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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-04 · 145 added, 160 removed, 115 unchanged (73% of the section changed)

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Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”

This section of this Form 10-K generally discusses 2024 and 2023 items and year over year comparisons between 2024 and 2023.

Discussions of 2022 items and the year over year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Key Metrics and Current Trends

Average Annual Revenue Per Enterprise and Mid-market Customer (“ARPC”) and revenue retention are currently the key performance metrics our management uses to assess the health and trajectory of the Company.

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ARPC increased to approximately $625,000 in 2024, as compared to approximately $610,000 in 2023.

Revenue retention for our enterprise and mid-market customers on the Conversational Cloud, which represents the trailing-twelve-month change in total revenue from existing customers after upsells, downsells and attrition, was approximately 95%, below our target range of 105% to 115% in 2023, as compared to 2022, where our revenue retention rate for enterprise and mid-market customers on Conversational Cloud was within the target range.

Critical Accounting Estimates

Revenue retention for our enterprise and mid-market customers on the LivePerson Platform, which represents the trailing-twelve-month change in total revenue from existing customers after upsells, downsells and attrition, was approximately 82%, below our target range of 105% to 115% in 2024, a decline from the 95% retention rate in 2023 and an increase from the 79% retention rate for the trailing twelve months ended September 30, 2024.

While our expectations for retention rates continue to improve as we look forward to the 2025 renewal cycle, we see heightened risk for the remainder of the current renewal cycle with customers who were likely making their renewal decisions before we installed our new customer success motion.

The last set of customers we have identified in this risk category has renewal dates in the first half of 2025.

As a result, we currently expect short-term attrition to continue into the first half of 2025 and revenue to decline sequentially as a consequence, with a transition toward positive net new annual recurring revenue expected in the second half of 2025.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

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We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources.

We believe that the assumptions and estimates associated with revenue recognition and valuation of goodwill have the greatest potential impact on our consolidated financial statements.

We evaluate these estimates on an ongoing basis.

We evaluate these estimates on an annual basis.

Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material.

For further information on our significant accounting policies, see Note 1 – Description of Business and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

The critical accounting estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

The majority of our revenue is generated from hosted service revenues, which is inclusive of our platform pricing model.

The majority of our revenue is generated from hosted service revenues, including platform access, usage and related professional services .

Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

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.

We have 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.

We recognize 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.

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

We recognize this revenue over time on a ratable basis over the contract term, beginning on the date that access to the LivePerson 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 our performance.

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

Additionally, for certain of our larger customers, we may provide call center labor through an arrangement with one or more of several qualified vendors.

For most of these customers, we pass the fee we incur with the labor provider and its fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions.

For these Gainshare arrangements, we act as a principal in a transaction if we control the specified goods or services before they are transferred to the customer.

Professional Services Revenue

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The Company’s professional services revenue also includes custom support services, which differ from the Company’s standard product support.

These custom support revenues are recognized as the services are performed.

These custom support revenues are recognized as the services are completed.

Goodwill and Long-lived Assets Impairments

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

We evaluate goodwill for impairment on an annual basis in the third quarter, and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its fair value in accordance with ASC 820, “Fair Value Measurement.” In performing the goodwill impairment test, we first assess qualitative factors to determine the existence of impairment.

We evaluate goodwill for impairment on an annual basis on October 1, and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that the carrying value of a reporting unit exceeds its fair value.

In performing the goodwill impairment test, we first assess qualitative factors to determine the existence of impairment.

If the qualitative factors indicate that the carrying value of a reporting unit more likely than not exceeds its fair value, we proceed to a quantitative test to measure the existence and amount, if any, of goodwill impairment.

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In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value.

We determine the fair value using the income and market approaches.

In connection with the annual impairment test completed as of October 1, 2024 using the quantitative “Step 1” assessment, we determined the fair value of our reporting unit, using both an income approach and a market approach.

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

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

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.

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

The income approach uses a discounted cash flow model that reflects our 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.

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.

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.

Our 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 of our Business reporting unit, as the fair value of this reporting unit substantially exceeded its carrying value.

This change was applied prospectively.

In the second quarter of 2024, the Company entered into an agreement for and completed the sale of 100% of the equity in WildHealth to a third party.

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

Subsequent to WildHealth divestiture, the Company has one reporting unit.

Prior to testing goodwill for impairment, the Company first tests its long-lived assets for impairment.

The carrying values are adjusted, if necessary, for the result of each impairment test prior to performing the next test.

Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from their use and eventual disposition.

If such review indicates that the carrying amount of an asset is not recoverable and the asset’s fair value is less than the carrying amount, an impairment charge is recognized.

