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, 2023

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 4, 2023, 77,957,463 shares of the registrant’s common stock were outstanding.

1

LIVEPERSON, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

INDEX

		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	3
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	7
	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2023 and 2022	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	57
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signatures		61

2

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q about LivePerson, Inc. (“LivePerson”, the “Company,” “we,” “our,” or “us”) 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) and management strategies. Many of these statements are found in the “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this Quarterly Report on Form 10-Q. When used in this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects” 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 Quarterly Report on Form 10-Q include those set forth our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023 (as amended on May 1, 2023) in the section entitled Part I, 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.

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

3

LIVEPERSON, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2023		December 31, 2022
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	213,763	$	391,781
Restricted cash	2,679		417
Accounts receivable, net of allowances of $9,047 and $9,239 as of June 30, 2023 and December 31, 2022, respectively	105,171		86,537
Prepaid expenses and other current assets	32,657		23,747
Assets held for sale	—		30,984
Total current assets	354,270		533,466
Operating lease right of use assets (Note 10)	415		1,604
Property and equipment, net (Note 6)	127,307		126,499
Contract acquisition costs	39,465		43,804
Intangible assets, net (Note 5)	71,503		78,103
Goodwill (Note 5)	296,973		296,214
Deferred tax assets	4,840		4,423
Investment in joint venture (Note 17)	880		2,264
Other assets	2,634		2,563
Total assets	$	898,287	$	1,088,940
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,307	$	25,303
Accrued expenses and other current liabilities (Note 7)	109,531		129,244
Deferred revenue (Note 2)	100,416		84,494
Convertible senior notes (Note 8)	72,097		—
Operating lease liabilities (Note 10)	654		2,160
Liabilities associated with assets held for sale	—		10,357
Total current liabilities	291,005		251,558
Deferred revenue, net of current portion (Note 2)	301		174
Convertible senior notes, net of current portion (Note 8)	510,545		737,423
Operating lease liabilities, net of current portion (Note 10)	602		682
Deferred tax liabilities	2,757		2,550
Other liabilities	2,932		28,465
Total liabilities	808,142		1,020,852
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.001 par value - 5,000,000 shares authorized, none issued	—		—
Common stock, $0.001 par value - 200,000,000 shares authorized, 80,312,090 and 78,350,984 shares issued, 77,546,017 and 75,584,911 shares outstanding as of June 30, 2023 and December 31, 2022, respectively	80		78
Additional paid-in capital	862,553		771,052
Treasury stock - 2,766,073 shares	(3)		(3)
Accumulated deficit	(763,060)		(692,362)
Accumulated other comprehensive loss	(9,425)		(10,677)
Total stockholders’ equity	90,145		68,088
Total liabilities and stockholders’ equity	$	898,287	$	1,088,940

    

    +

See accompanying notes to unaudited condensed consolidated financial statements.

4

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands, except share and per share amounts)
Revenue	$	97,522	$	132,565	$	205,183	$	262,762
Costs, expenses and other: (1) (2)
Cost of revenue (3)	30,888		45,049		73,984		94,616
Sales and marketing	26,724		59,983		61,194		118,115
General and administrative	8,170		30,246		39,617		59,981
Product development	22,839		55,752		59,358		111,824
Restructuring costs	2,387		10,861		13,902		10,838
Gain on divestiture	—		—		(17,591)		—
Amortization of purchased intangible assets	876		923		1,750		1,822
Total costs, expenses and other	91,884		202,814		232,214		397,196
Income (loss) from operations	5,638		(70,249)		(27,031)		(134,434)
Other income (expense), net:
Interest income (expense), net	136		(682)		1,937		(2,114)
Other income (expense), net	4,893		(3,266)		19,555		(3,206)
Total Income (loss) before (benefit from) provision for income taxes	5,029		(3,948)		21,492		(5,320)
Income (loss) before (benefit from) provision for income taxes	10,667		(74,197)		(5,539)		(139,754)
(Benefit from) provision for income taxes	(155)		1,214		1,059		1,021
Net income (loss)	$	10,822	$	(75,411)	$	(6,598)	$	(140,775)
Net income (loss) per share of common stock:
Basic	$	0.14	$	(0.98)	$	(0.09)	$	(1.84)
Diluted	$	0.12	$	(0.98)	$	(0.09)	$	(1.84)
Weighted average shares outstanding:
Basic	76,902,416		77,290,465		76,341,729		76,555,518
Diluted	91,500,059		77,290,465		76,341,729		76,555,518
(1) Amounts include stock-based compensation expense, as follows:
Cost of revenue	$	(1,232)	$	4,120	$	803	$	6,251
Sales and marketing	2,299		5,942		4,703		12,591
General and administrative	(13,882)		13,231		(11,250)		23,669
Product development	(5,333)		13,224		(1,072)		25,872
(2) Amounts include depreciation expense, as follows:
Cost of revenue	$	2,186	$	2,463	$	4,433	$	4,996
Sales and marketing	741		605		1,467		1,157
General and administrative	139		96		300		233
Product development	6,660		3,963		10,888		7,965
(3) Amounts include amortization of purchased intangibles and finance leases, as follows:
Cost of revenue	$	4,578	$	4,561	$	9,139	$	8,977

See accompanying notes to unaudited condensed consolidated financial statements

5

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
	(In thousands)
Net income (loss)	$	10,822	$	(75,411)	$	(6,598)	$	(140,775)
Foreign currency translation adjustment	386		(4,799)		1,252		(6,498)
Comprehensive income (loss)	$	11,208	$	(80,210)	$	(5,346)	$	(147,273)

See accompanying notes to unaudited 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		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
	(In thousands, except share data)
Balance as of December 31, 2022	78,350,984	$	78	(2,766,073)	$	(3)	$	771,052	$	(692,362)	$	(10,677)	$	68,088
Common stock issued upon exercise of stock options	18,687	—		—	—		130		—		—		130
Common stock issued upon vesting of restricted stock units	413,252	1		—	—		—		—		—		1
Stock-based compensation	—	—		—	—		9,560		—		—		9,560
Common stock issued under Employee Stock Purchase Plan (ESPP)	87,794	—		—	—		724		—		—		724
Issuance of common stock in connection with acquisitions (Note 9)	—	—		—	—		380		—		—		380
Activity related to divestiture (Note 20)	—	—		—	—		66,775		(64,100)		57		2,732
Net loss	—	—		—	—		—		(17,420)		—		(17,420)
Other comprehensive income	—	—		—	—		—		—		809		809
Balance as of March 31, 2023	78,870,717	$	79	(2,766,073)	$	(3)	$	848,621	$	(773,882)	$	(9,811)	$	65,004
Common stock issued upon exercise of stock options	11,154	—		—	—		8		—		—		8
Common stock issued upon vesting of restricted stock units	295,564	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		8,380		—		—		8,380
Common stock issued under ESPP	97,832	—		—	—		397		—		—		397
Issuance of common stock in connection with acquisitions (Note 9)	1,036,823	1		—	—		5,147		—		—		5,148
Net income	—	—		—	—		—		10,822		—		10,822
Other comprehensive income	—	—		—	—		—		—		386		386
Balance as of June 30, 2023	80,312,090	$	80	(2,766,073)	$	(3)	$	862,553	$	(763,060)	$	(9,425)	$	90,145

See accompanying notes to unaudited 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		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
	(In thousands, except share data)
Balance as of December 31, 2021	74,980,546	$	75	(2,746,243)	$	(3)	$	871,788	$	(516,859)	$	(5,564)	$	349,437
Cumulative adjustment due to adoption of ASU 2020-06	—	—		—	—		(209,651)		50,244		—		(159,407)
Common stock issued upon exercise of stock options	40,483	—		—	—		506		—		—		506
Common stock issued upon vesting of restricted stock units	444,043	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		20,522		—		—		20,522
Cash awards settled in shares of the Company’s common stock	735,519	1		—	—		17,298		—		—		17,299
Common stock issued under ESPP	82,100	—		—	—		1,415		—		—		1,415
Issuance of common stock in connection with acquisitions (Note 9)	779,946	1		—	—		17,636		—		—		17,637
Net loss	—	—		—	—		—		(65,364)		—		(65,364)
Other comprehensive loss	—	—		—	—		—		—		(1,699)		(1,699)
Balance as of March 31, 2022	77,062,637	$	77	(2,746,243)	$	(3)	$	719,514	$	(531,979)	$	(7,263)	$	180,346
Common stock issued upon exercise of stock options	25,295	—		—	—		389		—		—		389
Common stock issued upon vesting of RSUs	372,500	1		—	—		—		—		—		1
Stock-based compensation	—	—		—	—		18,826		—		—		18,826
Common stock issued under ESPP	99,495	—		—	—		1,403		—		—		1,403
Net loss	—	—		—	—		—		(75,411)		—		(75,411)
Other comprehensive loss	—	—		—	—		—		—		(4,799)		(4,799)
Balance as of June 30, 2022	77,559,927	$	78	(2,746,243)	$	(3)	$	740,132	$	(607,390)	$	(12,062)	$	120,755

See accompanying notes to unaudited condensed consolidated financial statements.

8

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)    

	Six Months Ended
	June 30,
	2023		2022
	(In thousands)
OPERATING ACTIVITIES:
Net Loss	(6,598)		(140,775)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	(6,816)		68,383
Depreciation	17,088		14,351
Amortization of purchased intangible assets and finance leases	10,889		10,799
Amortization of debt issuance costs	2,727		1,885
Change in fair value of contingent consideration	(5,304)		—
Gain on repurchase of convertible notes	(7,200)		—
Allowance for doubtful accounts	1,809		3,477
Gain on divestiture	(17,591)		—
Deferred income taxes	722		926
Equity loss in joint venture	1,384		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(20,537)		(32,734)
Prepaid expenses and other current assets	(9,126)		(7,981)
Contract acquisition costs non-current	3,534		(4,758)
Other assets	75		(111)
Accounts payable	(19,757)		6,816
Accrued expenses and other current liabilities	16,737		3,941
Deferred revenue	15,652		13,049
Operating lease liabilities	(437)		(1,721)
Other liabilities	(7,800)		86
Net cash used in operating activities	(30,549)		(64,367)
INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized software	(16,997)		(25,197)
Payments for acquisitions, net of cash acquired	—		(3,458)
Purchases of intangible assets	(2,457)		(1,129)
Proceeds from divestiture	13,819		—
Investment in joint venture	—		(3,651)
Net cash used in investing activities	(5,635)		(33,435)
FINANCING ACTIVITIES:
Principal payments for financing leases	(1,926)		(1,849)
Proceeds from issuance of common stock in connection with the exercise of options and ESPP	1,256		895
Payments on repurchase of convertible senior notes	(149,702)		—
Net cash used in financing activities	(150,372)		(954)
Effect of foreign exchange rate changes on cash and cash equivalents	789		1,578
Net decrease in cash, cash equivalents, and restricted cash	(185,767)		(97,178)
Cash, cash equivalents, and restricted cash - beginning of year	392,198		523,532
Plus: cash classified within current assets held for sale - beginning of year	10,011		—
Cash, cash equivalents, and restricted cash - end of period	$	216,442	$	426,354

9

	Six Months Ended
	June 30,
	2023		2022
Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets
Cash and cash equivalents	$	213,763	$	425,944
Restricted cash	2,679		410
Total cash, cash equivalents, and restricted cash - end of period	$	216,442	$	426,354
Supplemental disclosure of other cash flow information:
Cash paid for income taxes	$	1,112	$	2,237
Cash paid for interest	904		985
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment recorded in accounts payable	$	581	$	837
Right of use assets obtained in exchange for operating lease liabilities	132		2,417
Increase in convertible senior notes, net upon adoption of ASU 2020-06 (Note 1)	—		159,407
Issuance of shares of common stock to settle cash awards	—		17,298
Supplemental disclosure of non-cash financing activities related to the WildHealth acquisition in February 2022 (Note 9):
Issuance of shares of common stock	$	—	$	17,675

See accompanying notes to unaudited 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”) is a global leader in AI-powered customer conversations. Consumers have made mobile devices the center of their digital lives, and they have made digital conversational experiences the center of communication with friends, family and peers. Since 1998, LivePerson has enabled billions of meaningful connections between consumers and our customers on our platform. These speech or text conversations decrease costs and increase revenue for our brands by harnessing the power of AI for convenient, personalized and content-rich journeys across the entire consumer lifecycle, and across consumer platforms. AI has accelerated our capability to leverage those prior conversations to enhance the consumer experience and to improve results for our customers by empowering them to leverage the latest Generative AI and Large Language Models (“LLMs”) in a safe and secure environment.

The Conversational Cloud, the Company’s enterprise-class cloud-based platform, enables businesses to have conversations with millions of consumers as personally as they would with a single consumer. The Conversational Cloud powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, 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. Most recently, the Conversational Cloud has been enhanced to provide a secure platform with the necessary guardrails to deploy Generative AI and LLMs in ways that help consumers and drive results for brands without sacrificing trust.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, LLM, 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, co-browsing 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 platform enables what the Company calls “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, the Conversational Cloud 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’s products, coupled with our domain knowledge, industry expertise and professional services, have been proven to maximize the impact of Conversational AI, unlock the power of Generative AI and LLMs in safe and responsible ways, and deliver measurable return on investment for our customers.

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. The Company completed an initial public offering in April 2000 and is currently traded on the Nasdaq Global Select Market (“Nasdaq”) and the Tel Aviv Stock Exchange (“TASE”). LivePerson is headquartered in New York City. LivePerson has adopted an “employee-centric” workforce model that does not rely on traditional offices.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, and the financial data and other information disclosed in the notes to the condensed consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 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

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

only normal recurring adjustments necessary for a fair presentation of the Company’s condensed consolidated financial position, results of operations, comprehensive income (loss), and cash flows for the interim periods presented. 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, 2022 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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2023.

Principles of Consolidation

The unaudited condensed consolidated financial statements reflect the operations of LivePerson and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Equity Method Investment

The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee, and conversely, the ability to exercise significant influence is presumed not to exist when an investor possesses 20% or less of the voting interests of the investee. These presumptions may be overcome based on specific facts and circumstances that demonstrate an ability to exercise significant influence is restricted or demonstrate an ability to exercise significant influence notwithstanding a smaller voting interest, such as with the Company’s 19.2% equity method investment in Claire Holdings, Inc. (“Claire”), due to the Company’s seat on the entity’s board of directors, which provides the Company the ability to exert significant influence. In applying the equity method, the Company records the investment at cost and subsequently increases or decreases the carrying amount of the investment by its proportionate share of the net earnings or losses. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. The Company assesses the carrying value of equity method investment on a periodic basis to see if there has been a decline in carrying value that is not temporary. When deciding whether a decline in carrying value is more than temporary, a number of factors are considered, including the investee’s financial condition and business prospects, as well as the Company’s investment intentions.

Variable Interest Entities

The condensed consolidated financial statements include the financial statements of LivePerson, its wholly owned subsidiaries, and each variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company consolidates entities in which it has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

The Company evaluates whether an entity in which it has a variable interest is considered a variable interest entity. VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest (i.e., ability to make significant decisions through voting rights and a right to receive the expected residual returns of the entity or an obligation to absorb the expected losses of the entity).

Under the provisions of Accounting Standards Codification (“ASC”) 810, “Consolidation”, an entity consolidates a VIE if it is determined to be the primary beneficiary of the VIE. The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company periodically reassesses whether it is the primary beneficiary of a VIE. See Note 18 – Variable Interest Entities for the Company’s assessment of VIEs.

Use of Estimates

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Significant items subject to such estimates and assumptions include:

•revenue recognition;

•stock-based compensation expense;

•accounts receivable;

•valuation of goodwill;

•valuation of intangible assets;

•income taxes; and

•legal contingencies.

As of the date of issuance of the financial statements, the Company is not aware of any material specific events or circumstances that would require it to update its estimates, judgments, or to revise the carrying values of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.

Goodwill

The Company evaluates goodwill for impairment on an annual basis in the third quarter, and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that the carrying value of reporting unit exceeds its fair value in accordance with ASC 820, “Fair Value Measurement.” In performing the goodwill impairment test, the Company first assesses qualitative factors to determine the existence of impairment. If the qualitative factors indicate that the carrying value of a reporting unit more likely than not exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative test.

In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value. The Company determines the fair value using the income and market approaches.

Under the income approach, the fair value of a reporting unit is the present value of its future cash flows as viewed from the eyes of a hypothetical market participant in an orderly transaction. These future cash flows are derived from expectations of revenue, expenses, tax deductions and credits, working capital flows, capital expenditures, and other projected sources and uses of cash, as applicable. Value indications are developed by discounting expected cash flows to their present value using a discount rate commensurate with the risks associated with the reporting unit subject to testing.

Under the market approach, the Company uses market multiples derived from comparable companies based on measures salient to investors in those companies.

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 condensed consolidated financial statements. Income, expenses, and cash flows are translated at weighted average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as a component of Accumulated other comprehensive loss in stockholders’ equity. Foreign exchange transaction gain or losses are included in other income (expense), net in the accompanying condensed consolidated statements of operations.

Divestitures

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company classifies assets and liabilities to be disposed of as held for sale in the period in which they are available for immediate sale in their present condition and the sale is probable and expected to be completed within one year. The Company initially measures assets and liabilities held for sale at the lower of their carrying value or fair value less costs to sell. When the divestiture represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results, the disposal is presented as a discontinued operation. See Note 20 – Divestiture for additional information.

Recently Issued Accounting Pronouncements

On March 27, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, which amends certain provisions of ASC 842 that apply to arrangements between related parties under common control. Specifically, the ASU: 1) Offers private companies, as well as not-for-profit entities that are not conduit bond obligors, a practical expedient that gives them the option of using the written terms and conditions of a common-control arrangement when determining whether a lease exists and the subsequent accounting for the lease, including the lease’s classification and 2) Amends the accounting for leasehold improvements in common-control arrangements for all entities. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any annual or interim period as of the beginning of the related fiscal year. The Company does not expect the adoption of this standard to have a significant impact on its condensed consolidated financial statements and related disclosures.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions to clarify that a contractual restriction on the sale of an equity security is not considered part of a unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments also require the following disclosures for equity securities subject to the contractual sale restrictions.

1.The fair value of equity securities subject to the contractual sale restrictions reflected on the balance sheet.

2.The nature and remaining duration of the restriction(s).

3.The circumstances that could cause a lapse in the restriction(s).

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those financial years. The Company does not expect the adoption of this standard to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Note 2. Revenue Recognition 

The majority of the Company’s revenue is generated from hosted service revenues, which is inclusive of its platform usage pricing model, and related professional services from the sale of its services. Revenues are recognized when control of these services is transferred to its customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services. No single customer accounted for 10% or more of total revenue for the three and six months ended June 30, 2023 and 2022.

Remaining Performance Obligation

As of June 30, 2023, the aggregate amount of the total transaction price allocated in contracts with original duration of one year or greater to the remaining performance obligations was $326.3 million. Approximately 89% of the Company’s remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its performance. The increase in the deferred revenue balance as of June 30, 2023 is primarily driven by cash payments received or due in advance of its performance obligations, partially offset by $73.0 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2022.

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents deferred revenue by revenue source:

	June 30, 2023		December 31, 2022
	(In thousands)
Hosted services	$	99,617	$	83,561
Professional services	799		933
Total deferred revenue - short term	$	100,416	$	84,494
Hosted services	$	196	$	—
Professional services	105		174
Total deferred revenue - long term	$	301	$	174

    

Disaggregated Revenue

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
Revenue:
Hosted services (1)	$	81,286	$	103,985	$	168,624	$	219,431
Professional services	16,236		28,580		36,559		43,331
Total revenue	$	97,522	$	132,565	$	205,183	$	262,762

—————————————

(1)On March 20, 2023, the Company completed the sale of Kasamba and therefore ceased recognizing revenue related to Kasamba effective on the transaction close date. Further, this sale eliminated the entire Consumer segment, as a result of which revenue is presented within a single consolidated segment. Hosted services includes $7.2 million for the six months ended June 30, 2023, and $9.1 million and $18.3 million of revenue for the three and six months ended June 30, 2022, respectively, relating to Kasamba.

Revenue by Geographic Location

The Company is domiciled in the United States and has international operations around the globe. The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In thousands)
United States	$	68,855	$	90,433	$	137,364	$	177,570
Other Americas (1)	2,052		2,975		5,857		8,014
Total Americas	70,907		93,408		143,221		185,584
EMEA (2) (3)	14,933		17,963		31,115		41,783
APAC (4)	11,682		21,194		30,847		35,395
Total revenue	$	97,522	$	132,565	$	205,183	$	262,762

—————————————

(1)Canada, Latin America and South America

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

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(3)Includes revenues from the United Kingdom of $15.3 million and $13.8 million for the three months ended June 30, 2023 and 2022, respectively, and from the Netherlands of $0.3 million and $2.2 million for the three months ended June 30, 2023 and 2022, respectively. Includes revenues from the United Kingdom of $30.6 million and $28.5 million for the six months ended June 30, 2023 and 2022, respectively, and from the Netherlands of $0.6 million and $3.5 million for the six months ended June 30, 2023 and 2022, respectively.

(4)Asia-Pacific (“APAC”)

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 revenue.

In some arrangements, the Company allows customers to pay for access to the Conversational Cloud over the term of the software license. The Company refers to these as subscription transactions. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable on the condensed consolidated balance sheets. Contract acquisition costs represent prepaid sales commissions. The opening and closing balances of the Company’s accounts receivable, unbilled receivables, and deferred revenues are as follows:

	Accounts Receivable		Unbilled Receivable		Contract Acquisition Costs (Non-current)		Deferred Revenue (Current)		Deferred Revenue (Non-current)
	(In thousands)
Opening balance as of December 31, 2021	$	69,259	$	24,545	$	40,675	$	98,808	$	54
Increase (decrease), net	(15,791)		8,524		3,129		(14,314)		120
Opening balance as of December 31, 2022	$	53,468	$	33,069	$	43,804	$	84,494	$	174
Increase (decrease), net	22,868		(4,234)		(4,339)		15,922		127
Ending balance as of June 30, 2023	$	76,336	$	28,835	$	39,465	$	100,416	$	301

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 the Company determines amounts are no longer collectible.

	Allowance for Doubtful Accounts
	(In thousands)
Allowance for doubtful accounts:
Balance at beginning of the year	$	9,239
Additions charged to costs and expenses	1,809
Deductions/write-offs	(2,001)
Balance as of June 30, 2023	$	9,047

Note 3. Net Income (Loss) Per Share

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Basic earnings per share (“EPS”) excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. Potentially dilutive securities consist of common stock options, restricted stock units, contingently issuable shares and convertible securities. The dilutive effect of stock options, restricted stock units and contingently issuable shares is reflected in diluted EPS by application of the treasury stock method. The dilutive effect of convertible securities is reflected in the diluted EPS by application of the “if-converted” method. The “if-converted” method is only assumed in periods where such application would be dilutive. In applying the “if-converted” method for diluted net income (loss) per share, the Company would assume conversion of the 2024 Notes at a ratio of 25.9182 shares of its common stock per $1,000 principal amount of the 2024 Notes. The Company would assume conversion of the 2026 Notes at a ratio of 13.2933 shares of its common stock per $1,000 principal amount of the 2026 Notes. Assumed converted shares of the Company’s common stock are weighted for the period the Notes were outstanding.

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

Reconciliation of shares used in calculating basic and diluted net income (loss) per share for the three and six months ended June 30, 2023 and 2022, were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net income (loss) available to stockholders for basic net income per share	$	10,822	$	(75,411)	$	(6,598)	$	(140,775)
Interest on assumed conversion of convertible notes, net of tax	136		—		—		—
Net income (loss) available to stockholders for diluted net income per share	10,958		(75,411)		(6,598)		(140,775)
Denominator:
Weighted-average shares used to compute basic net income per share	76,902,416		77,290,465		76,341,729		76,555,518
Weighted-average effect of dilutive securities:
Stock options and employee stock purchase plan	98,143		—		—		—
Restricted stock units	166,156		—		—		—
Earn-outs	5,575,251		—		—		—
Conversion option of the 2024 and 2026 Notes	8,758,093		—		—		—
Weighted-average shares used to compute diluted net income per share	91,500,059		77,290,465		76,341,729		76,555,518
Net income (loss) per share:
Basic	$	0.14	$	(0.98)	$	(0.09)	$	(1.84)
Diluted	$	0.12	$	(0.98)	$	(0.09)	$	(1.84)

17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The diluted net EPS calculation for the three months ended June 30, 2023 excluded approximately 3.8 million shares and 3.2 million shares related to stock options and RSUs, respectively, as their effect would have been anti-dilutive. Additionally, subsequent to June 30, 2023, the Company settled the final portion of the VoiceBase earn-out for approximately $15.0 million, which is due to be paid in the fourth quarter of 2023. The assumed conversion of the earn-out settlement would have no impact on the basic and diluted EPS as presented in the table above. Further, the following securities were excluded from the computation of diluted EPS for the six months ended June 30, 2023 and 2022, and three months ended June 30, 2022, as their effect would have been anti-dilutive:

	As of June 30,
	2023	2022
Shares subject to outstanding common stock options and employee stock purchase plan	3,541,432	4,784,614
Restricted stock units	3,738,894	4,066,555
Earn-outs	5,575,251	11,448,016
Conversion option of the 2024 Notes	1,878,810	5,961,186
Conversion option of the 2026 Notes	6,879,283	6,879,283
Total	21,613,670	33,139,654

Note 4. Segment Information

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company was previously organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage the Conversational Cloud’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitated online transactions between Experts and Users seeking information and knowledge for a fee via mobile and online messaging. During the first quarter of 2023, the Consumer segment (comprised solely of the Kasamba business) was divested (see Note 20 – Divestiture). The chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income of the remaining Business segment. The Business reporting segment follows the same accounting policies used in the preparation of the Company’s 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 intangible assets 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 were no inter-segment sales.

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Presented on a consolidated basis, the following table is a summary of financial information by segment for the three and six months ended June 30, 2023 and 2022, based on the Company’s internal financial reporting system utilized by the Company’s CODM:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Consolidated	(In thousands)
Revenue:
Hosted services (1)	$	81,286	$	103,985	$	168,624	$	219,431
Professional services	16,236		28,580		36,559		43,331
Total revenue	97,522		132,565		205,183		262,762
Cost of revenue	30,888		45,049		73,984		94,616
Sales and marketing	26,724		59,983		61,194		118,115
Amortization of purchased intangibles	876		923		1,750		1,822
Gain on divestiture	—		—		(17,591)		—
Unallocated corporate expenses	33,396		96,859		112,877		182,643
Operating income (loss)	$	5,638	$	(70,249)	$	(27,031)	$	(134,434)

——————————————

(1)On March 20, 2023, the Company completed the sale of Kasamba and therefore ceased recognizing revenue related to Kasamba effective on the transaction close date. Further, this sale eliminated the entire Consumer segment, as a result of which revenue is presented within a single consolidated segment. Hosted services includes $7.2 million for the six months ended June 30, 2023, and $9.1 million and $18.3 million of revenue for the three and six months ended June 30, 2022, respectively, relating to Kasamba.

During the first quarter of 2023, the Company completed the sale of Kasamba, which was reported under the Consumer segment, and had ceased recognizing revenues and expenses effective the transaction close date. As a result, the divestiture of Kasamba eliminates the Company’s Consumer segment as the Company focuses on the core Business segment. See Note 20 –Divestiture, for further details.

Geographic Information

The Company is domiciled in the United States and has international operations around the globe. The following table presents the Company’s long-lived assets by geographic region as of the dates set forth below:

	June 30, 2023		December 31, 2022
	(In thousands)
United States	$	465,914	$	476,040
Germany	46,123		46,323
Israel	—		4,064
Australia	11,741		12,057
Netherlands	6,090		3,470
Other (1)	14,149		13,520
Total long-lived assets	$	544,017	$	555,474

——————————————

(1)United Kingdom, Japan, France, Italy, Spain, Canada, and Singapore.

19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Goodwill and Intangible Assets, Net

Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2023 are as follows:

	Consolidated
	(In thousands)
Balance as of December 31, 2022	$	296,214
Adjustments to goodwill:
Foreign exchange adjustment	759
Balance as of June 30, 2023	$	296,973

Goodwill is not amortized, but is tested for impairment at the reporting unit level using either a qualitative or quantitative assessment on an annual basis during third quarter of each fiscal year, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment of goodwill is measured at the reporting unit level by comparing the carrying amount, including goodwill, to the fair market value of the reporting unit. As of June 30, 2023, there was no indication of impairment of the Company’s goodwill balances. As a result of the divestiture of Kasamba under the Consumer segment, the Company recorded a reduction to its goodwill of $8.0 million during the year ended December 31, 2022, based on the relative fair value of the segment. See Note 20 - Divestiture, for additional information.

Intangible Assets, Net

Intangible assets are summarized as follows:

	As of June 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period
	(In thousands)
Amortizing intangible assets:
Technology	$	97,538	$	(53,380)	$	44,158	5.0 years
Customer relationships	32,044		(18,471)		13,573		10.0 years
Patents	13,462		(1,631)		11,831		12.9 years
Trademarks	1,410		(556)		854		5.0 years
Trade names	1,044		(540)		504		2.8 years
Other	914		(331)		583		4.1 years
Total	$	146,412	$	(74,909)	$	71,503

    

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	As of December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Amortization Period
	(In thousands)
Amortizing intangible assets:
Technology	$	97,454	$	(45,907)	$	51,547	5.0 years
Customer relationships	31,987		(17,392)		14,595		10.0 years
Patents	11,088		(1,419)		9,669		12.8 years
Trademarks	1,044		(364)		680		5.0 years
Trade names	1,378		(402)		976		2.8 years
Other	979		(343)		636		4.1 years
Total	$	143,930	$	(65,827)	$	78,103

 

Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization expense for intangible assets, net was $4.6 million and $4.5 million for the three months ended June 30, 2023 and 2022, respectively, and $9.1 million and $9.0 million for the six months ended June 30, 2023 and 2022, respectively, a portion of this amortization was included in cost of revenue in the condensed consolidated statements of operations.

As of June 30, 2023, estimated annual amortization expense for the next five years and thereafter is as follows:

	Estimated Amortization Expense
	(In thousands)
Remaining 2023	$	9,050
2024	16,191
2025	15,747
2026	13,047
2027	1,428
Thereafter	16,040
Total	$	71,503

21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. Property and Equipment, Net

The following table presents the detail of property and equipment, net for the periods presented:

	June 30, 2023		December 31, 2022
	(In thousands)
Computer equipment and software	$	122,483	$	128,206
Internal-use software development costs	176,211		161,633
Finance lease right of use assets	1,248		3,083
Furniture, equipment, and building improvements	330		506
Property and equipment, at cost	300,272		293,428
Less: accumulated depreciation	(172,965)		(155,706)
Property and equipment, net	$	127,307	$	137,722
Less: assets held for sale	—		(11,223)
Property and equipment, net	$	127,307	$	126,499

Note 7. Accrued Expenses and Other Current Liabilities

The following table presents the detail of accrued expenses and other current liabilities for the periods presented:

	June 30, 2023		December 31, 2022
	(In thousands)
Professional services and consulting and other vendor fees	$	60,250	$	51,067
Payroll and other employee related costs	15,802		19,182
Short-term contingent earn-out	24,403		47,819
Sales commissions	1,998		4,402
Finance lease liability	692		2,569
Restructuring	2,261		803
Taxes other than income tax	1,690		1,148
Other	2,435		2,254
Total accrued expenses and other current liabilities	$	109,531	$	129,244

Note 8. Convertible Senior Notes, Net and Capped Call Transactions

Convertible Senior Notes due 2024 and Capped Calls

In March 2019, the Company issued $230.0 million aggregate principal amount of its 0.750% Convertible Senior Notes due 2024 (the “2024 Notes”) in a private placement. Interest on the 2024 Notes is payable semi-annually in arrears on March 1 and September 1 of each year.

The 2024 Notes will mature on March 1, 2024, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the offering of the 2024 Notes, after deducting debt issuance costs, was approximately $221.4 million.

22

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Each $1,000 in principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $0.001, which is equivalent to an initial conversion price of approximately $38.58 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2024 Notes in connection with such a corporate event. The 2024 Notes are not redeemable prior to the maturity date of the 2024 Notes and no sinking fund is provided for the 2024 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2024 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their 2024 Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, holders may convert all or any portion of their 2024 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election.

During the three and six months ended June 30, 2023, the conditions allowing holders of the 2024 Notes to convert were not met.

The 2024 Notes are senior unsecured obligations of the Company.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2024 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that did not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $52.9 million and was determined by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an effective interest rate over the contractual term of the 2024 Notes. This accounting treatment no longer applies under ASU 2020-06.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total amount of issuance costs incurred of approximately $8.6 million to the liability and equity components of the 2024 Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $6.6 million, were recorded as an additional debt discount and were amortized to interest expense using the effective interest method over the contractual term of the 2024 Notes. Issuance costs attributable to the equity component were approximately $2.0 million and recorded as a reduction of additional paid in capital in stockholders’ equity. This accounting treatment no longer applies under ASU 2020-06.

As a result of the adoption of ASU 2020-06, the 2024 Notes are accounted for as a single liability, and the carrying amount of the 2024 Notes, after giving effect to the March 2023 repurchases described below, is $72.1 million as of June 30, 2023, consisting of principal of $72.5 million, net of unamortized debt issuance costs of $0.4 million. The 2024 Notes were classified as short term liabilities in the accompanying condensed consolidated balance sheets as of June 30, 2023. The remaining term over which the 2024 Notes’ debt issuance costs will be amortized is 0.7 years at an effective interest rate of 1.57% for the three months ended June 30, 2023.

In connection with the offering of the 2024 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2024 capped calls”). The 2024 capped calls each have an initial strike price of

23

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

approximately $38.58 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. The 2024 capped calls have initial cap prices of $57.16 per share, subject to certain adjustment events. The 2024 capped calls cover, subject to anti-dilution adjustments, approximately 5.96 million shares of common stock. The 2024 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2024 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2024 capped calls expire on March 1, 2024, subject to earlier exercise. The 2024 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2024 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2024 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2024 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $23.2 million incurred to purchase the 2024 capped calls was recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheets.    

On March 21, 2023, the Company entered into individual privately negotiated transactions (the “Note Repurchase Agreements”) with certain holders of its 2024 Notes, pursuant to which the Company agreed to pay an aggregate of approximately $149.7 million in cash for the repurchase of approximately $157.5 million in aggregate principal amount of the 2024 Notes (the “Note Repurchases”). During the first quarter of 2023, the Company recognized a $6.1 million gain, net of transaction costs of $0.5 million on debt extinguishment, which represented the difference between the carrying value and the fair value of the 2024 Notes just prior to Note Repurchases. The gain on debt extinguishment, net of transaction costs of $0.5 million, was subsequently adjusted by an immaterial amount of $1.1 million for the three months ended June 30, 2023, with a total gain of $7.2 million reported as of June 30, 2023.

Upon completion of the Note Repurchases, the aggregate principal amount of the 2024 Notes was reduced by $157.5 million to $72.5 million and the carrying amount of the 2024 Notes reduced by $228.3 million to $72.0 million. A corresponding portion of the 2024 capped calls were terminated in connection following the Note Repurchases as required by their terms for minimal consideration.

Convertible Senior Notes due 2026 and Capped Calls

In December 2020, the Company issued $517.5 million aggregate principal amount of its 0% Convertible Senior Notes due 2026 (the “2026 Notes” and together with the 2024 Notes, the “Notes”) in a private placement.

The 2026 Notes will mature on December 15, 2026, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the offering of the 2026 Notes, after deducting debt issuance costs, was approximately $505.3 million.

Each $1,000 in principal amount of the 2026 Notes is initially convertible into 13.2933 shares of the Company’s common stock par value $0.001, which is equivalent to an initial conversion price of approximately $75.23 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2026 Notes in connection with such a corporate event. The 2026 Notes are not redeemable prior to the maturity date of the 2026 Notes and no sinking fund is provided for the 2026 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2026 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their 2026 Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest to, but excluding, the fundamental change repurchase date.

Holders of the 2026 Notes may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2026 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2026 Notes) per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the

24

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

last reported sale price of the Company’s common stock and the conversion rate for the 2026 Notes on each such trading day; (3) with respect to any 2026 Notes that the Company calls for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after August 15, 2026, holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.

During the three and six months ended June 30, 2023, the conditions allowing holders of the 2026 Notes to convert were not met.

The 2026 Notes are senior unsecured obligations of the Company.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the 2026 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that did not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $162.5 million and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, was amortized to interest expense at an effective interest rate over the contractual term of the 2026 Notes. This accounting treatment no longer applies under ASU 2020-06.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total amount of issuance costs incurred of approximately $12.2 million to the liability and equity components of the 2026 Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $8.5 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual term of the 2026 Notes. Issuance costs attributable to the equity component were approximately $3.7 million and recorded as a reduction of additional paid in capital in stockholders’ equity. This accounting treatment no longer applies under ASU 2020-06.

As a result of the adoption of ASU 2020-06, the 2026 Notes are accounted for as a single liability, and the carrying amount of the 2026 Notes is $510.5 million as of June 30, 2023, consisting of principal of $517.5 million, net of issuance costs of $7.0 million. The 2026 Notes were classified as long term liabilities in the accompanying condensed consolidated balance sheets as of June 30, 2023. The remaining term over which the 2026 Notes’ debt issuance costs will be amortized is 3.4 years at an effective interest rate of 0.40% for the three months ended June 30, 2023.

In connection with the offering of the 2026 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2026 capped calls”). The 2026 capped calls each have an initial strike price of approximately $75.23 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes. The 2026 capped calls have initial cap prices of $105.58 per share, subject to certain adjustment events. The 2026 capped calls cover, subject to anti-dilution adjustments, approximately 6.88 million shares of common stock. The 2026 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2026 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2026 capped calls expire on December 15, 2026, subject to earlier exercise. The 2026 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2026 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2026 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2026 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $46.1 million incurred to purchase the 2026 capped calls was recorded as a reduction to additional paid-in capital in the accompanying condensed consolidated balance sheets.

25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The net carrying amount of the liability component of the Notes as of June 30, 2023 and December 31, 2022 was as follows:

	June 30, 2023		December 31, 2022
	(In thousands)
Principal	$	589,992