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 ) 56 Consolidated Balance Sheets as of December 31, 2024 and 2023 58 Consolidated Statements of Operations for the three years ended December 31, 2024, 2023, and 2022 59 Consolidated Statements of Comprehensive Loss for the three years ended December 31, 2024, 2023, and 2022 60 Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2024, 2023, and 2022 61 Consolidated Statements of Cash Flows for the three years ended December 31, 2024, 2023, and 2022 62 Notes to Consolidated Financial Statements 64 55 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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 , in conformity with accounting principles generally accepted in the United States of America. 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 Public Company Accounting Oversight Board (United States) (“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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of Embedded Features in 2029 Notes As described in Notes 1 and 8 to the consolidated financial statements, in June 2024, the Company issued $150 million aggregate principal amount of its 2029 Notes including $100 million aggregate principal amount issued in exchange for $146 million aggregate principal amount of 2026 Notes and $50 million aggregate principal amount issued for cash. The Company evaluates 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 include certain embedded features requiring bifurcation, which did not have material values as of December 31, 2024 due to management’s estimates of the likelihood of triggering events, but that may have value in the future should those estimates change, with any change in fair value recorded in the Company’s consolidated statements of operations. We identified the evaluation of whether the embedded features included in the 2029 Notes should be bifurcated as embedded derivatives as a critical audit matter. Determining whether the embedded features included in the 2029 Notes should be bifurcated and accounted for separately as derivatives involved the use of significant judgment in the application of highly complex 56 accounting standards. Auditing these elements involved especially challenging and complex auditor judgment due to the nature and extent of audit effort required to evaluate management’s application of highly complex accounting standards to these elements. The primary procedures we performed to address this critical audit matter included: • Reading and analyzing the relevant agreements to identify relevant terms and conditions that affect whether embedded features should be bifurcated. • With the assistance of professionals in our firm having expertise in accounting for derivatives, we evaluated the Company’s conclusions regarding whether the embedded features should be bifurcated and accounted for as derivatives under accounting principles generally accepted in the United States of America. Impairment Testing of Goodwill and Long-Lived Assets As described in Notes 1, 5 and 6 to the consolidated financial statements, the Company’s consolidated goodwill, intangible assets and property and equipment, net balances as of December 31, 2024 were $222.6 million, $15.1 million and $100.6 million, respectively. Prior to testing goodwill for impairment, the Company first tests its long-lived assets for impairment. 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. In connection with the annual goodwill impairment completed as of October 2024, using the quantitative “Step 1” assessment, the Company determined the fair value of its reporting unit, using both an income approach and a market approach. The fair value determination using an income approach requires management to make significant estimates and assumptions that related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and the discount rate. As a result of the impairment tests in the fourth quarter of 2024, the Company recorded non-cash impairment charges of $56.9 million for goodwill and $35.2 million for intangible assets which is included in Impairment of goodwill and Impairment of intangibles and other assets in the consolidated statements of operations, respectively. We identified the Company’s impairment testing of its long-lived assets and goodwill in the fourth quarter of 2024 as a critical audit matter. The cash flows used in determining the fair value of the Company’s reporting unit and recoverability of the asset group required the use of significant judgment due to the subjectivity and uncertainty of the forecasts of future revenues for certain years and EBITDA. 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 forecasts of future revenues for certain years and EBITDA by: i) evaluating the consistency of the forecasts of future revenues and EBITDA with historical results, and ii) evaluating the consistency of the forecasts of future revenues and EBITDA with the Company’s objectives and strategies. • Testing the accuracy and completeness of information used by management to determine the forecasts of future revenues for certain years. /s/ BDO USA, P.C. We have served as the Company’s auditor since 2005. New York, New York March 14, 2025 57 LIVEPERSON, INC. CONSOLIDATED BALANCE SHEETS December 31, 2024 2023 ASSETS (In thousands) Current assets: Cash and cash equivalents $ 183,237 $ 210,782 Restricted cash — 2,143 Accounts receivable, net of allowances of $ 8,627 and $ 9,290 as of December 31, 2024 and 2023, respectively 28,737 81,802 Prepaid expenses and other current assets (Note 1) 19,250 26,981 Total current assets 231,224 321,708 Operating lease right-of-use assets (Note 9) 48 4,135 Property and equipment, net (Note 6) 100,557 119,325 Contract acquisition costs, net (Note 2) 33,559 37,354 Intangible assets, net (Note 5) 15,070 61,625 Goodwill, net (Note 5) 222,554 285,631 Deferred tax assets, net (Note 15) 4,411 4,527 Other assets 355 1,208 Total assets $ 607,778 $ 835,513 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 15,378 $ 13,555 Accrued expenses and other current liabilities (Note 7) 66,530 97,024 Deferred revenue (Note 2) 57,980 81,858 Convertible senior notes (Note 8) — 72,393 Operating lease liabilities (Note 9) 52 2,719 Total current liabilities 139,940 267,549 Convertible senior notes, net of current portion (Note 8) 527,070 511,565 Operating lease liabilities, net of current portion (Note 9) — 2,173 Deferred tax liabilities (Note 15) 3,542 2,930 Other liabilities 4,542 3,158 Total liabilities 675,094 787,375 Commitments and contingencies (Note 11) 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; 93,956,738 and 90,603,519 shares issued, and 91,190,665 and 87,837,446 shares outstanding as of December 31, 2024 and 2023, respectively 94 91 Treasury stock, at cost; 2,766,073 shares as of December 31, 2024 and 2023 ( 3 ) ( 3 ) Additional paid-in capital 936,047 913,522 Accumulated deficit ( 991,261 ) ( 856,988 ) Accumulated other comprehensive loss ( 12,193 ) ( 8,484 ) Total stockholders’ equity ( 67,316 ) 48,138 Total liabilities and stockholders’ equity $ 607,778 $ 835,513 See accompanying notes to consolidated financial statements. 58 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2024 2023 2022 (In thousands, except share and per share amounts) Revenue $ 312,474 $ 401,983 $ 514,800 Costs, expenses and other: Cost of revenue 93,404 142,823 184,699 Sales and marketing 100,475 125,677 214,027 General and administrative 80,008 91,619 120,625 Product development 99,917 124,792 193,688 Impairment of goodwill 60,551 11,895 — Impairment of intangibles and other assets 46,872 7,974 — Restructuring costs 11,139 22,664 19,967 Loss (gain) on divestiture 558 ( 17,591 ) — Amortization of purchased intangible assets 2,745 3,505 3,678 Total costs, expenses and other 495,669 513,358 736,684 Loss from operations ( 183,195 ) ( 111,375 ) ( 221,884 ) Other income (expense), net: Interest expense ( 14,486 ) ( 4,882 ) ( 5,503 ) Interest income 5,860 9,551 5,151 Gain on debt extinguishment 73,083 7,200 — Other (expense) income, net ( 12,800 ) 3,234 ( 1,784 ) Total other income (expense), net 51,657 15,103 ( 2,136 ) Loss before provision for income taxes ( 131,538 ) ( 96,272 ) ( 224,020 ) Provision for income taxes 2,735 4,163 1,727 Net loss $ ( 134,273 ) $ ( 100,435 ) $ ( 225,747 ) Net loss per share of common stock: Basic $ ( 1.51 ) $ ( 1.28 ) $ ( 3.03 ) Diluted $ ( 1.51 ) $ ( 1.28 ) $ ( 3.03 ) Weighted-average shares used to compute net loss per share: Basic 88,715,161 78,593,274 74,509,404 Diluted 88,715,161 78,593,274 74,509,404 See accompanying notes to consolidated financial statements. 59 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2024 2023 2022 (In thousands) Net loss $ ( 134,273 ) $ ( 100,435 ) $ ( 225,747 ) Other comprehensive (loss) income: Foreign currency translation adjustment ( 3,709 ) 2,193 ( 5,113 ) Comprehensive loss $ ( 137,982 ) $ ( 98,242 ) $ ( 230,860 ) See accompanying notes to consolidated financial statements. 60 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 as of 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 the Company’s employee stock purchase plan (“ESPP”) 319,754 — — — 4,246 — — 4,246 Net loss — — — — — ( 225,747 ) — ( 225,747 ) Other comprehensive loss — — — — — — ( 5,113 ) ( 5,113 ) Balance as of 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 income — — — — — — 2,136 2,136 Balance as of December 31, 2023 90,603,519 $ 91 ( 2,766,073 ) $ ( 3 ) $ 913,522 $ ( 856,988 ) $ ( 8,484 ) $ 48,138 Common stock issued upon exercise of stock options 13 — — — — — — — Common stock issued upon vesting of restricted stock units 3,018,480 3 — — ( 3 ) — — — Stock-based compensation — — — — 21,989 — — 21,989 Common stock issued under ESPP 334,726 — — — 419 — — 419 Other — — — — 120 — — 120 Net loss — — — — — ( 134,273 ) — ( 134,273 ) Other comprehensive loss — — — — — — ( 3,709 ) ( 3,709 ) Balance as of December 31, 2024 93,956,738 $ 94 ( 2,766,073 ) $ ( 3 ) $ 936,047 $ ( 991,261 ) $ ( 12,193 ) $ ( 67,316 ) See accompanying notes to consolidated financial statements. 