See Note 1 - Description of Business and Summary of Significant Accounting Policies, N ote 5 – Goodwill and Intangible Assets, net and Note 6 - Property and Equipment, Net in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information.

Convertible Senior Notes

Convertible Notes

We account for convertible debt and related transactions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt , ASC 815, Derivatives and Hedging , and ASC 480, Distinguishing Liabilities from Equity .

We evaluate convertible debt instruments and related transactions at inception to determine if those contracts include embedded features that should be bifurcated as an embedded derivative.

The 2029 Notes issued during the current year are accounted for as a liability.

The transaction was accounted for as a debt extinguishment and a gain on extinguishment was recorded.

The Company paid third party fees in connection with the transaction, which were capitalized as debt issuance costs.

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.

T he 2029 Notes include certain embedded features requiring bifurcation.

The Company estimates the fair value of these features on a quarterly basis by assessing the likelihood of triggering events.

The features do not have material values as of December 31, 2024, but they may have value in the future, should the estimates change, with any change in fair value recorded in the Company’s consolidated statements of operations.

The cash-settled and share-settled warrants (together, “Warrants”) issued by the Company are classified as current liabilities in the consolidated balance sheets and recorded at their fair value.

Changes in fair value are recorded in the Company’s consolidated statements of operations.

See Note 8 – Convertible Senior Notes, Net of Current Portion, Capped Call Transactions, and Warrants and Note 10 - Fair Value Measurements in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information.

Recently Issued Accounting Standards

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Results of Operations

We enable 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 Conversational Cloud enables businesses to have conversations with millions of consumers as personally as they would with one consumer.

We enable brands to leverage the LivePerson Platform’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies.

Our platform enables businesses to have conversations with millions of consumers as personally as they would with one consumer.

The following tables set forth our results of operations for the years presented and as a percentage of our revenues for those periods.

The period-to-period comparison of financial results is not necessarily indicative of future results.

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

Business $ 401,983 $ 514,800 (22) % $ 514,800 $ 469,624 10 %

$ 312,474 $ 401,983 (22) %

Revenue decreased by 22% to $312.5 million for the year ended December 31, 2024, from $402.0 million for the year ended December 31, 2023.

This decrease in revenue is driven primarily by decreases in hosted services of approximately $79.5 million and Professional Services of approximately $33.3 million.

Included in hosted services is a decrease in revenue that is variable based on interactions and usage of approximately $40.8 million for the year ended December 31, 2023 .

Further, 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 for Consumer 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.

The decrease in Professional Services revenue is driven by the build out of the Claire Holdings, Inc.

(“Claire”) joint venture platform, which resulted in a decrease of approximately $34.9 million for the year ended December 31, 2023.

Refer to Note 19 - Related Parties , for additional information about the commercial agreement arrangement.

The ARPC for our enterprise and mid-market customers was approximately $610,000 for the trailing twelve months ended December 31, 2023, as compared to $545,000 for the trailing twelve months ended December 31, 2022.

Revenue retention for our enterprise and mid-market customers on the Conversational Cloud was below our target range of 105% to 115% for 2023, but was within this range for 2022.

Revenue increased by 10% to $514.8 million for the year ended December 31, 2022, from $469.6 million for the year ended December 31, 2021.

This increase in Business revenue is driven primarily by increases in hosted services of approximately $10.5 million and an increase in Professional Services of approximately $34.6 million.

The increase in professional services is primarily driven by increased revenue related to the Claire joint venture platform.

The increase in hosted services is primarily related to the acquisitions of e-bot7 GmbH (“e-bot7”), Callinize, Inc.

(dba Tenfold) (“Tenfold”) and VoiceBase, Inc.

(“VoiceBase”), partially offset by a decrease in revenue that is variable based on interactions and usage of approximately $21.7 million.

We have experienced headwinds in our expansion and retention efforts that have slowed our ability to attract new customers to our product, and we have experienced cancellations and downsell.

Further, we have observed customers tending to cancel on shorter notice than previously.

We are also actively marketing a sale of WildHealth, which contributed $3.4 million of revenue during the fourth quarter, inclusive of approximately $2.0 million received through delayed Medicare reimbursement.

While we are observing a positive operational impact from recent changes to our go-to-market motion, considering the length of our sales and renewal cycles, there can be no assurance that we will be able to fully mitigate or reverse these unfavorable trends, and it would take time for these operational changes to translate into significant improvements to key financial metrics.

Hosted services decreased by $71.3 million, primarily driven by customer cancellations and downsells.

Included in hosted services is a decrease of $16.6 million in revenue that is variable based on interactions and usage for the year ended December 31, 2024 .

