10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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

(212) 609-4200

(Registrant’s Telephone Number, Including Area Code)

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No ¨

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

Large accelerated filer ¨	Accelerated filer ý
Non-accelerated filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

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

On November 3, 2014, 54,653,337 shares of the registrant’s common stock were outstanding.

1

LIVEPERSON, INC. September 30, 2014 FORM 10-Q INDEX
		PAGE
Part I.	Financial Information	4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013	4
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013	5
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2014 and 2013	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	34
Part II.	Other Information	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		37

2

FORWARD-LOOKING STATEMENTS

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

3

Part I. Financial Information

Item 1. Financial Statements

LIVEPERSON, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
	September 30, 2014			December 31, 2013
	(Unaudited)			(Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	87,111		$	91,906
Accounts receivable, net of allowance for doubtful accounts of $948 and $1,165 as of September 30, 2014 and December 31, 2013, respectively	32,386			29,489
Prepaid expenses and other current assets	9,620			6,361
Deferred tax assets, net	2,628			5,426
Total current assets	131,745			133,182
Property and equipment, net	18,763			17,618
Intangibles, net	14,020			13,088
Goodwill	35,783			32,724
Deferred tax assets, net	9,064			6,243
Other assets	2,342			2,235
Total assets	$	211,717		$	205,090
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	8,932		$	10,139
Accrued expenses	29,752			25,419
Deferred revenue	14,022			8,747
Total current liabilities	52,706			44,305
Deferred revenue, net of current	—			468
Other liabilities	768			1,264
Total liabilities	53,474			46,037
Commitments and contingencies (See Note 11)
STOCKHOLDERS’ EQUITY (See Note 12):
Common stock	55			54
Additional paid-in capital	246,906			244,621
Treasury stock	(1		)	—
Accumulated deficit	(88,425		)	(85,279		)
Accumulated other comprehensive loss	(292		)	(343		)
Total stockholders’ equity	158,243			159,053
Total liabilities and stockholders’ equity	$	211,717		$	205,090

See Notes to Condensed Consolidated Financial Statements (unaudited).

4

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenue	$	52,787		$	45,192		$	151,702		$	130,917
Costs and expenses (1) (2)
Cost of revenue	13,304			10,597			38,200			31,342
Sales and marketing	20,978			16,141			59,449			46,118
Product development	9,712			10,023			27,999			27,091
General and administrative	8,787			9,508			28,074			29,581
Amortization of purchased intangibles	407			224			803			672
Total costs and expenses	53,188			46,493			154,525			134,804
Loss from operations	(401		)	(1,301		)	(2,823		)	(3,887		)
Other income, net	223			209			184			264
Loss before provision for (benefit from) income taxes	(178		)	(1,092		)	(2,639		)	(3,623		)
Provision for (benefit from) income taxes	962			(362		)	507			(832		)
Net loss	$	(1,140	)	$	(730	)	$	(3,146	)	$	(2,791	)
Net loss per share of common stock:
Basic	$	(0.02	)	$	(0.01	)	$	(0.06	)	$	(0.05	)
Diluted	$	(0.02	)	$	(0.01	)	$	(0.06	)	$	(0.05	)
Weighted-average shares used to compute net loss per share:
Basic	53,868,124			54,046,161			54,238,536			54,898,974
Diluted	53,868,124			54,046,161			54,238,536			54,898,974
(1) Amounts include stock compensation expense, as follows:
Cost of revenue	$	365		$	635		$	1,209		$	1,557
Sales and marketing	1,030			844			2,766			2,159
Product development	1,171			1,241			2,783			2,922
General and administrative	1,088			1,078			2,800			3,111
(2) Amounts include depreciation expense, as follows:
Cost of revenue	$	1,732		$	1,445		$	4,776		$	4,565
Sales and marketing	195			23			603			68
Product development	180			166			529			526
General and administrative	237			368			651			891

See Notes to Condensed Consolidated Financial Statements (unaudited).

5

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (IN THOUSANDS) (UNAUDITED)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net loss	$	(1,140	)	$	(730	)	$	(3,146	)	$	(2,791	)
Foreign currency translation adjustment	(387		)	358			51			(29		)
Comprehensive loss	$	(1,527	)	$	(372	)	$	(3,095	)	$	(2,820	)

See Notes to Condensed Consolidated Financial Statements (unaudited).

6

LIVEPERSON, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
	Nine Months Ended
	September 30,
	2014			2013
OPERATING ACTIVITIES:
Net loss	$	(3,146	)	$	(2,791	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense	9,558			9,749
Depreciation	6,559			6,050
Amortization of purchased intangibles	3,461			1,575
Deferred income taxes and other non-cash tax items	(1,067		)	(1,700		)
Provision for doubtful accounts, net	1,096			—
Changes in operating assets and liabilities:
Accounts receivable	(4,337		)	(7,395		)
Prepaid expenses and other current assets	(4,390		)	(1,523		)
Other assets	538			79
Accounts payable	(2,248		)	(3,523		)
Accrued expenses	3,873			2,978
Deferred revenue	5,003			261
Other liabilities	(469		)	(112		)
Net cash provided by operating activities	14,431			3,648
INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized software	(6,644		)	(6,638		)
Investment in technology licenses	(3,451		)	—
Acquisition of Synchronite	(2,300		)	—
Acquisition of NexGraph	(125		)	—
Acquisition of domains	(27		)	(50		)
Acquisition costs - Engage, net of cash	—			(79		)
Net cash used in investing activities	(12,547		)	(6,767		)
FINANCING ACTIVITIES:
Excess tax benefit from the exercise of employee stock options	—			135
Proceeds from issuance of common stock in connection with the exercise of options	6,109			3,737
Repurchase of common stock	(12,980		)	(26,716		)
Net cash used in financing activities	(6,871		)	(22,844		)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	192			3
CHANGE IN CASH AND CASH EQUIVALENTS	(4,795		)	(25,960		)
CASH AND CASH EQUIVALENTS - Beginning of the period	91,906			103,339
CASH AND CASH EQUIVALENTS - End of the period	$	87,111		$	77,379
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	$	2,182		$	151
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contingent earn-out in connection with the acquisition of Synchronite recorded in accrued expenses	$	1,810		$	—
Purchase of property and equipment recorded in accounts payable	$	1,840		$	720
Acquisition cost in connection with NexGraph recorded in accrued expenses	$	125		$	—

See Notes to Condensed Consolidated Financial Statements (unaudited).

7

LIVEPERSON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of Business and Basis of Presentation

LivePerson, Inc. (the “Company” or “LivePerson”) was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. In April 2000, the Company completed an initial public offering and is currently traded on the Nasdaq Global Select Market and the Tel Aviv Stock Exchange. LivePerson is headquartered in New York City with offices in Amsterdam, Atlanta, London, Melbourne, San Francisco, Tokyo and Tel Aviv.

LivePerson provides online engagement solutions offering a cloud-based platform which enables businesses to proactively connect with consumers through chat, voice and content delivery, across multiple channels and screens, including websites, social media, tablets and mobile devices. The Company’s engagements are driven by insights derived from a broad set of consumer and business data, including historical, behavioral, operational, and third party data. Each engagement is based on proprietary analytics and a real-time understanding of consumer needs and business objectives. The Company’s products, coupled with its domain knowledge and industry expertise, have been proven to maximize the effectiveness of the online channel — by increasing sales, as well as consumer satisfaction and loyalty ratings for its customers, while also enabling its customers to reduce consumer service costs.

LivePerson monitors and analyzes valuable online consumer behavioral data on behalf of its customers. Spanning the breadth of an online visitor session, starting from an initial keyword search through actions on their customer’s website, and even into a shopping cart and an executed sale, this data enables the Company to develop unique insights into consumer behavior during specific transactions within a customer’s user base.

The Company’s primary revenue source is from the sale of LivePerson services to businesses of all sizes. The Company also offers an online marketplace that connects independent service providers (“Experts”) who provide information and knowledge for a fee via real-time chat with individual consumers (“Users”).

Basis of Presentation

The accompanying condensed consolidated financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 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 September 30, 2014, and the consolidated results of operations, comprehensive loss and cash flows for the interim periods ended September 30, 2014 and 2013. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at December 31, 2013 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, 2013, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2014.

Reclassification

For comparability, certain 2013 amounts have been reclassified where appropriate, to conform to the financial presentation in 2014.

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.

8

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes most existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.

The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  The Company is currently evaluating the impact of the Company’s pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which it will adopt the standard in 2017.

2. Revenue Recognition 

The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Because the Company provides its application as a service, the Company follows the provisions of FASB Accounting Standards Codification (“ASC”) 605-10-S99, “Revenue Recognition” and ASC 605-25, “Revenue Recognition with Multiple-Element Arrangements.” The Company charges a monthly fee, which varies by type of service, the level of customer usage and website traffic, and in some cases, the number of orders placed via the Company’s online engagement solutions.

For certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions. For these Pay for Performance (“PFP”) arrangements, in accordance with ASC 605-45, “Principal Agent Considerations,” the Company records revenue for transactions in which it acts as an agent on a net basis, and revenue for transactions in which it acts as a principal on a gross basis.

The Company also sells certain of the LivePerson services directly via Internet download.  These services are marketed as LiveEngage for small to medium-sized businesses (“SMBs”), and are paid for almost exclusively by credit card.  Credit card payments accelerate cash flow and reduce the Company’s collection risk, subject to the merchant bank's right to hold back cash pending settlement of the transactions.  Sales of LiveEngage may occur with or without the assistance of an online sales representative, rather than through face-to-face or telephone contact that is typically required for traditional direct sales.

The Company recognizes monthly service revenue based upon the fee charged for the LivePerson services, provided that there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable. The Company’s service agreements typically have twelve month terms and, in some cases, are terminable or may terminate upon 30 to 90 days’ notice without penalty. When professional service fees add value to the customer on a standalone basis, the Company recognizes professional service fees upon completion and customer acceptance in accordance with FASB Accounting Standards Update 2009-13. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) best estimated selling price. If a professional services arrangement does not qualify for separate accounting, the Company recognizes the fees, and the related labor costs, ratably over the contracted period.

For revenue generated from online transactions between Experts and Users, the Company recognizes revenue net of the Expert fees in accordance with ASC 605-45, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the User and retains a portion of the fee, and then remits the balance to the Expert. Revenue from these transactions is recognized when there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed and determinable.

3. Net Loss Per Share

The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10 and the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 98. Under ASC 260-10, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. All options, warrants or other potentially dilutive instruments issued for nominal consideration

9

are required to be included in the calculation of basic and diluted net income attributable to common stockholders. Diluted EPS is calculated using the treasury stock method and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.

Diluted net loss per common share for the three and nine months ended September 30, 2014 does not include the effect of options to purchase 11,127,640 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the three and nine months ended September 30, 2013 does not include the effect of options to purchase 10,132,045 shares of common stock as the effect of their inclusion is anti-dilutive.

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Basic	53,868,124	54,046,161	54,238,536	54,898,974
Effect of assumed exercised options	—	—	—	—
Diluted	53,868,124	54,046,161	54,238,536	54,898,974

4. Segment Information

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company is organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment facilitates real-time online interactions – chat, voice and content delivery across multiple channels and screens for global corporations of all sizes. The Consumer segment facilitates online transactions between Experts and Users and sells its services to consumers. Both segments currently generate their revenue primarily in the United States. The chief operating decision makers evaluate performance, make operating decisions, and allocate resources based on the operating income of each segment. The reporting segments follow the same accounting polices used in the preparation of the Company’s condensed consolidated financial statements which are described in the summary of significant accounting policies. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses and income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.

Summarized financial information by segment for the three months ended September 30, 2014, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	43,702	$	—	$	—		$	43,702
Hosted services – Consumer	—		3,992		—			3,992
Professional services	5,093		—		—			5,093
Total revenue	48,795		3,992		—			52,787
Cost of revenue	12,679		625		—			13,304
Sales and marketing	19,488		1,490		—			20,978
Amortization of purchased intangibles	407		—		—			407
Unallocated corporate expenses	—		—		18,499			18,499
Operating income (loss)	$	16,221	$	1,877	$	(18,499	)	$	(401	)

10

Summarized financial information by segment for the three months ended September 30, 2013, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	38,007	$	—	$	—		$	38,007
Hosted services – Consumer	—		3,828		—			3,828
Professional services	3,357		—		—			3,357
Total revenue	41,364		3,828		—			45,192
Cost of revenue	10,014		583		—			10,597
Sales and marketing	14,664		1,477		—			16,141
Amortization of purchased intangibles	224		—		—			224
Unallocated corporate expenses	—		—		19,531			19,531
Operating income (loss)	$	16,462	$	1,768	$	(19,531	)	$	(1,301	)

Summarized financial information by segment for the nine months ended September 30, 2014, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	125,378	$	—	$	—		$	125,378
Hosted services – Consumer	—		12,441		—			12,441
Professional services	13,883		—		—			13,883
Total revenue	139,261		12,441		—			151,702
Cost of revenue	36,306		1,894		—			38,200
Sales and marketing	55,203		4,246		—			59,449
Amortization of purchased intangibles	803		—		—			803
Unallocated corporate expenses	—		—		56,073			56,073
Operating income (loss)	$	46,949	$	6,301	$	(56,073	)	$	(2,823	)

Summarized financial information by segment for the nine months ended September 30, 2013, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	110,785	$	—	$	—		$	110,785
Hosted services – Consumer	—		11,223		—			11,223
Professional services	8,909		—		—			8,909
Total revenue	119,694		11,223		—			130,917
Cost of revenue	29,524		1,818		—			31,342
Sales and marketing	42,113		4,005		—			46,118
Amortization of purchased intangibles	672		—		—			672
Unallocated corporate expenses	—		—		56,672			56,672
Operating income (loss)	$	47,385	$	5,400	$	(56,672	)	$	(3,887	)

11

Geographic Information

The Company is domiciled in the United States and has international operations in the United Kingdom, Asia-Pacific, Latin America and Western Europe, particularly France and Germany. The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented (amounts in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
United States	$	34,409	$	28,947	$	99,273	$	86,553
Other Americas (1)	2,936		2,353		7,259		6,145
Total Americas	37,345		31,300		106,532		92,698
EMEA (2)	11,049		9,600		32,618		25,572
APAC (3)	4,393		4,292		12,552		12,647
Total revenue	$	52,787	$	45,192	$	151,702	$	130,917

⁽¹⁾ Canada, Latin America and South America

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

⁽³⁾ Asia-Pacific (“APAC”)

The following table presents the Company's long-lived assets by geographic region for the periods presented (amounts in thousands):

	September 30,		December 31,
	2014		2013
United States	$	42,066	$	34,422
Israel	19,700		22,580
Australia	8,858		9,827
Netherlands	7,687		3,540
Other (1)	1,661		1,539
Total long-lived assets	$	79,972	$	71,908

⁽¹⁾ United Kingdom, Germany and Japan

No individual customer accounted for 10% or more of consolidated revenue for any of the periods presented. One customer accounted for approximately 22% and 12% of accounts receivable as of September 30, 2014 and December 31, 2013, respectively.

5. Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the nine months endedSeptember 30, 2014 are as follows (amounts in thousands):

	Business		Consumer		Total
Balance as of December 31, 2013	$	24,700	$	8,024	$	32,724
Adjustments to goodwill:
NexGraph acquisition	400		—		400
Synchronite acquisition	2,659		—		2,659
Balance as of September 30, 2014	$	27,759	$	8,024	$	35,783

12

The changes in the carrying amount of goodwill for the year ended December 31, 2013 are as follows (amounts in thousands):

	Business		Consumer		Total
Balance as of December 31, 2012	$	24,621	$	8,024	$	32,645
Adjustments to goodwill:
Adjustments to Engage acquisition	79		—		79
Balance as of December 31, 2013	$	24,700	$	8,024	$	32,724

Intangible Assets

Intangible assets are summarized as follows (see Note 8 and Note 10) (amounts in thousands):

	As of September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	19,615	$	(10,320	)	$	9,295	4.1 years
Customer relationships	5,308		(3,658		)	1,650		3.7 years
Trade names	787		(730		)	57		2.8 years
Non-compete agreements	646		(551		)	95		1.3 years
Patents	3,290		(416		)	2,874		9.9 years
Other	312		(263		)	49		3.0 years
Total	$	29,958	$	(15,938	)	$	14,020

	As of December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	18,533	$	(7,678	)	$	10,855	3.8 years
Customer relationships	5,061		(3,148		)	1,913		3.5 years
Trade names	725		(725		)	—		2.7 years
Non-compete agreements	486		(486		)	—		1.2 years
Patents	475		(189		)	286		11.0 years
Other	285		(251		)	34		3.0 years
Total	$	25,565	$	(12,477	)	$	13,088

13

Amortization expense is calculated on a straight-line basis over the estimated useful life of the asset. Aggregate amortization expense for intangible assets was $1.3 million and $3.5 million for the three and nine months ended September 30, 2014, respectively. Aggregate amortization expense for intangible assets was $0.7 million and $1.6 million for the three and nine months ended September 30, 2013, respectively. For the three and nine months ended September 30, 2014, a portion of this amortization is included in cost of revenue. Estimated amortization expense for the next five years are as follows (amounts in thousands):  

	Estimated Amortization Expense
2014	$	1,135
2015	4,267
2016	3,805
2017	2,205
2018	485
Thereafter	2,123
Total	$	14,020

6. Property and Equipment

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

	September 30, 2014			December 31, 2013
Computer equipment and software	$	52,322		$	45,790
Furniture, equipment and building improvements	9,078			7,906
	61,400			53,696
Less: accumulated depreciation	(42,637		)	(36,078		)
Total	$	18,763		$	17,618

7. Accrued Liabilities

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

	September 30, 2014		December 31, 2013
Payroll and other employee related costs	$	12,310	$	13,090
Professional services and consulting and other vendor fees	9,427		6,769
Sales commissions	2,733		1,778
Contingent earnout (Note 8)	2,970		1,660
Other	2,312		2,122
Total	$	29,752	$	25,419

8. Acquisitions

Amadesa Ltd.

On May 31, 2012, the Company acquired technology assets from Amadesa, Ltd., an Israeli-based start-up, for aggregate cash consideration of approximately $10.3 million. The acquisition provides the Company with sophisticated, machine-learning predictive modeling that it expects to leverage across multiple engagement channels, enhancing its real-time intelligent engagement platform. The asset was allocated to “Intangibles, net” on the Company’s condensed consolidated balance sheet and is being amortized over its expected period of benefit. The acquisition did not have a material impact on the Company’s reported operating results. Total acquisition costs incurred were approximately $0.5 million and are included in “Intangibles, net” on the Company’s condensed consolidated balance sheet.

14

LookIO, Inc.

On June 13, 2012, the Company acquired LookIO, Inc., a start-up that provides mobile engagement solutions. The transaction was accounted for under the purchase method of accounting and, accordingly, the operating results of LookIO, Inc. were included in the Company’s consolidated results of operations from the date of acquisition. The acquisition did not have a material impact on the Company’s reported operating results. 