61 LIVEPERSON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2024 2023 2022 (In thousands) OPERATING ACTIVITIES: Net loss $ ( 134,273 ) $ ( 100,435 ) $ ( 225,747 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 21,989 11,854 109,638 Depreciation 30,310 32,557 32,284 Reduction of operating lease right-of-use assets 4,059 — — Amortization of purchased intangible assets and finance leases 11,962 22,196 22,112 Amortization of debt issuance costs and accretion of debt discount 4,513 4,043 3,778 Impairment of goodwill 60,551 11,895 — Impairment of intangibles and other assets 46,872 7,974 — Change in fair value of Warrants 12,232 — — Change in fair value of contingent consideration — 4,629 ( 8,516 ) Gain on debt extinguishment ( 73,083 ) ( 7,200 ) — Paid-in-kind interest expense 5,810 — — Allowance for credit losses 14,959 3,319 5,644 Loss (gain) on divestiture 558 ( 17,591 ) — Gain on settlement of leases — — ( 242 ) Deferred income taxes 623 1,046 ( 1,161 ) Equity loss in joint venture — 2,264 — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 37,548 1,457 ( 38 ) Prepaid expenses and other current assets 7,300 ( 3,411 ) ( 5,979 ) Contract acquisition costs 3,331 4,992 ( 6,370 ) Other assets 652 1,361 ( 153 ) Accounts payable, accrued expenses and other current liabilities ( 44,518 ) 10,773 19,535 Deferred revenue ( 23,058 ) ( 3,169 ) ( 12,341 ) Operating lease liabilities ( 4,868 ) ( 523 ) ( 2,638 ) Other liabilities 1,401 ( 7,796 ) 8,093 Net cash used in operating activities ( 15,130 ) ( 19,765 ) ( 62,101 ) INVESTING ACTIVITIES: Purchases of property and equipment, including capitalized software ( 25,142 ) ( 28,657 ) ( 48,486 ) Proceeds from divestiture — 13,819 — Payments for acquisitions, net of cash acquired — — ( 3,430 ) Purchases of intangible assets ( 3,074 ) ( 4,004 ) ( 2,680 ) Investment in joint venture — — ( 2,264 ) Net cash used in investing activities ( 28,216 ) ( 18,842 ) ( 56,860 ) FINANCING ACTIVITIES: Proceeds from issuance of 2029 convertible senior notes 100,000 — — Payment for repurchase of 2024 convertible senior notes ( 72,492 ) ( 149,702 ) — Payment for repurchase of 2026 convertible senior notes ( 4,901 ) — — Payment of debt issuance costs ( 7,584 ) — — Principal payments for finance leases ( 401 ) ( 3,330 ) ( 3,734 ) Proceeds from issuance of common stock in connection with the exercise of options and ESPP 350 1,890 5,573 Repurchase of common stock — — ( 221 ) Net cash provided by (used in) financing activities 14,972 ( 151,142 ) 1,618 62 Year Ended December 31, 2024 2023 2022 (In thousands) Effect of foreign exchange rate changes on cash and cash equivalents ( 1,314 ) 465 ( 3,980 ) Net decrease in cash, cash equivalents, and restricted cash ( 29,688 ) ( 189,284 ) ( 121,323 ) Cash classified within current assets held for sale — 10,011 ( 10,011 ) Cash, cash equivalents, and restricted cash - beginning of year 212,925 392,198 523,532 Cash, cash equivalents, and restricted cash - end of year $ 183,237 $ 212,925 $ 392,198 Reconciliation of cash, cash equivalents, and restricted cash to consolidated balance sheets: Cash and cash equivalents $ 183,237 $ 210,782 $ 391,781 Restricted cash — 2,143 417 Total cash, cash equivalents, and restricted cash $ 183,237 $ 212,925 $ 392,198 Supplemental disclosure of other cash flow information: Cash paid for income taxes, net $ 1,886 $ 1,858 $ 3,237 Cash paid for interest 3,710 1,235 1,932 Supplemental disclosure of non-cash investing and financing activities: Increase in convertible senior notes, net upon adoption of ASU 2020-06 $ — $ — $ ( 159,407 ) Purchase of property and equipment and intangible assets in accounts payable 1,093 2,088 1,022 Right-of-use assets obtained in exchange for operating lease liabilities 100 5,198 — 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 Supplemental disclosure of non-cash financing activities related to acquisitions Fair value of contingent earn-out in connection with e-bot7 transaction $ — $ — $ 7,362 Fair value of contingent earn-out in connection with Tenfold transaction — — 6,558 Fair value of contingent earn-out in connection with VoiceBase transaction — — 16,067 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. 63 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business and Summary of Significant Accounting Policies LivePerson, Inc. (the “Company”) is a leader in digital customer conversation. Since 1998, LivePerson has enabled connections between consumers and its customers through digital and artificial intelligence (“AI”)-powered conversations. The LivePerson Platform 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 LivePerson Platform to connect conversations across voice and digital channels to give customers additional options and ensure their interactions with brands are integrated no matter where they choose to reach out. The LivePerson 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 are able to leverage the AI engine (including generative AI capabilities) to surface relevant content, define next-best actions. By integrating customer engagement channels, LivePerson’s proprietary AI, and third-party bots and AI, the LivePerson Platform offers brands a comprehensive approach to scaling automations across 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. The Company’s equity method investment in joint venture was reduced to zero during 2023 based on 2023 losses, and remained at zero on the consolidated balance sheet as of December 31, 2024. The Company recorded its ownership percentage of losses of Claire in Other (expense) income, net in the amount of $2.3 million for the year ended December 31, 2023. Variable Interest Entities 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). 64 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 17 – 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. These estimates are based on information available as of the date of the consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Items subject to such estimates and assumptions include, but are not limited to: • 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 long-lived assets; • valuation of the cash-settled and share-settled warrants (together, “Warrants”); • valuation of features embedded in 2029 Notes; • 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 (expense) income, net in the accompanying consolidated statements of operations, and were not material for the years ended December 31, 2024, 2023 and 2022. Cash, Cash Equivalents and Restricted Cash 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 related to funds held in connection with the divestiture of Kasamba. See Note 19 – Divestitures for additional information. 65 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2024 2023 (In thousands) Prepaid software maintenance $ 9,868 $ 8,592 VAT receivable 2,452 4,399 Prepaid server maintenance 116 2,634 Prepaid - other 2,794 2,599 Other assets 4,020 8,757 Total prepaid expenses and other current assets $ 19,250 $ 26,981 Goodwill Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. The Company evaluates 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 accordance with ASC 820, Fair Value Measurements . In performing the goodwill impairment test, the Company first assesses 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, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative test. 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. In connection with the annual impairment test completed as of October 1, 2024 using the quantitative “Step 1” assessment, the Company determined the fair value of the reporting unit, using both an income approach and a market approach. The income approach uses a discounted cash flow model that reflects the Company’s 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, the Company estimates 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. The change was applied prospectively and did not have a material impact on the Company. In the second quarter of 2024, the Company entered into an agreement for and completed the sale of 100% of the equity in WildHealth with 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. See Note 19 – Divestitures for additional information. Long-lived Assets Intangible assets Intangible assets with estimable 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 the Company’s acquisitions. Intangible assets are recorded at fair value on the date of acquisition and are amortized on a straight-line basis over their estimated economic lives, which are generally 3 to 15 years. The Company’s capitalized patents are stated at cost, which approximates fair value at inception, and are amortized on a straight-line basis over their estimated economic lives, which are generally 12 to 13 years. See Note 5 – Goodwill and Intangible Assets, Net for additional information. 66 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 property and equipment on an annual 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 . Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. Management evaluates the useful lives of these assets and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. See Note 6 – Property and Equipment, Net for additional information. 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. Convertible Senior Notes Convertible Notes The Company accounts for convertible debt and related transactions in accordance with ASC 470, Debt , ASC 815, Derivatives and Hedging , and ASC 480, Distinguishing Liabilities from Equity . The Company evaluates 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. Warrants The 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 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. 67 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Sales and marketing expense on the consolidated statements of operations. Such costs totaled $ 5.1 million, $ 10.9 million, and $ 45.5 million for the years ended December 31, 2024, 2023, and 2022, respectively. Research and Development 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, and are included in Product development in the consolidated statements of operations. 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 one to four years . Restricted stock units (“RSUs”) are generally subject to a service-based vesting condition over one 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, Compensation - 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 12 – Stockholders’ Equity for additional information. Leases The Company determines if an arrangement is or contains a lease at contract inception. In certain of the Company’s 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 the Company has 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 the Company has the right to direct the use of that asset. Operating leases are recorded in the 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 the leases is not readily determinable, the Company uses its incremental borrowing rate as the discount rate, which approximates the interest rate at which the Company 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. The Company accounts for lease and non-lease components, principally common area maintenance for the 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. The Company’s real estate leases asset class with an initial expected term of 12 months or less (short-term) is not accounted for on the consolidated balance sheets. The Company’s finance leases are recorded in Property and equipment, net in the consolidated 68 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS balance sheets. For finance leases, interest expense on lease liabilities 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 the Company’s ability to recover its deferred tax assets in the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. 