In addition, Professional Services decreased by $18.2 million for the year ended December 31, 2024.

The year ended December 31, 2023 includ ed $15.8 million of revenue related to the WildHealth business, which was sold in June 2024, and $7.1 million of revenue related to Kasamba, which was sold in March 2023.

Refer to Key Metrics and Current Trends within Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion of revenue trends.

Cost of Revenue

Cost of revenue consists of compensation costs relating to employees who provide customer service to our customers, compensation costs relating to our network support staff, outside labor provider costs, the cost of supporting our server and network infrastructure, and allocated occupancy costs and related overhead.

Year Ended December 31, Year Ended December 31,

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Cost of revenue decreased by 35% to $93.4 million for the year ended December 31, 2024, from $142.8 million for the year ended December 31, 2023 .

This decrease in expense is primarily attributable to a decrease in outsourced labor and related costs of approximately $30.2 million, a decrease in salary and related employee expenses of approximately $17.5 million due to att rition from prior year and a decrease in compensation expense due to the settlement of earn-outs related to prior acquisitions of approximately $5.4 million, partially offset by an increase in software, hosting and other expenses of approximately $11.2 million.

Cost of revenue increased by 18% to $184.7 million for the year ended December 31, 2022, from $156.9 million for the year ended December 31, 2021.

This increase in expense is primarily attributable to an increase in salary and related employee expenses of approximately $10.9 million, an increase in contingent compensation of approximately $3.3 million in conjunction with acquisitions, an increase in amortization expense of approximately $11.2 million primarily driven by the acquisitions of e-bot7, Tenfold and VoiceBase, and an increase in business services and outsourced subcontracted labor of approximately $3.2 million.

The increases were partially offset by a decrease in software expense of approximately $0.3 million and a decrease of $0.4 million related to other expenses.

This decrease in expense is primarily attributable to a decrease in outsourced labor and related costs of $20.1 million, a decrease in software and hosting expenses of $13.8 million, a decrease in salary and related employee expenses of $7.1 million due to attrition from the prior year, and a decrease in amortization expense of $9.5 million related to purchased intangible assets and finance leases.

Sales and Marketing

Sales and marketing expenses consist of compensation and related expenses for sales and marketing personnel, as well as advertising, marketing events, public relations, trade show exhibit expenses and allocated occupancy costs and related overhead.

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

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Sales and marketing expenses decreased by 20% to $100.5 million for the year ended December 31, 2024, from $125.7 million for the year ended December 31, 2023.

This decrease was primarily attributable to a decrease in salary and employee-related expenses of approximately $40.8 million due to attrition from the prior year, a decrease in marketing expenses of approximately $35.1 million, a decrease in outsourced labor of approximately $4.9 million, and a decrease in compensation expense due to the settlement of earn-outs related to prior acquisitions of approximately $2.4 million.

Sales and marketing expenses increased by 29% to $214.0 million for the year ended December 31, 2022, from $165.4 million for the year ended December 31, 2021.

This is primarily related to an increase in salary and employee-related expenses of approximately $38.1 million, an increase in marketing events, advertising, and public relations of approximately $4.1 million an increase in contingent compensation of approximately $1.8 million in conjunction with acquisitions, an increase of restructuring costs of approximately $1.6 million and an increase in software expense of approximately $1.5 million, with the

remaining net increase related to several other sales and marketing business expenses.

These increases were partially offset by a decrease in outsourcing subcontracted labor of approximately $0.4 million.

This decrease was primarily attributable to a decrease in salary and employee-related expenses of $14.0 million due to attrition from the prior year, a decrease in marketing expenses of $5.7 million, a decrease in software and hosting expenses of $3.6 million, and a decrease in business services, outsourced labor and related costs of $1.9 million.

General and Administrative

Our general and administrative expenses consist of compensation and related expenses for executive, accounting, legal, human resources and administrative personnel, professional fees and other general corporate expenses.

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

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General and administrative expenses decreased by 13% to $80.0 million for the year ended December 31, 2024, from $91.6 million for the year ended December 31, 2023.

This is primarily related to a decrease of $44.6 million in stock-based compensation expense, primarily due to the settlement of earn-outs in 2023 .

A dditionally, there was a decrease in business services and outsourced labor of approximately $5.2 million, a decrease in salary and related employee expenses of approximately $4.2 million and a decrease in facilities expenses of approximately $1.5 million, partially offset by an increase in other expenses of approximately $26.3 million due to leadership transition costs and increased legal fees recognized in the year ended December 31, 2023.

General and administrative expenses increased by 57% to $120.6 million for the year ended December 31, 2022, from $76.8 million for the year ended December 31, 2021.

This is primarily related to an increase in contingent compensation of approximately $30.5 million in conjunction with acquisitions, an increase in salary and employee-related expenses of approximately $3.2 million, an increase in restructuring and other one-time expenses of $6.1 million, an increase in outsourcing subcontracted labor of approximately $3.3 million and net $0.8 million increase of several other general and administrative expenses.

This is primarily related to a decrease in business services and outsourced labor of $9.4 million, a decrease in salary and related employee expenses of $5.7 million, and a decrease in other expenses of $8.3 million primarily related to legal, software and insurance costs.

These items were partially offset by an increase of $12.5 million in stock-based compensation expense driven by settlement of earn-outs in 2023.

Product Development

Our product development expenses consist of compensation and related expenses for product development personnel as well as allocated occupancy costs and related overhead and outsourced labor and expenses for testing new versions of our software.

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

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Product development costs decreased by 20% to $99.9 million for the year ended December 31, 2024, from $124.8 million for the year ended December 31, 2023.

This decrease is primarily related to a decrease in salary and employee-related expenses of approximately $43.3 million , a decrease in compensation expense due to the settlement of earn-outs related to prior acquisitions of approximately $20.1 million , and a decrease in business services and outsourced labor of approximately $6.2 million, partially offset by depreciation expenses of approximately $2.3 million.

Product development costs increased by 22% to $193.7 million for the year ended December 31, 2022, from $158.4 million for the year ended December 31, 2021.

This is primarily related to an increase in contingent compensation of approximately $13.7 million in conjunction with acquisitions, an increase in salaries and employee-related expenses of

approximately $5.4 million, an increase in business services and outsourcing subcontracted labor of approximately $5.4 million, an increase in backup server facilities of approximately $5.9 million related to costs supporting our backup servers and an increase in depreciation expense of approximately $5.0 million.

We continued to make investments in public cloud migration, and in enhancing and expanding new features of the Conversational Cloud, including Voice.

During the years ended December 31, 2023, 2022, and 2021, $19.4 million, $39.2 million, and $36.1 million was capitalized, respectively.

This decrease is primarily related to a decrease in business services and outsourced labor of $13.9 million, a decrease in salary and employee-related expenses of $10.6 million due to attrition from the prior year , and a decrease in software and hosting expenses of $1.4 million, partially offset by an increase in stock compensation expense of $1.0 million.

We continued to make investments in public cloud migration, and in enhancing and expanding new features of the LivePerson Platform.

During the years ended December 31, 2024 and 2023, $19.3 million and $19.4 million was capitalized, respectively.

Restructuring Costs

Restructuring costs consist of reprioritizing and reallocating resources to focus on areas believed to show high growth potential.

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

We maintain restructuring initiatives to realign our cost structure with our current business model, in which we have flattened the organization to align to more efficient sales and service support.

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

Restructuring costs

$ 11,139 $ 22,664 (51) %

Percentage of total revenue 4 % 6 %

Restructuring costs increased by 14% to $22.7 million for the year ended December 31, 2023, from $20.0 million for the year ended December 31, 2022.

This increase is attributable to IT infrastructure contract termination costs of approximately $5.7 million, partially offset by lower costs related to the restructuring initiative, which commenced during the second quarter of 2022, primarily consisting of severance and other associated costs related to the reduction in our workforce.

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.

Restructuring costs decreased by 51% to $11.1 million for the year ended December 31, 2024, from $22.7 million for the year ended December 31, 2023.

This decrease is primarily attributable to a $6.9 million decrease in IT infrastructure contract termination costs.

In addition, severance and other associated costs decreased by $4.6 million due to fewer reductions in our workforce compared to the year ended December 31, 2023.

Refer to Note 13 – Restructuring for additional information about the restructuring initiative.

Restructuring costs increased by 488% to $20.0 million for the year ended December 31, 2022, from $3.4 million for the year ended December 31, 2021.

This increase is attributable primarily as a result of an increase in restructuring costs related to severance and other compensation costs.

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

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

Amortization of Purchased Intangibles

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

(Dollars in thousands)

Amortization of purchased intangibles $ 3,505 $ 3,678 (5)% $ 3,678 $ 2,045 80%

Percentage of total revenue 1 % 1% 1% —%

Amortization expense for purchased intangibles decreased by 5% to $3.5 million for the year ended December 31, 2023, from $3.7 million for the year ended December 31, 2022.

The year-over-year variance is primarily attributable to the impairment of WildHealth developed technology in the year ended December 31, 2023.

Amortization expense for purchased intangibles increased by 80% to $3.7 million for the year ended December 31, 2022 from $2.0 million for the year ended December 31, 2021.

