What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-03-16 compared with 2022-02-28 · 5 added, 1517 removed, 33 unchanged (98% of the section changed)

4 unchanged sentences

For the year ended December 31, 2022, the U.S.

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

dollar appreciated as compared to the NIS by an average of 4.6% as compared to December 31, 2021.

For the year ended December 31, 2022, expenses generated by our Israeli operations totaled approximately $59.9 million.

1 unchanged sentence

We actively monitor the movement of the U.S.

dollar against the NIS, Pound Sterling, Euro, Australian dollar, and Japanese Yen and have considered the use of financial instruments, including but not limited to derivative financial instruments, which could mitigate such risk.

If we determine that our risk of exposure materially exceeds the potential cost of derivative financial instruments, we may in the future enter in to these types of investments.

dollar against the NIS, British Pound, Euro, Australian dollar, and Japanese Yen and have considered the use of financial instruments, including but not limited to derivative financial instruments, which could mitigate such risk.

If we determine that our risk of exposure materially exceeds the potential cost of derivative financial instruments, we may in the future enter into these types of arrangements.

The functional currency of our wholly-owned Israeli subsidiaries, LivePerson Ltd.

(formerly HumanClick Ltd.) and Kasamba Ltd., is the U.S.

the functional currency of our operations in the United Kingdom is the Pound Sterling;

and Kasamba Inc., is the U.S.

the functional currency of our operations in the United Kingdom is the British Pound;

the functional currency of our operations in the Netherlands, Germany, France and Italy is the Euro;

22 unchanged sentences

Our inability or failure to do so could harm our business, financial condition and results of operations.

Consolidated Financial Statements and Supplementary Data

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

Consolidated Statements of Operations for each of the years ended December 31, 2021, 2020, and 2019

Consolidated Statements of Comprehensive Loss for each of the years ended December 31, 2021, 2020, and 2019

Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2021, 2020, and 2019

Consolidated Statements of Cash Flows for each of the years ended December 31, 2021, 2020, and 2019

Notes to Consolidated Financial Statements 87

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

LivePerson, Inc.

New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of LivePerson, Inc.

and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

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, 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

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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:

(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 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 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 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:

• 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

We have served as the Company’s auditor since 2005.

New York, New York

February 28, 2022

LIVEPERSON, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

Current assets:

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

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

Total current assets 636,276 748,811

Operating lease ROU asset (Note 10)

Property and equipment, net (Note 6)

124,726 106,055

Contract acquisition costs 40,675 41,021

Intangibles, net (Note 5)

85,554 10,927

Goodwill (Note 5)

291,215 95,192

Deferred tax assets 5,034 2,032

Other assets 1,199 1,780

Total assets $ 1,186,656 $ 1,006,432

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 16,942 $ 14,115

Accrued expenses and other current liabilities (Note 7)

104,297 99,870

Deferred revenue (Note 2)

98,808 88,848

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

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

Commitments and contingencies (Note 12)

Stockholders’ equity:

Preferred stock, $ 0.001 par value - 5,000,000 shares authorized, none issued

Common stock, $ 0.001 par value - 200,000,000 and 200,000,000 shares authorized, 74,980,546 and 70,264,265 shares issued, and 72,234,303 and 67,554,435 shares outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital 871,788 635,672

Treasury stock, at cost;

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

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

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

Total stockholders’ equity 349,437 243,934

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

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

2021 2020 2019

(In thousands, except share and per share amounts)

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

Costs and expenses:

Cost of revenue (3)

156,880 106,268 78,878

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

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

Product development 158,390 108,414 82,145

Restructuring costs 3,397 29,420 2,043

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

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

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

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 )

Net loss per share of common stock:

Basic $ ( 1.80 ) $ ( 1.63 ) $ ( 1.53 )

Diluted $ ( 1.80 ) $ ( 1.63 ) $ ( 1.53 )

Weighted-average shares used to compute net loss income per share:

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

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

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

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

Sales and marketing 16,942 16,106 10,010

General and administrative 15,487 15,772 12,216

Product development 30,730 27,557 17,661

(2) Amounts include depreciation expense, as follows:

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

Sales and marketing 2,448 2,268 1,642

General and administrative 160 239 908

Product development 14,629 10,237 5,259

(3) Amounts include amortization of purchased intangibles and finance leases, as follows:

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

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Year Ended December 31,

2021 2020 2019

(In thousands)

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

Foreign currency translation adjustment ( 5,644 ) 4,604 ( 93 )

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

See accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Stock Treasury Stock Additional

Capital Accumulated

Deficit Accumulated Other

Comprehensive

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

Common stock issued upon exercise of stock options 1,523,018 2 — — 16,916 — — 16,918

Common stock issued upon vesting of restricted stock units 1,197,576 1 — — 999 — — 1,000

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

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

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

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 )

Other comprehensive loss — — — — — — ( 93 ) ( 93 )

Balance at December 31, 2019 66,543,073 $ 67 ( 2,709,830 ) $ ( 3 ) $ 436,557 $ ( 283,562 ) $ ( 4,524 ) $ 148,535

Common stock issued upon exercise of stock options 1,683,315 1 — — 21,353 — — 21,354

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

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

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

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

Net loss — — — — — ( 107,594 ) — ( 107,594 )

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

Balance at December 31, 2020 70,264,265 $ 70 ( 2,709,830 ) $ ( 3 ) $ 635,672 $ ( 391,885 ) $ 80 $ 243,934

Common stock issued upon exercise of stock options 864,227 1 — — 11,700 — — 11,701

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

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

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 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 accompanying notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2021 2020 2019

(In thousands)

OPERATING ACTIVITIES:

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

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

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

Depreciation 27,423 22,826 16,366

Loss on disposal — 5,147 —

Amortization of tenant allowance — — ( 516 )

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

Accretion of debt discount on convertible senior notes 33,309 11,564 7,605

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

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 )

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable ( 17,309 ) 6,371 ( 43,757 )

Prepaid expenses and other current assets ( 3,178 ) 23 ( 4,712 )

Contract acquisition costs noncurrent ( 1,876 ) ( 6,463 ) ( 13,718 )

Other assets 547 ( 37 ) ( 30 )

Accounts payable 801 ( 733 ) 3,808

Accrued expenses and other current liabilities 8,626 22,931 ( 10,882 )

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

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

Other liabilities 55 47 ( 209 )

Net cash provided by (used in) operating activities 3,247 33,605 ( 59,158 )

INVESTING ACTIVITIES:

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

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 )

FINANCING ACTIVITIES:

Principal payments for financing leases ( 3,554 ) ( 1,154 ) —

Repurchase of common stock ( 709 ) — ( 903 )

Proceeds from issuance of common stock in connection with the exercise of options and ESPP 16,110 25,355 21,060

Proceeds from issuance of convertible senior notes ( 4 ) 517,500 230,000

Payment of issuance costs in connection with convertible senior notes — ( 11,800 ) ( 8,635 )

Payment related to contingent consideration — — ( 487 )

Purchase of capped call option — ( 46,058 ) ( 23,184 )

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

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

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:

Cash paid for income taxes $ 582 $ 4,651 $ 3,304

Cash paid for interest 2,090 1,931 848

Supplemental disclosure of non-cash investing and financing activities:

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

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

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

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 —

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Summary of Significant Accounting Policies

LivePerson, Inc.

(“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 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 AI to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and increasingly marketing, social, and brick and mortar engagements.

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

These AI and human-assisted conversational experiences constitute the Conversational Space, within which LivePerson has strategically developed one of the industry’s largest ecosystems of messaging endpoints and use cases.

The Conversational Cloud, 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, SMS, social media and third-party consumer messaging platforms.

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

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

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

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

LivePerson’s Conversational AI offerings put the power of bot development, training, management and analysis into the hands of the contact center and its agents, the teams most familiar with how to structure sales and service conversations to drive successful outcomes.

The platform enables what we call “the tango” of humans, AI and bots, whereby human agents act as bot managers, overseeing AI-powered conversations and seamlessly stepping into the flow when a personal touch is needed.

Agents become ultra-efficient, leveraging the AI engine to serve up relevant content, define next-best actions and take over repetitive transactional work, so that the agent can focus on relationship building.

By seamlessly integrating messaging with 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 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.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Principles of Consolidation

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

All intercompany balances and transactions have been eliminated in consolidation.

Use of 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

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable which approximate fair value at December 31, 2021 because of the short-term nature of these instruments.

The Company invests its cash and cash equivalents with financial institutions that it believes are of high quality, and the Company performs periodic evaluations of these instruments and the relative credit standings of the institutions with which it invests.

At certain times, the Company’s cash balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits.

The Company believes it mitigates its risk by depositing its cash balances with high credit, quality financial institutions.

The Company performs ongoing credit evaluations of its customers’ financial condition (except for customers who purchase the LivePerson services by credit card via Internet download) and has established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information.

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 2021, 2020, and 2019.

Foreign Currency Translation

The Company’s operations are conducted in various countries around the world and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies).

Financial information is translated from the applicable functional currency to the U.S.

dollar (the reporting currency) for inclusion in the Company’s consolidated financial statements.

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

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

Foreign exchange

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of three months or less when acquired to be cash equivalents.

Cash equivalents, which primarily consist of money market funds, are recorded at cost, which approximates fair value.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest.

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.

The Company determines the allowance based on historical write-off experience.

The Company reviews its allowance for doubtful accounts monthly.

Past due balances over 90 days and over a specified amount are reviewed individually for collectability.

All other balances are reviewed on a pooled basis.

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

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:

Year Ended December 31,

2021 2020 2019

(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

Property and equipment are stated at cost, net of accumulated depreciation, and amortization.

Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the related assets, generally three to five years for equipment and software.

Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset.

Depreciation expense, which includes amortization of internal use software totaled $ 27.4 million, $ 22.8 million, and $ 16.4 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Internal-Use Software Development Costs

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 .

Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred.

The Company capitalized internal-use software costs of $ 36.0 million, $ 33.9 million, and $ 29.1 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Goodwill and Intangible Assets

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Company has the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

However, the Company may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests.

The impairment test involves comparing the fair value of the reporting unit to its carrying value, including goodwill.

A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value.

The impairment is limited to the carrying amount of goodwill.

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

Intangible assets with estima ble useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360-10-35, “Accounting for Impairment or Disposal of Long-Lived Assets.”

Acquired intangible assets consist of identifiable intangible assets, primarily developed technology and customer relationships, resulting from our acquisitions.

Intangible assets are recorded at fair value on the date of acquisition.

Business Combinations

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 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 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.

This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies.

A substantial portion of the intangible asset value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately.

The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names.

In executing the Company’s overall acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand the existing client relationships.

The expected benefits of the Company’s acquisitions are typically shared across multiple agencies and regions.

Impairment of Long-Lived Assets

The carrying amounts of our long-lived assets, including property and equipment, lease right-of-use assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful lives are shorter than originally estimated.

Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future undiscounted net cash flows the asset is expected to generate over its remaining life.

If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life.

There was a loss on disposal of approximately $ 5.1 million in September 2020.

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 – 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.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

LIVEPERSON, INC.

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 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.

The Company determines revenue recognition through the following steps:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Identification of the performance obligations in the contract;

• Determination of the transaction price;

• Allocation of the transaction price to the performance obligations in the contract;

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

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 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.

Hosted Services - Business Revenue

Hosted Services - Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to the Conversational Cloud, the Company’s enterprise-class, cloud-based platform.

The Company has determined such access represents a stand-ready service provided continually throughout the contract term.

As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time.

The Company recognizes this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer.

The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by the Company’s performance.

Subscription 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.

Additionally, for certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors.

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 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.

For certain deployment services, which are not deemed to represent a distinct performance obligation, revenue will be recognized in the same manner as the fee for access to the Conversational Cloud platform, and as such will be recognized on a straight-line basis over the contract term.

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

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

There is no significant variable consideration related to these arrangements.

Remaining Performance Obligation

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 less than one year.

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

Contracts with Multiple Performance Obligations

Some of the Company’s contracts with customers contain multiple performance obligations.

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

The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis.

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.

Hosted Services- Consumer Revenue

For revenue from the Company’s Consumer segment generated from online transactions between Experts and Users, revenue is recognized at an amount net of Expert fees in accordance with ASC 606, “Principal Agent Considerations”, due primarily to the fact that the Expert is the primary obligor.

Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee.

The Company collects a fee from the consumer and retains a portion of the fee, and then remits the balance to the Expert.

Revenue from these transactions is recognized at the point in time when the transaction is complete and no significant performance obligations remain.

Deferred Revenues

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

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

Hosted services – Consumer 870 835

Professional services – Business 3,831 1,869

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

Professional services – Business $ 54 $ 409

Total deferred revenue - non-current $ 54 $ 409

Disaggregated Revenue

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 – Business 67,698 50,268 41,424

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue by Geographic Location

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

Other Americas (1)

18,128 13,420 11,462

Total Americas 324,828 243,977 182,277

91,227 83,326 78,301

APAC 53,569 39,317 31,031

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

——————————————

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

(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.

and from the Netherlands of $ 4.8 million, $ 3.2 million, and $ 10.0 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue.

Nearly all of the Company’s deferred revenue balance is related to hosted services- business revenue .

In some arrangements, the Company allows customers to pay for access to the Conversational Cloud over the term of the software license.

The Company refers to these as subscription transactions.

Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables.

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

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

Increase (decrease), net 7,458 5,923 ( 346 ) 9,960 ( 355 )

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

Net Loss Per Share

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

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

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

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

In applying the “if-converted” method for diluted net income per share, the Company would assume conversion of the 2024 Notes at 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

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

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company.

ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods.

The Company is organized into two operating segments for purposes of making operating decisions and assessing performance.

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

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

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

The chief operating decision maker, who is the chief executive officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income of each segment.

The reporting segments follow the same accounting polices used in the preparation of the Company’s consolidated financial statements which are described in the summary of significant accounting policies.

The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses, restructuring costs and income tax expense because management does not use this information to measure performance of the operating segments.

There are currently no inter-segment sales.

Summarized financial information by segment for the 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

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

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

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

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

Sales and marketing 139,866 25,555 — 165,421

Amortization of purchased intangibles 2,045 — — 2,045

Unallocated corporate expenses — — 238,544 238,544

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

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

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

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

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

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

Sales and marketing 128,752 21,021 — 149,773

Amortization of purchased intangibles 1,639 — — 1,639

Unallocated corporate expenses — — 198,391 198,391

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

Year Ended December 31, 2019

Business Consumer Corporate Consolidated

(In thousands)

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

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

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

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

Cost of revenue 74,460 4,418 — 78,878

Sales and marketing 140,880 15,934 — 156,814

Amortization of purchased intangibles 1,794 — — 1,794

Unallocated corporate expenses — — 141,155 141,155

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

Geographic Information

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

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

(In thousands)

United States $ 444,318 $ 202,275

Germany 52,342 1,597

Israel 20,754 16,657

Australia 12,771 13,792

Netherlands 4,566 8,301

15,629 14,999

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

——————————————

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 )

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

The total accumulated goodwill impairment charges are $ 23.5 million through December 31, 2021.

No impairment was recognized for the years ended December 31, 2021, 2020, and 2019.

Intangible Assets

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

December 31, 2021

Amount Accumulated

Amortization Net Carrying Amount Weighted

(In thousands)

Amortizing intangible assets:

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

Amount Accumulated

Amortization Net Carrying Amount Weighted

(In thousands)

Amortizing intangible assets:

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

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

Aggregate amortization expense for intangible assets was $ 5.6 million, $ 2.8 million, and $ 2.9 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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:

Estimated Amortization Expense

(In thousands)

2022 $ 16,446

Thereafter 12,817

Total $ 85,554

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

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

Sales commissions 4,269 6,988

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

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

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

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

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

In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2024 Notes in connection with such a corporate event.

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

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

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

(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2024 Notes on each applicable trading day as determined by the Company;

(2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2024 Notes on each such trading day;

or (3) upon the occurrence of specified corporate events.

On or after November 1, 2023, holders may convert all or any portion of their 2024 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.

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

During the three 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;

equal in right of payment with the Company’s existing and future liabilities that are not so subordinated;

effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability and equity components.

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

The carrying amount of the equity component representing the conversion option was $ 52.9 million and was determined by deducting the fair value of the liability component from the par value of the 2024 Notes.

The equity component 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 term 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 term of the 2024 Notes.

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

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.

The 2024 capped calls have initial cap prices of $ 57.16 per share, subject to certain adjustment events.

The 2024 capped calls cover, subject to anti-dilution adjustments, approximately 5.96 million shares of common stock.

The 2024 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2024 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

The 2024 capped calls expire on March 1, 2024, subject to earlier exercise.

The 2024 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company.

In addition, the 2024 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2024 capped calls, including changes in law, failure to deliver, and hedging disruptions.

The 2024 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives.

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

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

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

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

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

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

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

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

(1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2026 Notes on each applicable trading day as determined by the Company;

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

(3) with respect to any 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.

On or after August 15, 2026, holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.

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

During the three 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;

equal in right of payment with the Company’s existing and future liabilities that are not so subordinated;

effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.

In accounting 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 $ 162.5 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes.

The equity component 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.

Issuance costs attributable to the liability component were approximately $ 8.5 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual terms of the 2026 Notes.

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

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.

The 2026 capped calls have initial cap prices of $ 105.58 per share, subject to certain adjustment events.

The 2026 capped calls cover, subject to anti-dilution adjustments, approximately 6.88 million shares of common stock.

The 2026 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2026 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

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

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

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

The 2026 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives.

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

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

Unamortized discount ( 162,960 ) ( 196,269 )

Unamortized issuance costs ( 10,302 ) ( 12,799 )

Net carrying amount $ 574,238 $ 538,432

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

Issuance costs ( 5,783 ) ( 5,783 )

Net carrying amount $ 209,651 $ 209,651

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

Amortization of issuance costs 2,499 1,340 956

Amortization of debt discount 33,309 11,564 7,605

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

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.

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:

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.

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

The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants.

As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability.

The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Inputs reflect:

quoted prices for identical assets or liabilities in markets that are not active;

quoted prices for similar assets or liabilities in active markets;

inputs other than quoted prices that are observable for the assets or liabilities;

or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value.

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

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, 2021 and December 31, 2020, are summarized as follows:

December 31, 2021

Level 1 Level 2 Level 3 Total

(In thousands)

Cash equivalents:

Money market funds $ 416,178 $ — $ — $ 416,178

Total assets $ 416,178 $ — $ — $ 416,178

Contingent earn-out $ — $ — $ 29,686 $ 29,686

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.

Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available.

The Company’s money market funds are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as level 1 within the fair value hierarchy.

The Company’s contingent earn-out liability is measured at fair value on a recurring basis and is classified as level 3 within the fair value hierarchy.

On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment.

Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value.

The Company uses an income approach and inputs that constitute level 3.

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 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

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

e-bot7 acquisition (Note 9)

Tenfold acquisition (Note 9)

VoiceBase acquisition (Note 9)

AdvantageTec, Inc.

fair value adjustment 132 ( 263 )

Payments ( 132 ) ( 294 )

Balance, End of year $ 29,830 $ —

Commitments and Contingencies

Employee Benefit Plans

The Company has a 401(k) defined contribution plan covering all eligible employees.

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.

Total Company matching contributions were $ 3.7 million, $ 3.1 million, and $ 3.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Letters of Credit

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

The Company enters into service and license agreements in its ordinary course of business.

Pursuant to some of these agreements, the Company agrees to indemnify certain customers from and against certain types of claims and losses suffered or incurred by them as a result of using the Company’s products.

The Company also has agreements whereby its executive officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited;

however, the Company has a directors and officers insurance policy that reduces its exposure and enables the Company to recover a portion of any future amounts paid.

As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

The Company has no liabilities recorded for these agreements as of December 31, 2021 and 2020.

Non-Income Related Taxes

The Company is in the process of finalizing its sales tax liability analysis for states in which it has economic nexus.

During the first quarter of 2020, the Company determined it was probable the Company would be subject to sales tax liabilities plus applicable interest in these states and has estimated the potential exposure to range between $ 2.5 million to $ 6.3 million.

The Company determined that its best estimate of what would be reasonably expected for 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.

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, 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 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.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19.

The accounting matters assessed included, but were not limited to, the Company’s allowance for credit losses and the carrying value of the goodwill and other long-lived assets.

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 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.

The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in other material impacts to the Company’s consolidated financial statements in future reporting periods.

Stockholders’ Equity

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.

As of December 31, 2020, there were 200,000,000 shares of common stock authorized, and 70,264,265 and 67,554,435 shares issued and outstanding, respectively.

The par value for the common stock is $ 0.001 per share.

Preferred Stock

As of December 31, 2021 and 2020, there were 5,000,000 shares of preferred stock authorized, and zero shares issued and outstanding.

The par value for the preferred stock is $ 0.001 per share.

Stock-Based Compensation

Stock Option Plans

The Company’s 2019 Stock Incentive Plan, as amended and restated (the “2019 Plan”), became effective on April 11, 2019.

The 2019 Plan allows the Company to grant incentive stock options and restricted stock units to its employees and directors to participate in the Company’s future performance through stock-based awards at the discretion of the board of directors.

On April 19, 2021, the Company’s board of directors amended the plan and authorized 5,000,000 new shares for issuance.

The number of shares authorized for issuance is 40,067,744 shares in the aggregate.

Options to acquire common stock granted thereunder have ten -year terms.

As of 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

Employee Stock Purchase Plan

There are 1,000,000 shares authorized and reserved for issuance under the 2019 Employee Stock Purchase Plan.

As of December 31, 2021, approximately 0.7 million shares of common stock remain available for issuance under the 2019 Employee Stock Purchase Plan (taking into account all share purchases through December 31, 2021).

Inducement Plan

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)

(In thousands) Weighted

Exercise Price

Balance outstanding at December 31, 2018 6,266 $ 12.13

Granted 1,425 29.76

Exercised ( 1,523 ) 11.12

Cancelled or expired ( 369 ) 14.76

Balance outstanding at December 31, 2019 5,799 $ 16.57 6.79 $ 119,064

Options vested and expected to vest 5,096 $ 15.29 6.49 $ 110,934

Options exercisable at December 31, 2019 2,901 $ 12.03 4.95 $ 72,424

Balance outstanding at December 31, 2019 5,799 $ 16.57

Granted 737 31.21

Exercised ( 1,683 ) 12.69

Cancelled or expired ( 521 ) 23.27

Balance outstanding at December 31, 2020 4,332 $ 19.78 6.79 $ 183,825

Options vested and expected to vest 1,470 $ 23.88 8.19 $ 56,382

Options exercisable at December 31, 2020 2,280 $ 14.80 5.40 $ 108,128

Balance outstanding at December 31, 2020 4,332 $ 19.78

Granted 1,705 48.24

Exercised ( 863 ) 13.55

Cancelled or expired ( 392 ) 32.94

Balance outstanding at December 31, 2021 4,782 $ 27.52 6.77 $ 62,300

Options vested and expected to vest 1,419 $ 36.41 8.61 $ 11,387

Options exercisable at December 31, 2021 2,564 $ 17.87 5.05 $ 46,932

The total fair value of stock options exercised during the years ended December 31, 2021 and 2020 was approximately $ 6.6 million and $ 10.0 million, respectively.

As of December 31, 2021, there was approximately $ 44.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements.

That cost is expected to be recognized over a weighted average period of approximately 2.7 years.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Unit Activity

A summary of the Company’s restricted stock units (“RSUs”) activity and weighted average exercise prices follows:

Restricted Stock Unit Activity

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

Awarded 1,979 30.99

Released ( 1,197 ) 14.24

Forfeited ( 423 ) 20.28

Non-vested and outstanding at December 31, 2019 3,049 $ 24.73 $ 112,848

Balance outstanding at December 31, 2019 3,049 $ 24.73 $ 112,848

Awarded 2,530 26.51

Released ( 1,906 ) 23.40

Forfeited ( 723 ) 25.19

Non-vested and outstanding at December 31, 2020 2,950 $ 27.00 $ 183,781

Balance outstanding at December 31, 2020 2,950 $ 27.00 $ 183,781

Awarded 3,066

Released ( 1,596 )

Forfeited ( 688 )

Non-vested and outstanding at December 31, 2021 3,732 $ 43.63 $ 133,308

Expected to vest 2,246 $ 41.86 $ 80,242

RSUs granted to employees generally vest over a three to four -year period, or upon achievement of certain performance conditions.

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.

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 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

deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

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

The Company recorded a valuation allowance against its U.S.

and Germany deferred tax assets as it considered its cumulative loss in recent years as a significant piece of negative evidence.

Since valuation allowances are evaluated on a jurisdiction by jurisdiction basis, we believe that the deferred tax assets related to LivePerson Australia, 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, 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.

Corresponding provisions of state law may limit the Company’s ability to utilize NOL carryforwards for state tax purposes.

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, $ 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:

Year Ended December 31,

2021 2020 2019

(In thousands)

United States $ ( 128,210 ) $ ( 113,689 ) $ ( 105,961 )

Israel 1,414 2,214 2,791

United Kingdom 1,145 536 5,377

Netherlands 3,629 3,398 ( 465 )

Australia 755 1,663 716

Germany ( 6,450 ) 243 3,854

$ ( 127,378 ) $ ( 105,128 ) $ ( 93,226 )

——————————————

(1) Includes Bulgaria, Canada, Japan, France, India, Italy, Singapore, and Spain

No additional provision has been made for U.S.

income taxes on the undistributed earnings of its Israeli subsidiary, LivePerson Ltd.

(formerly HumanClick Ltd.), as such earnings have been taxed in the U.S.

and accumulated earnings of the Company’s other foreign subsidiaries are immaterial through December 31, 2021.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for income taxes consists of the following:

Year Ended December 31,

2021 2020 2019

(In thousands)

Current income taxes:

Federal $ ( 22 ) $ ( 581 ) $ ( 452 )

State and local 159 59 89

Foreign 3,698 2,408 4,415

Total current income taxes 3,835 1,886 4,052

Deferred income taxes:

Federal ( 2,908 ) ( 151 ) 126

State and local 20 459 135

Foreign ( 3,351 ) 272 ( 1,468 )

Total deferred income taxes ( 6,239 ) 580 ( 1,207 )

Total provision for income taxes $ ( 2,404 ) $ 2,466 $ 2,845

The difference between the total income taxes computed at the federal statutory rate and the provision for income taxes consists of the following:

Year Ended December 31,

2021 2020 2019

Federal statutory rate 21.00 % 21.00 % 21.00 %

State taxes, net of federal benefit 4.83 % 4.82 % 2.95 %

Non-deductible expenses – stock based compensation ( 1.73 ) % ( 1.21 ) % 1.82 %

Global intangible low tax income inclusion — % — % ( 2.29 ) %

Non-deductible expenses – other ( 0.54 ) % 0.14 % ( 0.37 ) %

Non-deductible excess compensation ( 2.30 ) % ( 5.52 ) % ( 1.20 ) %

Foreign taxes ( 0.86 ) % ( 3.98 ) % ( 1.86 ) %

Valuation allowance ( 26.92 ) % ( 30.87 ) % ( 26.42 ) %

Stock based compensation – excess tax benefit 6.58 % 9.93 % 6.18 %

Other 1.83 % 3.34 % ( 2.86 ) %

Total provision 1.89 % ( 2.35 ) % ( 3.05 ) %

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Accounts payable and accrued expenses 7,010 7,289

Non-cash compensation 13,591 7,401

Intangibles amortization — 3,620

Allowance for doubtful accounts 1,280 954

Total deferred tax assets 187,657 122,737

Less valuation allowance ( 107,061 ) ( 55,357 )

Deferred tax assets, net of valuation allowance 80,596 67,380

Deferred tax liabilities:

Property and equipment ( 12,586 ) ( 10,048 )

Intangibles amortization ( 15,361 ) —

Goodwill amortization and contingent earn-out adjustments ( 6,165 ) ( 5,294 )

Convertible notes issuance ( 41,666 ) ( 49,118 )

Operating lease right of use asset ( 1,833 ) ( 2,511 )

Total deferred tax liabilities ( 77,611 ) ( 66,971 )

Net deferred tax assets (liabilities) $ 2,985 $ 409

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 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.

For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by the taxing authorities.

The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate audit settlement.

The Company had unrecognized tax benefits of $ 2.9 million as of December 31, 2021 and $ 3.6 million as of December 31, 2020, respectively.

Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits and recorded in accrued expenses and other current liabilities were immaterial at December 31, 2021 and 2020.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 ) —

Gross increase for tax positions of current years 376 2,984 584

Decrease due to expiration of statue — — ( 452 )

Decrease due to settlement ( 1,562 ) ( 984 ) —

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.

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 Code.

The changes include, but are not limited to:

increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income.

As a result of the CARES Act, the Company filed refund claims relating to prior years totaling $ 0.6 million.

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

Not Applicable.

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