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. 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 Adopted Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update (“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 after December 15, 2023. The Company adopted this guidance in the fourth quarter of 2024, which did not have a material impact on the Company’s 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 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 was effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company adopted this guidance on January 1, 2024, which did not have a material impact on the Company’s consolidated financial statements and related disclosures. Recently Issued Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) which seeks to expand disclosures about a public entity’s expenses, including more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, sales and marketing, general and administrative, and research and development). The amendments in this update are effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. ASU 2024-03 should be applied 69 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS retrospectively. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures. In March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards , which provides illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of ASC 718, Compensation—Stock Compensation . Specifically, the amendments in ASU 2024-01 add an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph ASC 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with ASU 718. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or non-employees in exchange for goods or services. The amendments in this update are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. ASU 2024-01 should be applied either retrospectively or prospectively. The Company does not expect this standard to have a material impact on its consolidated financial statements and related disclosures. In December 2023, the FASB issued 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 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. Note 2. Revenue Recognition The majority of the Company’s 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 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 $ 312.5 million, $ 402.0 million, and $ 514.8 million was recognized during the years ended December 31, 2024, 2023, and 2022, respectively. No single customer accounted for 10% or more of total revenue for the years ended December 31, 2024, 2023 and 2022. None of the Company’s contracts contain a significant financing component. 70 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 LivePerson Platform, 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 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 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. 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. The Company’s 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. Professional services revenue also includes custom support services, which differ from standard product support. The professional services revenues are recognized as the services are completed. Disaggregated Revenue The following table presents the Company’s revenues disaggregated by revenue source: Year Ended December 31, 2024 2023 2022 (In thousands) Revenue: Hosted services (1) $ 261,682 $ 332,971 $ 412,467 Professional services 50,792 69,012 102,333 Total revenue $ 312,474 $ 401,983 $ 514,800 (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 and $ 37.1 million for the years ended December 31, 2023 and 2022, respectively, relating to Kasamba. Remaining Performance Obligation As of December 31, 2024, 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 $ 232.3 million. Approximately 96 % 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, Revenue from Contracts with Customers . Contracts with Multiple Performance Obligations Most 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 71 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS consideration market conditions and other factors, including the value of its contracts, product offerings and the cloud applications sold. 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 operations by region for the periods presented: Year Ended December 31, 2024 2023 2022 (In thousands) Americas (1) $ 219,288 $ 286,924 $ 363,057 EMEA (2) 57,698 62,613 74,298 APAC (3) 35,488 52,446 77,445 Total revenue $ 312,474 $ 401,983 $ 514,800 —————————————— (1) United States, Canada, Latin America and South America (“Americas”). (2) Europe, the Middle East and Africa (“EMEA”). (3) Asia-Pacific (“APAC”). Information about Contract Balances 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, 2024 and 2023 of $ 33.6 million and $ 37.4 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. 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 LivePerson Platform over the term of the software subscription. 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 for credit losses on the consolidated balance sheets. The Company recognized revenue of $ 81.4 million, $ 86.8 million and $ 98.3 million for the fiscal years ended December 31, 2024, 2023 and 2022, respectively, which was included in the corresponding deferred revenue balance at the beginning of the year. The Company’s long-term deferred revenues are included in Other liabilities on the consolidated balance sheets. The opening and closing balances of the Company’s contract acquisition costs, net, and deferred revenues are as follows: Contract Acquisition Costs (Non-current) Deferred Revenue (Current) Deferred Revenue (Non-current) (In thousands) Balance as of December 31, 2022 $ 43,804 $ 84,494 $ 174 (Decrease) increase, net ( 6,450 ) ( 2,636 ) 9 Balance as of December 31, 2023 $ 37,354 $ 81,858 $ 183 (Decrease) increase, net ( 3,795 ) ( 23,878 ) 140 Balance as of December 31, 2024 $ 33,559 $ 57,980 $ 323 72 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The decrease in deferred revenue during the year ended December 31, 2024 was primarily driven by changes in customer renewal patterns and contract structures, including the timing of renewals and shifts in service commitments. Amortization expense in connection with contract acquisition costs was $ 18.3 million, $ 27.6 million and $ 36.4 million for the years ended December 31, 2024, 2023 and 2022, respectively, and was included in Cost of revenue in the consolidated statements of operations. 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 estimat e of the amount of expected credit losses in the Company’s existing accounts receivable, based on both specific and general reserves. The Company maintains 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 as of the dates presented is as follows: December 31, 2024 2023 2022 (In thousands) Balance, beginning of year $ 9,290 $ 9,239 $ 6,338 Additions charged to costs and expenses 14,959 3,319 5,644 Deductions/write-offs ( 15,622 ) ( 3,268 ) ( 2,743 ) Balance, end of year $ 8,627 $ 9,290 $ 9,239 Note 3. Net Loss Per Share Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, stock options, restricted stock units, share-settled warrants, 0.750 % Convertible Senior Notes due 2024 (the “2024 Notes”), and 0 % Convertible Senior Notes due 2026 (the “2026 Notes”) are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share when including them has an anti-dilutive effect. The Company uses the treasury stock method for stock options, restricted stock units, and share-settled warrants, and uses the if-converted method for convertible debt. As the average market price of the Company ’ s common stock is below the conversion price of the Company ’ s 2024 Notes and 2026 Notes, the impact of conversion is anti-dilutive. See Note 8 – Convertible Senior Notes, Net of Current Portion, Capped Call Transactions, and Warrants for additional information about the 2024 Notes, 2026 Notes and First Lien Convertible Senior Notes due 2029 (the “2029 Notes” and together with the 2024 Notes and the 2026 Notes, the “Notes”). Reconc iliation of shares used in calculating basic and diluted net loss per share for the years ended December 31, 2024, 2023, and 2022, were as follows: Year Ended December 31, 2024 2023 2022 (In thousands, except number of shares and per share amounts) Net loss $ ( 134,273 ) $ ( 100,435 ) $ ( 225,747 ) Weighted average number of shares outstanding, basic and diluted 88,715,161 78,593,274 74,509,404 Net loss per share, basic and diluted $ ( 1.51 ) $ ( 1.28 ) $ ( 3.03 ) The securities listed below were excluded from the computation of diluted net loss per share for all periods presented, as their effect would have been anti-dilutive: 73 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31, 2024 2023 2022 Shares subject to outstanding common stock options and ESPP 2,712,360 3,186,322 4,459,324 Restricted stock units 12,521,875 5,064,047 5,234,733 Earn-outs — — 12,049,211 Conversion option of the 2024 Notes 303,681 1,878,862 5,961,186 Conversion option of the 2026 Notes 5,681,596 6,879,283 6,879,283 Share-settled warrants 10,581,178 — — Total 31,800,690 17,008,514 34,583,737 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. T he 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 using net loss. Expenses are reviewed by the nature of the cost (Cost of revenue, Sales and marketing, General and administrative and Product development), consistent with the Company’s presentation on its consolidated statements of operations. There are no segment managers who are held accountable by the CODM, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, management has determined that the Company operates as one operating and reportable segment. The Company identifies net loss as its required measure of segment operating profit or loss. Significant expenses within loss from operations, as well as within net loss are separately presented on the Company’s consolidated statements of operations. Other segment items within net loss include Interest expense, Interest income, Gain on debt extinguishment, Other (expense) income, net, and Provision for income taxes. The Company was previously organized into two operating segments for purposes of making operating decisions and assessing performance: the Business segment and the Consumer segment. 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 19 – Divestitures for additional information. 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, 2024 2023 (In thousands) United States $ 316,975 $ 438,420 Germany 29,925 45,424 Australia 10,830 11,660 Netherlands 5,036 5,863 Other (1) 13,788 12,438 Total long-lived assets $ 376,554 $ 513,805 —————————————— (1) Israel, United Kingdom, Japan, France, Italy, Spain, Canada, and Singapore. 74 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5. Goodwill and Intangible Assets, Net Goodwill 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. The changes in the carrying amount of goodwill for the years ended December 31, 2024 and 2023 are as follows: Goodwill Accumulated Impairment Balance (In thousands) Balance as of December 31, 2022 $ 296,214 $ — $ 296,214 Goodwill impairment — ( 11,895 ) ( 11,895 ) Foreign exchange adjustment 1,312 — 1,312 Balance as of December 31, 2023 297,526 ( 11,895 ) 285,631 Goodwill impairment — ( 60,551 ) ( 60,551 ) Foreign exchange adjustment ( 2,526 ) — ( 2,526 ) Balance as of December 31, 2024 $ 295,000 $ ( 72,446 ) $ 222,554 In connection with the annual impairment test completed on October 1, 2024, using the quantitative “Step 1” assessment, the Company determined the fair value of its reporting unit using both an income approach and a market approach. The Company applied an equal weighting to the value conclusions resulting from the two employed approaches, because there was sufficient information to estimate the fair value of the reporting unit under both methods. Estimated fair values of reporting units are Level 3 measures in the fair value hierarchy. The fair value determination using an income approach requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and the discount rate. The discount rate used in the income approach model was 13 %. The fair value determination using a market approach requires management to make significant assumptions related to marketplace multiples from within a peer public company group. In connection with the Company’s annual budget process in the fourth quarter of 2024, management completed a comprehensive review of the Company’s operations, which resulted in reduced estimated future cash flows. The revised projections were used as a key input into the annual goodwill impairment test performed in the fourth quarter of 2024. As a result of this impairment test, the Company recorded a non-cash impairment charge of $ 56.9 million in the consolidated statements of operations during the year ended December 31, 2024, to recognize the impairment of goodwill in the Company’s one reporting unit. In addition, during the first quarter of 2024, the Company recorded a non-cash impairment charge of $ 3.6 million in the consolidated statements of operations, to recognize a full impairment of goodwill associated with its WildHealth reporting unit, which was sold during the second quarter of fiscal 2024. As a result of the Company’s annual goodwill impairment test in the third quarter of 2023, the Company recorded a non-cash impairment charge of $ 11.9 million in the consolidated statements of operations during the year ended December 31, 2023, to recognize the impairment of goodwill in the WildHealth reporting unit. There were no impairments in the Company’s Business reporting unit during the year ended December 31, 2023, as the fair value of this reporting unit substantially exceeded its carrying value. No impairment losses were recorded during the fiscal year ended December 31, 2022. 75 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangible Assets, Net Intangible assets, net are summarized as follows as of the dates presented: December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Amortization Period (In thousands) (In years) Amortizing intangible assets: Patents $ 17,609 $ ( 2,539 ) $ 15,070 12.7 Total $ 17,609 $ ( 2,539 ) $ 15,070 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 Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization expense for purchased intangible assets and finance leases, net was $ 12.0 million, $ 22.2 million, and $ 22.1 million for the years ended December 31, 2024, 2023, and 2022, respectively, and $ 9.2 million, $ 18.7 million, and $ 18.4 million, respectively, 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. In connection with the Company’s annual budget process in the fourth quarter of 2024, management completed a comprehensive review of the Company’s operations, which resulted in reduced estimated future cash flows. The revised projections were used as a key input into the annual impairment test performed in the fourth quarter of 2024. As a result of this impairment test, t he Company recognized a non-cash impairment charge of $ 35.2 million included in Impairment of intangibles and other assets in the consolidated statements of operations. The fair value was determined using a combination of income and market approach. This non-cash charge resulted in a full impairment of the following intangible assets acquired in connection with historical business combination transactions: developed technology in the amount of $ 23.7 million, customer relationships in the amount of $ 11.0 million and trademarks in the amount of $ 0.5 million. During the first quarter of 2024, the Company recognized a non-cash impairment charge related to WildHealth of $ 2.2 million included in Impairment of intangibles and other assets in the consolidated statements of operations. During the year ended December 31, 2023, t he Company recognized a non-cash impairment charge of $ 3.0 million included in Impairment of intangibles and other assets in the consolidated statements of operations related to developed technology associated with WildHealth. There were no impairment losses during the year ended December 31, 2022. 76 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2024, estimated annual amortization expense for the next five years and thereafter is as follows: Estimated Amortization Expense (In thousands) 2025 $ 654 2026 618 2027 585 2028 584 2029 568 Thereafter 12,061 Total $ 15,070 Note 6. Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation, and amortization. Depreciation and amortization are 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 property and equipment on an annual basis. The following table presents the detail of property and equipment, net as of the dates presented: December 31, Useful Life (Years) 2024 2023 (In thousands) Computer equipment and software 3 to 5 $ 134,647 $ 123,580 Internal-use software development costs 5 176,725 181,079 Finance lease right-of-use assets 2 62 3,060 Furniture, equipment and building improvements The lesser of 5 or estimated useful life 234 327 Property and equipment, at cost 311,668 308,046 Less: accumulated depreciation and amortization ( 211,111 ) ( 188,721 ) Total Property and equipment, net $ 100,557 $ 119,325 The Company recorded non-cash impairment charges of $ 9.5 million and $ 5.0 million related to internal-use software development costs during the years ended December 31, 2024 and 2023, respectively . The impairment charges were included in Impairment of intangibles and other assets in the consolidated statements of operations for the years ended December 31, 2024 and 2023 and pertained to internal projects that were discontinued and had no future economic benefit. There were no impairment losses during the year ended December 31, 2022. 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. The following table presents total depreciation included in the consolidated statements of operations for the periods presented: 77 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENT Year ended December 31, 2024 2023 2022 (In thousands) Cost of revenue $ 6,792 $ 8,072 $ 9,763 Sales and marketing 3,138 3,103 2,451 General and administrative 247 453 452 Product development 20,133 20,929 19,618 Total depreciation expense $ 30,310 $ 32,557 $ 32,284 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, 2024 2023 (In thousands) Professional services and consulting and other vendor fees $ 31,300 $ 67,585 Payroll and other employee-related costs 10,061 20,767 Warrants liability (Note 10) 17,498 — Finance lease liabilities (Note 9) 104 3,037 Restructuring (Note 13) 3,028 2,076 Sales commissions 2,207 734 Non-income tax 644 556 Other 1,688 2,269 Total accrued expenses and other current liabilities $ 66,530 $ 97,024 Note 8. Convertible Senior Notes, Net of Current Portion, Capped Call Transactions, and Warrants 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 was payable semi-annually in arrears on March 1 and September 1 of each year. 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 $ 149.7 million in cash for the repurchase of $ 157.5 million in aggregate principal amount of the 2024 Notes (the “Note Repurchases”). During the year ended December 31, 2023, the 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 the Note Repurchases, which was recorded in Gain on debt extinguishment in the consolidated statements of operations. 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 corresponding portion of the 2024 capped calls were terminated in connection following the Note Repurchases as required by their terms for minimal consideration. The remaining 2024 Notes matured on March 1, 2024, on which date the Company repaid in full the outstanding $ 72.5 million in aggregate principal amount. 78 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Convertible Senior Notes due 2026 and Capped Calls In December 2020, the Company issued $ 517.5 million aggregate principal amount of its 2026 Notes in a private placement, of which $ 361.2 million aggregate principal amount was outstanding as of December 31, 2024. The 2026 Notes are senior unsecured obligations of the Company. 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 $ 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. The indenture governing the 2026 Notes contains events of default customary for convertible notes issued in connection with similar transactions. If the Company undergoes a “fundamental change” (as defined in the indenture governing the 2026 Notes) which includes a change of control or the failure of the Company’s common stock to be listed or quoted on any of The Nasdaq Global Select Market, The Nasdaq Global Market or the New York Stock Exchange, 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, 2024, the conditions allowing holders of the 2026 Notes to convert were not met. 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 79 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS incurred to purchase the 2026 capped calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheets. Pursuant to a privately negotiated exchange and purchase agreement (the “Exchange and Purchase Agreement”), on June 3, 2024, the Company exchanged $ 146.0 million principal amount of the 2026 Notes then held by an investor for $ 100.0 million principal amount of new 2029 Notes, and the same investor purchased an additional $ 50.0 million principal amount of the 2029 Notes for cash. In connection with the exchange and purchase, the Company also issued the Warrants to the investor, and the investor agreed to purchase up to $ 50.0 million of additional 2029 Notes upon the Company’s request and subject to certain conditions (the “Delayed Draw Notes”). As a result of the exchange and purchase transactions, during the second quarter of 2024, the Company recognized a $ 68.1 million gain on debt extinguishment which represented the difference between the carrying value of the 2026 Notes so exchanged and the collective fair value of the 2029 Notes and the Warrants, net of the cash payment received from the investor. The extinguishment gain was recorded in Gain on debt extinguishment in the consolidated statements of operations. On June 13, 2024, the Company repurchased $ 10.3 million principal amount of the 2026 Notes for $ 4.9 million in cash. As a result of the transaction, during the second quarter of 2024, the Company recognized a $ 5.0 million gain on debt extinguishment, which was recorded in Gain on debt extinguishment in the consolidated statements of operations. The 2026 Notes were classified as long-term liabilities in the consolidated balance sheets as of December 31, 2024. After the completion of the exchange and repurchase, the aggregate principal amount of the 2026 Notes was reduced to $ 361.2 million and the carrying amount of the 2026 Notes reduced to $ 357.8 million. A corresponding portion of the 2026 capped calls were terminated in connection following the transactions as required by their terms for no consideration. The remaining term over which the 2026 Notes’ debt issuance costs will be amortized is 1.9 years at an effective interest rate of 0.40 % for the year ended December 31, 2024. First Lien Convertible Senior Notes due 2029 In June 2024, the Company issued $ 150.0 million aggregate principal amount of its 2029 Notes pursuant to the Exchange and Purchase Agreement including $ 100.0 million aggregate principal amount issued in exchange for $ 146.0 million aggregate principal amount of 2026 Notes and $ 50.0 million aggregate principal amount issued for cash. The Company paid third parties $ 7.6 million in connection with the transaction, which was capitalized as debt issuance costs. At the time of the exchange, the fair value of the 2029 Notes approximated $ 118.1 million, and the Company recognized a debt discount of $ 31.9 million. In December 2024, the Company issued $ 50.0 million aggregate principal amount of its 2029 Notes, constituting the Delayed Draw Notes, for $ 50.0 million cash. Unless earlier repurchased or redeemed by the Company or converted pursuant to their terms, the 2029 Notes will mature on the earlier of (a) June 15, 2029 and (b) 91 days before the maturity of the 2026 Notes, if greater than $ 60.0 million principal amount of 2026 Notes remains outstanding on such date. The amount payable by the Company if the 2029 Notes mature pursuant to clause (b) will be equal to 100 % of the aggregate principal amount of the 2029 Notes, plus accrued and unpaid interest, plus the remaining future interest payments that would have been payable through June 15, 2029, discounted at a rate equal to the comparable treasury rate plus 50 basis points (the “Make-Whole Amount”). From June 3, 2024, until the date of issuance of the Delayed Draw Notes, interest on the 2029 Notes accrued at a rate of 10.83 % (consisting of 4.17 % cash and 6.66 % paid in kind (“PIK”)) per annum. From the date of issuance of the Delayed Draw Notes and prior to December 15, 2026, interest on the 2029 Notes has increased and accrues at a rate of 11.375 % (consisting of 4.375 % cash and 7.00 % PIK) per annum. On and after December 15, 2026, interest on the 2029 Notes will further increase and accrue at a rate of 13 % (consisting of 5 % cash and 8 % PIK) per annum. The Company may, at its option, redeem the 2029 Notes, in whole or in part, prior to June 15, 2025 at a price equal to the Make-Whole Amount. On or after June 15, 2025, and prior to June 15, 2026, the Company may, at its option, redeem the 2029 Notes, in whole or in part for an amount of cash equal to the sum of (i) 106.50 % of the aggregate principal amount of the 2029 Notes (including all increases to the principal amount as the result of previous payments of PIK interest) plus (ii) 106.50 % of all accrued and unpaid PIK interest plus (iii) all accrued and unpaid cash interest. On or after June 15, 2026, and prior to December 15, 2026, the Company may, at its option, redeem the 2029 Notes, in whole or in part for an amount of cash equal to the sum of (i) 103.25 % of the aggregate principal amount of the 2029 Notes (including all increases to the principal amount as the result of 80 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS previous payments of PIK interest) plus (ii) 103.25 % of all accrued and unpaid PIK interest plus (iii) all accrued and unpaid cash interest. From December 15, 2026 until maturity, the Company may, at its option, redeem the 2029 Notes, in whole or in part for an amount of cash equal to the sum of (i) 113 % of the aggregate principal amount of the 2029 Notes (including all increases to the principal amount as the result of previous payments of PIK interest) plus (ii) 113 % of all accrued and unpaid PIK interest plus (iii) all accrued and unpaid cash interest. In addition, the Make-Whole Amount will be payable in the event of an acceleration of the 2029 Notes or repurchase triggered by certain asset sales. No sinking fund is provided for the 2029 Notes. The 2029 Notes are guaranteed on a senior basis by certain of the Company’s direct and indirect domestic and foreign subsidiaries and secured by first priority security interests in substantially all of the assets of the Company and such subsidiary guarantors, subject to customary exceptions. The indenture governing the 2029 Notes contains affirmative and negative covenants and events of default customary for senior secured notes issued in connection with similar transactions. The negative covenants include limitations on asset sales, the incurrence of debt, preferred stock and liens, fundamental changes, investments, dividends and other payment restrictions affecting subsidiaries, restricted payments and transactions with affiliates. Among other things, these covenants generally prohibit the payment of cash dividends on the Company’s common stock. The indenture governing the 2029 Notes permits the Company and its subsidiaries to incur, subject to certain requirements, up to $ 150.0 million of debt that is junior in lien priority and subordinated in right of payment to the 2029 Notes. The indenture governing the 2029 Notes also includes a financial covenant that requires the Company at all times to maintain a minimum cash balance of $ 60.0 million (excluding proceeds of the 2029 Notes). Upon request of the investor, the indenture governing the 2029 Notes requires the Company to enter into a registration rights agreement with respect to the 2029 Notes containing customary terms including demand, shelf and piggyback registration rights. The Company was in compliance with its financial covenants as of December 31, 2024. If the Company undergoes a “fundamental change” (as defined in the indenture governing the 2029 Notes), which includes a change of control or the failure of the Company’s common stock to be listed or quoted on any of The Nasdaq Global Select Market, The Nasdaq Global Market or the New York Stock Exchange, holders may require the Company to repurchase all or any portion of their 2029 Notes at a repurchase price equal to 100 % of the aggregate principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest, plus an amount equal to 66 % of the remaining future interest payments (including PIK interest) that would have been payable through June 15, 2029, discounted at a rate equal to the comparable treasury rate plus 50 basis points. Holders of the 2029 Notes may convert their 2029 Notes at their option at any time prior to the close of business on the business day immediately preceding February 15, 2029 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2024 (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 2029 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 2029 Notes) per $1,000 principal amount of 2029 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 product of (x) the quotient of (i) the “conversion amount” (as defined in the Indenture) in respect of $1,000 principal amount of the 2029 Notes on such trading day divided by (ii) 1,000 times (y) the conversion rate for the 2029 Notes on each such trading day; (3) with respect to any 2029 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; (4) upon the occurrence of specified corporate events; or (5) during the period from August 17, 2026 through September 14, 2026, if the aggregate principal amount of 2026 Notes exceeds $ 60.0 million on August 16, 2026. On or after February 15, 2029, holders may convert all or any portion of their 2029 Notes at any time prior to the close of business on June 13, 2029, regardless of the foregoing circumstances. The 2029 Notes include certain embedded features requiring bifurcation, which did not have material values as of December 31, 2024 due to management’s estimates of the likelihood of triggering events, but that may have value in the future should those estimates change, with any change in fair value recorded in the Company’s consolidated statements of operations. The 2029 Notes (including all accrued and unpaid interest) are convertible at the option of the holders at certain times into cash based on a daily conversion value calculated on a proportionate basis for each trading day in a 50 trading day observation period, initially corresponding to 13.2933 shares of the Company’s common stock per $1,000 principal amount of 2029 Notes. The Company is not required to deliver its common stock upon conversion under any circumstances. The conversion rate for the 2029 Notes is subject to adjustment if certain events occur and contains customary anti-dilution protections. During the three months ended December 31, 2024, the conditions allowing holders of the 2029 Notes to convert were not met. 81 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 2029 Notes, including the Delayed Draw Notes, are accounted for as a single liability, and the combined carrying amount is $ 168.6 million as of December 31, 2024, consisting of principal of $ 207.1 million, net of unamortized issuance costs of $ 7.4 million and debt discount of $ 31.1 million. The 2029 Notes were classified as long-term liabilities in the consolidated balance sheets as of December 31, 2024. The remaining term over which the 2029 Notes’ debt issuance costs will be amortized is 4.5 years at an effective interest rate of 19.18 % for the 2029 Notes and 13.25 % for the Delayed Draw Notes as of December 31, 2024. 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, 2024 and 2023 was as follows: December 31, 2024 December 31, 2023 2026 Notes 2029 Notes Total 2024 Notes 2026 Notes Total (In thousands) (In thousands) Principal $ 361,204 $ 207,125 $ 568,329 $ 72,492 517,500 $ 589,992 Unamortized debt discount — ( 31,137 ) ( 31,137 ) — — — Unamortized issuance costs ( 2,757 ) ( 7,365 ) ( 10,122 ) ( 99 ) ( 5,935 ) ( 6,034 ) Total net carrying value 358,447 168,623 527,070 72,393 511,565 583,958 Less: Short-term debt, net — — — 72,393 — 72,393 Long-term debt, net $ 358,447 $ 168,623 $ 527,070 $ — $ 511,565 $ 511,565 The following table sets forth the interest expense recognized related to the Notes: Year Ended December 31, 2024 2023 2022 (In thousands) Contractual interest expense $ 9,973 $ 839 $ 1,725 Amortization of debt issuance costs 2,106 4,043 3,778 Amortization of debt discount 2,407 — — Total interest expense related to the Notes $ 14,486 $ 4,882 $ 5,503 Warrants On June 3, 2024, pursuant to the Exchange and Purchase Agreement, the Company issued to the investor 10-year warrants with a strike price of $ 0.75 per share, exercisable for 9,746,723 shares of the Company’s common stock and 10-year warrants with a strike price of $ 0.75 per share, exercisable with respect to a notional amount of 2,344,775 shares of the Company’s common stock for cash payments equal to the excess of “fair market value” (as defined therein) per share over the strike price, fully diluted subject to certain adjustments. The cash-settled warrants will permit the Company, subject to certain conditions (including to the extent that the Company, following payment, would have “available cash” (as defined therein) of less than $ 100.0 million), to defer payment of the settlement amount at an annualized interest rate of 6.0 %, compounded monthly. Warrants outstanding at the 10-year expiration will be exercised automatically (and in the case of the share-settled warrants, will be exercised on a cashless basis) if, immediately prior to the expiration, the Fair Market Value per share is greater than the strike price. The Warrants contain customary anti-dilution protections. The triggers for the anti-dilution adjustments include (a) subdivision, combination or reclassification of the outstanding shares of common stock into a greater or smaller number of shares, (b) certain below market issuances of common stock, (c) certain issuances of common stock at a price that is less than the strike price of the Warrant, (d) certain issuances of a dividend or distribution to all holders of common stock, (e) an above market tender offer or exchange offer by the Company for common stock. Pursuant to the anti-dilution terms of the Warrants, the aggregate notional amount of the Warrants increased to 13,126,698 shares as of December 31, 2024 . 82 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the event of a “Cash/Public Acquisition” (as defined therein), the Warrants may be automatically exercised, cash settled or expire, depending on the fair market value per share. The Warrants contain a beneficial ownership limitation on the investor’s ownership of the Company’s common stock, on a post-exercise basis (aggregating all securities convertible into or exercisable for the Company’s common stock), of 4.99 %, subject to increase upon 61 days’ notice by the investor, but not to exceed 9.99 %. The Warrants were classified as current liabilities under ASC 480 in the Company’s consolidated balance sheets and recorded at fair value of $ 5.3 million at the issuance date with any subsequent changes in fair value to be recorded in the Company’s consolidated statements of operations. As of December 31, 2024, the Warrants had a fair value of $ 17.5 million. A loss of $ 12.2 million for the change in fair value was recorded in Other (expense) income, net, in the Company’s consolidated statements of operations for the year ended December 31, 2024. Note 9. 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 approximately 1 year or less, 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. Supplemental cash flow information related to leases for the periods presented is as follows: Year Ended December 31, 2024 2023 2022 (In thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 3,206 $ 3,448 $ 4,885 Operating cash flows for finance leases 24 93 196 Financing cash flows for finance leases 401 3,330 3,734 The components of lease costs for the periods presented are as follows: Year Ended December 31, 2024 2023 2022 (In thousands) Finance lease cost Amortization of right-of-use assets $ 398 $ 3,712 $ 3,690 Interest 24 93 196 Operating lease cost 10,164 11,491 11,332 Total lease cost $ 10,586 $ 15,296 $ 15,218 December 31, 2024 December 31, 2023 Weighted average remaining lease term: Operating leases 0.3 years 2.1 years Finance leases 0.8 years 0.9 years Weighted average discount rate: Operating leases 7 % 7 % Finance leases 7 % 7 % 83 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental balance sheet information related to leases as of the dates presented is as follows: Classification on the Consolidated Balance Sheets December 31, 2024 December 31, 2023 (In thousands) Assets Operating ROU assets Operating lease ROU assets $ 48 $ 4,135 Finance ROU assets Property and equipment, net 62 3,060 Liabilities Current: Operating lease liabilities Operating lease liabilities $ 52 $ 2,719 Finance lease liabilities Accrued expenses and other current liabilities 104 3,037 Non-current: Operating lease liabilities Operating lease liabilities, net of current portion — 2,173 Finance lease liabilities Other liabilities — 85 Future minimum lease payments under non-cancellable operating and finance leases are immaterial. Note 10. 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 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. 84 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Financial Assets and Liabilities The carrying amount of cash, accounts receivable, and accounts payable approximate their fair value due to their short-term nature. The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of December 31, 2024 and 2023, are summarized as follows: December 31, 2024 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents - money market funds $ 105,772 $ — $ — $ 105,772 Total assets $ 105,772 $ — $ — $ 105,772 Liabilities: Warrants liability $ — $ — $ 17,498 $ 17,498 Total liabilities $ — $ — $ 17,498 $ 17,498 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 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 Warrants liability was measured at fair value on a recurring basis and was classified as Level 3 within the fair value hierarchy. 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 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. Estimated fair values are Level 3 measures in the fair value hierarchy. 85 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated fair value of outstanding balances of the Notes as of the dates presented are as follows: Level of Hierarchy Fair Value Principal Balance Unamortized Debt Discount Unamortized Debt Issuance Costs Net Carrying Value (In thousands) December 31, 2024 2026 Notes 2 $ 164,348 $ 361,204 $ — $ ( 2,757 ) $ 358,447 2029 Notes 3 $ 180,360 $ 207,125 $ ( 31,137 ) $ ( 7,365 ) $ 168,623 December 31, 2023 2024 Notes 2 $ 71,396 $ 72,492 $ — $ ( 99 ) $ 72,393 2026 Notes 2 $ 364,487 $ 517,500 $ — $ ( 5,935 ) $ 511,565 Management determined the fair value of 2026 Notes and 2024 Notes by using Level 2 inputs based on observable market prices for similar instruments. Management determined the fair value of the 2029 Notes and Delayed Draw Notes as of December 31, 2024 by using Level 3 inputs, including the yield of 16 %, risk-free rate of 4.35 %, and credit spread of 11.42 %. A change in those inputs to a different amount might result in a significantly higher or lower fair value measurement. Warrants The Company recorded the fair value of the Warrants upon issuance using the Black-Scholes valuation model and is required to revalue these Warrants at each reporting date with any changes in fair value recorded on the Company’s consolidated statements of operations. The valuation of the Warrants was classified as Level 3 within the fair value hierarchy and is influenced by the fair value of the underlying, or notional amount of, common stock of the Company. A summary of the Black-Scholes pricing model assumptions used to record the fair value of the Warrants as of December 31, 2024 is as follows: Stock price $ 1.52 Risk free rate 4.56 % Expected life (in years) 9.43 Expected volatility 76.00 % Any significant changes in the inputs may result in significantly higher or lower fair value measurements. Refer to Note 8 – Convertible Senior Notes, Net of Current Portion, Capped Call Transactions, and Warrants for additional information. The changes in fair value of the Level 3 Warrants and earn-out liabilities as of the dates presented are as follows: December 31, 2024 2023 (In thousands) Balance, beginning of year $ — $ 72,221 Change in fair value of contingent consideration — 4,629 Change in fair value of liability awards — ( 27,857 ) Payments — ( 48,993 ) Issuance of Warrants 5,266 — Change in fair value of Warrants 12,232 — Balance, end of year $ 17,498 $ — 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. 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. 86 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $ 19.9 million, $ 9.3 million, and $ 7.7 million, respectively. During the year ended December 31, 2023, the Company paid $ 12.0 million in connection with the WildHealth earn-out settlement. Changes to the fair value of the earnouts were recognized as a component of stock-based compensation expense and Other (expense) income, 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. There were no outstanding earnout liabilities as of December 31, 2024. Note 11. Commitments and Contingencies Employee Benefit Plans The Company has a 401(k) defined contribution plan covering all eligible employees. The Company’s 401(k) policy is a Safe Harbor Plan, whereby the Company matches 100 % of the first 3 % of eligible compensation and 50 % of the next 2 % of eligible compensation. Furthermore, the match is immediately vested. Salaries and related expenses include $ 2.8 million, $ 3.8 million, and $ 5.4 million of employer matching contributions for the years ended December 31, 2024, 2023, and 2022, respectively. Letters of Credit As of December 31, 2024, the Company had letters of credit totaling $ 0.5 million outstanding as a security deposit for the due performance by the Company of the terms and conditions of a supply contract. Contractual obligations The Company’s purchase obligations consist of agreements to purchase goods and services entered into in the ordinary c ourse of business. The Company has purchase obligation agreements primarily relating to contracts with vendors in connection with Information Technology (“IT”) infrastructure with remaining terms of one year or less. The Company’s non-cancellable unconditional purchase obligation in connection with these arrangements is $ 15.5 million for 2025. 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, 2024 and 2023. Note 12. Stockholders’ Equity Common Stock As of December 31, 2024, there were 200,000,000 shares of common stock authorized, 93,956,738 shares issued, and 91,190,665 shares outstanding. 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. The par value for the common stock is $ 0.001 per share. 87 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Preferred Stock As of December 31, 2024 and 2023, 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. Stock-Based Compensation The Company’s stock-based compensation generally includes stock options, RSUs, 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 Incentive 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’s employees and directors to participate in the Company’s future performance through grants of stock-based awards of stock options and RSUs at the discretion of the board of directors. The number of shares authorized for issuance under the 2019 Stock Incentive Plan as of December 31, 2024 was 46,967,744 shares in the aggregate, inclusive of 4,600,000 shares approved for issuance thereunder by the stockholders of the Company at the Company’s annual meeting on November 25, 2024. Options to acquire common stock granted under the 2019 Stock Incentive Plan have ten-year terms. As of December 31, 2024, approximately 3.5 million shares of common stock remained available for issuance (taking into account all stock option exercises and other equity award settlements through December 31, 2024). Employee Stock Purchase Plan The number of shares authorized for issuance under the ESPP as of December 31, 2024 was 4,500,000 shares, inclusive of 2,500,000 shares approved for issuance thereunder by the stockholders of the Company at the Company’s annual meeting on November 25, 2024. As of December 31, 2024, approximately 3.2 million shares of common stock remained available for issuance under the ESPP (taking into account all share purchases through December 31, 2024). Inducement Plan There are 15,412,342 shares of common stock authorized and reserved for issuance under the Inducement Plan, inclusive of 2,333,333 shares authorized for issuance during the fourth quarter of 2024 . As of December 31, 2024, approximately 1.2 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, 2024). CEO Inducement Award As part of an equity compensation package negotiated to induce John Sabino, the Company’s Chief Executive Officer, to accept employment with the Company, pursuant to the terms of the employment agreement entered into between Mr. Sabino and the Company, the Company granted Mr. Sabino an option to purchase 1,000,000 shares of common stock (the “CEO Inducement Award”) that will vest upon the satisfaction of certain performance-based and time-based vesting conditions. On May 17, 2024, the Company’s board of directors authorized 1,000,000 shares for issuance under the CEO Inducement Award in compliance with and in reliance on Nasdaq Listing Rule 5635(c)(4). The CEO Inducement Award was a standalone award granted outside of the 2019 Stock Incentive Plan and 2018 Inducement Plan. As of December 31, 2024, no shares of common stock remained available for issuance under the CEO Inducement Award. 88 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Option Activity The following table is a summary of the Company’s stock option activity and weighted average exercise prices for the years ended December 31, 2022, 2023 and 2024: Stock Option Activity Weighted Average Remaining Contractual Term (In years) Aggregate Intrinsic Value (In thousands) Options (In thousands) Weighted Average Exercise Price Balance outstanding as of December 31, 2021 4,782 $ 27.52 Granted 993 20.34 Exercised ( 264 ) 5.07 Cancelled or expired ( 1,052 ) 41.56 Balance outstanding as of 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 as of December 31, 2022 2,758 $ 21.26 4.94 $ 986 Balance outstanding as of December 31, 2022 4,459 $ 24.25 Granted 18 11.37 Exercised ( 67 ) 2.62 Cancelled or expired ( 1,273 ) 22.69 Balance outstanding as of December 31, 2023 3,137 $ 22.68 4.84 $ 40 Options vested and expected to vest 379 $ 28.83 7.89 $ — Options exercisable as of December 31, 2023 2,643 $ 21.67 4.20 $ 40 Balance outstanding as of December 31, 2023 3,137 $ 22.68 Granted 1,000 1.02 Cancelled or expired ( 1,474 ) 21.96 Balance outstanding as of December 31, 2024 2,663 $ 22.93 3.95 $ 7 Options vested and expected to vest 674 $ 4.91 8.93 $ 290 Options exercisable as of December 31, 2024 1,595 $ 22.93 3.65 $ 7 The total fair value of stock options exercised during the years ended December 31, 2024 was immaterial. The total fair value of stock options exercised during the years ended December 31, 2023 and 2022 was $ 3.4 million and $ 11.3 million, respectively. As of December 31, 2024, there was $ 1.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 5.85 years. The per share weighted average fair value of stock options granted during the years ended December 31, 2024, 2023 and 2022 was $ 0.17 , $ 6.54 , and $ 10.20 , 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, 2024 2023 2022 Dividend yield — % — % — % Risk-free interest rate 4.31 % 3.60 % 1.62 % – 4.20 % Expected life (in years) 10 5 5 Historical volatility 67.10 % 65.17 % 53.87 % – 64.13 % 89 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, with the exception of the 2024 grants, which had a 10-year life. • 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 The following table is a summary of the Company’s RSUs and PRSUs activity and weighted average grant date fair value, for the years ended December, 31, 2022, 2023 and 2024: Number of Shares Weighted Average Grant Date Fair Value Aggregate Fair Value (In thousands) (Per share) (In thousands) Balance outstanding as of 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 as of December 31, 2022 5,235 $ 25.42 $ 53,080 Balance outstanding as of 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 as of December 31, 2023 5,064 $ 12.53 $ 19,193 Balance outstanding as of December 31, 2023 5,064 $ 12.53 $ 19,193 Awarded 11,929 0.97 Released ( 3,016 ) 9.49 Forfeited ( 1,455 ) 14.49 Non-vested and outstanding as of December 31, 2024 12,522 $ 2.03 Expected to vest 9,591 $ 2.06 $ 14,578 RSUs granted to employees generally vest over a 1 to 4-year period, or upon achievement of certain performance conditions. As of December 31, 2024, total unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested RSUs and PRSUs was $ 17.6 million and the weighted-average remaining vesting period was 0.8 years. 90 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. There were no PRSU grants in 2024. PRSUs granted in years 2023 and 2022 were immaterial. Total stock-based compensation costs included in the consolidated statements of operations for the periods presented are as follows: Year Ended December 31, 2024 2023 2022 (In thousands) Cost of revenue $ 1,080 $ 1,456 $ 9,933 Sales and marketing 7,394 10,354 19,575 General and administrative 6,789 ( 5,706 ) 40,690 Product development 6,726 5,750 39,440 Total $ 21,989 $ 11,854 $ 109,638 Note 13. Restructuring LivePerson maintains restructuring initiatives to realign the Company’s cost structure with its current business model. In connection with the restructuring initiatives, the Company recognized restructuring costs of $ 11.1 million, $ 22.7 million, and $ 20.0 million during the years ended December 31, 2024, 2023, and 2022, respectively, which is included in Restructuring costs in the accompanying consolidated statements of operations. Such costs primarily include severance and other compensation costs as well as IT infrastructure contract termination costs. While the Company’s restructuring efforts are ongoing, the 2024 restructuring activities were considered to be substantially completed as of December 31, 2024. 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, 2024 and 2023: December 31, 2024 2023 (In thousands) Balance, beginning of year $ 2,076 $ 803 IT contract termination (reversals) costs, net ( 1,217 ) 5,744 Severance and other associated costs 12,356 16,920 Cash payments ( 10,187 ) ( 21,391 ) Balance, end of year $ 3,028 $ 2,076 The following table presents the detail of expenses for the Company’s restructuring charges for the periods presented: Year Ended December 31, 2024 2023 2022 (In thousands) Lease restructuring costs $ — $ — $ 442 IT contract termination (reversals) costs, net ( 1,217 ) 5,744 — Severance and other associated costs 12,356 16,920 19,525 Total restructuring costs $ 11,139 $ 22,664 $ 19,967 91 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14. Legal Matters Stockholder Litigation 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. On May 31, 2024, the plaintiff filed an amended complaint. The Company moved to dismiss the amended complaint in August 2024, and the motion is awaiting decision. 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, members of the current Board of Directors and several former Directors. The Marti 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. Between June and September 2024, four other purported derivative actions were filed by purported stockholders of the Company against the Company’s former Chief Executive Officer, its Chief Financial Officer, members of the current Board of Directors and several former Directors. These four purported derivative actions, similar to the Marti litigation, claim that the Company itself was harmed by the same acts and omissions underlying the Damri federal securities lawsuit, and seek to recover unspecified losses on behalf of the Company. The four actions are entitled: (i) Steffens v. Block, No. 1:24-cv-04481, filed in the United States District Court for the Southern District of New York; (ii) Ravi v. LoCascio, Index No. 653498/2024, filed in the Supreme Court of the State of New York, New York County; (iii) Morales v. LoCascio, No. 1:24-cv-05297, filed in the United States District Court for the Southern District of New York; and (iv) Perkins v. LoCascio, Index No. 654992/2024, filed in the Supreme Court of the State of New York, New York County. The Marti, Steffens and Morales cases are stayed, and the Perkins case is in abeyance, 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. The plaintiff has sought $ 850,000 in fees and expenses, which the Company opposed. On September 5, 2024, the Court awarded the plaintiff $ 735,000 , which has been paid and is recorded in General and administrative expenses in the consolidated statement of operations for the year ended December 31, 2024. 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. Starboard seeks damages for its trading losses and purported lost anticipated profits. The defendants have filed an answer denying the substantive allegations of the complaint. The parties are currently engaged in discovery and the case is scheduled for trial in June 2025. 