The purchase price was approximately $2.9 million, which included the issuance of 109,517 shares of the Company’s common stock valued at approximately $2.0 million, based on the quoted market price of the Company’s common stock on the day of closing, and a cash payment of $0.9 million. Total acquisition costs incurred were approximately $0.2 million and were included in general and administrative expenses in the Company’s condensed consolidated statements of operations. The acquisition adds plug-and-play mobile engagement capabilities to LivePerson’s platform allowing its customers to connect with consumers on mobile devices. All 109,517 shares are included in the weighted average shares outstanding used in basic and diluted net income (loss) per share as of the acquisition date. The purchase price was allocated based on management’s estimate of fair values, taking into account all relevant information available. A substantial amount of the purchase price was allocated to intangibles (technology) and the excess was allocated to goodwill. The goodwill is not deductible for income tax purposes. The intangible asset is being amortized over its expected period of benefit. In addition to the purchase price, certain founders can earn an additional 30,422 shares of LivePerson common stock by achieving an employment milestone by providing continued services through a specified date, of which 25,961 shares were earned. The Company valued these potential earn-out shares at approximately $0.6 million, based on the quoted market price of the Company’s common stock on the day of closing.

Management’s allocation of the purchase price in connection with the LookIO acquisition is as follows (amounts in thousands):

Intangible assets (technology)	$	767
Goodwill	2,405
	3,172
Deferred tax liability	(288		)
Total purchase price consideration	$	2,884

Engage Pty Ltd.

On November 9, 2012, the Company acquired all outstanding shares of Engage Pty Ltd. (“Engage”), an Australian provider of cloud-based customer contact solutions. The transaction was accounted for under the purchase method of accounting and, accordingly, the operating results of Engage were included in the Company’s consolidated results of operations from the date of acquisition. The acquisition did not have a material impact on the Company’s reported operating results.

The purchase price was approximately $10.6 million. The total acquisition costs incurred in the year ended December 31, 2012 were approximately $0.5 million and are included in general and administrative expenses in the Company’s condensed consolidated statements of operations for the same period. The acquisition enhances the Company’s ability to offer intelligent engagement solutions to businesses in the Asia Pacific region. Of the total purchase price, $0.8 million was allocated to the net book values of the acquired assets and assumed liabilities. The historical carrying amounts of such assets and liabilities approximated their fair values. All receivables acquired are expected to be collectible. The purchase price in excess of the fair value of the net book values of the assets acquired and liabilities assumed was allocated to intangible assets based on management’s best estimate of fair values, taking into account all relevant information available at the time of acquisition, and the excess was allocated to goodwill. The goodwill is not deductible for tax purposes. The intangible assets are being amortized over their expected period of benefit. The purchase price includes approximately $1.6 million of potential earn-out consideration for the shareholders if certain revenue targets are achieved. The earn-out is payable in shares of LivePerson common stock. The Company recorded the contingent earn-out as part of the purchase price. In accordance with ASC 480, the Company has classified this amount as a liability and the amount is included in accrued expenses in the September 30, 2014 balance sheet, due to the variable number of shares that will be issued if and when the targets are achieved. During 2014, the Company paid $0.5 million of the total potential earn-out consideration amount. The Company will assess the earn-out calculation in future periods and any future adjustments will affect operating income.

15

Management’s preliminary allocation of the purchase price in connection with the Engage acquisition is as follows (amounts in thousands):

Cash	$	386
Accounts receivable	3,454
Other current assets	57
Property and equipment	432
Other assets	104
Intangible assets	3,600
Goodwill	6,152
	14,185
Liabilities assumed	(2,632		)
Deferred tax liability	(962		)
Total purchase price consideration	$	10,591

The components of the intangible assets listed in the above table are as follows (amounts in thousands): 

	Weighted Average Useful Life (Months)	Amount
Technology	36	$	768
Trade-name	12	95
Customer relationships	48	2,661
Non-compete agreements	12	76
		$	3,600

NexGraph LLC

In March 2014, the Company acquired all the outstanding shares of NexGraph LLC (“NexGraph”), a company focused on analytic solutions, in exchange for aggregate cash consideration of $0.5 million. This transaction was accounted for as an asset purchase. The $0.1 million was allocated to Intangibles, net and $0.4 million was allocated to Goodwill.

Synchronite LLC

On June 2, 2014, the Company acquired Synchronite LLC (“Synchronite”), a German based start-up that provides co-browsing technology. The transaction was accounted for under the purchase method of accounting and, accordingly, the operating results of Synchronite were included in the Company’s consolidated results of operations from the date of acquisition. The acquisition did not have a material impact on the Company’s reported operating results.

The allocation of the total purchase price of approximately $4.1 million was based upon the estimated fair value of Synchronite's net tangible and identifiable intangible assets as of the date of acquisition. The total acquisition costs incurred were approximately $0.4 million and are included in general and administrative expenses in the Company’s condensed consolidated statements of operations. Of the total purchase price, $45,000 was allocated to the net book values of the acquired assets and assumed liabilities. The historical carrying amounts of such assets and liabilities approximated their fair values. All receivables acquired are expected to be collectible. The purchase price includes approximately $2.7 million of goodwill and approximately $1.5 million of intangible assets. The goodwill is not deductible for tax purposes. The intangible assets are being amortized over their expected period of benefit. The purchase price includes $1.8 million of potential earn-out consideration for the shareholders if complete product integration is achieved. The earn-out is payable in shares of LivePerson common stock and cash. The Company recorded the contingent earn-out as part of the purchase price. In accordance with ASC 480, the Company has classified this amount as a liability and the amount is included in accrued expenses in the September 30, 2014 condensed consolidated balance sheet, due to the variable number of shares that will be issued if and when the targets are achieved. The Company will assess the earn-out calculation in future periods and any future adjustments will affect operating income.

16

The components of the intangible assets are as follows (amounts in thousands): 

	Weighted Average Useful Life (Months)	Amount
Technology	120	$	1,082
Trade-name	48	62
Customer relationships	84	247
Non-compete agreements	36	60
		$	1,451

9. Fair Value Measurements

The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

• Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The Company's assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of September 30, 2014 and December 31, 2013, are summarized as follows (amounts in thousands):

	September 30, 2014								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	12,608	$	—	$	—	$	12,608	$	13,674	$	—	$	—	$	13,674
Total assets	$	12,608	$	—	$	—	$	12,608	$	13,674	$	—	$	—	$	13,674
Liabilities:
Contingent earn-out	$	—	$	—	$	2,970	$	2,970	$	—	$	—	$	1,660	$	1,660
Total liabilities	$	—	$	—	$	2,970	$	2,970	$	—	$	—	$	1,660	$	1,660

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions based on the best information available.

The Company's only asset that is measured at fair value on a recurring basis is money market funds, based on quoted market prices in active markets and therefore classified as level 1 within the fair value hierarchy. The Company's only liability that is measured at fair value on a recurring basis is the contingent earn-out and is classified as level 3 within the fair value hierarchy. On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated

17

fair value. The Company uses an income approach and inputs that constitute level 3.  During the third quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level. The Company uses a combination of discounted cash flows and other qualitative factors in accordance with ASU No. 2011-08 to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.  This measurement is classified based on level 3 input.

The contingent earn-out in connection with the acquisition of Engage is $1.2 million and $1.7 million as of September 30, 2014 and December 31, 2013, respectively, and is recorded in accrued expenses in the condensed consolidated balance sheets. The earn-out is based on the potential earn-out consideration if certain revenue targets are achieved. The total contingent earn-out was increased by $1.8 million in June 2014 in connection with the acquisition of Synchronite and is also recorded in accrued expense on the condensed consolidated balance sheet as of September 30, 2014. The contingent earn-out is based on the fulfillment of a complete product integration and a minimum number of “Co-Browse” interactions per month.

The changes in fair value of the Level 3 liabilities are as follows (amounts in thousands):

	Contingent Earn-Out
	September 30, 2014			December 31, 2013
Balance, Beginning of Period	$	1,660		$	1,660
Synchronite addition (see Note 8)	1,810			—
Cash payment	(500		)	—
Balance, End of Period	$	2,970		$	1,660

10. Investments

In February 2014, the Company purchased technology licenses and consulting services at fair value from a company in the amount of $3.5 million. The Company will receive access to the company's patents as well as certain consulting services. During the three months ended September 30, 2014, the Company allocated approximately $2.8 million to intangible assets, which is being amortized over the life of the patents. The remaining amount was allocated to other assets.

11. Commitments and Contingencies

Contractual Obligations

The Company leases facilities and certain equipment under agreements accounted for as operating leases. These leases generally require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases for the three and nine months endedSeptember 30, 2014 was approximately $2.3 million and $6.9 million, respectively. Rental expense for operating leases for the three and nine months ended September 30, 2013 was approximately $2.2 million and $6.9 million, respectively.

Employee Benefit Plans

The Company has a 401(k) defined contribution plan covering all eligible employees. The Company provides for employer matching contributions equal to 50% of employee contributions, up to the lesser of 5% of eligible compensation or $6,000. Matching contributions are deposited into the employee’s 401(k) account and are subject to 5 year graded vesting. Salaries and related expenses include $0.2 million and $0.8 million of employer matching contributions for the three and nine months endedSeptember 30, 2014, respectively. Salaries and related expenses include $0.2 million and $0.7 million of employer matching contributions for the three and nine months endedSeptember 30, 2013, respectively.

12. Stockholders' Equity

Common Stock

As of September 30, 2014, there were 100,000,000 shares of common stock authorized, and 54,584,170 shares issued and outstanding. As of December 31, 2013, there were 100,000,000 shares of common stock authorized, and 54,484,760 shares issued and outstanding. The par value for common shares is $0.001.

18

Preferred Stock

As of September 30, 2014 and December 31, 2013, there were 5,000,000 shares of preferred stock authorized, and zero shares issued and outstanding. The par value for preferred shares is $0.001.

Stock Repurchase Program

On December 10, 2012, the Company’s Board of Directors approved a stock repurchase program through June 30, 2014. Under the stock repurchase program, the Company is authorized to repurchase shares of its common stock, in the open market or privately negotiated transactions, at times and prices considered appropriate by the Board of Directors depending upon prevailing market conditions and other corporate considerations. On March 13, 2014, the Company's Board of Directors increased the aggregate purchase price of the stock repurchase program from $30.0 million to $40.0 million. On July 23, 2014, the Company's Board of Directors extended the expiration date of the program out to December 31, 2014 and also increased the aggregate purchase price of the stock repurchase program from $40.0 million to $50.0 million. There were 1,195,185 shares repurchased under this program during 2014, of which 544,396 shares were recorded in treasury stock at par on the condensed consolidated balance sheets as of September 30, 2014. As of September 30, 2014, approximately $10.3 million remained available for purchase under the program.

Stock-Based Compensation

The Company follows FASB ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

The following table summarizes stock-based compensation expense related to employee stock options under ASC 718-10 included in Company’s statements of operations for the periods presented (amounts in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of revenue	$	365	$	635	$	1,209	$	1,557
Sales and marketing expense	1,030		844		2,766		2,159
Product development expense	1,171		1,241		2,783		2,922
General and administrative expense	1,088		1,078		2,800		3,111
Total stock based compensation included in costs and expenses	$	3,654	$	3,798	$	9,558	$	9,749

The per share weighted average fair value of stock options granted during the three and nine months ended September 30, 2014 was $4.57 and $4.99, respectively. The per share weighted average fair value of stock options granted during the three and nine months ended September 30, 2013 was $4.82 and $5.25, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Dividend yield	0.0%	0.0%	0.0%	0.0%
Risk-free interest rate	1.7%	1.4%	1.5% - 1.7%	0.7% - 1.4%
Expected life (in years)	5	5	5	5
Historical volatility	50.9%	59.8% - 59.9%	50.9% - 53.7%	56.7% - 60.1%

A description of the methods used in the significant assumptions used to estimate the fair value of stock-based compensation awards follows:

Dividend yield – The Company uses 0% as it has never issued dividends and does not anticipate issuing dividends in the near term.

Risk-free interest rate – The Company uses the market yield on U.S. Treasury securities at five years with constant maturity, representing the current expected life of stock options in years.

Expected life – The Company uses historical data to estimate the expected life of a stock option.

Historical volatility – The Company uses a trailing five year from grant date to determine volatility.

19

Stock Option Plans

During 1998, the Company established the Stock Option and Restricted Stock Purchase Plan (the “1998 Plan”). Under the 1998 Plan, the Board of Directors could issue incentive stock options or nonqualified stock options to purchase up to 5,850,000 shares of common stock. The 2000 Stock Incentive Plan (the “2000 Plan”) succeeded the 1998 Plan. Under the 2000 Plan, the options which had been outstanding under the 1998 Plan were incorporated in the 2000 Plan increasing the number of shares available for issuance under the plan by approximately 4,150,000, thereby reserving for issuance 10,000,000 shares of common stock in the aggregate.

The Company established the 2009 Stock Incentive Plan (as amended and restated, the “2009 Plan”) as a successor to the 2000 Plan. Under the 2009 Plan, the options which had been outstanding under the 2000 Plan were incorporated into the 2009 Plan and the Company increased the number of shares available for issuance under the plan by 6,000,000. The Company amended the 2009 stock incentive plan (the “Amended 2009 Plan”) effective June 7, 2012. The Amended 2009 Plan increased the number of shares authorized for issuance under the plan by an additional 4,250,000, thereby reserving for issuance 23,817,744 shares of common stock in the aggregate. Options to acquire common stock granted thereunder have 10-year terms. As of September 30, 2014, approximately 13,995,000 shares of common stock were reserved for issuance under the 2009 Plan (taking into account all option exercises through September 30, 2014).

Employee Stock Purchase Plan

In June 2010, the Company’s stockholders approved the 2010 Employee Stock Purchase Plan with 1,000,000 shares of common stock initially reserved for issuance. As of September 30, 2014, approximately 582,000 shares of common stock were reserved for issuance under the Employee Stock Purchase Plan (taking into account all share purchases through September 30, 2014).

Stock Option Activity

A summary of the Company’s stock option activity and weighted average exercise prices follows:

	Stock Option Activity				Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
	Options		Weighted Average Exercise Price
Balance outstanding at December 31, 2013	9,724,193		$	10.86
Granted	3,289,700		10.63
Exercised	(565,668	)	7.77
Cancelled or expired	(1,320,585	)	12.80
Balance outstanding at September 30, 2014	11,127,640		$	10.68	7.14	$	29,989
Options vested and expected to vest at September 30, 2014	9,300,501		$	10.64	6.78	$	26,214
Options exercisable at September 30, 2014	5,034,974		$	9.69	5.33	$	19,268

The total fair value of stock options exercised during the nine months endedSeptember 30, 2014 was approximately $2.5 million. As of September 30, 2014, there was approximately $30.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.8 years.

A summary of the status of the Company’s nonvested shares as of December 31, 2013, and changes during the nine months endedSeptember 30, 2014 is as follows:

	Options		Weighted Average Grant- Date Fair Value
Nonvested Shares at December 31, 2013	5,633,701		$	6.90
Granted	3,289,700		4.99
Vested	(1,510,150	)	6.09
Cancelled or expired	(1,320,585	)	6.49
Nonvested Shares at September 30, 2014	6,092,666		$	5.65

20

13. Legal Matters

The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable.

From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

14. Subsequent Event

Contact At Once!, LLC

On November 5, 2014, the Company entered into a definitive agreement to acquire the outstanding equity interest of Contact At Once!, LLC (“Contact At Once!”), a software company with a cloud-based platform that instantly connects consumers with businesses through instant messaging, text messaging, chat, social media and video over the internet for consumer-to-business sales conversions, for approximately $70.0 million, which includes approximately $43.0 million in cash, approximately $22.0 million in shares of common stock and $5.0 million of potential earn-out consideration in cash or shares of common stock. The earn-out is contingent upon achieving certain targeted financial, strategic and integration objectives and milestones and is included as part of the purchase price. The acquisition enhances the Company’s network chat expertise and market growth across various verticals.

The transaction will be accounted for under the purchase method of accounting and, accordingly, the operating results of Contact At Once! will be included in the Company’s consolidated results of operations from the date of acquisition. The Company is in process of finalizing all fair value and purchase accounting adjustments.

21

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

General

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates and assumptions relate to estimates of the carrying amount of goodwill, intangibles, stock based-compensation, valuation allowances for deferred income taxes, accounts receivable, the expected term of a customer relationship, accruals and other factors. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material.

Overview

LivePerson provides online engagement solutions offering a cloud-based platform which enables businesses to proactively connect with consumers through chat, voice and content delivery, across multiple channels and screens, including websites, social media, tablets and mobile devices.  We are organized into two operating segments: Business and Consumer. The Business segment facilitates real-time online interactions — chat, voice and content delivery, across multiple channels and screens for global corporations of all sizes. The Consumer segment facilitates online transactions between independent service providers (“Experts”) and individual consumers (“Users”) seeking information and knowledge for a fee via real-time chat. We were incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced initially in November 1998.

In order to sustain growth in these segments, our strategy is to expand our position as the leading provider of online engagement solutions that facilitate real-time assistance and expert advice. To accomplish this, we are focused on the following current initiatives:

• Expanding Business with Existing Customers and Adding New Customers. We are expanding our sales capacity by adding enterprise and midmarket sales agents. We have also expanded our efforts to retain existing SMB customers through increased interaction with them during the early stages of their usage of our services.

• Introducing New Products and Capabilities.   We are investing in product marketing, research and development and executive personnel to support our expanding efforts to build and launch new products and capabilities to support existing customer deployments, and to further penetrate our total addressable market. These investments are initially focused in the areas of online marketing engagement and chat transcript text analysis. Over time, we expect to develop and launch additional capabilities that leverage our existing market position as a leader in proactive, intelligence-driven online engagement.

• Expanding our International Presence. We continue to increase our investment in sales and support personnel in the United Kingdom, Asia-Pacific, Latin America and Western Europe, particularly France and Germany. We are also working with sales and support partners as we expand our investment in the Asia-Pacific region. We continue to improve the multi-language and translation capabilities within our hosted solutions to further support international expansion.

Key Metrics

Financial overview of the three months ended September 30, 2014 compared to the three months ended September 30, 2013:

• Total revenue increased 17% to $52.8 million from $45.2 million.

• Revenue from our Business segment increased 18% to $48.8 million from $41.4 million.

• Gross profit margin decreased to 74.8% from 76.6%.

• Cost and expenses increased 14% to $53.2 million from $46.5 million.

• Net loss increased to $1.1 million from net loss of $0.7 million.