The year-over-year variance is primarily attributable to amortization of patents and customer relationships as well as the intangible assets acquired in the three acquisitions that occurred in 2021.

Impairment of Goodwill

Year Ended December 31, Year Ended December 31,

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Percentage of total revenue 19 % 3%

Goodwill impairment was approximately $11.9 million for the year ended December 31, 2023.

This non-cash charge was a result of our September 30, 2023 annual goodwill impairment test and was attributable to the WildHealth reporting unit.

There were no impairment charges for the years ended December 31, 2022 and 2021.

Goodwill impairment was $60.6 million for the year ended December 31, 2024, primarily related to goodwill impairment of $56.9 million as a result of our impairment test on October 1, 2024, and to a lesser extent, goodwill impairment of $3.6 million related to the WildHealth business, which was sold during the second quarter of 2024.

Refer to Note 5 - Goodwill and Intangible Assets, net, for additional information about the impairments.

Impairment of Intangibles and Other Assets

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

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Percentage of total revenue 15 % 2%

Impairment of intangibles and other assets was approximately $8.0 million for the year ended December 31, 2023.

During the fourth quarter of fiscal year 2023, the Company recognized an impairment charge of $5.0 million related to fixed assets associated with internal-use software development projects that were discontinued and determined to have no future economic benefit.

The Company further recognized an immaterial non-cash impairment charge of $3.0 million related to intangible assets – developed technology associated with WildHealth, as a result of the Company’s annual impairment test of its intangible assets.

There were no impairment charges for the years ended December 31, 2022 and 2021.

Total Other Income (Expense), net

Total other income (expense), net consists primarily of fair value adjustments for earn-outs, foreign currency gains and losses and income (loss) from our equity method investment.

Interest income includes interest income from cash deposits, amortization of debt discount, amortization of issuance costs, and interest expense from our convertible senior notes.

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Impairment of intangibles and other assets was $46.9 million for the year ended December 31, 2024.

This impairment consisted of non-cash charges of $23.7 million related to developed technology, $11.0 million related to customer relationships, $0.5 million related to trademarks, $9.5 million related to property and equipment - internal-use software development costs, and $2.2 million attributable to the intangible assets associated with our WildHealth reporting unit, which was fully divested during 2024.

Refer to Note 5 - Goodwill and Intangible Assets, net, for additional information about the impairments.

Total Other Income, net

Total other income, net consists primarily of gain on debt extinguishment, fair value adjustments for our Warrants, foreign currency gains and losses and loss from our equity method investment.

Interest expense represents interest expense from our convertible senior notes, amortization of debt issuance costs and debt discount.

Interest income represents interest earned from cash deposits.

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

Interest income (expense), net $ 4,669 $ (352) 1,426% $ (352) $ (37,406) (99)%

Other income (expense), net 10,434 (1,784) 685% (1,784) 3,294 (154)%

Total other income (expense), net $ 15,103 $ (2,136) 807% $ (2,136) $ (34,112) (94)%

Total other income (expense), net increased to income of $15.1 million for the year ended December 31, 2023 from an expense of $2.1 million for the year ended December 31, 2022.

The increase is primarily due to a gain of $10.0 million related to a legal settlement, a gain of $7.2 million resulting from the repurchase of 2024 Notes, a $4.6 million change in fair value of earn-out as a result of settlements, related to prior acquisitions, and reduced losses recognized related to the Company’s equity method investment compared to the year ended December 31, 2022.

The remaining amount of total other income (expense), net fluctuation is attributable to currency rate fluctuations.

Total other income (expense), net decreased by $32.0 million to an expense of $2.1 million for the year ended December 31, 2022, from an expense of $34.1 million for the year ended December 31, 2021.

This decrease was primarily attributable to a decrease in interest expense due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of 2024 Notes and the 2026 Notes, a gain related to the fair value adjustment for earn-outs recorded during the third quarter of 2022, partially offset by the loss in equity earnings related to the launch of Claire, a joint venture, during the year ended December 31, 2022.

Provision For (Benefit From) Income Taxes

Year Ended December 31, Year Ended December 31,

2023 2022 % Change 2022 2021 % Change

Interest expense

$ (14,486) $ (4,882) (197)%

Interest income

5,860 9,551 (39)%

Gain on debt extinguishment

73,083 7,200 915%

Other (expense) income, net

(12,800) 3,234 (496)%

Total other income, net $ 51,657 $ 15,103 242%

Total other income, net increased by $36.6 million to income of $51.7 million for the year ended December 31, 2024 from $15.1 million for the year ended December 31, 2023.

The increase is primarily due to a gain of $73.1 million related to the extinguishment of the 2026 Notes, partially offset by a $12.2 million adjustment to the fair value of our Warrants and $14.5 million interest expense on our convertible debt.

The remaining amount of total other income, net fluctuation is primarily attributable to interest income on our money market accounts, and the impact of currency rate fluctuations.

Provision For Income Taxes

Year Ended December 31,

2024 2023 % Change

(Dollars in thousands)

Provision for (benefit from) income taxes $ 4,163 $ 1,727 141% $ 1,727 $ (2,404) 172%

We had a provision for income taxes of $4.2 million for the year ended December 31, 2023 and a provision for income taxes of $1.7 million for the year ended December 31, 2022.

Provision for income taxes $ 2,735 $ 4,163 (34)%

We had a provision for income taxes of $2.7 million and $4.2 million for the years ended December 31, 2024 and 2023, respectively.

Our consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate, valuation allowance recorded against losses generated in the U.S.

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The overall tax provision recorded represents tax on non-U.S.

earnings in the various jurisdictions in which we operate, a tax charge of $0.8 million for valuation allowance on certain LivePerson, Inc.

net operating losses in connection with the sale of the Kasamba business and additional accruals related to unrecognized tax benefits.

The increase in tax expense is primarily due to a change in the amount of valuation allowance recognized related to acquisition and sale activity of the company year over year.

The total tax expense associated with non-U.S.

jurisdictions is relatively consistent between periods.

In prior periods, we had a tax provision for income taxes of $1.7 million for the year ended December 31, 2022 and a tax benefit for income taxes of $2.4 million for the year ended December 31, 2021.

Our consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate, movement of valuation allowance recorded against deferred tax activities of the U.S.

and Germany and changes to unrecognized benefits in Israel.

During 2022, we recorded a benefit of $1.6 million for a release of valuation allowance on certain LivePerson, Inc.

net operating losses in connection with the acquisition of WildHealth.

The increase in tax expense is primarily due to a change in the amount of valuation allowance recognized related to acquisitions.

earnings in the various jurisdictions in which we operate and the provision for U.S.

state and local impacts.

The total tax expense associated with non-U.S.

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Year Ended December 31,

2023 2022 2021

(In thousands)

Net cash (used in) provided by operating activities $ (19,765) $ (62,101) $ 3,247

Net cash used in operating activities $ (15,130) $ (19,765)

Net cash used in investing activities (28,216) (18,842)

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

As of December 31, 2023, we had approximately $212.9 million in cash, cash equivalents, and restricted cash, a decrease of approximately $179.3 million from December 31, 2022.

The decrease is primarily attributable to payment of approximately $149.7 million in cash for the repurchase of approximately $157.5 million in aggregate principal amount of the 2024 Notes, coupled with the payment of bonuses in cash and various other uses of cash for operating purposes.

The decrease was partially offset by $13.8 million in cash proceeds from the divestiture of Kasamba.

Net cash provided by (used in) financing activities

14,972 (151,142)

As of December 31, 2024, we had $183.2 million in cash, cash equivalents, and restricted cash, a decrease of $29.7 million from December 31, 2023.

The decrease is primarily attributable to the Company’s repayment in full at maturity of the outstanding $72.5 million in aggregate principal amount of the 2024 Notes, the repurchase of 2026 Notes for $4.9 million, capital

expenditures of $25.1 million, and various other uses of cash for operating purposes.

These uses of cash were partially offset by proceeds of $50.0 million from issuance of the 2029 Notes, along with $50.0 million in proceeds from the Delayed Draw Notes transaction in the fourth quarter of fiscal year 2024.

Cash Flows from Operating Activities

Net cash used in operating activities was $15.1 million in the year ended December 31, 2024.

Our net loss was $100.4 million, which includes the effect of non-cash expenses related to depreciation of $32.6 million, amortization of purchased intangibles and finance leases of $22.2 million, amortization of debt issuance costs of $4.0 million, allowance for credit losses of $3.3 million, a goodwill impairment of $11.9 million, intangible and other assets impairment of $8.0 million related to our WildHealth reporting unit and internal-use software development costs, a $4.6 million change in fair value of contingent consideration and stock-based compensation of $11.9 million, partially offset by a gain on divestiture of $17.6 million and a gain on repurchase of convertible notes of $7.2 million.

Net cash used in operating activities was further driven by a decrease in accounts payable of $13.6 million, a decrease in deferred revenue of $3.2 million, a decrease in other liabilities of $7.8 million, a decrease in accounts receivable of $1.5 million, an increase in accrued expenses and other current liabilities of $24.3 million, an increase in prepaid expenses and other current assets of $3.4 million, and an increase in contract acquisition costs of $5.0 million.

Our net loss was $134.3 million, which includes the effect of non-cash expenses related to depreciation of $30.3 million, amortization of purchased intangible assets and finance leases of $12.0 million, change in the fair value of Warrants of $12.2 million, PIK interest expense of $5.8 million, amortization of debt issuance costs and accretion of discount of $4.5 million, allowance for credit losses of $15.0 million, and stock-based compensation of $22.0 million.

In addition, we recorded a goodwill impairment of $60.6 million, and intangible and other assets impairments of $46.9 million primarily related to our developed technology and customer relationships, and to a lesser extent, related to our WildHealth reporting unit and internal-use software development costs.

These items were partially offset by a gain on repurchase of convertible notes of $73.1 million.

Net cash used in operating activities was further driven by a decrease in accounts payable, accrued expenses and other current liabilities of $44.5 million and a decrease in deferred revenue of $23.1 million, partially offset by a decrease in accounts receivable of $37.5 million, a decrease in prepaid expenses and other current assets of $7.3 million, and a decrease in contract acquisition costs of $3.3 million.

Net cash used in operating activities was $19.8 million in the year ended December 31, 2023.

Our net loss was $225.7 million for the year ended December 31, 2022, which includes the effect of non-cash expenses related to stock-based compensation expense, change in fair value of contingent consideration, depreciation, amortization of purchased intangibles, finance leases, convertible debt issuance costs, gain on settlement of leases, allowance for credit losses, increases in accounts receivable, prepaid expenses and other current assets, accrued expenses and other current liabilities, contract acquisition costs, other assets, and decreases in deferred revenue and operating lease liabilities.

Our net loss was $100.4 million, which included the effect of non-cash expenses related to depreciation of $32.6 million, amortization of purchased intangible assets and finance leases of $22.2 million, amortization of debt issuance costs of $4.0 million, allowance for credit losses of $3.3 million, a goodwill impairment of $11.9 million, intangible and other assets impairment of $8.0 million related to our WildHealth reporting unit and internal-use software development costs, a $4.6 million change in fair value of contingent consideration, and stock-based compensation of $11.9 million, partially offset by a gain on divestiture of $17.6 million and a gain on repurchase of convertible notes of $7.2 million.

Net cash used in operating activities was further driven by a decrease in deferred revenue of $3.2 million, a decrease in other liabilities of $7.8 million, and an increase in prepaid expenses and other current assets of $3.4 million, partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $10.8 million, a decrease in contract acquisition costs of $5.0 million and a decrease in accounts receivable of $1.5 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $18.8 million in the year ended December 31, 2023 which was primarily driven by purchases of fixed assets and capitalization of internally developed software, partially offset by the proceeds from the sale of Kasamba.

Net cash used in investing activities was $56.9 million in the year ended December 31, 2022 which was driven primarily by purchases of property and equipment, including capitalized software, payments for the WildHealth acquisition, net of cash acquired and cash infusion into the Claire joint venture.

Net cash used in investing activities was $28.2 million in the year ended December 31, 2024 which was primarily driven by purchases of property and equipment and capitalization of internally developed software.

Net cash used in investing activities was $18.8 million in the year ended December 31, 2023 which was primarily driven by purchases of property and equipment and capitalization of internally developed software, partially offset by the proceeds from the sale of Kasamba.

Cash Flows from Financing Activities

Net cash used in financing activities was $151.1 million in the year ended December 31, 2023 which was primarily driven by the repurchase of our 2024 Notes.

Net cash provided by financing activities was $1.6 million in the year ended December 31, 2022 driven primarily by proceeds from issuance of common stock in connection with the exercise of stock options by employees, partially offset by principal payments for financing leases and the repurchase of common stock.

Net cash provided by financing activities was $15.0 million in the year ended December 31, 2024 which was primarily driven by proceeds from issuance of 2029 Notes of $50.0 million, and proceeds from the Delayed Draw Notes of $50.0 million.

These proceeds were partially offset by full repayment of the 2024 Notes of $72.5 million, repurchases of the 2026 Notes of $4.9 million, and payment of debt issuance costs of $7.6 million.

Net cash used by financing activities was $151.1 million in the year ended December 31, 2023, driven primarily by the repurchase of the 2024 Notes of $149.8 million.

We have incurred significant expenses to develop our technology and services, to hire employees in our customer service and sales and marketing departments, and for the amortization of purchased intangible assets, as well as acquisition costs and non-cash compensation costs.

Historically, we have incurred net losses and negative cash flows for various quarterly and annual periods since our inception, including during numerous quarters and annual periods in the past several years.

As of December 31, 2023, we had an accumulated deficit of approximately $857.0 million.

Our principal sources of liquidity are the net proceeds from the issuance of our convertible senior notes, after deducting purchaser discounts and debt issuance costs paid by us, issuance of common stock in connection with the exercise of options, and payments received from customers using our products.

As of December 31, 2024, we had an accumulated deficit of $991.3 million.

Our principal sources of liquidity are the net proceeds from the issuance of our convertible senior notes, after deducting purchaser discounts as applicable and debt issuance costs paid by us, and payments received from customers using our products.

We anticipate that our current cash and cash equivalents will be sufficient to satisfy our working capital and capital requirements for at least the next 12 months.

However, we cannot assure you that we will not require additional funds prior to such time, and we would then seek to sell additional equity or debt securities through public financings, or seek alternative sources of financing.

Further, we plan to refinance the 2026 Notes on or prior to their maturity, and we are currently reviewing our capital structure with a goal of refinancing the 2026 Notes.

We cannot assure you that additional funding will be available on favorable terms, when needed, if at all.

Further, we continue to plan to refinance the remaining balance of the 2026 Notes on or prior to their maturity.

W e cannot assure you that additional funding will be available on favorable terms, when needed, if at all.

If we are unable to obtain any necessary financing, we may be required to further reduce the scope of our planned sales and marketing and product development efforts, which could materially adversely affect our financial condition and operating results.

In addition, we may require additional funds in order to fund more rapid expansion, to develop new or enhanced services or products or to invest in or acquire complementary businesses, technologies, services or products.

refinance or repurchase its outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms the Company deems appropriate (which, in the case of debt securities, may be below par) and subject to the Company’s cash requirements for other purposes and other factors management deems relevant.

The indenture governing the 2029 Notes includes a financial covenant that requires the Company to maintain a minimum cash balance of $60 million at all times.

Proceeds of the 2029 Notes may be used only to (i) pay interest, or cash settle, the 2029 Notes, (ii) cash settle the Warrants, (iii) exchange, repurchase, redeem, replace or otherwise refinance 2026 Notes (or refund or replenish cash of the Company or any of its subsidiaries used to do so after May 13, 2024) or (iv) pay or reimburse certain fees, costs and expenses related to the foregoing and the other transactions contemplated by the Exchange and Purchase Agreement as amended or otherwise modified from time to time.

Upon conversion or exercise, the 2029 Notes and cash-settled warrants would be settled for cash.

In addition, the 2026 Notes and the 2029 Notes are subject to repurchase at the option of holders if the Company undergoes a “fundamental change”, and the 2026 Notes and the 2029 Notes are subject to events of default customary for notes issued in connection with similar transactions, which could result in the acceleration of amounts owed.

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

The Company may from time to time, subject to board authorization and any applicable restrictions under contracts to which it may be or become a party, depending upon market conditions and the Company’s financing needs, use available funds to refinance or repurchase its outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise, in compliance with applicable laws, rules and regulations, at prices and on terms the Company deems appropriate (which, in the case of debt securities, may be below par) and subject to the Company’s cash requirements for other purposes and other factors management deems relevant.

We do not engage in off-balance sheet financing arrangements.

Capital Expenditures

Total capital expenditures in 2023 were approximately $28.7 million, primarily related to software capitalization and to the continued investment in our co-location facilities.

Total capital expenditures in 2024 were $25.1 million, primarily related to software capitalization and to the continued investment in our co-location facilities.

We anticipate that our current cash and cash equivalents and cash from operations will be sufficient to fund our capital expenditures for at least the next 12 months.

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

however, we have a directors and officers insurance policy that reduces our exposure and enables us to recover a portion of any future amounts paid.

however, we have a directors and officers insurance policy that reduces our exposure and enables us to recover a portion of any future amounts paid subject to customary deductibles.

As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal.

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

As of December 31, 2023, the value of our non-cancellable unconditional purchase obligations was approximately $36.0 million , primarily relating to contracts with vendors in connection with IT infrastructure and cloud computing-related services.

As of December 31, 2024, the value of our non-cancellable unconditional purchase obligations was $15.5 million , primarily relating to contracts with vendors in connection with IT infrastructure.

See Note 11 – Commitments and Contingencies in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information regarding our purchase obligations.

We also lease certain facilities and data centers under non-cancellable operating lease arrangements that expire at various dates through 2028.

We also lease certain facilities under non-cancellable operating lease arrangements that expire at various dates through 2025.

See Note 9 – Leases in the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information regarding our lease obligations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis