3 unchanged sentences

There are currently no inter-segment sales.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment Information - (Continued)

Summarized financial information by segment for the year ended December 31, 2020, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):

Summarized financial information by segment for the periods presented, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows:

Year Ended December 31, 2021

Business Consumer Corporate Consolidated

(In thousands)

Hosted services – Business $ 364,231 $ — $ — $ 364,231

$ 286,588 $ — $ — $ 286,588

Hosted services – Consumer — 37,695 — 37,695

— 29,764 — 29,764

Professional services – Business 67,698 — — 67,698

50,268 — — 50,268

Total revenue 431,929 37,695 — 469,624

336,856 29,764 — 366,620

Cost of revenue 149,983 6,897 — 156,880

3 unchanged sentences

Operating income (loss) $ 140,035 $ 5,243 $ ( 238,544 ) $ ( 93,266 )

Summarized financial information by segment for the year ended December 31, 2019, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2020

Business Consumer Corporate Consolidated

(In thousands)

Hosted services – Business $ 286,588 $ — $ — $ 286,588

$ 225,705 $ — $ — $ 225,705

Hosted services – Consumer — 29,764 — 29,764

— 24,480 — 24,480

Professional services – Business 50,268 — — 50,268

41,424 — — 41,424

Total revenue 336,856 29,764 — 366,620

267,129 24,480 — 291,609

Cost of revenue 99,394 6,874 — 106,268

3 unchanged sentences

Operating income (loss) $ 107,071 $ 1,869 $ ( 198,391 ) $ ( 89,451 )

Summarized financial information by segment for the year ended December 31, 2018, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):

Year Ended December 31, 2019

Business Consumer Corporate Consolidated

(In thousands)

Hosted services – Business $ 225,705 $ — $ — $ 225,705

$ 197,474 $ — $ — $ 197,474

Hosted services – Consumer — 24,480 — 24,480

— 19,553 — 19,553

Professional services – Business 41,424 — — 41,424

32,811 — — 32,811

Total revenue 267,129 24,480 — 291,609

230,285 19,553 — 249,838

Cost of revenue 74,460 4,418 — 78,878

3 unchanged sentences

Operating income (loss) $ 49,995 $ 4,128 $ ( 141,155 ) $ ( 87,032 )

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment Information - (Continued)

Geographic Information

The Company is domiciled in the United States and has international operations in the United Kingdom, Asia-Pacific, Latin America and Western Europe, particularly France and Germany.

The following table presents the Company's long-lived assets by geographic region for the periods presented (amounts in thousands):

The Company is domiciled in the United States and has international operations around the globe.

The following table presents the Company’s long-lived assets by geographic region for the periods presented:

(In thousands)

United States $ 444,318 $ 202,275

Germany 52,342 1,597

Israel 20,754 16,657

3 unchanged sentences

Total long-lived assets $ 550,380 $ 257,621

(1) United Kingdom, Germany, Japan, France, Italy, Spain, Canada, and Singapore

Property and Equipment

The following table presents the detail of property and equipment for the periods presented (amounts in thousands):

Computer equipment and software $ 107,666 $ 92,493

Furniture, equipment and building improvements — 16,487

Internal-use software development costs 86,454 52,544

Finance lease right-of-use assets 10,045 —

——————————————

accumulated depreciation and amortization ( 98,110 ) ( 85,288 )

$ 106,055 $ 76,236

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis.

As of December 31, 2020 and 2019, there was approximately $ 30.5 million, and $ 25.3 million, respectively, of internal-use software development costs related to projects currently still in development, which are, therefore, not yet subject to amortization.

Aggregate depreciation and amortization expense for property and equipment was $ 22.8 million, $ 16.4 million and $ 14.2 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2020 are as follows (amounts in thousands):

Business Consumer Total

Balance as of December 31, 2019 $ 86,963 $ 8,024 $ 94,987

Adjustments to goodwill:

Foreign exchange adjustments

Balance as of December 31, 2020 $ 87,168 $ 8,024 $ 95,192

(1) United Kingdom, Japan, France, Italy, Spain, Canada, and Singapore

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets - (Continued)

The changes in the carrying amount of goodwill for the year ended December 31, 2019 are as follows (amounts in thousands):

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the periods presented are as follows:

Business Consumer Total

(In thousands)

Balance as of December 31, 2020 $ 87,168 $ 8,024 $ 95,192

Adjustments to goodwill:

Acquisitions 198,205 — 198,205

Foreign exchange adjustments ( 2,182 ) — ( 2,182 )

( 44 ) — ( 44 )

Balance as of December 31, 2021 $ 283,191 $ 8,024 $ 291,215

2 unchanged sentences

Intangible Assets

Intangible assets are summarized as follows (see Note 8) (amounts in thousands):

Intangible assets are summarized as follows (for details about the intangible assets acquired see Note 9 – Acquisitions):

December 31, 2021

1 unchanged sentence

Amortization Net Carrying Amount Weighted

(In thousands)

Amortizing intangible assets:

$ 30,499 $ ( 26,818 ) $ 3,681 5.4 years

Customer relationships

16,981 ( 13,982 ) 2,999 8.4 years

5,076 ( 908 ) 4,168 12.5 years

314 ( 235 ) 79 2.2 years

$ 52,870 $ ( 41,943 ) $ 10,927

Technology $ 90,626 $ ( 30,757 ) $ 59,869 5.1 years

Customer relationships 32,162 ( 15,164 ) 16,998 10.0 years

Patents 7,988 ( 1,137 ) 6,851 11.8 years

Trademarks 1,474 ( 135 ) 1,339 5.0 years

Trade names 460 ( 43 ) 417 2.1 years

Other 314 ( 234 ) 80 2.2 years

Total $ 133,024 $ ( 47,470 ) $ 85,554

December 31, 2020

1 unchanged sentence

Amortization Net Carrying Amount Weighted

(In thousands)

Amortizing intangible assets:

$ 30,413 $ ( 25,187 ) $ 5,226 5.3 years

Customer relationships

16,964 ( 12,958 ) 4,006 8.4 years

3,267 ( 714 ) 2,553 12.8 years

262 ( 235 ) 27 2.7 years

$ 50,906 $ ( 39,094 ) $ 11,812

Technology $ 30,499 $ ( 26,818 ) $ 3,681 5.4 years

Customer relationships 16,981 ( 13,982 ) 2,999 8.4 years

Patents 5,076 ( 908 ) 4,168 12.5 years

Other 314 ( 235 ) 79 2.2 years

Total $ 52,870 $ ( 41,943 ) $ 10,927

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets - (Continued)

Amortization expense is calculated over the estimated useful life of the asset.

1 unchanged sentence

For the years ended December 31, 2021, 2020, and 2019, a portion of this amortization is included in cost of revenue.

Estimated amortization expense for the next five years is as follows (amounts in thousands):

Estimated amortization expense for the next five years is as follows:

Estimated Amortization Expense

(In thousands)

2022 $ 16,446

Thereafter 12,817

Total $ 85,554

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued Liabilities and Other Current Liabilities

The following table presents the detail of accrued liabilities and other current liabilities for the periods presented (amounts in thousands):

Payroll and other employee related costs $ 39,820 $ 27,920

Property and Equipment

The following table presents the detail of property and equipment for the periods presented:

(In thousands)

Computer equipment and software $ 120,685 $ 107,666

Internal-use software development costs 122,479 86,454

Finance lease right-of-use assets 6,797 10,045

Furniture, equipment, and building improvements 258 —

250,219 204,165

accumulated depreciation ( 125,493 ) ( 98,110 )

Total $ 124,726 $ 106,055

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis.

As of December 31, 2021 and 2020, there was approximately $ 36.1 million and $ 30.5 million, respectively, of internal-use software development costs related to projects currently still in development, which are, therefore, not yet subject to amortization.

Aggregate depreciation and amortization expense for property and equipment was $ 27.4 million, $ 22.8 million, and $ 16.4 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Accrued Expenses and Other Current Liabilities

The following table presents the detail of accrued liabilities and other current liabilities for the periods presented:

(In thousands)

Professional services, consulting and other vendor fees $ 58,811 $ 38,796

Unrecognized tax benefits 2,039 2,053

Payroll and other employee related costs 29,855 39,820

Sales commissions 4,269 6,988

Contingent earn-out (Note 8) — 557

Restructuring 4,732 314

Financing lease liability (Note 10)

Unrecognized tax benefits 2,424 2,039

Restructuring (Note 14)

Non income tax 918 2,954

Other 2,588 1,053

$ 99,870 $ 62,778

Total accrued expenses and other current liabilities $ 104,297 $ 99,870

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Convertible Senior Notes and Capped Call Transactions

March 2019 Convertible Senior Notes

In March 2019, the Company issued $ 230.0 million aggregate principal amount of 0.750 % Convertible Senior Notes due 2024 in a private placement, which amount includes $ 30.0 million aggregate principal amount of such Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the “2024 Notes”).

The interest on the 2024 Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019.

Convertible Senior Notes due 2024 and Capped Calls

In March 2019, the Company issued $ 230.0 million aggregate principal amount of its 0.750 % Convertible Senior Notes due 2024 in a private placement, which amount includes $ 30.0 million aggregate principal amount of such Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional 2024 Notes.

Interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019.

The 2024 Notes will mature on March 1, 2024, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms.

The total net proceeds from the debt offering, after deducting debt issuance costs, paid or payable by us, was approximately $ 221.4 million.

Each $ 1,000 principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 38.58 per share.

The total net proceeds from the offering of the 2024 Notes, after deducting debt issuance costs, paid, or payable by the Company, was approximately $ 221.4 million.

Each $1,000 in principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 38.58 per share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest.

1 unchanged sentence

The 2024 Notes are not redeemable prior to the maturity date of the 2024 Notes and no sinking fund is provided for the 2024 Notes.

If we undergo a fundamental change (as defined in the indenture governing the 2024 Notes) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their 2024 Notes in principal amounts of $ 1,000 or a multiple thereof at a fundamental change repurchase price equal to 100 % of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

If the Company undergoes a fundamental change (as defined in the indenture governing the 2024 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100 % of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances:

4 unchanged sentences

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

It is the Company’s current intent to settle the principal amount of its outstanding 2024 Notes in cash and any excess in shares of the Company’s common stock.

During the year ended December 31, 2020, the conditions allowing holders of the 2024 Notes to convert were met, and, thus, holders of the 2024 Notes maintain the option to convert their 2024 Notes.

No 2024 Notes were converted during the year ended December 31, 2020.

The Company continues to classify the 2024 Notes as a long-term liability in its consolidated balance sheet as at December 31, 2020, based on contractual settlement provisions.

During the three months ended December 31, 2021, the conditions allowing holders of the 2024 Notes to convert were not met.

The 2024 Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2024 Notes;

6 unchanged sentences

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an effective interest rate over the contractual terms of the 2024 Notes.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In accounting for the transaction costs related to the 2024 Notes, the Company allocated the total amount incurred of approximately $ 8.6 million to the liability and equity components of the 2024 Notes based on the proportion of the proceeds allocated to the debt and equity components.

Issuance costs attributable to the liability component were approximately $ 6.6 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the 2024 Notes.

Issuance costs attributable to the equity component were approximately $ 2.0 million and recorded as a reduction of additional paid in capital in stockholders’ equity.

In connection with the offering of the 2024 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “capped calls”).

In connection with the offering of the 2024 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2024 capped call”).

The 2024 capped calls each have an initial strike price of approximately $ 38.58 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes.

7 unchanged sentences

The net cost of $ 23.2 million incurred to purchase the 2024 capped calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheet.

The remaining term over which the March 2019 Convertible Senior Notes debt discount and debt issuance costs will be amortized is 3.2 years.

The effective interest rate on the debt was 4.66 % for the year ended December 31 2020.

December 2020 Convertible Senior Notes

In December 2020, the Company issued $ 517.5 million aggregate principal amount of 0% Convertible Senior Notes due 2026 in a private placement, which amount includes $ 67.5 million aggregate principal amount of such Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the “2026 Notes”, and, together with the 2024 Notes, the "Notes").

The remaining term over which the 2024 Notes’ debt discount and debt issuance costs will be amortized is 2.2 years.

The effective interest rate on the debt was 3.43 % for the period ended December 31, 2021.

Convertible Senior Notes due 2026 and Capped Calls

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

The 2026 Notes will mature on December 15, 2026, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms.

The total net proceeds from the debt offering, after deducting debt issuance costs, paid or payable by us, was approximately $ 505.3 million.

Each $ 1,000 principal amount of the 2026 Notes is initially convertible into 13.2933 shares of the Company’s common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 75.23 per share.

The conversion

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest.

The total net proceeds from the offering of the 2026 Notes, after deducting debt issuance costs, paid or payable by the Company, was approximately $ 505.3 million.

Each $1,000 in principal amount of the 2026 Notes is initially convertible into 13.2933 shares of the Company’s common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 75.23 per share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest.

In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event.

The 2026 Notes are not redeemable prior to the maturity date of the 2026 Notes and no sinking fund is provided for the 2026 Notes.

If we undergo a fundamental change (as defined in the indenture governing the 2026 Notes) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their Notes in principal amounts of $ 1,000 or a multiple thereof at a fundamental change repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

If the Company undergoes a fundamental change (as defined in the indenture governing the 2026 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.

Holders of the 2026 Notes may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances:

1 unchanged sentence

(2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2026 Notes) per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2026 Notes on each such trading day;

(3) with respect to any Notes that the Company calls for redemption, at any time prior to the close of business on the scheduled

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

trading day immediately preceding the redemption date;

or (4) upon the occurrence of specified corporate events.

1 unchanged sentence

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

It is the Company’s current intent to settle the principal amount of its outstanding 2026 Notes in cash and any excess in shares of the Company’s common stock.

As of December 31, 2020, the conditions allowing holders of the 2026 Notes to convert were not met.

During the three months ended December 31, 2021, the conditions allowing holders of the 2026 Notes to convert were not met.

The 2026 Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2026 Notes;

6 unchanged sentences

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the 2026 Notes, the Company allocated the total amount incurred of approximately $ 12.2 million to the liability and equity components of the 2026 Notes based on the proportion of the proceeds allocated to the debt and equity components.

1 unchanged sentence

Issuance costs attributable to the equity component were approximately $ 3.7 million and recorded as a reduction of additional paid in capital in stockholders’ equity.

In connection with the offering of the 2026 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “capped calls”).

The remaining term over which the 2026 Notes’ debt discount and debt issuance costs will be amortized is 4.9 years.

The effective interest rate on the debt was 5.49 % for the period ended December 31, 2021.

In connection with the offering of the 2026 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2026 capped call”).

The 2026 capped calls each have an initial strike price of approximately $ 75.23 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes.

3 unchanged sentences

The 2026 capped calls expire on December 15, 2026, subject to earlier exercise.

The capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company.

The 2026 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company.

In addition, the 2026 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2026 capped calls, including changes in law, failure to deliver, and hedging disruptions.

1 unchanged sentence

The net cost of $ 46.1 million incurred to purchase the 2026 capped calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheet.

The remaining term over which the December 2020 Convertible Senior Notes debt discount and debt issuance costs will be amortized is 5.9 years.

The effective interest rate on the debt was 6.61 % for the year ended December 31 2020.

The net carrying amount of the liability component of the Notes was as follows (in thousands):

As of December 31, 2020 As of December 31, 2019

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The net carrying amount of the liability component of the Notes was as follows:

(In thousands)

Principal $ 747,500 $ 747,500

2 unchanged sentences

Net carrying amount $ 574,238 $ 538,432

The net carrying amount of the equity component of the Notes was as follows (in thousands):

As of December 31, 2020 As of December 31, 2019

The net carrying amount of the equity component of the Notes was as follows:

(In thousands)

Proceeds allocated to the conversion options (debt discount) $ 215,434 $ 215,434

1 unchanged sentence

Net carrying amount $ 209,651 $ 209,651

The following table sets forth the interest expense recognized related to the Notes (in thousands):

For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

The following table sets forth the interest expense recognized related to the Notes:

Year Ended December 31,

2021 2020 2019

(In thousands)

Contractual interest expense $ 1,725 $ 1,725 $ 1,438

2 unchanged sentences

Total interest expense $ 37,533 $ 14,629 $ 9,999

Interest expense of $ 14.6 million is reflected as a component of interest (expense) income, net in the accompanying consolidated statement of operations for the year ended December 31, 2020.

AdvantageTec Inc.

In October 2018, the Company entered into a stock purchase agreement to acquire the outstanding equity interest of AdvantageTec Inc.

(“AdvantageTec”), a leading provider of texting solutions for service departments of automotive dealerships that helps enable the conversational experience across the entire dealership, including both front end/variable operations (new and used vehicle sales) and back end/fixed operations (parts and services).

The purchase agreement was for total consideration of approximately $ 11.2 million, which includes approximately $ 6.0 million in cash, approximately $ 4.3 million in shares of common stock, and approximately $ 0.9 million of potential earn-out consideration in cash and shares of common stock.

The earn-out is contingent upon achieving certain targeted financial, strategic and integration objectives and milestones and is included as part of the purchase price.

During 2019, the Company recorded a $ 0.2 million fair value re-measurement adjustment and made payments of $ 0.5 million in earn-out consideration.

The Company settled the remaining contingent earn-out of approximately $ 0.3 million in stock.

As of December 31, 2020, there are no additional contingent earn-out payments.

The purchase price allocation resulted in approximately $ 9.1 million of goodwill and approximately $ 2.2 million of intangible assets.

Interest expense of $ 37.5 million, $ 14.6 million, and $ 10.0 million is reflected as a component of interest expense, net in the accompanying consolidated statement of operations for the years ended December 31, 2021, 2020, and 2019, respectively.

e-bot7 Acquisition

In July 2021, the Company acquired e-bot7, a Conversational AI company based in Germany for a purchase price of $ 50.7 million.

This acquisition is accounted for as a part of the Company’s Business segment.

This transaction was accounted for as a business combination.

The purchase price consisted of approximately $ 24.3 million in cash, $ 20.2 million in shares of common stock of the Company, and potential earn-out consideration of up to $ 8.8 million in common stock of the Company, which is based on achieving certain objectives and milestones and is included as part of the purchase price.

The current fair value of the earn-out is $ 6.2 million.

Also as part of the transaction, there is a potential earn-out consideration of up to $ 4.4 million payable in common stock of the Company that is being treated as compensation expense over the next two years.

The earn-out consideration cannot exceed the maximum base earn-out consideration of $ 3.9 million.

The base earn-out payment consists of the revenue earn-out payment only.

The fair value of the revenue earn-out consideration is approximately $ 3.1 million of the current fair value of the earn-out of $ 6.2 million.

The Company incurred $ 1.5 million in acquisition costs for this transaction that were expensed in the year ended December 31, 2021, and are included in General and administrative expense in the accompanying consolidated statements of operations.

The purchase price allocation resulted in approximately $ 45.1 million of goodwill and $ 7.7 million of intangible assets.

The goodwill will not be deductible for tax purposes.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AdvantageTec Inc.

enhances the Company’s messaging platform available for the automotive industry and is included in the Company's business segment.

Conversable, Inc.

In September 2018, the Company acquired the employees and technology assets of Conversable, Inc.

a SaaS based Artificial Intelligence powered conversational platform, headquartered in Austin, Texas, for an aggregate estimated purchase price of $ 5.7 million.

The estimated purchase price consisted of $ 1.3 million in cash, approximately $ 2.9 million in shares of common stock of the Company, and a potential earn-out consideration of $ 1.5 million in cash, which is based on achieving certain targeted financial, strategic, and integration objectives and milestones and is included as part of the purchase price.

During 2019, the Company recorded a $ 0.5 million fair value re-measurement adjustment and settled the remaining contingent earn-out in stock.

The purchase price allocation resulted in approximately $ 5.5 million of goodwill and approximately $ 0.5 million of intangible assets.

The goodwill will be deductible for tax purposes.

The following table summarizes the fair value amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

e-bot7 Acquisition

(In thousands)

Assets acquired

Other current assets 706

Intangible assets 7,714

Other assets 221

Assets acquired $ 9,966

Liabilities assumed

Current liabilities assumed $ ( 1,055 )

Long-term liabilities assumed ( 3,063 )

Deferred tax liabilities, non-current ( 315 )

Total liabilities assumed $ ( 4,433 )

Net assets acquired 5,533

Total acquisition consideration 50,678

Goodwill $ 45,145

Other current assets acquired in connection with the acquisition consisted primarily of accounts receivable and other short term assets.

Current liabilities assumed in connection with the acquisition consisted primarily of accounts payable and other short term liabilities.

Long-term liabilities assumed in connection with the acquisition consisted of the long-term portion of deferred revenue, other long-term liabilities, and long-term debt, which was paid in full subsequent to the acquisition date.

The following is the breakout of the intangible assets acquired:

Amortizing intangible assets:

Fair Value Useful life

(In thousands)

Technology $ 3,560 5 years

Customer relationships 2,611 10 years

Trademark 1,543 5 years

Total $ 7,714

The Company applied a relief from royalty method of the income approach to estimate the present values of the intangible assets acquired.

The intangible assets acquired in the business acquisition were technology, customer relationships, and trademark for the fair value of $ 7.7 million, determined based on the present value of royalty savings after-tax benefits, attributable to total revenue of the Company.

The Company applied various estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the existing customers over time and the discount rate.

The fair values assigned to the other tangible and identifiable intangible assets acquired and liabilities assumed as part of the business combination were based on management’s estimates and assumptions.

The Company began amortizing the customer relationships on the date of acquisition over a period of ten years based on expected future cash flow attributable to existing revenue by customer type.

The amortization expense is recorded to amortization of purchased intangibles in the consolidated statements of operations.

VoiceBase, Inc.

In October 2021, the Company acquired VoiceBase, Inc., a voice analytics platform operating in the United States for a purchase price of $ 111.4 million.

This acquisition is accounted for as a part of the Company’s Business segment.

This transaction was accounted for as a business combination.

The purchase price consisted of approximately $ 17.1 million in cash,

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 63.8 million in shares of common stock of the Company, a management retention plan (“MIP”) of $ 9.3 million to be paid in shares of common stock of the Company, potential earn-out consideration of up to $ 16.7 million in common stock of the Company, which is based on achieving certain objectives and milestones and is included as part of the purchase price, and replacement options of $ 4.5 million, which means an option granted by LivePerson to purchase its common stock granted under the VoiceBase, Inc.

2010 Equity Incentive Plan, as amended (the “VoiceBase Stock Plan”), whether vested or unvested.

The current fair value of the earn-out is $ 22.5 million, of which $ 5.8 million payable in common stock of the Company is being treated as compensation expense over the next two years.

The earn-out consideration cannot exceed the maximum earn-out consideration of $ 29.5 million.

The MIP is a retention plan for the VoiceBase employees payable in two installments;

50% after the Company shares are registered with the SEC and 50% after January 1, 2022, but no later than March 15, 2022.

As part of the acquisition, we also assumed the VoiceBase Stock Plan and the outstanding vested and unvested options to purchase shares of common stock of VoiceBase thereunder, and such options become exercisable to purchase shares of LivePerson’s common stock, subject to appropriate adjustments to the number of shares and the exercise price of each such option.

In connection with the above, we registered 16,322,217 vested shares and 5,167,530 unvested shares under the VoiceBase Stock Plan.

We estimated the fair value of the aforementioned vested and unvested options at the completion of the acquisition at $ 5.9 million.

Of the total consideration, $ 4.5 million was allocated to the purchase price, $ 0.8 million was accelerated and expensed immediately following the closing, and $ 0.7 million was allocated to future services and will be expensed over the remaining requisite service periods.

Vesting schedules vary based on the VoiceBase Stock Plan.

The estimated fair value of the stock options was determined using the Black-Scholes option pricing model.

The share conversion ratio of 0.0091 was applied to convert VoiceBase’s outstanding stock awards into shares of LivePerson’s common stock.

The purchase price allocation resulted in approximately $ 81.3 million of goodwill and $ 28.8 million of intangible assets.

The goodwill will not be deductible for tax purposes.

The intangible assets are being amortized over their expected period of benefit.

The allocation of the purchase price to net book value of acquired assets and liabilities resulted in a net liability $ 0.3 million, which includes accounts receivable, property and equipment, accrued expenses, and deferred revenue.

Conversable Inc.’s capabilities will accelerate the ongoing expansion of the Company’s Conversational Space solutions and enhance the Company’s ability to deliver proactive and personalized content and services when and where the customer needs it, helping consumers find immediate service through messaging.

Conversable, Inc.

will be included in the Company’s business segment.

The results of this acquisition were not significant to the results of operations for the year ended December 31, 2018.

BotCentral, Inc.

In January 2018, the Company acquired the employees and technology assets of BotCentral, Inc., a Silicon Valley based startup, for an approximate purchase price of $ 1.0 million in common stock of the Company.

The Company incurred an additional $ 0.2 million related to acquisition costs.

This transaction was accounted for as an asset purchase.

The aggregate amount of approximately $ 0.2 million is included in intangibles on the Company’s consolidated balance sheet.

With the team’s expertise and knowledge of the Conversational Cloud platform, the team is bringing valuable insight for the Company’s customers and partners, and enabling the Company to more rapidly optimize its bot deployment capabilities, and grow the ecosystem.

BotCentral, Inc.

will be included in the Company’s business segment.

The results of this acquisition were not significant to the results of operations for the year ended December 31, 2018.

A deferred tax liability for the identified intangibles has been recorded.

The following table summarizes the fair value amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

VoiceBase, Inc.

(In thousands)

Assets acquired

Other current assets 611

Intangible assets 28,810

Other assets 56

Assets acquired $ 31,844

Liabilities assumed

Current liabilities assumed $ ( 1,473 )

Deferred tax liabilities ( 267 )

Total liabilities assumed $ ( 1,740 )

Net assets acquired 30,104

Total acquisition consideration 111,369

Goodwill $ 81,265

Other current assets acquired in connection with the acquisition consisted primarily of accounts receivable and other short term assets.

Current liabilities assumed in connection with the acquisition consisted primarily of accounts payable and other short term liabilities.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is the breakout of the intangible assets acquired:

Amortizing intangible assets:

Fair Value Useful life

(In thousands)

Developed technology $ 24,900 5 years

Customer relationships 3,700 5 years

Trade name 210 2 years

Total $ 28,810

The Company applied a multi-period excess earnings method of the income approach to estimate the fair values of the intangible assets acquired.

The intangible assets acquired in the business acquisition were developed technology, customer relationships, and trademark for the fair value of $ 28.8 million, determined based on the estimated fair value of expected after-tax cash flows attributable to annual recurring revenue from enterprise and API customers.

The Company applied various estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the existing customers over time and the discount rate.

The Company began amortizing the customer relationships on the date of acquisition over a period of five years based on expected future cash flow attributable to existing customers.

The amortization expense is recorded to amortization of purchased intangibles in the consolidated statements of operations.

The Company incurred $ 2.8 million in acquisition costs for this transaction that were expensed in the year ended December 31, 2021, and are included in General and administrative expense in the accompanying consolidated statements of operations.

Tenfold Acquisition

In October 2021, the Company acquired Callinize Inc., dba Tenfold, a leading customer experience integration platform operating in the United States.

Tenfold was built to integrate the world’s leading communication service providers with the leading CRM and support systems.

The purchase price was $ 112.2 million.

This acquisition is accounted for as a part of the Company’s Business segment.

This transaction was accounted for as a business combination.

The purchase price consisted of approximately $ 56.9 million in cash, $ 42.0 million in shares of common stock of the Company, potential earn-out consideration of up to $ 6.9 million in common stock of the Company, which is based on achieving certain objectives and milestones and is included as part of the purchase price, and replacement options of $ 6.4 million, which means an option granted by LivePerson to purchase its common stock granted under the Callinize Inc.

dba Tenfold 2015 Stock Plan, as amended most recently as of June 26, 2019 (the “Tenfold Stock Plan”), whether vested or unvested.

The current fair value of the earn-out is $ 10.1 million, of which $ 3.1 million payable in common stock of the Company is being treated as compensation expense over the next two years.

The earn-out consideration cannot exceed the maximum earn-out consideration of $ 14.3 million.

As part of the acquisition, the Company also assumed the Tenfold Stock Plan and the outstanding vested and unvested options to purchase shares of common stock of Tenfold thereunder, and such options become exercisable to purchase shares of LivePerson’s common stock, subject to appropriate adjustments to the number of shares and the exercise price of each such option.

In connection with the above, we registered 60,082,513 vested shares and 42,964,711 unvested shares under the Tenfold Stock Plan.

We estimated the fair value of the aforementioned vested and unvested options at the completion of the acquisition at $ 31.5 million.

Of the total consideration, $ 13.5 million was allocated to the purchase price (with $ 7.1 million of this paid in cash instead of shares), $ 4.0 million was related to earn-outs and escrow that were held back, $ 2.4 million was accelerated and expensed immediately following the closing, and $ 11.6 million was allocated to future services and will be expensed over the remaining requisite service periods of approximately four years on a straight-line basis.

The estimated fair value of the stock options was determined using the Black-Scholes option pricing model.

The share conversion ratio of 0.0055 was applied to convert Tenfold’s outstanding stock awards into shares of LivePerson’s common stock.

The purchase price allocation resulted in approximately $ 71.8 million of goodwill and $ 41.2 million of intangible assets.

The goodwill will not be deductible for tax purposes.

The intangible assets are being amortized over their expected period of benefit.

A deferred tax liability for the identified intangibles has been recorded.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

Tenfold Acquisition

(In thousands)

Assets acquired

Other current assets 2,339

Intangible assets 41,150

Other assets 1,144

Assets acquired $ 48,403

Liabilities assumed

Current liabilities assumed $ ( 1,470 )

Long-term liabilities assumed ( 3,524 )

Deferred tax liabilities, non-current ( 3,005 )

Liabilities assumed $ ( 7,999 )

Net assets acquired 40,404

Total acquisition consideration 112,187

Goodwill $ 71,783

Other current assets acquired in connection with the acquisition consisted primarily of accounts receivable and other short term assets.

Current liabilities assumed in connection with the acquisition consisted primarily of accounts payable and other short term liabilities.

Long-term liabilities assumed in connection with the acquisition consisted of the long-term portion of deferred revenue.

The following is the breakout of the intangible assets acquired:

Amortizing intangible assets:

Fair Value Useful life

(In thousands)

Developed technology $ 31,900 5 years

Customer relationships 9,000 15 years

Trade name 250 2 years

Total $ 41,150

The Company applied a multi-period excess earnings method of the income approach to estimate the fair values of the intangible assets acquired.

The intangible assets acquired in the business acquisition were developed technology, customer relationships, and trademark for the fair value of $ 41.2 million, determined based on the estimated fair value of expected after-tax cash flows attributable to annual recurring revenue from commercial, enterprise, and partner customer segments.

The Company applied various estimates and assumptions with respect to forecasted revenue growth rates, the revenue attributable to the existing customers over time and the discount rate.

The Company began amortizing the customer relationships on the date of acquisition over a period of 15 years based on expected future cash flow attributable to existing customers.

The amortization expense is recorded to amortization of purchased intangibles in the consolidated statements of operations.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Financial Information

The following unaudited pro forma information presents the combined results of operations as if the acquisitions of e-bot7, VoiceBase, and Tenfold had been completed as of the beginning of the Company’s fiscal year 2020.

The unaudited pro forma results include adjustments primarily related to the amortization of intangible assets and the inclusion of acquisition costs as of the earliest period presented.

There were no transactions between the Company and the acquired companies during the periods presented that would need to be eliminated.

The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies, or the effect of the incremental costs incurred from integrating these companies.

For pro forma purposes, 2021 earnings were adjusted to exclude acquisition-related costs, and 2020 earnings were adjusted to include these costs.

Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.

The unaudited pro forma financial information was as follows:

(In thousands)

Revenue $ 482,152 $ 382,683

Net loss $ ( 159,697 ) $ ( 131,826 )

The amounts of revenue and net loss of acquisitions included in the Company’s consolidated statement of operations from the acquisition date to December 31, 2021 were $ 4.9 million and $ 14.1 million, respectively.

We have operating and finance leases for our corporate offices and other service agreements.

Our leases have remaining lease terms of less than one to five years , some of which include options to extend.

In connection with the leases, we recognized operating lease right of use assets of $ 2.0 million and $ 0.6 million and an aggregate lease liability of $ 6.1 million and $ 12.9 million in our consolidated balance sheet as of December 31, 2021 and December 31, 2020, respectively.

On July 13, 2020, the Company announced its decision to transition to an employee-centric model under which employees will work remotely rather than in traditional offices.

In connection with this decision, the Company abandoned 14 leases in its global portfolio of office leases during 2020.

As a result, the Company recognized accelerated amortization to fully reduce the carrying value of the associated right of use assets between the decision date and the cease use date.

During the second quarter of 2021, the Company decided to reoccupy some of its leased space to provide its employees with the option of working in an office space environment if they choose to do so.

There were no changes to the accounting for the lease liabilities associated with the leased office spaces.

During 2021, we had a $ 3.5 million gain resulting from the settlement of leases.

As of December 31, 2021, due to a dispute with one of the leases in Israel, the Company was required to pledge cash as collateral security to be maintained at an Israeli bank.

The collateral security would remain in control of the bank, to be available in order to satisfy outstanding obligations under the lease contracts.

Accordingly, the Company had cash at an Israeli bank of approximately $ 1.5 million at December 31, 2021, which is recorded as restricted cash in Prepaid expenses and other current assets in the consolidated balance sheets.

In the third quarter of 2021, the Company entered into a new lease in Australia and was required to pledge $ 0.2 million in cash as collateral security.

We continue to actively assess our global lease portfolio.

However, any additional de-recognition of right of use assets and incurrence of various one-time expenses in connection with early termination of additional leases are not expected to be material to our financial condition or results of operations.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases for the periods listed are as follows:

Year Ended December 31,

2021 2020 2019

(In thousands)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases $ 2,927 $ 4,901 $ 6,963

Operating cash flows for finance leases 362 88 —

Financing cash flows for finance leases 3,554 1,154 —

The components of lease costs for the periods listed are as follows:

Year Ended December 31,

2021 2020 2019

(In thousands)

Finance lease cost

Amortization of right-of-use assets $ 3,718 $ 772 $ —

Interest 362 88 —

Operating lease cost 8,912 12,649 12,984

Total lease cost $ 12,992 $ 13,509 $ 12,984

2021 December 31,

Weighted Average Remaining Lease Term:

Operating leases 2.5 years 3.0 years

Finance leases 2.0 years 2.8 years

Weighted Average Discount Rate:

Operating leases 7 % 7 %

Finance leases 4 % 4 %

Supplemental balance sheet information related to leases is as follows:

Classification on the Consolidated Balance Sheet December 31,

2021 December 31,

(In thousands)

Operating ROU assets Operating lease ROU assets $ 1,977 $ 614

Finance ROU assets Property and equipment, net 6,797 10,045

Current liabilities:

Operating lease liability Operating lease liability $ 3,380 $ 5,718

Finance lease liability Accrued expenses and other current liabilities 3,738 3,488

Non-current liabilities:

Operating lease liability Operating lease liability, net of current portion 2,733 7,180

Finance lease liability Other liabilities 2,780 6,176

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future minimum lease payments under non-cancellable operating and finance leases (with an initial or remaining lease terms in excess of one year) are as follows:

December 31, 2021

Leases Finance

Year Ending December 31, (In thousands)

2022 $ 3,773 $ 3,936

2023 1,578 2,623

Thereafter — —

Total minimum lease payments 6,763 6,774

present value adjustment ( 650 ) ( 256 )

Present value of lease liabilities $ 6,113 $ 6,518

Rental expense for operating leases and other service agreements was approximately $ 13.0 million, $ 13.5 million and $ 13.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Fair Value Measurements

11 unchanged sentences

These assumptions are required to be consistent with market participant assumptions that are reasonably available.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Assets and Liabilities

The carrying amount of cash, accounts receivable, and accounts payable approximate their fair value due to their short-term nature.

The Company's assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of December 31, 2020 and December 31, 2019, are summarized as follows (amounts in thousands).

December 31, 2020 December 31, 2019

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of December 31, 2021 and December 31, 2020, are summarized as follows:

December 31, 2021

Level 1 Level 2 Level 3 Total

(In thousands)

Cash equivalents:

3 unchanged sentences

Total liabilities $ — $ — $ 29,686 $ 29,686

December 31, 2020

Level 1 Level 2 Level 3 Total

(In thousands)

Cash equivalents:

Money market funds $ 328,195 $ — $ — $ 328,195

Total assets $ 328,195 $ — $ — $ 328,195

Contingent earn-out $ — $ — $ — $ —

Total liabilities $ — $ — $ — $ —

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

7 unchanged sentences

During the third quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level.

The Company uses qualitative factors in accordance with ASU No.

2011-08 to determine whether it is ‘‘more likely than not’’ that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a goodwill impairment test.

The Company uses qualitative factors in accordance with ASC 820 - Fair Value Measurement to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a goodwill impairment test.

This measurement is classified based on level 3 input.

As of December 31, 2021, the fair value of the Notes issued in the two Convertible Senior Note transactions, as further described in Note 8 – Convertible Senior Notes and Capped Call Transactions above, was approximately $ 711.0 million.

Management determines the fair value by utilizing an independent valuation specialist using the antithetic variable technique and is considered a Level 2 fair value measurement.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements - (continued)

As of December 31, 2020 the fair value of the Notes issued in the two Convertible Senior Note transactions, as further described in Note 7 above, was approximately $ 557.5 million.

Management determines the fair value by utilizing an independent valuation specialist using the antithetic variable technique and is considered a Level 2 fair value measurement.

The Company recorded a contingent earn-out of $ 2.4 million in December 2018 in connection with the acquisitions of Conversable, Inc.

and AdvantageTec Inc.

The contingent earn-out is based on achieving certain targeted financial, strategic, and integration objectives.

The unobservable inputs considered are probability factors and the time value of money.

During the year ended December 31, 2020, the contingent earn-out decreased by $ 0.6 million due to a decrease in re-measurement to fair value of AdvantageTec Inc, Inc.

of approximately $ 0.3 million and payments of approximately $ 0.3 million in shares.

The changes in fair value of the Level 3 liabilities are as follows (amounts in thousands):

Contingent Earn-Out

We recorded contingent earn-outs as of December 2021 in connection with the acquisitions of e-bot7, VoiceBase, and Tenfold.

The contingent earn-outs are based on achieving certain targeted objectives and milestones.

The changes in fair value of the Level 3 liabilities are as follows:

(In thousands)

Balance, Beginning of year $ — 557

Conversable, Inc.

fair value adjustment (see Note 8) — ( 496 )

e-bot7 acquisition (Note 9)

Tenfold acquisition (Note 9)

VoiceBase acquisition (Note 9)

AdvantageTec, Inc.

fair value adjustment (see Note 8) ( 263 ) 168

fair value adjustment 132 ( 263 )

Payments ( 132 ) ( 294 )

1 unchanged sentence

Commitments and Contingencies

Contractual Obligations

The Company has entered into various non-cancelable operating lease agreements for certain of our offices and vehicles.

We have also entered into various non-cancelable finance lease agreements for certain network equipment.

The leases have initial lease terms ranging from 1 to 12 years.

Payments due under the lease contracts include primarily fixed payments.

The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured.

Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

The Company has evaluated its facility leases and determined which leases met the definition of the new standard in accordance with Topic 842.

The Company also performed an evaluation of their other contracts with suppliers in accordance with Topic 842 and have determined that, except for the facilities, car, and network equipment leases described above, none of its supply contracts contain a lease.

Further, the Company has made an accounting policy election to keep leases with a term of twelve months or less off the balance sheet.

This policy applies to all classes of the underlying assets.

The Company will recognize those lease payments and associated interest expense in the consolidated statement of operations evenly over the lease term.

The Company elected the “package of practical expedients,” which permits the Company not to reassess under ASC 842 its prior conclusions about lease identification, lease classification and initial direct costs.

The Company also made a policy election not to separate non-lease components from lease components.

Furthermore, the Company elected to not capitalize leases with a term of 12 months or less and recognize the lease expense for such leases generally on a straight-line basis over the lease term.

The determination of the discount rate used to calculate the present value of the right-of-use assets and lease liabilities depends on whether an interest rate is implicit in the lease or not.

If a rate is implicit in the lease, that rate is used when calculating the present value of lease payments.

If the rate is not readily determinable, which is generally the case for the Company, the Company’s incremental borrowing rate (“IBR”) as of the date of inception of the lease is used (for initial measurement, the IBR was determined as of the adoption date of the standard).

The IBR is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

The Company used a ratings benchmark report against its peers in the technology sector.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies - (continued)

The Company has operating and finance leases for its corporate offices and other service agreements.

The Company's leases have remaining lease terms of 1 to 5 years, some of which include options to extend.

The Company's lease expense for the year ended December 31, 2020 consisted of operating and finance leases was approximately $ 13.5 million.

Operating leases are included in operating lease right of use (“ROU”) assets and current and noncurrent operating lease liabilities on the Company’s consolidated balance sheets.

Finance leases are included in property and equipment, accrued expenses and other liabilities, and other noncurrent liabilities on the Company’s consolidated balance sheets.

On July 13, 2020, the Company announced its decision to transition to an employee-centric model under which employees will work remotely rather than in traditional offices.

In connection with this decision, the Company abandoned 14 leases in its global portfolio of office leases during the twelve months ended December 31, 2020.

As a result, the Company recognized accelerated amortization to fully reduce the carrying value of the associated ROU assets between the decision date, which was determined to be July 13, 2020 and the cease use date.

There were no changes to the accounting for the lease liabilities associated with the leased office spaces.

Additionally, the Company recognized accelerated depreciation of fixed assets that were determined to no longer be of future economic benefit to the Company based on the decision to vacate the leased office space.

Lease restructuring expenses of $ 24.3 million are included in restructuring costs in the condensed consolidated statements of operations for the twelve months ended December 31, 2020.

The Company also incurred other non-recurring expenses of $ 5.1 million in restructuring costs in the condensed consolidated statements of operations for the twelve months ended December 31, 2020 associated with the transition to an employee-centric workforce model that does not rely on traditional offices.

These expenses include termination penalties, moving expenses, storage expenses and incremental legal and consulting fees.

The associated liability is presented on the condensed consolidated balance sheets within accrued expenses and other current liabilities as of December 31, 2020.

Subsequent adjustments to these liabilities, including final settlement of the amounts, will be reflected in future period earnings.

Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases 4,901 6,963

Operating cash flows for finance leases 88 —

Financing cash flows for finance leases 1,154 —

The components of lease costs for the years ended December 31, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

Finance lease cost

Amortization of right-of-use assets 772 —

Interest 88 —

Operating lease cost 12,649 12,984

Total lease cost 13,509 12,984

Supplemental balance sheet information related to leases is as follows:

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies - (continued)

As of December 31, 2020 As of December 31, 2019

Operating Leases (in thousands, except lease term and discount rate)

Right-of-use asset, net

Current operating lease liability 5,718 6,602

Long term operating lease liability 7,180 12,865

Total operating lease liability

12,898 19,467

Finance Leases

Right-of-use asset, net 10,045 —

Current finance lease liability 3,488 —

Long term finance lease liability 6,176 —

Total finance lease liability 9,664 —

Weighted Average Remaining Lease Term

Operating leases

3.0 years 3.5 years

Finance leases 2.8 years —

Weighted Average Discount Rate

Operating leases

Finance leases 4 % —

Future minimum lease payments under non-cancellable operating and finance leases (with an initial or remaining lease terms in excess of one year) are as follows (amounts in thousands):

Year Ending December 31, Operating

Leases Finance Leases

2021 $ 6,377 3,814

2022 3,804 3,814

2023 1,955 2,572

Thereafter 263 —

Total minimum lease payments $ 14,197 $ 10,200

present value adjustment ( 1,299 ) ( 536 )

Total lease liability $ 12,898 $ 9,664

The timing and amounts of future minimum lease payments under non-cancellable operating leases in the above table may be subject to change as a result of the restructuring (see Note 14).

Rental expense for operating leases and other service agreements was approximately $ 13.5 million, $ 13.0 million and $ 10.9 million for the years ended December 31, 2020, 2019 and 2018 respectively.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies - (continued)

Employee Benefit Plans

The Company has a 401(k) defined contribution plan covering all eligible employees.

In 2018, the Company provided for employer matching contributions equal to 50 % of employee contributions, up to the lesser of 5 % of eligible compensation or $ 6,000 .

Matching contributions are deposited into the employee’s 401(k) account and are subject to 5 year graded vesting.

Beginning in 2019, the Company’s 401(k) policy was changed to a Safe Harbor Plan, whereby the Company matches 100 % of the first 3 % of eligible compensation and 50 % of the next 2 % of eligible compensation.

The Company’s 401(k) policy is a Safe Harbor Plan, whereby the Company matches 100 % of the first 3 % of eligible compensation and 50 % of the next 2 % of eligible compensation.

Furthermore, the match is immediately vested.

1 unchanged sentence

Letters of Credit

As of December 31, 2020, the Company has a $ 0.1 million letter of credit outstanding substantially in favor of a certain landlord for office space.

In addition, the Company has a letter of credit totaling $ 0.1 million as a security deposit for the due performance by the Company of the terms and conditions of a supply contract.

As a result of our transition to an employee-centric workforce model that does not rely on traditional offices, there were two draws against our letter of credit in the aggregate amount of $ 1.8 million in connection with exiting leases in Alpharetta Georgia and Israel during the twelve months ended December 31, 2020.

As of December 31, 2021, the Company had letters of credit totaling $ 0.8 million outstanding as a security deposit for the due performance by the Company of the terms and conditions of a supply contract.

Indemnifications

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The Company determined that its best estimate of what would be reasonably expected for the Company to settle the potential exposure was $ 2.5 million and accordingly, the Company accrued this amount with a corresponding charge to earnings as of March 31, 2020.

There has not been any significant changes in the Company’s process of finalizing its sales tax liability nor in the overall accrued amount.

As of December 31, 2021, there is a $ 0.8 million accrual balance for sales tax liabilities.

The decrease in the balance of this accrual is primarily due to payments made for the sales tax liabilities.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COVID-19 Pandemic

In December 2019, a novel coronavirus disease (“COVID-19”) was first reported.

In December 2019, COVID-19 was first reported.

On March 11, 2020, due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic.

The COVID-19 global pandemic has resulted in a widespread health crisis, and the resulting impact on governments, businesses and individuals and actions taken by them in response to the situation have resulted in widespread economic disruptions, significantly affecting broader economies, financial markets, and overall demand for the Company’s products.

The COVID-19 outbreak also has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities in the Company’s Condensed Consolidated Financial Statements as the extent and period of recovery from the COVID-19 outbreak and related economic disruption is difficult to forecast.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies - (continued)

The COVID-19 outbreak also has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements as the extent and period of recovery from the COVID-19 outbreak and related economic disruption is difficult to forecast.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to, the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery, and governmental and business reactions to the pandemic.

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While there was not any significant impact to the operations of the Company, during the twelve months ended December 31, 2020, the Company moved to an employee-centric model under which employees will work remotely rather than in traditional offices due to concerns about COVID-19.

As a result of this decision, the Company recognized accelerated amortization to fully reduce the carrying value of the associated right of use assets (“ROU assets”) for 14 leases within its global lease portfolio, which is a material impact to the Company’s consolidated financial statements as of and for the twelve months ended December 31, 2020.

As a result of this decision, the Company recognized accelerated amortization to fully reduce the carrying value of the associated ROU assets for 14 leases within its global lease portfolio, which is a material impact to the Company’s consolidated financial statements as of and for the twelve months ended December 31, 2020.

Refer to earlier paragraphs of this Note 10 for a detailed discussion of the impacts of this lease restructuring.

1 unchanged sentence

Stockholders’ Equity

In November 2019, the Company filed an amendment to its Certificate of Incorporation to authorize an additional 100,000,000 shares of common stock.

As December 31, 2021, there were 200,000,000 shares of common stock authorized, and 74,980,546 and 72,234,303 shares issued and outstanding, respectively.

4 unchanged sentences

The par value for the preferred stock is $ 0.001 per share.

Stock Repurchase Program

From 2012 through 2018, the Company had a stock repurchase program in place pursuant to which the Company was authorized to repurchase shares of its common stock, in the open market or privately negotiated transactions, at times and prices considered appropriate by the Board of Directors depending upon prevailing market conditions and other corporate considerations.

The timing and actual number of shares repurchased depend on a variety of factors including the timing of open trading windows, price, corporate and regulatory requirements and other market conditions.

The program was discontinued at the end of 2018.

The Company may or may not enter into a new stock repurchase program in the future.

Stock-Based Compensation

The Company follows FASB ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions.

ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

Incremental compensation co sts arising from subsequent modifications of awards after the grant date must be recognized.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity - (continued)

The per share weighted average fair value of stock options granted during the years ended December 31, 2020, 2019 and 2018 was $ 13.84 , $ 12.12 , and $ 6.60 , respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the years ended December 31, 2020, 2019 and 2018:

2020 2019 2018

Dividend yield — % — % — %

Risk-free interest rate 0.26 % – 0.66 %

1.66 % – 3.05 %

2.5 % – 3.1 %

Expected life (in years) 5.0 5.0 5.0

Historical volatility 46.50 % – 53.91 %

43.42 % – 44 %

43.5 % – 48.4 %

A description of the methods used in the significant assumptions used to estimate the fair value of stock-based-based compensation awards follows:

Dividend yield – The Company uses 0 % as it has never issued dividends and does not anticipate issuing dividends in the near term.

Risk-free interest rate – The Company uses the market yield on U.S.

Treasury securities at five years with constant maturity, representing the current expected life of stock options in years.

Expected life – The Company uses historical data to estimate the expected life of a stock option.

Historical volatility – The Company uses a trailing five year from grant date to determine volatility.

Stock Option Plans

During 1998, the Company established the Stock Option and Restricted Stock Purchase Plan (the “1998 Plan”).

Under the 1998 Plan, the Board of Directors could issue incentive stock options or nonqualified stock options to purchase up to 5,850,000 shares of common stock.

The 2000 Stock Incentive Plan (the “2000 Plan”) succeeded the 1998 Plan.

Under the 2000 Plan, the options which had been outstanding under the 1998 Plan were incorporated in the 2000 Plan increasing the number of shares available for issuance under the plan by approximately 4,150,000 , thereby reserving for issuance 10,000,000 shares of common stock in the aggregate.

The Company established the 2009 Stock Incentive Plan (the “2009 Plan”) as a successor to the 2000 Plan.

Under the 2009 Plan, the options which had been outstanding under the 2000 Plan were incorporated into the 2009 Plan and the Company increased the number of shares available for issuance under the plan by 6,000,000 .

The Company amended the 2009 Plan (the “Amended 2009 Plan”) effective June 7, 2012.

The Amended 2009 Plan increased the number of shares authorized for issuance under the plan by an additional 4,250,000 .

On June 2, 2017, the Company's Board of Directors amended and restated the Amended 2009 Plan effective April 30, 2017.

The amended and restated plan increased the number of shares authorized for issuance under the plan by an additional 4,000,000 .

On April 11, 2019, the Company’s Board of Directors adopted, and on June 6, 2019, the Company’s stockholders approved, the 2019 Stock Incentive Plan (‘‘2019 Stock Incentive Plan’’) to replace the Amended 2009 Plan, which was set to expire under its terms on June 9, 2019.

Under the 2019 Stock Incentive Plan, the number of shares underlying options and other equity awards which remain outstanding, as well as the number of shares that remained available for grant, under the Amended 2009 Plan and under the Amended 2000 Plan were incorporated, as of June 6, 2019, into the 2019 Stock Incentive Plan.

In addition, under the 2019 Stock Incentive Plan, 4,250,000 new shares were authorized for issuance.

On April 29, 2020, the Company's Board of Directors adopted, and on June 11, 2020, the company's stockholders approved, certain amendments to the 2019 Stock Incentive Plan, including an increase in the number of shares authorized for issuance by 3,000,000 new shares.

The number of shares authorized for issuance under the 2019 Stock Incentive Plan, the Amended 2009 Plan, and the 2000 Plan is 35,067,744 shares in the aggregate.

Options to acquire common stock granted thereunder have 10 -year terms.

As of December 31, 2020, approximately 3.3 million shares of common stock remained available for issuance under the 2019 Stock Incentive Plan (taking into account all option exercises and other equity award settlements through December 31, 2020).

The Company’s 2019 Stock Incentive Plan, as amended and restated (the “2019 Plan”), became effective on April 11, 2019.

The 2019 Plan allows the Company to grant incentive stock options and restricted stock units to its employees and directors to participate in the Company’s future performance through stock-based awards at the discretion of the board of directors.

On April 19, 2021, the Company’s board of directors amended the plan and authorized 5,000,000 new shares for issuance.

The number of shares authorized for issuance is 40,067,744 shares in the aggregate.

Options to acquire common stock granted thereunder have ten -year terms.

As of December 31, 2021, approximately 5.0 million shares of common stock remained available for issuance (taking into account all option exercises and other equity award settlements through December 31, 2021).

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity - (continued)

Employee Stock Purchase Plan

In June 2010, the Company’s stockholders approved the 2010 Employee Stock Purchase Plan with 1,000,000 shares of common stock initially reserved for issuance.

Subject to stockholder approval, which was obtained on June 2, 2017, the Company's Board of Directors amended and restated the 2010 Employee Stock Purchase Plan effective April 30, 2017.

The amended and restated plan increased the number of shares authorized for issuance under the plan by an additional 1,000,000 , thereby reserving for issuance 2,000,000 shares of common stock in the aggregate.

On April 11, 2019, the Company’s Board of Directors adopted, and on June 6, 2019, the Company’s stockholders approved, the 2019 Employee Stock Purchase Plan (the ‘‘2019 Employee Stock Purchase Plan’’) to replace the Amended and Restated 2010 Employee Stock Purchase Plan which was set to expire under its terms in June 2020.

There are 1,000,000 shares authorized and reserved for issuance under the 2019 Employee Stock Purchase Plan.

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Inducement Plan

During January 2018, the Company established the Inducement Plan (the “2018 Plan”).

Under the 2018 Plan, the Board of Directors can issue nonqualified stock options or other equity-based awards in respect of up to 1,500,000 shares of common stock.

On April 25, 2018, the Company’s Board of Directors amended and restated the 2018 Plan (the ‘‘Amended 2018 Plan’’).

The Amended 2018 Plan increased the number of shares authorized for issuance under the plan by an additional 500,000 shares, and subsequently the Board of Directors approved and ratified, effective as of July 31, 2018, October 29, 2018 and February 13, 2019, increases of the number of shares authorized for issuance under the Amended 2018 Plan by 500,000 , 250,000 and 618,048 shares, respectively, constituting 3,368,048 shares of common stock in the aggregate being reserved for issuance pursuant to grants under the Amended 2018 Plan.

As of December 31, 2020, approximately 1.2 million shares of common stock remained available for issuance under the Amended 2018 Plan (taking into account all option exercises and other equity award settlements through December 31, 2020).

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity - (continued)

There are 3,368,048 shares of common stock authorized and reserved for issuance under the Inducement Plan.

As of December 31, 2021, no more shares of common stock remained available for issuance under the Inducement Plan (taking into account all option exercises and other equity award settlements through December 31, 2021).

Stock Option Activity

A summary of the Company’s stock option activity and weighted average exercise prices follows:

Stock Option Activity Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands)

Options (in thousands) Weighted

Stock Option Activity Weighted Average Remaining Contractual Term

(In years) Aggregate Intrinsic Value (In thousands)

(In thousands) Weighted

Exercise Price

25 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity - (continued)

Restricted Stock Unit Activity

1 unchanged sentence

Restricted Stock Unit Activity

Number of Shares (in thousands) Weighted Average

Grant Date Fair Value (Per Share) Aggregate Fair Value (in thousands)

Number of Shares

(In thousands) Weighted Average

Grant Date Fair Value

(Per Share) Aggregate Fair Value

(In thousands)

Balance outstanding at December 31, 2018 2,690 $ 15.81 $ 50,756

16 unchanged sentences

As of December 31, 2021, total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested RSUs was approximately $ 141.9 million and the weighted-average remaining vesting period was 3.2 years.

For the year ended December 31, 2021, the Company accrued approximately $ 18.4 million for cash awards related to bonus to be settled in shares of the Company’s stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying consolidated financial statements.

For the year ended December 31, 2020, the Company accrued approximately $ 20.4 million and $ 8.9 million for cash awards related to bonus and for the achievement of long term incentive plan awards, respectively, to be settled in shares of the Company’s stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying consolidated financial statements.

For the year ended December 31, 2019, the Company accrued approximately $ 19.0 million in cash awards to be settled in shares of the Company's stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying consolidated financial statements.

Stock-based compensation expense recognized in the Company’s consolidated statements of operations and cash flows was $ 65.9 million and $ 44.1 million for the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense recognized in the Company’s consolidated statements of operations and cash flows was $ 69.7 million, $ 65.9 million, and $ 44.1 million for the years ended December 31, 2021, 2020, and 2019, respectively.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The per share weighted average fair value of stock options granted during the years ended December 31, 2021, 2020 and 2019 was $ 28.68 , $ 13.84 , and $ 12.12 , respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the periods presented:

Year Ended December 31,

2021 2020 2019

Dividend yield — % — % — %

Risk-free interest rate 0.46 % – 1.33 %

0.26 % – 0.66 %

1.66 % – 3.05 %

Expected life (in years) 5 5 5

Historical volatility 53.51 % – 54.55 %

46.50 % – 53.91 %

43.42 % – 44.00 %

A description of the methods used in the significant assumptions used to estimate the fair value of stock-based-based compensation awards follows:

• Dividend yield – The Company uses 0 % as it has never issued dividends and does not anticipate issuing dividends in the near term.

• Risk-free interest rate – The Company uses the market yield on U.S.

Treasury securities at five years with constant maturity, representing the current expected life of stock options in years.

• Expected life – The Company uses historical data to estimate the expected life of a stock option

• Historical volatility – The Company uses a trailing five year from grant date to determine volatility.

Restructuring

In response to the COVID-19 pandemic, the Company went through a re-evaluation of its real estate needs.

In connection with this re-evaluation, and the success the Company has had working remotely, it was decided in July 2020 that the Company would significantly reduce the real estate space it leases.

This decision resulted in the significant reduction of the real estate space leased by the Company and the removal of the associated ROU assets.

Furthermore, this resulted in various one-time expenses in connection with the abandonment of the majority of the Company’s leased facilities.

The lease restructuring costs noted below are a result of this transition to an employee-centric workforce model that does not rely on traditional offices.

On top of the lease restructuring costs, the Company went through a further restructuring related to costs associated with re-prioritizing and reallocating resources to focus on areas believed by management to show high growth potential.

The expenses associated with these restructuring events were approximately $ 3.4 million, $ 29.4 million, and $ 2.0 million during the years ended December 31, 2021, 2020, and 2019, respectively, and are classified in the consolidated statements of operations as restructuring costs.

The restructuring liability was approximately $ 1.7 million and $ 4.7 million as of December 31, 2021 and 2020, respectively, and is classified as accrued expenses and other current liabilities on the consolidated balance sheets, as the liability is expected to be settled in the next 12 months.

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

(In thousands)

Balance at January 1 $ 4,732 $ 314

Lease restructuring costs 724 5,034

Severance and other associated costs 2,673 5,090

Cash payments ( 6,435 ) ( 5,706 )

Balance at December 31 $ 1,694 $ 4,732

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year Ended December 31,

2021 2020 2019

(In thousands)

Lease restructuring costs:

ROU assets write down $ — $ 13,938 $ —

Abandonment of property and equipment — 5,147 —

Other lease restructuring costs 724 5,245 —

Total lease restructuring costs 724 24,330 —

Severance and other associated costs 2,673 5,090 2,043

Total restructuring costs $ 3,397 $ 29,420 $ 2,043

Legal Matters

The Company filed an intellectual property suit against [24]7 Customer, Inc.

(“[24]7”) in the Southern District of New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and misappropriated the Company’s technology to develop competing products and misused the Company’s business information.

On June 22, 2015, [24]7 filed suit against the Company in the Northern District of California alleging patent infringement.

On December 7, 2015, [24]7 filed a second patent infringement suit against the Company, also in the Northern District of California.

On March 16, 2017, the New York case was voluntarily transferred and consolidated with the two California cases in the Northern District of California for all pre-trial purposes.

Rulings by both the Court and the United States Patent and Trademark Office in the Company’s favor have invalidated the majority of [24]7 patents that were asserted in the patent cases.

The Company believes the remaining claims filed by [24]7 are entirely without merit and intends to defend them vigorously.

Trial for the Company’s intellectual property and other claims asserted against [24]7 related to three of the customers at issue occurred on May 24, 2021 and the jury awarded approximately $ 30.3 million in favor of the Company, including approximately $ 6.7 million in compensatory damages and approximately $ 23.6 million in punitive damages.

The Company currently anticipates that [24]7 may elect to pursue challenges to this award on procedural grounds.

Accordingly, no amounts for the settlement have been reflected in the Company’s financial statements.

Trial for [24]7’s patent infringement claims has been vacated, to be reset by the Court.

From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands, and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation.

The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable.

In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matter as appropriate and in compliance with ASC 450.

The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter.

To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

From time to time, third parties assert claims against the Company regarding intellectual property rights, privacy issues, and other matters arising in the ordinary course of business.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes - (continued)

temporary differences are expected to be recovered or settled.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible.

deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

1 unchanged sentence

The Company recorded a valuation allowance against its U.S.

deferred tax asset as it considered its cumulative loss in recent years as a significant piece of negative evidence.

and Germany deferred tax assets as it considered its cumulative loss in recent years as a significant piece of negative evidence.

Since valuation allowances are evaluated on a jurisdiction by jurisdiction basis, we believe that the deferred tax assets related to LivePerson Australia, LivePerson UK, Kasamba Israel, LivePerson Japan and LivePerson LTD Israel are more likely than not to be realized as these jurisdictions have positive cumulative pre-tax book income after adjusting for permanent and one-time items.

During the year ended December 31, 2021, there was an increase in the valuation recorded of $ 51.7 million.

The Company had a valuation allowance on certain deferred tax assets for the years ended December 31, 2018, December 31, 2019 and December 31, 2020 of $ 30.2 million, $ 48.5 million and $ 55.4 million, respectively.

An increase in the valuation allowance in the amount of $ 35.1 million was recorded as an expense and a decrease of $ 28.2 million related to convertible notes was charged to equity during 2020.

The Company had a valuation allowance on certain deferred tax assets for the years ended December 31, 2021, 2020, and 2019 of $ 107.1 million, $ 55.4 million, and $ 48.5 million, respectively.

An increase in the valuation allowance in the amount of $ 34.3 million was recorded as an expense and an additional increase of $ 17.4 million was recorded to goodwill against acquired federal and state net operating losses during 2021.

An increase in the valuation allowance in the amount of $ 35.1 million was recorded as an expense and a decrease of $ 28.2 million related to the issuance of convertible notes was charged to equity during 2020.

Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the Company’s use of its federal net operating loss (“NOL”) carryforwards may be limited if the Company experiences an ownership change, as defined in Section 382 of the Code.

The use of NOLs from acquired businesses may also be limited under Section 382.

Such an annual limitation could result in the expiration of the NOL carryforwards before utilization.

1 unchanged sentence

As of December 31, 2021, the Company had approximately $ 553.4 million of federal NOL carryforwards available to offset future taxable income.

Included in this amount is $ 5.1 million of federal NOL carryovers from the Company’s acquisition of Proficient in 2006.

Included in this amount is $ 5.1 million of federal NOL carryovers from the Company’s acquisition of Proficient in 2006, $ 51.8 million of federal NOL carryovers from the Company’s acquisition of Tenfold in 2021, and $ 65.6 million of federal NOL carryovers from the Company’s acquisition of VoiceBase in 2021.

Approximately $ 78.2 million of these federal NOL carryforwards were generated in taxable years ending on or before December 31, 2017 and will expire in various years through 2037.

Federal NOL carryforwards generated in taxable years ending after December 31, 2017, do not expire, but generally may only offset up to 80% of federal taxable income earned in a taxable year.

The domestic and foreign components of income (loss) before provision for income taxes consist of the following (amounts in thousands):

The domestic and foreign components of income (loss) before provision for income taxes consist of the following:

Year Ended December 31,

2021 2020 2019

(In thousands)

United States $ ( 128,210 ) $ ( 113,689 ) $ ( 105,961 )

5 unchanged sentences

$ ( 127,378 ) $ ( 105,128 ) $ ( 93,226 )

(1) Includes Japan and France

——————————————

(1) Includes Bulgaria, Canada, Japan, France, India, Italy, Singapore, and Spain

No additional provision has been made for U.S.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes - (continued)

The provision for income taxes consists of the following (amounts in thousands):

The provision for income taxes consists of the following:

Year Ended December 31,

2021 2020 2019

(In thousands)

Current income taxes:

3 unchanged sentences

Total current income taxes 3,835 1,886 4,052

1,886 4,052 1,167

Deferred income taxes:

3 unchanged sentences

Total deferred income taxes ( 6,239 ) 580 ( 1,207 )

580 ( 1,207 ) ( 309 )

Total provision for income taxes $ ( 2,404 ) $ 2,466 $ 2,845

$ 2,466 $ 2,845 $ 858

The difference between the total income taxes computed at the federal statutory rate and the provision for income taxes consists of the following:

12 unchanged sentences

Total provision 1.89 % ( 2.35 ) % ( 3.05 ) %

( 2.35 ) % ( 3.05 ) % ( 3.60 ) %

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes - (continued)

The effects of temporary differences and federal NOL carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are presented below (amounts in thousands):

The effects of temporary differences and federal NOL carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities as of the dates presented:

Year Ended December 31,

(In thousands)

Deferred tax assets:

Net operating loss carryforwards $ 141,930 $ 78,651

$ 78,651 $ 49,423

Foreign tax credit 1,222 1,222

R&D tax credit 1,761 —

Original issue discount 13,530 16,464

Interest 4,188 1,986

Operating lease liability 3,145 5,150

4 unchanged sentences

Total deferred tax assets 187,657 122,737

122,737 72,626

Less valuation allowance ( 107,061 ) ( 55,357 )

2 unchanged sentences

Property and equipment ( 12,586 ) ( 10,048 )

( 10,048 ) ( 6,361 )

Intangibles amortization ( 15,361 ) —

Goodwill amortization and contingent earn-out adjustments ( 6,165 ) ( 5,294 )

( 5,294 ) ( 3,430 )

Convertible notes issuance ( 41,666 ) ( 49,118 )

( 49,118 ) ( 11,055 )

Operating lease right of use asset ( 1,833 ) ( 2,511 )

Total deferred tax liabilities ( 77,611 ) ( 66,971 )

( 66,971 ) ( 23,350 )

Net deferred tax assets (liabilities) $ 2,985 $ 409

We have income tax NOL carryforwards related to federal and Australian income tax carryforwards of $ 311.7 million and $ 2.0 million respectively.

The Australian NOLs can be carried forward indefinitely.

$ 270.4 million of the federal NOLs can be carried forward indefinitely.

$ 6.0 million of the federal NOLs will expire between 2021 and 2026, and $ 35.2 million will expire between 2036 and 2037.

We have income tax NOL carryforwards related to federal, Australian, and German income tax carryforwards of $ 553.4 million, $ 1.9 million, and $ 10.9 million, respectively.

The Australian and German NOLs can be carried forward indefinitely.

For the federal NOLs, $ 475.2 million can be carried forward indefinitely, $ 5.1 million will expire between 2023 and 2026, and $ 73.1 million will expire between 2030 and 2037.

We have $ 387.0 million of state NOLs, of which $ 86.3 million can be carried forward indefinitely and $ 300.7 million expire between 2022 and 2041.

ASC Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with other provisions contained within this guidance.

ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with other provisions contained within this guidance.

This topic prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes - (continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Year Ended December 31,

2021 2020 2019

(In thousands)

Unrecognized tax benefits balance at January 1 $ 3,615 $ 2,053 $ 1,921

Increase due to business combinations 488 — —

Gross decrease for tax positions of prior years — ( 438 ) —

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Gross unrecognized tax benefits at December 31 $ 2,917 $ 3,615 $ 2,053

The tax years subject to examination by major tax jurisdictions include the years 2015 and forward for U.S states and New York City, the years 2016 and forward for U.S.

The tax years subject to examination by major tax jurisdictions include the years 2015 and forward for U.S.

states and New York City, the years 2016 and forward for U.S.

Federal, and the years 2015 and forward for certain foreign jurisdictions.

Tax Legislation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal Revenue Code.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law making several changes to the Code.

The changes include, but are not limited to:

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As a result of the CARES Act, the Company filed refund claims relating to prior years totaling $ 0.6 million.

Legal Matters

The Company previously filed an intellectual property suit against [24]7 Customer, Inc.

(‘‘[24]7’’) in the Southern District of New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and misappropriated the Company’s technology to develop competing products and misused the Company’s business information.

On June 22, 2015, [24]7 Customer, Inc.

filed suit against the Company in the Northern District of California alleging patent infringement.

On December 7, 2015, [24]7 Customer Inc.

filed a second patent infringement suit against the Company, also in the Northern District of California.

On March 16, 2017, the New York case was voluntarily transferred and consolidated with the two California cases in the Northern District of California for all pre-trial purposes.

Rulings by both the Court and the United States Patent Office in the Company’s favor have invalidated the majority of [24]7 patents that were asserted in the patent cases.

Trial for the Company’s intellectual property and other claims asserted against [24]7 is set for May 24, 2021.

Trial for [24]7’s patent infringement claims has been vacated, to be reset after the trial on the Company's claims.

The Company believes the claims filed by [24]7 are entirely without merit and intends to defend them vigorously.

The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable.

From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation.

The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Legal Matters - (Continued)

that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

From time to time, third parties assert claims against the Company regarding intellectual property rights, privacy issues and other matters arising in the ordinary course of business.

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

In addition, in the ordinary course of business, the Company is also subject to periodic threats of lawsuits, investigations and claims.

Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring Costs

In response to the COVID-19 pandemic, the Company went through a re-evaluation of its real estate needs.

In connection with this re-evaluation, and the success the Company has had working remotely, it was decided in July 2020 that the Company would significantly reduce the real estate space it leases.

This decision resulted in the significant reduction of the real estate space leased by the Company and the removal of the associated ROU assets.

Furthermore, this resulted in various one-time expenses in connection with the abandonment of the majority of the Company's leased facilities.

The lease restructuring costs noted below are a result of this transition to an employee-centric workforce model that does not rely on traditional offices.

The expenses associated with these restructuring events were approximately $ 29.4 million, $ 2.0 million, and $ 4.5 million during the years ended December 31, 2020, 2019, and 2018, respectively, and is classified in the consolidated statements of operations as restructuring costs.

The restructuring liability was approximately $ 4.7 million and $ 0.3 million as of December 31, 2020 and 2019, respectively, and is classified as accrued expenses and other current liabilities on the consolidated balance sheets.

The following table presents the detail of the liability for the Company’s restructuring charges for the periods presented (amounts in thousands):

December 31, 2020 December 31, 2019

Balance, Beginning of the year $ 314 $ 977

Lease restructuring costs 5,034 —

Severance and other associated costs 5,090 2,043

Cash payments ( 5,706 ) ( 2,706 )

Balance, End of year $ 4,732 $ 314

The following table presents the detail of expenses for the Company’s restructuring charges for the periods presented (amounts in thousands):

December 31, 2020 December 31, 2019 December 31, 2018

Lease restructuring costs:

ROU assets write down $ 13,938 $ — $ —

Abandonment of property and equipment 5,147 — —

Other lease restructuring costs 5,245 — —

Total Lease restructuring costs $ 24,330 $ — $ —

Severance and other associated costs $ 5,090 $ 2,043 $ 4,468

Total restructuring costs $ 29,420 $ 2,043 $ 4,468

A statutory rate change in the United Kingdom was enacted as of the balance sheet date ending December 31, 2021.

Effective April 1, 2023, the tax rate will increase from 19% to 25%.

During the period, the Company assessed and concluded the impact of the rate change is immaterial to its deferred taxes.

Subsequent Events

WildHealth Acquisition

In February 2022, the Company closed on an acquisition of WildHealth, a precision medicine company.

The purchase price was approximately $ 150.0 million and consisted of an upfront purchase price of $ 30.0 million in cash and common stock and a $ 120.0 million contingent earn-out component potentially payable over three years.

The transaction is still being evaluated but most likely will be accounted for under the purchase method of accounting and, if so, the operating results of WildHealth will be included in the Company’s consolidated results of operations from the date of acquisition.

Due to the timing of this transaction, the initial accounting for the business combination is incomplete and a preliminary allocation of purchase consideration cannot be estimated.

However, the Company does anticipate that a significant portion of the purchase price will be allocated to goodwill and acquired identifiable intangible assets.

Joint Venture Formation

In February 2022, the Company entered into an agreement to form a joint venture (the “JV”), to develop, own, and sell a software platform and applications marketplace.

The Company has agreed to contribute a total of approximately $ 19.0 million for approximately 19.2 % of the common equity of the JV.

The Company also has agreed to provide certain build-out, professional services, and licenses to the JV under a separate agreement.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk