What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-04 compared with 2023-03-16 · 602 added, 665 removed, 864 unchanged (59% of the section changed)

17 unchanged sentences

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 , 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, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 16, 2023 expressed an adverse opinion thereon.

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, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 4, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

9 unchanged sentences

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

Critical Audit Matters

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 this critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Business Combinations – Accounting for Earnouts

As described in Note 9 to the Company’s consolidated financial statements, in February 2022, the Company completed the acquisition of WildHealth, Inc.

(“WildHealth”) for $22.3 million paid at closing, plus additional earnout payments to equity holders of WildHealth of up to $120 million payable upon the achievement of certain financial milestones.

The Company has accounted for the earnouts as a compensation arrangement.

We identified the accounting for the earnouts as part of purchase price or compensation as a critical audit matter.

The principal considerations for our determination included the subjectivity and significant management judgment required to determine if the earn-outs represented contingent consideration or compensation given the terms of the agreements.

Auditing management’s assessment of the substance of the earnout arrangement and evaluating the appropriateness of the classification of such payments involved a high degree of auditor judgment.

The communication of the critical audit matter 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Goodwill – Business reporting unit

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance was $285.6 million as of December 31, 2023.

Goodwill is tested for impairment at the reporting unit level on an annual basis, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

In the valuation of 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.

In connection with the annual impairment test completed as of September 30, 2023 using the quantitative “Step 1” assessment, the Company determined the fair value of its reporting units, using both an income approach and a market approach.

approach uses a discounted cash flow model that reflects management assumptions that mainly relate to revenue growth rates and operating margins.

There were no impairments in the Company’s Business reporting unit, as the fair value of this reporting unit exceeded its carrying value.

We identified the valuation of goodwill for the Business reporting unit as a critical audit matter.

Management’s determination of the fair value of the Business reporting unit required the use of significant judgment due to the subjectivity and uncertainty of the revenue growth rates and operating margins assumptions used in the income approach.

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

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

• Testing the operating effectiveness of the controls over business combinations, including controls over identification, recognition and disclosure of contingent payments.

• Reading and analyzing the executed purchase agreement and specific agreements with certain equity holders of WildHealth to understand the provisions of the earnouts, including evaluating the substance and classification of such contingent payments.

/s/ BDO USA, LLP

• Evaluating the reasonableness of the assumptions regarding revenue growth rates and operating margins by:

i) evaluating the consistency of the revenue growth rates and operating margins with historical results, and ii) evaluating the consistency of the revenue growth rates and operating margins with the Company’s objectives and strategies.

• Testing the accuracy and completeness of information used by management to determine revenue growth rates.

/s/ BDO USA, P.C.

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

6 unchanged sentences

Cash and cash equivalents $ 210,782 $ 391,781

Restricted cash 2,143 417

Accounts receivable, net of allowances of $ 9,290 and $ 9,239 as of December 31, 2023 and 2022, respectively

81,802 86,537

Prepaid expenses and other current assets 24,164 20,626

Assets held for sale (Note 20) 30,984 —

Prepaid expenses and other current assets (Note 1) 26,981 23,747

Assets held for sale — 30,984

Total current assets 321,708 533,466

1 unchanged sentence

Property and equipment, net (Note 6) 119,325 126,499

Contract acquisition costs 43,804 40,675

Contract acquisition costs (Note 2) 37,354 43,804

Intangible assets, net (Note 5) 61,625 78,103

Goodwill (Note 5) 285,631 296,214

Deferred tax assets 4,423 5,034

Deferred tax assets, net (Note 16) 4,527 4,423

Investment in joint venture (Note 17) — 2,264

6 unchanged sentences

Deferred revenue (Note 2) 81,858 84,494

Convertible senior notes (Note 8) 72,393 —

Operating lease liabilities (Note 10) 2,719 2,160

Liabilities associated with assets held for sale (Note 20) 10,357 —

Liabilities associated with assets held for sale — 10,357

Total current liabilities 267,549 251,558

Deferred revenue, net of current portion (Note 2) 174 54

Convertible senior notes, net (Note 8) 737,423 574,238

Convertible senior notes, net of current portion (Note 8) 511,565 737,423

Operating lease liabilities, net of current portion (Note 10) 2,173 682

Deferred tax liabilities 2,550 2,049

Deferred tax liabilities (Note 16) 2,930 2,550

Other liabilities 3,158 28,639

6 unchanged sentences

Treasury stock, at cost;

2,766,073 and 2,746,243 shares as of December 31, 2022 and 2021, respectively

2,766,073 shares as of December 31, 2023 and 2022

Additional paid-in capital 913,522 771,052

10 unchanged sentences

Revenue $ 401,983 $ 514,800 $ 469,624

Costs and expenses:

Costs, expenses and other:

Cost of revenue (3)

3 unchanged sentences

Product development 124,792 193,688 158,390

Impairment of goodwill 11,895 — —

Impairment of intangibles and other assets

Restructuring costs 22,664 19,967 3,397

Gain on divestiture ( 17,591 ) — —

Amortization of purchased intangible assets 3,505 3,678 2,045

Total costs and expenses 736,684 562,890 456,071

Total costs, expenses and other 513,358 736,684 562,890

Loss from operations ( 111,375 ) ( 221,884 ) ( 93,266 )

Other expense, net:

Interest expense, net ( 352 ) ( 37,406 ) ( 14,334 )

Other (expense) income, net ( 1,784 ) 3,294 ( 1,343 )

Total other expense, net ( 2,136 ) ( 34,112 ) ( 15,677 )

Other income (expense), net:

Interest income (expense), net 4,669 ( 352 ) ( 37,406 )

Other income (expense), net 10,434 ( 1,784 ) 3,294

Total other income (expense), net 15,103 ( 2,136 ) ( 34,112 )

Loss before provision for (benefit from) income taxes ( 96,272 ) ( 224,020 ) ( 127,378 )

42 unchanged sentences

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

Common stock as earnout payment in connection with AdvantageTec, Inc.

11,508 — — — 293 — — 293

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

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

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

Common stock issued under Employee Stock Purchase Plan (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 )

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

Issuance of common stock in connection with acquisitions 2,130,213 2 — — 128,793 — — 128,795

Common stock issued under the Company’s employee stock purchase plan (“ESPP”)

95,136 — — — 4,409 — — 4,409

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

1 unchanged sentence

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

Cumulative adjustment due to adoption of ASU 2020-06 — — — — ( 209,651 ) 50,244 — ( 159,407 )

Common stock issued upon exercise of stock options 272,770 — — — 1,327 — — 1,327

6 unchanged sentences

Net loss — — — — — ( 225,747 ) — ( 225,747 )

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

Other comprehensive loss — — — — — — ( 5,113 ) ( 5,113 )

Balance at December 31, 2022 78,350,984 $ 78 ( 2,766,073 ) $ ( 3 ) $ 771,052 $ ( 692,362 ) $ ( 10,677 ) $ 68,088

Cumulative adjustment due to adoption of ASU 2020-06 — — — — ( 209,651 ) 50,244 — ( 159,407 )

Common stock issued upon exercise of stock options 66,736 — — — 175 — — 175

1 unchanged sentence

Stock-based compensation — — — — 35,483 — — 35,483

Bonus cash payment settled in shares of the Company’s common stock 735,519 1 — — 17,299 — — 17,300

Common stock repurchase — — ( 19,830 ) — ( 222 ) — — ( 222 )

Issuance of common stock in connection with acquisitions 10,297,374 10 — — 38,418 — — 38,428

Common stock issued under ESPP 355,199 1 — — 1,715 — — 1,716

Activity related to divestiture — — — — 66,681 ( 64,191 ) 57 2,547

Net loss — — — — — ( 100,435 ) — ( 100,435 )

12 unchanged sentences

Depreciation 32,557 32,284 27,423

Loss on disposal — — 5,147

Amortization of purchased intangible assets and finance leases 22,196 22,112 9,327

1 unchanged sentence

Accretion of debt discount on convertible senior notes — — 33,309

Impairment of goodwill 11,895 — —

Impairment of intangible and other assets

Change in fair value of contingent consideration 4,629 ( 8,516 ) —

Gain on repurchase of convertible notes ( 7,200 ) — —

Allowance for credit losses 3,319 5,644 4,879

Gain on divestiture ( 17,591 ) — —

Gain on settlement of leases — ( 242 ) ( 3,483 )

Deferred income taxes 1,046 ( 1,161 ) ( 6,239 )

Equity loss in joint venture 2,264 — —

Changes in operating assets and liabilities, net of acquisitions:

1 unchanged sentence

Prepaid expenses and other current assets ( 3,411 ) ( 5,979 ) ( 3,178 )

Contract acquisition costs noncurrent ( 6,370 ) ( 1,876 ) ( 6,463 )

Contract acquisition costs 4,992 ( 6,370 ) ( 1,876 )

Other assets 1,361 ( 153 ) 547

7 unchanged sentences

Purchases of property and equipment, including capitalized software ( 28,657 ) ( 48,486 ) ( 45,703 )

Proceeds from divestiture 13,819 — —

Payments for acquisitions, net of cash acquired — ( 3,430 ) ( 70,759 )

7 unchanged sentences

Proceeds from issuance of common stock in connection with the exercise of options and ESPP 1,890 5,573 16,110

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

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

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

Net cash provided by financing activities 1,618 11,843 483,843

Payment for repurchase of convertible senior notes ( 149,702 ) — —

Net cash (used in) provided by financing activities ( 151,142 ) 1,618 11,843

Effect of foreign exchange rate changes on cash and cash equivalents 465 ( 3,980 ) ( 5,461 )

Net (decrease) increase in cash, cash equivalents, and restricted cash including cash classified within current assets held for sale ( 121,324 ) ( 130,620 ) 477,629

Net decrease in cash, cash equivalents, and restricted cash ( 189,284 ) ( 121,323 ) ( 130,620 )

Cash classified within current assets held for sale 10,011 ( 10,011 ) —

4 unchanged sentences

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

(In thousands)

Cash and cash equivalents $ 210,782 $ 391,781 $ 521,846

Restricted cash in prepaid expenses and other current assets 416 1,686 —

Restricted cash 2,143 417 1,686

Total cash, cash equivalents, and restricted cash $ 212,925 $ 392,198 $ 523,532

2 unchanged sentences

Cash paid for interest 1,235 1,932 2,090

Non-cash investing and financing activities:

Supplemental disclosure of non-cash investing and financing activities:

Increase in convertible senior notes, net upon adoption of ASU 2020-06 (Note 1) $ — $ ( 159,407 ) $ —

Purchase of property and equipment in accounts payable 1,022 470 1,638

Purchase of property and equipment and intangible assets in accounts payable 2,088 1,022 470

Right-of-use assets obtained in exchange for operating lease liabilities 5,198 — 2,125

Right-of-use assets obtained in exchange for finance lease liabilities 3,693 — —

Issuance of common shares as earn-out payment associated with business acquisitions — — 293

Issuance of shares of common stock to settle cash awards — 17,300 33,503

Non-cash financing activities related to the e-bot7 acquisition in July 2021:

Issuance of 351,462 shares of common stock

Supplemental disclosure of non-cash financing activities related to acquisitions

Issuance of shares of common stock in connection with e-bot7 transaction $ — $ — $ 20,012

Fair value of contingent earn-out in connection with e-bot7 transaction — 7,362 6,170

Non-cash financing activities related to the Tenfold acquisition in November 2021:

Issuance of 698,219 shares of common stock

Issuance of shares of common stock in connection with Tenfold transaction — — 41,224

Fair value of contingent earn-out in connection with Tenfold transaction — 6,558 6,946

Non-cash financing activities related to the VoiceBase acquisition in November 2021:

Issuance of 1,080,532 shares of common stock

Issuance of shares of common stock in connection with VoiceBase transaction — — 67,557

Fair value of contingent earn-out in connection with VoiceBase transaction — 16,067 16,714

Non-cash financing activities related to the WildHealth acquisition in February 2022:

Issuance of 776,825 shares of common stock

Fair value of contingent earn-out associated with WildHealth transaction 42,234 — —

Issuance of shares of common stock in connection with WildHealth transaction — 17,675 —

Fair value of contingent earn-out in connection with WildHealth transaction — 42,234 —

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Description of Business and Summary of Significant Accounting Policies

Consumers have made mobile devices the center of their digital lives, and they have made digital conversational experiences the center of communication with friends, family and peers.

LivePerson, Inc.

(“LivePerson”, the “Company”, “we” or “our”) is a global leader in AI-powered customer conversations.

Since 1998, LivePerson has enabled billions of meaningful connections between consumers and our customers.

These speech or text conversations harness human agents, bots and AI to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, and across consumer platforms.

AI has accelerated our capability to leverage those prior conversations to enhance the consumer experience and to improve results for our customers.

The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to have conversations with millions of consumers as personally as they would with a single consumer .

The Conversational Cloud powers convers ations 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.

LivePerson’s Conversational AI 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.

Complementing the Company’s proprietary messaging and Conversational AI offerings are teams of technical, solutions and consulting professionals that have developed deep domain expertise in the implementation and optimization of conversational services across industries and messaging endpoints.

LivePerson’s products, coupled with our domain knowledge, industry expertise and professional services, have been proven to maximize the impact of Conversational AI and deliver measurable return on investment for our customers.

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.

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.

is the enterprise leader in digital customer conversation.

Over the past decades, consumers have made digital conversations a primary way to communicate with others.

Since 1998, we have enabled meaningful connections between consumers and our customers through our platform and currently power more than one billion connections and conversations each month.

These digital and artificial intelligence (“AI”)-powered conversations decrease costs and increase revenue for our brands, resulting in more convenient, personalized and content-rich journeys across the entire consumer lifecycle, and across consumer channels.

AI has accelerated our capability to leverage prior conversations and our customers’ existing investments in Generative AI and Large Language Models (“LLMs”) to enhance the consumer experience and to improve results for our customers by empowering them to leverage the latest developments in AI and LLMs, in a safe and secure environment.

The Conversational Cloud, the Company’s enterprise-class digital customer conversation platform, is trusted by the world’s top brands to accelerate their contact center transformation, orchestrate conversations across all channels, departments and systems, increase agent productivity, and deliver more personalized, AI-empowered customer experiences.

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

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

Most recently, the Conversational Cloud has been enhanced to provide a secure platform with appropriate guardrails to deploy Generative AI and LLMs in ways that help consumers and drive results for brands without sacrificing trust.

LivePerson’s digital customer conversation platform enables what the Company calls “the tango” of humans, LivePerson bots, third-party bots and LLMs, whereby humans act as bot managers, overseeing AI-powered conversations and seamlessly stepping into the flow when a personal touch is needed.

Agents become highly efficient, leveraging the AI engine (including generative AI capabilities) to surface relevant content, define next-best actions and take over repetitive transactional work so that the agent can focus on relationship building.

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

Principles of Consolidation

3 unchanged sentences

The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee.

The ability to exercise significant influence is presumed when an investor possesses more than 20.0% of the voting interests of the investee, and conversely, the ability to exercise significant influence is presumed not to exist when an investor possesses 20% or less of the voting interests of the investee.

The ability to exercise significant influence is presumed when an investor possesses 20% or more of the voting interests of the investee, and conversely, the ability to exercise significant influence is presumed not to exist when an investor possesses less than 20% of the voting interests of the investee.

These presumptions may be overcome based on specific facts and circumstances that demonstrate an ability to exercise significant influence is restricted or demonstrate an ability to exercise significant influence notwithstanding a smaller voting interest, such as with the Company’s 19.2 % equity method investment in Claire Holdings, Inc.

(“Claire”), due to the

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s seat on the entity’s board of directors which provides the Company the ability to exert significant influence.

(“Claire”), due to the Company’s seat on the entity’s board of directors which provides the Company the ability to exert significant influence.

In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses.

3 unchanged sentences

Variable Interest Entities

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements include the financial statements of LivePerson, its wholly-owned subsidiaries, and each variable interest entity (“VIE”) for which the Company is the primary beneficiary.

3 unchanged sentences

VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights and a right to receive the expected residual returns of the entity or an obligation to absorb the expected losses of the entity).

Under the provisions of ASC 810, “Consolidation”, an entity consolidates a VIE if it is determined to be the primary beneficiary of the VIE.

Under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation”, an entity consolidates a VIE if it is determined to be the primary beneficiary of the VIE.

The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

2 unchanged sentences

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;

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“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.

Items subject to such estimates and assumptions include:

• stock-based compensation expense;

• accounts receivable;

• allowance for credit losses;

• the period of benefit for deferred contract acquisition costs;

• valuation of goodwill;

• valuation of intangible assets;

• valuation and useful lives of other long-lived assets;

• fair value of assets acquired and liabilities assumed in business combinations;

• income taxes;

• legal contingencies.

• recognition, measurement, and disclosure of contingent liabilities.

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.

1 unchanged sentence

Actual results could differ from those estimates and any such differences may be material to the Company’s consolidated 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, 2022 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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 for 2022, 2021, or 2020.

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.

Financial information is translated from the applicable functional currency to the United States of America (“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 in stockholders’ equity.

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

Cash and Cash Equivalents

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

Cash, Cash Equivalents and Restricted Cash

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, Net

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

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

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

The Company reviews its allowance for doubtful accounts monthly.

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

All other balances are reviewed on a pooled basis.

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

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,

2022 2021 2020

Restricted cash primarily relates to funds held in connection with the divestiture of Kasamba.

See Note 20 – Divestiture for additional information.

Prepaid expenses and other current assets

The following table presents the detail of prepaid expenses and other current assets as of the dates presented:

(In thousands)

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

Additions charged to costs and expenses 5,644 4,879 3,211

Deductions/write-offs ( 2,743 ) ( 3,885 ) ( 1,666 )

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

Balance, end of period $ 9,239 $ 6,338 $ 5,344

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 $ 32.3 million, $ 27.4 million, and $ 22.8 million for the years ended December 31, 2022, 2021, and 2020, respectively.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $ 39.2 million, $ 36.1 million, and $ 33.9 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Other assets $ 8,757 $ 4,196

Prepaid Software Maintenance 8,592 8,508

VAT receivable 4,399 4,155

Prepaid Server Maintenance 2,634 3,988

Prepaid - Other 2,599 2,900

Total prepaid expenses and other current assets $ 26,981 $ 23,747

Goodwill, Intangibles and Other Long-Lived Assets

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 2022, the Company recorded $ 15.5 million of goodwill with the acquisition of WildHealth.

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 three reporting units and has selected September 30 as the date to perform its annual impairment test.

Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

In the valuation of 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.

As of December 31, 2023, our reporting units included Business and WildHealth.

During the fourth quarter of 2023, the Company voluntarily changed its annual goodwill testing date from September 30 to October 1.

The Company believes this change of method of applying the accounting principle is preferable, as it more closely aligns the annual impairment testing date with the most current information from the budgeting and strategic planning process and provides management with sufficient time to complete its annual assessment.

This change will be applied prospectively, as retrospective application would be impracticable.

The Company completed its most recent annual evaluation of impairment as of September 30, 2023 using a quantitative assessment method.

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.

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

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

1 unchanged sentence

The impairment is limited to the carrying amount of goodwill.

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

The Company’s assessment of goodwill impairment as of September 30, 2023, resulted in a noncash impairment of $ 11.9 million of goodwill for its WildHealth reporting unit.

See Note 5 – Goodwill and Other Intangible Assets, Net for additional information.

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”.

1 unchanged sentence

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.

During the year ended December 31, 2023, the Company recognized an immaterial non-cash impairment charge of $ 3.0 million associated with WildHealth developed technology.

See Note 5 – Goodwill and Other Intangible Assets, Net for additional information.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment, Net

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.

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

The Company reviews the estimated useful lives of its fixed assets on an ongoing basis.

Internal-Use Software Development Costs

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.

Management evaluates the useful lives of these assets on an annual basis.

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

The Company reviews for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the asset (or asset group) may not be recoverable.

Events and changes in circumstances considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable, include, but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, and changes in the Company’s business strategy.

Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an “asset group”).

An impairment loss would be recognized when estimated discounted future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition are less than its carrying amount.

Business Combinations

The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

The purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets.

Although the Company believes the assumptions and estimates it has made are reasonable, they are based in part on historical experience, market conditions, and information obtained from management of the acquired companies and are inherently uncertain.

Examples of judgments used to estimate the fair value of intangibles assets include, but are not limited to, future expected cash flows, expected customer attrition rates, estimated obsolescence rates, and discount rates.

These estimates are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

During the measurement period, which is no later than one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statements of operations.

See Note 9 – Acquisitions for additional information.

The Company classifies long-lived assets and liabilities to be disposed of as held for sale in the period in which they are available for immediate sale in their present condition and the sale is probable and expected to be completed within one year.

1 unchanged sentence

When the divestiture represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results, the disposal is presented as a discontinued operation.

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.

No long-lived asset impairment charges have been recorded for the years ended December 31, 2022 and December 31, 2021.

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 $ 10.9 million, $ 45.5 million, and $ 41.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Research and Development

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and development (“R&D”) costs are expensed when incurred, except for certain internal-use software development costs, which may be capitalized as noted above.

R&D expenses consist primarily of personnel and related headcount costs, costs of professional services associated with the ongoing development of the Company’s technology, and allocated overhead.

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.

Compensation related to stock-based awards to employees and directors is measured and recognized in the Company’s consolidated statements of operations based on the fair value of the awards granted.

The Company estimates the fair value of its stock options using the Black Scholes option pricing model.

The stock-based compensation expense relating to stock options is recognized on a straight-line basis over the period during which the employee or director is required to provide service in exchange for the award, usually the vesting period, which is generally three to four years .

Restricted stock units (“RSUs”) are generally subject to a service-based vesting condition over three to four years .

The valuation of these RSUs is based solely on the Company’s stock price on the date of grant, and the corresponding compensation expense is amortized on a straight-line basis.

Performance-Vesting Restricted Stock Units (“PRSUs”) granted are generally subject to both a service-based vesting condition and a performance-based vesting condition.

PRSUs will vest upon the achievement of specified performance targets and subject to continued service through the applicable vesting dates.

The associated compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied.

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

See Note 13 – Stockholders’ Equity for additional information.

We determine if an arrangement is or contains a lease at contract inception.

In certain of our lease arrangements, judgment is required in determining if a contract contains a lease.

For these arrangements, there is judgment in evaluating if the arrangement involves an identified asset that is physically distinct or whether we have the right to substantially all of the capacity of an identified asset that is not physically distinct.

In arrangements that involve an identified asset, there is also judgment in evaluating if we have the right to direct the use of that asset.

Operating leases are recorded in our consolidated balance sheets.

Right-of-use (“ROU”) assets and lease liabilities are measured at the lease commencement date based on the present value of the remaining lease payments over the lease term, determined using the discount rate for the lease at the commencement date.

Because the rate implicit in our leases is not readily determinable, we use our incremental borrowing rate as the discount rate, which approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments and in similar economic environments.

Optional periods to extend the lease, including by not exercising a termination option, are included in the lease term when it is reasonably certain that the option will be exercised.

We account for lease and non-lease components, principally common area maintenance for our facilities leases, as a single lease component.

Variable costs, such as maintenance and utilities based on actual usage, are not included in the measurement of ROU assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs.

The lease expense is recognized on a straight-line basis over the lease term.

Our real estate leases asset class with an initial expected term of 12 months or less (short-term) is not accounted for on our consolidated balance sheets.

Our finance leases are recorded in property and equipment, net in our consolidated balance sheets.

For finance leases, interest expense on the lease liability is recognized based on the incremental borrowing rate and the ROU assets are amortized on a straight-line basis over the shorter of the lease term or the useful life of the ROU assets.

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

2 unchanged sentences

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

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

unrecognized tax benefits in general and administrative expenses.

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 and certain interest expense and penalties, if any, related to unrecognized tax benefits as a component of the income tax provision.

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

3 unchanged sentences

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

Recently Issued Accounting Standards

In June 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions:

to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value.

The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.

Recently Issued Accounting Pronouncements

In December 2023, FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign).

ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes.

The guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

(“ASU”) 2023-09 should be applied on a prospective basis, but retrospective application is permitted.

The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The updated standard is effective for annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026.

Early adoption is permitted.

We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement , which addresses the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements.

The amendments require certain joint ventures to apply a new basis of accounting upon formation by recognizing and initially measuring most of their assets and liabilities at fair value.

The objectives of the amendments are to provide decision-useful information to investors and other allocators of capital in a joint venture’s financial statements and also to reduce diversity in practice.

ASU 2023-05 is effective for both public and private joint venture entities with a formation date on or after January 1, 2025.

Early adoption is permitted.

Entities may elect to apply the guidance retrospectively to joint ventures with a formation date prior to January 1, 2025.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842):

Common Control Arrangements, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control.

Specifically, the ASU:

1) Offers private companies, as well as not-for-profit entities that are not conduit bond obligors, a practical expedient that gives them the option of using the written terms and conditions of a common-control arrangement when determining whether a lease exists and the subsequent accounting for the lease, including the lease’s classification and 2) Amends the accounting for leasehold improvements in common-control arrangements for all entities.

ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted in any annual or interim period as of the beginning of the related fiscal year.

The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.

The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions.

3 unchanged sentences

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years.

The Company does not expect the adoption of ASU 2022-03 to have a significant impact on its consolidated financial statements.

Recently Adopted Accounting Standards

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

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

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

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

The new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation.

The Company adopted the updated guidance as of January 1, 2022, using a modified retrospective method with a cumulative-effect adjustment as of the adoption date.

Comparative periods are not adjusted.

As a result, the Company recognized a $ 50.2 million decrease to accumulated deficit, a $ 209.7 million decrease to additional paid-in capital, and a $ 159.4 million increase to convertible senior notes, net, in connection with the adoption of ASU 2020-06.

The required use of the if-converted method did not impact the diluted net loss per share as the Company was in a net loss position.

See Note 8 – Convertible Senior Notes, Net and Capped Call Transactions for a description of the convertible senior notes, net on the consolidated balance sheet.

With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the year ended December 31, 2022, that are of significance or potential significance to the Company.

The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements and related disclosures.

Revenue Recognition

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The majority of the Company’s revenue is generated from hosted service revenues, which is inclusive of its platform usage pricing model, and related professional services from the sale of the LivePerson services.

The majority of the Company’s revenue is generated from hosted service revenues, which is inclusive of its platform pricing model.

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.

6 unchanged sentences

Total revenue of $ 402.0 million, $ 514.8 million, and $ 469.6 million was recognized during the years ended December 31, 2023, 2022, and 2021, 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, 2022 and 2021 of $ 43.8 million and $ 40.7 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 defers all incremental commission costs to obtain the contract.

These contract acquisition costs, which are comprised of prepaid sales commissions, have balances at December 31, 2023 and 2022 of $ 37.4 million and $ 43.8 million, respectively.

The Company amortizes these costs over the related period of benefit using the customer expected life that the Company determined to be four 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.

None of the Company’s contracts contain a significant financing component.

During the year ended December 31, 2023, we recognized approximately $ 8.9 million of revenue from performance obligations satisfied during the year ended December 31, 2022, in connection with delivery of products and services related to COVID-19 testing.

Refer to Note 15 – Legal Matters for additional details.

Hosted Services Revenue

Hosted services 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 digital customer conversation platform.

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

7 unchanged sentences

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.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Professional Services Revenue

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

Our professional services revenue consists of fees that provide customers with product support and updates during the term of the arrangement, which is typically one year or longer in length, billed;

monthly, quarterly or annually in advance.

Revenue is generally recognized ratably over the contract term.

Our professional services revenue also includes custom support services, which differ from our standard product support.

These professional services revenues are recognized as the services are performed.

Disaggregated Revenue

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

Year Ended December 31,

2023 2022 2021

(In thousands)

Hosted services (1)

$ 332,971 $ 412,467 $ 401,926

Professional services 69,012 102,333 67,698

Total revenue $ 401,983 $ 514,800 $ 469,624

(1) On March 20, 2023, the Company completed the sale of Kasamba and therefore ceased recognizing revenue related to Kasamba effective on the transaction close date.

This sale eliminated the entire Consumer segment, as a result of which revenue is presented within a single consolidated segment.

Hosted services included $ 7.1 million, $ 37.1 million, and $ 37.7 million for the years ended December 31, 2023, 2022, and 2021, respectively, relating to Kasamba.

Remaining Performance Obligation

3 unchanged sentences

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.

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

Contracts with Multiple Performance Obligations

1 unchanged sentence

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 decrease of $ 14.2 million in the deferred revenue balance as of the year ended December 31, 2022 is primarily driven by cash payments received or due in advance of satisfying performance obligations, partially offset by approximately $ 98.3 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2021.

The following table presents deferred revenue by revenue source:

(In thousands)

Hosted services – Business $ 83,561 $ 94,107

Hosted services – Consumer (1)

Professional services – Business 933 3,831

Total deferred revenue - current $ 84,494 $ 98,808

Professional services – Business $ 174 $ 54

Total deferred revenue - non-current $ 174 $ 54

(1) $ 0.8 million was reclassified to liabilities held for sale related to the planned divestiture of Kasamba, Inc.

See Note 20 – Assets Held for Sale for further details.

The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis.

Judgment is required to determine the SSP for each distinct performance obligation.

The Company determines the SSP based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, product offerings and the cloud applications sold.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated Revenue

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

Year Ended December 31,

2022 2021 2020

(In thousands)

Hosted services – Business $ 375,325 $ 364,231 $ 286,588

Hosted services – Consumer 37,142 37,695 29,764

Professional services – Business 102,333 67,698 50,268

Total revenue $ 514,800 $ 469,624 $ 366,620

Revenue by Geographic Location

9 unchanged sentences

62,613 74,298 91,227

APAC 77,445 53,569 39,317

52,446 77,445 53,569

Total revenue $ 401,983 $ 514,800 $ 469,624

1 unchanged sentence

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

(2) Includes revenue from the United Kingdom of $ 55.3 million, $ 56.7 million, and $ 53.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.

and from the Netherlands of $ 6.6 million, $ 4.8 million, and $ 3.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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

(3) Includes revenue from the United Kingdom (“U.K.”) of $ 44.8 million, $ 55.3 million, and $ 56.7 million for the years ended December 31, 2023, 2022, and 2021, respectively, and from the Netherlands of $ 0.8 million, $ 6.6 million, and $ 4.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

(4) Asia-Pacific (“APAC”).

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 .

The deferred revenue balance consists of services, which have been invoiced upfront, and are recognized as revenue only when the revenue recognition criteria are met.

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

1 unchanged sentence

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.

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

The Company recognized revenue of $ 86.8 million and $ 98.3 million for the fiscal years ended December 31, 2023 and 2022, respectively, which was included in the corresponding contract liability balance at the beginning of the year.

The deferred revenue balance consists of services, which have been invoiced upfront, and are recognized as revenue only when the revenue recognition criteria are met.

Our long-term deferred revenues are included in Other liabilities on the consolidated balance sheets.

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

Ending balance as of December 31, 2023 $ 60,382 $ 21,420 $ 37,354 $ 81,858 $ 183

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense in connection with contract acquisition cost was approximately $ 27.6 million and $ 36.4 million for the years ended December 31, 2023 and 2022, respectively.

Accounts Receivable, Net

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

The allowance for credit losses is the Company’s best estimat e of the amount of probable credit losses in the Company’s existing accounts receivable, based on historical write-off experience.

The Company reviews its allowance for credit losses 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.

We maintain general reserves on a collective basis by considering factors such as historical experience, creditworthiness, the age of the trade receivable balances, and current econom ic conditions.

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 credit loss is as follows:

2023 2022 2021

(In thousands)

Balance, beginning of year $ 9,239 $ 6,338 $ 5,344

Additions charged to costs and expenses 3,319 5,644 4,879

Deductions/write-offs ( 3,268 ) ( 2,743 ) ( 3,885 )

Balance, end of year $ 9,290 $ 9,239 $ 6,338

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.

Diluted EPS is calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period.

Potentially dilutive securities consist of common stock options, restricted stock units, contingently issuable shares and convertible securities.

The dilutive effect of stock options, restricted stock units and contingently issuable shares is reflected in diluted EPS by application of the treasury stock method.

The dilutive effect of convertible securities is reflected in the diluted EPS by application of the “if-converted” method.

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

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

In applying the “if-converted” method for diluted EPS, the Company would assume conversion of the 0.750 % Convertible Senior Notes due 2024 (“2024 Notes”) at a ratio of 25.9182 shares of its common stock per $1,000 principal amount of the 2024 Notes.

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

Assumed converted shares of the Company’s common stock are weighted for the period the 2024 Notes and 2026 Notes (collectively, 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 years ended December 31, 2022 and 2021.

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

Basic and diluted earnings per common share are calculated for the years ended December 31, 2022, 2021, and 2020, were as follows:

Assumed converted shares of the Company’s common stock are weighted for the period the Notes were outstanding.

See Note 8 – Convertible Senior Notes, Net of Current Portion and Capped Call Transactions for additional information about the Notes.

Reconc iliation of shares used in calculating basic and diluted EPS for the years ended December 31, 2023, 2022, and 2021, were as follows:

Year Ended December 31,

3 unchanged sentences

Net loss per share, basic and diluted $ ( 1.28 ) $ ( 3.03 ) $ ( 1.80 )

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 4,459,324 4,782,487

During the third quarter of 2023, the Company reached settlement agreements regarding the final portions of the VoiceBase and Tenfold earn-outs for approximately $ 15.0 million and $ 13.0 million, respectively.

These settlements were paid in shares during the year ended December 31, 2023.

Additionally, during the fourth quarter of 2023, the Company reached a settlement agreement regarding the eBot-7 earn-out for approximately $ 8.0 million, which was paid in shares during the year ended December 31, 2023.

The assumed conversion of the earn-out settlements would have no impact on the basic and diluted

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EPS as presented in the table above.

Further, the following securities were excluded from the computation of diluted EPS for the years ended December 31, 2023 and 2022, as their effect would have been anti-dilutive:

Year Ended December 31,

2023 2022 2021

Shares subject to outstanding common stock options and ESPP

3,186,322 4,459,324 4,782,487

Restricted stock units 5,064,047 5,234,733 3,732,013

Fair Value of Earnouts 12,049,211 1,150,504

Earn-outs — 12,049,211 1,150,504

Conversion option of the 2024 Notes 1,878,862 5,961,186 5,961,186

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

34,583,737 22,505,473

Total 17,008,514 34,583,737 22,505,473

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.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 was previously organized into two operating segments for purposes of making operating decisions and assessing performance.

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

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

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

The chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income of each segment.

The reporting segments follow the same accounting policies 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 CODM, follows:

Year Ended December 31, 2022

Business Consumer Corporate Consolidated

(In thousands)

Hosted services – Business $ 375,325 $ — $ — $ 375,325

Hosted services – Consumer — 37,142 — 37,142

Professional services – Business 102,333 — — 102,333

Total revenue 477,658 37,142 — 514,800

Cost of revenue 179,295 5,404 — 184,699

Sales and marketing 187,932 26,095 — 214,027

Amortization of purchased intangibles 3,678 — — 3,678

Unallocated corporate expenses — — 334,280 334,280

Operating income (loss) $ 106,753 $ 5,643 $ ( 334,280 ) $ ( 221,884 )

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 )

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

During the first quarter of 2023, the Consumer segment (consisting solely of the Kasamba business) was divested.

As a result, the divestiture of Kasamba eliminated the Company’s Consumer segment.

See Note 20 – Divestiture for additional information.

Subsequent to the divestiture of Kasamba, the chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, evaluates performance, makes operating decisions, and allocates resources based on the financial information presented on a consolidated basis.

Accordingly, management has determined that the Company operates as one operating and reportable segment.

Geographic Information

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

The following table presents the Company’s long-lived assets by geographic region as of the dates presented:

The following table presents the Company’s long-lived assets by geographic region as of the dates set forth below:

(In thousands)

7 unchanged sentences

——————————————

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

(1) U.K., Japan, France, Italy, Spain, Canada, and Singapore.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill and Intangible Assets, Net

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

Business Consumer Total

The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 are as follows:

(In thousands)

2 unchanged sentences

Acquisitions 15,511

Foreign exchange adjustments ( 2,488 ) — ( 2,488 )

Foreign exchange adjustment ( 2,488 )

Goodwill reclassified to assets held for sale ( 8,024 )

Balance as of December 31, 2022 $ 296,214

Adjustments to goodwill:

Goodwill impairment (1)

Foreign exchange adjustment 1,312

Balance as of December 31, 2023 $ 285,631

(1) The amount represents the entire accumulated goodwill impairment balance as of December 31, 2023.

The income approach uses a discounted cash flow model that reflects management assumptions regarding revenue growth rates, operating margins, risk-adjusted discount rate, terminal period growth rate, economic and market trends and other expectations about the anticipated operating results of the reporting units.

Under the market approach, the fair value is estimated based on market multiples of revenues derived from comparable publicly traded companies with operating characteristics similar to the reporting units.

As a result of the Company’s annual goodwill impairment test in the third quarter of 2023, the Company recorded a no n-cash impairment charge of $ 11.9 million in th e consolidated statements of operations during the year ended December 31, 2023 , to recognize the im pairment of goodwill in the WildHealth reporting unit.

This conclusion was primarily based upon slower growth in existing revenue streams and strategic decisions to reduce or eliminate investment in new and existing revenue streams previously planned for expansion.

The Company’s latest available financial forecasts at the time of the annual goodwill impairment test reflected lower cash flows than previously projected related to the WildHealth reporting unit.

There were no impairments in the Company’s Business reporting unit, as the fair value of this reporting unit substantially exceeded its carrying value.

In connection with the divestiture of Kasamba under the Consumer segment, the Company recorded a reduction to its goodwill of $ 8.0 million during the year ended December 31, 2022.

See Note 20 – Divestiture for additional information.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

No impairment was recognized for the years ended December 31, 2022, 2021, and 2020.

Intangible Assets, Net

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

Intangible assets, net are summarized as follows:

December 31, 2023

22 unchanged sentences

Total $ 143,930 $ ( 65,827 ) $ 78,103

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

Aggregate amortization expense for intangible assets and finance leases, net was $ 22.2 million, $ 22.1 million, and $ 9.3 million for the years ended December 31, 2023, 2022, and 2021, respectively, and a portion of this amortization was included in cost of revenue in the consolidated statements of operations.

Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable and the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows that are expected to result from the use of the asset.

As a result of our impairment test in the third quarter of 2023 , the Company recognized an immaterial non-cash impairment charge of $ 3.0 million included in the impairment of intangibles and other assets in the consolidated statements of operations, related to our intangible assets – developed technology associated with WildHealth, due to updated forecasts as discussed above.

The fair value of these intangible assets as of September 30, 2023 was estimated using a relief from royalty method.

A terminal multiple was applied on an assumed sale of the asset group subsequent to the life of the primary asset.

There were no impairments of intangible assets during the year ended December 31, 2022.

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 $ 18.4 million, $ 5.6 million, and $ 2.8 million for the years ended December 31, 2022, 2021, and 2020, respectively, and a portion of this amortization was included in cost of revenue in the consolidated statements of operations.

As of December 31, 2023, estimated annual amortization expense for the next five years and thereafter is as follows:

5 unchanged sentences

Property and Equipment, Net

The following table presents the detail of property and equipment as of the dates presented:

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.

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

The Company reviews the estimated useful lives of its fixed assets on an ongoing basis.

The following table presents the detail of property and equipment as follows:

Useful Life (Years) 2023 2022

(In thousands)

Computer equipment and software $ 128,206 $ 120,685

Computer equipment and software 3 to 5

$ 123,580 $ 128,206

Internal-use software development costs 5 181,079 161,633

Finance lease right-of-use assets 2 3,060 3,083

Furniture, equipment and building improvements 506 258

Furniture, equipment and building improvements The lesser of 5 or estimated useful life

Property and equipment, at cost 308,046 293,428

Less accumulated depreciation ( 155,706 ) ( 125,493 )

accumulated depreciation ( 188,721 ) ( 155,706 )

Property and equipment, net

1 unchanged sentence

Less assets held for sale (Note 20) — ( 11,223 )

Property and equipment, net $ 126,499 $ —

(1) As of December 31, 2022, property and equipment, net includes Assets held for sale of $ 11.2 million, which consists of the Company’s consumer segment, as further described in Note 20 – Assets Held for Sale.

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

As of December 31, 2022 and 2021, there was approximately $ 39.2 million and $ 36.1 million, respectively, of internal-use software development costs related to projects currently still in development, which are, therefore, not yet subject to amortization.

Total Property and equipment, net $ 119,325 $ 126,499

Aggregate depreciation and amortization expense for property and equipment was $ 32.6 million, $ 32.3 million, and $ 27.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Expenditures for routine maintenance and repairs are charged to operating expense as incurred.

Major renewals and improvements are capitalized and depreciated over their estimated useful lives.

During the fourth quarter ended December 31, 2023, the Company recorded a noncash impairment charge of $ 5.0 million related to capitalized software development costs.

The impairment charges were included in the consolidated statements of operations for the year ended December 31, 2023.

These impairment charges pertained to internal projects that were discontinued and had no future economic benefit.

There were no impairments of property and equipment during the year ended December 31, 2022.

LIVEPERSON, INC.

3 unchanged sentences

(In thousands)

Professional services, consulting and other vendor fees $ 51,067 $ 58,811

Professional services and consulting and other vendor fees $ 67,585 $ 51,067

Payroll and other employee-related costs 20,767 19,182

Short-term contingent earn-out 47,819 —

Financing lease liability 3,037 2,569

Restructuring 2,076 803

Sales commissions 734 4,402

Financing lease liability (Note 10)

Unrecognized tax benefits 2,196 2,424

Restructuring (Note 14)

Taxes other than income tax 1,148 918

Non-Income tax 556 1,148

Short-term contingent earn-out — 47,819

Other 2,269 2,254

Accrued expenses and other current liabilities $ 131,440 $ 104,297

Convertible Senior Notes, Net and Capped Call Transactions

Total accrued expenses and other current liabilities $ 97,024 $ 129,244

Convertible Senior Notes, Net of Current Portion 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 2024 Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional 2024 Notes.

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

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.

Interest on the 2024 Notes is payable semi-annually in arrears on March 1 and September 1 of each year.

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.

The total net proceeds from the offering of the 2024 Notes, after deducting debt issuance costs, 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.

3 unchanged sentences

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

2 unchanged sentences

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.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 twelve months ended December 31, 2022, the conditions allowing holders of the 2024 Notes to convert were not met.

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

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

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

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

During a portion of the year ended December 31, 2023, the conditions allowing holders of the 2024 Notes to convert were met.

The 2024 Notes are senior unsecured obligations of the Company.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2024 Notes into liability and equity components.

8 unchanged sentences

This accounting treatment no longer applies under ASU 2020-06.

In accounting for the 2024 Notes after the adoption of ASU 2020-06, the 2024 Notes are accounted for as a single liability, and the carrying amount of the 2024 Notes is $ 227.9 million as of December 31, 2022 , consisting of principal of $ 230.0 million, net of unamortized debt issuance costs of $ 2.1 million .

The 2024 Notes were classified as long term liabilities as of December 31, 2022.

The remaining term ov er which the 2024 Notes’ debt issuance costs will be amortized is 1.2 years.

The effective interest rate on the debt was 1.53 % for the year ended December 31, 2022.

As a result of the adoption of ASU 2020-06, the 2024 Notes are accounted for as a single liability, and the carrying amount of the 2024 Notes, after giving effect to the March 2023 repurchases described below, is $ 72.4 million as of December 31, 2023 , consisting of principal of $ 72.5 million, net of unamortized debt issuance costs of $ 0.1 million .

The 2024 Notes were classified as short-term liabilities in the accompanying consolidated balance sheet as of December 31, 2023.

The remaining term ov er which the 2024 Notes’ debt issuance costs will be amortized is 0.2 years at an effective interest rate of 1.57 % for the year ended December 31, 2023.

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

5 unchanged sentences

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

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 sheets.

On March 21, 2023, the Company entered into individual privately negotiated transactions (the “Note Repurchase Agreements”) with certain holders of its 2024 Notes, pursuant to which the Company agreed to pay an aggregate of approximately $ 149.7 million in cash for the repurchase of approximately $ 157.5 million in aggregate principal amount of the 2024 Notes (the “Note Repurchases”).

A s of December 31, 2023 , t he Company recognized a $ 7.2 million gain, net of transaction costs of $ 0.5 million on debt extinguishment, which represented the difference between the carrying value and the fair value of the 2024 Notes just prior to Note Repurchases.

Upon completion of the Note Repurchases, the aggregate principal amount of the 2024 Notes was reduced by $ 157.5 million to $ 72.5 million and the carrying amount of the 2024 Notes reduced by $ 228.3 million to $ 72.0 million.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

corresponding portion of the 2024 capped calls were terminated in connection following the Note Repurchases as required by their terms for minimal consideration.

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.

In December 2020, the Company issued $ 517.5 million aggregate principal amount of its 0 % Convertible Senior Notes due 2026 (the “2026 Notes” and together with the 2024 Notes, the “Notes”) in a private placement.

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.

The total net proceeds from the offering of the 2026 Notes, after deducting debt issuance costs, 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.

11 unchanged sentences

During the twelve months ended December 31, 2023, 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.

The 2026 Notes are senior unsecured obligations of the Company.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2026 Notes into liability and equity components.

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

The carrying amount of the equity component representing the conversion option was $ 162.5 million and was determined by deducting the fair value of the liability component from the par

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

value of the 2026 Notes.

The carrying amount of the equity component representing the conversion option was $ 162.5 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes.

The equity component was not remeasured as long as it continued to meet the conditions for equity classification.

2 unchanged sentences

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total amount of issuance costs incurred of approximately $ 12.2 million to the liability and equity components of the 2026 Notes based on the proportion of the proceeds allocated to the debt and equity components.

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

Issuance costs attributable to the liability component were approximately

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$ 8.5 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes.

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

This accounting treatment no longer applies under ASU 2020-06.

In accounting for the 2026 Notes after the adoption of ASU 2020-06, the 2026 Notes are accounted for as a single liability, and the carrying amount of the 2026 Notes is $ 509.5 million as of December 31, 2022 , consisting of principal of $ 517.5 million, net of unamortized debt issuance costs of $ 8.0 million .

The 2026 Notes were classified as long term liabilities as of December 31, 2022.

The remaining term over which the 2026 Notes’ debt issuance costs will be amortized is 3.9 years.

The effective interest rate on the debt was 0.40 % for the year ended December 31, 2022.

As a result of the adoption of ASU 2020-06, the 2026 Notes are accounted for as a single liability, and the carrying amount of the 2026 Notes is $ 511.5 million as of December 31, 2023 , consisting of principal of $ 517.5 million, net of unamortized issuance costs of $ 6.0 million .

The 2026 Notes were classified as long-term liabilities in the accompanying consolidated balance sheets as of December 31, 2023.

The remaining term over which the 2026 Notes’ debt issuance costs will be amortized is 2.9 years at an effective interest rate on the debt was 0.40 % for the year ended December 31, 2023.

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

8 unchanged sentences

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

The net carrying amount of the liability component of the Notes as of December 31, 2022 (post-ASU 2020-06 adoption) and as of December 31, 2021 (pre-ASU 2020-06 adoption) was as follows:

Unamortized debt issuance costs incurred in connection with securing the Company’s financing arrangements are presented in the consolidated balance sheets as a direct deduction from the carrying amount of the outstanding borrowings, consistent with debt discounts.

All deferred financing costs are amortized to interest expense.

The net carrying amount of the liability component of the Notes as of December 31, 2023 and 2022 was as follows:

(In thousands)

Principal $ 589,992 $ 747,500

Unamortized discount — ( 162,960 )

Unamortized issuance costs ( 6,034 ) ( 10,077 )

Net carrying amount $ 737,423 $ 574,238

The net carrying amount of the equity component of the Notes as of December 31, 2022 (post-ASU 2020-06 adoption) and as of December 31, 2021 (pre-ASU 2020-06 adoption) was as follows:

(In thousands)

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

Issuance costs — ( 5,783 )

Net carrying amount $ — $ 209,651

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total net carrying value 583,958 737,423

Short-term debt, net 72,393 —

Long-term debt, net $ 511,565 $ 737,423

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

3 unchanged sentences

Contractual interest expense $ 839 $ 1,725 $ 1,725

Amortization of issuance costs 3,778 2,499 1,340

Amortization of debt issuance costs 4,043 3,778 2,499

Amortization of debt discount — — 33,309

1 unchanged sentence

Interest expense of $ 4.9 million, $ 5.5 million, and $ 37.5 million is reflected as a component of interest expense, net in the accompanying consolidated statement of operations for the years ended December 31, 2023, 2022, and 2021, respectively.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In February 2022, the Company completed the acquisition of 100 % of the equity of WildHealth, Inc.

(“WildHealth”), which leverages advanced machine learning to combine DNA analysis, biometrics, microbiome testing and phenotypic data to provide people with a blueprint for truly optimized health and a maximized health span, for a total purchase price of $ 22.3 million.

(“WildHealth”), a precision medicine company operating in the United States, for a total purchase price of $ 22.3 million.

The purchase price consisted of approximately $ 4.6 million in cash and $ 17.7 million in shares of common stock of the Company.

As part of the purchase price, the Company issued 776,825 common shares that had a total fair value of $ 20.8 million based on the closing market price of $ 26.81 on the acquisition date of February 7, 2022.

This acquisition is part of the Company’s strategy to accelerate its technology-driven healthcare offerings by combining a rich healthcare data platform with Conversational AI to enable B2B healthcare brands to scale and personalize patient engagement.

As part of the purchase price, the Company issued 776,825 common shares that had a total fair value of $ 20.8 million based on the closing market price of $ 26.81 per share on the acquisition date of February 7, 2022.

The transaction was accounted for as a business combination.

In connection with the acquisition, the Company entered into stock forfeiture agreements with certain employees of WildHealth, under which a portion of the purchase price will be subject to vesting conditions based on continuing employment post acquisition.

The Company has allocated the purchase consideration subject to the stock forfeiture agreements between pre and post combination periods.

Former stockholders of WildHealth have the right to receive in the aggregate up to an additional $ 120.0 million earn-out (to be settled in the Company’s equity or cash at the Company’s election, but with the cash election restricted to 18.0 percent of the total earn-out) based upon satisfaction of certain financial milestones over the period from October 31, 2022 through December 31, 2025.

The Company has accounted for the earn-out as a compensation arrangement in accordance with ASC 718, “Compensation - Stock Compensation,” pursuant to which such earn-out payments are liability classified to be recognized over the requisite service periods.

For the earn-outs, the Company accrued $ 42.2 million for the twelve months ended December 31, 2022 , which is reflected as a component of Other liabilities and accrued expenses and Other current liabilities in the accompanying consolidated balance sheets and as a component of stock-based compensation expense in the accompanying consolidated statements of operations.

The purchase price allocation resulted in approximately $ 15.5 million of goodwill and $ 8.3 million of intangible assets.

In connection with the acquisition, the Company entered into stock forfeiture agreements with certain employees of WildHealth, under which a portion of the purchase price would be subject to vesting conditions based on continuing employment post acquisition.

The Company allocated the purchase consideration subject to the stock forfeiture agreements between pre and post combination periods.

The purchase price allocation resulted in approximately $ 15.5 million of goodwill, $ 8.3 million of intangible assets and net liabilities assumed of $ 1.5 million.

WildHealth is part of the Business segment and is a separate reporting unit.

Goodwill is primarily attributed to synergies from future expected economic benefits, including enhanced revenue growth from expanded capabilities.

The goodwill will not be deductible for tax purposes.

The goodwill was not deductible for tax purposes.

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

A deferred tax liability for the identified intangibles has been recorded for $ 1.6 million.

The Company recorded an indemnification asset of $ 1.2 million relating to a pre-acquisition liability assumed.

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WildHealth Acquisition

(In thousands)

Assets acquired:

Other current assets

Intangible assets

Total a ssets acquired

Liabilities assumed:

Current liabilities assumed

Deferred tax liabilities

Other liabilities assumed

Total liabilities assumed

Net assets acquired

Total acquisition consideration

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

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

The following summarizes the intangible assets acquired by category:

A deferred tax liability for the identified intangibles has been recorded for $ 1.6 million and an indemnification asset of $ 1.2 million relating to a pre-acquisition liability assumed as of December 31, 2022.

The following table sets forth the fair value of the identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):

Fair Value Useful life

5 unchanged sentences

Total amortizing intangible assets $ 8,300

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

The intangible assets acquired in the business acquisition were developed technology, trade name, and fellowship content for the fair value of $ 8.3 million, determined based on the estimated fair value of expected after-tax cash flows attributable to annual recurring revenue from customers.

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

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

The Company began amortizing the intangible assets on the date of acquisition over a period of five years based on expected future cash flow.

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

The Company incurre d $ 2.0 million i n acquisition costs related to the WildHealth transaction that was expensed in the period incurred, of which $ 0.4 million was expensed for the twelve months ended December 31, 2022 , a nd is included in general and administrative expense in the accompanying consolidated statements of operations.

Pro Forma Financial Information

The following unaudited pro forma information presents the combined results of operations as if the acquisition of WildHealth had been completed as of the beginning of the Company’s fiscal year 2021.

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.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 this company.

For pro forma purposes, 2022 earnings were adjusted to exclude acquisition-related costs, and 2021 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 $ 515,035 $ 472,626

Net Loss $ ( 224,773 ) $ ( 132,994 )

The amount of revenue and net loss of the WildHealth acquisition included in the Company’s consolidated statement of operations from the acquisition date to December 31, 2022 was $ 9.9 million and $ 23.4 million, respectively.

In July 2021, the Company acquired e-bot7 GmbH (“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 $ 8.3 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 throughout the earning period.

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 $ 1.0 million of the current fair value of the earn-out of $ 8.3 million.

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

The Company incurred $ 0.04 million in acquisition costs related to the e-bot7 transaction that was expensed for the year ended December 31, 2022 and is 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.

In October 2021, the Company acquired Callinize Inc., dba Tenfold (“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.

The 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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

is $ 7.2 million, of which $ 2.0 million payable in common stock of the Company is being treated as compensation expense over the earning period.

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, the Company 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.

In October 2021, the Company acquired VoiceBase, Inc.

(“VoiceBase”), a leader in real-time speech recognition and 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, $ 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 $ 17.3 million, of which $ 6.0 million payable in common stock of the Company is being treated as compensation expense over the earning period.

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 16, 2022.

These payments were made in 2022, in accordance with the agreement.

As part of the acquisition, the Company 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, the Company registered 16,322,217 vested shares and 5,167,530 unvested shares under the VoiceBase Stock Plan.

We estimated 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.

Based on our 2023 annual goodwill impairment test, the Company recorded a non-cash impairment charge of $ 11.9 million in our consolidated statements of operations, representing a portion of goodwill related to the WildHealth reporting unit.

Additionally, based on the impairment test in the third quarter of 2023 , the Company recognized an immaterial non-cash impairment charge of $ 3.0 million included in the cost of revenue in the consolidated statements of operations, related to our intangible assets – developed technology associated with WildHealth.

See Note 5 – Goodwill and Intangible Assets, Net for additional information.

Additionally, former stockholders of WildHealth had the right to receive in the aggregate up to an additional $ 120.0 million earn-out (to be settled in the Company’s equity or cash at the Company’s election, but with the cash election restricted to 18.0 percent of the total earn-out) based upon satisfaction of certain financial milestones over the period from October 31, 2022 through December 31, 2025.

The Company accounted for the earn-out as a compensation arrangement in accordance with ASC 718, “Compensation - Stock Compensation,” pursuant to which such earn-out payments are classified as liability awards to be recognized over the requisite service periods.

On May 30, 2023, the Company and stockholders of WildHealth agreed to amend the terms of the merger agreement with respect to certain contingent potential earn-out payments under the agreement.

Pursuant to the amended terms, in full satisfaction of all potential earn-out payments under the merger agreement, the parties agreed that the Company would pay (a) a lump sum cash payment of $ 12.0 million, less applicable withholding taxes to pre-acquisition stockholders, and (b) in the event of a future direct or indirect sale of WildHealth on or before May 30, 2033, the former WildHealth stockholders will receive an additional cash payment equal to 30 % of the then-current equity value of WildHealth less all applicable escrows and closing payments and costs, up to a maximum payment of $ 23.0 million.

On May 31, 2023, the Company made the lump sum payment of $ 12.0 million in connection with the settlement and reversed the preexisting accrued stock-based compensation of $ 40.2 million.

As of December 31, 2023, there is no remaining

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has operating and finance leases for its corporate offices and other service agreements.

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

For leases with a lease term greater than 12 months, right-of-use assets (“ROU assets”) and lease liabilities are recognized on the consolidated balance sheets at the commencement date based on the present value of the remaining fixed lease payments and includes only payments that are fixed and determinable at the time of commencement.

In connection with the leases, the Company recognized operating lease right-of-use assets of $ 1.6 million and $ 2.0 million and an aggregate lease liability of $ 2.8 million and $ 6.1 million as of December 31, 2022 and December 31, 2021, 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.

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

During 2022, the Company had a $ 0.2 million gain resulting from the settlement of leases, compared to a $ 3.5 million gain for 2021.

As of December 31, 2022, due to a dispute in connection 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 $ 0.2 million at December 31, 2022 and 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, which is also recorded as restricted cash in Prepaid expenses and other current assets in the consolidated balance sheets as of December 31, 2022 and 2021.

earn-out liability related to WildHealth.

The contingent cash settlement feature was deemed not probable as of December 31, 2023 and, therefore, the award was not recorded as a liability.

The Company has non-cancelable operating and finance leases for its corporate offices and other service agreements.

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

The Company uses the non-cancelable lease term when recognizing the ROU assets and lease liabilities, unless it is reasonably certain that a renewal or termination option will be exercised.

The Company continues to actively assess its global lease portfolio.

17 unchanged sentences

Total lease cost $ 15,296 $ 15,218 $ 12,992

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2023 December 31,

5 unchanged sentences

Finance leases 7 % 4 %

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental balance sheet information related to leases is as follows:

4 unchanged sentences

Finance ROU assets Property and equipment, net 3,060 3,083

Current liabilities:

Operating lease liability Operating lease liability $ 2,160 $ 3,380

Finance lease liability Accrued expenses and other current liabilities 2,569 3,738

Non-current liabilities:

Operating lease liability Operating lease liability, net of current portion 682 2,733

Finance lease liability Other liabilities 191 2,780

Operating lease liabilities Operating lease liability $ 2,719 $ 2,160

Finance lease liabilities Accrued expenses and other current liabilities 3,037 2,569

Operating lease liabilities Operating lease liability, net of current portion 2,173 682

Finance lease liabilities Other liabilities 85 191

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

3 unchanged sentences

2024 $ 3,058 $ 3,120

Thereafter — —

2025 1,705 87

Total minimum lease payments 5,369 3,207

3 unchanged sentences

Fair Value Measurements

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

6 unchanged sentences

quoted prices for similar assets or liabilities in active markets;

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

inputs other than quoted prices that are observable for the assets

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or liabilities;

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

10 unchanged sentences

Total assets $ 174,701 $ — $ — $ 174,701

Earn-outs treated as contingent consideration $ — $ — $ 20,722 $ 20,722

Earn-outs treated as liability awards $ — $ — $ 51,499 $ 51,499

Total liabilities $ — $ — $ 72,221 $ 72,221

December 31, 2022

4 unchanged sentences

Total assets $ 308,295 $ — $ — $ 308,295

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

Earn-outs treated as contingent consideration $ — $ — $ 20,722 $ 20,722

Earn-outs treated as liability awards — — 51,499 51,499

Total liabilities $ — $ — $ 72,221 $ 72,221

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

1 unchanged sentence

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.

During 2022, the unobservable inputs used for valuation of the earn-outs primarily included asset volatility, revenue volatility, weighted-average cost of capital and market price of risk for revenue.

For 2023, the fair value was based on the negotiated contracts with the selling shareholders.

Significant changes in unobservable inputs could result in significantly lower or higher fair value measurements.

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

2 unchanged sentences

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

As of December 31, 2022, the fair value of the 2024 Notes and 2026 Notes, as further described in Note 8 – Convertible Senior Notes, Net and Capped Call Transactions above, was approximately $ 512.9 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

The estimated fair value of outstanding balances of our 2024 Notes and 2026 Notes are as follows:

Fair Value Principal

Balance Unamortized Issuance Costs

(In thousands)

December 31, 2023

2024 and 2026 Notes 2 $ 435,883 $ 589,992 $ ( 6,034 ) $ 583,958

December 31, 2022

2024 and 2026 Notes 2 $ 512,900 $ 747,500 $ ( 10,077 ) $ 737,423

Management determines the fair value by using Level 2 inputs based on antithetic variable technique done by an independent valuation specialist.

Refer to Note 8 – Convertible Senior Notes, Net of Current Portion and Capped Call Transactions for additional information.

The changes in fair value of the Level 3 liabilities are as follows:

6 unchanged sentences

Balance, end of year $ — $ 72,221

Certain former stakeholders of the Company’s acquisitions are eligible to receive additional cash or share considerations based on the attainment of certain operating metrics in the periods subsequent to the acquisitions of e-bot7, Tenfold and VoiceBase.

These earn-out arrangements are accounted for as either contingent considerations arrangements or compensation arrangements.

Contingent considerations are fair valued using significant inputs that are not observable in the market.

The earn-outs determined to be compensatory are remeasured each reporting period based on whether the performance targets are probable of being achieved and recognized over the related service periods.

For the year ended December 31, 2022, the Company recognized $ 49.3 million as a component of stock-based compensation expense in the accompanying consolidated statements of operations.

As of December 31, 2021, the Company recognized $ 2.2 million as a component of stock based compensation expense.

Certain former stakeholders of the Company’s acquisitions were eligible to receive additional cash or share considerations based on the attainment of certain operating metrics in the periods subsequent to the acquisitions of e-bot7, Tenfold and VoiceBase.

These earn-out arrangements were accounted for as either contingent considerations arrangements or compensation arrangements.

Contingent considerations were fair valued using significant inputs that are not observable in the market.

The earn-outs determined to be compensatory were remeasured each reporting period based on whether the performance targets were probable of being achieved and recognized over the related service periods.

During the year ended December 31, 2023, the Company settled the VoiceBase, Tenfold and e-Bot7 earn-outs for approximately $ 19.9 million, $ 9.3 million, and $ 7.7 million, respectively.

During the year ended December 31, 2023, the Company paid approximately $ 12.0 million in connection with the WildHealth settlement.

R efer to Note 9 – Acquisitions for additional information.

Changes to the fair value of the earnouts were recognized as a component of stock-based compensation expense and other income (expense), net in the accompanying consolidated statements of operations.

Payments in cash were recognized as a component of compensation expense and payments in stock were recognized as a component of equity in the accompanying consolidated statements of operations.

The carrying value of earnout liabilities are recorded in accrued expenses and other current liabilities and other liabilities as of December 31, 2022 in the accompanying consolidated balance sheet.

There were no outstanding earnout liabilities as of December 31, 2023.

Commitments and Contingencies

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee Benefit Plans

2 unchanged sentences

Furthermore, the match is immediately vested.

Total Company matching contributions were $ 5.4 million, $ 3.7 million, and $ 3.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Salaries and related expenses include $ 3.8 million, $ 5.4 million, and $ 3.7 million of employer matching contributions for the years ended December 31, 2023, 2022, and 2021, respectively.

Letters of Credit

As of December 31, 2023, the Company had letters of credit totaling $ 1.1 million outstanding as a security deposit for the due performance by the Company of the terms and conditions of a supply contract.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Indemnifications

7 unchanged sentences

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, 2022, there is a $ 1.1 million accrual balance for sales tax liabilities.

The decrease in the balance of this accrual is primarily due to payments made for the sales tax liabilities.

The Company is subject to sales tax liabilities, plus applicable interest, for states in which it has an economic nexus.

As of December 31, 2023, there is a $ 0.5 million accrual balance for sales tax liabilities included within the consolidated balance sheets.

Contractual obligations

Our purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business.

The Company has purchase obligation agreements primarily relating to contracts with vendors in connection with Information Technology (“IT”) infrastructure and cloud computing-related services with remaining terms of 2 years or less.

The Company’s non-cancellable unconditional purchase obligation in connection with these arrangements is approximately $ 21.3 million for 2024 and $ 14.7 million for 2025.

Stockholders’ Equity

As December 31, 2022, there were 200,000,000 shares of common stock authorized, and 78,350,984 and 75,584,911 shares issued and outstanding, respectively.

As of 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, 2023, there were 200,000,000 shares of common stock authorized, 90,603,519 shares issued, and 87,837,446 shares outstanding.

As of December 31, 2022, there were 200,000,000 shares of common stock authorized, 78,350,984 shares issued, and 75,584,911 shares outstanding.

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

Preferred Stock

As of December 31, 2022 and 2021, there were 5,000,000 shares of preferred stock authorized, and zero shares issued and outstanding.

As of December 31, 2023 and 2022, there were 5,000,000 shares of preferred stock authorized, and no shares were issued or outstanding.

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

2 unchanged sentences

Stock-Based Compensation

The Company’s stock-based compensation generally includes stock options, restricted stock units (“RSUs”), performance-vesting restricted stock units (“PRSUs”), and purchases under the Company’s 2019 Employee Stock Purchase Plan.

Stock-based compensation expense related to RSUs is based on the market value of the underlying stock on the date of grant and the related expense is recognized ratably over the requisite service period.

2 unchanged sentences

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 RSUs 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.

The Company’s 2019 Stock Incentive Plan became effective on April 11, 2019.

The 2019 Stock Incentive Plan, as amended and restated, 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.

The number of shares authorized for issuance as of December 31, 2023 was 42,367,744 shares in the aggregate.

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

As of December 31, 2023, approximately 1.3 million shares of common stock remained available for issuance (taking into account all option exercises and other equity award settlements through December 31, 2023).

At the Company’s annual meeting on October 5, 2023, the stockholders of the Company approved an amendment to increase the number of shares available for issuance thereunder by 2,300,000 shares.

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, 2022, approximately 0.4 million shares of common stock remained available for issuance under the 2019 Employee Stock Purchase Plan (taking into account all share purchases through December 31, 2022).

As of December 31, 2023, there were 2,000,000 shares authorized and reserved for issuance under the 2019 ESPP.

As of December 31, 2023, approximately 1.0 million shares of common stock remained available for issuance under the ESPP (taking into account all share purchases through December 31, 2023).

At the Company’s annual meeting on October 5, 2023, the stockholders of the Company approved an amendment of the ESPP to increase the number of shares available for issuance thereunder by 1,000,000 shares.

Inducement Plan

6 unchanged sentences

A summary of the Company’s stock option activity and weighted average exercise prices follows:

Stock Option Activity

(In thousands) Weighted

Exercise Price Weighted Average Remaining Contractual Term

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, 2020 4,332 $ 19.78

19 unchanged sentences

Options exercisable at December 31, 2023 2,643 $ 21.67 4.20 $ 40

The total fair value of stock options exercised during the years ended December 31, 2022 and 2021 was approximately $ 11.3 million and $ 6.6 million, respectively.

The total fair value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was approximately $ 3.4 million, $ 11.3 million and $ 6.6 million, respectively.

As of December 31, 2023, there was approximately $ 5.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements.

1 unchanged sentence

The per share weighted average fair value of stock options granted during the years ended December 31, 2023, 2022 and 2021 was $ 6.54 , $ 10.20 , and $ 28.68 , 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:

The fair value of each option grant is estimated on the date of grant, adjusted for estimated forfeitures, using the Black-Scholes option pricing model with the following weighted average assumptions:

Year Ended December 31,

13 unchanged sentences

• 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.

Treasury securities at 5 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.

1 unchanged sentence

Restricted Stock Unit and Performance-Vesting Restricted Stock Unit Activity

A summary of the Company’s RSUs and PRSUs activity and weighted average exercise prices follows:

Restricted Stock Unit Activity

A summary of the Company’s RSUs and PRSUs activity and weighted average grant date fair value, as follows:

Number of Shares

(In thousands) Weighted Average

Grant Date Fair Value

(Per Share) Aggregate Fair Value

(In thousands)

Weighted Average

Grant Date Fair Value Aggregate Fair Value

(In thousands) (Per share) (In thousands)

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

16 unchanged sentences

As of December 31, 2023, total unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested RSUs and PRSUs was approximately $ 48.3 million and the weighted-average remaining vesting period was 1.9 years.

For the year ended December 31, 2022, the Company opted to settle cash awards related to the bonus entirely in cash.

The Company accrued approximately $ 10.4 million for cash awards related to bonus, and recorded a corresponding expense which is included as a component of operating expenses in the accompanying consolidated financial statements.

For the year ended December 31, 2021, the Company accrued approximately $ 18.4 million for cash awards related to bonuses 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 $ 109.6 million, $ 69.7 million, and $ 65.9 million for the years ended December 31, 2022, 2021, and 2020, respectively.

For the years ended December 31, 2023 and 2022, the Company opted to settle cash awards related to bonuses entirely in cash.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based compensation expense recognized in the Company’s consolidated statements of operations and cash flows was $ 11.9 million, $ 109.6 million, and $ 69.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.

PRSUs granted are generally subject to both a service-based vesting condition and a performance-based vesting condition.

PRSUs will vest upon the achievement of specified performance targets and subject to continued service through the applicable vesting dates.

The associated compensation cost is recognized over the requisite service period when it is probable that the performance condition will be satisfied.

PRSUs granted in years 2023, 2022 and 2021 are immaterial.

Restructuring

During the second quarter of 2022, LivePerson began a restructuring initiative to realign the Company’s cost structure to better reflect significant product and business model innovation and changes over the past year due to acquisitions and factors outside the control of the Company.

During the second quarter of 2022, LivePerson began a restructuring initiative to realign the Company’s cost structure to better reflect significant product and business model innovation and then-recent changes due to acquisitions and factors outside the control of the Company.

As part of the restructuring initiative, the Company reoriented its global product and engineering organization for greater efficiency and focus, and reallocated some spending to increase its investment in customer success and go-to-market initiatives.

The Company believes these initiatives will better align resources to provide further operating flexibility and position the business for long-term success.

In connection with the restructuring initiatives, the Company recognized restructuring costs of $ 19.5 million during the year ended December 31, 2022, which is included in restructuring costs in the accompanying consolidated statements of operations.

The majority of these costs relate to the Company’s Business segment.

Such costs primarily include severance and other compensation costs.

In 2020, the Company went through a re-evaluation of its real estate needs.

Following this re-evaluation, commencing in July 2020, the Company significantly reduced the real estate space it leases, resulting in the removal of the associated right-of-use assets.

Furthermore, this resulted in various one-time expenses in connection with the abandonment of the majority of the Company’s leased facilities.

The lease restructuring costs noted below are a result of this transition to an employee-centric model.

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

In 2023, due to the changing technology landscape related to the evolution of LLMs, we were able to identify opportunities for significant cost savings because the latest generation of LLMs is able to build a bot in minutes, enabling reduction of headcount previously devoted to bot-building.

Additionally, we have moved to a product-led growth structure where we flattened the organization to align to more efficient sales and service support ratios.

In connection with the restructuring initiatives, the Company recognized restructuring costs of $ 22.7 million, $ 20.0 million, and $ 3.4 million during the years ended December 31, 2023, 2022, and 2021, respectively, which is included in restructuring costs in the accompanying consolidated statements of operations.

Such costs primarily include severance and other compensation-related costs as well as IT infrastructure contract termination costs.

The following table presents the detail of the liability for the Company’s restructuring charges, which is included within accrued expenses and other current liabilities within the consolidated balance sheets as of December 31, 2023 and 2022:

(In thousands)

Balance at January 1 $ 1,694 $ 4,732

Balance, beginning of year $ 803 $ 1,694

Lease restructuring costs — 442

IT contract termination costs 5,744 —

Severance and other associated costs 16,920 19,525

Cash payments ( 21,391 ) ( 20,858 )

Balance at December 31 $ 803 $ 1,694

Balance, end of year $ 2,076 $ 803

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

3 unchanged sentences

Lease restructuring costs $ — $ 442 $ 724

ROU assets write down $ — $ — $ 13,938

Abandonment of property and equipment — — 5,147

Other lease restructuring costs 442 724 5,245

Total lease restructuring costs 442 724 24,330

IT contract termination costs 5,744 — —

Severance and other associated costs 16,920 19,525 2,673

1 unchanged sentence

Legal Matters

Stockholder Litigation

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[24]7 Litigation

The Company filed an intellectual property suit (the “Company IP Suit”) against [24]7 Customer, Inc.

(“[24]7”) on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and misappropriated the Company’s technology and misused the Company’s business information.

On June 22, 2015 and December 7, 2015, [24]7 filed separate countersuits (together, the “Countersuits”) against the Company in the Northern District of California (the “Court”) alleging patent infringement.

Trial with respect to the Company IP Suit occurred on May 24, 2021 and the jury awarded approximately $30.3 million in favor of the Company.

The Company and [24]7 subsequently reached agreement on the terms of a permanent injunction, and that additional costs were owed to the Company in the amount of $0.4 million.

On July 28, 2022, the Court granted the Company’s motion for interest, awarding an additional approximately $4.3 million.

24[7] appealed the judgment in favor of the Company with respect to the Company IP Suit in August 2022.

In addition, further litigation between the parties to adjudicate the Counter suits had been set for late 2023, and another trial with respect to the Company’s remaining trade secret claims against [24]7 was set for early 2024.

On February 20, 2023, the Company and [24]7 entered into a binding Memorandum of Understanding (“MOU”) detailing the terms for settlement and resolution of all litigation matters between the parties.

The terms of the resolution are confidential, and provide for an up front settlement as well as entry into a commercial agreement between the parties.

All litigation matters between the parties are stayed pending final documentation of the resolution as set forth in the binding MOU, following dismissal of all litigation matters between the parties with prejudice is expected.

In December 2023, a putative stockholder class action entitled Damri v.

LivePerson, Inc., No.

1:23-cv-10517, was filed under the federal securities laws against the Company, its former Chief Executive Officer, and its Chief Financial Officer in the United States District Court for the Southern District of New York.

The complaint alleges that the Company’s Form 10-Q filings and forecasts for the first, second, and third quarters of fiscal year 2022 were false and misleading in violation of Section 10(b) of the Securities Exchange Act of 1934, based on the Company’s later disclosures and report on Form 10-K on March 16, 2023.

A parallel litigation on behalf of stockholders who purchased their shares on the Tel Aviv Stock Exchange, entitled Weissbrod v.

LivePerson, Inc., is pending in the Tel Aviv District Court in Israel, but has been stayed pending further developments in the Damri case.

In January 2024, a purported derivative action entitled Marti v.

LoCascio, No.

1:24-cv-00598, was filed in the United States District Court for the Southern District of New York by a purported stockholder of the Company against the Company’s former Chief Executive Officer, its Chief Financial Officer, most of the members of the current board of directors and several former directors.

The derivative litigation claims that the Company itself was harmed by the same acts and omissions underlying the Damri federal securities lawsuit, and seeks to recover unspecified losses on behalf of the Company.

The Marti case is stayed pending further developments in the Damri case .

I n January 2024, a purported stockholder of the Company filed a lawsuit against the Company and its Board of Directors entitled Browne v.

Layfield, No.

2024-0079, in the Court of Chancery of the State of Delaware.

The complaint asserted a claim for breach of fiduciary duty based upon a Tax Benefits Preservation Plan.

In February 2024, the Board approved technical amendments to the Tax Benefits Preservation Plan which were filed by the Company on Form 8-K, and the case was dismissed as moot, subject to attorneys’ fees on behalf of the plaintiff.

In February 2024, Starboard Value LP and several of its related entities and investment funds filed a lawsuit against the Company, its former Chief Executive Officer and its Chief Financial Officer entitled Starboard Value LP v.

LivePerson, Inc., No.

2024-0103, in the Court of Chancery of the State of Delaware.

The complaint alleges common law fraud, fraudulent inducement and negligent misrepresentation in connection with an alleged scheme to induce Starboard to settle its 2022 proxy contest against the Company and, as stated in the complaint, involves previous Starboard allegations of misrepresentations in the Company's public disclosures that the Company previously informed Starboard were found to be unsubstantiated following an independent investigation.

The complaint seeks unspecified damages.

COVID-Related Matters

As has been widely reported, there is heightened scrutiny by the federal government across many programs related to COVID-19 that were introduced during the COVID-19 pandemic.

The Company and its wholly-owned subsidiary WildHealth were each previously engaged in the delivery of products and services related to COVID-19 testing, and have been subsequently subject to governmental inquiries with respect to those COVID-19 related products and services, including inquires by Medicare, the Department of Justice and the U.S.

As has been widely reported, there is heightened scrutiny by the federal government across many programs related to global novel coronavirus disease (“COVID-19”) that were introduced during the COVID-19 pandemic.

The Company and its wholly-owned subsidiary WildHealth were each previously engaged in the delivery of products and services related to COVID-19 testing, and have been subsequently subject to governmental inquiries with respect to those COVID-19 related products and services, including inquiries by Medicare, the Department of Justice and the U.S.

Food and Drug Administration (“governmental agencies”).

In November 2022, a professional corporation managed by WildHealth received notice that Medicare reimbursements for its services rendered under a Medicare demonstration program related to COVID-19 testing (the “Program”) were suspended pending further review.

Subsequently, WildHealth has received and is responding to inquiries from additional governmental agencies with respect to its participation in the Program.

Subsequently, WildHealth received and successfully responded to inquiries from additional governmental agencies with respect to its participation in the Program.

The Centers for Medicare and Medicaid Services (CMS) has provided notice that the Medicare payment suspension was terminated.

The reimbursements for services rendered under the Program were released in November and December 2023.

The Company previously provided other products and services related to COVID-19 testing and accompanying software.

Those COVID-19 related products and services have also been the subject of inquiry and pending review by governmental agencies.

Those COVID-19 related products and services have also been the subject of inquiry and review by governmental agencies.

The Company and WildHealth have discontinued all products and services related to COVID-19, and have responded to and intend to continue to cooperate with governmental inquiries related to their previous engagement in COVID-19 related product and service offerings.

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

Other Legal, Administrative, Governmental and Regulatory Matters

From time to time, the Company is or may be subject to or involved in legal, administrative, governmental and/or regulatory proceedings, inquiries and investigations as well as actual or threatened litigation, claims and/or demands (each an

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

“Action” and collectively “Actions”).

These have included and may include (without limitation) Actions brought by or against the Company, its affiliates, subsidiaries, directors and/or officers with respect to intellectual property, contracts, financial, commercial, employment, legal, compliance, privacy, data security, regulatory and/or other matters related to our business, as well as Actions brought against the Company’s customers for which the Company has a contractual indemnification obligation.

Regardless of the outcome, Actions can have an adverse impact on the Company because of defense and/or settlement costs, diversion of management resources, reputational risks and other factors.

The Company accrues for certain contingencies when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated and discloses certain contingencies for which no accrual has been made as appropriate and in compliance with ASC 450.

Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable.

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

4 unchanged sentences

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 basis, the Company believes that the deferred tax assets related to LivePerson Australia Holdings Pty.

Ltd., LivePerson (UK) Limited, Kasamba Inc., LivePerson Japan and LivePerson Ltd.

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.

The Company includes interest accrued on the underpayment of income taxes and certain interest expense and penalties, if any, related to unrecognized tax benefits as a component of the income tax provision.

The Company recorded a valuation allowance against its U.S., e-bot7 Germany, and Bulgaria deferred tax assets as it considered its cumulative losses in recent years as a significant piece of negative evidence.

Since valuation allowances are evaluated by jurisdiction, the Company believes that the deferred tax assets related to LivePerson Australia Pty.

Ltd., Engage Pty.

Ltd., LivePerson (UK) Ltd., 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, 2023, there was an increase in the valuation allowance recorded of $ 23.7 million.

The Company had a valuation allowance on certain deferred tax assets for the years ended December 31, 2023, 2022, and 2021 of $ 211.2 million, $ 187.5 million, and $ 107.1 million, respectively.

For the year ended December 31, 2022, an increase in the valuation allowance in the amount of $ 38.8 million was recorded as an expense, an additional increase of $ 0.5 million was recorded to goodwill against acquired federal and state net operating losses and due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, the Company recorded an increase of the valuation allowance to other comprehensive income of $ 41.2 million.

For the year ended December 31, 2021, 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.

For the year ended December 31, 2023, an increase in the valuation allowance in the amount of $ 23.7 million was recorded as an expense.

For the year ended December 31, 2022, an increase in the valuation allowance in the amount of $ 38.7 million was recorded as an expense and an additional increase of $ 0.5 million was recorded to goodwill against acquired federal and state net operating losses and due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , the Company recorded an increase of the valuation allowance to other comprehensive income of $ 41.2 million.

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.

4 unchanged sentences

Included in this amount is $ 0.9 million of federal NOL carryovers from the Company’s acquisition of Proficient in 2006, $ 49.4 million of federal NOL carryovers from the Company’s acquisition of Tenfold in 2021, $ 64.9 million of federal NOL carryovers from the Company’s acquisition of VoiceBase in 2021 and $ 1.0 million of federal NOL carryovers from the Company’s acquisition of WildHealth in 2022.

Approximately $ 58.2 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.

Approximately $ 70.2 million of these federal NOL carryforwards were generated in taxable years ending on or before

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Company has entered into a Tax Benefits Preservation Plan (the “Tax Benefits Preservation Plan”), which is designed to reduce the risk of substantial impairment to the Company’s NOLs and certain other tax attributes that could result from an “ownership change” within the meaning of Section 382 of the Code.

See “Tax Benefits Preservation Plan” in Note 21 – Subsequent Events for additional information.

The domestic and foreign components of income (loss) before provision for (benefit from) income taxes consist of the following:

8 unchanged sentences

Germany ( 5,453 ) ( 10,400 ) ( 6,450 )

$ ( 224,020 ) $ ( 127,378 ) $ ( 105,128 )

Total $ ( 96,272 ) $ ( 224,020 ) $ ( 127,378 )

——————————————

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

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

No additional provision has been made for U.S.

income taxes on the undistributed earnings of its wholly-owned Israeli subsidiary, LivePerson 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, 2022.

A provision for the undistributed earnings of the Company’s other foreign subsidiaries have not been provided because the Company intends to indefinitely reinvest such earnings outside of the U.S., though if these foreign earnings were to be repatriated in the future the related U.S.

tax liability would be immaterial through December 31, 2023.

The provision for (benefit from) income taxes consists of the following:

16 unchanged sentences

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,

2023 2022 2021

7 unchanged sentences

Stock based compensation – excess tax benefit / (tax deficiency) ( 7.00 ) % ( 2.12 ) % 6.58 %

Goodwill impairment

( 2.59 ) % — % — %

Sale of subsidiary

1.69 % — % — %

Other ( 0.93 ) % ( 0.48 ) % 1.29 %

1 unchanged sentence

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)

9 unchanged sentences

R&D capitalization 52,878 39,182

Allowance for doubtful accounts 5,091 1,280

Allowance for credit loss 1,884 5,091

Total deferred tax assets 244,933 225,748

5 unchanged sentences

Goodwill amortization and contingent earn-out adjustments ( 7,999 ) ( 7,012 )

Convertible notes issuance — ( 41,666 )

Outside basis difference in subsidiary stock — ( 567 )

2 unchanged sentences

Net deferred tax assets $ 1,597 $ 1,873

We have income tax NOL carryforwards related to federal, Australian, and German income tax carryforwards of $ 532.6 million, $ 1.9 million, and $ 19.3 million, respectively.

federal, Australian, and German NOLs of $ 583.1 million, $ 1.6 million, and $ 28.3 million, respectively.

The Australian and German NOLs can be carried forward indefinitely.

For the federal NOLs, $ 474.5 million can be carried forward indefinitely, $ 0.8 million will expire between 2023

For the federal NOLs, $ 512.8 million can be carried

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and 2026, and $ 57.3 million will expire between 2030 and 2037.

forward indefinitely, $ 0.9 million will expire between 2024 and 2029, and $ 69.4 million will expire between 2030 and 2037.

We have $ 449.3 million of state NOLs, of which $ 108.0 million can be carried forward indefinitely and $ 341.4 million expire between 2024 and 2044.

3 unchanged sentences

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 $ 2.7 million as of December 31, 2022 and $ 2.9 million as of December 31, 2021, 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, 2022 and 2021.

The Company had unrecognized tax benefits of $ 3.1 million as of December 31, 2023 and $ 2.7 million as of December 31, 2022, respectively, that would affect the effective tax rate if recognized.

Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits and recorded in accrued expenses and other current liabilities was $ 0.5 million as of December 31, 2023 and was immaterial as of December 31, 2022.

There are no unrecognized tax benefits expected to reverse in the next twelve months and impact the effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

2 unchanged sentences

(In thousands)

Unrecognized tax benefits balance at January 1 $ 2,917 $ 3,615 $ 2,053

Unrecognized tax benefits balance, beginning of year $ 2,721 $ 2,917 $ 3,615

Increase due to business combinations — — 488

Gross decrease for tax positions of prior years — — ( 438 )

Gross increase for tax positions of current years 340 205 376

1 unchanged sentence

Uncertain tax basis classified as held-for-sale liabilities — ( 401 ) —

Gross unrecognized tax benefits at December 31 $ 2,721 $ 2,917 $ 3,615

Unrecognized tax benefits, end of year $ 3,061 $ 2,721 $ 2,917

The tax years subject to examination by major tax jurisdictions include the years 2019 and forward for U.S.

states and New York City, the years 2017 and forward for U.S.

states and cities, the years 2020 and forward for U.S.

Federal, and the years 2018 and forward for certain foreign jurisdictions.

7 unchanged sentences

The Company does not currently expect the tax-related provisions of the IRA to have a material impact on its financial

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%.

Effective April 1, 2023, the tax rate increased from 19% to 25%.

The Company assessed and concluded the impact of the rate change is immaterial to its deferred taxes.

2 unchanged sentences

(“Pasaca”) entered into a joint venture agreement (the “JV Agreement”) to form Claire, a joint venture to build, create, and administer a marketplace for health and well-being diagnostic testing.

Claire is intended to operate an app store-like platform to make medical testing and accessing results easier and more informative.

Claire is being developed with the goal of creating a single place to shop for testing services from numerous testing providers, including Claire-branded tests and at-home tests.

Pursuant to the terms of the JV Agreement, the Company agreed to contribute a total of $ 19.0 million over a five-year period in exchange for a 19.2 % ownership interest in Claire.

Pasaca agreed to contribute $ 80.0 million to Claire over a five-year period in exchange for an 80.8 % ownership interest

Pasaca agreed to contribute $ 80.0 million to Claire over a five-year period in exchange for an 80.8 % ownership interest in Claire.

The Company accounts for its 19.2 % interest in Claire using the equity method of accounting.

The Company recorded its ownership percentage of losses of Claire in Other income (expense), net of $ 2.3 million and $ 7.7 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, the Company’s equity method investment in joint venture was reduced to zero on the consolidated balance sheets, based on current period losses.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 , $ 9.1 million remained to be contributed to Claire by the Company under the terms of the JV Agreement.

The Company accounts for its 19.2 % interest in Claire using the equity method of accounting.

The Company recorded its ownership percentage of losses of Claire in Other (expense) income, net for $ 7.7 million for the year ended December 31, 2022.

As of December 31, 2022, the Company’s equity method investment was $ 2.3 million and was included in Investment in joint venture on the consolidated balance sheet.

Variable Interest Entities

The Company prepares its consolidated financial statements in accordance with ASC 810, which provides for the consolidation of variable interest entities (“VIEs”) of which the Company is the primary beneficiary.

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

In February 2022, the Company acquired WildHealth as well as certain variable interests that WildHealth has in four Professional Corporations (“PCs”).

4 unchanged sentences

The Company determined that the PCs are VIEs as WildHealth is the primary beneficiary of the PCs.

The assets, liabilities, revenues, and operating results of the VIEs after elimination of intercompany transactions were not material as of and for the year ended December 31, 2022.

The assets, liabilities, revenues, and operating results of the VIEs after elimination of intercompany transactions were not material as of and for the years ended December 31, 2023 and 2022.

Related Parties

Related parties are defined as entities related to the Company’s directors or main shareholders as well as equity method affiliates.

The Company provides services to Claire, an equity method affiliate (refer to Note 17 – Equity Method Investment for additional information on the equity method affiliate), in exchange for fees through certain transition service agreements and commercial arrangements.

In accordance with the agreement between the Company and Claire, the Company will be developing the Claire platform, host the platform in LivePerson’s cloud and perform professional services to support the development and hosting of the Claire platform.

These services and the stated prices are set forth in the agreement.

These agreements facilitate the operations of the newly formed company by allowing Claire to operate independently prior to establishing stand-alone back-office systems across its organization.

In connection with the JV Agreement, the Company entered into a transition services agreement with Claire, under which, the Company agreed to provide custom software development and managed services (Professional Services) in exchange for fees governed by the terms and conditions set forth in the Build-Out Services Agreement (the “Build-Out Services Agreement).

The related fees are based on a percentage of completion of work as of January 1, 2022 through December 31, 2023.

The Company also entered into commercial arrangements with Claire, which provide access to the Company’s Conversational Cloud Platform as hosting services and professional services in exchange for fees governed by the terms and conditions set forth in the Master Service Agreement (the “MSA”).

In accordance with guidance under ASC 606, Claire is considered a customer of the Company and is expected to utilize its Conversational Cloud software and services in a manner similar to that of the Company’s customer base.

Usage-based fees are invoiced in the aggregate in equal upfront quarterly installments beginning on January 1, 2023 and continuing through December 31, 2026.

Contract terms may be extended by mutual written agreement of the parties but cannot be terminated earlier except as set forth in the Build-Out Services Agreement or MSA, as applicable.

Revenues for the services provided to related parties included in the Company’s Consolidated Statements of Operations were $ 38.7 million for the year ended December 31, 2022.

Total unbilled invoices and account receivables were $ 4.8 million and $ 1.4 million as of December 31, 2022, respectively, and were included in the Company’s Consolidated Balance Sheet.

During the year ended December 31, 2023, the Company provided services to Claire, an equity method affiliate (refer to Note 17 – Equity Method Investment for additional information on the equity method affiliate), in exchange for fees through certain commercial arrangements.

These arrangements facilitated Claire’s build out and operations.

In connection with the JV Agreement, the Company entered into commercial agreements with Claire, under which the Company agreed to provide custom software development and managed services in exchange for fees governed by the terms and conditions set forth therein.

In accordance with guidance under ASC 606, Claire is considered a customer of the Company.

Revenues for the services provided to Claire included in the Company’s Consolidated Statements of Operations were $ 3.8 million and $ 38.7 million for the years ended December 31, 2023 and 2022, respectively.

Accounts receivable totaling $ 2.1 million as of December 31, 2023 was included in the Company’s consolidated balance sheets, for which the Company recognized $ 1.5 million in its allowance for credit losses.

Total unbilled invoices and accounts receivable were $ 4.8 million and $ 1.4 million as of December 31, 2022 , respectively, and were included in the Company’s consolidated balance sheets.

In the fourth quarter of 2022, the Company entered into a non-binding Letter of Intent to divest Kasamba, Inc.

and Kasamba LTD (together “Kasamba”).

The Company determined that Kasamba met the criteria for classification as held for sale in accordance with ASC Subtopic 360-10, and the related net assets were separately presented in current assets and current liabilities as held for sale on the consolidated balance sheets as of December 31, 2022 and depreciation of long-lived assets ceased.

Pursuant to ASC 205-20, the divestiture did not meet the criteria for presentation as a discontinued operation.

Kasamba represented the Company’s Consumer segment.

The Share Purchase Agreement between Ingenio, LLC (“Ingenio”) and the Company was executed and the transaction closed on March 20, 2023.

In accordance with the Share Purchase Agreement, the Company sold all of the issued and outstanding shares of Kasamba.

Cash of $ 16.9 million was received upon closing, $ 2.6 million as a deferred payment is expected to be received within a year, and was included in prepaid expenses and other current assets on the Company’s consolidated balance sheets as of December 31, 2023 .

$ 11.8 million was required to be held in various escrow accounts for up to 15 months, and was included in restricted cash on the Company’s consolidated balance sheets;

however, $ 9.8 million of this escrow amount was released as of December 31, 2023 .

The transaction resulted in a gain of $ 17.6 million, which was recognized and presented separately as a gain on divestiture on the Company’s consolidated statements of operations during the year ended December 31, 2023 .

The Company received $ 0.9 million in cash in connection with the net working capital settlement during the third quarter of 2023.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets Held for Sale

In the fourth quarter of 2022, the Company entered into a non-binding Letter of Intent with a strategic buyer to sell Kasamba, Inc.

The transaction is expected to close in the first quarter of 2023.

The business and its associated net assets and liabilities, which represent the Company’s entire Consumer segment, met the criteria for classification as held for sale in accordance with ASC Subtopic 360-10.

As such, the net assets and liabilities associated with the transaction were measured at the lower of fair value less costs to sell or the carrying value, and are separately presented in current assets and current liabilities as held for sale in the Consolidated Balance Sheet as of December 31, 2022 and depreciation of long-lived assets ceased.

Pursuant to ASC 205-20, the planned divestiture did not meet the criteria for presentation as a discontinued operation.

The major classes of assets and liabilities held for sale as of December 31, 2022, were as follows:

December 31, 2022

Major classes of assets and liabilities sold were as follows:

As of March 20, 2023

Assets (In thousands)

Cash and cash equivalents $ 3,058

4 unchanged sentences

Deferred tax assets 721

Other assets 334

Total assets held for sale $ 23,088

1 unchanged sentence

Accrued expenses and other current liabilities 4,859

Deferred tax liability 798

Deferred revenue 679

1 unchanged sentence

Subsequent Events

The terms of the resolution are confidential, and provide for an up front settlement as well as entry into a commercial agreement between the parties.

Tax Benefits Preservation Plan

On January 22, 2024, the Company entered into a Tax Benefits Preservation Plan designed to reduce the risk of substantial impairment to its NOLs that could result from an “ownership change” within the meaning of Section 382 of the Code.

The Tax Benefits Preservation Plan creates a disincentive for any person or group of affiliated or associated persons to acquire 4.9% or more of the Company’s outstanding common stock (any such person or group, an “Acquiring Person”), or to further accumulate shares of the Company’s outstanding common stock if such person or group of person already owns 4.9% or more of the Company’s outstanding common stock, without the approval of the Company’s Board, unless and until the Board determines that the Tax Benefits Preservation Plan is no longer necessary or desirable for preservation of the Company’s NOLs.

In connection therewith, on January 22, 2024, the Board authorized a dividend of one right (a “Right”) for each outstanding share of common stock of the Company.

Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $ 0.001 per share, at a price of $ 18.00 , subject to certain adjustments.

The Rights will separate from the common stock and become exercisable and separately transferrable at the close of business on the date that is the tenth ( 10 th) business day after the earlier of (i) the date on which on which a press release is issued or other public announcement is made indicating that a person or group of affiliated or associated persons has become an Acquiring Person and (ii) the date on which a tender offer or exchange offer is commenced that, upon consummation, would result in a person or group of affiliated or associated persons becoming an Acquiring Person.

If issued and not redeemed by the Company, each holder of a Right (other than the Acquiring Person, the Rights of which shall become null and void) will, upon exercise, be entitled to purchase shares of the Company’s common stock having a then-current market value equal to two times the exercise price of the Right.

However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.

Convertible Senior Notes due 2024 and Capped Calls

On March 1, 2024, the Company repaid in full at maturity the outstanding $ 72.5 million in aggregate principal amount of the 2024 Notes.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data