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 previously provided products and services related to COVID-19 testing and accompanying software. Those products and services have been the subject of inquiry and review by Medicare, the Department of Justice and the U.S. Food and Drug Administration. 92 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has discontinued all products and services related to COVID-19, and has responded to and intends to continue to cooperate with governmental inquiries related to its 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 “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 the Company’s 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, Contingencies . 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 15. 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. The Company had a valuation allowance on certain deferred tax assets for the years ended December 31, 2024, 2023, and 2022 of $ 234.6 million, $ 211.2 million, and $ 187.5 million, respectively. For the years ended December 31, 2024 and 2023, increases in the valuation allowance in the amounts of $ 23.4 million and $ 23.7 million were recorded as an expense. 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, 2024, the Company had $ 644.0 million of federal NOL carryforwards available to offset future taxable income. Included in this amount is $ 0.9 million of 93 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Of these federal NOL carryforwards, $ 70.3 million were generated in taxable years ending on or before December 31, 2017 and will expire in various years through 2037. Federal NOL carryforwards generated in taxable years ending after December 31, 2017, do not expire, but generally may only offset up to 80% of federal taxable income earned in a taxable year. 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 transferable 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. The domestic and foreign components of loss before provision for income taxes consist of the following: Year Ended December 31, 2024 2023 2022 (In thousands) United States $ ( 125,764 ) $ ( 95,773 ) $ ( 220,060 ) Israel ( 42 ) 1,074 1,464 United Kingdom 1,681 1,481 1,428 Netherlands 725 2,030 2,514 Australia 662 ( 412 ) 533 Germany ( 10,246 ) ( 5,453 ) ( 10,400 ) Other (1) 1,446 781 501 Total $ ( 131,538 ) $ ( 96,272 ) $ ( 224,020 ) —————————————— (1) Includes Bulgaria, Canada, France, India, Italy, Japan, 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, 2024. 94 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for income taxes consists of the following: Year Ended December 31, 2024 2023 2022 (In thousands) Current income taxes: U.S. Federal $ — $ — $ — State and local 366 239 431 Foreign 1,746 2,878 2,458 Total current income taxes 2,112 3,117 2,889 Deferred income taxes: U.S. Federal 72 651 ( 1,153 ) State and local 532 488 79 Foreign 19 ( 93 ) ( 88 ) Total deferred income taxes 623 1,046 ( 1,162 ) Total provision for income taxes $ 2,735 $ 4,163 $ 1,727 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, 2024 2023 2022 Federal statutory rate 21.00 % 21.00 % 21.00 % State taxes, net of federal benefit 3.16 % 3.94 % 2.89 % Non-deductible expenses – stock-based compensation ( 0.14 ) % ( 0.55 ) % ( 1.30 ) % Non-deductible expenses – earn-out — % 5.50 % ( 3.15 ) % Non-deductible excess compensation ( 0.14 ) % ( 0.04 ) % ( 0.14 ) % Foreign taxes ( 0.53 ) % ( 0.94 ) % ( 0.15 ) % Valuation allowance ( 18.19 ) % ( 24.40 ) % ( 17.33 ) % Stock based compensation – excess tax benefit / (tax deficiency) ( 5.00 ) % ( 7.00 ) % ( 2.12 ) % Goodwill impairment ( 7.96 ) % ( 2.59 ) % — % Sale of subsidiary 7.18 % 1.69 % — % Debt restructuring ( 1.83 ) % — % — % Other 0.37 % ( 0.93 ) % ( 0.48 ) % Total provision ( 2.08 ) % ( 4.32 ) % ( 0.78 ) % 95 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The effects of temporary differences and federal NOL carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities as of the dates presented: December 31, 2024 2023 (In thousands) Deferred tax assets: Net operating loss carryforwards $ 172,923 $ 157,919 R&D tax credit 1,757 1,757 Original issue discount 7,330 6,236 Interest 7,544 4,582 Operating lease liabilities ( 1 ) 2,111 Accounts payable and accrued expenses 4,266 6,934 Non-cash compensation 7,617 10,632 Intangibles amortization 3,170 — R&D capitalization 58,237 52,878 Allowance for credit loss 2,067 1,884 Total deferred tax assets 264,910 244,933 Less valuation allowance ( 234,620 ) ( 211,234 ) Deferred tax assets, net of valuation allowance 30,290 33,699 Deferred tax liabilities: Property and equipment ( 12,337 ) ( 13,214 ) Intangibles amortization — ( 8,985 ) Goodwill amortization and contingent earn-out adjustments ( 9,048 ) ( 7,999 ) Outside basis difference in subsidiary stock ( 8,040 ) — Operating lease right-of-use assets 4 ( 1,904 ) Total deferred tax liabilities ( 29,421 ) ( 32,102 ) Net deferred tax assets $ 869 $ 1,597 The Company has U.S. federal, Australian, and German NOLs of $ 644.0 million, $ 0.6 million, and $ 26.8 million, respectively. The Australian and German NOLs can be carried forward indefinitely. For the federal NOLs, $ 573.7 million can be carried forward indefinitely, $ 0.9 million will expire between 2025 and 2030, and $ 69.4 million will expire between 2030 and 2037. The Company has $ 491.1 million of state NOLs, of which $ 107.0 million can be carried forward indefinitely and $ 384.1 million expire between 2024 and 2045. 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 $ 3.5 million as of December 31, 2024 and $ 3.1 million as of December 31, 2023, 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 $ 0.7 million and $ 0.5 million as of December 31, 2024 and 2023, respectively. There are no unrecognized tax benefits expected to reverse in the next twelve months and impact the effective tax rate. 96 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Year Ended December 31, 2024 2023 2022 (In thousands) Unrecognized tax benefits balance, beginning of year $ 3,061 $ 2,721 $ 2,917 Gross increase for tax positions of prior years 204 — — Gross increase for tax positions of current year 271 340 205 Uncertain tax basis classified as held-for-sale liabilities — — ( 401 ) Unrecognized tax benefits, end of year $ 3,536 $ 3,061 $ 2,721 The tax years subject to examination by major tax jurisdictions include the years 2020 and forward for U.S. states and cities, the years 2021 and forward for U.S. Federal, and the years 2019 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 ended 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 16. 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’s equity method investment in joint venture was reduced to zero during the prior year, based on the prior year losses, and remained at zero on the consolidated balance sheet as of December 31, 2024. The Company recorded its ownership percentage of losses of Claire in Other (expense) income, net in the amount of $ 2.3 million for the year ended December 31, 2023. Note 17. Variable Interest Entities In February 2022, the Company acquired WildHealth as well as certain variable interests that WildHealth had in four Professional Corporations (“PCs”). The PCs were 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 provided management and other services to the PCs in exchange for a management fee and provided financial support to the PCs through a revolving credit arrangement. WildHealth also had separate agreements with the equity holder of the PCs where it may acquire and assign such equity interests for certain PCs. The agreement entitled 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 were VIEs as WildHealth was 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, 2024, 2023 and 2022. 97 LIVEPERSON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the second quarter of 2024, the Company entered into an agreement for and completed the sale of 100 % of the equity in WildHealth. As a result, as of December 31, 2024, the PCs related to WildHealth are no longer considered VIEs of the Company. Refer to Note 19 - Divestitures for additional information. Note 18. Related Parties Related parties include entities related to the Company’s directors or main stockholders 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 16 – 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 was considered a customer of the Company. No revenues were recognized for the services provided to Claire included in the Company’s consolidated statements of operations for the year ended December 31, 2024, compared to revenues of $ 3.8 million for the year ended December 31, 2023. Note 19. Divestitures Fiscal 2024 Divestitures In the second quarter of 2024, the Company completed the sale of 100% of the equity in WildHealth to a third party. Pursuant to ASC Subtopic 205-20 , Presentation of Financial Statements - Discontinued Operations , the divestiture did not meet the criteria for presentation as a discontinued operation. WildHealth was part of the Business segment and was a separate reporting unit. The transaction resulted in a loss of $ 0.6 million which was recognized and presented separately in Loss (gain) on divestiture on the Company’s consolidated statements of operations for the year ended December 31, 2024. Subsequent to the closing, the Company does not have ongoing involvement or arrangements with WildHealth. Fiscal 2023 Divestitures 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”) which represented the Company’s Consumer segment. Pursuant to ASC Subtopic 360-10, Impairment or Disposal of Long-Lived Assets , the Company applied held for sale accounting treatment to the assets and liabilities of Kasamba. Accordingly, 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, up until the close of the transaction. The held for sale classification also resulted in ceasing depreciation and amortization on the designated assets. The Share Purchase Agreement between Ingenio, LLC and the Company closed on March 20, 2023. In accordance with the Share Purchase Agreement, the Company sold all of the issued and outstanding shares of Kasamba for $ 16.9 million which was received in cash upon closing; and $ 2.6 million deferred payment to be received within a year of the close transaction date . $ 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 . In June 2024, restricted cash of $ 2.0 million was released and was classified as Cash and cash equivalents on the consolidated balance sheet as of December 31, 2024. The transaction resulted in a gain of $ 17.6 million, which was recognized and presented separately in Loss (gain) on divestiture on the Company’s consolidated statements of operations during the year ended December 31, 2023 . During the year ended December 31, 2024, the Company recognized $ 1.8 million of post-closing adjustments pertaining to the final agreement amount which is recorded in General and administrative expenses in the consolidated statements of operations. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. 98