UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

☐ 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.)
530 7th Ave, Floor M1
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 August 2, 2021, 69,765,416 shares of the registrant’s common stock were outstanding.

1

LIVEPERSON, INC.

June 30, 2021

FORM 10-Q

INDEX

		PAGE
	PART I. Financial Information	4
Item 1.	Financial Statements (Unaudited):	4
	Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
Item 4.	Controls and Procedures	55
	PART II. Other Information	55
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
Signatures		58

2

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. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about LivePerson and our industry. Our expectations, assumptions, estimates and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, assumptions, estimates and projections will be realized. Examples of forward-looking statements include, but are not limited to, statements regarding future business, future results of operations or financial condition (including based on examinations of historical operating trends), management strategies and the COVID-19 pandemic. Many of these statements are found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q. When used in this Form 10-Q, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. However, not all forward-looking statements contain these words. Forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-Q include those set forth in our Annual Report on Form 10-K filed with the SEC on March 8, 2021 in the section entitled “Item 1A — Risk Factors.” 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. We do not undertake any obligation to revise forward-looking statements to reflect future events or circumstances. All forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

3

Part I. Financial Information

Item 1. Financial Statements

LIVEPERSON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2021		December 31, 2020
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	664,334	$	654,152
Accounts receivable, net of allowances of $5,837 and $5,344 as of June 30, 2021 and December 31, 2020, respectively	89,807		80,423
Prepaid expenses and other current assets	19,348		14,236
Total current assets	773,489		748,811
Operating lease right of use assets (Note 9)	307		614
Property and equipment, net (Note 6)	115,647		106,055
Contract acquisition costs	43,462		41,021
Intangibles, net (Note 5)	10,970		10,927
Goodwill (Note 5)	95,116		95,192
Deferred tax assets	3,600		2,032
Other assets	1,166		1,780
Total assets	$	1,043,757	$	1,006,432
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,106	$	14,115
Accrued expenses and other current liabilities (Note 7)	97,567		99,870
Deferred revenue (Note 2)	107,671		88,848
Operating lease liability (Note 9)	2,711		5,718
Total current liabilities	216,055		208,551
Deferred revenue, net of current portion (Note 2)	489		409
Convertible senior notes, net (Note 8)	556,032		538,432
Operating lease liability, net of current portion (Note 9)	3,250		7,180
Deferred tax liability	1,782		1,622
Other liabilities	4,457		6,304
Total liabilities	782,065		762,498
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, 72,017,145 and 70,264,265 shares issued, 69,307,315 and 67,554,435 shares outstanding as of June 30, 2021 and December 31, 2020, respectively	72		70
Additional paid-in capital	696,923		635,672
Treasury stock - 2,709,830 shares	(3)		(3)
Accumulated deficit	(434,199)		(391,885)
Accumulated other comprehensive (loss) income	(1,101)		80
Total stockholders’ equity	261,692		243,934
Total liabilities and stockholders’ equity	$	1,043,757	$	1,006,432

See accompanying notes to condensed consolidated financial statements.

4

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

    

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands, except share and per share amounts)
Revenue	$	119,605	$	91,603	$	227,496	$	169,691
Costs and expenses: (1) (2)
Cost of revenue (3)	40,063		27,707		73,582		50,526
Sales and marketing	38,622		34,618		75,575		77,298
General and administrative	16,105		16,353		30,591		32,822
Product development	37,526		26,967		70,981		52,681
Restructuring costs	493		—		3,225		3,193
Amortization of purchased intangibles	374		404		749		809
Total costs and expenses	133,183		106,049		254,703		217,329
Loss from operations	(13,578)		(14,446)		(27,207)		(47,638)
Other (expense) income, net:
Interest expense, net	(9,281)		(3,211)		(18,410)		(6,002)
Other income (expense), net	2,338		(1,309)		3,050		(1,975)
Total other (expense) income, net	(6,943)		(4,520)		(15,360)		(7,977)
Loss before provision for (benefit from) income taxes	(20,521)		(18,966)		(42,567)		(55,615)
Provision for (benefit from) income taxes	598		(339)		(253)		13
Net loss	$	(21,119)	$	(18,627)	$	(42,314)	$	(55,628)
Net loss per share of common stock:
Basic	$	(0.31)	$	(0.28)	$	(0.62)	$	(0.86)
Diluted	$	(0.31)	$	(0.28)	$	(0.62)	$	(0.86)
Weighted-average shares used to compute net loss per share:
Basic	69,057,129		65,650,782		68,482,653		65,023,302
Diluted	69,057,129		65,650,782		68,482,653		65,023,302
(1)Amounts include stock-based compensation expense, as follows:
Cost of revenue	$	1,386	$	2,199	$	3,281	$	3,448
Sales and marketing	3,373		2,525		7,155		7,664
General and administrative	3,110		4,083		5,760		6,811
Product development	7,218		7,138		13,502		12,719
(2)Amounts include depreciation expense, as follows:
Cost of revenue	$	2,634	$	2,537	$	5,168	$	4,909
Sales and marketing	615		620		1,218		1,287
General and administrative	28		49		88		154
Product development	3,696		2,532		7,104		4,924
(3)Amounts include amortization of purchased intangibles, as follows:
Cost of revenue	$	1,184	$	284	$	2,359	$	569

See accompanying notes to condensed consolidated financial statements.

5

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Net loss	$	(21,119)	$	(18,627)	$	(42,314)	$	(55,628)
Foreign currency translation adjustment	565		(1,931)		(1,181)		538
Comprehensive loss	$	(20,554)	$	(20,558)	$	(43,495)	$	(55,090)

See accompanying notes to condensed consolidated financial statements.

6

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Shares	Amount		Shares	Amount								Total
	(In thousands, except share data)
Balance as of December 31, 2020	70,264,265	$	70	(2,709,830)	$	(3)	$	635,672	$	(391,885)	$	80	$	243,934
Common stock issued upon exercise of stock options	209,185	—		—	—		2,617		—		—		2,617
Common stock issued upon vesting of restricted stock units (RSU)	454,508	1		—	—		(1)		—		—		—
Stock-based compensation	—	—		—	—		9,225		—		—		9,225
Cash awards settled in shares of the Company’s common stock	400,700	—		—	—		25,925		—		—		25,925
Common stock issued under Employee Stock Purchase Plan	22,544	—		—	—		1,257		—		—		1,257
Net loss	—	—		—	—		—		(21,195)		—		(21,195)
Other comprehensive loss	—	—		—	—		—		—		(1,746)		(1,746)
Balance as of March 31, 2021	71,351,202	$	71	(2,709,830)	$	(3)	$	674,695	$	(413,080)	$	(1,666)	$	260,017
Common stock issued upon exercise of stock options	252,155	—		—	—		3,999		—		—		3,999
Common stock issued upon vesting of RSU	252,218	1		—	—		(1)		—		—		—
Stock-based compensation	—	—		—	—		9,524		—		—		9,524
Cash awards settled in shares of the Company’s common stock	137,300	—		—	—		7,578		—		—		7,578
Common stock issued under Employee Stock Purchase Plan	24,270	—		—	—		1,128		—		—		1,128
Net loss	—	—		—	—		—		(21,119)		—		(21,119)
Other comprehensive loss	—	—		—	—		—		—		565		565
Balance as of June 30, 2021	72,017,145	$	72	(2,709,830)	$	(3)	$	696,923	$	(434,199)	$	(1,101)	$	261,692

See accompanying notes to condensed consolidated financial statements.

7

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

(UNAUDITED)

	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Shares	Amount		Shares	Amount								Total
	(In thousands, except share data)
Balance as of 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 RSU	203,690	—		—	—		—		—		—		—
Common stock as earn-out payment in connection with AdvantageTec Inc.	11,508	1		—	—		293		—		—		294
Stock-based compensation	—	—		—	—		9,519		—		—		9,519
Cash awards settled in shares of the Company’s common stock	991,905	—		—	—		24,656		—		—		24,656
ASU 2016-13 (Topic 326) Adjustment (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 as of March 31, 2020	68,000,209	$	68	(2,709,830)	$	(3)	$	474,606	$	(321,292)	$	(6,993)	$	146,386
Common stock issued upon exercise of stock options	403,443	—		—	—		5,079		—		—		5,079
Common stock issued upon vesting of RSU	298,114	1		—	—		—		—		—		1
Stock-based compensation	—	—		—	—		7,433		—		—		7,433
Common stock issued under Employee Stock Purchase Plan	29,711	—		—	—		1,111		—		—		1,111
Net loss	—	—		—	—		—		(18,627)		—		(18,627)
Other comprehensive loss	—	—		—	—		—		—		1,931		1,931
Balance as of June 30, 2020	68,731,477	$	69	(2,709,830)	$	(3)	$	488,229	$	(339,919)	$	(5,062)	$	143,314

See accompanying notes to condensed consolidated financial statements.

8

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)    

	Six Months Ended
	June 30,
	2021		2020
	(In thousands)
OPERATING ACTIVITIES:
Net loss	$	(42,314)	$	(55,628)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense	29,698		30,642
Depreciation	13,578		11,274
Amortization of tenant allowance	—		(258)
Amortization of purchased intangibles and finance leases	3,108		1,378
Amortization of debt issuance costs	1,228		600
Accretion of debt discount on convertible senior notes	16,374		4,777
Changes in fair value of contingent consideration	—		(263)
Allowance for credit losses	1,599		1,953
Gain on settlement of leases	(3,322)		—
Deferred income taxes	(1,408)		54
Changes in operating assets and liabilities:
Accounts receivable	(11,665)		10,051
Prepaid expenses and other current assets	(3,938)		(5,377)
Contract acquisition costs noncurrent	(3,557)		(4,348)
Other assets	597		(28)
Accounts payable	(6,548)		(3,026)
Accrued expenses and other current liabilities	20,527		14,235
Deferred revenue	20,126		5,979
Operating lease liabilities	(3,312)		270
Other liabilities	(157)		21
Net cash provided by operating activities	30,614		12,306
INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized software	(23,172)		(23,611)
Payments for intangible assets	(1,375)		(648)
Net cash used in investing activities	(24,547)		(24,259)
FINANCING ACTIVITIES:
Principal payments for financing leases	(1,728)		—
Proceeds from issuance of common stock in connection with the exercise of options and ESPP	9,001		9,123
Payments on conversion of convertible senior notes	(2)		—
Net cash provided by financing activities	7,271		9,123
Effect of foreign exchange rate changes on cash and cash equivalents	(1,882)		(516)
Net increase (decrease) in cash, cash equivalents, and restricted cash	11,456		(3,346)
Cash, cash equivalents, and restricted cash - beginning of year	654,152		176,523
Cash, cash equivalents, and restricted cash - end of year	$	665,608	$	173,177
Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets
Cash and cash equivalents	$	664,334	$	173,177
Restricted cash in prepaid expenses and other current assets	1,274		—
Total cash, cash equivalents, and restricted cash	$	665,608	$	173,177

9

	Six Months Ended
	June 30,
	2021		2020
	(In thousands)
Supplemental disclosure of other cash flow information:
Cash paid for income taxes	$	686	$	3,124
Cash paid for interest	1,041		863
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment recorded in accounts payable	$	640	$	1,198
Issuance of 11,508 shares of common stock as earn-out payment in connection with AdvantageTec Inc.	—		294
Issuance of shares of common stock to settle cash awards	33,503		24,656
Right of use assets obtained in exchange for operating lease liabilities (1)	—		(1,050)

——————————————

(1)Includes leases that commenced during the year ended December 31, 2020, as well as balances related to leases in existence as of the date of the adoption of Topic 842.

See accompanying notes to condensed consolidated financial statements.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Description of Business and Basis of Presentation

LivePerson, Inc. (“LivePerson”, the “Company”, “we”, “our” or “us”) makes life easier for people and brands everywhere through trusted Conversational AI. Conversational AI allows humans and machines to interact using natural language, including speech or text. During the past decade, consumers have made mobile devices the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers. This trend has been significantly accelerated by the COVID-19 pandemic and can now be viewed as a permanent, structural shift in consumer behavior. Our 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 increasingly 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, and make purchases or payments - all without ever leaving the messaging channel. These AI and human-assisted conversational experiences constitute the Conversational Space, within which LivePerson has strategically developed one of the industry’s largest ecosystems of messaging endpoints and use cases.

The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to become conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of customers and many thousands of agents. The Conversational Cloud 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 the Conversational Cloud 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, the Conversational Cloud can ingest traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages. Agents can manage all conversations with consumers through a single console interface, regardless of where the conversations originated.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, AI, and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment Card Industry (“PCI”) compliance, cobrowsing, and a sophisticated proactive targeting engine. 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 the Conversational Cloud.

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 our proprietary Conversational AI, as well as third-party bots, the Conversational Cloud offers brands a comprehensive approach to scaling automations across their millions of customer conversations.

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.

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. In light of the COVID-19 pandemic and the Company’s strong performance working remotely, the Company has adopted an “employee-centric” workforce model that does not rely on traditional offices. During the second quarter of 2021, the Company decided to reoccupy some of its leased space to provide its employees with the option of working in an office space environment if they choose to do so.

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Basis of Presentation

The accompanying condensed consolidated financial statements as of June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 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 June 30, 2021, and the consolidated results of operations, comprehensive loss, and cash flows for the interim periods ended June 30, 2021 and 2020. 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 as of December 31, 2020 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, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2021.

Principles of Consolidation

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

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 the Company’s estimates require increased judgment due to the significant volatility, uncertainty and economic disruption of the COVID-19 pandemic. We 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.

Foreign Currency Translation

The Company’s operations are conducted in various countries around the world and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting currency) for inclusion in the Company’s consolidated financial statements. 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 income (loss) in stockholders’ equity. Foreign exchange transaction gain or losses are included in Other income (expense), net in the accompanying consolidated statements of operations.

Recently Issued Accounting Standards

Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 which simplifies the accounting for convertible instruments by eliminating existing accounting models that require separation of a cash conversion or beneficial conversion feature from the host contract. Accordingly, a convertible debt instrument will be accounted as a single liability measured at its amortized cost and a convertible preferred stock will be accounted as a single equity instrument measured at its historical cost, as long as no other embedded features require bifurcation as derivatives and

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

the convertible debt was not issued at a substantial premium. The ASU also simplifies the derivative scope exception for accounting for contracts in an entity’s own equity by:

•removing certain conditions required to meet the settlement criterion

•clarifying that instruments that are not indexed to the issuer’s own stock must be remeasured at fair value through earnings at each reporting period

•clarifying the scope of reassessment guidance and disclosure requirements in Subtopic 815-40.

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

For SEC filers, excluding smaller reporting companies, the ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The ASU specifies that the guidance should be adopted as of the beginning of the annual fiscal year. We are assessing what impact ASU 2020-06 will have on our condensed consolidated financial statements.     

Recently Adopted Accounting Pronouncements

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU 2019-12, which 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 expenses 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. We adopted ASU 2019-12 in the first quarter of 2021 and determined that the ASU had no material impact on our condensed consolidated financial statements.

Note 2. Revenue Recognition 

The majority of our revenue is generated from monthly service revenues, which is inclusive of our platform usage pricing model, and related professional services from the sale of our services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. No single customer accounted for 10% or more of our total revenue for the six months ended June 30, 2021.

Remaining Performance Obligation

As of June 30, 2021, 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 $345.8 million. Approximately 92% of our 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.

Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of our performance. The increase in the deferred revenue balance as of June 30, 2021 is primarily driven by cash payments received or due in advance of our performance obligations, partially offset by $81.9 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2020.

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents deferred revenue by revenue source:

	Deferred Revenue
	June 30, 2021		December 31, 2020
	(In thousands)
Hosted services – Business	$	105,239	$	86,144
Hosted services – Consumer	889		835
Professional services – Business	1,543		1,869
Total deferred revenue - short term	$	107,671	$	88,848
Professional services – Business	489		409
Total deferred revenue - long term	$	489	$	409

    

Disaggregated Revenue

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Revenue:
Hosted services – Business	$	95,092	$	72,382	$	178,732	$	133,435
Hosted services – Consumer	9,810		7,587		18,821		13,826
Professional services – Business	14,703		11,634		29,943		22,430
Total revenue	$	119,605	$	91,603	$	227,496	$	169,691

Revenue by Geographic Location

The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented:

	Three Months Ended June 30,				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
United States	$	80,924	$	59,559	$	149,706	$	108,109
Other Americas (1)	3,995		3,048		7,908		5,068
Total Americas	84,919		62,607		157,614		113,177
EMEA (2) (4)	22,933		19,692		44,693		39,182
APAC (3)	11,753		9,304		25,189		17,332
Total revenue	$	119,605	$	91,603	$	227,496	$	169,691

——————————————

(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 $14.8 million and $12.5 million for the three months ended June 30, 2021 and 2020, respectively, and from the Netherlands of $1.2 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively. Includes revenues from the United Kingdom of $28.1 million and $25.1 million for the six months ended June 30, 2021 and 2020, respectively, and from the Netherlands of $2.5 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Information about Contract Balances

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

In some arrangements, we allow customers to pay for access to the Conversational Cloud over the term of the software license. We refer 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. Contract acquisition costs represent prepaid sales commissions. The opening and closing balances of our accounts receivable, unbilled receivables, contract acquisition costs, and deferred revenues are as follows:

	Accounts Receivable		Unbilled Receivable		Contract Acquisition Costs (Non-current)		Deferred Revenue (Current)		Deferred Revenue (Non-current)
	(In thousands)
Opening balance as of December 31, 2020	$	61,801	$	18,622	$	41,021	$	88,848	$	409
(Decrease) increase, net	(2,936)		12,320		2,441		18,823		80
Ending balance as of June 30, 2021	$	58,865	$	30,942	$	43,462	$	107,671	$	489

Accounts Receivable, Net

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.

	Allowance for Doubtful Accounts
	(In thousands)
Balance as of December 31, 2020	$	5,344
Additions charged to costs and expenses	1,599
Deductions/write-offs	(1,106)
Balance as of June 30, 2021	$	5,837

Note 3. Net Loss Per Share

Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. 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.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net loss (in thousands)	$	(21,119)	$	(18,627)	$	(42,314)	$	(55,628)
Weighted average number of shares outstanding, basic and diluted	69,057,129		65,650,782		68,482,653		65,023,302
Net loss per share, basic and diluted	$	(0.31)	$	(0.28)	$	(0.62)	$	(0.86)

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The anti-dilutive securities excluded from the shares used to calculate diluted net loss per share are as follows:

	As of June 30,
	2021	2020
Shares subject to outstanding common stock options and employee stock purchase plan	4,252,817	5,481,824
Restricted stock units	3,023,476	3,349,966
	7,276,293	8,831,790

We expect to settle the principal amount of our 0.750% Convertible Senior Notes due 2024 (the “2024 Notes”) and our 0% Convertible Senior Notes due 2026 (the “2026 Notes” and together with the 2024 Notes, the “Notes”) upon conversion in cash and any excess over the principal amount in shares of our common stock. We use 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 our common stock for a given period exceeds the initial conversion price of 130% of $38.58 per share for the 2024 Notes and $75.23 per share for the 2026 Notes.

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

Note 4. Segment Information

We are organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage the Conversational Cloud’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between Experts and Users seeking information and knowledge for a fee via mobile and online messaging. Both segments currently generate their revenue primarily in the United States. The chief operating decision maker, 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 our condensed consolidated financial statements which are described in Note 1 –Description of Business and Basis of Presentation. We allocate cost of revenue, sales and marketing, and amortization of purchased intangibles to the segments, but we do not allocate product development expenses, general and administrative expenses, restructuring costs, or 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 June 30, 2021, based on our internal financial reporting system utilized by our chief operating decision maker, follows:

	Business		Consumer		Corporate		Consolidated
	(In thousands)
Revenue:
Hosted services – Business	$	95,092	$	—	$	—	$	95,092
Hosted services – Consumer	—		9,810		—		9,810
Professional services – Business	14,703		—		—		14,703
Total revenue	109,795		9,810		—		119,605
Cost of revenue	38,265		1,798		—		40,063
Sales and marketing	31,915		6,707		—		38,622
Amortization of purchased intangibles	374		—