• Bookings increased 4% and 23% to $10.6 million and $30.3 million in the three and nine months endedSeptember 30, 2014, respectively, from $10.2 million and $24.7 million in the comparable periods in 2013. We include in our bookings metrics new or incremental contractual commitments for the first year of the contractual relationship from either new or existing customers for recurring subscription based fees, but exclude from such

22

amounts non-recurring fees such as one time implementation costs or one time consulting fees. The bookings metric generally does not include or represent usage based and/or pay-for-performance based contracts, month-to-month contracts, transaction-based services or subsequent years of multi-year contractual agreements. Accordingly, while we believe that bookings is a relevant metric in providing management with insight into certain recent activity in our business, there is no assurance that bookings amounts will be recognized as revenue in future periods, based on our revenue recognition policy, potential customer cancellations, delays in implementations or otherwise.

• Average deal size for new bookings in the three and nine months endedSeptember 30, 2014 was $67,800 and $79,400, respectively, with average deal size for new customers of $78,400 and $100,800, respectively, and average deal size for existing customers requesting additional products or expanded access to current products of $64,000 and $71,700, respectively.  Average deal size for new bookings in the three and nine months endedSeptember 30, 2013 was $62,300 and $54,800, respectively, with average deal size for new customers of $53,300 and $50,900, respectively, and average deal size for existing customers requesting additional products or expanded access to current products of $66,900 and $56,500, respectively. Similar to our bookings metric, average deal size generally represents new contractual arrangements with committed subscription or base fees from new or existing mid-market or enterprise customers, and does not capture usage and/or pay-for-performance based contracts or fees. Management uses average deal size, being a subset of bookings, as a relevant metric in providing management with insight into certain recent activity in our business.

Adjusted EBITDA and Adjusted Net Income

To provide investors with additional information regarding our financial results, we have disclosed adjusted EBITDA and adjusted net income which are non-GAAP financial measures. The tables below present a reconciliation of adjusted EBITDA and adjusted net income to net loss, the most directly comparable GAAP financial measures.

We have included adjusted EBITDA and adjusted net income in this Quarterly Report on Form 10-Q because these are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and adjusted net income can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA and adjusted net income provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

• adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

• other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA for each of the periods indicated (amounts in thousands):

23

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Reconciliation of Adjusted EBITDA
Net loss	$	(1,140	)	$	(730	)	$	(3,146	)	$	(2,791	)
Amortization of purchased intangibles	1,328			691			3,461			1,575
Stock-based compensation	3,654			3,798			9,558			9,749
Depreciation	2,344			2,002			6,559			6,050
Provision for (benefit from) income taxes	962			(362		)	507			(832		)
Other income, net	(223		)	(209		)	(184		)	(264		)
Adjusted EBITDA	$	6,925		$	5,190		$	16,755		$	13,487

Our use of adjusted net income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• although amortization are non-cash charges, the assets being amortized may have to be replaced in the future, and adjusted net income does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

• adjusted net income does not consider the potentially dilutive impact of equity-based compensation;

• other companies, including companies in our industry, may calculate adjusted net income differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted net income alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. The following table presents a reconciliation of adjusted net income for each of the periods indicated (amounts in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Reconciliation of Adjusted Net Income
Net loss	$	(1,140	)	$	(730	)	$	(3,146	)	$	(2,791	)
Amortization of purchased intangibles	1,328			691			3,461			1,575
Stock-based compensation	3,654			3,798			9,558			9,749
Adjusted net income	$	3,842		$	3,759		$	9,873		$	8,533

Critical Accounting Policies and Estimates

The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating the reported consolidated financial results include the following:

Revenue Recognition

The majority of our revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Because we provide our application as a service, we follow the provisions of ASC 605-10-S99, “Revenue Recognition” and ASC 605-25, “Revenue Recognition with Multiple-Element Arrangements.” We charge a monthly fee, which varies by type of service, the level of customer usage and website traffic, and in some cases, the number of orders placed via our online engagement solutions.

For certain of our larger customers, we may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, we pass the fee we incur with the labor provider and our fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions. For these Pay for Performance (“PFP”) arrangements, in accordance with ASC 605-45, “Principal Agent Considerations,” we record revenue for transactions in which we act as an agent on a net basis, and revenue for transactions in which we act as a principal on a gross basis.

We also sell certain of the LivePerson services directly via Internet download.  These services are marketed as LiveEngage for small to medium-sized businesses (“SMBs”), and are paid for almost exclusively by credit card.  Credit card payments accelerate cash flow and reduce our collection risk, subject to the merchant bank's right to hold back cash pending settlement of the transactions. 

24

Sales of LiveEngage may occur with or without the assistance of an online sales representative, rather than through face-to-face or telephone contact that is typically required for traditional direct sales.

We recognize monthly service revenue based upon the fee charged for the LivePerson services, provided that there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable. Our service agreements typically have twelve month terms and, in some cases, are terminable or may terminate upon 30 to 90 days’ notice without penalty. When professional service fees add value to the customer on a standalone basis, we recognize professional service fees upon completion and customer acceptance in accordance with FASB Accounting Standards Update 2009-13. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates.  If a professional services arrangement does not qualify for separate accounting, we recognize the fees, and the related labor costs, ratably over the contracted period.

For revenue generated from online transactions between Experts and Users, we recognize revenue net of Expert fees in accordance with ASC 605-45, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, we perform as an agent without any risk of loss for collection, and are not involved in selecting the Expert or establishing the Expert’s fee.  We collect a fee from the consumer and retain a portion of the fee, and then remit the balance to the Expert. Revenue from these transactions is recognized when there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable.

Stock-Based Compensation

We follow ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

As of September 30, 2014, there was approximately $30.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.8 years.

Accounts Receivable

Our customers are located primarily in the United States. We perform ongoing credit evaluations of our customers’ financial condition (except for customers who purchase the LivePerson services by credit card via Internet download) and have established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information that we believe to be reasonable, although they may change in the future. If there is a deterioration of a customer’s credit worthiness or actual write-offs are higher than our historical experience, our estimates of recoverability for these receivables could be adversely affected. Although our large number of customers limits our concentration of credit risk we do have several large customers. If we experience a significant write-off from one of these large customers, it could have a material adverse impact on our condensed consolidated financial statements. No single customer accounted for or exceeded 10% of our total revenue in the three and nine months endedSeptember 30, 2014. One customer accounted for approximately 22% and 12% of accounts receivable as of September 30, 2014 and December 31, 2013, respectively. We increased our allowance for doubtful accounts by $0.1 million in the three months ended September 30, 2014.

A large portion of receivables are due from larger corporate customers that typically have longer payment cycles.

Goodwill

In accordance with ASC 350, “Goodwill and Other Intangible Assets,” goodwill and indefinite-lived intangible assets are not amortized, but reviewed for impairment upon the occurrence of events or changes in circumstances that would reduce the fair value below its carrying amount. Goodwill is required to be tested for impairment at least annually. In September 2011, the FASB issued ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. If it is determined that the fair value of a reporting unit is more likely than not to be less than its carrying value (including unrecognized intangible assets) than it is necessary to perform the second step of the goodwill impairment test. The second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. We perform internal valuation analysis and consider other market information that is publicly available. Estimates of fair value are primarily determined using discounted cash flows and market comparisons. These approaches use significant estimates and assumptions including projected future cash

25

flows (including timing), discount rates reflecting the risk inherent in future cash flows, perpetual growth rates, determination of appropriate market comparables and the determination of whether a premium or discount should be applied to comparables.

In the third quarter of 2014, we determined that it was not more-likely that the fair value of the reporting units are less than their carrying amount. Accordingly, we did not perform the two-step goodwill impairment test.

Impairment of Long-Lived Assets

In accordance with ASC 360-10, “Accounting for the Impairment or Disposal of Long-lived Assets,” long-lived assets, such as property, plant and equipment and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. The Company does not have any long-lived assets, including intangible assets, which it considered to be impaired.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes most existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.

The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

Revenue

The majority of our revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. We charge a monthly fee, which varies by service and customer usage. The majority of our larger customers also pay a professional services fee related to implementation. A large proportion of our revenue from new customers comes from large corporations. These companies typically have more significant implementation requirements and more stringent data security standards. Such customers also have more sophisticated data analysis and performance reporting requirements, and are likely to engage our professional services organization to provide such analysis and reporting on a recurring basis.

Revenue from our Business segment accounted for 92% of total revenue for the three and nine months endedSeptember 30, 2014, respectively. Revenue attributable to our monthly hosted Business services accounted for 90% of total Business revenue for the three and nine months endedSeptember 30, 2014, respectively. Revenue from our Business segment accounted for 92% and 91% of total revenue for the three and nine months endedSeptember 30, 2013, respectively. Revenue attributable to our monthly hosted Business services accounted for 92% and 93% of total Business revenue for the three and nine months endedSeptember 30, 2013, respectively. Our service agreements typically have twelve month terms and, in some cases, are terminable or may terminate upon 30 to 90 days’ notice without penalty. Given the time required to schedule training for our customers’ operators and our customers’ resource constraints, we have historically experienced a lag between signing a customer contract and recognizing revenue from that customer. Although this lag typically ranges from 30 to 90 days, it may take more time between contract signing and recognizing revenue in certain situations.

Revenue from our Consumer segment is generated from online transactions between Experts and Users and is recognized net of Expert fees and accounted for approximately 8% of total revenue for the three and nine months endedSeptember 30, 2014, respectively.  Revenue generated from online transactions between Experts and Users, net of Expert fees, accounted for approximately 8% and 9% of total revenue for the three and nine months endedSeptember 30, 2013, respectively.  

We also have entered into contractual arrangements that complement our direct sales force and online sales efforts. These are primarily with call center service companies, pursuant to which LivePerson is paid a commission based on revenue generated by these service companies from our referrals. To date, revenue from such commissions has not been material.

Costs and Expenses

Our cost of revenue consists of:

• compensation costs relating to employees who provide customer support and implementation services to our customers;

26

• compensation costs relating to our network support staff;

• depreciation of certain hardware and software;

• allocated occupancy costs and related overhead;

• the cost of supporting our infrastructure, including expenses related to server leases, infrastructure support costs and Internet connectivity;

• the credit card fees and related payment processing costs associated with the consumer and SMB services; and

• amortization of certain intangibles.

Our product development expenses consist primarily of compensation and related expenses for product development personnel, allocated occupancy costs and related overhead, outsourced labor and expenses for testing new versions of our software. Product development expenses are charged to operations as incurred.

Our sales and marketing expenses consist of compensation and related expenses for sales and marketing personnel, online marketing, allocated occupancy costs and related overhead, advertising, sales commissions, public relations, promotional materials, travel expenses and trade show exhibit expenses.

Our general and administrative expenses consist primarily of compensation and related expenses for executive, accounting, legal and human resources personnel, allocated occupancy costs and related overhead, professional fees, provision for doubtful accounts and other general corporate expenses.

During the nine months endedSeptember 30, 2014, we decreased our allowance for doubtful accounts by approximately $0.2 million to approximately $0.9 million. During 2013, we increased our allowance for doubtful accounts by $0.5 million to approximately $1.2 million, principally due to an increase in the proportion of receivables due from customers with greater credit risk. A larger proportion of receivables are due from larger corporate customers that typically have longer payment cycles. We base our allowance for doubtful accounts on specifically identified credit risks of customers, historical trends and other information that we believe to be reasonable. We adjust our allowance for doubtful accounts when accounts previously reserved have been collected.

Non-Cash Compensation Expense

The net non-cash compensation amounts are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Stock-based compensation expense related to ASC 718-10	$	3,654	$	3,798	$	9,558	$	9,749

Results of Operations

The Company is organized into two operating segments: Business and Consumer. The Business segment facilitates real-time online interactions — chat, voice and content delivery, across multiple channels and screens for global corporations of all sizes. The Consumer segment facilitates online transactions between Experts and Users seeking information and knowledge for a fee via real-time chat.

27

Comparison of the Three and Nine Months EndedSeptember 30, 2014 and 2013

Revenue

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		% Change		2014		2013		% Change
	(in thousands)						(in thousands)
Revenue by Segment:
Business	$	48,795	$	41,364	18	%	$	139,261	$	119,694	16	%
Consumer	3,992		3,828		4	%	12,441		11,223		11	%
Total	$	52,787	$	45,192	17	%	$	151,702	$	130,917	16	%

Our business revenue growth has traditionally been driven by a mix of revenue from new customers as well as expansion from existing customers. The mix of revenue between new and existing customers has been consistent with prior quarters. Business revenue increased by 18% and 16% to $48.8 million and $139.3 million in the three and nine months endedSeptember 30, 2014, respectively, from $41.4 million and $119.7 million in the comparable periods in 2013. This increase is primarily attributable to increased revenue from existing customers who increased their use of our services in the amount of approximately $4.7 million and $10.4 million, respectively, net of cancellations; revenue from new customers in the amount of approximately $1.4 million and $5.7 million, respectively; and to professional services revenue of approximately $1.3 million and $3.5 million, respectively.

Consumer revenue increased by 4% to $4.0 million in the three months ended September 30, 2014, from $3.8 million in the comparable period in 2013. This increase is primarily attributable to a increase in chat minutes, partially offset by a decrease in price charged per minute. Consumer revenue increased by 11% to $12.4 million in the nine months endedSeptember 30, 2014, from $11.2 million in the comparable period in 2013. This increase is primarily attributable to a increase in gross revenue as a result of an increase in the price charged per minute, partially offset by an decrease in chat minutes.

Cost of Revenue - Business

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

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
Cost of revenue - business	$	12,679		$	10,014		27	%	$	36,306		$	29,524		23	%
Percentage of total revenue	24		%	22		%			24		%	23		%
Headcount (at period end):	232			214			8	%	232			214			8	%

Cost of revenue increased by 27% to $12.7 million in the three months ended September 30, 2014, from $10.0 million in the comparable period in 2013. This increase in expense is primarily attributable to an increase for primary and backup server facilities and allocated overhead related to costs of supporting our server and network infrastructure of approximately $1.2 million as a result of increased revenue, an increase in total compensation and related costs for additional and existing customer service and network operations personnel in the amount of approximately $0.7 million and an increase in amortization of purchased intangibles of approximately $0.6 million. This increase in cost of revenue was due to increased investment in enhancing our business continuity capabilities at our hosting facilities. Additionally, data collection and storage costs have increased in support of expanded scope and quality of the analytical reporting to our customers.

Cost of revenue increased by 23% to $36.3 million in the nine months endedSeptember 30, 2014, from $29.5 million in the comparable period in 2013. This increase in expense is primarily attributable to an increase for primary and backup server facilities and allocated overhead related to costs of supporting our server and network infrastructure of approximately $3.1 million as a result of increased revenue, an increase in total compensation and related costs for additional and existing customer service and network operations personnel in the amount of approximately $2.1 million and an increase in amortization of purchased intangibles of approximately $1.3 million. This increase in cost of revenue was due to increased investment in enhancing our business continuity capabilities at our hosting facilities. Additionally, data collection and storage costs have increased in support of expanded scope and quality of the analytical reporting to our customers.

28

Cost of Revenue - Consumer

Cost of revenue consists of compensation costs relating to employees who provide customer service to Experts and Users, compensation costs relating to our network support staff, the cost of supporting our server and network infrastructure, credit card and transaction processing fees and related costs, and allocated occupancy costs and related overhead.

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
Cost of revenue - consumer	$	625		$	583		7	%	$	1,894		$	1,818		4	%
Percentage of total revenue	1		%	1		%			1		%	1		%
Headcount (at period end)	16			16			—	%	16			16			—	%

Cost of revenue increased by 7% to $0.6 million in the three months ended September 30, 2014, from $0.6 million in the comparable period in 2013. This increase in expense is due to an increase in allocated occupancy costs and related overhead of approximately $66,000.

Cost of revenue increased by 4% to $1.9 million in the nine months endedSeptember 30, 2014, from $1.8 million in the comparable period in 2013. This increase in expense is due to an increase in allocated occupancy costs and related overhead of approximately $0.2 million.

Product Development

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

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
Product development	$	9,712		$	10,023		(3	)%	$	27,999		$	27,091		3	%
Percentage of total revenue	18		%	22		%			18		%	21		%
Headcount (at period end):	221			214			3	%	221			214			3	%

Product development costs decreased by 3% to $9.7 million in the three months ended September 30, 2014, from $10.0 million in the comparable period in 2013.  This decrease relates to a decrease in outsourced labor expense of approximately $0.4 million as a result of the launch of the LiveEngage 2.0 platform, offset by an increase in compensation and associated costs for additional and existing product development personnel of approximately $0.1 million to expand our product offerings. We continue to increase our investment investment in new product development efforts to expand future product offerings. We are also investing in partner programs that enable third-parties to develop value-added software applications for our existing and future customers.

Product development costs increased by 3% to $28.0 million in the nine months ended September 30, 2014, from $27.1 million in the comparable period in 2013.  This increase relates to an increase in compensation and associated costs for additional and existing product development personnel of approximately $1.5 million to expand our product offerings, offset by a decrease in outsourced labor expense of approximately $0.5 million as a result of the launch of the LiveEngage 2.0 platform. We continue to increase our investment in new product development efforts to expand future product offerings. We are also investing in partner programs that enable third-parties to develop value-added software applications for our existing and future customers.

29

Sales and Marketing - Business

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

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
Sales and marketing - business	$	19,488		$	14,664		33	%	$	55,203		$	42,113		31	%
Percentage of total revenue	37		%	32		%			36		%	32		%
Headcount (at period end):	284			250			14	%	284			250			14	%

Sales and marketing expenses increased by 33% to $19.5 million in the three months ended September 30, 2014, from $14.7 million in the comparable period in 2013. This increase is primarily due to an increase in compensation and related costs for additional and existing sales and marketing personnel of approximately $4.1 million directly related to expanded headcount.This increase relates to our continued investment in our marketing and sales capabilities. The increase in expense as compared to our revenue growth is primarily related to the investment in our global sales team, global expansion and LiveEngage 2.0 product launch.

Sales and marketing expenses increased by 31% to $55.2 million in the nine months endedSeptember 30, 2014, from $42.1 million in the comparable period in 2013. This increase is primarily due to an increase in compensation and related costs for additional and existing sales and marketing personnel of approximately $13.2 million directly related to expanded headcount. This increase relates to our continued investment in our marketing and sales capabilities. The increase in expense as compared to our revenue growth is primarily related to the investment in our global sales team, global expansion and LiveEngage 2.0 product launch.

Sales and Marketing - Consumer

Our sales and marketing expenses consist of compensation and related expenses for marketing personnel, as well as online promotion, public relations and allocated occupancy costs and related overhead.

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
Sales and marketing - consumer	$	1,490		$	1,477		1	%	$	4,246		$	4,005		6	%
Percentage of total revenue	3		%	3		%			3		%	3		%
Headcount (at period end):	8			5			60	%	8			5			60	%

Sales and marketing expenses increased by 1% and 6% to $1.5 million and $4.2 million in the three and nine months endedSeptember 30, 2014, respectively, from $1.5 million and $4.0 million, respectively, in the comparable periods in 2013. This increase is primarily attributable to an increase in advertising and online expenses of approximately $0.1 million and $0.4 million, respectively.

General and Administrative

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

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
General and administrative	$	8,787		$	9,508		(8	)%	$	28,074		$	29,581		(5	)%
Percentage of total revenue	17		%	21		%			19		%	23		%
Headcount (at period end):	108			83			30	%	108			83			30	%

30

General and administrative expenses decreased by 8% to $8.8 million in the three months ended September 30, 2014, from the comparable period in 2013. This decrease is primarily attributable to a decrease in professional fees and other general corporate expenses of approximately $0.6 million.

General and administrative expenses decreased by 5% to $28.1 million in the nine months endedSeptember 30, 2014, from $29.6 million in the comparable period in 2013.  This decrease is primarily attributable to the exchange rate movement of the U.S. dollar against the Pound Sterling of approximately $1.2 million.

Amortization of Purchased Intangibles

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2014			2013			% Change		2014			2013			% Change
	($ in thousands)								($ in thousands)
Amortization of purchased intangibles	$	407		$	224		82	%	$	803		$	672		19	%
Percentage of total revenues	1		%	—		%			1		%	1		%

Amortization expense for purchased intangibles was $0.4 million and $0.8 million in the three and nine months endedSeptember 30, 2014, respectively, and relates primarily to acquisition costs recorded as a result of our acquisitions of Engage in November 2012, LookIO in June 2012, Amadesa in May 2012, NuConomy in April 2010, Synchronite in June 2014 and the purchases of patents in August 2009 and February 2014. Additional amortization expense in the amount of $0.9 million and $2.7 million is included in cost of revenue for the three and nine months endedSeptember 30, 2014, respectively. Additional amortization expense in the amount of $0.5 million and $0.9 million is included in cost of revenue for the three and nine months endedSeptember 30, 2013, respectively.

Other Income, net

Other income, net primarily consists of interest income on cash and cash equivalents, investment income and financial (expense) income which is a result of currency rate fluctuations associated with exchange rate movement of the U.S. dollar against the New Israeli Shekel, Pound Sterling, and the Euro.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014		2013		% Change		2014		2013		% Change
	($ in thousands)						($ in thousands)
Other income, net	$	223	$	209	7	%	$	184	$	264	(30	)%

Interest income remained flat in the three months ended September 30, 2014 and 2013, respectively. Investment income was $0.7 million in the three months ended September 30, 2014 and relates to income earned on the investment in technology licenses. Financial expense was $0.4 million and financial income was $0.2 million for the three months ended September 30, 2014 and 2013, respectively.

Interest income was $14,000 and $32,000 in the nine months endedSeptember 30, 2014 and 2013, respectively. Investment income was $0.7 million in the three months ended September 30, 2014 and relates to income earned on the investment in technology licenses. Financial expense was $0.5 million and financial income was $0.2 million for the nine months endedSeptember 30, 2014 and 2013, respectively.

Provision for (Benefit From) Income Taxes

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2014		2013			% Change		2014		2013			% Change
	($ in thousands)							($ in thousands)
Provision for (benefit from) income taxes	$	962	$	(362	)	(366	)%	$	507	$	(832	)	(161	)%

We recognized a tax provision for income taxes of $1.0 million and $0.5 million for the three and nine months endedSeptember 30, 2014, respectively. We recorded a tax benefit of from income taxes of $0.4 million and $0.8 million for the three and nine months endedSeptember 30, 2013, respectively.

31

Net Loss

We had a net loss of $1.1 million and $3.1 million for the three and nine months endedSeptember 30, 2014, respectively and a net loss of $0.7 million and $2.8 million for the three and the nine months endedSeptember 30, 2013, respectively. Revenue increased by approximately $7.6 million and $20.8 million, respectively, while costs and expenses increased by approximately $6.7 million and $19.7 million, respectively, contributing to a net decrease in net loss of approximately $0.4 million for the three and nine months endedSeptember 30, 2014, respectively.

32

Liquidity and Capital Resources

	Nine Months Ended
	September 30,
	2014			2013
	(in thousands)
Consolidated Statements of Cash Flows Data:
Cash flows provided by operating activities	$	14,431		$	3,648
Cash flows used in investing activities	(12,547		)	(6,767		)
Cash flows used in financing activities	(6,871		)	(22,844		)

As of September 30, 2014, we had approximately $87.1 million in cash and cash equivalents, a decrease of approximately $4.8 million from December 31, 2013. This decrease is primarily attributable to cash used to repurchase our common stock, net cash used in investing activities relating to purchases of fixed assets related to the build-out of our co-location facility, purchase of technology licenses, acquisitions of Synchronite and NexGraph. This is partially offset by net cash provided by operating activities and proceeds from the issuance of common stock in connection with the exercise of stock options by employees. We invest our cash in short-term money market funds.

Net cash provided by operating activities was $14.4 million for the nine months endedSeptember 30, 2014 and consisted primarily of net loss, non-cash expenses related to ASC 718-10, amortization of purchased intangibles and depreciation and an increase in prepaid expenses, accounts receivable, accrued expenses, deferred revenue and decreases in accounts payable. Net cash provided by operating activities was $3.6 million for the nine months endedSeptember 30, 2013 and consisted primarily of a net loss, a decrease in accounts payable, and an increase in accounts receivable, prepaid expenses and accrued expenses partially offset by non-cash expenses related to ASC 718-10, amortization of intangibles and depreciation.

Net cash used in investing activities was $12.5 million in the nine months endedSeptember 30, 2014, and was due primarily to the purchase of fixed assets for our co-location facilities and our investment in technology assets, and our acquisitions of Synchronite and NexGraph. Net cash used in investing activities was $6.8 million in the nine months endedSeptember 30, 2013, and was due primarily to the purchase of fixed assets for our co-location facilities.

Net cash used in financing activities was $6.9 million in the nine months endedSeptember 30, 2014 and consisted primarily of the repurchase of our common stock offset by the proceeds from the issuance of common stock in connection with the exercise of stock options by employees. Net cash used in financing activities was $22.8 million for the nine months endedSeptember 30, 2013 and consisted primarily of the repurchase of our common stock offset by the proceeds from the issuance of common stock in connection with the exercise of stock options by employees.

We have incurred significant expenses to develop our technology and services, to hire employees in our customer service, sales, marketing and administration departments, and for the amortization of purchased intangible assets, as well as non-cash compensation costs. Historically, we incurred significant quarterly net losses from inception through June 30, 2003, significant negative cash flows from operations in our quarterly periods from inception through December 31, 2002 and negative cash flows from operations of $0.1 million in the quarterly period ended March 31, 2004. We also incurred a net loss and negative cash flow from operations in the quarterly periods ended March 31, 2013, March 31, 2014, June 30, 2014. We incurred a net loss in the quarterly periods ended June 30, September 30, December 31, 2013 and September 30, 2014. As of September 30, 2014, we had an accumulated deficit of approximately $88.4 million. These losses have been funded primarily through the issuance of common stock in our initial public offering in 2000 and, prior to the initial public offering, the issuance of convertible preferred stock.

We anticipate that our current cash and cash equivalents will be sufficient to satisfy our working capital and capital requirements for at least the next twelve (12) months. However, we cannot assure you that we will not require additional funds prior to such time, and we would then seek to sell additional equity or debt securities through public financings, or seek alternative sources of financing. We cannot assure you that additional funding will be available on favorable terms, when needed, if at all. If we are unable to obtain any necessary additional financing, we may be required to further reduce the scope of our planned sales and marketing and product development efforts, which could materially adversely affect our business, financial condition and operating results. In addition, we may require additional funds in order to fund more rapid expansion, to develop new or enhanced services or products or to invest in or acquire complementary businesses, technologies, services or products.

Contractual Obligations and Commitments

We do not have any special purposes entities, and other than operating leases, which are described below, we do not engage in off-balance sheet financing arrangements.

We lease facilities and certain equipment under agreements accounted for as operating leases. These leases generally require us to pay all executory costs such as maintenance and insurance. Rental expense for operating leases for the three and nine

33

months endedSeptember 30, 2014 was approximately $2.3 million and $6.9 million, respectively, and approximately $2.2 million and $6.9 million for the three and nine months endedSeptember 30, 2013, respectively.

As of September 30, 2014, our principal commitments were approximately $24.9 million under various operating leases, of which approximately $2.3 million is due in 2014. We currently expect that our principal commitments for the year ending December 31, 2014 will not exceed $9.0 million in the aggregate. 

Our contractual obligations at September 30, 2014 are summarized as follows:

	Payments due by period
	(in thousands)
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating leases	$	24,857	$	8,954	$	11,307	$	3,851	$	745
Total	$	24,857	$	8,954	$	11,307	$	3,851	$	745

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risks

As a result of the expanded scope of our Israeli operations, our currency rate fluctuation risk associated with the exchange rate movement of the U.S. dollar against the New Israeli Shekel (“NIS”) has increased. During the three and nine months endedSeptember 30, 2014, the U.S. dollar remained flat and depreciated by approximately 3%, respectively, as compared to the NIS. During the nine months endedSeptember 30, 2014, expenses generated by our Israeli operations totaled approximately $44.0 million. We do not currently hedge our foreign currency risk exposure. We actively monitor the movement of the U.S. dollar against the NIS, Pound Sterling, Euro, AUS dollar and Japanese Yen and have considered the use of financial instruments, including but not limited to derivative financial instruments, which could mitigate such risk. If we determine that our risk of exposure materially exceeds the potential cost of derivative financial instruments, we may in the future enter in to these types of investments. The functional currency of our wholly-owned Israeli subsidiaries, LivePerson Ltd. (formerly HumanClick Ltd.) and Kasamba Ltd., is the U.S. dollar; the functional currency of our operations in the United Kingdom is the Pound Sterling; the functional currency of our operations in the Netherlands and Germany is the Euro; the functional currency of our operations in Australia is the Australian Dollar; and the functional currency of our operations in Japan is the Japanese Yen. 

Collection Risk

Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. During the nine months endedSeptember 30, 2014, we decreased our allowance for doubtful accounts by $0.2 million. During 2013, we increased our allowance for doubtful accounts by $0.5 million to approximately $1.2 million, principally due to an increase in accounts receivable as a result of increased sales and, to a lesser extent, to an increase in the proportion of receivables due from customers with greater credit risk. A larger proportion of receivables are due from larger corporate customers that typically have longer payment cycles. We base our allowance for doubtful accounts on specifically identified credit risks of customers, historical trends and other information that we believe to be reasonable. We adjust our allowance for doubtful accounts when accounts previously reserved have been collected.

Interest Rate Risk

Our investments consist of cash and cash equivalents. Therefore, changes in the market’s interest rates do not affect in any material respect the value of the investments as recorded by us.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial conditions or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2014. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2014 to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed,

34

summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 identified in connection with the evaluation thereof by our management, including the Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, have been detected.

Part II. Other Information

Item 1. Legal Proceedings

We routinely assess all of our litigation and threatened litigation as to the probability of ultimately incurring a liability, and record our best estimate of the ultimate loss in situations where we assess the likelihood of loss as probable.

From time to time, we are involved in or subject to legal, administrative and regulatory proceedings, claims, demands and investigations arising in the ordinary course of business, including direct claims brought by or against us with respect to intellectual property, contracts, employment and other matters, as well as claims brought against our customers for whom we have a contractual indemnification obligation. We accrue for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event we determine that a loss is not probable, but is reasonably possible, and it becomes possible to develop what we believe to be a reasonable range of possible loss, then we will include disclosures related to such matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, we will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to our financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

Item 1A. Risk Factors

Risks that could have a material and adverse impact on our business, results of operations and financial condition include the following: potential fluctuations in our quarterly revenue and operating results; competition in the markets for online sales, marketing and customer service solutions, and online consumer services; our ability to retain existing clients and attract new clients; risks related to new regulatory or other legal requirements that could materially impact our business; volatility of the value of certain currencies in relation to the U.S. dollar, particularly the currency of regions where we have operations; additional regulatory requirements, tax liabilities, currency exchange rate fluctuations and other risks as we expand internationally and/or as we expand into direct-to-consumer services; impairments to goodwill that result in significant charges to earnings; responding to rapid technological change and changing client preferences; the adverse effect that the global economic downturn may have on our business and results of operations; our ability to retain key personnel, attract new personnel and to manage staff attrition; our ability to expand our operations internationally; risks related to the ability to successfully integrate past or potential future acquisitions; failures or security breaches in our services, those of our third party providers, or in the websites of our customers; risks related to the regulation or possible misappropriation of personal information belonging to our customers’ Internet users; technology systems beyond our control and technology-related defects that could disrupt the LivePerson services; privacy concerns relating to the Internet that could result in new legislation or negative public perception; legal liability and/or negative publicity for the services provided to consumers via our technology platforms; risks related to protecting our intellectual property rights or potential infringement of the intellectual property rights of third parties; risks related to technological or other defects distributing our services; increased allowances for doubtful accounts as a result of an increasing amount of receivables due from customers with greater credit risk; delays in our implementation cycles; risks associated with the recent volatility in the capital markets; our ability to secure additional financing to execute our business strategy; risks associated with our current or any future stock repurchase programs, including whether such programs will enhance long-term stockholder value, and whether such stock repurchases could increase the volatility of the price of our common stock and diminish our cash reserves; our ability to license necessary third party software for use in our products and services, and our ability to successfully integrate third party software; changes in accounting principles generally accepted in the United States; our ability to maintain our reputation; risks related to our complex products; our recognition of revenue from subscriptions; our lengthy sales cycles; risks related to our operations in Israel, and the civil and

35

political unrest in that region; natural catastrophic events and interruption to our business by man-made problems; the high volatility of our stock price; and risks related to our common stock being traded on more than one securities exchange. This list is intended to identify only certain of the principal factors that could have a material and adverse impact on our business, results of operations and financial condition. A more detailed description of each of these and other important risk factors can be found under the caption “Risk Factors” in our most recent Annual Report on Form 10-K filed on March 14, 2014 (the “Form 10-K”).

There are no material changes to the risk factors described in the Form 10-K.

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

Unregistered Sales of Equity Securities

None.

Purchase of Equity Securities by the Issuer

A summary of the Company's repurchase activity for the three months ended September 30, 2014:

Period	Total Number of Shares Purchased (1) (2)	Average Price Paid per Share (1) (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or  Programs (1) (2) (3)
					$	1,121,590
7/1/2014 – 7/31/2014 (2)	81,484	$	10.02	81,484	10,304,721
8/1/2014 – 8/31/2014 (2)	—	—		—	10,304,721
9/1/2014 – 9/30/2014 (2)	—	—		—	10,304,721
Total	81,484	$	10.02	81,484	$	10,304,721

(1) On December 10, 2012, the Company announced that its Board of Directors approved a share repurchase program through June 30, 2014. Under the stock repurchase program, the Company was authorized to repurchase shares of the Company's common stock, in the open market or privately negotiated transactions, at times and prices considered appropriate by the Board of Directors depending upon prevailing market conditions and other corporate considerations.

(2) As of June 30, 2014, approximately $1.1 million remained available for purchases under the program as in effect at that time. On July 23, 2014, the Company's Board of Directors extended the expiration date of the program out to December 31, 2014 and also increased the aggregate purchase price of the stock repurchase program from $40.0 million to $50.0 million. As of September 30, 2014, approximately $10.3 million remained available for purchases under the program.

(3) Transaction fees related to the share repurchases are deducted from the total remaining allowable expenditure amount.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

36

ITEM 6. EXHIBITS

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

31.1	Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document

**    These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

†    In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		LIVEPERSON, INC.
		(Registrant)
Date:	November 7, 2014	By:	/s/ ROBERT P. LOCASCIO
		Name:	Robert P. LoCascio
		Title:	Chief Executive Officer (principal executive officer)
Date:	November 7, 2014	By:	/s/ DANIEL R. MURPHY
		Name:	Daniel R. Murphy
		Title:	Chief Financial Officer (principal financial and accounting officer)

38

EXHIBIT INDEX

EXHIBIT
31.1	Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document

**    These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

†    In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

39

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Robert P. LoCascio, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LivePerson, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 7, 2014	By:	/s/ ROBERT P. LOCASCIO
		Name:	Robert P. LoCascio
		Title:	Chief Executive Officer (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Daniel R. Murphy, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of LivePerson, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 7, 2014	By:	/s/ DANIEL R. MURPHY
		Name:	Daniel R. Murphy
		Title:	Chief Financial Officer (principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert P. LoCascio, Chief Executive Officer of LivePerson, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 7, 2014	By:	/s/ ROBERT P. LOCASCIO
		Name:	Robert P. LoCascio
		Title:	Chief Executive Officer (principal executive officer)

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel R. Murphy, Chief Financial Officer of LivePerson, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	November 7, 2014	By:	/s/ DANIEL R. MURPHY
		Name:	Daniel R. Murphy
		Title:	Chief Financial Officer (principal financial officer)

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference.

XML

Goodwill and Intangible Assets (Future Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
2014	$ 1,135
2015	4,267
2016	3,805
2017	2,205
2018	485
Thereafter	2,123
Total	$ 14,020

XML

Subsequent Event (Details) (USD $)	9 Months Ended		0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Nov. 05, 2014 Contact At Once! [Member] Subsequent Event [Member]	Nov. 05, 2014 Contact At Once! [Member] Subsequent Event [Member]
Subsequent Event [Line Items]
Business acquisition, acquisition date			Nov. 05, 2014
Total purchase price consideration				$ 70,000,000
Cash payment	2,300,000	0	43,000,000
Business acquisition, value of shares of common stock issued			22,000,000
Potential earn-out consideration				$ 5,000,000

XML

Commitments and Contingencies (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Commitments and Contingencies [Line Items]
Rental expense for operating leases	$ 2,300,000	$ 2,200,000	$ 6,900,000	$ 6,900,000
Defined benefit plan employer matching contribution on first five percent of employee compensation			50.00%
Defined benefit plan employer contribution limit			6,000
Defined benefit plan employer contribution vesting period			5 years
Maximum [Member]
Commitments and Contingencies [Line Items]
Percentage of employees' eligible compensation for employer matching contribution			5.00%
Salaries And Related Expenses [Member]
Commitments and Contingencies [Line Items]
Defined benefit plan employer contribution	$ 200,000	$ 200,000	$ 800,000	$ 700,000

XML

Fair Value Measurements Level 3 Liabilities (Details) (Recurring [Member], Level 3 [Member], USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Recurring [Member] | Level 3 [Member]
Business Combination, Contingent Consideration Arrangements, Change In Contingent Consideration Liability [Roll Forward]
Balance, Beginning of Period	$ 1,660	$ 1,660
Synchronite addition	1,810	0
Cash payment	(500)	0
Balance, End of Period	$ 2,970	$ 1,660

XML

Segment Information (Summary of Financial Information by Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Revenue
Hosted services – Business	$ 43,702		$ 38,007		$ 125,378		$ 110,785
Hosted services – Consumer	3,992		3,828		12,441		11,223
Professional services	5,093		3,357		13,883		8,909
Revenue	52,787		45,192		151,702		130,917
Cost of revenue	13,304	[1],[2]	10,597	[1],[2]	38,200	[1],[2]	31,342	[1],[2]
Sales and marketing	20,978	[1],[2]	16,141	[1],[2]	59,449	[1],[2]	46,118	[1],[2]
Amortization of purchased intangibles	407		224		803		672
Unallocated corporate expenses	18,499		19,531		56,073		56,672
Operating income (loss)	(401)		(1,301)		(2,823)		(3,887)
Business [Member]
Revenue
Hosted services – Business	43,702		38,007		125,378		110,785
Professional services	5,093		3,357		13,883		8,909
Revenue	48,795		41,364		139,261		119,694
Cost of revenue	12,679		10,014		36,306		29,524
Sales and marketing	19,488		14,664		55,203		42,113
Amortization of purchased intangibles	407		224		803		672
Operating income (loss)	16,221		16,462		46,949		47,385
Consumer [Member]
Revenue
Hosted services – Consumer	3,992		3,828		12,441		11,223
Revenue	3,992		3,828		12,441		11,223
Cost of revenue	625		583		1,894		1,818
Sales and marketing	1,490		1,477		4,246		4,005
Operating income (loss)	1,877		1,768		6,301		5,400
Corporate [Member]
Revenue
Unallocated corporate expenses	18,499		19,531		56,073		56,672
Operating income (loss)	$ (18,499)		$ (19,531)		$ (56,073)		$ (56,672)

[1] Amounts include stock compensation expense as follows: Cost of revenue $365 and $635 for the three months ended September 30, 2014 and 2013, respectively and $1209 and $1557 for the nine months ended September 30, 2014 and 2013, respectively, Sales and marketing $1030 and $844 for the three months ended September 30, 2014 and 2013, respectively and $2,766 and $2,159 for the nine months ended September 30, 2014 and 2013, respectively, Product development $1,171 and $1,241 for the three months ended September 30, 2014 and 2013, respectively and $2,783 and $2,922 for the nine months ended September 30, 2014 and 2013, respectively, and General and administrative $1,088 and $1,078 for the three months ended September 30, 2014 and 2013, respectively and $2,800 and $3,111 for the nine months ended September 30, 2014 and 2013, respectively.

[2] Amounts include depreciation expense as follows: Cost of revenue $1,732 and $1,445 for the three months ended September 30, 2014 and 2013, respectively and $4,776 and $4,565 for the nine months ended September 30, 2014 and 2013, respectively, Sales and marketing $195 and $23 for the three months ended September 30, 2014 and 2013, respectively and $603 and $68 for the nine months ended September 30, 2014 and 2013, respectively, Product development $180 and $166 for the three months ended September 30, 2014 and 2013, respectively and $529 and $526 for the nine months ended September 30, 2014 and 2013, respectively, and General and administrative $237 and $368 for the three months ended September 30, 2014 and 2013, respectively and $651 and $891 for the nine months ended September 30, 2014 and 2013, respectively.

XML

Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2014

Payables and Accruals [Abstract]

Accrued Liabilities

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

	September 30, 2014		December 31, 2013
Payroll and other employee related costs	$	12,310	$	13,090
Professional services and consulting and other vendor fees	9,427		6,769
Sales commissions	2,733		1,778
Contingent earnout (Note 8)	2,970		1,660
Other	2,312		2,122
Total	$	29,752	$	25,419

XML

Stockholders' Equity (Summary of Stock-Based Compensation Expense Related to Employee Stock Options) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 3,654	$ 3,798	$ 9,558	$ 9,749
Cost of revenue [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	365	635	1,209	1,557
Sales and marketing expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,030	844	2,766	2,159
Product development expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,171	1,241	2,783	2,922
General and administrative expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 1,088	$ 1,078	$ 2,800	$ 3,111

XML

Acquisitions (Narrative) (Details) (USD $)	9 Months Ended				0 Months Ended		3 Months Ended	6 Months Ended	0 Months Ended	9 Months Ended	12 Months Ended	1 Months Ended	0 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Dec. 31, 2012	May 31, 2012 Amadesa Ltd. [Member]	Jun. 13, 2012 Look.io [Member]	Sep. 30, 2014 Look.io [Member]	Jun. 30, 2012 Look.io [Member]	Nov. 09, 2012 Engage Pty Ltd. [Member]	Sep. 30, 2014 Engage Pty Ltd. [Member]	Dec. 31, 2012 Engage Pty Ltd. [Member]	Mar. 31, 2014 NexGraph, LLC [Member]	Jun. 02, 2014 Synchronite, LLC [Member]	Sep. 30, 2014 Synchronite, LLC [Member]
Business Acquisition [Line Items]
Business acquisition, acquisition date					May 31, 2012	Jun. 13, 2012			Nov. 09, 2012			Mar. 01, 2014	Jun. 02, 2014
Acquired Intangible Assets Amount					$ 10,300,000							$ 500,000
Acquired intangible asset, aggregate cash consideration						2,884,000			10,591,000				4,100,000
Intangible assets	2,800,000				500,000	767,000			3,600,000			100,000	1,451,000	1,450,000
Business acquisition, shares of common stock issued						109,517
Cash payment	2,300,000	0				900,000
Acquisition costs incurred to acquire entity								200,000			500,000			400,000
Goodwill	35,783,000		32,724,000	32,645,000		2,405,000			6,152,000			400,000		2,700,000
Business acquisition, value of shares of common stock issued						2,000,000
Potential shares of common stock in addition to purchase price						30,422	25,961
Potential shares of common stock, value						600,000
Weighted average shares outstanding used in basic and diluted net income per share as of the acquisition date						109,517
Assets acquired liabilities assumed, net									800,000				45,000
Potential earn-out consideration									1,600,000				1,800,000
Payment of a portion of potential earn-out consideration amount										$ 500,000

XML

Goodwill and Intangible Assets (Changes in Carrying Amount of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified										9 Months Ended		9 Months Ended			12 Months Ended		12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Dec. 31, 2012	Sep. 30, 2014 Business [Member]	Dec. 31, 2013 Business [Member]	Dec. 31, 2012 Business [Member]	Sep. 30, 2014 Consumer [Member]	Dec. 31, 2013 Consumer [Member]	Dec. 31, 2012 Consumer [Member]	Sep. 30, 2014 NexGraph, LLC [Member]	Mar. 31, 2014 NexGraph, LLC [Member]	Sep. 30, 2014 NexGraph, LLC [Member] Business [Member]	Sep. 30, 2014 Synchronite, LLC [Member]	Sep. 30, 2014 Synchronite, LLC [Member] Business [Member]	Dec. 31, 2013 Engage Pty Ltd. [Member]	Nov. 09, 2012 Engage Pty Ltd. [Member]	Dec. 31, 2013 Engage Pty Ltd. [Member] Business [Member]
Goodwill [Roll Forward]
Beginning Balance	$ 35,783	$ 32,724	$ 32,645	$ 27,759	$ 24,700	$ 24,621	$ 8,024	$ 8,024	$ 8,024		$ 400					$ 6,152
Goodwill acquisitions										400		400	2,659	2,659	79		79
Ending Balance	$ 35,783	$ 32,724	$ 32,645	$ 27,759	$ 24,700	$ 24,621	$ 8,024	$ 8,024	$ 8,024		$ 400		$ 2,700			$ 6,152

XML

Stockholders' Equity (Summary of Stock Option Activity and Weighted Average Exercise Prices) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified

9 Months Ended

Sep. 30, 2014

Options

Options outstanding at December 31, 2013

9,724,193

Options granted

3,289,700

Options exercised

(565,668)

Options cancelled

(1,320,585)

Options outstanding at September 30, 2014

11,127,640

Options vested and expected to vest at September 30, 2014

9,300,501

Options exercisable at September 30, 2014

5,034,974

Weighted Average Exercise Price

Options outstanding at December 31, 2013

$ 10.86

Options granted

$ 10.63

Options exercised

$ 7.77

Options cancelled

$ 12.80

Options outstanding at September 30, 2014

$ 10.68

Options vested and expected to vest at September 30, 2014

$ 10.64

Legal Matters

Legal Matters

The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable.

From time to time, the Company is involved in or subject to legal, administrative and regulatory proceedings, claims, demands and investigations arising in the ordinary course of business, including direct claims brought by or against the Company with respect to intellectual property, contracts, employment and other matters, as well as claims brought against the Company’s customers for whom the Company has a contractual indemnification obligation. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. The accruals or estimates, if any, resulting from the foregoing analysis, are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

Options exercisable at September 30, 2014

$ 9.69

Weighted Average Remaining Contractual Term (in years)

Options outstanding at September 30, 2014

7 years 1 month 21 days

Options vested and expected to vest at September 30, 2014

6 years 9 months 11 days

Options exercisable at September 30, 2014

5 years 3 months 29 days

Aggregate Intrinsic Value

Options outstanding at September 30, 2014

$ 29,989

Options vested and expected to vest at September 30, 2014

26,214

Options exercisable at September 30, 2014

$ 19,268

XML

Investments (Details) (USD $)	1 Months Ended	9 Months Ended
	Feb. 28, 2014	Sep. 30, 2014	Sep. 30, 2013
Investments, All Other Investments [Abstract]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill		$ 2,800,000
Cost-method investment amount	$ 3,500,000	$ 3,451,000	$ 0

XML

Net Loss Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Net Loss Per Share

Net Loss Per Share

The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10 and the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 98. Under ASC 260-10, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. All options, warrants or other potentially dilutive instruments issued for nominal consideration are required to be included in the calculation of basic and diluted net income attributable to common stockholders. Diluted EPS is calculated using the treasury stock method and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.

Diluted net loss per common share for the three and nine months ended September 30, 2014 does not include the effect of options to purchase 11,127,640 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the three and nine months ended September 30, 2013 does not include the effect of options to purchase 10,132,045 shares of common stock as the effect of their inclusion is anti-dilutive.

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Basic	53,868,124	54,046,161	54,238,536	54,898,974
Effect of assumed exercised options	—	—	—	—
Diluted	53,868,124	54,046,161	54,238,536	54,898,974

XML

Acquisitions (Purchase Price Preliminary Allocation) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013	Dec. 31, 2012	Sep. 30, 2014 Synchronite, LLC [Member]	Jun. 02, 2014 Synchronite, LLC [Member]	Jun. 13, 2012 Look.io [Member]	Nov. 09, 2012 Engage Pty Ltd. [Member]
Business Acquisition [Line Items]
Cash							$ 386
Accounts receivable							3,454
Other current assets							57
Property and equipment							432
Other assets							104
Intangible assets	2,800			1,450	1,451	767	3,600
Goodwill	35,783	32,724	32,645	2,700		2,405	6,152
Total assets acquired						3,172	14,185
Liabilities assumed							(2,632)
Deferred tax liability						(288)	(962)
Total purchase price consideration					$ 4,100	$ 2,884	$ 10,591

XML

Revenue Recognition (Details)	9 Months Ended
	Sep. 30, 2014
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Typical service agreements	12 months
Minimum [Member]
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Typical service agreements termination notice period	30 days
Maximum [Member]
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Typical service agreements termination notice period	90 days

XML

Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Stock-Based Compensation Expense Related to Employee Stock Options

The following table summarizes stock-based compensation expense related to employee stock options under ASC 718-10 included in Company’s statements of operations for the periods presented (amounts in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of revenue	$	365	$	635	$	1,209	$	1,557
Sales and marketing expense	1,030		844		2,766		2,159
Product development expense	1,171		1,241		2,783		2,922
General and administrative expense	1,088		1,078		2,800		3,111
Total stock based compensation included in costs and expenses	$	3,654	$	3,798	$	9,558	$	9,749

Weighted Average Assumptions of Fair Value Options Using Black-Scholes Option-Pricing Model

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Dividend yield	0.0%	0.0%	0.0%	0.0%
Risk-free interest rate	1.7%	1.4%	1.5% - 1.7%	0.7% - 1.4%
Expected life (in years)	5	5	5	5
Historical volatility	50.9%	59.8% - 59.9%	50.9% - 53.7%	56.7% - 60.1%

Summary of Stock Option Activity and Weighted Average Exercise Prices

A summary of the Company’s stock option activity and weighted average exercise prices follows:

	Stock Option Activity				Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
	Options		Weighted Average Exercise Price
Balance outstanding at December 31, 2013	9,724,193		$	10.86
Granted	3,289,700		10.63
Exercised	(565,668	)	7.77
Cancelled or expired	(1,320,585	)	12.80
Balance outstanding at September 30, 2014	11,127,640		$	10.68	7.14	$	29,989
Options vested and expected to vest at September 30, 2014	9,300,501		$	10.64	6.78	$	26,214
Options exercisable at September 30, 2014	5,034,974		$	9.69	5.33	$	19,268

Summary of Status of Nonvested Shares

A summary of the status of the Company’s nonvested shares as of December 31, 2013, and changes during the nine months endedSeptember 30, 2014 is as follows:

	Options		Weighted Average Grant- Date Fair Value
Nonvested Shares at December 31, 2013	5,633,701		$	6.90
Granted	3,289,700		4.99
Vested	(1,510,150	)	6.09
Cancelled or expired	(1,320,585	)	6.49
Nonvested Shares at September 30, 2014	6,092,666		$	5.65

XML

Acquisitions (Components of Intangible Assets) (Details) (USD $) In Thousands, except Share data, unless otherwise specified		0 Months Ended	3 Months Ended				9 Months Ended	12 Months Ended	0 Months Ended		9 Months Ended	12 Months Ended	0 Months Ended				9 Months Ended	12 Months Ended	0 Months Ended
	Sep. 30, 2014	Jun. 13, 2012 Business Acquisition [Member]	Sep. 30, 2014 Business Acquisition [Member]	Sep. 30, 2014 Synchronite, LLC [Member]	Jun. 02, 2014 Synchronite, LLC [Member]	Nov. 09, 2012 Engage Pty Ltd. [Member]	Sep. 30, 2014 Technology [Member]	Dec. 31, 2013 Technology [Member]	Jun. 02, 2014 Technology [Member] Synchronite, LLC [Member]	Nov. 09, 2012 Technology [Member] Engage Pty Ltd. [Member]	Sep. 30, 2014 Trade Names [Member]	Dec. 31, 2013 Trade Names [Member]	Jun. 02, 2014 Trade Names [Member] Synchronite, LLC [Member]	Nov. 09, 2012 Trade Names [Member] Engage Pty Ltd. [Member]	Jun. 02, 2014 Customer Relationships [Member] Synchronite, LLC [Member]	Nov. 09, 2012 Customer Relationships [Member] Engage Pty Ltd. [Member]	Sep. 30, 2014 Non-compete Agreements [Member]	Dec. 31, 2013 Non-compete Agreements [Member]	Jun. 02, 2014 Non-compete Agreements [Member] Synchronite, LLC [Member]	Nov. 09, 2012 Non-compete Agreements [Member] Engage Pty Ltd. [Member]
Business Acquisition [Line Items]
Potential Shares Of Common Stock In Addition To Purchase Price		30,422	25,961
Weighted Average Amortization Period							4 years 1 month 18 days	3 years 9 months 18 days	120 months	36 months	2 years 9 months 12 days	2 years 8 months 12 days	48 months	12 months	84 months	48 months	1 year 3 months 12 days	1 year 2 months 12 days	36 months	12 months
Intangible assets	$ 2,800	$ 767		$ 1,450	$ 1,451	$ 3,600			$ 1,082	$ 768			$ 62	$ 95	$ 247	$ 2,661			$ 60	$ 76

XML

Net Loss Per Share (Narrative) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Effect of option to purchase share of common stock on diluted net income per share	11,127,640	10,132,045	11,127,640	10,132,045

XML

Net Loss Per Share (Reconciliation of Shares Used in Calculating Basic and Diluted Earnings Per Share) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Basic	53,868,124	54,046,161	54,238,536	54,898,974
Effect of assumed exercised options	0	0	0	0
Diluted	53,868,124	54,046,161	54,238,536	54,898,974

XML

Revenue Recognition

9 Months Ended

Sep. 30, 2014

Revenue Recognition [Abstract]

Revenue Recognition

Revenue Recognition 

The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Because the Company provides its application as a service, the Company follows the provisions of FASB Accounting Standards Codification (“ASC”) 605-10-S99, “Revenue Recognition” and ASC 605-25, “Revenue Recognition with Multiple-Element Arrangements.” The Company charges a monthly fee, which varies by type of service, the level of customer usage and website traffic, and in some cases, the number of orders placed via the Company’s online engagement solutions.

For certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions. For these Pay for Performance (“PFP”) arrangements, in accordance with ASC 605-45, “Principal Agent Considerations,” the Company records revenue for transactions in which it acts as an agent on a net basis, and revenue for transactions in which it acts as a principal on a gross basis.

The Company also sells certain of the LivePerson services directly via Internet download.  These services are marketed as LiveEngage for small to medium-sized businesses (“SMBs”), and are paid for almost exclusively by credit card.  Credit card payments accelerate cash flow and reduce the Company’s collection risk, subject to the merchant bank's right to hold back cash pending settlement of the transactions.  Sales of LiveEngage may occur with or without the assistance of an online sales representative, rather than through face-to-face or telephone contact that is typically required for traditional direct sales.

The Company recognizes monthly service revenue based upon the fee charged for the LivePerson services, provided that there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable. The Company’s service agreements typically have twelve month terms and, in some cases, are terminable or may terminate upon 30 to 90 days’ notice without penalty. When professional service fees add value to the customer on a standalone basis, the Company recognizes professional service fees upon completion and customer acceptance in accordance with FASB Accounting Standards Update 2009-13. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) best estimated selling price. If a professional services arrangement does not qualify for separate accounting, the Company recognizes the fees, and the related labor costs, ratably over the contracted period.

For revenue generated from online transactions between Experts and Users, the Company recognizes revenue net of the Expert fees in accordance with ASC 605-45, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the User and retains a portion of the fee, and then remits the balance to the Expert. Revenue from these transactions is recognized when there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed and determinable.

XML

Segment Information (Narrative) (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2012
Segment Reporting [Abstract]
Number of operating segments	2
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	22.00%	12.00%

XML

Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property plant and equipment gross	$ 61,400	$ 53,696
Less: accumulated depreciation	(42,637)	(36,078)
Total	18,763	17,618
Computer Equipment And Software [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment gross	52,322	45,790
Furniture, Equipment and Building Improvements [Member]
Property, Plant and Equipment [Line Items]
Property plant and equipment gross	$ 9,078	$ 7,906

XML

Stockholders' Equity (Summary of Status of Nonvested Shares) (Details) (USD $)	9 Months Ended
	Sep. 30, 2014
Shares
Nonvested Shares at December 31, 2013	5,633,701
Granted	3,289,700
Vested	(1,510,150)
Cancelled or expired	(1,320,585)
Nonvested Shares at September 30, 2014	6,092,666
Weighted Average Grant-Date Fair Value
Nonvested Shares at December 31, 2013	$ 6.90
Granted	$ 4.99
Vested	$ 6.09
Cancelled or expired	$ 6.49
Nonvested Shares at September 30, 2014	$ 5.65

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
CURRENT ASSETS:
Cash and cash equivalents	$ 87,111	$ 91,906
Accounts receivable, net of allowance for doubtful accounts of $948 and $1,165 as of September 30, 2014 and December 31, 2013, respectively	32,386	29,489
Prepaid expenses and other current assets	9,620	6,361
Deferred tax assets, net	2,628	5,426
Total current assets	131,745	133,182
Property and equipment, net	18,763	17,618
Intangibles, net	14,020	13,088
Goodwill	35,783	32,724
Deferred tax assets, net	9,064	6,243
Other assets	2,342	2,235
Total assets	211,717	205,090
CURRENT LIABILITIES:
Accounts payable	8,932	10,139
Accrued expenses	29,752	25,419
Deferred revenue	14,022	8,747
Total current liabilities	52,706	44,305
Deferred revenue, net of current	0	468
Other liabilities	768	1,264
Total liabilities	53,474	46,037
Commitments and contingencies (See Note 11)
STOCKHOLDERS’ EQUITY (See Note 12):
Common stock	55	54
Additional paid-in capital	246,906	244,621
Treasury Stock, Value	(1)	0
Accumulated deficit	(88,425)	(85,279)
Accumulated other comprehensive loss	(292)	(343)
Total stockholders’ equity	158,243	159,053
Total liabilities and stockholders’ equity	$ 211,717	$ 205,090

XML

Fair Value Measurements (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified			9 Months Ended	12 Months Ended													3 Months Ended
	Sep. 30, 2014 Level 1 [Member]	Dec. 31, 2013 Level 1 [Member]	Sep. 30, 2014 Level 3 [Member]	Dec. 31, 2013 Level 3 [Member]	Sep. 30, 2014 Total [Member]	Dec. 31, 2013 Total [Member]	Sep. 30, 2014 Money Market Funds [Member] Level 1 [Member]	Dec. 31, 2013 Money Market Funds [Member] Level 1 [Member]	Sep. 30, 2014 Money Market Funds [Member] Total [Member]	Dec. 31, 2013 Money Market Funds [Member] Total [Member]	Sep. 30, 2014 Contingent Earn-Out [Member] Level 3 [Member]	Dec. 31, 2013 Contingent Earn-Out [Member] Level 3 [Member]	Sep. 30, 2014 Contingent Earn-Out [Member] Total [Member]	Dec. 31, 2013 Contingent Earn-Out [Member] Total [Member]	Sep. 30, 2014 Engage [Member] Contingent Earn-Out [Member] Level 3 [Member]	Dec. 31, 2013 Engage [Member] Contingent Earn-Out [Member] Level 3 [Member]	Sep. 30, 2014 Synchronite, LLC [Member] Contingent Earn-Out [Member] Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure	$ 12,608	$ 13,674			$ 12,608	$ 13,674	$ 12,608	$ 13,674	$ 12,608	$ 13,674
Liabilities, Fair Value Disclosure			2,970	1,660	2,970	1,660					2,970	1,660	2,970	1,660	1,200	1,700
Change in contingent consideration			$ 1,810	$ 0													$ 1,800

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
OPERATING ACTIVITIES:
Net loss	$ (3,146)	$ (2,791)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense	9,558	9,749
Depreciation	6,559	6,050
Amortization of purchased intangibles	3,461	1,575
Deferred income taxes and other non-cash tax items	(1,067)	(1,700)
Provision for doubtful accounts, net	1,096	0
Changes in operating assets and liabilities:
Accounts receivable	(4,337)	(7,395)
Prepaid expenses and other current assets	(4,390)	(1,523)
Other assets	538	79
Accounts payable	(2,248)	(3,523)
Accrued expenses	3,873	2,978
Deferred revenue	5,003	261
Other liabilities	(469)	(112)
Net cash provided by operating activities	14,431	3,648
INVESTING ACTIVITIES:
Purchases of property and equipment, including capitalized software	(6,644)	(6,638)
Investment in technology licenses	(3,451)	0
Acquisition of Synchronite	(2,300)	0
Acquisition of NexGraph	(125)	0
Acquisition of domains	(27)	(50)
Acquisition costs - Engage, net of cash	0	(79)
Net cash used in investing activities	(12,547)	(6,767)
FINANCING ACTIVITIES:
Excess tax benefit from the exercise of employee stock options	0	135
Proceeds from issuance of common stock in connection with the exercise of options	6,109	3,737
Repurchase of common stock	(12,980)	(26,716)
Net cash used in financing activities	(6,871)	(22,844)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	192	3
CHANGE IN CASH AND CASH EQUIVALENTS	(4,795)	(25,960)
CASH AND CASH EQUIVALENTS - Beginning of the period	91,906	103,339
CASH AND CASH EQUIVALENTS - End of the period	87,111	77,379
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:
Cash paid for income taxes	2,182	151
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contingent earn-out in connection with the acquisition of Synchronite recorded in accrued expenses	1,810	0
Purchase of property and equipment recorded in accounts payable	1,840	720
Acquisition cost in connection with NexGraph recorded in accrued expenses	$ 125	$ 0

XML

Segment Information (Long-Lived Assets by Geographic Region) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Segment Reporting Information [Line Items]
Total long-lived assets	$ 79,972	$ 71,908
United States [Member]
Segment Reporting Information [Line Items]
Total long-lived assets	42,066	34,422
Israel [Member]
Segment Reporting Information [Line Items]
Total long-lived assets	19,700	22,580
Australia [Member]
Segment Reporting Information [Line Items]
Total long-lived assets	8,858	9,827
Netherlands [Member]
Segment Reporting Information [Line Items]
Total long-lived assets	7,687	3,540
United Kingdom [Member]
Segment Reporting Information [Line Items]
Total long-lived assets	$ 1,661	$ 1,539

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Summary of Financial Information by Segment

Summarized financial information by segment for the three months ended September 30, 2014, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	43,702	$	—	$	—		$	43,702
Hosted services – Consumer	—		3,992		—			3,992
Professional services	5,093		—		—			5,093
Total revenue	48,795		3,992		—			52,787
Cost of revenue	12,679		625		—			13,304
Sales and marketing	19,488		1,490		—			20,978
Amortization of purchased intangibles	407		—		—			407
Unallocated corporate expenses	—		—		18,499			18,499
Operating income (loss)	$	16,221	$	1,877	$	(18,499	)	$	(401	)

Summarized financial information by segment for the three months ended September 30, 2013, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	38,007	$	—	$	—		$	38,007
Hosted services – Consumer	—		3,828		—			3,828
Professional services	3,357		—		—			3,357
Total revenue	41,364		3,828		—			45,192
Cost of revenue	10,014		583		—			10,597
Sales and marketing	14,664		1,477		—			16,141
Amortization of purchased intangibles	224		—		—			224
Unallocated corporate expenses	—		—		19,531			19,531
Operating income (loss)	$	16,462	$	1,768	$	(19,531	)	$	(1,301	)

Summarized financial information by segment for the nine months ended September 30, 2014, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	125,378	$	—	$	—		$	125,378
Hosted services – Consumer	—		12,441		—			12,441
Professional services	13,883		—		—			13,883
Total revenue	139,261		12,441		—			151,702
Cost of revenue	36,306		1,894		—			38,200
Sales and marketing	55,203		4,246		—			59,449
Amortization of purchased intangibles	803		—		—			803
Unallocated corporate expenses	—		—		56,073			56,073
Operating income (loss)	$	46,949	$	6,301	$	(56,073	)	$	(2,823	)

Summarized financial information by segment for the nine months ended September 30, 2013, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	110,785	$	—	$	—		$	110,785
Hosted services – Consumer	—		11,223		—			11,223
Professional services	8,909		—		—			8,909
Total revenue	119,694		11,223		—			130,917
Cost of revenue	29,524		1,818		—			31,342
Sales and marketing	42,113		4,005		—			46,118
Amortization of purchased intangibles	672		—		—			672
Unallocated corporate expenses	—		—		56,672			56,672
Operating income (loss)	$	47,385	$	5,400	$	(56,672	)	$	(3,887	)

Revenues Attributable to Domestic and Foreign Operations

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
United States	$	34,409	$	28,947	$	99,273	$	86,553
Other Americas (1)	2,936		2,353		7,259		6,145
Total Americas	37,345		31,300		106,532		92,698
EMEA (2)	11,049		9,600		32,618		25,572
APAC (3)	4,393		4,292		12,552		12,647
Total revenue	$	52,787	$	45,192	$	151,702	$	130,917

⁽¹⁾ Canada, Latin America and South America

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

⁽³⁾ Asia-Pacific (“APAC”)

Long-Lived Assets by Geographic Region

The following table presents the Company's long-lived assets by geographic region for the periods presented (amounts in thousands):

	September 30,		December 31,
	2014		2013
United States	$	42,066	$	34,422
Israel	19,700		22,580
Australia	8,858		9,827
Netherlands	7,687		3,540
Other (1)	1,661		1,539
Total long-lived assets	$	79,972	$	71,908

XML

Goodwill and Intangible Assets (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Aggregate amortization expense for intangible assets	$ 1,300	$ 700	$ 3,461	$ 1,575

XML

Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Summary of Property and Equipment

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

	September 30, 2014			December 31, 2013
Computer equipment and software	$	52,322		$	45,790
Furniture, equipment and building improvements	9,078			7,906
	61,400			53,696
Less: accumulated depreciation	(42,637		)	(36,078		)
Total	$	18,763		$	17,618

XML

Description of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

LivePerson, Inc. (the “Company” or “LivePerson”) was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. In April 2000, the Company completed an initial public offering and is currently traded on the Nasdaq Global Select Market and the Tel Aviv Stock Exchange. LivePerson is headquartered in New York City with offices in Amsterdam, Atlanta, London, Melbourne, San Francisco, Tokyo and Tel Aviv.

LivePerson provides online engagement solutions offering a cloud-based platform which enables businesses to proactively connect with consumers through chat, voice and content delivery, across multiple channels and screens, including websites, social media, tablets and mobile devices. The Company’s engagements are driven by insights derived from a broad set of consumer and business data, including historical, behavioral, operational, and third party data. Each engagement is based on proprietary analytics and a real-time understanding of consumer needs and business objectives. The Company’s products, coupled with its domain knowledge and industry expertise, have been proven to maximize the effectiveness of the online channel — by increasing sales, as well as consumer satisfaction and loyalty ratings for its customers, while also enabling its customers to reduce consumer service costs.

LivePerson monitors and analyzes valuable online consumer behavioral data on behalf of its customers. Spanning the breadth of an online visitor session, starting from an initial keyword search through actions on their customer’s website, and even into a shopping cart and an executed sale, this data enables the Company to develop unique insights into consumer behavior during specific transactions within a customer’s user base.

The Company’s primary revenue source is from the sale of LivePerson services to businesses of all sizes. The Company also offers an online marketplace that connects independent service providers (“Experts”) who provide information and knowledge for a fee via real-time chat with individual consumers (“Users”).

Basis of Presentation

The accompanying condensed consolidated financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 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 September 30, 2014, and the consolidated results of operations, comprehensive loss and cash flows for the interim periods ended September 30, 2014 and 2013. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at December 31, 2013 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, 2013, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2014.

Reclassification

For comparability, certain 2013 amounts have been reclassified where appropriate, to conform to the financial presentation in 2014.

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.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes most existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP.

The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  The Company is currently evaluating the impact of the Company’s pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which it will adopt the standard in 2017.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 948	$ 1,165

XML

Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Contractual Obligations

The Company leases facilities and certain equipment under agreements accounted for as operating leases. These leases generally require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases for the three and nine months endedSeptember 30, 2014 was approximately $2.3 million and $6.9 million, respectively. Rental expense for operating leases for the three and nine months ended September 30, 2013 was approximately $2.2 million and $6.9 million, respectively.

Employee Benefit Plans

The Company has a 401(k) defined contribution plan covering all eligible employees. The Company provides for employer matching contributions equal to 50% of employee contributions, up to the lesser of 5% of eligible compensation or $6,000. Matching contributions are deposited into the employee’s 401(k) account and are subject to 5 year graded vesting. Salaries and related expenses include $0.2 million and $0.8 million of employer matching contributions for the three and nine months endedSeptember 30, 2014, respectively. Salaries and related expenses include $0.2 million and $0.7 million of employer matching contributions for the three and nine months endedSeptember 30, 2013, respectively.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 03, 2014
Document - Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Trading Symbol	lpsn
Entity Registrant Name	LIVEPERSON INC
Entity Central Index Key	0001102993
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		54,653,337

XML

Stockholders' Equity

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stockholders' Equity

Stockholders' Equity

Common Stock

As of September 30, 2014, there were 100,000,000 shares of common stock authorized, and 54,584,170 shares issued and outstanding. As of December 31, 2013, there were 100,000,000 shares of common stock authorized, and 54,484,760 shares issued and outstanding. The par value for common shares is $0.001.

Preferred Stock

As of September 30, 2014 and December 31, 2013, there were 5,000,000 shares of preferred stock authorized, and zero shares issued and outstanding. The par value for preferred shares is $0.001.

Stock Repurchase Program

On December 10, 2012, the Company’s Board of Directors approved a stock repurchase program through June 30, 2014. Under the stock repurchase program, the Company is authorized to repurchase shares of its common stock, in the open market or privately negotiated transactions, at times and prices considered appropriate by the Board of Directors depending upon prevailing market conditions and other corporate considerations. On March 13, 2014, the Company's Board of Directors increased the aggregate purchase price of the stock repurchase program from $30.0 million to $40.0 million. On July 23, 2014, the Company's Board of Directors extended the expiration date of the program out to December 31, 2014 and also increased the aggregate purchase price of the stock repurchase program from $40.0 million to $50.0 million. There were 1,195,185 shares repurchased under this program during 2014, of which 544,396 shares were recorded in treasury stock at par on the condensed consolidated balance sheets as of September 30, 2014. As of September 30, 2014, approximately $10.3 million remained available for purchase under the program.

Stock-Based Compensation

The Company follows FASB ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

The following table summarizes stock-based compensation expense related to employee stock options under ASC 718-10 included in Company’s statements of operations for the periods presented (amounts in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Cost of revenue	$	365	$	635	$	1,209	$	1,557
Sales and marketing expense	1,030		844		2,766		2,159
Product development expense	1,171		1,241		2,783		2,922
General and administrative expense	1,088		1,078		2,800		3,111
Total stock based compensation included in costs and expenses	$	3,654	$	3,798	$	9,558	$	9,749

The per share weighted average fair value of stock options granted during the three and nine months ended September 30, 2014 was $4.57 and $4.99, respectively. The per share weighted average fair value of stock options granted during the three and nine months ended September 30, 2013 was $4.82 and $5.25, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Dividend yield	0.0%	0.0%	0.0%	0.0%
Risk-free interest rate	1.7%	1.4%	1.5% - 1.7%	0.7% - 1.4%
Expected life (in years)	5	5	5	5
Historical volatility	50.9%	59.8% - 59.9%	50.9% - 53.7%	56.7% - 60.1%

A description of the methods used in the significant assumptions used to estimate the fair value of stock-based compensation awards follows:

Dividend yield – The Company uses 0% as it has never issued dividends and does not anticipate issuing dividends in the near term.

Risk-free interest rate – The Company uses the market yield on U.S. Treasury securities at five years with constant maturity, representing the current expected life of stock options in years.

Expected life – The Company uses historical data to estimate the expected life of a stock option.

Historical volatility – The Company uses a trailing five year from grant date to determine volatility.

Stock Option Plans

During 1998, the Company established the Stock Option and Restricted Stock Purchase Plan (the “1998 Plan”). Under the 1998 Plan, the Board of Directors could issue incentive stock options or nonqualified stock options to purchase up to 5,850,000 shares of common stock. The 2000 Stock Incentive Plan (the “2000 Plan”) succeeded the 1998 Plan. Under the 2000 Plan, the options which had been outstanding under the 1998 Plan were incorporated in the 2000 Plan increasing the number of shares available for issuance under the plan by approximately 4,150,000, thereby reserving for issuance 10,000,000 shares of common stock in the aggregate.

The Company established the 2009 Stock Incentive Plan (as amended and restated, the “2009 Plan”) as a successor to the 2000 Plan. Under the 2009 Plan, the options which had been outstanding under the 2000 Plan were incorporated into the 2009 Plan and the Company increased the number of shares available for issuance under the plan by 6,000,000. The Company amended the 2009 stock incentive plan (the “Amended 2009 Plan”) effective June 7, 2012. The Amended 2009 Plan increased the number of shares authorized for issuance under the plan by an additional 4,250,000, thereby reserving for issuance 23,817,744 shares of common stock in the aggregate. Options to acquire common stock granted thereunder have 10-year terms. As of September 30, 2014, approximately 13,995,000 shares of common stock were reserved for issuance under the 2009 Plan (taking into account all option exercises through September 30, 2014).

Employee Stock Purchase Plan

In June 2010, the Company’s stockholders approved the 2010 Employee Stock Purchase Plan with 1,000,000 shares of common stock initially reserved for issuance. As of September 30, 2014, approximately 582,000 shares of common stock were reserved for issuance under the Employee Stock Purchase Plan (taking into account all share purchases through September 30, 2014).

Stock Option Activity

A summary of the Company’s stock option activity and weighted average exercise prices follows:

	Stock Option Activity				Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
	Options		Weighted Average Exercise Price
Balance outstanding at December 31, 2013	9,724,193		$	10.86
Granted	3,289,700		10.63
Exercised	(565,668	)	7.77
Cancelled or expired	(1,320,585	)	12.80
Balance outstanding at September 30, 2014	11,127,640		$	10.68	7.14	$	29,989
Options vested and expected to vest at September 30, 2014	9,300,501		$	10.64	6.78	$	26,214
Options exercisable at September 30, 2014	5,034,974		$	9.69	5.33	$	19,268

The total fair value of stock options exercised during the nine months endedSeptember 30, 2014 was approximately $2.5 million. As of September 30, 2014, there was approximately $30.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.8 years.

A summary of the status of the Company’s nonvested shares as of December 31, 2013, and changes during the nine months endedSeptember 30, 2014 is as follows:

	Options		Weighted Average Grant- Date Fair Value
Nonvested Shares at December 31, 2013	5,633,701		$	6.90
Granted	3,289,700		4.99
Vested	(1,510,150	)	6.09
Cancelled or expired	(1,320,585	)	6.49
Nonvested Shares at September 30, 2014	6,092,666		$	5.65

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Revenue	$ 52,787		$ 45,192		$ 151,702		$ 130,917
Costs and expenses (1) (2)
Cost of revenue	13,304	[1],[2]	10,597	[1],[2]	38,200	[1],[2]	31,342	[1],[2]
Sales and marketing	20,978	[1],[2]	16,141	[1],[2]	59,449	[1],[2]	46,118	[1],[2]
Product development	9,712	[1],[2]	10,023	[1],[2]	27,999	[1],[2]	27,091	[1],[2]
General and administrative	8,787	[1],[2]	9,508	[1],[2]	28,074	[1],[2]	29,581	[1],[2]
Amortization of purchased intangibles	407		224		803		672
Total costs and expenses	53,188		46,493		154,525		134,804
Loss from operations	(401)		(1,301)		(2,823)		(3,887)
Other income, net	223		209		184		264
Loss before provision for (benefit from) income taxes	(178)		(1,092)		(2,639)		(3,623)
Provision for (benefit from) income taxes	962		(362)		507		(832)
Net loss	(1,140)		(730)		(3,146)		(2,791)
Basic net (loss) income per common share (in dollars per share)	$ (0.02)		$ (0.01)		$ (0.06)		$ (0.05)
Diluted net (loss) income per common share (in dollars per share)	$ (0.02)		$ (0.01)		$ (0.06)		$ (0.05)
Weighted average shares outstanding used in basic net (loss) income per common share calculation (in shares)	53,868,124		54,046,161		54,238,536		54,898,974
Weighted average shares outstanding used in diluted net (loss) income per common share calculation (in shares)	53,868,124		54,046,161		54,238,536		54,898,974
Stock compensation expense	3,654		3,798		9,558		9,749
Cost of revenue [Member]
Costs and expenses (1) (2)
Stock compensation expense	365		635		1,209		1,557
Depreciation expense	1,732		1,445		4,776		4,565
Sales and marketing expense [Member]
Costs and expenses (1) (2)
Stock compensation expense	1,030		844		2,766		2,159
Depreciation expense	195		23		603		68
Product development expense [Member]
Costs and expenses (1) (2)
Stock compensation expense	1,171		1,241		2,783		2,922
Depreciation expense	180		166		529		526
General and administrative expense [Member]
Costs and expenses (1) (2)
Stock compensation expense	1,088		1,078		2,800		3,111
Depreciation expense	$ 237		$ 368		$ 651		$ 891

[1] Amounts include stock compensation expense as follows: Cost of revenue $365 and $635 for the three months ended September 30, 2014 and 2013, respectively and $1209 and $1557 for the nine months ended September 30, 2014 and 2013, respectively, Sales and marketing $1030 and $844 for the three months ended September 30, 2014 and 2013, respectively and $2,766 and $2,159 for the nine months ended September 30, 2014 and 2013, respectively, Product development $1,171 and $1,241 for the three months ended September 30, 2014 and 2013, respectively and $2,783 and $2,922 for the nine months ended September 30, 2014 and 2013, respectively, and General and administrative $1,088 and $1,078 for the three months ended September 30, 2014 and 2013, respectively and $2,800 and $3,111 for the nine months ended September 30, 2014 and 2013, respectively.

[2] Amounts include depreciation expense as follows: Cost of revenue $1,732 and $1,445 for the three months ended September 30, 2014 and 2013, respectively and $4,776 and $4,565 for the nine months ended September 30, 2014 and 2013, respectively, Sales and marketing $195 and $23 for the three months ended September 30, 2014 and 2013, respectively and $603 and $68 for the nine months ended September 30, 2014 and 2013, respectively, Product development $180 and $166 for the three months ended September 30, 2014 and 2013, respectively and $529 and $526 for the nine months ended September 30, 2014 and 2013, respectively, and General and administrative $237 and $368 for the three months ended September 30, 2014 and 2013, respectively and $651 and $891 for the nine months ended September 30, 2014 and 2013, respectively.

XML

Property and Equipment

9 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

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

	September 30, 2014			December 31, 2013
Computer equipment and software	$	52,322		$	45,790
Furniture, equipment and building improvements	9,078			7,906
	61,400			53,696
Less: accumulated depreciation	(42,637		)	(36,078		)
Total	$	18,763		$	17,618

XML

Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the nine months endedSeptember 30, 2014 are as follows (amounts in thousands):

	Business		Consumer		Total
Balance as of December 31, 2013	$	24,700	$	8,024	$	32,724
Adjustments to goodwill:
NexGraph acquisition	400		—		400
Synchronite acquisition	2,659		—		2,659
Balance as of September 30, 2014	$	27,759	$	8,024	$	35,783

The changes in the carrying amount of goodwill for the year ended December 31, 2013 are as follows (amounts in thousands):

	Business		Consumer		Total
Balance as of December 31, 2012	$	24,621	$	8,024	$	32,645
Adjustments to goodwill:
Adjustments to Engage acquisition	79		—		79
Balance as of December 31, 2013	$	24,700	$	8,024	$	32,724

Intangible Assets

Intangible assets are summarized as follows (see Note 8 and Note 10) (amounts in thousands):

	As of September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	19,615	$	(10,320	)	$	9,295	4.1 years
Customer relationships	5,308		(3,658		)	1,650		3.7 years
Trade names	787		(730		)	57		2.8 years
Non-compete agreements	646		(551		)	95		1.3 years
Patents	3,290		(416		)	2,874		9.9 years
Other	312		(263		)	49		3.0 years
Total	$	29,958	$	(15,938	)	$	14,020

	As of December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	18,533	$	(7,678	)	$	10,855	3.8 years
Customer relationships	5,061		(3,148		)	1,913		3.5 years
Trade names	725		(725		)	—		2.7 years
Non-compete agreements	486		(486		)	—		1.2 years
Patents	475		(189		)	286		11.0 years
Other	285		(251		)	34		3.0 years
Total	$	25,565	$	(12,477	)	$	13,088

Amortization expense is calculated on a straight-line basis over the estimated useful life of the asset. Aggregate amortization expense for intangible assets was $1.3 million and $3.5 million for the three and nine months ended September 30, 2014, respectively. Aggregate amortization expense for intangible assets was $0.7 million and $1.6 million for the three and nine months ended September 30, 2013, respectively. For the three and nine months ended September 30, 2014, a portion of this amortization is included in cost of revenue. Estimated amortization expense for the next five years are as follows (amounts in thousands):  

	Estimated Amortization Expense
2014	$	1,135
2015	4,267
2016	3,805
2017	2,205
2018	485
Thereafter	2,123
Total	$	14,020

XML

Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill

The changes in the carrying amount of goodwill for the nine months endedSeptember 30, 2014 are as follows (amounts in thousands):

	Business		Consumer		Total
Balance as of December 31, 2013	$	24,700	$	8,024	$	32,724
Adjustments to goodwill:
NexGraph acquisition	400		—		400
Synchronite acquisition	2,659		—		2,659
Balance as of September 30, 2014	$	27,759	$	8,024	$	35,783

The changes in the carrying amount of goodwill for the year ended December 31, 2013 are as follows (amounts in thousands):

	Business		Consumer		Total
Balance as of December 31, 2012	$	24,621	$	8,024	$	32,645
Adjustments to goodwill:
Adjustments to Engage acquisition	79		—		79
Balance as of December 31, 2013	$	24,700	$	8,024	$	32,724

Summary of Intangible Assets

Intangible assets are summarized as follows (see Note 8 and Note 10) (amounts in thousands):

	As of September 30, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	19,615	$	(10,320	)	$	9,295	4.1 years
Customer relationships	5,308		(3,658		)	1,650		3.7 years
Trade names	787		(730		)	57		2.8 years
Non-compete agreements	646		(551		)	95		1.3 years
Patents	3,290		(416		)	2,874		9.9 years
Other	312		(263		)	49		3.0 years
Total	$	29,958	$	(15,938	)	$	14,020

	As of December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Amortization Period
Amortizing intangible assets:
Technology	$	18,533	$	(7,678	)	$	10,855	3.8 years
Customer relationships	5,061		(3,148		)	1,913		3.5 years
Trade names	725		(725		)	—		2.7 years
Non-compete agreements	486		(486		)	—		1.2 years
Patents	475		(189		)	286		11.0 years
Other	285		(251		)	34		3.0 years
Total	$	25,565	$	(12,477	)	$	13,088

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Estimated amortization expense for the next five years are as follows (amounts in thousands):  

	Estimated Amortization Expense
2014	$	1,135
2015	4,267
2016	3,805
2017	2,205
2018	485
Thereafter	2,123
Total	$	14,020

XML

Subsequent Event

9 Months Ended

Sep. 30, 2014

Subsequent Events [Abstract]

Subsequent Event

Subsequent Event

Contact At Once!, LLC

On November 5, 2014, the Company entered into a definitive agreement to acquire the outstanding equity interest of Contact At Once!, LLC (“Contact At Once!”), a software company with a cloud-based platform that instantly connects consumers with businesses through instant messaging, text messaging, chat, social media and video over the internet for consumer-to-business sales conversions, for approximately $70.0 million, which includes approximately $43.0 million in cash, approximately $22.0 million in shares of common stock and $5.0 million of potential earn-out consideration in cash or shares of common stock. The earn-out is contingent upon achieving certain targeted financial, strategic and integration objectives and milestones and is included as part of the purchase price. The acquisition enhances the Company’s network chat expertise and market growth across various verticals.

The transaction will be accounted for under the purchase method of accounting and, accordingly, the operating results of Contact At Once! will be included in the Company’s consolidated results of operations from the date of acquisition. The Company is in process of finalizing all fair value and purchase accounting adjustments.

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company measures its cash equivalents at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

• Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The Company's assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of September 30, 2014 and December 31, 2013, are summarized as follows (amounts in thousands):

	September 30, 2014								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	12,608	$	—	$	—	$	12,608	$	13,674	$	—	$	—	$	13,674
Total assets	$	12,608	$	—	$	—	$	12,608	$	13,674	$	—	$	—	$	13,674
Liabilities:
Contingent earn-out	$	—	$	—	$	2,970	$	2,970	$	—	$	—	$	1,660	$	1,660
Total liabilities	$	—	$	—	$	2,970	$	2,970	$	—	$	—	$	1,660	$	1,660

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. Observable or market inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's assumptions based on the best information available.

The Company's only asset that is measured at fair value on a recurring basis is money market funds, based on quoted market prices in active markets and therefore classified as level 1 within the fair value hierarchy. The Company's only liability that is measured at fair value on a recurring basis is the contingent earn-out and is classified as level 3 within the fair value hierarchy. On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. The Company uses an income approach and inputs that constitute level 3.  During the third quarter of each year, the Company evaluates goodwill for impairment at the reporting unit level. The Company uses a combination of discounted cash flows and other qualitative factors in accordance with ASU No. 2011-08 to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.  This measurement is classified based on level 3 input.

The contingent earn-out in connection with the acquisition of Engage is $1.2 million and $1.7 million as of September 30, 2014 and December 31, 2013, respectively, and is recorded in accrued expenses in the condensed consolidated balance sheets. The earn-out is based on the potential earn-out consideration if certain revenue targets are achieved. The total contingent earn-out was increased by $1.8 million in June 2014 in connection with the acquisition of Synchronite and is also recorded in accrued expense on the condensed consolidated balance sheet as of September 30, 2014. The contingent earn-out is based on the fulfillment of a complete product integration and a minimum number of “Co-Browse” interactions per month.

The changes in fair value of the Level 3 liabilities are as follows (amounts in thousands):

	Contingent Earn-Out
	September 30, 2014			December 31, 2013
Balance, Beginning of Period	$	1,660		$	1,660
Synchronite addition (see Note 8)	1,810			—
Cash payment	(500		)	—
Balance, End of Period	$	2,970		$	1,660

XML

Accrued Liabilities

9 Months Ended

Sep. 30, 2014

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued Liabilities

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

	September 30, 2014		December 31, 2013
Payroll and other employee related costs	$	12,310	$	13,090
Professional services and consulting and other vendor fees	9,427		6,769
Sales commissions	2,733		1,778
Contingent earnout (Note 8)	2,970		1,660
Other	2,312		2,122
Total	$	29,752	$	25,419

XML

Acquisitions

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Acquisitions

Acquisitions

Amadesa Ltd.

On May 31, 2012, the Company acquired technology assets from Amadesa, Ltd., an Israeli-based start-up, for aggregate cash consideration of approximately $10.3 million. The acquisition provides the Company with sophisticated, machine-learning predictive modeling that it expects to leverage across multiple engagement channels, enhancing its real-time intelligent engagement platform. The asset was allocated to “Intangibles, net” on the Company’s condensed consolidated balance sheet and is being amortized over its expected period of benefit. The acquisition did not have a material impact on the Company’s reported operating results. Total acquisition costs incurred were approximately $0.5 million and are included in “Intangibles, net” on the Company’s condensed consolidated balance sheet.

LookIO, Inc.

On June 13, 2012, the Company acquired LookIO, Inc., a start-up that provides mobile engagement solutions. The transaction was accounted for under the purchase method of accounting and, accordingly, the operating results of LookIO, Inc. were included in the Company’s consolidated results of operations from the date of acquisition. The acquisition did not have a material impact on the Company’s reported operating results. 

The purchase price was approximately $2.9 million, which included the issuance of 109,517 shares of the Company’s common stock valued at approximately $2.0 million, based on the quoted market price of the Company’s common stock on the day of closing, and a cash payment of $0.9 million. Total acquisition costs incurred were approximately $0.2 million and were included in general and administrative expenses in the Company’s condensed consolidated statements of operations. The acquisition adds plug-and-play mobile engagement capabilities to LivePerson’s platform allowing its customers to connect with consumers on mobile devices. All 109,517 shares are included in the weighted average shares outstanding used in basic and diluted net income (loss) per share as of the acquisition date. The purchase price was allocated based on management’s estimate of fair values, taking into account all relevant information available. A substantial amount of the purchase price was allocated to intangibles (technology) and the excess was allocated to goodwill. The goodwill is not deductible for income tax purposes. The intangible asset is being amortized over its expected period of benefit. In addition to the purchase price, certain founders can earn an additional 30,422 shares of LivePerson common stock by achieving an employment milestone by providing continued services through a specified date, of which 25,961 shares were earned. The Company valued these potential earn-out shares at approximately $0.6 million, based on the quoted market price of the Company’s common stock on the day of closing.

Management’s allocation of the purchase price in connection with the LookIO acquisition is as follows (amounts in thousands):

Intangible assets (technology)	$	767
Goodwill	2,405
	3,172
Deferred tax liability	(288		)
Total purchase price consideration	$	2,884

Engage Pty Ltd.

On November 9, 2012, the Company acquired all outstanding shares of Engage Pty Ltd. (“Engage”), an Australian provider of cloud-based customer contact solutions. The transaction was accounted for under the purchase method of accounting and, accordingly, the operating results of Engage were included in the Company’s consolidated results of operations from the date of acquisition. The acquisition did not have a material impact on the Company’s reported operating results.

The purchase price was approximately $10.6 million. The total acquisition costs incurred in the year ended December 31, 2012 were approximately $0.5 million and are included in general and administrative expenses in the Company’s condensed consolidated statements of operations for the same period. The acquisition enhances the Company’s ability to offer intelligent engagement solutions to businesses in the Asia Pacific region. Of the total purchase price, $0.8 million was allocated to the net book values of the acquired assets and assumed liabilities. The historical carrying amounts of such assets and liabilities approximated their fair values. All receivables acquired are expected to be collectible. The purchase price in excess of the fair value of the net book values of the assets acquired and liabilities assumed was allocated to intangible assets based on management’s best estimate of fair values, taking into account all relevant information available at the time of acquisition, and the excess was allocated to goodwill. The goodwill is not deductible for tax purposes. The intangible assets are being amortized over their expected period of benefit. The purchase price includes approximately $1.6 million of potential earn-out consideration for the shareholders if certain revenue targets are achieved. The earn-out is payable in shares of LivePerson common stock. The Company recorded the contingent earn-out as part of the purchase price. In accordance with ASC 480, the Company has classified this amount as a liability and the amount is included in accrued expenses in the September 30, 2014 balance sheet, due to the variable number of shares that will be issued if and when the targets are achieved. During 2014, the Company paid $0.5 million of the total potential earn-out consideration amount. The Company will assess the earn-out calculation in future periods and any future adjustments will affect operating income.

Management’s preliminary allocation of the purchase price in connection with the Engage acquisition is as follows (amounts in thousands):

Cash	$	386
Accounts receivable	3,454
Other current assets	57
Property and equipment	432
Other assets	104
Intangible assets	3,600
Goodwill	6,152
	14,185
Liabilities assumed	(2,632		)
Deferred tax liability	(962		)
Total purchase price consideration	$	10,591

The components of the intangible assets listed in the above table are as follows (amounts in thousands): 

	Weighted Average Useful Life (Months)	Amount
Technology	36	$	768
Trade-name	12	95
Customer relationships	48	2,661
Non-compete agreements	12	76
		$	3,600

NexGraph LLC

In March 2014, the Company acquired all the outstanding shares of NexGraph LLC (“NexGraph”), a company focused on analytic solutions, in exchange for aggregate cash consideration of $0.5 million. This transaction was accounted for as an asset purchase. The $0.1 million was allocated to Intangibles, net and $0.4 million was allocated to Goodwill.

Synchronite LLC

On June 2, 2014, the Company acquired Synchronite LLC (“Synchronite”), a German based start-up that provides co-browsing technology. The transaction was accounted for under the purchase method of accounting and, accordingly, the operating results of Synchronite were included in the Company’s consolidated results of operations from the date of acquisition. The acquisition did not have a material impact on the Company’s reported operating results.

The allocation of the total purchase price of approximately $4.1 million was based upon the estimated fair value of Synchronite's net tangible and identifiable intangible assets as of the date of acquisition. The total acquisition costs incurred were approximately $0.4 million and are included in general and administrative expenses in the Company’s condensed consolidated statements of operations. Of the total purchase price, $45,000 was allocated to the net book values of the acquired assets and assumed liabilities. The historical carrying amounts of such assets and liabilities approximated their fair values. All receivables acquired are expected to be collectible. The purchase price includes approximately $2.7 million of goodwill and approximately $1.5 million of intangible assets. The goodwill is not deductible for tax purposes. The intangible assets are being amortized over their expected period of benefit. The purchase price includes $1.8 million of potential earn-out consideration for the shareholders if complete product integration is achieved. The earn-out is payable in shares of LivePerson common stock and cash. The Company recorded the contingent earn-out as part of the purchase price. In accordance with ASC 480, the Company has classified this amount as a liability and the amount is included in accrued expenses in the September 30, 2014 condensed consolidated balance sheet, due to the variable number of shares that will be issued if and when the targets are achieved. The Company will assess the earn-out calculation in future periods and any future adjustments will affect operating income.

The components of the intangible assets are as follows (amounts in thousands): 

	Weighted Average Useful Life (Months)	Amount
Technology	120	$	1,082
Trade-name	48	62
Customer relationships	84	247
Non-compete agreements	36	60
		$	1,451

XML

Investments

9 Months Ended

Sep. 30, 2014

Investments, All Other Investments [Abstract]

Investments

Investments

In February 2014, the Company purchased technology licenses and consulting services at fair value from a company in the amount of $3.5 million. The Company will receive access to the company's patents as well as certain consulting services. During the three months ended September 30, 2014, the Company allocated approximately $2.8 million to intangible assets, which is being amortized over the life of the patents. The remaining amount was allocated to other assets.

XML

Segment Information (Revenues Attributable to Domestic and Foreign Operations) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
Segment Reporting Information [Line Items]
Revenue	$ 52,787		$ 45,192		$ 151,702		$ 130,917
United States [Member]
Segment Reporting Information [Line Items]
Revenue	34,409		28,947		99,273		86,553
Other Americas [Member]
Segment Reporting Information [Line Items]
Revenue	2,936	[1]	2,353	[1]	7,259	[1]	6,145	[1]
Americas [Member]
Segment Reporting Information [Line Items]
Revenue	37,345		31,300		106,532		92,698
EMEA [Member]
Segment Reporting Information [Line Items]
Revenue	11,049	[2]	9,600	[2]	32,618	[2]	25,572	[2]
APAC [Member]
Segment Reporting Information [Line Items]
Revenue	$ 4,393	[3]	$ 4,292	[3]	$ 12,552	[3]	$ 12,647	[3]

[1] Canada, Latin America and South America

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

[3] Asia-Pacific (“APAC”)

XML

Stockholders' Equity (Weighted Average Assumptions of Fair Value Options Using Black-Scholes Option-Pricing Model) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield	0.00%	0.00%	0.00%	0.00%
Risk-free interest rate	1.70%	1.40%
Expected life (in years)	5 years	5 years	5 years	5 years
Historical volatility	50.90%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate			1.50%	0.70%
Historical volatility		59.80%	50.90%	56.70%
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate			1.70%	1.40%
Historical volatility		59.90%	53.70%	60.10%

XML

Net Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Reconciliation of Shares Used in Calculating Basic and Diluted Earnings Per Share

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Basic	53,868,124	54,046,161	54,238,536	54,898,974
Effect of assumed exercised options	—	—	—	—
Diluted	53,868,124	54,046,161	54,238,536	54,898,974

XML

Acquisitions (Tables)

9 Months Ended

Sep. 30, 2014

Synchronite, LLC [Member]

Business Acquisition [Line Items]

Components of Intangible Assets

The components of the intangible assets are as follows (amounts in thousands): 

	Weighted Average Useful Life (Months)	Amount
Technology	120	$	1,082
Trade-name	48	62
Customer relationships	84	247
Non-compete agreements	36	60
		$	1,451

Look.io [Member]

Business Acquisition [Line Items]

Purchase Price Preliminary Allocation

Management’s allocation of the purchase price in connection with the LookIO acquisition is as follows (amounts in thousands):

Intangible assets (technology)	$	767
Goodwill	2,405
	3,172
Deferred tax liability	(288		)
Total purchase price consideration	$	2,884

Engage Pty Ltd. [Member]

Business Acquisition [Line Items]

Purchase Price Preliminary Allocation

Management’s preliminary allocation of the purchase price in connection with the Engage acquisition is as follows (amounts in thousands):

Cash	$	386
Accounts receivable	3,454
Other current assets	57
Property and equipment	432
Other assets	104
Intangible assets	3,600
Goodwill	6,152
	14,185
Liabilities assumed	(2,632		)
Deferred tax liability	(962		)
Total purchase price consideration	$	10,591

Components of Intangible Assets

The components of the intangible assets listed in the above table are as follows (amounts in thousands): 

	Weighted Average Useful Life (Months)	Amount
Technology	36	$	768
Trade-name	12	95
Customer relationships	48	2,661
Non-compete agreements	12	76
		$	3,600

XML

Stockholders' Equity (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended			9 Months Ended		9 Months Ended		9 Months Ended			9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Sep. 30, 2014 Incentive Stock Option [Member]	Sep. 30, 2014 1998 Plan [Member] Incentive Stock Option [Member] Maximum [Member]	Sep. 30, 2014 2000 Plan [Member] Incentive Stock Option [Member]	Sep. 30, 2014 1998 and 2000 Plan [Member] Incentive Stock Option [Member]	Sep. 30, 2014 2009 Plan [Member] Incentive Stock Option [Member]	Sep. 30, 2014 2010 Employee Stock Purchase Plan [Member]	Jun. 30, 2010 2010 Employee Stock Purchase Plan [Member]	Sep. 30, 2014 2009 Plan [Member] Incentive Stock Option [Member]	Sep. 30, 2014 2012 Stock Repurchase Program [Member]	Jul. 23, 2014 2012 Stock Repurchase Program [Member]	Mar. 13, 2014 2012 Stock Repurchase Program [Member]	Dec. 10, 2012 2012 Stock Repurchase Program [Member]
Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Common stock, shares authorized	100,000,000		100,000,000		100,000,000
Common stock, shares issued (in shares)	54,584,170		54,584,170		54,484,760
Common stock, shares outstanding (in shares)	54,584,170		54,584,170		54,484,760
Common stock, par value (in dollars per share)	$ 0.001		$ 0.001		$ 0.001
Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract]
Preferred stock, shares authorized	5,000,000		5,000,000		5,000,000
Preferred stock, shares issued (in shares)	0		0		0
Preferred stock, shares outstanding (in shares)	0		0		0
Preferred stock, par value (in dollars per share)	$ 0.001		$ 0.001		$ 0.001
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock repurchase program, authorized amount															$ 50,000,000.0	$ 40,000,000.0	$ 30,000,000.0
Stock repurchased during period, shares														1,195,185
Treasury Stock, Shares	544,396		544,396
Stock repurchase program, remaining authorized repurchase amount														10,300,000
Weighted average fair value of stock options granted	$ 4.57	$ 4.82	$ 4.99	$ 5.25
Dividend yield	0.00%	0.00%	0.00%	0.00%
Shares of common stock available for issuance							5,850,000		10,000,000	13,995,000	582,000	1,000,000	23,817,744
Increase in number of shares of common stock available for issuance								4,150,000		6,000,000			4,250,000
Stock option term			10 years
Total value of stock options exercised			2,500,000
Unrecognized compensation cost related to nonvested share-based compensation arrangements						$ 30,300,000
Weighted average recognition period of unrecognized compensation cost						2 years 9 months

XML

Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Payables and Accruals [Abstract]
Payroll and other employee related costs	$ 12,310	$ 13,090
Professional services and consulting and other vendor fees	9,427	6,769
Sales commissions	2,733	1,778
Contingent earnout (Note 8)	2,970	1,660
Other	2,312	2,122
Total	$ 29,752	$ 25,419

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Net loss	$ (1,140)	$ (730)	$ (3,146)	$ (2,791)
Foreign currency translation adjustment	(387)	358	51	(29)
Comprehensive loss	$ (1,527)	$ (372)	$ (3,095)	$ (2,820)

XML

Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Information

Segment Information

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company is organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment facilitates real-time online interactions – chat, voice and content delivery across multiple channels and screens for global corporations of all sizes. The Consumer segment facilitates online transactions between Experts and Users and sells its services to consumers. Both segments currently generate their revenue primarily in the United States. The chief operating decision makers evaluate performance, make operating decisions, and allocate resources based on the operating income of each segment. The reporting segments follow the same accounting polices used in the preparation of the Company’s condensed consolidated financial statements which are described in the summary of significant accounting policies. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses and income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.

Summarized financial information by segment for the three months ended September 30, 2014, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	43,702	$	—	$	—		$	43,702
Hosted services – Consumer	—		3,992		—			3,992
Professional services	5,093		—		—			5,093
Total revenue	48,795		3,992		—			52,787
Cost of revenue	12,679		625		—			13,304
Sales and marketing	19,488		1,490		—			20,978
Amortization of purchased intangibles	407		—		—			407
Unallocated corporate expenses	—		—		18,499			18,499
Operating income (loss)	$	16,221	$	1,877	$	(18,499	)	$	(401	)

Summarized financial information by segment for the three months ended September 30, 2013, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	38,007	$	—	$	—		$	38,007
Hosted services – Consumer	—		3,828		—			3,828
Professional services	3,357		—		—			3,357
Total revenue	41,364		3,828		—			45,192
Cost of revenue	10,014		583		—			10,597
Sales and marketing	14,664		1,477		—			16,141
Amortization of purchased intangibles	224		—		—			224
Unallocated corporate expenses	—		—		19,531			19,531
Operating income (loss)	$	16,462	$	1,768	$	(19,531	)	$	(1,301	)

Summarized financial information by segment for the nine months ended September 30, 2014, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	125,378	$	—	$	—		$	125,378
Hosted services – Consumer	—		12,441		—			12,441
Professional services	13,883		—		—			13,883
Total revenue	139,261		12,441		—			151,702
Cost of revenue	36,306		1,894		—			38,200
Sales and marketing	55,203		4,246		—			59,449
Amortization of purchased intangibles	803		—		—			803
Unallocated corporate expenses	—		—		56,073			56,073
Operating income (loss)	$	46,949	$	6,301	$	(56,073	)	$	(2,823	)

Summarized financial information by segment for the nine months ended September 30, 2013, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision makers, follows (amounts in thousands):

	Business		Consumer		Corporate			Consolidated
Revenue:
Hosted services – Business	$	110,785	$	—	$	—		$	110,785
Hosted services – Consumer	—		11,223		—			11,223
Professional services	8,909		—		—			8,909
Total revenue	119,694		11,223		—			130,917
Cost of revenue	29,524		1,818		—			31,342
Sales and marketing	42,113		4,005		—			46,118
Amortization of purchased intangibles	672		—		—			672
Unallocated corporate expenses	—		—		56,672			56,672
Operating income (loss)	$	47,385	$	5,400	$	(56,672	)	$	(3,887	)

Geographic Information

The Company is domiciled in the United States and has international operations in the United Kingdom, Asia-Pacific, Latin America and Western Europe, particularly France and Germany. The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented (amounts in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
United States	$	34,409	$	28,947	$	99,273	$	86,553
Other Americas (1)	2,936		2,353		7,259		6,145
Total Americas	37,345		31,300		106,532		92,698
EMEA (2)	11,049		9,600		32,618		25,572
APAC (3)	4,393		4,292		12,552		12,647
Total revenue	$	52,787	$	45,192	$	151,702	$	130,917

⁽¹⁾ Canada, Latin America and South America

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

⁽³⁾ Asia-Pacific (“APAC”)

The following table presents the Company's long-lived assets by geographic region for the periods presented (amounts in thousands):

	September 30,		December 31,
	2014		2013
United States	$	42,066	$	34,422
Israel	19,700		22,580
Australia	8,858		9,827
Netherlands	7,687		3,540
Other (1)	1,661		1,539
Total long-lived assets	$	79,972	$	71,908

⁽¹⁾ United Kingdom, Germany and Japan

No individual customer accounted for 10% or more of consolidated revenue for any of the periods presented. One customer accounted for approximately 22% and 12% of accounts receivable as of September 30, 2014 and December 31, 2013, respectively.

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis

The Company's assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of September 30, 2014 and December 31, 2013, are summarized as follows (amounts in thousands):

	September 30, 2014								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	12,608	$	—	$	—	$	12,608	$	13,674	$	—	$	—	$	13,674
Total assets	$	12,608	$	—	$	—	$	12,608	$	13,674	$	—	$	—	$	13,674
Liabilities:
Contingent earn-out	$	—	$	—	$	2,970	$	2,970	$	—	$	—	$	1,660	$	1,660
Total liabilities	$	—	$	—	$	2,970	$	2,970	$	—	$	—	$	1,660	$	1,660

Change in Fair Value of Level 3 Liabilities

The changes in fair value of the Level 3 liabilities are as follows (amounts in thousands):

	Contingent Earn-Out
	September 30, 2014			December 31, 2013
Balance, Beginning of Period	$	1,660		$	1,660
Synchronite addition (see Note 8)	1,810			—
Cash payment	(500		)	—
Balance, End of Period	$	2,970		$	1,660

XML

Goodwill and Intangible Assets (Summary of Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 29,958	$ 25,565
Accumulated Amortization	(15,938)		(12,477)
Intangibles, net	14,020		13,088
Technology [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	19,615	18,533
Accumulated Amortization	(10,320)		(7,678)
Intangibles, net	9,295		10,855
Weighted Average Amortization Period	4 years 1 month 18 days		3 years 9 months 18 days
Customer relationships [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	5,308	5,061
Accumulated Amortization	(3,658)		(3,148)
Intangibles, net	1,650		1,913
Weighted Average Amortization Period	3 years 8 months		3 years 6 months
Trade names [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	787	725
Accumulated Amortization	(730)		(725)
Intangibles, net	57		0
Weighted Average Amortization Period	2 years 9 months 12 days		2 years 8 months 12 days
Non-compete agreements [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	646	486
Accumulated Amortization	(551)		(486)
Intangibles, net	95		0
Weighted Average Amortization Period	1 year 3 months 12 days		1 year 2 months 12 days
Patents [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,290	475
Accumulated Amortization	(416)		(189)
Intangibles, net	2,874		286
Weighted Average Amortization Period	9 years 11 months		11 years
Other [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	312	285
Accumulated Amortization	(263)		(251)
Intangibles, net	$ 49		$ 34
Weighted Average Amortization Period	3 years		3 years

XML

Description of Business and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

SUMMARY OF OPERATIONS

LivePerson, Inc. (the “Company” or “LivePerson”) was incorporated in the State of Delaware in November 1995 and the LivePerson service was introduced in November 1998. In April 2000, the Company completed an initial public offering and is currently traded on the Nasdaq Global Select Market and the Tel Aviv Stock Exchange. LivePerson is headquartered in New York City with offices in Amsterdam, Atlanta, London, Melbourne, San Francisco, Tokyo and Tel Aviv.

LivePerson provides online engagement solutions offering a cloud-based platform which enables businesses to proactively connect with consumers through chat, voice and content delivery, across multiple channels and screens, including websites, social media, tablets and mobile devices. The Company’s engagements are driven by insights derived from a broad set of consumer and business data, including historical, behavioral, operational, and third party data. Each engagement is based on proprietary analytics and a real-time understanding of consumer needs and business objectives. The Company’s products, coupled with its domain knowledge and industry expertise, have been proven to maximize the effectiveness of the online channel — by increasing sales, as well as consumer satisfaction and loyalty ratings for its customers, while also enabling its customers to reduce consumer service costs.

LivePerson monitors and analyzes valuable online consumer behavioral data on behalf of its customers. Spanning the breadth of an online visitor session, starting from an initial keyword search through actions on their customer’s website, and even into a shopping cart and an executed sale, this data enables the Company to develop unique insights into consumer behavior during specific transactions within a customer’s user base.

The Company’s primary revenue source is from the sale of LivePerson services to businesses of all sizes. The Company also offers an online marketplace that connects independent service providers (“Experts”) who provide information and knowledge for a fee via real-time chat with individual consumers (“Users”).

BASIS OF PRESENTATION

Basis of Presentation

The accompanying condensed consolidated financial statements as of September 30, 2014 and for the three and nine months ended September 30, 2014 and 2013 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 September 30, 2014, and the consolidated results of operations, comprehensive loss and cash flows for the interim periods ended September 30, 2014 and 2013. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at December 31, 2013 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, 2013, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2014.

REVENUE RECOGNITION

Revenue Recognition 

The majority of the Company’s revenue is generated from monthly service revenues and related professional services from the sale of the LivePerson services. Because the Company provides its application as a service, the Company follows the provisions of FASB Accounting Standards Codification (“ASC”) 605-10-S99, “Revenue Recognition” and ASC 605-25, “Revenue Recognition with Multiple-Element Arrangements.” The Company charges a monthly fee, which varies by type of service, the level of customer usage and website traffic, and in some cases, the number of orders placed via the Company’s online engagement solutions.

For certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions. For these Pay for Performance (“PFP”) arrangements, in accordance with ASC 605-45, “Principal Agent Considerations,” the Company records revenue for transactions in which it acts as an agent on a net basis, and revenue for transactions in which it acts as a principal on a gross basis.

The Company also sells certain of the LivePerson services directly via Internet download.  These services are marketed as LiveEngage for small to medium-sized businesses (“SMBs”), and are paid for almost exclusively by credit card.  Credit card payments accelerate cash flow and reduce the Company’s collection risk, subject to the merchant bank's right to hold back cash pending settlement of the transactions.  Sales of LiveEngage may occur with or without the assistance of an online sales representative, rather than through face-to-face or telephone contact that is typically required for traditional direct sales.

The Company recognizes monthly service revenue based upon the fee charged for the LivePerson services, provided that there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed or determinable. The Company’s service agreements typically have twelve month terms and, in some cases, are terminable or may terminate upon 30 to 90 days’ notice without penalty. When professional service fees add value to the customer on a standalone basis, the Company recognizes professional service fees upon completion and customer acceptance in accordance with FASB Accounting Standards Update 2009-13. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) best estimated selling price. If a professional services arrangement does not qualify for separate accounting, the Company recognizes the fees, and the related labor costs, ratably over the contracted period.

For revenue generated from online transactions between Experts and Users, the Company recognizes revenue net of the Expert fees in accordance with ASC 605-45, “Principal Agent Considerations,” due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the User and retains a portion of the fee, and then remits the balance to the Expert. Revenue from these transactions is recognized when there is persuasive evidence of an arrangement, no significant Company obligations remain, collection of the resulting receivable is probable and the amount of fees to be paid is fixed and determinable.

NET LOSS PER SHARE

Net Loss Per Share

The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10 and the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 98. Under ASC 260-10, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period. All options, warrants or other potentially dilutive instruments issued for nominal consideration are required to be included in the calculation of basic and diluted net income attributable to common stockholders. Diluted EPS is calculated using the treasury stock method and reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.

Diluted net loss per common share for the three and nine months ended September 30, 2014 does not include the effect of options to purchase 11,127,640 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the three and nine months ended September 30, 2013 does not include the effect of options to purchase 10,132,045 shares of common stock as the effect of their inclusion is anti-dilutive.

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2014	2013	2014	2013
Basic	53,868,124	54,046,161	54,238,536	54,898,974
Effect of assumed exercised options	—	—	—	—
Diluted	53,868,124	54,046,161	54,238,536	54,898,974

SEGMENT REPORTING

Segment Information

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company is organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment facilitates real-time online interactions – chat, voice and content delivery across multiple channels and screens for global corporations of all sizes. The Consumer segment facilitates online transactions between Experts and Users and sells its services to consumers. Both segments currently generate their revenue primarily in the United States. The chief operating decision makers evaluate performance, make operating decisions, and allocate resources based on the operating income of each segment. The reporting segments follow the same accounting polices used in the preparation of the Company’s condensed consolidated financial statements which are described in the summary of significant accounting policies. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses and income tax expense because management does not use this information to measure performance of the operating segments.

GOODWILL AND INTANGIBLE ASSETS

Amortization expense is calculated on a straight-line basis over the estimated useful life of the asset.

STOCK-BASED COMPENSATION

Stock-Based Compensation

The Company follows FASB ASC 718-10, “Stock Compensation,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.