Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission file number: 000-30141

LIVEPERSON, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		13-3861628
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

475 Tenth Avenue, 5th Floor
New York,	New York	10018
(Address of Principal Executive Offices)		(Zip Code)

(212) 609-4200

(Registrant’s Telephone Number, Including Area Code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	LPSN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On April 25, 2020, 66,198,311 shares of the registrant’s common stock were outstanding.

LIVEPERSON, INC. March 31, 2020 FORM 10-Q INDEX

		PAGE
Part I.	Financial Information	4

Item 1.	Financial Statements (Unaudited):	4

	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	5

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019	6

	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019	8

	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2020 and 2019	7

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	11

	Notes to Condensed Consolidated Financial Statements	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52

Item 4.	Controls and Procedures	54

Part II.	Other Information	54

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	56

Item 6.	Exhibits	57

Signatures		58

FORWARD-LOOKING STATEMENTS

STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q ABOUT LIVEPERSON, INC. (“LIVEPERSON”) THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT LIVEPERSON AND OUR INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL FUTURE EVENTS OR RESULTS TO DIFFER MATERIALLY FROM SUCH STATEMENTS. ANY SUCH FORWARD-LOOKING STATEMENTS ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. IT IS ROUTINE FOR OUR INTERNAL PROJECTIONS AND EXPECTATIONS TO CHANGE AS THE YEAR OR EACH QUARTER IN THE YEAR PROGRESSES, AND THEREFORE IT SHOULD BE CLEARLY UNDERSTOOD THAT THE INTERNAL PROJECTIONS AND BELIEFS UPON WHICH WE BASE OUR EXPECTATIONS MAY CHANGE PRIOR TO THE END OF EACH QUARTER OR THE YEAR. ALTHOUGH THESE EXPECTATIONS MAY CHANGE, WE ARE UNDER NO OBLIGATION TO INFORM YOU IF THEY DO. OUR POLICY IS GENERALLY TO PROVIDE OUR EXPECTATIONS ONLY ONCE PER QUARTER, AND NOT TO UPDATE THAT INFORMATION UNTIL THE NEXT QUARTER. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE PROJECTIONS OR FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN PART II, ITEM 1A, “RISK FACTORS.”

Part I. Financial Information

Item 1. Financial Statements

LIVEPERSON, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)

	March 31, 2020			December 31, 2019
				(Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	171,479		$	176,523
Accounts receivable, net of allowances of $6,742 and $4,226 as of March 31, 2020 and December 31, 2019, respectively	61,082			87,620
Prepaid expenses and other current assets	15,722			13,964
Total current assets	248,283			278,107
Operating lease right of use asset	14,800			15,680
Property and equipment, net	82,816			76,236
Contract acquisition costs	33,607			31,965
Intangibles, net	11,339			11,812
Goodwill	94,945			94,987
Deferred tax assets	1,934			2,179
Other assets	1,735			1,744
Total assets	$	489,459		$	512,710

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	10,652		$	12,302
Accrued expenses and other current liabilities	44,629			62,778
Deferred revenue	85,874			88,751
Operating lease liability	6,561			6,602
Total current liabilities	147,716			170,433
Deferred revenue, net of current portion	29			438
Convertible senior notes, net	181,678			179,012
Other liabilities	77			72
Operating lease liability, net of current portion	12,251			12,865
Deferred tax liability	1,322			1,355
Total liabilities	343,073			364,175

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, 68,000,209 and 66,543,073 shares issued, 65,290,379 and 63,833,243 shares outstanding as of March 31, 2020 and December 31, 2019, respectively	68			67
Additional paid-in capital	474,606			436,557
Treasury stock	(3		)	(3		)
Accumulated deficit	(321,292		)	(283,562		)
Accumulated other comprehensive loss	(6,993		)	(4,524		)
Total stockholders’ equity	146,386			148,535
Total liabilities and stockholders’ equity	$	489,459		$	512,710

See Notes to Condensed Consolidated Financial Statements (unaudited).

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)

	Three Months Ended
	March 31,
	2020			2019
Revenue	$	78,088		$	66,402
Costs and expenses ^{(1) (2)}
Cost of revenue ⁽³⁾	22,820			18,649
Sales and marketing	42,680			33,036
General and administrative	16,469			14,167
Product development	25,716			18,173
Restructuring costs	3,190			279
Amortization of purchased intangibles	405			461
Total costs and expenses	111,280			84,765
Loss from operations	(33,192		)	(18,363		)
Other (expense) income, net
Interest expense, net	(2,791		)	(667		)
Other (expense) income, net	(667		)	733
Total other (expense) income, net	(3,458		)	66
Loss before provision for income taxes	(36,649		)	(18,297		)
Provision for income taxes	352			593
Net loss	$	(37,001	)	$	(18,890	)

Net loss per share of common stock:
Basic	$	(0.57	)	$	(0.31	)
Diluted	$	(0.57	)	$	(0.31	)

Weighted-average shares used to compute net loss per share:
Basic	64,388,850			61,422,227
Diluted	64,388,850			61,422,227


⁽¹⁾ Amounts include stock-based compensation expense, as follows:
Cost of revenue	$	1,249		$	620
Sales and marketing	5,138			1,599
General and administrative	2,727			2,566
Product development	5,581			2,381

⁽²⁾ Amounts include depreciation expense, as follows:
Cost of revenue	$	2,373		$	2,027
Sales and marketing	667			357
General and administrative	105			231
Product development	2,392			1,266

⁽³⁾Amounts include amortization of purchased intangibles, as follows:
Cost of revenue	$	284		$	285

See Notes to Condensed Consolidated Financial Statements (unaudited).

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS) (UNAUDITED)

	Three Months Ended
	March 31,
	2020			2019
Net loss	$	(37,001	)	$	(18,890	)
Foreign currency translation adjustment	2,469			207
Comprehensive loss	$	(34,532	)	$	(18,683	)

See Notes to Condensed Consolidated Financial Statements (unaudited).

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS)



Three Months Ended March 31, 2020

	Common Stock			Treasury Stock					Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss
	Shares	Amount		Shares		Amount			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2019	66,543,073	67		(2,709,830	)	(3		)	436,557		(283,562		)	(4,524		)	148,535
Common stock issued upon exercise of stock options	199,215	—		—		—			1,955		—			—			1,955
Common stock issued upon vesting of restricted stock units	203,690	—		—		—			—		—			—			—
Common stock as earnout payment in connection with AdvantageTec Inc.	11,508	1		—		—			293		—			—			294
Stock-based compensation	—	—		—		—			9,519		—			—			9,519
Bonus cash payment settled in shares of the Company's common stock	991,905	—		—		—			24,656		—			—			24,656
ASU 2016-13 (Topic 326) Adjustment (See note 1)	—	—		—		—			—		(729		)	—			(729		)
Common stock issued under Employee Stock Purchase Plan	50,818	—		—		—			1,626		—			—			1,626
Net loss	—	—		—		—			—		(37,001		)	—			(37,001		)
Other comprehensive loss		—		—		—			—		—			(2,469		)	(2,469		)
Balance at March 31, 2020	68,000,209	$	68	(2,709,830	)	$	(3	)	$	474,606	$	(321,292	)	$	(6,993	)	$	146,386



Three Months Ended March 31, 2019

	Common Stock			Treasury Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 31, 2018	63,676,229	64		(2,681,285	)	(3		)	362,590			(187,491		)	(4,431		)	170,729
Common stock issued upon exercise of stock options	626,478	1		—		—			6,476			—			—			6,477
Common stock issued upon vesting of restricted stock units	414,742	—		—		—			—			—			—			—
Stock-based compensation	—	—		—		—			5,188			—			—			5,188
Common stock issued under Employee Stock Purchase Plan	30,349	—		—		—			721			—			—			721
Common stock repurchase	—	—		(23,421	)	—			(709		)	—			—			(709		)
Equity component of convertible senior notes	—	—		—		—			52,900			—			—			52,900
Equity component of convertible senior notes issuance costs	—	—		—		—			(1,986		)	—			—			(1,986		)
Purchase of capped call option	—	—		—		—			(23,184		)	—			—			(23,184		)
Net loss	—	—		—		—			—			(18,890		)	—			(18,890		)
Other comprehensive loss	—	—		—		—			—			—			(207		)	(207		)
Balance at March 31, 2019	64,747,798	$	65	(2,704,706	)	$	(3	)	$	401,996		$	(206,381	)	$	(4,638	)	$	191,039

See Notes to Condensed Consolidated Financial Statements (unaudited).

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

	Three Months Ended
	March 31,
	2020			2019
OPERATING ACTIVITIES:
Net loss	$	(37,001	)	$	(18,890	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation expense	14,695			7,166
Depreciation and amortization	5,538			3,881
Amortization of tenant allowance	(129		)	(129		)
Amortization of purchased intangibles	689			746
Amortization of debt issuance costs	298			116
Accretion of debt discount on convertible senior notes	2,368			727
Changes in fair value of contingent consideration	(263		)	—
Provision for doubtful accounts	615			502
Deferred income taxes	212			52

Changes in operating assets and liabilities:
Accounts receivable	24,112			(5,763		)
Prepaid expenses and other current assets	(1,878		)	(3,852		)
Contract acquisition costs noncurrent	(2,445		)	(2,825		)
Security deposits	(8		)	—
Other assets	1			(115		)
Accounts payable	(3,412		)	(744		)
Accrued expenses and other current liabilities	2,987			(17,932		)
Deferred revenue	(2,473		)	11,150
Increase in operating lease liabilities	390			81
Other liabilities	(3		)	138
Net cash provided by (used in) operating activities	4,293			(25,691		)

INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized software	(10,805		)	(8,335		)
Payments for intangible assets	(225		)	(2		)
Net cash used in investing activities	(11,030		)	(8,337		)

FINANCING ACTIVITIES:
Repurchase of common stock	—			(709		)
Proceeds from issuance of common stock in connection with the exercise of options and ESPP	3,098			7,198
Proceeds from issuance of convertible senior notes	—			230,000
Payment of issuance costs in connection with convertible senior notes	—			(7,329		)
Payments related to contingent consideration	—			(487		)
Purchase of capped call option	—			(23,184		)
Net cash provided by financing activities	3,098			205,489
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(1,405		)	(123		)
CHANGE IN CASH AND CASH EQUIVALENTS	(5,044		)	171,338
CASH AND CASH EQUIVALENTS - Beginning of the period	176,523			66,449
CASH AND CASH EQUIVALENTS - End of the period	$	171,479		$	237,787

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	$	1,337		$	338

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment recorded in accounts payable	$	1,408	$	198
Issuance of 11,508 shares of common stock as earnout payment in connection with AdvantageTec Inc.	$	294	$	—
Issuance of 991,905 shares of common stock to settle cash awards	$	24,656	$	—
Operating lease right of use asset ⁽¹⁾	$	1,119	$	12,807
Operating lease liabilities- short-term and long term	$	669	$	(16,782	)
Debt offering costs, accrued but not paid	$	—	$	1,306

(1) Includes leases that commenced during the year ended December 31, 2019, as well as balances related to leases in existence as of the date of the adoption of Topic 842.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


1.	Description of Business and Basis of Presentation

LivePerson (the “Company” or “LivePerson”) was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. In April 2000, the Company completed an initial public offering and is currently traded on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange. LivePerson is headquartered in New York City with U.S. offices in Alpharetta (Georgia), San Francisco (California), MountainView (California), Tampa (Florida) and Seattle (Washington), and international offices in Amsterdam (Netherlands), Berlin (Germany), Delhi (India), London (United Kingdom), Mannheim (Germany), Melbourne (Australia), Sydney (Australia), Milan (Italy), Paris (France), Ra'anana (Israel), Reading (United Kingdom), Singapore (Singapore), Tel Aviv (Israel), and Tokyo (Japan).

LivePerson, Inc. makes life easier for people and brands everywhere through messaging powered by AI and humans. During the past decade, the consumer has made the mobile device the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers. The Company’s technology enables consumers to connect with businesses through these same preferred conversational interfaces, including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and even marketing, social and brick and mortar engagements. For example, consumers can look up product info like ratings, images and pricing, search for stores, see product inventory, schedule appointments, apply for credit, approve repairs, make purchases or payments - all without ever leaving the messaging channel. These AI and human-assisted conversational experiences constitute the Conversational Space.

LiveEngage, the Company’s enterprise-class cloud-based platform, enables businesses to become conversational by securely deploying messaging, coupled with bots and AI, at scale for brands with tens of millions of customers and many thousands of customer care agents. LiveEngage powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, short message service (SMS), social media and third-party consumer messaging platforms. Brands can also use LiveEngage to message consumers when they dial a 1-800 number instead of forcing them to navigate interactive voice response systems (IVRs) and wait on hold. Similarly, LiveEngage can receive traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages.

LivePerson's robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. With LiveEngage, agents can manage all conversations with consumers through a single console interface, regardless of which disparate messaging endpoints the consumers originate from -- i.e., WhatsApp, Line, Apple Business Chat, IVR, social, email, Alexa, or WeChat. An extensible application programming interface (API) stack facilitates a lower cost of ownership by facilitating robust integration into back-end systems, as well as enabling developers to build their own programs and services on top of the platform. More than 40 APIs and software development kits are available on LiveEngage.

LivePerson’s Conversational AI offerings put the power of bot development, training, management and analysis into the hands of the contact center and its agents, the teams most familiar with how to structure sales and service conversations to drive successful outcomes. The platform enables what we call “the tango” of humans, AI and bots, whereby human agents act as bot managers, overseeing AI-powered conversations and seamlessly stepping into the flow when a personal touch is needed. Agents become ultra-efficient, leveraging the AI engine to serve up relevant content, define next-best actions and take over repetitive transactional work, so that the agent can focus on relationship building. By seamlessly integrating messaging with the Company’s proprietary Conversational AI, as well as third-party bots, LiveEngage offers brands a comprehensive approach to scaling automations across their millions of customer conversations.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

products, coupled with the Company’s domain knowledge, industry expertise and professional services, have been proven to maximize the effectiveness of the Conversational Space and deliver measurable return on investment. Certain of the Company’s customers have achieved the following advantages from the Company’s offerings:


•	the ability for each agent to manage as many as 40 messaging conversations at a time, as compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots provides even greater scale to the number of conversations managed;


•	labor efficiency gains of at least two times that of a voice agents, effectively cutting labor costs by at least 50%;


•	improving the overall customer experience, thereby fueling customer satisfaction increases of up to 20 percentage points, and enhancing retention and loyalty;


•	more convenient, personalized and content-rich conversations that increase sales conversion by up to 20%, increase average order value and reduce abandonment;


•	more satisfied contact center agents, thereby reducing agent churn by up to 50%


•	maintain a valued connection with consumers via mobile devices, either through native applications, websites, text messages, or third-party messaging platforms;


•	leverage spending that drives visitor traffic by increasing visitor conversions;


•	refine and improve performance by understanding which initiatives deliver the highest rate of return; and


•	increase lead generation by providing a single platform that engages consumers through advertisements and listings on branded and third-party websites.

As a “cloud computing” or software-as-a-service (SaaS) provider, LivePerson provides solutions on a hosted basis. This model offers significant benefits over premise-based software, including lower up-front costs, faster implementation, lower total cost of ownership, scalability, cost predictability, and simplified upgrades. Organizations that adopt a fully-hosted, multi-tenant architecture that is maintained by LivePerson eliminate the majority of the time, server infrastructure costs, and IT resources required to implement, maintain, and support traditional on-premise software.

More than 18,000 businesses, including HSBC, Orange, The Home Depot, and GM Financial use our conversational solutions to orchestrate humans and AI, at scale, and create a convenient, deeply personal relationship with their customers.

LivePerson's consumer services offering is an online marketplace that connects independent service providers (Experts) who provide information and knowledge for a fee via mobile and online messaging with individual consumers (Users). Users seek assistance and advice in various categories including personal counseling and coaching, computers and programming, education and tutoring, spirituality and religion, and other topics.

Basis of Presentation

The accompanying condensed consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the consolidated financial position of LivePerson as of March 31, 2020, and the consolidated results of operations, comprehensive loss and cash flows for the interim periods ended March 31, 2020 and 2019. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at December 31, 2019 has been derived from audited consolidated financial statements at that date.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 2, 2020.

Principles of Consolidation

The condensed consolidated financial statements include the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.

Many of our estimates require increased judgment due to the significant volatility, uncertainty and economic disruption of the recent global COVID-19 pandemic. We will continue to monitor the effects of the COVID-19 pandemic, and our estimates and judgments may change materially as new events occur or additional information becomes available to us.

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around franchise taxes, goodwill recognized for tax purposes, the allocation of current and deferred tax expense among legal entities, among other minor changes. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing what impact ASU 2019-12 will have on its condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326)", in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. Such required disclosures include, but are not limited to, the Company's methodology for estimating its allowance for credit losses. The Company adopted ASU 2016-13 effective January 1, 2020 and applied the guidance using a modified retrospective approach requiring that the Company recognize the cumulative effect of initially applying the impairment standard as an adjustment to opening accumulated deficit for the incremental increase in its allowance for credit losses as of January 1, 2020 over its allowance for bad debts as of December, 31, 2019, which amounted to $0.7 million. The Company will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses.

In January 2017, the FASB issued Accounting Standards Update ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the computation of the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record a goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2017-04 in the first quarter of 2020 which reduced the complexity surrounding the evaluation of goodwill for impairment. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which clarifies the accounting for implementation costs in cloud computing arrangements. The new standard aligns the treatment of implementation costs incurred by customers in cloud computing arrangements that are service contracts with the treatment of similar costs incurred to develop or obtain internal-use software. Under the new standard, implementation costs are deferred and presented in the same financial statement caption on the condensed consolidated balance sheet as a prepayment of related arrangement fees. The deferred costs are recognized over the term of the arrangement in the same financial statement caption in the condensed consolidated income statement as the related fees of the arrangement. The Company adopted ASU 2018-15 in the first quarter of 2020 and the impact of the adoption was not material to the Company's condensed consolidated financial statements.


2.	Revenue Recognition

The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Revenues are recognized when control of these services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 $78.1 million and $66.4 million was recognized during the three months ended March 31, 2020 and 2019, respectively.

Hosted Services- Business Revenue

Hosted Services Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to LiveEngage, the Company’s enterprise-class, cloud-based platform. The Company has determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. The Company recognizes this revenue over time on a ratable basis over the contract term, beginning on the date that access to the LiveEngage platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by the Company’s performance. Subscription contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements. Additionally, for certain of the Company's larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company's online engagement solutions. For these Gainshare (formerly Pay for Performance) arrangements in accordance with ASC-606, "Principal Agent Considerations," the Company acts as a principal in a transaction if it controls the specified goods or services before they are transferred to the customer.

Professional Services Revenues

Professional services revenue primarily consists of fees for deployment and optimization services, as well as training delivered on an on-demand basis which is deemed to represent a distinct stand-ready performance obligation. Professional Services Revenues are reported at the amount that reflects the ultimate consideration the Company expects to receive in exchange for such services. Control for the majority of the Company's Professional Services contracts passes over time to the customer and is recognized ratably over the contracted period, as the passage of time is deemed to be the most faithful depiction of the transfer of control. For certain deployment services, which are not deemed to represent a distinct performance obligation, revenue will be recognized in the same manner as the fee for access to the LiveEngage platform, and as such will be recognized on a straight-line basis over the contract term. For services billed on a fixed price basis, revenue is recognized over time based on the proportion performed using inputs as the measure of progress toward complete satisfaction of the performance obligation. Professional service contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements.

Remaining Performance Obligation

As of March 31, 2020, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $214 million. Approximately 90% 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 cancelable 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 one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligation pursuant to ASC 606.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Contracts with Multiple Performance Obligations

Some of the Company's contracts with customers contain multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts, the cloud applications sold, and the number and types of users within its contracts.

Hosted Services- Consumer Revenue

For revenue from the Company's Consumer segment generated from online transactions between Experts and Users, revenue is recognized at an amount net of Expert fees in accordance with ASC 606, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the consumer and retains a portion of the fee, and then remits the balance to the Expert. Revenue from these transactions is recognized at the point in time when the transaction is complete and no significant performance obligations remain.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of the Company’s performance. The increase in the deferred revenue balance as of March 31, 2020 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, partially offset by $34.0 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2019.

The following table presents deferred revenue by revenue source (amounts in thousands):



	Deferred Revenue
	As of March 31, 2020		As of December 31, 2019
Hosted services – Business	$	77,135	$	82,892
Hosted services – Consumer	713		687
Professional services – Business	8,026		5,172
Total deferred revenue - short term	$	85,874	$	88,751

Professional services – Business	29		438
Total deferred revenue - long term	$	29	$	438

Disaggregated Revenue

The following table presents the Company's revenues disaggregated by revenue source (amounts in thousands):



	Three Months Ended
	March 31,
	2020		2019
Revenue:
Hosted services – Business	$	61,051	$	51,537
Hosted services – Consumer	6,240		5,407
Professional services	10,797		9,458
Total revenue	$	78,088	$	66,402

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revenue by Geographic Location

The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented (amounts in thousands):



	Three Months Ended
	March 31,
	2020		2019
United States	$	48,549	$	38,589
Other Americas ⁽¹⁾	2,020		2,769
Total Americas	50,569		41,358
EMEA ^{(2) (4)}	19,491		18,113
APAC ⁽³⁾	8,028		6,931
Total revenue	$	78,088	$	66,402

⁽¹⁾ Canada, Latin America and South America

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

⁽³⁾ Asia-Pacific (“APAC”)

⁽⁴⁾ Includes revenues from the United Kingdom of $12.6 million and $11.7 million for the three months ended March 31, 2020 and 2019, respectively, and from the Netherlands of $1.3 million and $2.5 million for the three months ended March 31, 2020 and 2019, respectively.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company's deferred revenue balance is related to Hosted Services - Business Revenue.

In some arrangements, the Company allows customers to pay for access to LiveEngage over the term of the software license. The Company refers to these as subscription transactions. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable on the condensed consolidated balance sheet. The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows (amounts in thousands):



	Accounts Receivable ⁽¹⁾			Unbilled Receivable ⁽¹⁾			Contract Acquisition Costs noncurrent		Deferred Revenue (current)			Deferred Revenue (long term)
Opening Balance as of December 31, 2019	$	70,318		$	17,302		$	31,965	$	88,751		$	438
(Decrease) Increase, net	(25,052		)	(1,486		)	1,642		(2,877		)	(409		)
Ending Balance as of March 31, 2020	$	45,266		$	15,816		$	33,607	$	85,874		$	29

⁽¹⁾ These accounts include the $0.7 million adjustment in connection with the adoption of ASU 2016-13 (Topic 326).

Accounts Receivable, Net

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities, which are included in accrued liabilities and other long-term liabilities) on the condensed consolidated balance sheet. Under the typical payment terms of our over time contracts, the customer pays us either performance-based payments or progress payments. Amounts billed and due from our customers are classified as receivables on the condensed consolidated balance sheet. Accounts receivable is presented net of an allowance for doubtful accounts and sales reserve of $3.6 million and $3.1 million at March 31, 2020, respectively and $3.1 million and $1.1 million at December 31, 2019, respectively.

An allowance for doubtful accounts is established to recognize expected credit losses on accounts receivable balances. Judgment is required in the estimation of the allowance and the Company evaluates the collectability of its accounts receivable based on a combination of factors. If the Company becomes aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, the Company uses an aging schedule and recognize allowances for doubtful accounts based on the

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and its historical collection experience adjusted for current expectations for the customers or industry. Accounts receivable are written off against the allowance for uncollectible accounts when the Company determines amounts are no longer collectible.



	Three Months
	March 31,
Allowance for doubtful accounts (in thousands):	2020
Balance at beginning of year, as adjusted for the adoption of ASU 2016-13 (Topic 326)	$	2,341
Accruals for credit loss charged to expense, net	1,247
Balance at end of period	$	3,588

3. Net Loss Per Share

The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10. Under the guidance, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. All options, warrants or other potentially dilutive instruments issued for nominal consideration are required to be included in the calculation of basic and diluted net income attributable to common stockholders. Diluted EPS is calculated using the treasury stock method and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.

Diluted net loss per common share for the three months ended March 31, 2020 does not include the effect of 9,128,000 outstanding common stock awards, as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the three months ended March 31, 2019 does not include the effect of 8,330,741 outstanding common stock awards, as the effect of their inclusion is anti-dilutive.

A reconciliation of shares used in calculating basic and diluted net loss per share follows:



	Three Months Ended
	March 31,
	2020	2019
Basic	64,388,850	61,422,227
Effect of assumed exercised options	—	—
Diluted	64,388,850	61,422,227

The Company expects to settle the principal amount of its outstanding Notes (as defined below) in cash and any excess in shares of the Company’s common stock. The Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of $38.58 per share for the Notes. See Note 8 of the Notes to condensed consolidated financial statements for a full description of the Notes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


4.	Segment Information

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company is organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage LiveEngage’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between independent service providers (“Experts”) and individual consumers (“Users”) seeking information and knowledge for a fee via mobile and online messaging. Both segments currently generate their revenue primarily in the United States. The chief operating decision maker, who is the chief executive officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income of each segment. The reporting segments follow the same accounting polices used in the preparation of the Company’s condensed consolidated financial statements which are described in the summary of significant accounting policies. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses, restructuring costs and income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.

Summarized financial information by segment for the three months ended March 31, 2020, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):



	Business		Consumer			Corporate			Consolidated
Revenue:
Hosted services – Business	$	61,051	$	—		$	—		$	61,051
Hosted services – Consumer	—		6,240			—			6,240
Professional services	10,797		—			—			10,797
Total revenue	71,848		6,240			—			78,088
Cost of revenue	21,345		1,475			—			22,820
Sales and marketing	37,469		5,211			—			42,680
Amortization of purchased intangibles	405		—			—			405
Unallocated corporate expenses	—		—			45,375			45,375
Operating income (loss)	$	12,629	$	(446	)	$	(45,375	)	$	(33,192	)

Summarized financial information by segment for the three months ended March 31, 2019, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):



	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	51,537	$	—	$	—		$	51,537
Hosted services – Consumer	—		5,407		—			5,407
Professional services	9,458		—		—			9,458
Total revenue	60,995		5,407		—			66,402
Cost of revenue	17,662		987		—			18,649
Sales and marketing	30,092		2,944		—			33,036
Amortization of purchased intangibles	461		—		—			461
Unallocated corporate expenses	—		—		32,619			32,619
Operating income (loss)	$	12,780	$	1,476	$	(32,619	)	$	(18,363	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Geographic Information

The Company is domiciled in the United States and has international operations in Israel, the United Kingdom, Asia-Pacific and Australia, Latin America and Western Europe, particularly France, Germany and the Netherlands. The following table presents the Company’s long-lived assets by geographic region as of the dates presented (amounts in thousands):



	March 31,		December 31,
	2020		2019
United States	$	183,931	$	177,776
Israel	17,175		16,680
Australia	13,217		13,765
Netherlands	7,854		7,705
Other ⁽¹⁾	18,998		18,677
Total long-lived assets	$	241,175	$	234,603

⁽¹⁾ United Kingdom, Germany, Japan, France and Italy


5.	Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2020 are as follows (amounts in thousands):



	Business			Consumer		Consolidated
Balance as of December 31, 2019	$	86,963		$	8,024	$	94,987
Adjustments to goodwill:
Foreign exchange adjustment	(42		)	—		(42		)
Balance as of March 31, 2020	$	86,921		$	8,024	$	94,945

Intangible Assets

Intangible assets are summarized as follows (amounts in thousands):



	As of March 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	30,394	$	(25,569	)	$	4,825	5.3 years
Customer relationships	16,961		(13,207		)	3,754		8.4 years
Patents	3,490		(757		)	2,733		12.8 years
Other	262		(235		)	27		2.7 years
Total	$	51,107	$	(39,768	)	$	11,339

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	30,413	$	(25,187	)	$	5,226	5.3 years
Customer relationships	16,964		(12,958		)	4,006		8.4 years
Patents	3,267		(714		)	2,553		12.8 years
Other	262		(235		)	27		2.7 years
Total	$	50,906	$	(39,094	)	$	11,812

Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization expense for intangible assets was $0.7 million for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020 and 2019, respectively, a portion of this amortization is included in cost of revenue. Estimated amortization expense for the next five years is as follows (amounts in thousands):



	Estimated Amortization Expense
Remaining 2020	2,049
2021	2,521
2022	2,156
2023	905
2024	707
Thereafter	3,001
Total	$	11,339


6.	Property and Equipment

The following table presents the detail of property and equipment for the periods presented (amounts in thousands):



	March 31, 2020			December 31, 2019
Computer equipment and software	$	95,152		$	92,493
Furniture, equipment and building improvements	16,522			16,487
Internal-use software development costs	60,733			52,544
	172,407			161,524
Less: accumulated depreciation	(89,591		)	(85,288		)
Total	$	82,816		$	76,236

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


7.	Accrued Expenses and Other Current Liabilities

The following table presents the detail of accrued expenses and other current liabilities for the periods presented (amounts in thousands):



	March 31, 2020		December 31, 2019
Payroll and other employee related costs	$	12,560	$	27,920
Professional services and consulting and other vendor fees	22,788		20,382
Unrecognized tax benefits	2,052		2,053
Sales commissions	3,787		9,654
Contingent earn-out (see Notes 9 and 10)	—		557
Restructuring (see Note 13)	276		314
Sales tax liabilities	2,500		—
Other	666		1,898
Total	$	44,629	$	62,778


8.	Convertible Senior Notes and Capped Call Transactions

In March 2019, the Company issued $230.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2024 in a private placement, which amount includes $30.0 million aggregate principal amount of such Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers (collectively, the “Notes”). The interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019.

The Notes will mature on March 1, 2024, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the debt offering, after deducting debt issuance costs, paid or payable by us, was approximately $221.0 million.

Each $1,000 principal amount of the Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $0.001, which is equivalent to an initial conversion price of approximately $38.58 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event. The Notes are not redeemable prior to the maturity date of the Notes and no sinking fund is provided for the Notes. If we undergo a fundamental change (as defined in the indenture governing the Notes) prior to the maturity date, holders may require us to repurchase for cash all or any portion of their Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders of the Notes may convert their Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 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 Notes) per $1,000 principal amount of 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 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, holders may convert all or any portion of their 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.

It is the Company’s current intent to settle the principal amount of its outstanding Notes in cash and any excess in shares of the Company’s common stock.