LIVEPERSON INC 10-K

Item 8. Financial Statements and Supplementary Data LIVEPERSON, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 243 ) 55 Consolidated Balance Sheets as of December 31, 2023 and 2022 57 Consolidated Statements of Operations for the three years ended December 31, 2023, 2022, and 2021 58 Consolidated Statements of Comprehensive Loss for the three years ended December 31, 2023, 2022, and 2021 59 Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2023, 2022, and 2021 60 Consolidated Statements of Cash Flows for the three years ended December 31, 2023, 2022, and 2021 61 Notes to Consolidated Financial Statements 63 54 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders LivePerson, Inc. New York, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of LivePerson, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 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, 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 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit 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 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. The income 55 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: • 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. New York, New York March 4, 2024 56 LIVEPERSON, INC. CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 ASSETS (In thousands) Current assets: 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 (Note 1) 26,981 23,747 Assets held for sale — 30,984 Total current assets 321,708 533,466 Operating lease right-of-use assets (Note 10) 4,135 1,604 Property and equipment, net (Note 6) 119,325 126,499 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, net (Note 16) 4,527 4,423 Investment in joint venture (Note 17) — 2,264 Other assets 1,208 2,563 Total assets $ 835,513 $ 1,088,940 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 13,555 $ 25,303 Accrued expenses and other current liabilities (Note 7) 97,024 129,244 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 — 10,357 Total current liabilities 267,549 251,558 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 (Note 16) 2,930 2,550 Other liabilities 3,158 28,639 Total liabilities 787,375 1,020,852 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.001 par value - 5,000,000 shares authorized; none issued — — Common stock, $ 0.001 par value - 200,000,000 shares authorized; 90,603,519 and 78,350,984 shares issued, and 87,837,446 and 75,584,911 shares outstanding as of December 31, 2023 and 2022, respectively 91 78 Treasury stock, at cost; 2,766,073 shares as of December 31, 2023 and 2022 ( 3 ) ( 3 ) Additional paid-in capital 913,522 771,052 Accumulated deficit ( 856,988 ) ( 692,362 ) Accumulated other comprehensive loss ( 8,484 ) ( 10,677 ) Total stockholders’ equity 48,138 68,088 Total liabilities and stockholders’ equity $ 835,513 $ 1,088,940 See accompanying notes to consolidated financial statements. 57 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2023 2022 2021 (In thousands, except share and per share amounts) Revenue $ 401,983 $ 514,800 $ 469,624 Costs, expenses and other: (1) (2) Cost of revenue (3) 142,823 184,699 156,880 Sales and marketing 125,677 214,027 165,421 General and administrative 91,619 120,625 76,757 Product development 124,792 193,688 158,390 Impairment of goodwill 11,895 — — Impairment of intangibles and other assets 7,974 — — 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, expenses and other 513,358 736,684 562,890 Loss from operations ( 111,375 ) ( 221,884 ) ( 93,266 ) 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 ) Provision for (benefit from) income taxes 4,163 1,727 ( 2,404 ) Net loss $ ( 100,435 ) $ ( 225,747 ) $ ( 124,974 ) Net loss per share of common stock: Basic $ ( 1.28 ) $ ( 3.03 ) $ ( 1.80 ) Diluted $ ( 1.28 ) $ ( 3.03 ) $ ( 1.80 ) Weighted-average shares used to compute net loss per share: Basic 78,593,274 74,509,404 69,606,105 Diluted 78,593,274 74,509,404 69,606,105 (1) Amounts include stock-based compensation expense, as follows: Cost of revenue $ 1,456 $ 9,933 $ 6,497 Sales and marketing 10,354 19,575 16,942 General and administrative ( 5,706 ) 40,690 15,487 Product development 5,750 39,440 30,730 (2) Amounts include depreciation expense, as follows: Cost of revenue $ 8,072 $ 9,763 $ 10,186 Sales and marketing 3,103 2,451 2,448 General and administrative 453 452 160 Product development 20,929 19,618 14,629 (3) Amounts include amortization of purchased intangibles and finance leases, as follows: Cost of revenue $ 18,691 $ 18,434 $ 7,282 See accompanying notes to consolidated financial statements. 58 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2023 2022 2021 (In thousands) Net loss $ ( 100,435 ) $ ( 225,747 ) $ ( 124,974 ) Other comprehensive (loss) income: Foreign currency translation adjustment 2,193 ( 5,113 ) ( 5,644 ) Comprehensive loss $ ( 98,242 ) $ ( 230,860 ) $ ( 130,618 ) See accompanying notes to consolidated financial statements. 59 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity Shares Amount Shares Amount (In thousands, except share data) Balance at December 31, 2020 70,264,265 $ 70 ( 2,709,830 ) $ ( 3 ) $ 635,672 $ ( 391,885 ) $ 80 $ 243,934 Common stock issued upon exercise of stock options 864,227 1 — — 11,700 — — 11,701 Common stock issued upon vesting of restricted stock units 1,058,361 1 — — ( 1 ) — — — Stock-based compensation — — — — 58,422 — — 58,422 Bonus cash payment settled in shares of the Company’s common stock 538,000 1 — — 33,502 — — 33,503 Common stock repurchase 30,344 — ( 36,413 ) — ( 709 ) — — ( 709 ) Issuance of common stock in connection with acquisitions 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 ) Other comprehensive loss — — — — — — ( 5,644 ) ( 5,644 ) Balance at December 31, 2021 74,980,546 $ 75 ( 2,746,243 ) $ ( 3 ) $ 871,788 $ ( 516,859 ) $ ( 5,564 ) $ 349,437 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 Common stock issued upon vesting of restricted stock units 1,204,430 1 — — ( 1 ) — — — Stock-based compensation — — — — 68,630 — — 68,630 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 837,965 1 — — 17,636 — — 17,637 Common stock issued under ESPP 319,754 — — — 4,246 — — 4,246 Net loss — — — — — ( 225,747 ) — ( 225,747 ) 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 Common stock issued upon exercise of stock options 66,736 — — — 175 — — 175 Common stock issued upon vesting of restricted stock units 1,533,226 2 — — ( 2 ) — — — Stock-based compensation — — — — 35,483 — — 35,483 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 ) Other comprehensive loss — — — — — — 2,136 2,136 Balance at December 31, 2023 90,603,519 $ 91 ( 2,766,073 ) $ ( 3 ) $ 913,522 $ ( 856,988 ) $ ( 8,484 ) $ 48,138 See accompanying notes to consolidated financial statements. 60 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 (In thousands) OPERATING ACTIVITIES: Net loss $ ( 100,435 ) $ ( 225,747 ) $ ( 124,974 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Stock-based compensation expense 11,854 109,638 69,656 Depreciation 32,557 32,284 27,423 Amortization of purchased intangible assets and finance leases 22,196 22,112 9,327 Amortization of debt issuance costs 4,043 3,778 2,499 Accretion of debt discount on convertible senior notes — — 33,309 Impairment of goodwill 11,895 — — Impairment of intangible and other assets 7,974 — — 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: Accounts receivable 1,457 ( 38 ) ( 17,309 ) Prepaid expenses and other current assets ( 3,411 ) ( 5,979 ) ( 3,178 ) Contract acquisition costs 4,992 ( 6,370 ) ( 1,876 ) Other assets 1,361 ( 153 ) 547 Accounts payable ( 13,570 ) 12,050 801 Accrued expenses and other current liabilities 24,343 7,485 8,626 Deferred revenue ( 3,169 ) ( 12,341 ) 7,774 Operating lease liabilities ( 523 ) ( 2,638 ) ( 4,590 ) Other liabilities ( 7,796 ) 8,093 55 Net cash (used in) provided by operating activities ( 19,765 ) ( 62,101 ) 3,247 INVESTING ACTIVITIES: 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 ) Purchases of intangible assets ( 4,004 ) ( 2,680 ) ( 2,610 ) Repayment of debt acquired in acquisition — — ( 21,177 ) Investment in joint venture — ( 2,264 ) — Net cash used in investing activities ( 18,842 ) ( 56,860 ) ( 140,249 ) FINANCING ACTIVITIES: Principal payments for financing leases ( 3,330 ) ( 3,734 ) ( 3,558 ) Repurchase of common stock — ( 221 ) ( 709 ) Proceeds from issuance of common stock in connection with the exercise of options and ESPP 1,890 5,573 16,110 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 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 ) — Cash, cash equivalents, and restricted cash - beginning of year 392,198 523,532 654,152 Cash, cash equivalents, and restricted cash - end of year $ 212,925 $ 392,198 $ 523,532 61 Year Ended December 31, 2023 2022 2021 Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets: Cash and cash equivalents $ 210,782 $ 391,781 $ 521,846 Restricted cash 2,143 417 1,686 Total cash, cash equivalents, and restricted cash $ 212,925 $ 392,198 $ 523,532 Supplemental disclosure of other cash flow information: Cash paid for income taxes $ 1,858 $ 3,237 $ 582 Cash paid for interest 1,235 1,932 2,090 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 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 shares of common stock to settle cash awards — 17,300 33,503 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 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 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 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. 62 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business and Summary of Significant Accounting Policies LivePerson, Inc. 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 The consolidated financial statements reflect the operations of LivePerson and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Equity Method Investment 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 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 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. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. The Company assesses the carrying value of equity method investment on a periodic basis to see if there has been a decline in carrying value that is not temporary. When deciding whether a decline in carrying value is more than temporary, a number of factors are considered, including the investee’s financial condition and business prospects, as well as the Company’s investment intentions. Variable Interest Entities 63 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. The Company consolidates entities in which it has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation. The Company evaluates whether an entity in which it has a variable interest is considered a variable interest entity. 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 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. The Company periodically reassesses whether it is the primary beneficiary of a VIE. See Note 18 – Variable Interest Entities for the Company’s assessment of VIEs. Use of Estimates 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; • allowance for credit losses; • the period of benefit for deferred contract acquisition costs; • valuation of goodwill; • valuation and useful lives of other long-lived assets; • fair value of assets acquired and liabilities assumed in business combinations; • income taxes; and • 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. These estimates may change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s consolidated financial statements. 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 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 gains or losses are included in other income (expense), net in the accompanying consolidated statements of operations. Cash, Cash Equivalents and Restricted Cash 64 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. 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: December 31, 2023 2022 (In thousands) 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. 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 test. The impairment test involves comparing the fair value of the reporting unit to its carrying value, including goodwill. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value. The impairment is limited to the carrying amount of goodwill. 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”. Acquired intangible assets consist of identifiable intangible assets, primarily developed technology and customer relationships, resulting from our acquisitions. Intangible assets are recorded at fair value on the date of acquisition. 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. 65 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. 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 . 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. Divestitures 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. The Company initially measures assets and liabilities held for sale at the lower of their carrying value or fair value less costs to sell. 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. Advertising 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 66 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 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. Leases 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 Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled 67 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Comprehensive Loss In accordance with ASC 220, “Comprehensive Income”, the Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources. Comprehensive loss consists of net loss and accumulated other comprehensive loss, which includes certain changes in equity that are excluded from net loss. The Company’s comprehensive loss for all periods presented is related to the effect of foreign currency translation. Recently Issued Accounting 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. The 68 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. 1. The fair value of equity securities subject to the contractual sale restrictions reflected on the balance sheet. 2. The nature and remaining duration of the restriction(s). 3. The circumstances that could cause a lapse in the restriction(s). 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 this standard to have a material impact on the Company’s consolidated financial statements and related disclosures. Note 2. Revenue Recognition 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. The Company determines revenue recognition through the following steps: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenue when, or as, the Company satisfies a performance obligation. 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. 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. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. The Company recognizes this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by the Company’s performance. Subscription contracts are generally one year or longer in length, billed monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements. Additionally, for certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions. For these Gainshare arrangements in accordance with ASC 606, “Principal Agent Considerations”, the Company acts as a principal in a transaction if it controls the specified goods or services before they are transferred to the customer. 69 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) Revenue: 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 As of December 31, 2023, the aggregate amount of the total transaction price allocated in contracts with original duration of one year or greater to the remaining performance obligations was $ 317.5 million. Approximately 92 % of the Company’s remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered. The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of less than one year. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606. Contracts with Multiple Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“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. 70 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenue by Geographic Location The Company is domiciled in the United States and has international operations around the globe. The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented: Year Ended December 31, 2023 2022 2021 (In thousands) United States $ 277,542 $ 350,349 $ 306,700 Other Americas (1) 9,382 12,708 18,128 Total Americas 286,924 363,057 324,828 EMEA (2) (3) 62,613 74,298 91,227 APAC (4) 52,446 77,445 53,569 Total revenue $ 401,983 $ 514,800 $ 469,624 —————————————— (1) Canada, Latin America, and South America. (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 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. The Company refers to these as subscription transactions. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable, 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: Accounts Receivable Unbilled Receivable Contract Acquisition Costs (Non-current) Deferred Revenue (Current) Deferred Revenue (Non-current) (In thousands) Opening balance as of December 31, 2021 $ 69,259 $ 24,545 $ 40,675 $ 98,808 $ 54 Increase (decrease), net ( 15,791 ) 8,524 3,129 ( 14,314 ) 120 Balance as of December 31, 2022 $ 53,468 $ 33,069 $ 43,804 $ 84,494 $ 174 Increase (decrease), net 6,914 ( 11,649 ) ( 6,450 ) ( 2,636 ) 9 Ending balance as of December 31, 2023 $ 60,382 $ 21,420 $ 37,354 $ 81,858 $ 183 71 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: December 31, 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 Note 3. 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. 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 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 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, 2023 2022 2021 Net loss (in thousands) $ ( 100,435 ) $ ( 225,747 ) $ ( 124,974 ) Weighted average number of shares outstanding, basic and diluted 78,593,274 74,509,404 69,606,105 Net loss per share, basic and diluted $ ( 1.28 ) $ ( 3.03 ) $ ( 1.80 ) 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 72 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 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 Total 17,008,514 34,583,737 22,505,473 Note 4. Segment Information The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company 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 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 set forth below: December 31, 2023 2022 (In thousands) United States $ 438,420 $ 476,040 Germany 45,424 46,323 Israel — 4,064 Australia 11,660 12,057 Netherlands 5,863 3,470 Other (1) 12,438 13,520 Total long-lived assets $ 513,805 $ 555,474 —————————————— (1) U.K., Japan, France, Italy, Spain, Canada, and Singapore. 73 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5. Goodwill and Intangible Assets, Net Goodwill The changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 are as follows: Consolidated (In thousands) Balance as of December 31, 2021 291,215 Adjustments to goodwill: Acquisitions 15,511 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) ( 11,895 ) 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. 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. 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. 74 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangible Assets, Net Intangible assets, net are summarized as follows: December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Amortization Period (In thousands) (In years) Amortizing intangible assets: Technology $ 94,549 $ ( 60,465 ) $ 34,084 5.0 Customer relationships 32,025 ( 19,542 ) 12,483 10.0 Patents 15,350 ( 1,916 ) 13,434 12.9 Trademarks 1,400 ( 707 ) 693 5.0 Trade names 1,044 ( 672 ) 372 2.8 Other 914 ( 355 ) 559 4.1 Total $ 145,282 $ ( 83,657 ) $ 61,625 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Amortization Period (In thousands) (In years) Amortizing intangible assets: Technology $ 97,454 $ ( 45,907 ) $ 51,547 5.0 Customer relationships 31,987 ( 17,392 ) 14,595 10.0 Patents 11,088 ( 1,419 ) 9,669 12.8 Trademarks 1,044 ( 364 ) 680 5.0 Trade names 1,378 ( 402 ) 976 2.8 Other 979 ( 343 ) 636 4.1 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. 75 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2023, estimated annual amortization expense for the next five years and thereafter is as follows: Estimated Amortization Expense (In thousands) 2024 $ 15,425 2025 14,982 2026 12,270 2027 1,484 2028 1,297 Thereafter 16,167 Total $ 61,625 Note 6. 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. The following table presents the detail of property and equipment as follows: December 31, Useful Life (Years) 2023 2022 (In thousands) 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 The lesser of 5 or estimated useful life 327 506 Property and equipment, at cost 308,046 293,428 Less: accumulated depreciation ( 188,721 ) ( 155,706 ) Property and equipment, net 119,325 137,722 Less assets held for sale (Note 20) — ( 11,223 ) 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. 76 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7. Accrued Expenses and Other Current Liabilities The following table presents the detail of accrued expenses and other current liabilities as of the dates presented: December 31, 2023 2022 (In thousands) Professional services and consulting and other vendor fees $ 67,585 $ 51,067 Payroll and other employee-related costs 20,767 19,182 Financing lease liability 3,037 2,569 Restructuring 2,076 803 Sales commissions 734 4,402 Non-Income tax 556 1,148 Short-term contingent earn-out — 47,819 Other 2,269 2,254 Total accrued expenses and other current liabilities $ 97,024 $ 129,244 Note 8. 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. 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, was approximately $ 221.4 million. Each $1,000 in principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 38.58 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2024 Notes in connection with such a corporate event. The 2024 Notes are not redeemable prior to the maturity date of the 2024 Notes and no sinking fund is provided for the 2024 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2024 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their 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. Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2024 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, holders may convert all or any portion of their 2024 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, 77 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 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. 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 $ 52.9 million and was determined by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an effective interest rate over the contractual term of the 2024 Notes. This accounting treatment no longer applies under ASU 2020-06. Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total amount of issuance costs incurred of approximately $ 8.6 million to the liability and equity components of the 2024 Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $ 6.6 million, were recorded as an additional debt discount and were amortized to interest expense using the effective interest method over the contractual term of the 2024 Notes. Issuance costs attributable to the equity component were approximately $ 2.0 million and recorded as a reduction of additional paid in capital in stockholders’ equity. This accounting treatment no longer applies under ASU 2020-06. 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”). The 2024 capped calls each have an initial strike price of approximately $ 38.58 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. The 2024 capped calls have initial cap prices of $ 57.16 per share, subject to certain adjustment events. The 2024 capped calls cover, subject to anti-dilution adjustments, approximately 5.96 million shares of common stock. The 2024 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2024 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2024 capped calls expire on March 1, 2024, subject to earlier exercise. The 2024 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2024 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2024 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2024 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $ 23.2 million incurred to purchase the 2024 capped calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance 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. A 78 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 (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, was approximately $ 505.3 million. Each $1,000 in principal amount of the 2026 Notes is initially convertible into 13.2933 shares of the Company’s common stock par value $ 0.001 , which is equivalent to an initial conversion price of approximately $ 75.23 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event. The 2026 Notes are not redeemable prior to the maturity date of the 2026 Notes and no sinking fund is provided for the 2026 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2026 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their 2026 Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest to, but excluding, the fundamental change repurchase date. Holders of the 2026 Notes may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2026 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2026 Notes) per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2026 Notes on each such trading day; (3) with respect to any 2026 Notes that the Company calls for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after August 15, 2026, holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. During the 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 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 value of the 2026 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an effective interest rate over the contractual term of the 2026 Notes. This accounting treatment no longer applies under ASU 2020-06. 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 79 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. 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”). The 2026 capped calls each have an initial strike price of approximately $ 75.23 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes. The 2026 capped calls have initial cap prices of $ 105.58 per share, subject to certain adjustment events. The 2026 capped calls cover, subject to anti-dilution adjustments, approximately 6.88 million shares of common stock. The 2026 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2026 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2026 capped calls expire on December 15, 2026, subject to earlier exercise. The 2026 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2026 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2026 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2026 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $ 46.1 million incurred to purchase the 2026 capped calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheet. 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: December 31, 2023 2022 (In thousands) Principal $ 589,992 $ 747,500 Unamortized issuance costs ( 6,034 ) ( 10,077 ) Total net carrying value 583,958 737,423 Less: 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: Year Ended December 31, 2023 2022 2021 (In thousands) Contractual interest expense $ 839 $ 1,725 $ 1,725 Amortization of debt issuance costs 4,043 3,778 2,499 Amortization of debt discount — — 33,309 Total interest expense $ 4,882 $ 5,503 $ 37,533 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. 80 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9. Acquisitions WildHealth In February 2022, the Company completed the acquisition of 100 % of the equity of WildHealth, Inc. (“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 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 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 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 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 (In thousands) (In years) Amortizing intangible assets: Developed technology $ 7,100 5.0 Trade name 600 5.0 Fellowship content 600 5.0 Total amortizing intangible assets $ 8,300 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 81 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Note 10. Leases 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. However, any additional de-recognition of right-of-use assets and incurrence of various one-time expenses in connection with early termination of additional leases are not expected to be material to its financial condition or results of operations. Supplemental cash flow information related to leases for the periods listed are as follows: Year Ended December 31, 2023 2022 2021 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 3,448 $ 4,885 $ 2,927 Operating cash flows for finance leases 93 196 362 Financing cash flows for finance leases 3,330 3,734 3,558 The components of lease costs for the periods listed are as follows: Year Ended December 31, 2023 2022 2021 (In thousands) Finance lease cost Amortization of right-of-use assets $ 3,712 $ 3,690 $ 3,718 Interest 93 196 362 Operating lease cost 11,491 11,332 8,912 Total lease cost $ 15,296 $ 15,218 $ 12,992 December 31, 2023 December 31, 2022 Weighted Average Remaining Lease Term: Operating leases 2.1 years 1.5 years Finance leases 0.9 years 1.1 years Weighted Average Discount Rate: Operating leases 7 % 7 % Finance leases 7 % 4 % 82 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental balance sheet information related to leases is as follows: Classification on the Consolidated Balance Sheet December 31, 2023 December 31, 2022 (In thousands) Assets Operating ROU assets Operating lease ROU assets $ 4,135 $ 1,604 Finance ROU assets Property and equipment, net 3,060 3,083 Liabilities Current: Operating lease liabilities Operating lease liability $ 2,719 $ 2,160 Finance lease liabilities Accrued expenses and other current liabilities 3,037 2,569 Non-current: 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: December 31, 2023 Operating Leases Finance Leases Year Ending December 31, (In thousands) 2024 $ 3,058 $ 3,120 2025 1,705 87 2026 329 — 2027 185 — 2028 92 — Total minimum lease payments 5,369 3,207 Less: present value adjustment ( 477 ) ( 85 ) Present value of lease liabilities $ 4,892 $ 3,122 Rental expense for operating leases and other service agreements was approximately $ 15.3 million, $ 15.2 million and $ 13.0 million for the years ended December 31, 2023, 2022, and 2021, respectively. Note 11. Fair Value Measurements The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value: • Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets 83 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. • Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. Financial Assets and Liabilities The carrying amount of cash, accounts receivable, and accounts payable approximate their fair value due to their short-term nature. The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of December 31, 2023 and December 31, 2022, are summarized as follows: December 31, 2023 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents: Money market funds $ 174,701 $ — $ — $ 174,701 Total assets $ 174,701 $ — $ — $ 174,701 December 31, 2022 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents: Money market funds $ 308,295 $ — $ — $ 308,295 Total assets $ 308,295 $ — $ — $ 308,295 Liabilities: 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 fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions based on the best information available. The Company’s money market funds are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as Level 1 within the fair value hierarchy. The Company’s contingent earn-out liability is measured at fair value on a recurring basis and is classified as Level 3 within the fair value hierarchy. 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. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. The Company uses an income approach and inputs that constitute Level 3. 84 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated fair value of outstanding balances of our 2024 Notes and 2026 Notes are as follows: Level of Hierarchy Fair Value Principal Balance Unamortized Issuance Costs Net Carrying Value (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: December 31, 2023 2022 (In thousands) Balance, beginning of year $ 72,221 $ 29,830 Additions in the period — 61,920 Change in fair value of contingent consideration 4,629 ( 8,516 ) Change in fair value of liability awards ( 27,857 ) ( 11,013 ) Payments ( 48,993 ) — Balance, end of year $ — $ 72,221 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. Note 12. Commitments and Contingencies 85 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Benefit Plans The Company has a 401(k) defined contribution plan covering all eligible employees. The Company’s 401(k) policy is a Safe Harbor Plan, whereby the Company matches 100 % of the first 3 % of eligible compensation and 50 % of the next 2 % of eligible compensation. Furthermore, the match is immediately vested. 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. Indemnifications The Company enters into service and license agreements in its ordinary course of business. Pursuant to some of these agreements, the Company agrees to indemnify certain customers from and against certain types of claims and losses suffered or incurred by them as a result of using the Company’s products. The Company also has agreements whereby its executive officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers insurance policy that reduces its exposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of December 31, 2023 and 2022. Non-Income Related Taxes 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. Note 13. Stockholders’ Equity Common Stock 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, 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. 86 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 ESPP. 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. The stock-based compensation expense related to PRSUs is estimated at the grant date based on the expectation that performance goals will be achieved at the stated target level. The amount of compensation cost recognized depends on the relative satisfaction of the performance condition based on performance to date. Stock Option Plans 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 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 There are 6,159,009 shares of common stock authorized and reserved for issuance under the Inducement Plan. On February 9, 2022, the Company’s board of directors amended the plan and authorized 2,790,961 new shares for issuance. As of December 31, 2023, 0.7 million shares of common stock remained available for issuance under the Inducement Plan (taking into account all option exercises and other equity award settlements through December 31, 2023). 87 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Option Activity A summary of the Company’s stock option activity and weighted average exercise prices follows: Stock Option Activity Weighted Average Remaining Contractual Term (In years) Aggregate Intrinsic Value (In thousands) Options (In thousands) Weighted Average Exercise Price Balance outstanding at December 31, 2020 4,332 $ 19.78 Granted 1,705 48.24 Exercised ( 863 ) 13.55 Cancelled or expired ( 392 ) 32.94 Balance outstanding at December 31, 2021 4,782 $ 27.52 6.77 $ 62,300 Options vested and expected to vest 1,419 $ 36.41 8.61 $ 11,387 Options exercisable at December 31, 2021 2,564 $ 17.87 5.05 $ 46,932 Balance outstanding at December 31, 2021 4,782 $ 27.52 Granted 993 20.34 Exercised ( 264 ) 5.07 Cancelled or expired ( 1,052 ) 41.56 Balance outstanding at December 31, 2022 4,459 $ 24.25 6.08 $ 1,327 Options vested and expected to vest 1,047 $ 29.80 8.06 $ 242 Options exercisable at December 31, 2022 2,758 $ 21.26 4.94 $ 986 Balance outstanding at December 31, 2022 4,459 $ 24.25 Granted 18 11.37 Exercised ( 67 ) 2.62 Cancelled or expired ( 1,273 ) 22.69 Balance outstanding at December 31, 2023 3,137 $ 22.68 4.84 $ 40 Options vested and expected to vest 379 $ 28.83 7.89 $ — 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, 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. That cost is expected to be recognized over a weighted average period of approximately 1.9 years. 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, adjusted for estimated forfeitures, using the Black-Scholes option pricing model with the following weighted average assumptions: Year Ended December 31, 2023 2022 2021 Dividend yield — % — % — % Risk-free interest rate 3.60 % 1.62 % – 4.20 % 0.46 % – 1.33 % Expected life (in years) 5 5 5 Historical volatility 65.17 % 53.87 % – 64.13 % 53.51 % – 54.55 % 88 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A description of the methods used in the significant assumptions used to estimate the fair value of stock-based-based compensation awards follows: • Dividend yield – The Company uses 0 % as it has never issued dividends and does not anticipate issuing dividends in the near term. • Risk-free interest rate – The Company uses the market yield on U.S. Treasury securities at 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. • Historical volatility – The Company uses a trailing five year from grant date to determine volatility. Restricted Stock Unit and Performance-Vesting 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 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 Awarded 3,066 54.80 Released ( 1,596 ) 38.90 Forfeited ( 688 ) 33.06 Non-vested and outstanding at December 31, 2021 3,732 $ 43.63 $ 133,308 Balance outstanding at December 31, 2021 3,732 $ 43.63 $ 133,308 Awarded 4,927 18.61 Released ( 1,938 ) 31.73 Forfeited ( 1,486 ) 40.30 Non-vested and outstanding at December 31, 2022 5,235 $ 25.42 $ 53,080 Balance outstanding at December 31, 2022 5,235 $ 25.42 $ 53,080 Awarded 4,315 4.41 Released ( 2,707 ) 15.86 Forfeited ( 1,779 ) 25.21 Non-vested and outstanding at December 31, 2023 5,064 $ 12.53 $ 19,193 Expected to vest 3,627 $ 12.39 $ 13,745 RSUs granted to employees generally vest over a three to four-year period, or upon achievement of certain performance conditions. 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 years ended December 31, 2023 and 2022, the Company opted to settle cash awards related to bonuses entirely in cash. 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 statement of operations. 89 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. Note 14. 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 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. 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: December 31, 2023 2022 (In thousands) 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, end of year $ 2,076 $ 803 The following table presents the detail of expenses for the Company’s restructuring charges for the periods presented: Year Ended December 31, 2023 2022 2021 (In thousands) Lease restructuring costs $ — $ 442 $ 724 IT contract termination costs 5,744 — — Severance and other associated costs 16,920 19,525 2,673 Total restructuring costs $ 22,664 $ 19,967 $ 3,397 Note 15. Legal Matters Stockholder Litigation 90 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 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 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. 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 91 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS “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. Accruals 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. 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. Note 16. Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. 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 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, 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. The use of NOLs from acquired businesses may also be limited under Section 382. Such an annual limitation could result in the expiration of the NOL carryforwards before utilization. Corresponding provisions of state law may limit the Company’s ability to utilize NOL carryforwards for state tax purposes. As of December 31, 2023, the Company had approximately $ 583.1 million of federal NOL carryforwards available to offset future taxable income. 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 $ 70.2 million of these federal NOL carryforwards were generated in taxable years ending on or before 92 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: Year Ended December 31, 2023 2022 2021 (In thousands) United States $ ( 95,773 ) $ ( 220,060 ) $ ( 128,210 ) Israel 1,074 1,464 1,414 United Kingdom 1,481 1,428 1,145 Netherlands 2,030 2,514 3,629 Australia ( 412 ) 533 755 Germany ( 5,453 ) ( 10,400 ) ( 6,450 ) Other (1) 781 501 339 Total $ ( 96,272 ) $ ( 224,020 ) $ ( 127,378 ) —————————————— (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. 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: Year Ended December 31, 2023 2022 2021 (In thousands) Current income taxes: U.S. Federal $ — $ — $ ( 22 ) State and local 239 431 159 Foreign 2,878 2,458 3,698 Total current income taxes 3,117 2,889 3,835 Deferred income taxes: U.S. Federal 651 ( 1,153 ) ( 2,908 ) State and local 488 79 20 Foreign ( 93 ) ( 88 ) ( 3,351 ) Total deferred income taxes 1,046 ( 1,162 ) ( 6,239 ) Total provision for (benefit from) income taxes $ 4,163 $ 1,727 $ ( 2,404 ) 93 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The difference between the total income taxes computed at the federal statutory rate and the provision for income taxes consists of the following: December 31, 2023 2022 2021 Federal statutory rate 21.00 % 21.00 % 21.00 % State taxes, net of federal benefit 3.94 % 2.89 % 4.83 % Non-deductible expenses – stock-based compensation ( 0.55 ) % ( 1.30 ) % ( 1.73 ) % Non-deductible expenses – earn-out 5.50 % ( 3.15 ) % — % Non-deductible excess compensation ( 0.04 ) % ( 0.14 ) % ( 2.30 ) % Foreign taxes ( 0.94 ) % ( 0.15 ) % ( 0.86 ) % Valuation allowance ( 24.40 ) % ( 17.33 ) % ( 26.92 ) % 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 % Total provision ( 4.32 ) % ( 0.78 ) % 1.89 % 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: December 31, 2023 2022 (In thousands) Deferred tax assets: Net operating loss carryforwards $ 157,919 $ 141,011 Foreign tax credit — 1,222 R&D tax credit 1,757 1,761 Original issue discount 6,236 9,515 Interest 4,582 2,665 Operating lease liability 2,111 760 Accounts payable and accrued expenses 6,934 7,270 Non-cash compensation 10,632 17,271 R&D capitalization 52,878 39,182 Allowance for credit loss 1,884 5,091 Total deferred tax assets 244,933 225,748 Less valuation allowance ( 211,234 ) ( 187,525 ) Deferred tax assets, net of valuation allowance 33,699 38,223 Deferred tax liabilities: Property and equipment ( 13,214 ) ( 15,105 ) Intangibles amortization ( 8,985 ) ( 13,142 ) Goodwill amortization and contingent earn-out adjustments ( 7,999 ) ( 7,012 ) Outside basis difference in subsidiary stock — ( 567 ) Operating lease right-of-use asset ( 1,904 ) ( 524 ) Total deferred tax liabilities ( 32,102 ) ( 36,350 ) Net deferred tax assets $ 1,597 $ 1,873 We have U.S. 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, $ 512.8 million can be carried 94 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with other provisions contained within this guidance. This topic prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate audit settlement. The Company had unrecognized tax benefits of $ 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: Year Ended December 31, 2023 2022 2021 (In thousands) Unrecognized tax benefits balance, beginning of year $ 2,721 $ 2,917 $ 3,615 Increase due to business combinations — — 488 Gross increase for tax positions of current years 340 205 376 Decrease due to settlement — — ( 1,562 ) Uncertain tax basis classified as held-for-sale liabilities — ( 401 ) — 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 cities, the years 2020 and forward for U.S. Federal, and the years 2018 and forward for certain foreign jurisdictions. Tax Legislation On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA imposes a number of significant changes, including, among other things, a 15% minimum tax on the book income of certain corporations and a 1% excise tax on stock buybacks by U.S. public companies. Only limited guidance has been issued to date with respect to these changes. The Company does not currently expect the tax-related provisions of the IRA to have a material impact on its financial results. 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 increased from 19% to 25%. The Company assessed and concluded the impact of the rate change is immaterial to its deferred taxes. Note 17 . Equity Method Investment On February 13, 2022, the Company and Pasaca Capital Inc. (“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. 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 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. 95 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 18 . Variable Interest Entities 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”). The PCs are owned by a medical practitioner in accordance with certain state laws which restrict the corporate practice of medicine and require medical practitioners to own such entities. WildHealth provides management and other services to the PCs in exchange for a management fee and provides financial support to the PCs through a revolving credit arrangement. WildHealth also has separate agreements with the equity holder of the PCs where it may acquire and assign such equity interests for certain PCs. The agreement entitles WildHealth to control rights sufficient to require the Company to consolidate the balance sheet and results of operations of the PCs as VIEs. 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 years ended December 31, 2023 and 2022. Note 19. Related Parties Related parties are defined as entities related to the Company’s directors or main shareholders as well as equity method affiliates. 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. Note 20. Divestiture 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. 96 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Major classes of assets and liabilities sold were as follows: As of March 20, 2023 Assets (In thousands) Cash and cash equivalents $ 3,058 Accounts receivable, net 381 Prepaid expenses and other current assets 956 Property and equipment, net 9,614 Goodwill 8,024 Deferred tax assets 721 Other assets 334 Total assets held for sale $ 23,088 Liabilities Accounts payable $ 2,433 Accrued expenses and other current liabilities 4,859 Deferred tax liability 798 Deferred revenue 679 Total liabilities related to assets held for sale $ 8,769 Note 21. Subsequent Events 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. 97 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable.