LivePerson

Our mission is to make life easier 
by transforming how people communicate 
with brands

Our mission is to make life easier 
by transforming how people communicate 
with brands

About LivePerson

LivePerson, Inc. (NASDAQ: LPSN) makes life easier by transforming how people communicate with brands. LiveEngage, the 
Company’s enterprise-class, cloud-based platform, enables businesses and consumers to connect through conversational 
interfaces, such as in-app and mobile messaging, while leveraging bots and Artificial Intelligence(AI) to increase efficiency.

More than 18,000 businesses, including Adobe, Citibank, EE, HSBC, IBM, L'Oreal, Orange, PNC, and The Home Depot employ 
our technology to keep pace with rising customer service expectations and to align with preferences for digital communication 
channels.

LivePerson is headquartered in New York City, with U.S. offices in Alpharetta (Georgia) and Mountain View (CA), and international 
offices in Amsterdam, Berlin, London, Mannheim, Melbourne, Milan, Paris, Ra'anana (Israel), Tel Aviv, Reading (UK), and Tokyo.

Total revenue (in millions)

Annual Revenue per User (in thousands)

$50.9

$54.1

$56.5

$57.4

$60

$40

$20

$200

$205

$215

$220

$225

$150

$75

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2017

Q2 2017

Q3 2017

Q4 2017

PERCENTAGE OF 
CONVERSATIONS ON MESSAGING

20

10

0

2015

2016

2017

20+
AI & BOT
PARTNERS

300M
INTERACTIONS
PER YEAR

981
EMPLOYEES
GLOBALLY

Safe Harbor Statement 
Statements in this report regarding LivePerson that are not historical facts are forward-looking statements and 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, including but not limited to financial 

guidance, 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 quarter and year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which  

we base our expectations may change. Although these expectations may change, we are under no obligation to inform you if they do. Actual events or results 

may differ materially from those contained in the projections or forward-looking statements. Readers are referred to the reports and documents filed by us from 

time to time with the U.S. Securities and Exchange Commission, including the Annual Report on Form 10-K enclosed herein, for a discussion of risks and other  

important factors that could cause actual results to differ from those discussed in the projections or the forward-looking statements.

Dear Fellow Stockholders,

I have been waiting to write this letter for over 20 years. That’s because for the first time since 
the founding of LivePerson, we are in the position to fully realize our vision of making life easier by 
transforming how people communicate with brands. 

We started along this path when we pioneered and then led the desktop chat market, enabling 
leading brands across the globe and their millions of consumers to have conversations in real time 
on the web. This revolutionary jump to digital engagement via chat chipped away at the frustrating 
experience of calling 1-800 numbers, and fueled significant value for our customers in terms of sales 
conversions, agent efficiency and customer satisfaction scores. It was just the warm up act for the 
main event that is now unfolding.

I am talking about the transformational shift to a digital world where consumers can communicate 
with their favorite brands at their convenience through conversational interfaces such as SMS, in 
app messaging or in-home devices like Alexa and Google Home.  By starting with a simple intent, 
like “I want to fly to Florida,” or “pay my bill” or “change my mobile plan,” a seamlessly integrated 
pairing of AI, bots and human agents will guide each consumer through a conversational journey to a 
successful resolution. 

This new paradigm for communicating with brands - what we call Conversational Commerce - 
will completely bypass the disjointed channels we have traditionally traversed such as browsing 
a website and clicking away in hopes of finding something, responding to a marketing email, 
unknowingly reading a fake article on social, and calling a 1-800 number with the hope that we will 
not be stuck waiting on hold to ask a customer service question. 

The emphasis here is on conversational. 

Because one of the primary lessons we learned over our extensive history of powering sales and 
service for more than 18,000 companies, is that humans are more apt to make purchase decisions if 
they can build trust through a series of questions and answers. This is likely one of the key reasons 
the internet never realized its true potential. Conversion rates across websites average less than 
5%, and after more than 20 years, e-commerce still accounts for less than 15% of total retail sales, 
approximately half of which is Amazon in the U.S. It turns out that searching through web pages and 
reading static content does not build the trust consumers intuitively seek in order to buy goods and 
services.

Even more alarming is the discovery that websites appear to have actually escalated costs 
for businesses. Poor website designs, confusion over content, and the lack of conversational 
interfaces often lead consumers to seek alternative channels to resolve their questions. In fact, we 
estimate that between 60%-80% of all calls to contact centers originate from customers visiting a 
brand’s website. The end result is an estimated 268 billion calls to 1-800 numbers each year at an 
astronomical cost of $1.6 trillion; all driving another poor experience for the consumer, who typically 
wastes considerable time on hold.  

It is my hope that conversational commerce, and its ability to intelligently and conveniently satisfy 
the consumer’s need for an ask and answer relationship, will fulfill the dreams that were first 
envisioned at the dawn of the internet. This is why I am so excited about LivePerson’s outlook. As 
leading innovators in digital engagement, we had the foresight several years ago to build LiveEngage, 
a new enterprise-class, cloud-based platform that connects the mobile, digital consumer with 
businesses at scale, conversationally, by leveraging messaging and a blend of AI, bot and human 
interaction. This platform is fueling our growth trajectory.

Just eighteen months since the launch of our first messaging deployment on LiveEngage, 
approximately 100 enterprise customers including American Express, Discover, Hawaiian Airlines, 
HSBC, Lowe’s, RBS, Sky and T-Mobile have already begun powering millions of conversations 
through our platform. Leading global brands across financial services, telecommunications, 
consumer/retail, travel and hospitality, automotive and high tech are changing the game in 
communication, delighting consumers with a superior experience while delivering two times the 
productivity of voice agents. 

Our conviction in the future of conversational commerce grows each day, and I couldn’t be more 
enthusiastic about our outlook. The potential for conversational experiences on messaging, 
powered by AI, bots and humans, is inspiring imaginations across the world, and is galvanizing 
our employees like never before. In fact, it is my belief that conversational commerce will be the 
next great achievement of the digital age, following Google’s success with search and Facebook’s 
accomplishment with social. 

We are focused on accelerating our traction with customers, prospects and partners, and I  
believe we have the technology, the strategy and the leadership to execute on our vision. With 
continued success, LivePerson’s ability to transform how people communicate with brands could 
make us one of the next great technology companies. 

Best regards,

Rob 
Rob@liveperson.com 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2017

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
(State of Incorporation)

13-3861628
(I.R.S. Employer
Identification Number)

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

(212) 609-4200
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock, par value $0.001 per share

Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2017 (the last business day
of the registrant’s most recently completed second fiscal quarter) was approximately $576,609,286 (computed by reference to the last reported
sale price on The Nasdaq Global Select Market on that date). The registrant does not have any non-voting common stock outstanding.

On March 6, 2018, 60,130,524 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the 2017 Annual Meeting of Stockholders, which we plan to file subsequent to

the date hereof, are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.
Item 7.

LIVEPERSON, INC.

2017 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . .
Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services

Item 13.
Item 14.

Item 15.
Item 16.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

i

Page

1

15

39

39

39

40

41

43

47
64
66

101
101
103

104
104

104
104
105

106
106

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

TO

IDENTIFY

INTENDED

STATEMENTS.

FORWARD-LOOKING
INCLUDING, WITHOUT

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. THESE FORWARD-LOOKING
STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS, WHICH MAY NOT PROVE
TO BE ACCURATE. MANY OF THESE STATEMENTS ARE FOUND IN THE “BUSINESS” AND
“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS” SECTIONS OF THIS FORM 10-K. WHEN USED IN THIS FORM
10-K, THE WORDS “ESTIMATES,” “EXPECTS,” “ANTICIPATES,” “PROJECTS,” “PLANS,”
“INTENDS,” “BELIEVES” AND VARIATIONS OF SUCH WORDS OR SIMILAR EXPRESSIONS
ARE
ALL
FORWARD-LOOKING STATEMENTS,
LIMITATION, OUR
EXAMINATION OF HISTORICAL OPERATING TRENDS, ARE BASED UPON OUR CURRENT
EXPECTATIONS AND VARIOUS ASSUMPTIONS. OUR EXPECTATIONS, BELIEFS AND
PROJECTIONS ARE EXPRESSED IN GOOD FAITH, AND WE BELIEVE THERE IS A
REASONABLE BASIS FOR THEM, BUT WE CANNOT ASSURE YOU THAT OUR
EXPECTATIONS, BELIEFS AND PROJECTIONS WILL BE REALIZED. 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 PROGRESS, 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. ACTUAL EVENTS OR RESULTS
MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE PROJECTIONS OR
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE OUR
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING
STATEMENTS WE MAKE IN THIS FORM 10-K ARE SET FORTH IN THIS FORM 10-K,
INCLUDING THE FACTORS DESCRIBED IN THE SECTION ENTITLED “ITEM 1A — RISK
FACTORS.” IF ANY OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR IF ANY OF
OUR UNDERLYING ASSUMPTIONS ARE INCORRECT, OUR ACTUAL RESULTS MAY
DIFFER SIGNIFICANTLY FROM THE RESULTS THAT WE EXPRESS IN OR IMPLY BY ANY
OF OUR FORWARD-LOOKING STATEMENTS. WE DO NOT UNDERTAKE ANY OBLIGATION
TO REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR
CIRCUMSTANCES.

ii

Item 1.

Business

Overview

PART I

LivePerson, Inc. (“LivePerson”, the “Company”, “we” or “our”) makes life easier by transforming how
people communicate with brands. LiveEngage, the Company’s enterprise-class, cloud-based platform,
enables businesses and consumers to connect through conversational interfaces, such as in-app and mobile
messaging, while leveraging bots and Artificial Intelligence (AI) to increase efficiency. As consumers have
lives around the smartphone, messaging apps have become their preferred
reoriented their digital
communication channel to connect with each other. LivePerson allows brands to align with this new
consumer preference, and deploy messaging at scale for customer care, marketing and sales, instead of
requiring that consumers use email or call a 1-800 number.

LiveEngage was designed to securely deploy messaging, coupled with bots and AI, at scale for brands
with tens of millions of customers and many thousands of customer care agents. LiveEngage powers
conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop
web browsers, short message service (SMS), social media and third-party consumer messaging platforms.
Brands can also use LiveEngage to message consumers when they dial a 1-800 number instead of having
them navigate interactive voice response systems (IVR) and wait on hold.

The robust, cloud-based suite of rich mobile messaging and real-time chat offerings features intelligent
routing and capacity mapping, customer sentiment, real-time analytics and reporting, content delivery,
Payment Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. The
platform seamlessly integrates with third-party bots, enabling brands to manage both AI-based agents and
human agents from a single console. More than 18,000 businesses, including Adobe, Citibank, EE, HSBC,
IBM, L’Oreal, Orange, PNC, and The Home Depot employ our technology to keep pace with rising
customer service expectations and to align with preferences for digital communication channels.

According to our internal measures, during 2017, we monitored an average of 2.6 billion visitor
sessions per month across our customers’ websites. LivePerson combines this session data with
conversational transcripts and other historical, behavioral, and operational information to develop insights
into consumer intent and each step of the customer journey, which leads to optimized campaign outcomes
for sales and service transactions.

LivePerson’s products, coupled with our domain knowledge,

industry expertise and professional
services, have been proven to maximize the effectiveness of consumer engagement. Our mobile and online
business messaging solutions deliver measurable return on investment by enabling our customers to:

•

•

•

•

•

•

•

•

increase consumer satisfaction, improve the overall digital experience, and enhance retention and
loyalty, while reducing customer service costs;

lower operating costs in the contact center by deflecting costly phone and email interactions to
messaging, and incorporating agent and consumer-facing bots to further improve agent efficiency;

increase mobile app retention and engagement by providing a connected messaging experience
and turning an app into an engaging support app;

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

accelerate sales cycles,
abandonment by intelligently engaging website visitors;

increase conversion rates,

increase average order value and reduce

leverage spending that drives visitor traffic by increasing visitor conversions;

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

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

1

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

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

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service
was introduced in November 1998. In April 2000, the company completed an initial public offering and is
currently traded on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange. LivePerson is
headquartered in New York City, with U.S. offices in Alpharetta (Georgia) and Mountain View (CA), and
international offices in Amsterdam, Berlin, London, Mannheim, Melbourne, Milan, Paris, Ra’anana
(Israel), Tel Aviv, Reading (UK), and Tokyo.

Market Opportunity

LivePerson’s LiveEngage platform enables intelligent, convenient and secure messaging between brands
and consumers through SMS, mobile apps, IVR deflection, websites, Messenger and other conversational
messaging interfaces. These brand-to-consumer messaging capabilities provide alternative channels of
communication to calling a 1-800 number and empower brands to run business campaigns on their websites
and apps that target reduced costs while increasing customer satisfaction, retention and revenue.

Historically, brands have predominantly promoted calling the 1-800 number or using email as the
primary means of contact with consumers. According to a 2013 IBM report, approximately 270 billion calls
are made to contact centers each year. We believe this practice has created a disconnect with customers, as
digital messaging, which sustains a continuous connection between parties and allows individuals to send
and respond to messages when it suits their need, has surpassed voice as the consumer’s preferred channel
of communication. Gartner, a technology research firm, estimates that the proportion of phone-based
communication will drop from 41% in 2017 to 12% in 2022. In contrast, WhatsApp and Facebook users
combined send more than 60 billion messages a day, and, according to Portio Research, people worldwide
were estimated to send an estimated 23 billion text messages a day in 2015. The International Smartphone
Mobility Report by mobile data tracking firm Infomate found that Americans spend about 26 minutes a
day texting, as compared to six minutes a day on voice calls. A survey by transportation booking app,
Hailo, found that making phone calls has dropped to the sixth most popular use of a mobile device, behind
sending messages, receiving messages, checking email, surfing the Web, and using the alarm clock. The
adoption of messaging has not been constrained to younger generations. According to Experian Marketing
Services, adults 55 and older send and receive an average of nearly 500 text messages a month.

We believe that the challenges with the traditional channel of calling 1-800 numbers are another driver
of the shift to messaging. Roughly 50% of calls to 1-800 numbers go unresolved, according to IBM, and a
2014 Harris Interactive survey found that “81% of all consumers agree that it is frustrating to be tied to a
phone or computer to wait for customer service help.” Research by enterprise analytics firm Mattersight,
reinforces this view, with 74% of consumers feeling that call centers are getting worse or at best staying the
same. The risk of poor customer service is material, according to Harris Interactive, which found that 89%
of consumers will leave and go to a competitor due to bad customer experiences. According to Forrester
Research’s Customer Experience Survey, 73% of US online adults say that valuing their time is the most
important thing a company can do to provide them with good service.

We believe that in order to align with consumer communication preferences, improve the customer
experience and reduce contact center costs, brands will increasingly promote messaging as an alternative to
voice, and that LivePerson will benefit from this communication shift. We believe that messaging has
reached an inflection point, as more brands are expanding beyond voice to embrace text and mobile

2

messaging. Based on internal measurements, LivePerson has powered more than one billion real-time digital
conversations since its founding. In 2016 and 2017, large brands across the globe, such as Foxtel, Hawaiian
Airlines, RBS, Sky and T-Mobile, deployed messaging at scale on LiveEngage through their apps or by
redirecting calls out of their IVRs and into SMS. According to a RingCentral survey, “at least 78% of
consumers who text wish they could have a text conversation with a business.” An Amdocs global consumer
survey had a similar finding, with 76% of consumers stating they would rather use a mobile app than call
the contact center.

Messaging also presents a potential cost savings benefit to brands as compared to voice, as skilled
agents can typically manage multiple text-based conversations simultaneously, but only one voice call at a
time. The ability to enhance human agents with AI and to add bot agents provides additional opportunities
for scale and operating efficiency.

As e-commerce continues to become more mainstream, LivePerson also anticipates stronger demand

for intelligent business campaigns that target consumers with messaging on our customers’ websites.

According to Forrester Research “74% of U.S. and 65% of European online adults now regularly shop
online.” Statista estimates that U.S. online retail sales will nearly double to $638 billion by 2022 from
$360 billion in 2016.

Although brands are investing to capture their share of visitors on the Web, spending to capture sales
from those visitors attracted to their sites has lagged and conversion rates have stagnated. According to an
eConsultancy report, for every $92 spent by retailers to attract a visitor to their website, approximately $1 is
spent on efforts to convert each visitor. We believe that conversion rates can be improved through optimized
on-site engagement, and that this represents an opportunity for our messaging solutions on both desktop
and mobile channels. According to Forrester Research, 53% of customers are likely to abandon their online
purchases if they can’t find quick answers to their questions. LivePerson customers have demonstrated
increases in website sales of greater than 20% and boosts in average order value by as much as 35%, while
lowering the cost of engagement relative to voice or email. A 2013 Customer Service Benchmark by
eDigitalResearch also found that “live chat has the highest satisfaction levels for any customer service
channel, with 73%, compared with 61% for email and 44% for phone.”

These drivers are likely a key factor in the steady uptake of campaign-based messaging. According to a
2017 report published by Allied Market Research, the global live chat software market is projected to grow
to $987 million by 2023, from $590 million in 2016.

We believe that LiveEngage, LivePerson’s enterprise-class, cloud-based platform, will enable
LivePerson to deliver increased value to brands, as the software is purpose-built for AI-assisted and human
powered messaging in mobile and online channels, designed for ease of use, and features robust real-time
reporting, role-based real-time analytics, predictive intelligence, and innovations in customer satisfaction
in concert with our enterprise
and connection measurement. In our view, the LiveEngage platform,
references, best-in-class
footprint, consulting
organization and customer value managers, uniquely positions LivePerson to optimize the effectiveness of
real-time, campaign-based messaging and create a superior alternative to the traditional channel of calling
the 1-800 number.

scalability and security, domain knowledge, global

Strategy

The key elements of LivePerson’s business solutions strategy include:

Strengthening Our Position in both Existing and New Markets and Growing Our Recurring Revenue
Base. LivePerson plans to continue to develop its market position by increasing its customer base, and
expanding within its installed base. We will continue to focus primarily on key target markets: automotive,
financial services, retail, technology, telecommunications, and travel/hospitality within both our enterprise
and mid-market sectors, as well as the small business (SMB) sector. Healthcare, insurance, real estate and
energy utilities are new target industries and natural extensions of our primary target markets. We plan to
leverage our new LiveEngage platform to replace a portion of calls traditionally made to 1-800 numbers
with text and mobile messaging, and to increase adoption of real-time, campaign-based messaging across

3

our customer’s online properties. We intend to collaborate with our large installed customer base to
optimize the value and effectiveness that brands derive from our services. We are also focused on
strengthening our recurring revenue stream by signing larger, long-term, and more strategic deals.

One of the key ways we are developing our market position is by hosting customer summits for
executive level attendees from our targeted enterprise customer base and prospects. These customer
summits feature existing customers that have demonstrated strong success with messaging and bots on
LiveEngage. We believe that scaled reference customers advocating the adoption of messaging on
LiveEngage to targeted peer groups will be a key driver of our growth. In 2017 we increased the pacing and
scale of these summits, a pattern that we expect to continue in 2018.

Fuel Increased Usage by Expanding Messaging Channels, Use Cases and Interaction Types. LiveEngage
currently supports numerous messaging endpoints, including branded mobile apps, mobile and desktop web
browsers, IVRs, SMS, Facebook Messenger and LINE. We intend to increase the number of endpoints
supported by the LiveEngage platform to include additional third-party social apps and device-based systems.
We also intend to broaden the use cases of LiveEngage across our customer base, to support care, sales,
marketing and retail footprints. In addition, LivePerson continues to expand the breadth of interaction types
available to customers on the platform. For example, in addition to our broad suite of messaging and real-time
chat technologies, customers have access to content delivery, analytics, cobrowse, and PCI compliance, as well
as proprietary and third-party bot offerings. LivePerson offers a platform pricing model, which provides
businesses access to our entire suite of messaging technologies across their entire agent pool for a
pre-negotiated cost per interaction. We believe this model will lead to growth opportunities for LivePerson as
customers adopt new messaging channels, use cases and interaction types.

Leverage Partners to Enhance our Offering.

In addition to developing our own applications, we
continue to cultivate a partner eco-system capable of offering additional applications and services to our
customers. For example, in 2015, we integrated LiveEngage with one of the leading consumer messaging
platforms. In 2016, we integrated LiveEngage with one of the leading mobile search ad extensions, enabling
consumers to initiate SMS messaging conversations with brands directly out of their mobile search results.
In 2017, we launched the LiveEngage for Bots program and we have subsequently integrated LiveEngage
with multiple artificial intelligence/bots vendors, including IBM Watson.

Our offering is vendor agnostic, empowering our customers to manage a mix of different bots, human
agents and technologies from one control panel, thereby optimizing contact center efficiency. LivePersons’
proprietary and third-party AI/bots enable brands to partially or fully automate communications with their
customers. In addition, we have opened up access to our platform and our products with application
programming interfaces (APIs) that allow third parties to develop on top of our platform. Customers and
partners can utilize these APIs to build our capabilities into their own applications and to enhance our
applications with their services. In 2017, we allocated additional resources to supporting partners and we
expect this investment to increase as our partner network expands.

Maintaining Market Leadership in Technology and Security Expertise. As described above, we are
devoting significant resources to creating new products and enabling technologies designed to accelerate
innovation. In order to better support our customers and to attract the best talent, LivePerson is globalizing
research and development. We now have tech centers in Israel; Mannheim, Germany; New York; Atlanta;
and Mountain View, California. We evaluate emerging technologies and industry standards and continually
update our technology in order to retain our leadership position in each market we serve. We monitor legal
and technological developments in the area of information security and confidentiality to ensure our
the world’s largest and most demanding
policies and procedures meet or exceed the demands of
corporations. We believe that these efforts will allow us to effectively anticipate changing customer and
consumer requirements in our rapidly evolving industry.

International Presence. LivePerson is focused on expanding its international revenue contribution,
which increased to 37% of total revenue in 2017, from 34% in 2016 and 33% in 2015. LivePerson generated
positive results from previous investments in direct sales and services personnel in the United Kingdom and
Western Europe. We also continued to focus on expanding our presence in the Asia Pacific region,
leveraging our relationships with partners.

4

Continuing to Build Brand Recognition. As a pioneer of brand-to-consumer digital messaging,
LivePerson enjoys strong brand recognition and credibility. We continue to develop relationships with the
media, industry analysts and relevant business associations to enhance awareness of our leadership within
the care, sales, tech and marketing industries. With a vision of becoming the leader in messaging, we’ve
hosted several private executive events for our customers and prospects, highlighting our expertise and the
breadth of our services. These private executive events have led us to close several high-profile deals and we
are continuing them throughout 2018. Our focus on connecting large enterprise businesses and their
millions of consumers securely and at scale is a primary differentiator for LivePerson and a key component
of our marketing strategy. We strategically target decision makers and influencers within several key vertical
markets, leveraging customer successes to generate increased awareness and demand for brand-to-consumer
messaging. In addition, our brand name may also be visible to both business users and consumers on a
brand’s website, within the dialog messaging window. We also engage in digital marketing campaigns that
promote our brand on web searches and third-party sites.

Increasing the Value of Our Service to Our Customers. Leveraging LiveEngage to shift
communication between consumers and brands from 1-800 number calls to AI and human-powered
messaging is the most important initiative in LivePerson’s history. We believe that adoption of LiveEngage
will align brands with consumer communication preferences, improve the customer experience and reduce
contact center costs. Our platform strategy makes available the full suite of LivePerson’s capabilities
through a single solution. In addition, the open architecture of LiveEngage will enable LivePerson to
rapidly add new capabilities either directly or through partners. For example, we see opportunities for
additional efficiencies in the contact center through the integration of artificial intelligence and bots.
Because we directly manage the server infrastructure, we can make new features available to our customers
immediately upon release, without customer or end-user installation of software or hardware. Our strategy
is to continue to enhance the LiveEngage messaging platform and to leverage the substantial amount of
mobile and online consumer data we collect, with the aim of increasing agent efficiency, decreasing
customer care costs, improving the customer experience and increasing customer lifetime value.

Evaluating Strategic Alliances and Acquisitions When Appropriate. We have successfully integrated
several acquisitions over the past decade. While we have in the past, and may from time to time in the
future, engage in discussions regarding acquisitions or strategic transactions or to acquire other companies
that can accelerate our growth or broaden our product offerings, we currently have no binding
commitments with respect to any future acquisitions or strategic transactions.

Products and Services

LivePerson’s hosted platforms power intelligent messaging on mobile apps, mobile and desktop web
browsers, SMS, social media and third-party consumer messaging platforms. Our business-to-business
services are all managed from a single user interface. By supplying a complete, unified consumer view, our
solutions enable businesses to deliver a relevant, timely, personalized, and seamless consumer experience for
heads of digital and customer care, as well as e-commerce, marketing, and contact center executives. In
addition to product offerings, LivePerson provides professional services and value-added business
consulting to support complete deployment and optimization of our enterprise solutions.

LiveEngage. LiveEngage, LivePerson’s enterprise-class, cloud-based platform, enables businesses and
consumers to connect through conversational interfaces, such as in-app and mobile messaging, while
leveraging bots and AI to increase efficiency. The platform, which was designed for heads of digital and
customer care, as well as e-commerce, marketing, and contact center executives, combines sophisticated
mobile and online engagement technology with robust business intelligence and big data to produce
compelling, measurable results by intelligently engaging consumers based on a real-time understanding of
consumer needs. Rich, contextually aware targeting, actionable insights and personalized experiences,
empower businesses to get the most out of their existing online, mobile and social platforms. Potential
benefits of LiveEngage include increased agent efficiency, decreased customer care costs,
improved
customer experiences, higher conversion rates and increased customer lifetime value.

LiveEngage was designed to securely deploy messaging, coupled with bots and AI, at scale for brands
with tens of millions of customers and many thousands of customer care agents. LiveEngage powers
conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop

5

web browsers, SMS, social media and third-party consumer messaging platforms. The robust, cloud-based
suite of rich mobile messaging and real-time chat offerings, features intelligent routing and capacity
mapping, customer sentiment, real-time analytics and reporting, content delivery, PCI compliance,
cobrowsing and a sophisticated proactive targeting engine. The platform seamlessly integrates with
third-party bots, enabling brands to manage both AI-based agents and human agents from a single console.
A specific messaging software development kit is available to completely customize and incorporate into
any brand’s app. The LiveEngage messaging API also provides the option to bring messaging from any
third party apps, such as Facebook or text messages, directly into the LiveEngage platform.

LiveEngage enables the combination of real time on-site data and off-site behavioral data, with a broad
set of historical and operational data. Proprietary analytics utilize this data to target end users with
compelling engagement options at any step in the conversion funnel and throughout the customer lifecycle.
LiveEngage enables customers to maximize online revenue opportunities, improve conversion rates and
reduce shopping cart abandonment by proactively engaging the right visitor, using the right channel, at the
right time. Our solution identifies segments of website visitors who demonstrate the highest propensity to
convert, and engages them in real-time with relevant content and offers, helping to generate incremental
sales. LiveEngage also reduces costs in the contact center relative to voice, by identifying consumers who
may be struggling with their self-help experience, and proactively connecting them to a live consumer care
specialist via messaging, who can manage several conversations at once. This comprehensive solution blends
a proven value-based methodology with an active rules-based engagement engine and deep domain
expertise to increase first contact resolution, improve consumer satisfaction, and reduce attrition rates.

Professional Services. The mission of our Professional Services team is to help customers optimize
the performance of our products in order to drive incremental value through their online sales and/or
service channel(s). This talented group utilizes their deep domain expertise and years of hands-on
experience to provide customers with detailed analyses and measurements of their LivePerson deployment
that drive strategies and decisions on how to optimize mobile and online messaging, real-time chat, and bot
and AI integration. Deliverables of the team include scorecards that measure and chart performance trends,
analyses and recommendations for web design and process improvement, transcript reviews to discover
both voice of the consumer insight and agent improvement opportunities, custom training of call center
agents and management, conversational design, and ongoing management of messaging programs to ensure
alignment with current business practices and objectives. The team’s value-added methodology and
approach to guiding customers towards messaging channel and human/bot agent optimization is an
important component of the LivePerson offering, and gives our customers a competitive advantage in the
digital world.

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

Customers

More than 18,000 customers have deployed our business solutions, including Fortune 500 companies,
dedicated Internet businesses, a broad range of online merchants, as well as numerous SMBs, automotive
dealers, universities, libraries, government agencies and not-for-profit organizations. Our solutions benefit
organizations of all sizes conducting business or communicating with consumers through mobile and
online. We plan to continue to focus on key target markets: automotive, financial services, retail, technology,
telecommunications, and travel/hospitality industries, within the United States and Canada, Latin America,
Europe and the Asia-Pacific region.

No single customer accounted for or exceeded 10% of our total revenue in 2017, 2016 or 2015.

Sales and Marketing

Sales

We sell our business products and services by leveraging a common methodology through both direct

and indirect sales channels.

6

Our sales process focuses on how our solutions and industry expertise deliver financial and operational
value that support our customers’ strategic initiatives. Our mobile and online messaging solutions are
targeted at business executives whose primary responsibility is optimization of customer care, sales and
marketing, or optimizing a consumer’s journey across the brand’s digital properties. Our solutions enable
organizations to provide effective customer service by deflecting costly phone calls and emails to the more
cost efficient mobile and online messaging channel. We focus on the value that our solutions deliver in the
form of increased agent efficiency, reduced contact center costs, increased customer satisfaction, improved
customer lifetime value, maximized digital consumer acquisition, and optimized website and mobile
business outcomes. LivePerson supports any organization with a company-wide strategic initiative to
improve the overall mobile and online consumer experience.

Within the business solutions segment we have aligned our field organization to address the different

sales strategies of our target markets:

Enterprise and large mid-market. We target large mid-market and enterprise businesses primarily with
direct sales and customer success teams. Across the globe we are targeting a select group of brands, many of
them already customers, that hold the power to transform customer care. These enterprises have thousands
of agents in their contact centers and collectively connect with billions of consumers each year. We leverage
thought leadership and related events to showcase our leadership in mobile and online messaging and
highlight our successes with existing reference customers. Increasingly, we are also working with large
third-party system integrators, technology providers and business process outsourcers to supplement our
direct sales effort.

For our large and more complex customers, our sales methodology often begins with research and
discovery meetings that enable us to develop a deep understanding of
the value drivers and key
performance metrics of a prospective customer. We then present an analytical review detailing how our
solutions and industry expertise can affect these value drivers and metrics. Once we validate solution
capabilities and prove financial return on investment, we transition to a program management model
wherein we work hand-in-hand with the customer, providing detailed analysis, measurements and
recommendations that help optimize their performance and ensure ongoing program success.

Small business and small mid-market. We target small business and small mid-market customers with
a mix of direct, online self-service and third-party partner channels. Our customer acquisition strategy
centers on leveraging customer word-of-mouth, our leading brand name, online marketing and
partnerships. We also leverage marketing programs and partner resources to promote increased usage and
product adoption within these customers.

Indirect Sales. Resources within our organization are focused on developing partnerships to generate
revenues via referral partnerships and indirect sales through channel partners. By maximizing market
coverage via partners who provide lead referrals and complementary products and services, we believe this
channel supports revenue opportunities without incurring the costs associated with traditional direct sales.

Customer Support

Our Professional Services group provides deployment support and ongoing business consulting to
enterprise and mid-market customers and maintains involvement throughout the engagement lifecycle. All
LivePerson customers have access to 24/7 help desk services through messaging, chat, and technical support
ticketing.

Marketing

Our marketing efforts in support of our business operations are organized around the needs, trends
and characteristics of our existing and prospective customer base. Our deep relationship with existing
customers fosters continuous feedback and critical data analysis, thereby allowing us to develop and refine
marketing programs that drive adoption across multiple customer segments. We have a global team, spread
across key geographies that is focused on marketing our brand, products and services to executives
responsible for the digital channel and consumer service operations of their organization.

7

Our main focus is on the automotive, financial services, retail, technology, telecommunications, and
travel/hospitality industries. Our integrated marketing strategy is focused on driving demand, building
customer and consumer advocacy, driving adoption of our LiveEngage platform, and supporting key areas
of business, especially large enterprise, but also including mid-sized and small business, the channel and
international entities. We aim to achieve this by delivering high-touch, small group events for senior
executives, to educate them on messaging and the transformational ways that digital communication can
help their business. We also market our software via high-level thought leadership campaigns, industry
event participation, personalized lead generation campaigns to reach potential and existing customers using
mediums such as paid and organic search, direct email and mail, industry- and category-specific tradeshows
and events, and telemarketing.

Our marketing strategy also encompasses a strategic communications approach that integrates public
relations, social media, and analyst/influencer relations. We are focused on using those channels to
communicate our brand value, to those key stakeholders, to increase overall brand and technology
awareness. Communications seek to highlight key customer success stories, and promote executive thought
leadership via contributed content, speaking opportunities and press interviews, to raise LivePerson’s
profile and reinforce our position as an industry leader.

Competition

The markets for mobile and online business messaging, and digital engagement technology are
intensely competitive, rapidly changing and characterized by aggressive marketing, pricing pressure,
evolving industry standards, rapid technology developments and frequent new product introductions. We
believe that competition will continue to increase as our current competitors increase the sophistication of
their offerings and as new participants enter the market, which may cause additional pricing pressure. If we
are unable to accurately anticipate technology developments and continue to innovate in the markets in
which we compete, or our competitors are more successful than us at developing compelling new products
and services or at attracting and retaining customers, we may lose revenue and market share and our
operating results could be adversely affected.

We have current and potential competition from providers of messaging and digital engagement
solutions that enable companies to engage and connect with their consumer customers, as well as
technology providers that offer customer relationship management and contact center solutions. We have
current and potential competitors in many different industries, including:

•

•

•

•

•

technology or service providers offering or powering competing digital engagement, contact
center, communications or customer relationship management solutions such as, eGain, Genesys,
Nuance, Oracle, Salesforce.com and Twilio;

service providers that offer basic messaging products or services with limited functionality free of
charge or at significantly reduced entry level prices;

social media, social listening, messaging, artificial intelligence, bots, e-commerce, and/or data and
data analytics companies, such as Facebook, Google, and WeChat, which may leverage their
existing or future capabilities and consumer relationships to offer competing B2B solutions;

customers that develop and manage their messaging solutions in-house; and

companies that provide cross-category and vertical-specific advice, such as About.com, UpWork
and Yahoo Answers.

In addition, many of our current and potential competitors have substantial competitive advantages,
such as greater brand recognition, significantly larger financial, marketing, and resource and development
budgets, access to larger customer and/or consumer bases, larger and more established marketing and
distribution relationships, and/or more diverse product and service offerings. As a result, these competitors
may be able to respond more quickly and effectively than we can to any change in the general market
acceptance of messaging services or any new or changing opportunities, technologies, standards, pricing
strategies or customer requirements. Also, because of these advantages, potential customers may select a
competitor’s products and services, even if our services are more effective. For all of these reasons, we may
not be able to compete successfully against our current and future competitors.

8

Technology

Three key technological features distinguish the LivePerson services:

• We support our customers through a secure, scalable server infrastructure. In North America, our
primary servers are hosted in a fully-secured, top-tier, third-party server center located in the
Mid-Atlantic United States, and are supported by a top-tier backup server facility located in the
Western United States. In Europe, our primary servers are hosted in a fully-secured, top-tier,
third-party server center located in the United Kingdom and are supported by a top-tier backup
server facility located in The Netherlands. In the Asia Pacific region, our primary and backup
servers are hosted in fully-secured, top-tier, third-party server centers located in Australia. Nearly
all of our larger customers outside of
the United States are hosted within our UK- and
Australia-based facilities. By managing our servers directly, we maintain greater flexibility and
control over the production environment allowing us to be responsive to customer needs and to
continue to provide a superior level of service. Utilizing advanced network infrastructure and
protocols, our network, hardware and software are designed to accommodate our customers’
demand for secure, high-quality 24/7 service, including during peak times such as the holiday
shopping season.

•

•

As a hosted service, we are able to add additional capacity and new features quickly and
efficiently. This has enabled us to provide these benefits simultaneously to our entire customer
base. In addition, it allows us to maintain a relatively short development and implementation
cycle.

As a SaaS provider, we focus on the development of tightly integrated software design and
network architecture. We dedicate significant resources to designing our software and network
architecture based on the fundamental principles of security, reliability and scalability.

Software Design. Our software design is based on client-server architecture. As a SaaS provider,
LiveEngage customers and visitors to our customers’ websites require only a standard Web browser and do
not need to download software from LivePerson in order to interact with our customers’ operators or to use
the LivePerson services. We also provide APIs that enable our customers and third-parties to integrate
LiveEngage with custom designed applications.

Network Architecture. The software underlying our services is integrated with scalable and reliable
network architecture. Our network is scalable; we do not need to add new hardware or network capacity for
each new LivePerson customer. This network architecture is hosted in co-location facilities with redundant
network connections, servers and other infrastructure, enabling superior availability. Our backup server
infrastructure housed at separate locations provides our primary hosting facilities with effective disaster
recovery capability. We maintain the highest level of compliance with standards such as SOC2 and PCI. For
through a multi-layered approach, we use advanced firewall architecture and
increased security,
industry-leading encryption standards and employ third-party experts to further validate our systems’
security. We also enable our customers to further encrypt their sensitive data using more advanced
encryption algorithms.

Government Regulation

We and our customers are subject to a number of laws and regulations in the United States and
abroad, including laws related to conducting business on the Internet, such as laws regarding privacy, data
protection, information security, cybersecurity, restrictions or technological requirements regarding the
collection, use, storage, protection or transfer of consumer data, content, consumer protection, internet (or
net) neutrality, advertising, electronic contracts, taxation, provision of online payment services (including
credit card processing), and intellectual property rights, which are continuously evolving and developing.
Because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required
to comply with their laws, even if we don’t have a local entity, employees or infrastructure. Often, foreign
data protection, privacy, and other laws and regulations are more restrictive than those in the United States.
The scope and interpretation of the laws and other obligations that apply to us, including those related to
user privacy and data security, are often uncertain and may be conflicting, particularly laws and obligations

9

outside the United States. There is a risk that these laws may be interpreted and applied differently in any
given jurisdiction in a manner that is not consistent with our current practices, which could cause us to
incur substantial cost and could negatively impact our brand, reputation and business.

U.S. and international privacy laws and regulations are evolving and changing, are subject to differing
interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions
or conflict with other rules. As we expand our operations in these countries, our liability exposure and the
complexity and cost of compliance with data and privacy requirements will likely increase. Any failure by
us to comply with our posted privacy policies, applicable federal, state or international privacy-related or
data protection laws and regulations, or the privacy commitments contained in our contracts, could result
in proceedings against us by governmental entities, customers, consumers, watchdog groups or others,
which could have a material adverse effect on our business, financial condition and results of operations. In
addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals
could harm our reputation or otherwise impact the growth of our business.

Laws and practices regarding handling and use of personal and other information by companies have
come under increased public scrutiny, and governmental entities, consumer agencies and consumer
advocacy groups have called for increased regulation and changes in industry practices. For example, in
December 2015, following the conclusion of the “trilogue” meetings between the European Parliament, the
Council of the European Union, and the European Commission, an agreement was announced with respect
to a new EU data protection framework, the General Data Protection Regulation (“GDPR”), which will
become effective in May 2018 and will apply across the European Union. The GDPR will replace the
impose significantly greater compliance burdens on
current EU Data Protection Directive and will
companies with users and/or operations in the European Union and provides for considerable fines up to
the higher of 20 million Euros and 4% of global annual revenue for noncompliance. One material change is
that data processors (as that term is defined by applicable EU data protection law) have direct obligations,
including implementing technical and organizational measures, and enhanced notification rules. The GDPR
also imposes certain technological requirements that may require us to make changes to our services to
enable LivePerson and/or our customers to meet the new legal requirements and may impact how data
protection is addressed in our customer and vendor agreements. The European Union has also released a
proposed Regulation on Privacy and Electronic Communications (e-Privacy Regulation) to replace the EU’s
current Privacy and Electronic Communications Directive (e-Privacy Directive) to, among other things,
better align with the GDPR, to amend the current e-Privacy Directive’s rules on the use of cookies and
other tracking technologies, and to harmonize across current EU member state e-privacy data protection
laws. Compliance with changes in laws and regulations related to privacy may require significant cost, limit
the use and adoption of our services, and require material changes in our business practices that result in
reduced revenue. Noncompliance could result in material fines and penalties or governmental orders
requiring us to change our data practices, which could damage our reputation and harm our business.

Additionally, as Internet commerce continues to evolve, regulation by federal, state and foreign
governments or agencies in the areas of data privacy and data security is likely to increase. For instance, the
EU-US Safe Harbor program (“EU Safe Harbor”), which provided a valid legal basis for transfers of
personal data from Europe to the United States, was invalidated on October 6, 2015, which has had a
significant impact on the transfer of data from the European Union to U.S. companies, including us. In
July 2016, the European Union and the United States agreed to a new framework called the EU-US Privacy
Shield (“EU Privacy Shield”) that provides a mechanism for companies to transfer data from EU member
states to the United States and that LivePerson certified to in September 2016. Similarly, a new Swiss-U.S.
Privacy Shield (“Swiss Privacy Shield”) was announced in January 2017 that replaces the former Swiss-U.S.
Safe Harbor (“Swiss Safe Harbor”). The new EU Privacy Shield requirements could impact our business
and result in substantial expense and require changes to our operations, and the EU Privacy Shield is
subject to an annual review that could result in changes to our obligations. We may also have to require
some of our vendors who process personal data to take on additional privacy and security obligations, and
some may refuse, causing us to incur potential disruption and expense related to our business processes. If
our policies and practices, or those of our vendors, are, or are perceived to be, insufficient or if our

10

members and customers have concerns regarding the transfer of data from the European Union to the
United States, we could be subject to enforcement actions or investigations by EU Data Protection
Authorities or lawsuits by private parties, member engagement could decline and our business could be
negatively impacted.

The EU Privacy Shield and other frameworks may be challenged by regulators and/or private parties
and reviewed by the European courts, which may lead to uncertainty about the legal basis for data transfers
outside the EU. Ongoing legal reviews may result in burdensome or inconsistent requirements affecting the
location and movement of our customer and internal employee data as well as the management of that
data. Compliance may require changes in services, business practices, or internal systems that result in
increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based
firms. Failure to comply with existing or new rules may result in significant penalties or orders to stop the
alleged noncompliant activity.

While there are other legally recognized mechanisms, such as standard Model Contractual Clauses,
that we believe allow for the lawful transfer of EU personal data to the United States these mechanisms
have also been subjected to regulatory or judicial scrutiny and may be invalidated or evolve to include new
legal requirements that could have an impact on how we move data between and among countries and
regions in which we operate, which could affect how we provide our services or adversely impact our
financial results.

In addition to government activity, privacy advocacy and other industry groups have established or
may establish new self-regulatory standards that may place additional burdens on us. If our privacy
practices are deemed unacceptable by watchdog groups or privacy advocates, such groups may take
measures that harm our business by, for example, disparaging our reputation and our business, which may
have a material adverse effect on our results of operations and financial condition. In addition, privacy
concerns may cause Internet users to avoid online sites that collect various forms of data or to resist
providing the data necessary to allow our customers to use our services effectively. Even the perception of
security and privacy concerns, whether or not valid, could inhibit sales and market acceptance of our
products and services.

Businesses using our products and services may collect data from their website users. Various federal,
state and foreign government bodies and agencies impose laws regarding collection, use and retention of
data from website visitors. We offer our customers a variety of data security procedures and practices, such
as encryption for data at rest and masking algorithms for sensitive data prior to transfer to our database, in
an effort to protect information. Changes to applicable laws and how they are interpreted relating to data
security and other consumer protection areas could significantly increase the cost to us and our customers
of regulatory compliance and could negatively impact our business.

For instance, some states in the United States have enacted legislation designed to protect consumer
privacy by prohibiting the distribution of “spyware” over the Internet. Such legislation typically focuses on
restricting the proliferation of software that, when installed on an end user’s computer,
is used to
intentionally and deceptively take control of the end user’s machine. We do not believe that the data
monitoring methods that we employ constitute “spyware” or are prohibited by applicable laws. However,
federal, state and foreign laws and regulations, many of which can be enforced by government entities or
private parties, are constantly evolving and can be subject to significant changes in application and
interpretation. If, for example, the scope of the previously mentioned “spyware” legislation were changed to
include web analytics, such legislation could apply to the technology we use and potentially restrict our
ability to conduct our business.

In addition, regulatory authorities and governments around the world are considering a number of
legislative and regulatory proposals concerning privacy, collection and use of website visitor data, data
storage, data protection, the “right to be forgotten,” content regulation, cybersecurity, government access to
personal information, online advertising, email and other categories of electronic spam, and other matters
that may be applicable to our business. Compliance with these laws may require substantial investment or
may be technologically challenging for us. For example, some jurisdictions, including the United States, are
considering whether the collection of anonymous data may invade the privacy of website visitors. If laws or
regulations are enacted that limit data collection or use practices related to anonymous data, we and/or our

11

customers may be required to obtain the express consent of web visitors in order for our technology to
perform certain basic functions that are based on the collection and use of technical data. Requirements
that a website must first obtain consent from its web visitors before using our technology could reduce the
amount and value of the services we provide to customers, which might impede sales and/or cause some
existing customers to discontinue using our services.

It is also likely that, as our business grows and evolves, an increasing portion of our business shifts to
mobile, and our solutions are offered and used in a greater number of countries, we will become subject to
laws and regulations in additional jurisdictions. We could need to expend considerable effort and resources
to develop new product features and/or procedures to comply with any such legal requirements. It is
difficult to predict how existing laws will apply to our business and what new laws and legal obligations we
may become subject to. If we are not able to comply with these laws or other legal obligations, or if we
become liable under them, we may be forced to implement material changes to our business practices, delay
release of new and enhanced services and expend substantial resources, which would negatively affect our
business, financial condition and results of operations. In addition, any increased attention focused on
liability issues, or as a result of regulatory fines or lawsuits, could harm our reputation or otherwise impact
the growth of our business. Any costs incurred as a result of this potential liability could harm our business
and operating results.

The Company monitors pending legislation and regulatory initiatives to ascertain relevance, analyze
impact and develop strategic direction surrounding regulatory trends and developments. Due to shifting
economic and political conditions, tax policies or rates in various jurisdictions may be subject to significant
change. A range of other proposed or existing laws and new interpretations of existing laws could have an
impact on our business. For example:

Government agencies and regulators have reviewed, are reviewing and will continue to review, the
personal data handling practices of companies doing business online, including privacy and security policies
and practices. This review may result in new laws or the promulgation of new regulations or guidelines that
may apply to our products and services. For example, the State of California and other states have passed
laws relating to disclosure of companies’ practices with regard to Do-Not-Track signals from Internet
browsers, the ability to delete information of minors, and new data breach notification requirements.
California has also adopted privacy guidelines with respect to mobile applications. Outside the European
Union and the United States, a number of countries have adopted or are considering privacy laws and
regulations that may result in significant greater compliance burdens. Existing and proposed laws and
regulations regarding cybersecurity and monitoring of online behavioral data, such as the proposed “Do
Not Track” regulations, regulations aimed at restricting certain targeted advertising practices and collection
and use of data from mobile devices, and other proposed online privacy legislation could potentially apply
to some of our current or planned products and services. Existing and proposed laws and regulations
related to email and other categories of electronic spam could impact the delivery of commercial email and
other electronic communications by us or on behalf of customers using our services.

The U.S. Federal Trade Commission, or FTC, in particular has aggressively investigated and brought
enforcement actions against companies that fail to comply with their privacy or data security commitments
to consumers, or fail to comply with regulations or statutes such as the Children’s Online Privacy Protection
Act. Any investigation or review of our practices may require us to make changes to our products and
policies, which could harm our business. Currently there are many proposals by lawmakers and industry
groups in this area, both in the United States and overseas, which address the collection, maintenance and
use of personal information, web browsing and geolocation data, and establish data security and breach
notification requirements. Further, regulators and industry groups have also released self-regulatory
principles and guidelines for various data privacy and security practices. Given that this is an evolving and
unsettled area of
the imposition of any new significant restrictions or technological
requirements could have a negative impact on our business.

regulation,

We might unintentionally violate such laws now and in the future; such laws or their interpretation or
application may be modified; and new laws may be enacted in the future. Any such developments could
subject us to legal liability exposure, and harm our business, operating results and financial condition.

12

Intellectual Property and Proprietary Rights

We rely on a combination of patent, copyright, trade secret, trademark and other common law
protections in the United States and other jurisdictions, as well as confidentiality requirements and
contractual provisions, to protect our proprietary technology, processes and other intellectual property. We
own a portfolio of patents and patent applications in the United States and internationally and regularly
file patent applications to protect intellectual property that we believe is important to our business,
including intellectual property related to digital engagement technology and web and mobile based
consumer-facing services. We believe the duration of our patents is adequate relative to the expected lives of
our products and services. We pursue the registration of our domain names, trademarks and trade names in
the United States and in certain locations outside the United States. We also own copyrights, including in
our software, publications and other documents authored by us. These intellectual property rights are
important to our business and marketing efforts. We seek to protect our intellectual property rights by
relying on federal, state, and common law rights, including registration, or otherwise in the United States
and certain foreign jurisdictions, as well as contractual restrictions. However, we believe that factors such as
the technological and creative skills of our personnel, new service developments, frequent enhancements
and reliable maintenance are more essential to establishing and maintaining a competitive advantage.
Others may develop technologies that are similar or superior to our technology. We enter into
confidentiality and other written agreements (including invention assignment agreements) with our
employees, consultants, customers, potential customers, strategic partners, and other third parties, and
through these and other written agreements, we attempt to control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts to protect our proprietary
rights, third parties may, in an unauthorized manner, attempt to use, copy or otherwise obtain and market
or distribute our intellectual property rights or technology or otherwise develop a service with the same
functionality as our services. Policing unauthorized use of our services and intellectual property rights is
difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our
technology or intellectual property rights, particularly in foreign countries where we do business, where our
services are sold or used, where the laws may not protect proprietary rights as fully as do the laws of the
United States or where enforcement of laws protecting proprietary rights is not common or effective.

Substantial litigation regarding intellectual property rights exists in the software industry. In the
ordinary course of our business, our services and/or our customers’ use of our services have been and may
be increasingly subject to third-party infringement claims as claims by non-practicing entities become more
prevalent and as the number of competitors in our industry segment grows and the functionality of services
in different industry segments overlaps. Some of our competitors in the market for digital engagement
technology and/or web and mobile based consumer-facing services or other third parties may have filed or
may intend to file patent applications covering aspects of their technology and have asserted or may assert
claims against us. Any claims alleging infringement of third-party intellectual property rights could require
us to spend significant amounts in litigation (even if the claim is invalid), distract management from other
tasks of operating our business, pay substantial damage awards, prevent us from selling our products, delay
delivery of our services, develop non-infringing software, technology, business processes, systems or other
intellectual property (none of which might be successful), or limit our ability to use the intellectual property
that is the subject of any of these claims, unless we enter into license agreements with the third parties
(which may be costly, unavailable on commercially reasonable terms, or not available at all). Therefore, any
such claims could have a material adverse effect on our business, results of operations, cash flows and
financial condition.

The duration of the protection afforded to our intellectual property depends on the type of property in
question, the laws and regulations of the relevant jurisdiction and the terms of its license agreements with
others. With respect to our trademarks and trade names, trademark laws and rights are generally territorial
in scope and limited to those countries where a mark has been registered or protected. While trademark
registrations may generally be maintained in effect for as long as the mark is in use in the respective
jurisdictions, there may be occasions where a mark or title is not registrable or protectable or cannot be
used in a particular country. In addition, a trademark registration may be cancelled or invalidated if
challenged by others based on certain use requirements or other limited grounds. The duration of property
rights in trademarks, service marks and tradenames in the United States, whether registered or not, is
predicated on our continued use.

13

Employees

As of December 31, 2017, we had 981 full-time employees. Our employees are not covered by collective

bargaining agreements. We believe our relations with our employees are satisfactory.

Segments and Geographic Areas

Information about segment and geographic revenue is set forth in Note 3 of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. For a discussion of
the risks attendant to foreign operations, see the information under the heading “Risk Factors” under
into
the caption “We may be unsuccessful
direct-to-consumer services due to additional regulatory requirements, tax liabilities, currency exchange rate
fluctuations and other risks, which could adversely affect our results of operations.” For a discussion of
revenue, net income and total assets, see Item 8 of this Annual Report on Form 10-K.

in expanding our operations

internationally and/or

Website Access to Reports

We make available, free of charge, on our website (www.liveperson.com), our annual reports on
Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of
1934 as soon as reasonably practicable after we have electronically filed such material with, or furnished it
to, the Securities and Exchange Commission. The Company’s web site address provided above is not intended
to function as a hyperlink, and the information on the Company’s web site is not and should not be considered
part of this Annual Report on Form 10-K and is not incorporated by reference herein.

14

Item 1A. Risk Factors

The following are certain of the important risk factors that could cause, or contribute to causing, our
actual operating results to differ materially from those indicated, expected or suggested by forward-looking
statements made in this Annual Report on Form 10-K or presented elsewhere by management from time to
time. The risks described below are not the only ones we face. Additional risks not presently known to us, or
that we currently deem immaterial, may become important factors that impair our business operations.
Prospective and existing investors are strongly urged to carefully consider the various cautionary statements
and risks set forth in this report and other public filings before deciding to purchase, hold or sell our
common stock.

Risks Related to Our Business

Our quarterly revenue and operating results may fluctuate significantly, which may cause a substantial decline
in the trading price of our common stock.

We have in the past incurred, and may in the future incur, losses and experience negative cash flows,
either or both of which may be significant and may cause our quarterly revenue and operating results to
fluctuate significantly. These fluctuations may result from a variety of factors, many of which are outside of
our control. Some of the important factors that may cause our revenue and operating results to fluctuate
include:

•

•

•

•

•

•

•

•

•

•

•

our ability to attract and retain new customers;

our ability to retain and increase sales to existing customers;

our customers’ demand for our services and business success;

consumer demand for our services;

the introduction of new services by us or our competitors;

changes in our pricing models or policies or the pricing policies of our current and future
competitors;

continued adoption by companies of mobile and cloud-based messaging solutions;

continued adoption by experts and consumers of web-based advice services;

our ability to avoid and/or manage service interruptions, disruptions, or security incidents;

exposure to foreign currency exchange rate fluctuations; and

the amount and timing of capital expenditures and other costs related to operation and expansion
of our business, including those related to acquisitions.

Our revenue and operating results may also fluctuate significantly in the future due to the following

factors that are entirely outside of our control:

•

•

economic conditions specific to the Internet, electronic commerce and cloud computing; and

general, regional and/or global economic and political conditions.

As a result, comparing our operating results on a period-to-period basis may not be meaningful. You
should not rely upon these comparisons or our past results as indicators of our future performance. Due to
the foregoing factors, it is possible that our operating results in one or more future quarters may fall below
the expectations of securities analysts and investors or below any guidance we may provide to the market. If
this occurs, the trading price of our common stock could decline significantly.

The markets in which we participate are highly competitive, and we may lose customers and revenue if we are
not able to innovate or effectively compete.

The markets for mobile and online business messaging and digital engagement technology are intensely
competitive, rapidly changing and characterized by aggressive marketing, pricing pressure, evolving
industry standards, rapid technology developments and frequent new product introductions, resulting in the

15

need to continually invest significant resources in research and development. We believe that competition
will continue to increase as our current competitors increase the sophistication of their offerings and as new
participants enter the market, which may cause additional pricing pressure. If we are unable to accurately
anticipate technology developments and continue to innovate in the markets in which we compete, or our
competitors are more successful than us at developing compelling new products and services or at attracting
and retaining customers, we may lose revenue and market share and our operating results could be
adversely affected.

We have current and potential competition from providers of messaging and digital engagement
solutions that enable companies to engage and connect with their consumer customers, as well as
technology providers that offer customer relationship management and contact center solutions. We have
current and potential competitors in many different industries and from companies that range from large
and established companies to smaller companies and emerging start-ups, including:

•

•

•

•

•

technology or service providers offering or powering competing digital engagement, contact
center, communications or customer relationship management solutions, such as eGain, Genesys,
Nuance. Oracle, Salesforce.com, and Twilio;

service providers that offer basic messaging products or services with limited functionality free of
charge or at significantly reduced entry level prices;

social media, social listening, messaging, artificial intelligence, bots, e-commerce, and/or data and
data analytics companies, such as Facebook, Google and WeChat, which may leverage their
existing or future capabilities and consumer relationships to offer competing solutions;

customers that develop and manage and their messaging solutions in-house; and

companies that provide cross-category and vertical-specific advice, such as About.com, UpWork
and Yahoo Answers.

In addition, many of our current and potential competitors have substantial competitive advantages,
such as greater brand recognition, significantly larger financial, marketing, and resource and development
budgets, access to larger customer and/or consumer bases, larger and more established marketing and
distribution relationships, and/or more diverse product and service offerings. As a result, these competitors
may be able to respond more quickly and effectively than we can to any change in the general market
acceptance of messaging services or any new or changing opportunities, technologies, standards, pricing
strategies or customer requirements. Also, because of these advantages, potential customers may select a
competitor’s products and services, even if our services are more effective. For all of these reasons, we may
not be able to compete successfully against our current and future competitors.

The success of our business depends on retention of existing customers and their purchase of additional
services, the migration of existing customers to our new platform, and attracting new customers and new
consumer users of our consumer services.

Our customers typically subscribe for our services for a twelve month term and may have no obligation
to renew their subscription after expiration of the twelve month term. In some cases, our agreements are
terminable or may terminate upon 30 to 90 days’ notice without penalty. If a significant number of our
customers, or any one customer to whom we provide a significant amount of services, were to terminate
services, reduce the amount of services purchased, or fail to purchase additional services, our results of
operations may be negatively and materially affected. Dissatisfaction with the nature or quality of our
services could also lead customers to terminate our service.

We depend on monthly fees and interaction-based fees from our services for substantially all of our
revenue. As part of our strategy, we are increasingly offering customers subscriptions with interaction-based
fees. While this interaction-based fee model has demonstrated success in our business to date, it could
potentially produce greater variability in our revenue as revenue in this model is impacted by the number of
interactions that our customers generate through use of our products. Because of the historically small
amount of services sold in initial orders, we depend significantly on the growth of our customer base and
sales to new customers and sales of additional services to our existing customers. Our revenue could decline
unless we are able to obtain additional customers or alternate revenue sources.

16

Our results of operations may be adversely impacted due to our exposure to foreign currency exchange rate
fluctuations.

We conduct business in currencies other than the U.S. dollar in Europe, Australia, Japan and Israel. As
we continue to expand our international operations we become more exposed to the effects of fluctuations
in currency exchange rates. As a result of the expanding size and scope of our international operations, our
currency rate fluctuation risk associated with the exchange rate movement of the U.S. dollar has increased.

Since we conduct business in currencies other than the U.S. dollar but report our financial results in
U.S. dollars, fluctuations in currency exchange rates could adversely affect our results of operations. For
example, during 2017 we experienced a foreign currency exchange impact of approximately 1% percent, or
approximately $3.5 million if held in constant currency, to our revenue. Fluctuations in the value of the
U.S. dollar relative to other foreign currencies could materially affect our revenue, cost of revenue and
operating expenses, and result in foreign currency transaction gains and losses. In January 2015, we began
hedging a portion of our foreign currency exchange rate exposure; however, significant fluctuations in
exchange rates between the U.S. dollar and foreign currencies may nonetheless adversely affect our net
income (loss). We may seek to enter into additional hedging transactions in the future or to use financial
instruments, such as derivative financial instruments, to mitigate risk, but we may be unable to enter into
them successfully, on acceptable terms or at all. Additionally, these programs rely on our ability to forecast
accurately and could expose us to additional risks that could adversely affect our financial condition and
results of operations. We cannot predict whether or not we will incur foreign exchange losses in the future.
To the extent the international component of our revenues grows, our results of operations will become
more sensitive to foreign exchange rate fluctuations.

Our business is subject to a variety of U.S. and international laws and regulations regarding privacy and data
protection, and increased public scrutiny of privacy and security issues could result in increased government
regulation, industry standards and other legal obligations that could adversely affect our business.

We collect, process, store and use personal data and other information generated during mobile and
online messaging between brands and consumers and between experts and consumers. We post our privacy
policies and practices on our websites and we also often include privacy commitments in our contracts. Our
business is subject to numerous federal, state and international laws and regulations regarding privacy, data
protection, personal information, security, data collection, storage, use and transfer, and the use of cookies
and similar tracking technologies. To the extent that additional legislation regarding user privacy is enacted,
such as legislation governing the collection and use of information regarding Internet or mobile users
through the use of cookies or similar technologies, the effectiveness of our services could be impaired by
restricting us from collecting or using information that may be valuable to our customers and/or exposing
us to lawsuits or regulatory investigations. The foregoing could have a material adverse effect our business,
results of operations and financial condition.

The scope of U.S. and international privacy laws and regulations is evolving and changing, subject to
differing interpretations, may be costly to comply with, and may be inconsistent among countries and
jurisdictions or conflict with other rules. As we expand our operations in these countries, our liability
exposure and the complexity and cost of compliance with data and privacy requirements will likely increase.
Any failure by us to comply with our posted privacy policies, applicable federal, state or international
privacy-related or data protection laws and regulations, or the privacy commitments contained in our
contracts, could result in proceedings against us by governmental entities, customers, consumers, watchdog
groups or others, which could have a material adverse effect on our business, financial condition and results
of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and
legislative proposals could harm our reputation or otherwise impact the growth of our business.

Laws and practices regarding handling and use of personal and other information by companies have
come under increased public scrutiny, and governmental entities, consumer agencies and consumer
advocacy groups have called for increased regulation and changes in industry practices. For example, in
December 2015, following the conclusion of the “trilogue” meetings between the European Parliament, the
Council of the European Union, and the European Commission, an agreement was announced with respect
to a new EU data protection framework, the General Data Protection Regulation (“GDPR”), which will
become effective in May 2018 and will apply across the European Union. The GDPR will replace the

17

impose significantly greater compliance burdens on
current EU Data Protection Directive and will
companies with users and/or operations in the European Union and provides for considerable fines up to
the higher of 20 million Euros and 4% of global annual revenue for noncompliance. One material change is
that data processors (as that term is defined by applicable EU data protection law) have direct obligations,
including implementing technical and organizational measures, and enhanced notification rules. The GDPR
also imposes certain technological requirements that may require us to make changes to our services to
enable LivePerson and/or our customers to meet the new legal requirements and may impact how data
protection is addressed in our customer and vendor agreements. The European Union has also released a
proposed Regulation on Privacy and Electronic Communications (e-Privacy Regulation) to replace the EU’s
Privacy and Electronic Communications Directive (e-Privacy Directive) to, among other things, better align
with the GDPR, to amend the current e-Privacy Directive’s rules on the use of cookies and other tracking
technologies, and to harmonize across current EU member state e-privacy data protection laws. Compliance
with changes in laws and regulations related to privacy may require significant cost, limit the use and
adoption of our services, and require material changes in our business practices that result in reduced
revenue. Noncompliance could result in material fines and penalties or governmental orders requiring us to
change our data practices, which could damage our reputation and harm our business.

Additionally, as Internet commerce continues to evolve, regulation by federal, state and foreign
governments or agencies in the areas of data privacy and data security is likely to increase. For instance, the
EU-US Safe Harbor program (“EU Safe Harbor”), which provided a valid legal basis for transfers of
personal data from Europe to the United States, was invalidated on October 6, 2015, which has had a
significant impact on the transfer of data from the European Union to U.S. companies, including us. In
July 2016, the European Union and the United States agreed to a new framework called the EU-US Privacy
Shield (“EU Privacy Shield”) that provides a mechanism for companies to transfer data from EU member
states to the United States and that LivePerson certified to in September 2016. Similarly, a new Swiss-U.S.
Privacy Shield (“Swiss Privacy Shield”) was announced in January 2017 that replaces the former Swiss-U.S.
Safe Harbor (“Swiss Safe Harbor”). The new EU Privacy Shield requirements could impact our business
and result in substantial expense and require changes to our operations, and the EU Privacy Shield is
subject to an annual review that could result in changes to our obligations. We may also have to require
some of our vendors who process personal data to take on additional privacy and security obligations, and
some may refuse, causing us to incur potential disruption and expense related to our business processes. If
our policies and practices, or those of our vendors, are, or are perceived to be, insufficient or if our
members and customers have concerns regarding the transfer of data from the European Union to the
United States, we could be subject to enforcement actions or investigations by EU Data Protection
Authorities or lawsuits by private parties, member engagement could decline and our business could be
negatively impacted.

The EU Privacy Shield and other frameworks may be challenged by regulators and/or private parties
and reviewed by the European courts, which may lead to uncertainty about the legal basis for data transfers
outside the EU. Ongoing legal reviews may result in burdensome or inconsistent requirements affecting the
location and movement of our customer and internal employee data as well as the management of that
data. Compliance may require changes in services, business practices, or internal systems that result in
increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based
firms. Failure to comply with existing or new rules may result in significant penalties or orders to stop the
alleged noncompliant activity.

While there are other legally recognized mechanisms, such as standard Model Contractual Clauses,
that we believe allow for the lawful transfer of EU personal data to the United States, these mechanisms
have also been subjected to regulatory or judicial scrutiny and may be invalidated or evolve to include new
legal requirements that could have an impact on how we move data between and among countries and
regions in which we operate, which could affect how we provide our services or adversely impact our
financial results.

In addition to government activity, privacy advocacy and other industry groups have established or
may establish new self-regulatory standards that may place additional burdens on us. If our privacy
practices are deemed unacceptable by watchdog groups or privacy advocates, such groups may take
measures that harm our business by, for example, disparaging our reputation and our business, which may

18

have a material adverse effect on our results of operations and financial condition. In addition, privacy
concerns may cause Internet users to avoid online sites that collect various forms of data or to resist
providing the data necessary to allow our customers to use our services effectively. Even the perception of
security and privacy concerns, whether or not valid, could inhibit sales and market acceptance of our
products and services.

Our business is subject to a variety of U.S. and foreign laws, and existing, new and developing regulatory or
other legal requirements could subject us to claims or materially impact our business.

We and our customers are subject to a number of laws and regulations in the United States and
abroad, including laws related to conducting business on the Internet, such as laws regarding privacy, data
protection, information security, cybersecurity, restrictions or technological requirements regarding the
collection, use, storage, protection or transfer of consumer data, content, consumer protection, internet (or
net) neutrality, advertising, electronic contracts, taxation, provision of online payment services (including
credit card processing), and intellectual property rights, which are continuously evolving and developing.
Because our services are accessible worldwide, certain foreign jurisdictions may claim that we are required
to comply with their laws, even if we don’t have a local entity, employees or infrastructure. Often, foreign
data protection, privacy, and other laws and regulations are more restrictive than those in the United States.
The scope and interpretation of the laws and other obligations that apply to us, including those related to
user privacy and data security, are often uncertain and may be conflicting, particularly laws and obligations
outside the United States. There is a risk that these laws may be interpreted and applied differently in any
given jurisdiction in a manner that is not consistent with our current practices, which could cause us to
incur substantial cost and could negatively impact our brand, reputation and business.

Businesses using our products and services may collect data from their website users. Various federal,
state and foreign government bodies and agencies impose laws regarding collection, use and retention of
data from website visitors. We offer our customers a variety of data security procedures and practices, such
as encryption for data at rest and masking algorithms for sensitive data prior to transfer to our database, in
an effort to protect information. Changes to applicable laws and how they are interpreted relating to data
security and other consumer protection areas could significantly increase the cost to us and our customers
of regulatory compliance and could negatively impact our business.

For instance, some states in the United States have enacted legislation designed to protect consumer
privacy by prohibiting the distribution of “spyware” over the Internet. Such legislation typically focuses on
restricting the proliferation of software that, when installed on an end user’s computer,
is used to
intentionally and deceptively take control of the end user’s machine. We do not believe that the data
monitoring methods that we employ constitute “spyware” or are prohibited by applicable laws. However,
federal, state and foreign laws and regulations, many of which can be enforced by government entities or
private parties, are constantly evolving and can be subject to significant changes in application and
interpretation. If, for example, the scope of the previously mentioned “spyware” legislation were changed to
include web analytics, such legislation could apply to the technology we use and potentially restrict our
ability to conduct our business.

In addition, regulatory authorities and governments around the world are considering a number of
legislative and regulatory proposals concerning privacy, collection and use of website visitor data, data
storage, data protection, the “right to be forgotten,” content regulation, cybersecurity, government access to
personal information, online advertising, email and other categories of electronic spam, and other matters
that may be applicable to our business. Compliance with these laws may require substantial investment or
may be technologically challenging for us. For example, some jurisdictions, including the United States, are
considering whether the collection of anonymous data may invade the privacy of website visitors. If laws or
regulations are enacted that limit data collection or use practices related to anonymous data, we and/or our
customers may be required to obtain the express consent of web visitors in order for our technology to
perform certain basic functions that are based on the collection and use of technical data. Requirements
that a website must first obtain consent from its web visitors before using our technology could reduce the
amount and value of the services we provide to customers, which might impede sales and/or cause some
existing customers to discontinue using our services.

It is also likely that, as our business grows and evolves, an increasing portion of our business shifts to
mobile, and our solutions are offered and used in a greater number of countries, we will become subject to

19

laws and regulations in additional jurisdictions. We could need to expend considerable effort and resources
to develop new product features and/or procedures to comply with any such legal requirements. It is
difficult to predict how existing laws will apply to our business and what new laws and legal obligations we
may become subject to. If we are not able to comply with these laws or other legal obligations, or if we
become liable under them, we may be forced to implement material changes to our business practices, delay
release of new and enhanced services and expend substantial resources, which would negatively affect our
business, financial condition and results of operations. In addition, any increased attention focused on
liability issues, or as a result of regulatory fines or lawsuits, could harm our reputation or otherwise impact
the growth of our business. Any costs incurred as a result of this potential liability could harm our business
and operating results.

The Company monitors pending legislation and regulatory initiatives to ascertain relevance, analyze
impact and develop strategic direction surrounding regulatory trends and developments. Due to shifting
economic and political conditions, tax policies or rates in various jurisdictions may be subject to significant
change. A range of other proposed or existing laws and new interpretations of existing laws could have an
impact on our business. For example:

Government agencies and regulators have reviewed, are reviewing and will continue to review, the
personal data handling practices of companies doing business online, including privacy and security policies
and practices. This review may result in new laws or the promulgation of new regulations or guidelines that
may apply to our products and services. For example, the State of California and other states have passed
laws relating to disclosure of companies’ practices with regard to Do-Not-Track signals from Internet
browsers, the ability to delete information of minors, and new data breach notification requirements.
California has also adopted privacy guidelines with respect to mobile applications. Outside the European
Union and the United States, a number of countries have adopted or are considering privacy laws and
regulations that may result in significant greater compliance burdens. Existing and proposed laws and
regulations regarding cybersecurity and monitoring of online behavioral data, such as the proposed “Do
Not Track” regulations, regulations aimed at restricting certain targeted advertising practices and collection
and use of data from mobile devices, new and existing tools that allow consumers to block online
advertising and other content, and other proposed online privacy legislation could potentially apply to
some of our current or planned products and services. Existing and proposed laws and regulations related
to email and other categories of electronic spam could impact the delivery of commercial email and other
electronic communications by us or on behalf of customers using our services.

The FTC in particular has aggressively investigated and brought enforcement actions against
companies that fail to comply with their privacy or data security commitments to consumers, or fail to
comply with regulations or statutes such as the Children’s Online Privacy Protection Act. Any investigation
or review of our practices may require us to make changes to our products and policies, which could harm
our business. Currently there are many proposals by lawmakers and industry groups in this area, both in the
United States and overseas, which address the collection, maintenance and use of personal information,
web browsing and geolocation data, and establish data security and breach notification requirements.
Further, regulators and industry groups have also released self-regulatory principles and guidelines for
various data privacy and security practices. Given that this is an evolving and unsettled area of regulation,
the imposition of any new significant restrictions or technological requirements could have a negative
impact on our business.

If we are unable to effectively operate on mobile devices, our business could be adversely affected.

The number of people who access the Internet and complete transactions over the Internet through
devices other than desktop computers, including smartphones, handheld tablets and mobile phones, has
increased dramatically in the past few years and is projected to continue to increase. To address these
developments, we continue to extend our products and services to support messaging on mobile phone and
tablet applications belonging to our company and our customers. If the mobile solutions we have developed
do not meet our customers’ needs or the needs of their website visitors, are not widely adopted by our
customers and consumers, or create new risks related to privacy and security, we may fail to retain existing
customers and we may have difficulty attracting new customers, and also be subject to investigations,
litigation or reputational harm. If we are unable to rapidly innovate and grow mobile revenue, or if we incur
excessive expenses in this effort, our financial performance and ability to continue to grow overall revenue
may be negatively affected.

20

Additionally, our mobile phone and tablet applications and those of our customers depend on their
interoperability with popular mobile operating systems, networks and standards that we and they do not
control, such as Android and iOS operating systems, and any changes in such systems and terms of service
that degrade the functionality of our solutions or give preferential treatment to competitive products could
adversely affect our revenue. We may not be successful in developing products that operate effectively with
these technologies, systems, networks or standards. As new devices and platforms are continually being
released, it is difficult to predict the challenges we may encounter in developing versions of our solutions for
use on these alternative devices.

Failures or security breaches in our services or systems, those of our third party providers, or in the websites of
our customers, including those resulting from cyber-attacks, security vulnerabilities, defects or errors, could
harm our business.

Our products and services involve the storage and transmission of proprietary information and
personal data related to or customers and their users, and experts and consumers, and theft and security
breaches expose us to a risk of loss of this information, improper use and disclosure of this information,
litigation, and potential liability. We experience cyber-attacks of varying degrees on a regular basis. Our
security measures may also be breached due to employee or other error, intentional malfeasance and other
third party acts, and system errors or vulnerabilities, including vulnerabilities of our third party vendors, or
customers, or otherwise. Any such breach or unauthorized access, or attempts by outside parties to
fraudulently induce employees, users, vendors or customers to disclose sensitive information in order to
gain access to our data or data of our customers, users, experts or consumers, including, but not limited to,
individual personal information and financial credit or debit card data that is protected by law or contract,
could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence
in the security of our products and services that could potentially have an adverse effect on our business.

While we continue to expand our focus on this issue and are taking measures to safeguard our products
and services from cybersecurity threats and vulnerabilities in desktop computers, mobile phones,
smartphones and handheld devices, cyber-attacks and other security incidents continue to evolve in
sophistication and frequency. Because the techniques used to obtain unauthorized access, disable or
degrade service, or sabotage systems, are constantly evolving in sophisticated ways to avoid detection and
often are not recognized until launched against a target, it may be difficult or impossible for us to anticipate
or identify these techniques or to implement adequate preventative measures. And while technological
advancements enable more data and processes, such as mobile computing and mobile payments, they also
increase the risk that cyber-attacks and other security incidents will occur. A significant cyber-attack or
other security incident involving our, our service providers’ or our customers’ systems could result in
material harm to our brand and reputation, our ability to deliver our services or retain customers, and
expose us to lawsuits, regulatory investigations, and significant damages, fines or penalties.

such transmissions or processing. Because our

In addition, our customers may authorize third party access to their customer data located in our
cloud environment. Because we do not control the transmissions between customer authorized third parties,
or the processing of such data by customer authorized third parties, we cannot ensure the integrity or
security of
services are responsible for critical
communication between our customers and consumers, any security failures, defects or errors in our
components, materials or software or those used by our customers could have an adverse impact on us, on
our customers and on the end users of their websites. Such adverse impact could include a decrease in
demand for our services, damage to our reputation and to our customer relationships, legal exposure, and
other financial liability or harm to our business.

Industry-specific regulation is evolving and unfavorable industry-specific laws, regulations or interpretive
positions could harm our business.

Our customers and potential customers do business in a variety of industries, including financial
services, the public sector, healthcare and telecommunications. Regulators in certain industries have adopted
and may in the future adopt regulations or interpretive positions regarding the use of cloud computing and
other outsourced services. The costs of compliance with, and other burdens imposed by, industry-specific
laws, regulations and interpretive positions may limit our customers’ use and adoption of our services and

21

reduce overall demand. For example, some financial services regulators have imposed guidelines for use of
cloud computing services that mandate specific controls or that require financial services providers to
obtain regulatory approval prior to outsourcing certain functions. If we are unable to comply with these
guidelines or controls, or if our customers are unable to obtain regulatory approval to use our service where
required, our business may be harmed. In addition, an inability to satisfy the standards of certain
third-party certification bodies that our customers may expect, such as the Payment Card Industry (PCI)
Data Security Standards, may have an adverse impact on our business. If we are unable in the future to
achieve or maintain these industry-specific certifications or comply with other similar requirements or
standards that are relevant to our customers, our business and our revenue may be adversely impacted.

In some cases, industry-specific laws, regulations or interpretive positions may also apply directly to us
as a service provider. Any failure or perceived failure by us to comply with such requirements could have a
material adverse impact on our business and results of operations.

Downturns in the global economic environment or in particular industries in which our sales are concentrated
may adversely affect our business and results of operations.

The United States and other global economies have experienced in the past and could in the future
experience economic downturn that affects all sectors of the economy, particularly in the financial services
and retail industries, resulting in declines in economic growth and consumer confidence, increases in
unemployment rates and uncertainty about economic stability. Further, there is increased uncertainty
regarding social, political, immigration and trade policies in the United States, which could impact our
global operations and our business. Global credit and financial markets have in the past experienced
extreme disruptions, including diminished liquidity and credit availability and rapid fluctuations in market
valuations. Our business has been affected by these conditions in the past and could be similarly impacted
in the future by any downturn in global economic conditions.

Our business is, and will continue to be, dependent on sales to customers in the telecommunications,
financial services, retail, automotive, real estate and technology industries. A downturn in one or more of
these industries could have a material adverse effect on our business, liquidity, results of operations,
financial condition and cash flows. In the event that industry conditions deteriorate in one or more of these
industries, we could experience, among other things, cancellation or non-renewal of existing contracts,
reduced demand for our products and reduced sales. It could be difficult to predict the timing, strength or
duration of any economic slowdown or subsequent economic recovery, either relating to the global
economic environment or to the particular industries in which our sales are concentrated, which, in turn,
could make it more challenging for us to forecast our operating results, make business decisions and identify
risks that may adversely affect our business, sources and uses of cash, financial condition and results of
operations.

Weak economic conditions may also cause our customers to experience difficulty in supporting their
current operations and implementing their business plans. Our customers may reduce their spending on our
services, may not be able to discharge their payment and other obligations to us, may experience difficulty
raising capital, or may elect to scale back the resources they devote to customer service and/or sales and
marketing technology, including services such as ours. Economic conditions may also lead consumers and
businesses to postpone spending, which may cause our customers to decrease or delay their purchases of
our products and services. If economic conditions deteriorate for us or our customers, we could be required
to record charges relating to restructuring costs or the impairment of assets, may not be able to collect
receivables on a timely basis, and our business, financial condition and results of operations could be
materially adversely affected.

Economic conditions and regulatory changes caused by the United Kingdom’s likely exit from the European
Union could negatively impact our business.

In June 2016, voters in the United Kingdom (“U.K.”) approved a referendum to withdraw the U.K.’s
membership from the European Union (“E.U.”), which is commonly referred to as “Brexit”. In March
2017, the U.K. government initiated the exit process under Article 50 of the Treaty of the European Union,
commencing a period of up to two years for the U.K. and the other E.U. member states to negotiate the
terms of the withdrawal. These negotiations will determine the future terms of the U.K.’s relationship with
the E.U., including the terms of trade between the U.K. and the E.U.

22

The announcement of Brexit has resulted in significant volatility in global stock market and currency
exchange rate fluctuations that resulted in strengthening of the U.S. dollar relative to other foreign
currencies in which we conduct business. The announcement of Brexit and likely withdrawal of the
U.K. from the E.U. has also created global economic uncertainty, which may cause our customers to closely
monitor their costs and reduce their spending budgets. This could negatively impact our business, including
affecting our relationships with our existing and future customers, suppliers and employees, which could
have a negative impact on our business, prospects, results of operations, financial condition and cash flows.

Further volatility in exchange rates resulting from Brexit is expected to continue in the short term as
the U.K. negotiates its exit from the E.U. We translate sales and other results denominated in foreign
currency into U.S. dollars for our financial statements. During periods of a strengthening dollar, our
reported international sales and earnings could be reduced because foreign currencies may translate into
fewer U.S. dollars.

The effects of Brexit will depend on any agreements the U.K. makes to retain access to E.U. markets
either during a transitional period or more permanently. The measures could potentially disrupt the markets
we serve and the tax jurisdictions in which we operate and adversely change tax benefits or liabilities in
these or other jurisdictions, and may cause us to lose customers, suppliers and/or employees. In addition,
Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the
U.K. determines which E.U. laws to replace or replicate. Any of these effects of Brexit, among others, could
negatively impact our prospects, business, financial condition and results of operations.

Our business depends significantly on our ability to retain our key personnel, attract new personnel, and
manage attrition.

Our success depends largely on the continued services of our senior management team. The loss of one
or more members of senior management could have a material adverse effect on our business, results of
operations and financial condition. We are also substantially dependent on the continued service of other
key personnel, including key sales executives responsible for revenue generation and key development
personnel accountable for product and service innovation and timely development and delivery of upgrades
and enhancements to our existing products and services. Changes to senior management and key employees
could also lead to additional unplanned losses of key employees. The loss of key employees could seriously
harm our ability to release new products and services and upgrade existing products and services on a
timely basis, which could significantly help our competitors.

In the technology industry, there is substantial competition for key personnel,

including skilled
engineers, sales executives and operations personnel. We may not be able to successfully recruit, integrate
and retain qualified personnel
in the future, which could harm our business. If our retention and
recruitment efforts are ineffective, employee turnover could increase and our ability to provide services to
our customers would be materially and adversely affected. Furthermore, the requirement to expense stock
options may discourage us from granting the size or type of stock option awards that job candidates may
require in order to join our company.

In addition, we may not be able to outsource certain functions. We expect to evaluate our needs and the
performance of our staff on a periodic basis, and may choose to make adjustments in the future. If the size
of our staff is significantly reduced, either by our choice or otherwise, it may become more difficult for us
to manage existing, or establish new, relationships with customers and other counter-parties, or to expand
and improve our service offerings. It may also become more difficult for us to implement changes to our
business plan or to respond promptly to opportunities in the marketplace. Further, it may become more
difficult for us to devote personnel resources necessary to maintain or improve existing systems, including
our financial and managerial controls, billing systems, reporting systems and procedures. Thus, any
significant amount of staff attrition could cause our business and financial results to suffer.

If we do not successfully integrate past or potential future acquisitions, we may not realize the expected
business or financial benefits and our business could adversely impacted.

As part of our business strategy, we have made and will continue to make acquisitions to add
complementary businesses, products, technologies, revenue and intellectual property rights. We have made a
number of acquisitions during the past decade, including three in 2014. In November 2014, we acquired

23

Contact At Once!, LLC, 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. In June 2014, we acquired Synchronite LLC, a German
based start-up that provides co-browsing technology, and in March 2014, we acquired NexGraph, LLC, a
company focused on analytic solutions.

Acquisitions and investments involve numerous risks to us, including:

•

•

•

•

•

•

•

•

•

•

potential failure to achieve the expected benefits of the combination or acquisition;

inability to generate sufficient revenue to offset acquisition or investment cost;

difficulties in integrating operations, technologies, products and personnel;

diversion of financial and management resources from efforts related to existing operations;

risks of entering new markets in which we have little or no experience or where competitors may
have stronger market positions;

potential loss of our existing key employees or key employees of the company we acquire;

inability to maintain relationships with customers and partners of the acquired business

use of alternative investment or compensation structures;

potential unknown liabilities associated with the acquired businesses; and

the tax effects of any such acquisitions.

These difficulties could disrupt our ongoing business, expose us to unexpected costs, distract our
increase our expenses and adversely affect our results of operations.
management and employees,
Furthermore, we may incur debt or issue equity securities to pay for any future acquisitions. The issuance of
equity securities could be dilutive to our existing stockholders.

We may be unsuccessful in expanding our operations internationally and/or into direct-to-consumer services
due to additional regulatory requirements, tax liabilities, currency exchange rate fluctuations and other risks,
which could adversely affect our results of operations.

In addition to our operations in the United States, we have operations in Australia, Canada, France,
Israel, Italy, Germany, Japan, Netherlands and the United Kingdom. We have also continued to invest in
global messaging initiatives and in acquisitions. Our ability to continue to expand into international markets
and in the online consumer market involves various risks, including the possibility that returns on such
investments will not be achieved in the near future, or ever, and the difficulty of competing in markets with
which we are unfamiliar.

Our international operations and direct-to-consumer services may also fail due to other risks inherent

in foreign and/or online consumer operations, including:

•

•

•

•

•

•

•

varied, unfamiliar, unclear and changing legal and regulatory restrictions, including different legal
and regulatory standards applicable to Internet services, communications, privacy, and data
protection;

difficulties in staffing and managing foreign operations;

differing intellectual property laws that may not provide sufficient protection for our intellectual
property;

adverse tax consequences or additional tax liabilities;

difficulty in addressing country-specific business requirements and regulations;

fluctuations in currency exchange rates;

strains on financial and other systems to properly administer VAT and other taxes;

24

•

•

different consumer preferences and requirements in specific international markets; and

international legal, compliance, political, regulatory or systemic restrictions, or other international
governmental scrutiny, applicable to United States companies with sales and operations in foreign
countries, including, but not limited to, possible compliance issues involving the U.S. Foreign
Corrupt Practices Act, the U.K. Bribery Act, and similar laws in other jurisdictions.

Our current and any future international expansion plans will require management attention and
resources and may be unsuccessful. We may find it impossible or prohibitively expensive to continue expand
internationally or we may be unsuccessful in our attempt to do so, and our results of operations could be
adversely impacted. In addition, violations of any foreign laws or regulations could result in fines, criminal
sanctions against us, our officers or our employees, prohibitions on the conduct of our business and
damage to our reputation.

We may be liable if third parties access or misappropriate confidential or personal data from our systems or
services.

The dialogue transcripts of the text-based chats, email interactions and other interactions between our
customers and their users may include information, such as personal contact and demographic information.
Although we employ and continually test and update our security measures to protect this information from
unauthorized access, it is still possible that our security measures could be breached and such a breach
could result in unauthorized access to our customers’ data or our data, including our intellectual property
and other confidential business information. Because the techniques employed by hackers to obtain
unauthorized access or to sabotage systems change frequently and are becoming more sophisticated in
circumventing security measures and avoiding detection, we may be unable to anticipate all techniques or to
implement adequate preventative measures. Any security breach could result in disclosure of our trade
secrets or disclosure of confidential customer, supplier or employee data. If third parties were able to
penetrate our network security or otherwise misappropriate personal data relating to our customers’
Internet users or the text of customer service inquiries, our competitive position may be harmed and we
could be subject to liability. In the event of a security incident, we could be liable for compliance with a
myriad of breach notification laws at the state, federal and international level, which may cause business
disruption and extensive notification costs, and could lead to penalties, government investigations and
lawsuits for compliance failures. We may as a result of a security incident be deemed out of compliance
with United States federal and state laws, international laws, or contractual commitments, and we may be
subject to government investigations, lawsuits, fines, criminal penalties, statutory damages, and other costs
to respond to breach or security incidents, which could have a material adverse effect on our business,
results of operations and financial condition. We may incur significant costs to protect against the threat of
security breaches or to mitigate the harm and alleviate problems caused by such breaches. Furthermore,
certain software and services that we use to operate our business are hosted and/or operated by third parties
or integrated with our systems. If these services were to be interrupted or their security breached, our
business operations could be similarly disrupted and we could be exposed to liability and costly
investigations or litigation. The need to physically secure and securely transmit and store confidential
information online has historically been a significant barrier to e-commerce and online communications
and will accelerate as a consumer and regulatory focus and concern. Any publicized compromise of security
could deter people from using online services such as the ones we offer or from using them to conduct
transactions, which involve transmitting confidential information. Because our success depends on the
general acceptance and reputation of our services and electronic commerce, we may incur significant costs
to protect against the threat of security breaches or to alleviate problems caused by these breaches.

We provide service level commitments to certain customers. If we do not meet these contractual commitments,
we could be obligated to provide credits or refunds or face contract terminations, which could adversely affect
our revenue and harm our reputation.

As is common for many cloud service providers, we offer service level commitments in certain of our
customer contracts, primarily related to uptime of our service. If we are unable to meet the stated service
level commitments or suffer periods of downtime that exceed the periods allowed under our customer
contracts, whether due to downtime caused by us or our third-party service providers, we may be

25

contractually obligated to provide these customers with service credits and/or pay financial penalties, which
could significantly impact our revenue. In addition, even if our contracts provide otherwise, these customers
may attempt to terminate their contracts and/or pursue other legal remedies. Recurring or extended service
outages could also cause damage to our reputation and result in substantial customer dissatisfaction or loss,
which could adversely affect our current and future revenue and operating results.

We are dependent on technology systems and third-party content that are beyond our control.

The success of our services depends in part on our customers’ online services as well as the Internet
connections of visitors to websites, both of which are outside of our control. As a result, it may be difficult
to identify the source of problems if they occur. In the past, we have experienced problems related to
connectivity which has resulted in slower than normal response times to Internet user chat requests and
messages and interruptions in service. Our services rely both on the Internet and on our connectivity
vendors for data transmission. Therefore, even when connectivity problems are not caused by our services,
our customers or Internet users may attribute the problem to us. This could diminish our brand and harm
our business, divert the attention of our technical personnel from our product development efforts or cause
significant customer relations problems.

limited,

In addition, we rely in part on third-party service providers and other third parties for various services,
including, but not
to Internet connectivity, network infrastructure hosting, security and
maintenance, and software and hardware from a variety of vendors. These providers may experience
problems that result in slower than normal response times and/or interruptions in service. If we are unable
to continue utilizing the third-party services that support our web hosting and infrastructure or if our
services experience interruptions or delays due to third party providers, our reputation and business could
be harmed, and we may be exposed to legal and reputational risk, and significant remediation costs.

We also rely on the security of our third party providers to protect our proprietary information and
information of our customers. Information technology system failures, including a breach of our or our
third party providers’ data security, could disrupt our ability to function in the normal course of business by
potentially causing, among other things, an unintentional disclosure of customer information or loss of
information. Additionally, despite our security procedures or those of our third party providers,
information systems may be vulnerable to threats such as computer hacking, cyber-terrorism or other
unauthorized attempts by third parties to access, obtain, modify or delete our or our customers’ data. Any
such breach could have a material adverse effect on our operating results and our reputation as a provider
of business collaboration and communications solutions and could subject us to significant penalties and
negative publicity, as well as government investigations and claims for damages or injunctive relief under
state, federal and foreign laws or contractual agreements.

We also depend on third parties for hardware and software, and our consumer services depend on third
parties for content. Such products and content could contain defects or inaccurate information. Problems
arising from our use of such hardware or software or third party content could require us to incur
significant costs or divert the attention of our technical or other personnel from our product development
efforts or to manage issues related to content. To the extent any such problems require us to replace such
hardware or software we may not be able to do so on acceptable terms, if at all.

Our products and services may infringe upon intellectual property rights of third parties and any infringement
could require us to incur substantial costs and may distract our management.

We have had patent and other infringement lawsuits filed against us claiming that certain of our
products and services infringe third party intellectual property rights, and we are subject to the future risk
of additional third party claims alleging infringement against us or against our customers for use of our
products and services. Many of our customer and partner contracts, including certain suppliers, contain
indemnification obligations requiring us to indemnify our customers from certain claims against them or
arising from the use of our services. Substantial litigation regarding intellectual property rights exists in the
software industry. In the ordinary course of our business, our services and/or our customers’ use of our
services may be increasingly subject to third-party infringement claims as claims by non-practicing entities
become more prevalent and the number of competitors in our industry segment grows and the functionality
of services in different industry segments overlaps. Some of our competitors in the market for digital

26

engagement technology, and/or web and mobile based consumer-facing services or other third parties may
have filed or may intend to file patent applications covering aspects of their technology and have asserted or
may assert claims against us. Any claims alleging infringement of third-party intellectual property rights
could require us to spend significant amounts in litigation (even if
the claim is invalid), distract
management from other tasks of operating our business, pay substantial damage awards, prevent us from
selling our products, delay delivery of our services, require the development of non-infringing software,
technology, business processes, systems or other intellectual property (none of which might be successful),
or limit our ability to use the intellectual property that is the subject of any of these claims, unless we enter
into license agreements with the third parties (which may be costly, unavailable on commercially reasonable
terms, or not available at all). Therefore, any such claims could have a material adverse effect on our
business, results of operations, cash flows and financial condition.

Our business and prospects would suffer if we are unable to protect and enforce our intellectual property rights.

Our success and ability to compete depend, in part, upon the protection of our intellectual property
rights relating to the technology underlying our services. We rely on a combination of patent, copyright,
trade secret, trademark and other common law protections in the United States and other jurisdictions, as
well as confidentiality requirements and contractual provisions, to protect our proprietary technology,
processes and other intellectual property. We own a portfolio of patents and patent applications in the
United States and internationally and regularly file patent applications to protect intellectual property that
we believe is important to our business, including intellectual property related to digital engagement
technology, and/or web and mobile based consumer-facing services. We believe the duration of our patents
is adequate relative to the expected lives of our products and services. We pursue the registration of our
domain names, trademarks and trade names in the United States and in certain locations outside the
United States. We also own copyrights, including in our software, publications and other documents
authored by us. These intellectual property rights are important to our business and marketing efforts. We
seek to protect our intellectual property rights by relying on federal, state, and common law rights, including
registration, or otherwise in the United States and certain foreign jurisdictions, as well as contractual
restrictions. However, we believe that factors such as the technological and creative skills of our personnel,
new service developments,
to
establishing and maintaining a competitive advantage. Others may develop technologies that are similar or
superior to our technology. We enter into confidentiality and other written agreements (including invention
assignment agreements) with our employees, consultants, customers, potential customers, strategic partners,
and other third parties, and through these and other written agreements, we attempt to control access to
and distribution of our software, documentation and other proprietary information. Despite our efforts to
protect our proprietary rights, third parties may, in an unauthorized manner, attempt to use, copy or
otherwise obtain and market or distribute our intellectual property rights or technology or otherwise
develop a service with the same functionality as our services. Policing unauthorized use of our services and
intellectual property rights is difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology or intellectual property rights, particularly in foreign countries where
we do business, where our services are sold or used, where the laws may not protect proprietary rights as
fully as do the laws of the United States or where enforcement of laws protecting proprietary rights is not
common or effective.

frequent enhancements and reliable maintenance are more essential

The duration of the protection afforded to our intellectual property depends on the type of property in
question, the laws and regulations of the relevant jurisdiction and the terms of its license agreements with
others. With respect to our trademarks and trade names, trademark laws and rights are generally territorial
in scope and limited to those countries where a mark has been registered or protected. While trademark
registrations may generally be maintained in effect for as long as the mark is in use in the respective
jurisdictions, there may be occasions where a mark or title is not registrable or protectable or cannot be
used in a particular country. In addition, a trademark registration may be cancelled or invalidated if
challenged by others based on certain use requirements or other limited grounds. The duration of property
rights in trademarks, service marks and tradenames in the United States, whether registered or not, is
predicated on our continued use.

27

It is possible that:

•

•

•

•

any issued patent or patents issued in the future may not be broad enough to protect our
intellectual property rights;

any issued patent or any patents issued in the future could be successfully challenged by one or
more third parties, which could result in our loss of the right to prevent others from exploiting the
inventions claimed in the patents;

current and future competitors may independently develop similar technologies, duplicate our
services or design around any patents we may have; and

effective intellectual property protection may not be available in every country in which we do
business, where our services are sold or used, where the laws may not protect proprietary rights as
fully as do the laws of the United States or where enforcement of laws protecting proprietary
rights is not common or effective.

Further, to the extent that the invention described in any United States patent was made public prior to
the filing of the patent application, we may not be able to obtain patent protection in certain foreign
countries. We also rely upon copyright, trade secret, trademark and other common law in the United States
and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our
proprietary technology, processes and other intellectual property. Any steps we might take may not be
adequate to protect against infringement and misappropriation of our intellectual property by third parties.
Similarly, third parties may be able to independently develop similar or superior technology, processes or
other intellectual property. Third parties may register marks that are confusingly similar to the trademarks
or services marks that we have used in the United States and our failure to monitor foreign registrations or
mark usage may impact out rights in certain trademarks or services marks. Policing unauthorized use of
our services and intellectual property rights is difficult, and we cannot be certain that the steps we have
taken will prevent misappropriation of our technology or intellectual property rights, particularly in foreign
countries where we do business, where our services are sold or used, where the laws may not protect
proprietary rights as fully as do the laws of the United States or where enforcement of laws protecting
proprietary rights is not common or effective. The unauthorized reproduction or other misappropriation of
our intellectual property rights could enable third parties to benefit from our technology without paying us
for it. If this occurs, our business, results of operations and financial condition could be materially and
adversely affected. In addition, disputes concerning the ownership or rights to use intellectual property
could be costly and time-consuming to litigate, may distract management from operating our business and
may result in our loss of significant rights.

We may be subject to legal liability and/or negative publicity for the services provided to consumers via our
technology platforms.

Our technology platforms enable representatives of our customers as well as individual service
providers to communicate with consumers and other persons seeking information or advice on the Internet.
The law relating to the liability of online platform providers such as us for the activities of users of their
online platforms is often challenged in the United States and internationally. We may be unable to prevent
users of our technology platforms from providing negligent, unlawful or inappropriate advice, information
or content via our technology platforms, or from behaving in an unlawful manner, and we may be subject to
allegations of civil or criminal liability for negligent, fraudulent, unlawful or inappropriate activities carried
out by users of our technology platforms.

Claims could be made against online services companies under both United States and foreign law,
such as fraud, defamation, libel, invasion of privacy, negligence, data breach, copyright or trademark
infringement, or other theories based on the nature and content of the materials disseminated by users of
our technology platforms. In addition, domestic and foreign legislation has been proposed that could
prohibit or impose liability for the transmission over the Internet of certain types of information. Our
defense of any of
these actions could be costly and involve significant time and attention of our
management and other resources.

28

The Digital Millennium Copyright Act, or DMCA, is intended, among other things, to reduce the
liability of online service providers for listing or linking to third party web properties that include materials
that infringe copyrights or rights of others. Additionally, portions of The Communications Decency Act, or
CDA, are intended to provide statutory protections to online service providers who distribute third party
content. A safe harbor for copyright infringement is also available under the DMCA to certain online
service providers that provide specific services, if the providers take certain affirmative steps as set forth in
the DMCA. Important questions regarding the safe harbor under the DMCA and the CDA have yet to be
litigated, and we cannot guarantee that we will meet the safe harbor requirements of the DMCA or of the
CDA. If we are not covered by a safe harbor, for any reason, we could be exposed to claims, which could be
costly and time-consuming to defend.

Our consumer service allows consumers to provide feedback regarding service providers. Although all
such feedback is generated by users and not by us, claims of defamation or other injury could be made
against us for content posted on our websites. Our liability for such claims may be higher in jurisdictions
outside the United States where laws governing Internet transactions are unsettled.

If we become liable for information provided by our users and carried via our service in any
jurisdiction in which we operate, we could be directly harmed and we may be forced to implement new
measures to reduce our exposure to this liability. In addition, the increased attention focused upon liability
issues as a result of these lawsuits and legislative proposals could harm our reputation or otherwise impact
the growth of our business. Any costs incurred as a result of this potential liability could harm our business.

In addition, negative publicity and user sentiment generated as a result of fraudulent or deceptive
conduct by users of our technology platforms could damage our reputation, reduce our ability to attract
new users or retain our current users, and diminish the value of our brand.

In the future, we may be required to spend substantial resources to take additional protective measures
or discontinue certain service offerings, either of which could harm our business. Any costs incurred as a
result of potential liability relating to the sale of unlawful services or the unlawful sale of services could
harm our business.

In addition to legislation and regulations relating to privacy and data security and collection, we may
be subject to consumer protection laws that are enforced by regulators such as the FTC and private parties,
and include statutes that regulate the collection and use of information for marketing purposes. Any new
legislation or regulations regarding the Internet, software sales or export and/or the cloud or
Software-as-a-Service industry, and/or the application of existing laws and regulations to the Internet,
software sales or export and/or the cloud or Software-as-a-Service industry, could create new legal or
regulatory burdens on our business that could have a material adverse effect on our business, results of
operations and financial condition. Additionally, as we operate outside the United States, the international
regulatory environment relating to the Internet, software sales or export, and/or the Software-as-a-Service
industry could have a material adverse effect on our business, results of operations and financial condition.

Technological or other defects could disrupt or negatively impact our services, which could harm our business
and reputation.

We face risks related to the technological capabilities of our services. We expect the number of
interactions between our customers’ operators and Internet users over our system to increase significantly
as we expand our customer base. Our network hardware and software may not be able to accommodate this
additional volume. Additionally, we must continually upgrade our software to improve the features and
functionality of our services in order to be competitive in our markets. If future versions of our software
contain undetected errors, our business could be harmed. If third-party content is flawed, our business
could be harmed. As a result of software upgrades at LivePerson, our customer sites have, from time to
time, experienced slower than normal response times and interruptions in service. If we experience system
failures or degraded response times, our reputation and brand could be harmed. We may also experience
technical problems in the process of installing and initiating the LivePerson services on new web hosting
services. These problems, if not remedied, could harm our business.

29

Our services also depend on complex software which may contain defects, particularly when we
introduce new versions onto our servers. We may not discover software defects that affect our new or
current services or enhancements until after they are deployed. It is possible that, despite testing by us,
defects may occur in the software. These defects could result in:

•

•

•

•

damage to our reputation;

lost sales;

delays in or loss of market acceptance of our products; and

unexpected expenses and diversion of resources to remedy errors.

Our products are complex, and errors, failures or “bugs” may be difficult to correct.

Our products are complex, integrating hardware, software and elements of a customers’ existing
infrastructure. Despite quality assurance testing conducted prior to the release of our products our software
may contain “bugs” that are difficult to detect and fix. Any such issues could interfere with the expected
operation of a solution, which might negatively impact customer satisfaction, reduce sales opportunities or
affect gross margins. Depending upon the size and scope of any such issue, remediation may have a negative
impact on our business. Our inability to cure an application or product defect, should one occur, could
result in the failure of an application or product line, damage to our reputation, litigation and/or product
reengineering expenses. Our insurance may not cover or may be insufficient to cover expenses associated
with such events.

The non-payment or late payment of amounts due to us from a significant number of customers may
negatively impact our financial condition or make it difficult to forecast our revenues accurately.

During 2017, we decreased our allowance for doubtful accounts by $0.4 million from $1.7 million to
approximately $1.3 million. During 2016, we increased our allowance for doubtful accounts by $0.5 million
to approximately $1.7 million. 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. A large
proportion of receivables are due from larger corporate customers that typically have longer payment cycles.
As a result of increasingly long payment cycles, we have faced increased difficulty in predicting our
operating results for any given period, and have experienced significant unanticipated fluctuations in our
revenues from period to period. Any failure to achieve anticipated revenues in a period could cause our
stock price to decline.

Our services are subject to payment-related risks.

For certain payment methods, including credit and debit cards, we pay interchange and other fees,
which may increase over time and raise our operating costs and lower our profit margins. We rely on third
parties to provide payment processing services, including the processing of credit cards, debit cards and it
could disrupt our business if these companies become unwilling or unable to provide these services to us.
We are also subject to payment card association operating rules, certification requirements and rules
governing electronic funds transfers, which could change or be reinterpreted to make it difficult or
impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to
fines and higher transaction fees and lose our ability to accept credit and debit card payments from our
customers or facilitate other types of online payments, and our business and operating results could be
adversely affected.

Through our consumer-facing platform, we facilitate online transactions between individual service
providers who provide online advice and information to consumers. In connection with these services, we
accept payments using a variety of methods, such as credit card, debit card and PayPal. These payments are
subject to “chargebacks” when consumers dispute payments they have made to us. Chargebacks can occur
whether or not services were properly provided. Susceptibility to chargebacks puts a portion of our revenue
at risk. We take measures to manage our risk relative to chargebacks and to recoup properly charged fees,
however, if we are unable to successfully manage this risk our business and operating results could be
adversely affected. As we offer new payment options to our users, we may be subject to additional
regulations, compliance requirements, and fraud.

30

We are also subject to a number of other laws and regulations relating to money laundering,
international money transfers, privacy and information security and electronic fund transfers. If we were
found to be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties
or forced to cease our payments services business.

Delays in our implementation cycles could have an adverse effect on our results of operations.

Certain of our products require some implementation services, including but not limited to, training
our customers. As an open platform, we also work with other third parties on implementing a variety of
integrations into our platform. We have historically experienced a lag between signing a customer contract
and recognizing revenue from that customer. Although this lag has typically ranged from 30 to 90 days, it
may take more time between contract signing and recognizing revenue in certain situations. If we experience
delays in implementation or do not meet project milestones in a timely manner, we could be obligated to
devote more customer support, engineering and other resources to a particular project. If new or existing
customers cancel or have difficulty deploying our products or require significant amounts of our
professional services, support, or customized features, revenue recognition could be canceled or delayed and
our costs could increase, which could negatively impact our operating results.

If our goodwill or amortizable intangible assets become impaired, we may be required to record a significant
charge to earnings.

Under accounting principles generally accepted in the United States, we review our amortizable
intangible assets for impairment when events or changes in circumstances indicated that the carrying value
may not be recoverable. We review our goodwill for impairment at least annually and when events or
changes in circumstances indicate that the carrying value may not be recoverable. Factors that may be
considered a change in circumstances indicating that the carrying value of our goodwill or amortizable
intangible assets may not be recoverable include a decline in stock price and market capitalization, reduced
future cash flow estimates, and slower growth rates in our industry. Based on our annual review for 2017, we
determined that it is not more-likely that the fair value of the reporting units is less than their carrying
amount. However, future assessments may yield a different result, and from time to time, we may be
required to record a significant charge to earnings in our consolidated financial statements during the
period in which any impairment of our goodwill is determined, resulting in a negative impact on our results
of operations.

There are inherent limitations on the effectiveness of our controls.

We do not expect that our disclosure controls or our internal control over financial reporting will
prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can
provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design
of a control system must reflect the fact that resource constraints exist, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, have been detected. The design of any system
of controls is based in part on certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over
time, controls may become inadequate due to changes in conditions or deterioration in the degree of
compliance with policies or procedures. If our controls become inadequate, we could fail to meet our
financial reporting obligations, our reputation may be adversely affected, our business and operating results
could be harmed, and the market price of our stock could decline.

In the past, we have experienced losses, we had an accumulated deficit of $163.1 million as of December 31,
2017 and we may incur losses in the future.

We have in the past incurred, and we may in the future, incur losses and experience negative cash flow,
either or both of which may be significant. We recorded net losses from inception through the year ended
December 31, 2003. We recorded net income for the years ended December 31, 2004 through 2007 and 2009

31

through 2012, while we recorded net losses for the years ended December 31, 2008, and 2013 through 2017.
We recorded a net loss of $18.2 million for the year ended December 31, 2017. As of December 31, 2017,
our accumulated deficit was approximately $163.1 million. We cannot assure you that we can sustain or
increase profitability on a quarterly or annual basis in the future. Failure to maintain profitability may
materially and adversely affect the market price of our common stock.

With the recent volatility in the capital markets, there is a risk that we could suffer a loss of principal in our
cash and cash equivalents and short term investments and suffer a reduction in our interest income or in our
return on investments.

As of December 31, 2017, we had $56.1 million in cash and cash equivalents. We regularly invest excess
funds from our cash and cash equivalents in short-term money market funds. We currently hold no
mortgaged-backed or auction rate securities. However, some of our investments are subject to general
credit, liquidity, market and interest rate risks, which may be exacerbated by the ongoing uncertainty in the
United States and global credit markets that have affected various sectors of the financial markets and
caused global credit and liquidity issues. In the future, these market risks associated with our investment
portfolio may harm the results of our operations, liquidity and financial condition. Although we believe we
have chosen a more cautious portfolio designed to preserve our existing cash position,
it may not
adequately protect the value of our investments. Furthermore, this more cautious portfolio is unlikely to
provide us with any significant interest income in the near term.

Capital needs necessary to execute our business strategy could increase substantially and we may not be able to
secure additional financing to execute this strategy.

To the extent that we require additional funds to support our operations or the expansion of our
business, or to pay for acquisitions, we may need to sell additional equity, issue debt or convertible securities
or obtain credit facilities through financial institutions. In the past, we have obtained financing principally
through the sale of preferred stock, common stock and warrants. If additional funds are raised through the
issuance of debt or preferred equity securities, these securities could have rights, preferences and privileges
senior to holders of common stock, and could have terms that impose restrictions on our operations. If
additional funds are raised through the issuance of additional equity or convertible securities, our
stockholders could suffer dilution. We cannot assure you that additional funding, if required, will be
available to us in amounts or on terms acceptable to us. If sufficient funds are not available or are not
available on acceptable terms, our ability to fund any potential expansion, take advantage of acquisition
opportunities, develop or enhance our services or products, or otherwise respond to competitive pressures
would be significantly limited. Those limitations would materially and adversely affect our business, results
of operations, cash flows and financial condition.

Failure to license necessary third party software for use in our products and services, or failure to successfully
integrate third party software, could cause delays or reductions in our sales, or errors or failures of our service.
We license third party software that we plan to incorporate into our products and services. In the
future, we might need to license other software to enhance our products and meet evolving customer
requirements. These licenses may not continue to be available on commercially reasonable terms or at all.
Some of this technology could be difficult to replace once integrated. The loss of, or inability to obtain,
these licenses could result in delays or reductions of our applications until we identify, license and integrate
or develop equivalent software, and new licenses could require us to pay higher royalties. If we are unable to
successfully license and integrate third party technology, we could experience a reduction in functionality
and/or errors or failures of our products, which may reduce demand for our products and services.

Third-party licenses may expose us to increased risks, including risks associated with the integration of
new technology, the impact of new technology integration on our existing technology, open source software
disclosure risks, the diversion of resources from the development of our own proprietary technology, and
our inability to generate revenue from new technology sufficient to offset associated acquisition and
maintenance costs.

Our reputation depends, in part, on factors which are partially or entirely outside of our control.

Our services typically appear under the LivePerson brand or as a LivePerson-branded icon on our
customers’ websites. The customer service operators who respond to the inquiries of our customers’

32

Internet users are employees or agents of our customers; they are not our employees. The experts who
respond to the inquiries of Internet users are independent consultants or agents of our customers; they are
not our employees. As a result, we are not able to control the actions of these operators or experts. In
addition, an Internet user may not know that the operator or expert is not a LivePerson employee. If an
Internet user were to have a negative experience in a LivePerson-powered real-time dialogue, it is possible
that this experience could be attributed to us, which could diminish our brand and harm our business.
Finally, we believe the success of our business services is aided by the prominent placement of the chat icon
on a customer’s website, over which we also have no control.

Because we recognize revenue from subscriptions for our service over the term of the subscription, declines in
business may not be immediately reflected in our operating results.

We generally recognize revenue from customers ratably over the terms of their subscription agreements,
which are typically 12 or more months. As a result, much of the revenue we report in each quarter is the
result of subscription agreements entered into during previous quarters. Consequently, a decline in new or
renewed subscriptions or cancellations of existing subscriptions in any one quarter may not be reflected in
our revenue results for that quarter. Any such decline, however, could negatively affect our revenue in future
quarters. Our subscription model also makes it difficult for us to rapidly increase our revenue through
additional sales in any period, because revenue from new customers and additional revenue from existing
customers is generally recognized over the applicable subscription term, rather than instantaneously.

Our sales cycles can be lengthy, and the timing of sales can be difficult to predict, which may cause our
operating results to vary significantly.

The sales cycle for our products can be several months or more and varies substantially from customer
to customer, particularly for sales to enterprise customers. Because we sell complex, integrated solutions, it
can take many months to close sales as customers evaluate our product offering against available
alternatives and define their requirements. We are often required to expend substantial time, effort, and
money educating potential customers them about the value of our offerings. The increasingly complex
needs of our customers can contribute to a longer sales cycle.

Additionally, our quarterly sales have historically reflected an uneven pattern in which a
disproportionate percentage of a quarter’s total sales occur in the last month, weeks and days of each
quarter. These patterns make prediction of revenue especially difficult and uncertain and increase the risk of
unanticipated variations in our results of operations. As a result, we are not always able to precisely predict
the quarter in which expected sales will occur. In addition, historically a large portion of our revenue has
derived from large orders from large clients. Consequently, delays in the closing of sales, especially from
large clients, could have a material impact on the timing of revenue and results of operations.

Political, economic and military conditions in Israel could negatively impact our Israeli operations

Our product development staff, help desk and online sales support operations are located in Israel. As
of December 31, 2017, we had 427 full-time employees in Israel. Although substantially all of our sales to
date have been made to customers outside Israel, we are directly influenced by the political, economic and
military conditions affecting Israel. Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its neighboring countries. Any hostilities involving
Israel or the interruption or curtailment of trade between Israel and its trading partners could adversely
affect our operations and results of operations. During the summer of 2006, Israel was engaged in an
armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and political party, and since
March 2011, there has been a civil war in Syria, Israel’s neighboring country to the north. Occasionally,
violence from Syria has spilled over across Israel’s border, and Israel has responded militarily several times
since the onset of the civil war. During November 2012 and July 2014, Israel was engaged in an armed
conflict with Hamas, a militia group and political party which controls the Gaza Strip. These conflicts
involved missile strikes against civilian targets in various parts of Israel, including areas in which our
employees are located, and negatively affected business conditions in Israel. Any armed conflicts, terrorist
activities or political instability in the region could adversely affect business conditions and could harm our
results of operations.

33

Parties with whom we do business may sometimes decline to travel to Israel during periods of
heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet
our business partners face to face. In addition, the political and security situation in Israel may result in
parties with whom we have agreements involving performance in Israel claiming that they are not obligated
to perform their commitments under those agreements pursuant to force majeure provisions in such
agreements.

Recent popular uprisings in various countries in the Middle East and northern Africa are affecting the
political stability of those countries. This instability may lead to deterioration of the political and trade
relationships that exist between the State of Israel and these countries, as well as potentially affecting the
global economy and marketplace through changes in oil and gas prices. In addition, Iran has publicly
threatened to attack Israel. Iran is also believed to have a strong influence among extremist groups in the
region, such as Hamas in the Gaza Strip and Hezbollah in Lebanon. Additionally, a violent jihadist group
named Islamic State of Iraq and Levant, commonly referred to as ISIS, is involved in hostilities in Iraq and
Syria and have been growing in influence. Although ISIS’s activities have not directly affected the political
and economic conditions in Israel, ISIS’s stated purpose is to take control of the Middle East, including
Israel. These situations may potentially escalate in the future to violent events which may negatively affect
Israel and us.

Further, in the past, the State of Israel and Israeli companies have been subjected to economic
boycotts. Several countries still restrict business with the State of Israel and with Israeli companies.
Additional countries may impose restrictions on doing business with Israel and companies that have
operations in Israel if hostilities in the region continue or intensify. Such restrictions may seriously limit our
ability to sell our products to customers in those countries. Further, shifting economic and political
conditions in the United States and in other countries may result in changes in how the United States and
other countries conduct business and other relations with Israel, which may have an adverse impact on our
Israeli operations and a material adverse impact on our business.

Our commercial insurance may not cover losses that could occur as a result of events associated with
the security situation in the Middle East. Any losses or damages incurred by us could have a material
adverse effect on our business. Armed conflicts or political instability in the region could negatively affect
our business and could harm our results of operations.

Continued hostilities between Israel and its neighbors and any future armed conflict, terrorist activity
or political instability in the region could adversely affect our operations in Israel and adversely affect the
market price of our common stock. In addition, escalation of tensions or violence might require more
widespread military reserve service by some of our Israeli employees and might result in a significant
downturn in the economic or financial condition of Israel, either of which could have a material adverse
effect on our operations in Israel and our business.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted
in the United States.

Accounting principles generally accepted in the United States are subject to interpretation by the
FASB, the American Institute of Certified Public Accountants, the SEC, and various bodies formed to
promulgate and interpret appropriate accounting principles. A change in these principles or interpretations
could have a significant effect on our reported financial results, and could affect the reporting of
transactions completed before the announcement of a change.

We cannot assure our stockholders that our current or future stock repurchase programs will enhance/has
enhanced long-term stockholder value and stock repurchases could increase the volatility of the price of our
common stock and will diminish our cash reserves.

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

34

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. On March 5, 2015, the Company’s Board of Directors extended the expiration date of the
program out to December 31, 2016. On February 16, 2016, the Company’s Board of Directors increased the
aggregate purchase price of the stock repurchase program from $50.0 million to $64.0 million. On
November 21, 2016, the Company’s Board of Directors increased the aggregate purchase price of the stock
repurchase program from $64.0 million to $74.0 million and extended the expiration date of the program
out to December 31, 2017. The timing and actual number of shares repurchased depend on a variety of
factors including the timing of open trading windows, price, corporate and regulatory requirements, and
other market conditions. The program may be suspended or discontinued at any time without prior notice.
Repurchases pursuant to our stock repurchase program could affect our stock price and increase its
volatility. The existence of a stock repurchase program could also cause our stock price to be higher than it
would be in the absence of such a program and could potentially reduce the market liquidity for our stock.
Additionally, our stock repurchase program will diminish our cash reserves, which could impact our ability
to pursue possible future strategic opportunities and acquisitions and could result in lower overall returns
on our cash balances. There can be no assurance that any stock repurchases will enhance stockholder value
because the market price of our common stock may decline below the levels at which we repurchased shares
of stock. Although our stock repurchase program is intended to enhance long-term stockholder value,
short-term stock price fluctuations could reduce the program’s effectiveness. As of December 31, 2017,
approximately $18.4 million remained available for purchase under the program.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to
interruption by man-made problems such as terrorism or computer viruses.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods,
hurricanes, other acts of nature, power losses, telecommunications failures, terrorist attacks, acts of war,
human errors, break-ins, cyber-attacks or failures, pandemics or other public health crises, or similar events.
For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material
adverse impact on our business, operating results and financial condition, and our insurance coverage may
be insufficient to compensate us for losses that may occur. In addition, acts of terrorism could cause
disruptions in our business or the economy as a whole. Our principal executive offices are located in
New York City and our largest office is located in Israel, each of which regions has experienced acts of
terrorism in the past. Our servers may also be vulnerable to computer viruses, break-ins, cyber-attacks, such
as coordinated denial-of-service attacks or ransomware, or other failures, and similar disruptions from
unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of
critical data or the unauthorized disclosure of confidential customer data. Although we have implemented
security measures and disaster recovery capabilities, there can be no assurance that we will not suffer from
business interruption, or unavailability or loss of data, as a result of any such events. As we rely heavily on
our servers, computer and communications systems and the internet to conduct our business and provide
high quality service to our customers, such disruptions could negatively impact our ability to run our
business, result in loss of existing or potential customers and increased expenses, and/or have an adverse
effect on our reputation and the reputation of our products and services, any of which would adversely
affect our operating results and financial condition.

Risks Related to Our Industry

Future regulation of the Internet may slow our growth, resulting in decreased demand for our services and
increased costs of doing business.

State, federal and foreign regulators could adopt laws and regulations that impose additional burdens
on companies that conduct business online or that adversely affect the growth or use of the Internet. For
example, these laws and regulations could discourage communication by e-mail or other web-based
communications, particularly targeted e-mail of the type facilitated by our services, which could reduce
demand for our services. Laws or regulations that affect the use of the Internet, including but not limited to
laws affecting net neutrality could also decrease demand for our services and increase our costs. Further,
regulatory focus on data privacy, data security and consumer protection continues to expand on a

35

worldwide basis and is becoming more complex, which will
reputational, operational, and compliance bases.

increase the risks to our business on

The continued growth and development of the market for online services may prompt calls for more
stringent consumer protection laws or laws that will inhibit the use of Internet-based communications or
the information contained in these communications or the ways in which information may be collected,
stored, used and transferred in the course of providing services. For example, in the United States, the
CAN-SPAM Act regulates the transmission and content of commercial emails, and, among other things,
obligates the sending of such emails to provide recipients with the ability to opt-out or unsubscribe and
other requirements; and the Children’s Online Privacy Protection Act regulates the ability of certain online
services to collect or use certain categories of information from children under age 13 absent parental
consent. The adoption of any additional laws or regulations, or changes to existing laws or regulations, may
decrease the expansion of the Internet. A decline in the growth of the Internet, particularly as it relates to
online communication, could decrease demand for our services and increase our costs of doing business, or
otherwise harm our business. Any new legislation or regulations, application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or application of existing laws and
regulations to the Internet and other online services could increase our costs and harm our growth.

We may be unable to respond to the rapid technological change and changing customer preferences in the
online sales, marketing, customer service, and/or online consumer services industries and this may harm our
business.

If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to
changing market conditions in the online sales, marketing, customer service and/or e-commerce industry or
our customers’ or Internet users’ requirements or preferences, our business, results of operations and
financial condition would be materially and adversely affected. Business on the Internet is characterized by
rapid technological change. In addition, the market for online sales, marketing, customer service and expert
advice solutions is relatively new. Sudden changes in customer and Internet user requirements and
preferences, frequent new product and service introductions embodying new technologies, such as
broadband communications, and the emergence of new industry and regulatory standards and practices
such as but not limited to data privacy and security standards could render the LivePerson services and our
proprietary technology and systems obsolete. The rapid evolution of these products and services will
require that we continually improve the performance, features and reliability of our services. Our success
will depend, in part, on our ability to:

•

•

•

enhance the features and performance of our services;

develop and offer new services that are valuable to companies doing business online as well as
Internet users; and

respond to technological advances and emerging industry and regulatory standards and practices
in a cost-effective and timely manner.

If any of our new services, including upgrades to our current services, do not meet our customers’ or
Internet users’ expectations, we could lose customers and our business may be harmed. Updating our
technology may require significant additional capital expenditures and could materially and adversely affect
our business, results of operations and financial condition.

If new services require us to grow rapidly, this could place a significant strain on our managerial,
operational, technical and financial resources. In order to manage our growth, we could be required to
implement new or upgraded operating and financial systems, procedures and controls. Our failure to
expand our operations in an efficient manner could cause our expenses to grow, our revenue to decline or
grow more slowly than expected and could otherwise have a material adverse effect on our business, results
of operations and financial condition.

We depend on the continued viability of the infrastructure of the Internet.

To the extent that the Internet continues to experience growth in the number of users and frequency of
use by consumers resulting in increased bandwidth demands, we cannot assure you that the infrastructure
for the Internet will be able to support the demands placed upon it. The Internet has experienced outages

36

and delays as a result of damage to portions of its infrastructure. Outages or delays could adversely affect
online sites, email and the level of traffic on the Internet. The Internet is also subject to continued and
ongoing cyber-attacks and related conduct, which affect all online businesses. We also depend on Internet
service providers that provide our customers and Internet users with access to the LivePerson services. In
the past, users have experienced difficulties due to system failures unrelated to our service. In addition, the
Internet could lose its viability due to delays in the adoption of new standards and protocols required to
handle increased levels of Internet activity. Insufficient availability of telecommunications services to
support the Internet also could result in slower response times and negatively impact use of the Internet
generally, and our customers’ sites (including the LivePerson dialogue windows) in particular. If the
infrastructure of the Internet does not effectively support the growth of the Internet, we may not maintain
profitability and our business, results of operations and financial condition will suffer.

We are dependent on the continued growth and acceptance of the Internet as a medium for commerce, and the
related expansion of the Internet infrastructure.

We cannot be sure that a sufficiently broad base of consumers will continue to use the Internet for
commerce. Convincing our customers to use our mobile and online messaging solutions to communicate
with consumers may be difficult. The continuation of the Internet as a viable commercial marketplace is
subject to a number of factors, including:

•

•

•

•

•

•

•

concerns about transaction security or security problems such as “viruses” and “worms” or
hackers;

concerns about cybersecurity attacks or the security of confidential information online;

continued growth in the number of users;

continued development of the necessary technological infrastructure;

development of enabling technologies;

uncertain and increasing government regulation; and

the development of complementary services and products.

Risks Related to Our Common Stock

Our stock price has been, and may continue to be, highly volatile, which could reduce the value of your
investment and subject us to litigation.

The price of our common stock has fluctuated significantly in the past and may continue to be highly
volatile, with extreme price and volume fluctuations. Our trading price could fluctuate substantially in the
future, including in response to the following factors, some of which are beyond our control:

•

•

•

•

•

•

•

•

quarterly variations in our operating results or those of our competitors;

earnings announcements that are not in line with analyst expectations;

changes in recommendations or financial estimates by securities analysts;

announcements or rumors about mergers or strategic acquisitions by us or by our competitors;

announcements about customer additions and cancellations or failure to complete significant
sales;

changes in market valuations of companies that investors believe are comparable to us;

additions or departures of key personnel; and

general economic, political and market conditions, such as recessions, political unrest or terrorist
attacks, or in the specific locations where we operate, such as the United States, Israel and the
United Kingdom.

37

In addition, extreme price and volume fluctuations in the stock markets generally, and in the markets
for technology companies in particular, could cause the market price for our common stock to decline. In
the past, companies that have experienced volatility in the market price of their stock have been the subject
of securities class action litigation. We may in the future be the target of similar litigation, which could
result in substantial costs and distract management’s attention and resources.

Our common stock is traded on more than one market and this may result in price variations.

Our common stock is currently traded on the NASDAQ Global Select Market and the Tel Aviv Stock
Exchange (“TASE”). Trading in our common stock on these markets takes place in different currencies
(U.S. dollars on the NASDAQ and New Israeli Shekels on the TASE) and at different times (due to
different time zones, trading days and public holidays in the United States and Israel). The trading prices of
our common stock on these two markets may differ due to these and other factors. Any decrease in the
trading price of our common stock on one of these markets could cause a decrease in the trading price of
our common stock on the other market. Differences in trading prices on the two markets could negatively
impact our trading price.

If our officers, directors and largest stockholders choose to act together, they may be able to significantly
influence our management and operations, acting in their own best interest and not necessarily those of our
other stockholders.

As of December 31, 2017, our executive officers, directors and holders of 5% or more of our
outstanding common stock and their affiliates in the aggregate beneficially owned approximately 40% of
our outstanding common stock. As a result, these stockholders, acting together, have the ability to
significantly influence all matters requiring approval by our stockholders, including the election of directors
and approval of
significant corporate transactions. Our executive officers, directors and principal
stockholders could also delay or prevent a change in control. The interests of this group of stockholders
may not always coincide with the company’s interests or the interests of other stockholders, and they may
act in a manner that advances their best interests and not necessarily those of our other stockholders.

Future sales of substantial amounts of our common stock may negatively affect our stock price.

If we or our stockholders sell substantial amounts of our common stock, including shares issuable
upon the exercise of outstanding options and warrants, in the public market, or if the market perceives that
these sales might occur, the market price of our common stock could fall. These sales also might make it
more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. No
prediction can be made as to the effect, if any, that market sales of our common stock will have on the
market price of our common stock.

Provisions in our charter documents and Delaware law could discourage, delay or prevent a takeover that
stockholders may consider favorable.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws
may have the effect of discouraging, delaying or preventing a change in control or changes in our
management that stockholders may deem advantageous. These provisions include the following:

•

•

•

•

Our board of directors is divided into three classes, with each class serving three-year staggered
terms, which prevents stockholders from electing an entirely new board of directors at any annual
meeting.

Vacancies on our board of directors may only be filled by a vote of a majority of directors then in
office, even if less than a quorum.

Our amended and restated certificate of incorporation prohibits cumulative voting in the election
of directors or any other matters. This limits the ability of minority stockholders to elect director
candidates.

Our stockholders may only act at a duly called annual or special meeting and may not act by
written consent.

38

•

Stockholders must provide advance notice to nominate individuals for election to our board of
directors or to propose other matters that can be acted upon at a stockholders’ meeting.

• We require super-majority voting by stockholders to amend certain provisions in our amended

and restated certificate of incorporation and to amend our amended and restated bylaws.

•

Our amended and restated bylaws expressly authorize a super-majority of the board of directors
to amend our amended and restated bylaws.

As a Delaware corporation, we are also subject to Section 203 of the Delaware General Corporation
Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business
combinations with an interested stockholder for a period of three years following the date on which the
stockholder became an interested stockholder, unless certain conditions are met. This anti-takeover
provision defenses could discourage, delay or prevent a change in control of our company, whether or not it
is desired by or beneficial to our stockholders, which in turn could have a material adverse effect on the
market price of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

Our corporate headquarters are located in New York City, where we lease approximately 37,000 square
feet of office space under a lease that expires in 2020. We also lease office space of approximately 68,000
square feet in Ra’anana, Israel, for research and development, sales and support under leases that expire in
2018, of approximately 40,000 square feet in Alpharetta, Georgia, for sales and support under a lease that
expires in 2024; and approximately 7,300 square feet in Reading, United Kingdom, for marketing, sales and
support under a lease that expires in 2019.

As of December 31, 2017, we also lease office space for marketing, sales and support of approximately
45,000 square feet in various locations in the United States, Europe, Asia and Australia. In addition, we
have data centers in the United States, Europe and Australia pursuant to various lease agreements. We
believe that our current facilities properties are in good condition and are adequate to meet our current
needs. If required, we believe that we will be able to obtain suitable additional space on commercially
reasonable terms.

Item 3.

Legal Proceedings

We previously filed an intellectual property suit against [24]7 Customer, Inc. in the Southern District of
New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and
misappropriated our technology to develop competing products and misused our business information. On
June 22, 2015, [24]7 Customer, Inc. filed suit against us in the Northern District of California alleging
patent infringement. On December 7, 2015, [24]7 Customer Inc. filed a second patent infringement suit
against us, also in the Northern District of California. On March 16, 2017, the New York case was
voluntarily transferred and consolidated with the two California cases in the Northern District of
California for all pre-trial purposes. Recent Court rulings in our favor have invalidated multiple [24]7
patents that were asserted in the patent cases. Trial for our intellectual property and other claims asserted
against [24]7 in the original litigation is currently set for November 26, 2018. We believe the claims filed by
[24]7 are entirely without merit and intend to defend them vigorously.

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

39

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 disclosure 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.

From time to time, third parties assert claims against us regarding intellectual property rights, privacy
issues and other matters arising in the ordinary course of business. Although we cannot be certain of the
outcome of any litigation or the disposition of any claims, nor the amount of damages and exposure, if
any, that we could incur, we currently believe that the final disposition of all existing matters will not have a
material adverse effect on our business, results of operations, financial condition or cash flows. In addition,
in the ordinary course of our business, we are also subject to periodic threats of lawsuits, investigations and
claims. Regardless of the outcome, litigation can have an adverse impact on us because of defense and
settlement costs, diversion of management resources and other factors.

Item 4. Mine Safety Disclosures

Not Applicable.

40

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

PART II

Equity Securities

Price Range of Common Stock

The principal United States market on which our common stock is traded is The NASDAQ Global
Select Market under the symbol LPSN. Our shares of common stock are also traded on the Tel Aviv Stock
Exchange.

The following table sets forth, for each full quarterly period within the two most recent fiscal years, the
high and low sales prices (in U.S. dollars per share) of our common stock as reported or quoted on The
NASDAQ Global Select Market:

High

Low

Year ended December 31, 2017:

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8.05
$11.90
$13.85
$14.90

$ 6.60
$ 6.55
$10.95
$10.90

Year ended December 31, 2016:

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6.82
$ 7.20
$ 8.50
$ 8.65

$ 4.10
$ 5.69
$ 6.26
$ 7.45

Holders

As of February 21, 2018, there were approximately 124 holders of record of our common stock.

Dividends

We have not declared or paid any cash dividends on our capital stock since our inception. We intend to
retain earnings, if any, to finance the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future.

Issuer Purchases of Equity Securities

A summary of the Company’s repurchase activity for the three months ended December 31, 2017 is as

follows:

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)

10/1/2017 – 10/31/2017 . . . . .
11/1/2017 – 11/30/2017 . . . . .
12/1/2017 – 12/31/2017 . . . . .
Total . . . . . . . . . . . . . . . . . .

—
—
—
—

$—
—
—
$—

—
—
—
—

Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs(1)(2)(3)
$18,395,372
18,395,372
18,395,372
18,395,372
$18,395,372

(1) On December 10, 2012, the Company announced that its Board of Directors approved a stock
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.

41

(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. On March 5, 2015, the Company’s Board of
Directors extended the expiration date of the program out to December 31, 2016. As of December 31,
2015, approximately $6.1 million remained available for purchases under the program. On February 16,
2016, the Company’s Board of Directors increased the aggregate purchase price of
the stock
repurchase program by an additional $14.0 million. On November 21, 2016, the Company’s Board of
Directors increased the aggregate purchase price of the stock repurchase program from $64.0 million
to $74.0 million and extended the expiration date of the program out to December 31, 2017.

(3) Transaction fees related to the share purchases are deducted from the total remaining allowable

expenditure amount.

Stock Performance Graph

The graph depicted below compares the annual percentage changes in the LivePerson’s cumulative total
stockholder return with the cumulative total return of the Standard & Poor’s SmallCap 600 Index and the
Standard & Poor’s Information Technology Index.

e
u
l
a
V
x
e
d
n
I

300

250

200

150

100

50

0

12/31/12

12/31/13

12/31/14

12/31/15

12/31/16

12/31/17

Period Ending

LivePerson, Inc.

S&P Smallcap 600

S&P Information Technology

(1) The graph covers the period from December 31, 2012 to December 31, 2017.

(2) The graph assumes that $100 was invested at the market close on December 31, 2012 in LivePerson’s
in the Standard & Poor’s SmallCap 600 Index and in the Standard & Poor’s
Common Stock,
Information Technology Index, and that all dividends were reinvested. No cash dividends have been
declared on LivePerson’s Common Stock.

(3) Stockholder returns over the indicated period should not be considered indicative of

future

stockholder returns.

Notwithstanding anything to the contrary set forth in any of our previous or future filings under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate by reference this Annual Report on Form 10-K or future filings made by the Company under those
statutes, the Stock Performance Graph above is not deemed filed with the Securities and Exchange
Commission, is not deemed soliciting material and shall not be deemed incorporated by reference into any of
those prior filings or into any future filings made by us under those statutes, except to the extent that we
specifically incorporate such information by reference into a previous or future filing, or specifically request that
such information be treated as soliciting material, in each case under those statutes.

42

 
Item 6.

Selected Consolidated Financial Data

The selected consolidated financial data with respect to our consolidated balance sheets as of
December 31, 2017 and 2016 and the related consolidated statements of operations for the years ended
December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements
which are included herein. The selected financial data with respect to our balance sheets as of December 31,
2015, 2014 and 2013 and the related statements of operations for the years ended December 31, 2014 and
2013 have been derived from our audited financial statements which are not included herein. Due to our
acquisitions of CAO!, Synchronite and NexGraph in 2014, we believe that comparisons of our operating
results with each other, or with those of prior periods, may not be meaningful. The following selected
consolidated financial data should be read in conjunction with the consolidated financial statements and
the notes thereto and the information contained in Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”

2017

Year Ended December 31,
2015
(In Thousands, Except Share and per Share Data)

2016

2014

2013

Consolidated Statement of

Operations Data:

Revenue . . . . . . . . . . . . . . . . . .
Costs and expenses:

Cost of revenue . . . . . . . . . . .
Sales and marketing . . . . . . . .
General and administrative . . .
Product development . . . . . . .
Restructuring costs . . . . . . . .
Amortization of purchased

intangibles . . . . . . . . . . . . .
Total costs and expenses . . .
Loss from operations . . . . . . . . .
Other income (expense) . . . . . . .
Loss before provision for (benefit
. . . . . . . .

from) income taxes

Provision for (benefit from)

income taxes . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . .

Net loss per share of common

stock:
Basic . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . .

Weighted-average shares used to
compute net loss per share:
Basic . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . .

Other Financial and Operational

Data:

$

218,876

$

222,779

$

239,012

$

209,931

$

177,805

58,205
90,905
43,124
40,034
2,594

1,840
236,702
(17,826)
136

63,161
89,529
43,046
40,198
2,369

3,885
242,188
(19,409)
(530)

70,310
94,728
37,171
38,974
3,384

4,873
249,440
(10,428)
(202)

52,703
83,253
40,192
37,329
—

1,621
215,098
(5,167)
(322)

42,555
62,488
39,968
36,397
—

871
182,279
(4,474)
337

(17,690)

(19,939)

(10,630)

(5,489)

(4,137)

501
(18,191) $

5,934
(25,873) $

15,814
(26,444) $

1,859
(7,348) $

(638)
(3,499)

(0.32) $
(0.32) $

(0.46) $
(0.46) $

(0.47) $
(0.47) $

(0.13) $
(0.13) $

(0.06)
(0.06)

$

$
$

56,358,017
56,358,017

56,063,777
56,063,777

56,452,408
56,452,408

54,478,754
54,478,754

54,725,236
54,725,236

Adjusted EBITDA(1) . . . . . . . . .
Adjusted net income(2)(3)
. . . . . .

$
$

18,400
4,015

$
$

19,198
4,532

$
$

21,244
5,803

$
$

22,672
7,423

$
$

18,767
7,574

(1) We define adjusted EBITDA as net loss before provision for (benefit from) income taxes, other
(expense) income, net, depreciation and amortization, stock-based compensation, restructuring costs,
acquisition costs and other non-recurring charges. Please see “Adjusted EBITDA” below for more
information and for a reconciliation of adjusted EBITDA to net (loss) income, the most directly
comparable financial measure calculated and presented in accordance with U.S. generally accepted
accounting principles, or GAAP.

43

(2) We define adjusted net income as net income excluding amortization, stock-based compensation,
restructuring costs, acquisition costs, contingent earn-out adjustments, other non-recurring charges
and the related income tax effect of these adjustments. Please see “Adjusted Net Income” below for
more information and for a reconciliation of adjusted net income to net (loss) income, the most
directly comparable financial measure calculated and presented in accordance with U.S. generally
accepted accounting principles, or GAAP.

(3) During 2017, the Company updated the methodology for calculating adjusted net income. In 2016, the
Company incorporated the GAAP tax rate into the calculation, whereas in 2017, the Company now
stock based
starts
compensation, contingent earn-out adjustments, acquisition costs, other non-recurring, restructuring,
and then applies a standardized 35% long-term projected tax rate. The prior periods (2013 – 2016) were
adjusted to conform to the current period presentation.

the calculation with GAAP pre-tax loss,

then adds back amortization,

Stock-based compensation included in the statements of operations above was as follows (amounts

in thousands):

Cost of revenue . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . .
Product development . . . . . . . . . . . . . . . . .

Total stock-based compensation . . . . . . . .

2017

$ 448
2,500
3,691
2,305

$8,944

Year Ended December 31,

2016

$ 429
2,515
3,304
3,488

$9,736

2015

2014

2013

$ 1,396
3,088
3,692
3,638

$11,814

$ 1,492
3,399
3,809
3,606

$12,306

$ 1,954
2,851
4,148
3,555

$12,508

As of December 31,

2017

2016

2015

2014

2013

(In Thousands)

Consolidated Balance Sheet Data:

Cash and cash equivalents . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . .

$ 56,115
13,789
232,799
140,063

$ 50,889
17,468
219,638
138,476

$ 48,803
39,122
226,194
165,305

$ 49,372
34,954
239,817
180,337

$ 91,906
88,877
205,090
159,053

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) income, the most
directly comparable GAAP financial measures.

We have included adjusted EBITDA and adjusted net income in this Annual Report on Form 10-K
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.

44

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 new capital expenditure
requirements;

such replacements or

for

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

adjusted EBITDA does not
compensation;

consider

the potentially dilutive

impact of

equity-based

adjusted EBITDA does not consider the impact of acquisition costs;

adjusted EBITDA does not consider the impact of restructuring costs;

adjusted EBITDA does not consider the impact of other non-recurring costs;

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

other companies,
differently, which reduces its usefulness as a comparative measure.

including companies in our industry, may calculate adjusted EBITDA

Because of

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

Year Ended December 31,

2017

2016

2015

2014

2013

Reconciliation of Adjusted EBITDA:

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . .
Contingent earn-out adjustments . . . . . . . . . . . .
Restructuring costs
. . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-recurring costs . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . .
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Other (income) expense, net

$(18,191) $(25,873) $(26,444) $ (7,348) $ (3,499)
2,643
12,508
—
—
8,090
—

8,040
11,814
(3,680)
3,384(3)
12,114
—

5,090
12,306
—
—
9,071
—

4,682
8,944
—
2,594(1)
12,358
7,648(4)
501
—
(136)

6,673
9,736
—
2,369(2)
12,011
7,818(5)
5,934
—
530

15,814
—
202

1,859
1,372
322

(638)
—
(337)

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . .

$ 18,400

$ 19,198

$ 21,244

$22,672

$18,767

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 is a non-cash charge, 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
compensation;

income does not consider the potentially dilutive impact of equity-based

45

•

•

•

•

•

adjusted net income does not consider the impact of acquisition costs;

adjusted net income does not consider the impact of restructuring costs;

adjusted net income does not consider the impact of other non-recurring costs;

adjusted net income does not consider the potentially dilutive impact of deferred tax asset
valuation allowance; and

other companies,
differently, which reduces its usefulness as a comparative measure.

including companies in our industry, may calculate adjusted net income

Because of these limitations, you should consider adjusted net income alongside other financial
performance measures, including various cash flow metrics, pre-tax GAAP 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):

2017

Year Ended December 31,
2015

2016

2014

2013

Reconciliation of Adjusted Net Income
Pre-tax GAAP loss . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Restructuring costs
Other non-recurring costs . . . . . . . . . . . . . . . . .
Contingent earn-out adjustments . . . . . . . . . . . .
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax GAAP adjusted net income . . . . . . . . . . . .
Income tax effect of non-GAAP items . . . . . . . .
Adjusted net income . . . . . . . . . . . . . . . . . . . . . .

$(17,690) $(19,939) $(10,630) $ (7,348) $ (3,499)
2,643
12,508
—
—
—
—
11,652

8,040
11,814
3,384(3)
—
(3,680)
—
8,928
(3,125)(7) (3,997)(7) (4,078)(7)

4,682
8,944
2,594(1)
7,648(4)
—
—
6,178
(2,163)(7)

6,673
9,736
2,369(2)
8,134(6)
—
—
6,973
(2,441)(7)

5,090
12,306
—
—
—
1,372
11,420

$ 4,015

$ 4,532

$ 5,803

$ 7,423

$ 7,574

(1)

(2)

(3)

(4)

(5)

(6)

Includes wind down costs of legacy platform of $1.9 million and severance costs of $0.7 million for the
twelve months ended December 31, 2017.

Includes severance costs of $1.6 million, wind down costs of legacy platform of $1.2 million and a
benefit of $0.4 million of cash collected on previously written off bad debt for the twelve months
ended December 31, 2016.

Includes approximately $1.7 million of termination costs associated with a large customer contract that
ended in 2015 and $1.7 million of severance and other associated costs for the twelve months ended
December 31, 2015.

Includes litigation costs of $6.2 million, executive one-time compensation payment of $1.0 million, and
executive separation cost of $0.5 million for the twelve months ended December 31, 2017.

Includes litigation costs of $4.7 million, write off of technology licenses of $2.6 million, and severance
costs of $0.5 million for the twelve months ended December 31, 2016.

Includes litigation costs of $4.7 million, write off of technology licenses of $2.6 million, severance
costs of $0.5 million, and write off of office facility depreciation of $0.3 million for the twelve months
ended December 31, 2016.

(7) During 2017, the Company updated the methodology for calculating adjusted net income. In 2016, the
Company incorporated the GAAP tax rate into the calculation, whereas in 2017, the Company now
starts
stock based
compensation, contingent earn-out adjustments, acquisition costs, other non-recurring, restructuring,
and then applies a standardized 35% long-term projected tax rate. The prior periods (2013 – 2016) were
adjusted to conform to the current period presentation.

the calculation with GAAP pre-tax loss,

then adds back amortization,

46

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

You should read the following discussion of our financial condition and results of operations in conjunction
with the financial statements and the notes thereto included elsewhere in this report. The following discussion
contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that could cause or contribute to
these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”

Overview

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service
was introduced in November 1998. LivePerson makes life easier by transforming how people communicate
with brands. LiveEngage, the Company’s enterprise-class, cloud-based platform, enables businesses and
consumers to connect through conversational interfaces, such as in-app and mobile messaging, while
leveraging bots and Artificial Intelligence (AI) to increase efficiency. As consumers have reoriented their
digital lives around the smartphone, messaging apps have become their preferred communication channel to
connect with each other. LivePerson allows brands to align with this new consumer preference, and deploy
messaging at scale for customer care, marketing and sales, instead of requiring that consumers use email or
call a 1-800 number. More than 18,000 businesses, including Adobe, Citibank, EE, HSBC, IBM, L’Oreal,
Orange, PNC, and The Home Depot employ our technology to keep pace with rising customer service
expectations and to align with preferences for digital communication channels.

We are organized into two operating segments: Business and Consumer. The Business segment enables
brands to leverage LiveEngage’s sophisticated intelligence engine to connect with consumers through an
integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates
online transactions between independent service providers (“Experts”) and individual consumers (“Users”)
seeking information and knowledge for a fee via mobile and online messaging.

In order to sustain growth in these segments, our strategy is to expand our position as the leading
provider of online and mobile messaging solutions that transform how people communicate with brands.
To accomplish this, we are focused on the following current initiatives:

The key elements of LivePerson’s business solutions strategy include:

Strengthening Our Position in both Existing and New Markets and Growing Our Recurring Revenue
Base. LivePerson plans to continue to develop its market position by increasing its customer base, and
expanding within its installed base. We will continue to focus primarily on key target markets: automotive,
financial services, retail, technology, telecommunications, and travel/hospitality within both our enterprise
and mid-market sectors, as well as the small business (SMB) sector. Healthcare, insurance, real estate and
energy utilities are new target industries and natural extensions of our primary target markets. We plan to
leverage our new LiveEngage platform to replace a portion of calls traditionally made to 1-800 numbers
with text and mobile messaging, and to increase adoption of real-time, campaign-based messaging across
our customer’s online properties. We intend to collaborate with our large installed customer base to
optimize the value and effectiveness that brands derive from our services. We are also focused on
strengthening our recurring revenue stream by signing larger, long-term, and more strategic deals.

One of the key ways we are developing our market position is by hosting customer summits for
executive level attendees from our targeted enterprise customer base and prospects. These customer
summits feature existing customers that have demonstrated strong success with messaging and bots on
LiveEngage. We believe that scaled reference customers advocating the adoption of messaging on
LiveEngage to targeted peer groups will be a key driver of our growth. In 2017 we increased the pacing and
scale of these summits, a pattern that we expect to continue in 2018.

Fuel Increased Usage by Expanding Messaging Channels, Use Cases and Interaction Types. LiveEngage
currently supports numerous messaging endpoints including branded mobile apps, mobile and desktop web
browsers, IVRs, SMS, Facebook Messenger and LINE. We intend to increase the number of endpoints
supported by the LiveEngage platform to include additional third-party social apps and device-based systems.

47

We also intend to broaden the use cases of LiveEngage across our customer base, to support care, sales,
marketing and retail footprints. In addition, LivePerson continues to expand the breadth of interaction types
available to customers on the platform. For example, in addition to our broad suite of messaging and real-time
chat technologies, customers have access to content delivery, analytics, cobrowse, and PCI compliance, as well
as proprietary and third-party bot offerings. LivePerson offers a platform pricing model, which provides
businesses access to our entire suite of messaging technologies across their entire agent pool for a
pre-negotiated cost per interaction. We believe this model will lead to growth opportunities for LivePerson as
customers adopt new messaging channels, use cases and interaction types.

Leverage Partners to Enhance our Offering.

In addition to developing our own applications, we
continue to cultivate a partner eco-system capable of offering additional applications and services to our
customers. For example, in 2015, we integrated LiveEngage with one of the leading consumer messaging
platforms. In 2016, we integrated LiveEngage with one of the leading mobile search ad extensions, enabling
consumers to initiate SMS messaging conversations with brands directly out of their mobile search results.
In 2017, LivePerson launched the LiveEngage for Bots program and we have subsequently integrated
LiveEngage with multiple artificial intelligence/bots vendors, including IBM Watson.

Our offering is vendor agnostic, empowering our customers to manage a mix of different bots, human
agents and technologies from one control panel, thereby optimizing contact center efficiency. LivePersons’
proprietary and third-party AI/bots enable brands to partially or fully automate communications with their
customers. In addition, we have opened up access to our platform and our products with application
programming interfaces (APIs) that allow third parties to develop on top of our platform. Customers and
partners can utilize these APIs to build our capabilities into their own applications and to enhance our
applications with their services. In 2017, we allocated additional resources to supporting partners and we
expect this investment to increase as our partner network expands.

Maintaining Market Leadership in Technology and Security Expertise. As described above, we are
devoting significant resources to creating new products and enabling technologies designed to accelerate
innovation. In order to better support our customers and to attract the best talent, LivePerson is globalizing
research and development. We now have tech centers in Israel; Mannheim, Germany; New York; Atlanta
and Mountain View, California. We evaluate emerging technologies and industry standards and continually
update our technology in order to retain our leadership position in each market we serve. We monitor legal
and technological developments in the area of information security and confidentiality to ensure our
policies and procedures meet or exceed the demands of
the world’s largest and most demanding
corporations. We believe that these efforts will allow us to effectively anticipate changing customer and
consumer requirements in our rapidly evolving industry.

International Presence. LivePerson is focused on expanding its international revenue contribution,
which increased to 37% of total revenue in 2017, from 34% in 2016 and 33% in 2015. LivePerson generated
positive results from previous investments in direct sales and services personnel in the United Kingdom and
Western Europe. We also continued to focus on expanding our presence in the Asia Pacific region,
leveraging our relationships with partners.

Continuing to Build Brand Recognition. As a pioneer of brand-to-consumer digital messaging,
LivePerson enjoys strong brand recognition and credibility. We continue to develop relationships with the
media, industry analysts and relevant business associations to enhance awareness of our leadership within
the care, sales, tech and marketing industries. With a vision of becoming the leader in messaging, we’ve
hosted several private executive events for our customers and prospects, highlighting our expertise and the
breadth of our services. These private executive events have led us to close several high-profile deals and we
are continuing them throughout 2018. Our focus on connecting large enterprise businesses and their
millions of consumers securely and at scale is a primary differentiator for LivePerson and a key component
of our marketing strategy. We strategically target decision makers and influencers within several key vertical
markets, leveraging customer successes to generate increased awareness and demand for brand-to-consumer
messaging. In addition, our brand name may also be visible to both business users and consumers on a
brand’s website, within the dialog messaging window. We also engage in digital marketing campaigns that
promote our brand on web searches and third-party sites.

48

Increasing the Value of Our Service to Our Customers. Leveraging LiveEngage to shift
communication between consumers and brands from 1-800 number calls to AI and human-powered
messaging is the most important initiative in LivePerson’s history. We believe that adoption of LiveEngage
will align brands with consumer communication preferences, improve the customer experience and reduce
contact center costs. Our platform strategy makes available the full suite of LivePerson’s capabilities
through a single solution. In addition, the open architecture of LiveEngage will enable LivePerson to
rapidly add new capabilities either directly or through partners. For example, we see opportunities for
additional efficiencies in the contact center through the integration of artificial intelligence and bots.
Because we directly manage the server infrastructure, we can make new features available to our customers
immediately upon release, without customer or end-user installation of software or hardware. Our strategy
is to continue to enhance the LiveEngage messaging platform and to leverage the substantial amount of
mobile and online consumer data we collect, with the aim of increasing agent efficiency, decreasing
customer care costs, improving the customer experience and increasing customer lifetime value.

Evaluating Strategic Alliances and Acquisitions When Appropriate. We have successfully integrated
several acquisitions over the past decade. While we have in the past, and may from time to time in the
future, engage in discussions regarding acquisitions or strategic transactions or to acquire other companies
that can accelerate our growth or broaden our product offerings, we currently have no binding
commitments with respect to any future acquisitions or strategic transactions.

Key Metrics

Financial overview of the three and twelve months ended December 31, 2017 compared to the

comparable periods in 2016 are as follows:

•

•

•

•

•

•

•

Revenue increased 2% and decreased 2% to $57.4 million and $218.9 million in the three and
twelve months ended December 31, 2017, respectively, from $56.1 million and $222.8 million in
the comparable periods in 2016.

Revenue from our Business segment increased 2% and decreased 2% to $52.9 million and
$201.4 million in the three and twelve months ended December 31, 2017, respectively, from
$51.9 million and $206.5 million in the comparable periods in 2016.

Gross profit margin increased to 74% and 73% in the three and twelve months ended
December 31, 2017 from 73% and 72% in the comparable periods in 2016.

Cost and expenses decreased 2% to $63.3 million and $236.7 million in the three and
twelve months ended December 31, 2017, respectively, from $64.4 million and $242.2 million in
the comparable periods in 2016.

Net loss decreased to $3.7 million and $18.2 million in the three and twelve months ended
December 31, 2017, respectively, from net loss of $9.6 million and $25.9 million for the three and
twelve months ended December 31, 2016, respectively.

Trailing-twelve-month average revenue per enterprise and mid-market customer was greater than
$220,000 in 2017, as compared to approximately $200,000 in 2016.

Revenue retention rate for enterprise and mid-market customers on LiveEngage was greater than
100% for the twelve-months ended December 31, 2017 and 2016.

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 and ongoing optimization services. 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.

49

Revenue from our Business segment accounted for 92%, 93%, and 94% of total revenue for the year
ended December 31, 2017, 2016, and 2015, respectively. Revenue attributable to our monthly hosted
Business services accounted for 89% of total Business revenue for the year ended December 31, 2017 and
2016. Revenue attributable to our monthly hosted Business services accounted for 90% of total Business
revenue for the years ended December 31, 2015. 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 has typically ranged 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 is recognized net of Expert fees and accounted for approximately 8%, 7%, and 6% of total revenue for
the years ended December 31, 2017, 2016, and 2015, 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;

outside labor provider costs;

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 sales and marketing expenses consist of compensation and related expenses for sales personnel 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, information technology and human resources personnel, allocated occupancy
costs and related overhead, litigation, professional fees, provision for doubtful accounts and other general
corporate expenses.

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.

During 2017, we decreased our allowance for doubtful accounts from $1.7 million to approximately
$1.3 million, principally due to an increase in write-offs compared to 2016. During 2016, we increased our
allowance for doubtful accounts by approximately $0.5 million to approximately $1.7 million, principally
due to analysis of the accounts receivable aging. A large proportion of receivables are due from larger

50

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 for the years ended December 31, 2017, 2016 and 2015

consist of (amounts in thousands):

Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,944

$9,736

$11,814

2017

2016

2015

Results of Operations

The Company is organized into two operating segments: Business and Consumer. The Business
segment enables brands to leverage LiveEngage’s sophisticated intelligence engine to connect with
consumers through an integrated suite of mobile and online business messaging technologies. The
Consumer segment facilitates online transactions between Experts and Users seeking information and
knowledge for a fee via real-time chat.

The following tables set forth our results of operations for the periods presented and as a percentage of
our revenues for those periods. The period-to-period comparison of financial results is not necessarily
indicative of future results.

Year Ended December 31,

2017

2016

2015

(as a percentage of revenue)

Consolidated Statements of Operations Data:(1)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%

100%

100%

Costs and expenses:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . . . . . . . . . . . .

27%
42%
20%
18%
1%
1%

28%
40%
19%
18%
1%
2%

29%
40%
16%
16%
1%
2%

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

108%

109%

104%

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net

Loss before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provision for income taxes

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)%
—%

(8)%

—%

(9)%
—%

(9)%

3%

(4)%
—%

(4)%

7%

Net loss

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8)% (12)%

(11)%

(1) Certain items may not total due to rounding.

51

Revenue

Revenue by Segment:

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

(in thousands)

(in thousands)

Business . . . . . . . . . . . . . . . . . . .

$201,426

$206,521

(2)% $206,521

$223,803

Consumer . . . . . . . . . . . . . . . . . .

17,450

16,258

7%

16,258

15,209

Total

. . . . . . . . . . . . . . . . . . . .

$218,876

$222,779

(2)% $222,779

$239,012

(8)%

7%

(7)%

Our business revenue growth has traditionally been driven by a mix of revenue from new customers as
well as expansion from existing customers. Business revenue decreased by 2% to $201.4 million for the year
ended December 31, 2017, from $206.5 million for the year ended December 31, 2016. This decrease is
primarily attributable to revenue from existing customers of approximately $14.9 million, net of
cancellations, and revenue that is variable based on interactions and usage in the amount of $1.0 million.
This is partially offset by increases in revenue from new customers of approximately $10.1 million and from
professional services of approximately $0.7 million.

Business revenue decreased by 8% to $206.5 million for the year ended December 31, 2016, from
$223.8 million for the year ended December 31, 2015. The decrease is primarily attributable to revenue from
existing customers of approximately $22.5 million, net of cancellations, and revenue that is variable based
on interactions and usage in the amount of $5.3 million. This is partially offset by increases in revenue from
new customers of approximately $10.0 million and revenue from professional services of approximately
$0.5 million.

The overall decrease in business revenue is primarily attributable to our focus in 2016 on migration of
current customers from our old platform to our new LiveEngage platform rather than sales to new
customers or expansion of our services to existing customers, which has a carry-over effect in 2017. As of
January 1, 2017, our focus shifted back to selling and expanding our base of messaging customers. In
addition, the majority of customers had been notified for end of life on the legacy offering in 2017, and not
every legacy customer has elected to move to LiveEngage. We continue to see a decrease in existing
customer cancellations quarter over quarter. During the fourth quarter 2017, we returned to year over year
revenue growth.

Consumer revenue increased by 7% to $17.5 million for the year ended December 31, 2017, from the
year ended December 31, 2016. This increase is primarily attributable to an increase in price per minute
along with an increase in gross fees. Consumer revenue increased by 7% to $16.3 million for the year ended
December 31, 2016, from the year ended December 31, 2015. This increase is primarily attributable to an
increase in chat minutes, along with an increase in gross fees.

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.

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Cost of revenue – Business . . . . . . . . .
Percentage of total revenue . . . . . . . .
Headcount (at period end) . . . . . . . . .

$54,600

$60,352

(10)% $60,352

$67,901

(11)%

25%
205

27%

236

(13)%

27%
236

28%
286

(17)%

Cost of revenue decreased by 10% to $54.6 million in 2017, from $60.4 million in 2016. This decrease
in expense is primarily attributable to a decrease in salary and related employee expenses of approximately
$3.1 million, a decrease in primary and backup server facilities and allocated overhead cost related to costs
of supporting our server and network infrastructure of approximately $1.5 million, and a decrease in
depreciation of approximately $1.3 million.

52

Cost of revenue decreased by 11% to $60.4 million in 2016, from $67.9 million in 2015. This decrease
in expense is primarily attributable to a decrease in salary and related employee expenses of approximately
$1.6 million, a decrease in business services and outsourced subcontracted labor of approximately
$4.8 million, and a decrease in depreciation and amortization of fixed assets of approximately $1.5 million.

The decrease in cost of revenue was tied to our ability to operationalize cost savings by moving brands

off of our legacy platform and realigning our go-to-market strategy around LiveEngage.

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.

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Cost of revenue – Consumer . . . . . . .

$3,605

$2,809

28%

$2,809

$2,409

17%

Percentage of total revenue . . . . . . . .
Headcount (at period end) . . . . . . . . .

2%

18

1%

16

13%

1%
16

1%
17

(6)%

Cost of revenue increased by 28% to $3.6 million in 2017, from $2.8 million in 2016. This is primarily
related to an increase in salary and related employee expenses of approximately $1.1 million. This increase is
partially offset by a decrease in backup server facilities of approximately $0.5 million.

Cost of revenue increased by 17% to $2.8 million in 2016, from $2.4 million in 2015. This is primarily
attributable to an increase in backup server facilities of approximately $0.6 million, an increase in business
services and outsourced labor of approximately $0.2 million, an increase in depreciation of approximately
$0.2 million, and an increase of credit card processing fees of approximately $0.2 million. This is partially
offset by a decrease in salary and related employee expenses of approximately $0.8 million.

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.

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Sales and Marketing – Business . . . . .
Percentage of total revenue . . . . . . . .
Headcount (at period end) . . . . . . . . .

$82,420

$82,063

—%

$82,063

$87,975

(7)%

38%
291

37%
310

(6)%

37%
310

37%
324

(4)%

Sales and marketing expenses remained relatively flat in 2017 as compared to 2016. There was an
increase in marketing events, advertising, public relations, and tradeshow exhibit expenses of approximately
$3.1 million, an increase in business services and outsourced labor of approximately $1.7 million, and an
increase in depreciation expense by approximately $0.3 million. This was offset by a decrease in salary and
related employee expenses of approximately $4.7 million.

Sales and marketing expenses decreased by 7% to $82.1 million in 2016, from $88.0 million in 2015.
This decrease is primarily attributable to a decrease in salary and related employee expenses of
approximately $7.1 million and a decrease in marketing expenses of approximately $1.1 million. This is
partially offset by an increase in business services and outsourced labor of approximately $3.0 million.

We have realigned our go-to-market strategy around LiveEngage. Our outreach efforts are primarily
focused on fostering a community of thought and industry leadership by targeting several hundred of the
world’s largest brands through conference calls and events. This approach enables LivePerson to run a
leaner, nimbler field organization.

53

Sales and Marketing — Consumer

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

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Sales and Marketing – Consumer . . . .

$8,485

$7,466

14%

$7,466

$6,753

11%

Percentage of total revenue . . . . . . . .

Headcount (at period end) . . . . . . . . .

4%

12

3%

11

9%

3%

11

3%

9

22%

Sales and marketing expenses increased by 14% to $8.5 million in 2017, from $7.5 million in 2016. This
increase is primarily attributable to an increase in advertising and online expenses of approximately
$0.9 million and an increase in compensation and related costs for additional and existing sales and
marketing personnel of approximately $0.1 million.

Sales and marketing expenses increased by 11% to $7.5 million in 2016, from $6.8 million in 2015. This
increase is primarily attributable to an increase in advertising and online expenses of approximately
$0.7 million.

General and Administrative

Our general and administrative expenses consist primarily of compensation and related expenses for
information technology, human resources and administrative personnel,

executive, accounting,
legal,
professional fees and other general corporate expenses.

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

General and administrative . . . . . . . .
Percentage of total revenue . . . . . . . .
Headcount (at period end) . . . . . . . . .

$43,124

$43,046

—%

$43,046

$37,171

16%

20%
113

19%

112

1%

19%

112

16%
115

(3)%

General and administrative expenses remained relatively flat in 2017 as compared to 2016. There was
an increase in salaries and employee related expenses of approximately $0.3 million and a net increase in
non-recurring costs of approximately $0.2 million. Non-recurring costs consisted of an increase in litigation
of approximately $1.3 million, executive one-time compensation of approximately $1.0 million, and
executive separation costs of approximately $0.5 million, offset partially by the write off of technology
licenses in 2016 of approximately $2.6 million. The overall general and administrative expense variance was
offset by a decrease in business services and outsourced labor of approximately $0.2 million and a decrease
information technology and other general corporate
in allocated occupancy costs, related overhead,
expenses of approximately $0.2 million.

General and administrative expenses increased by 16% to $43.0 million in 2016, from $37.2 million in
2015. This increase is primarily attributable to an increase in allocated occupancy costs, related overhead,
information technology and other general corporate expenses of approximately $5.0 million. Furthermore,
there were litigation costs of $4.7 million and a write off of technology licenses of $2.6 million in 2016. This
is partially offset by a decrease in business services and outsourced labor of approximately $4.1 million and
a decrease in salary and related employee expenses of approximately $2.2 million.

54

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.

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Product development

. . . . . . . . . . . .

$40,034

$40,198

—%

$40,198

$38,974

3%

Percentage of total revenue . . . . . . . .

Headcount (at period end) . . . . . . . . .

18%

342

18%

300

14%

18%

300

16%

253

19%

Product development costs remained relatively flat in 2017 as compared to 2016. There was a decrease
in compensation and related costs of approximately $1.6 million and in business services and outsourced
labor of approximately $0.3 million. This was offset by an increase in depreciation expense of
approximately $1.3 million and an increase in allocated occupancy costs and related overhead of
approximately $0.3 million.

Product development costs increased by 3% to $40.2 million in 2016, from $39.0 million in 2015. This
increase is primarily attributable to an increase in compensation and related costs for additional and
existing product development personnel of approximately $1.2 million as a result of our increased efforts to
expand our product offerings and an increase in allocated occupancy costs and related overhead in the
amount of approximately $0.6 million.

We continue to invest in new product development efforts to expand the capability of LiveEngage. We
recognize that every brand is unique and employs an individualized and complex approach to managing
their users. In accordance with ASC 350-40, “Internal — Use Software”, as new projects are initiated that
provide functionality to the LiveEngage platform, the associated development and employee costs will be
capitalized. Upon completion, the project costs will be depreciated over five years. During the year ended
December 31, 2017 and 2016, $8.3 million and $3.7 million was capitalized, respectively.

Restructuring Costs

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

. . . . . . . . . . . . .
Restructuring Costs
Percentage of total revenue . . . . . . . .

$2,594

$2,369

9%

$2,369

$3,384

(30)%

1%

1%

1%

1%

Restructuring costs increased by 9% to $2.6 million in 2017, from $2.4 million in 2016. This increase is
attributable to an increase in wind down costs of approximately $0.8 million related to shutting down the
legacy platform and a benefit of approximately $0.4 million taken in 2016 related to cash collected on
previously written off bad debt of a large customer contract that ended. This was offset partially by a
decrease in severance and other associated costs of $1.0 million.

Restructuring costs decreased by 30% to $2.4 million in 2016, from $3.4 million in 2015. This decrease
is attributable to termination costs of approximately $1.7 million surrounding a customer contract that
ended in 2015 and subsequent cash collection of a portion written off of approximately $0.4 million the
termination cost in 2016. This was partially offset by wind down costs related to shutting down the legacy
platform of approximately $1.1 million.

55

Amortization of Purchased Intangibles

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Amortization of purchased

intangibles . . . . . . . . . . . . . . . . . .

$1,840

$3,885

(53)% $3,885

$4,873

(20)%

Percentage of total revenue . . . . . . . .

1%

2%

2%

2%

Amortization expense for purchased intangibles decreased by 53% to $1.8 million in 2017, from
$3.9 million in 2016 and decreased by 20% to $3.9 million in 2016, from $4.9 million in 2015. The variance
in 2017 is primarily attributable to the full amortization of past acquisitions along with continued
amortization of our 2014 acquisitions of CAO!, Synchronite, and our investments in technology licenses.
The variance in 2016 is primarily attributable the decrease in amortization of Engage and Look.Io of
approximately $0.4 million and the decrease in CAO intangible assets of approximately $0.6 million.
Additional amortization expense in the amount of $2.8 million was included in cost of revenue for the years
ended December 31, 2017 and 2016. Additional amortization expense in the amount of $3.2 million was
included in cost of revenue for the year ended December 31, 2015.

Other (Expense) 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, Japanese Yen,
AUS dollar and the Euro.

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Other income (expense), net . . . . . . . .

$136

$(530)

(126)% $(530)

$(202)

162%

Other income (expense) increased by 126% to income of $0.1 million in 2017, from an expense of
$0.5 million in 2016. This was primarily attributable to an increase in realized and unrealized gain due to
foreign exchange of approximately $0.5 million and a decrease in finance hedging and other financial
income of approximately $0.2 million.

Other income (expense) deceased by $0.3 million in 2016 compared to 2015. This was primarily
attributable to an increase in realized and unrealized loss due to foreign exchange of approximately
$0.4 million and a decrease in other financial income of approximately $0.1 million. This was partially
offset by an increase in income from finance hedging of approximately $0.2 million.

Provision for Income Taxes

Year Ended December 31,

Year Ended December 31,

2017

2016

% Change

2016

2015

% Change

($ in thousands)

($ in thousands)

Provision for income taxes . . . . . . . . .

$501

$5,934

(92)% $5,934

$15,814

(62)%

Income tax expense decreased by 92% to $0.5 million in 2017, from $5.9 million in 2016. Our
consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the
jurisdictions in which we operate. The decrease was primarily attributable to a benefit recorded in the fourth
quarter of 2017 as a result of the Tax Cuts and Jobs Act, which was passed on December 22, 2017. Prior to
the passage of the tax law, we had an indefinite lived intangible that was not available to be netted against
existing deferred tax assets for purposes of determining the valuation allowance. As a result of the Tax Cuts
and Jobs Act the federal tax rate decreased from 34% to 21%. Net operating losses incurred after
December 31, 2017 will have an indefinite carryforward period and will be available to offset 80% of taxable
income in future years.

56

Income tax expense decreased by 62% to $5.9 million in 2016, from $15.8 million in 2015. Our
consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the
jurisdictions in which we operate. The decrease was a result of the valuation allowance established for a
significant portion of our deferred tax asset on our balance sheet as it was determined to be more likely
than not that we would not realize a portion of our deferred tax asset.

Net Loss

We had a net loss of $18.2 million in 2017 compared to a net loss of $25.9 million in 2016. Revenue
decreased approximately $3.9 million, operating expenses decreased by approximately $5.5 million, the
provision for income taxes decreased approximately $5.4 million, and other income (expense), net increased
by $0.7 million, contributing to a net decrease in net loss of approximately $7.7 million.

We had a net loss of $25.9 million in 2016 compared to a net loss of $26.4 million in 2015. Revenue
decreased approximately $16.2 million, operating expenses decreased by approximately $7.3 million, the
provision for (benefit from) income taxes decreased approximately $9.9 million, and other income
(expense), net decreased by approximately $0.3 million, contributing to a net decrease in net loss of
approximately $0.6 million.

Quarterly Results of Operations Data

The following table sets forth, for the periods indicated, the Company’s financial information for the
eight most recent quarters ended December 31, 2017. In the Company’s opinion, this unaudited
information has been prepared on a basis consistent with the annual consolidated financial statements and
includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation
of the unaudited information for the periods presented. This information should be read in conjunction
with the consolidated financial statements, including the related notes, included herein.

Dec. 31,
2017

Sept. 30,
2017

Consolidated Statements of

Operations Data:

Sept. 30,
June 30,
2017
2016
(in thousands, except share and per share data)

March 31,
2017

Dec. 31,
2016

June 30,
2016

March 31,
2016

Revenue . . . . . . . . . . . $

57,390 $

56,493 $

54,074 $

50,919 $

56,118 $

54,518 $

56,679 $

55,464

Costs and Expenses:

Cost of revenue . . . . .
Sales and marketing . .
General and

administrative . . . .
Product development . .
Restructuring costs . . .
Amortization of
purchased
intangibles . . . . . .
Total costs and
expenses

. . . . .
Loss from operations
. . .
Other (expense) income . .
Loss before (benefit from)
provision for income
taxes . . . . . . . . . . .

(Benefit from) provision

for income taxes . . . . .
Net loss . . . . . . . . . . . $

Net loss per share of
common stock:

Basic
. . . . . . . . . . . .
Diluted . . . . . . . . . . .

Weighted-average shares

used to compute net loss
per share

14,749
24,210

12,596
11,023
279

14,541
21,603

10,398
9,726
—

15,134
23,392

10,437
9,326
2,076

13,781
21,700

9,692
9,958
240

14,952
21,698

13,287
10,770
2,753

14,837
22,067

10,069
9,495
(384)

17,508
23,088

10,161
10,719
—

15,864
22,676

9,529
9,214
—

428

470

470

472

931

1,013

1,017

924

63,285
(5,895)
(276)

56,738
(245)
191

60,835
(6,761)
(99)

55,843
(4,924)
320

64,391
(8,273)
(395)

57,097
(2,579)
(123)

62,493
(5,814)
(646)

58,207
(2,743)
634

(6,171)

(54)

(6,860)

(4,604)

(8,668)

(2,702)

(6,460)

(2,109)

(2,499)
(3,672) $

1,256
(1,310) $

673
(7,533) $

1,072
(5,676) $

897
(9,565) $

3,177
(5,879) $

1,306
(7,766) $

554
(2,663)

(0.06)
(0.06)

(0.02)
(0.02)

(0.13)
(0.13)

(0.10)
(0.10)

(0.17)
(0.17)

(0.10)
(0.10)

(0.14)
(0.14)

(0.05)
(0.05)

Basic
. . . . . . . . . . . .
Diluted . . . . . . . . . . .

56,965,111
56,965,111

56,524,990
56,524,990

55,954,158
55,954,158

55,975,093
55,975,093

55,861,872
55,861,872

56,047,645
56,047,645

55,965,525
55,965,525

56,386,003
56,386,003

57

Liquidity and Capital Resources

December 31,

2017

2016

(in thousands)

Consolidated Statements of Cash Flows Data:

Cash flows provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .

$ 10,290

$ 24,560

Cash flows used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

(15,320)

(11,452)

Cash flows provided by (used in) financing activities . . . . . . . . . . . . . . . .

7,209

(7,068)

As of December 31, 2017, we had approximately $56.1 million in cash and cash equivalents, an
increase of approximately $5.2 million from December 31, 2016. This increase is primarily attributable to
cash provided by operating activities of approximately $10.3 million, proceeds from issuance of common
stock of approximately $9.0 million, and the effect of foreign exchange rate changes on cash and cash
equivalents of approximately $3.0 million. This was partially offset by cash used in investing activities of
approximately $15.3 million and the repurchase of common stock of approximately $1.7 million.

Net cash provided by operating activities was $10.3 million in the year ended December 31, 2017. Our
net loss was $18.2 million, but that net loss was impacted by non-cash expenses related to stock-based
compensation, amortization of purchased intangibles, depreciation, and provision for doubtful accounts.
Furthermore, there were increases in deferred revenue due to more of our customers moving to cash
payments in advance on annual billings and accrued expenses. This was partially offset by increases in
accounts receivable and prepaid expenses and other current assets and decreases in accounts payable and
deferred tax liability. Net cash provided by operating activities was $24.6 million in the year ended
December 31, 2016 and consisted primarily of non-cash expenses related to stock-based compensation,
amortization of purchased intangibles, depreciation, and impairment on investments. Furthermore, there
were increases in deferred revenue due to more of our customers moving to cash payments in advance on
annual billings, accrued expenses and decreases in prepaid expenses and other current assets. This was
partially offset by net loss and an increase in accounts receivable.

Net cash used in investing activities was $15.3 million in the year ended December 31, 2017 and was
due primarily to the purchase of fixed assets for our co-location facilities and purchases of intangibles. This
was partially offset by a decrease in cash held as collateral. Net cash used in investing activities was
$11.5 million in the year ended December 31, 2016 was due primarily to the purchase of fixed assets for our
co-location facilities and purchases of intangibles. This was partially offset by a decrease in cash held as
collateral.

Net cash provided by financing activities was $7.2 million in the year ended December 31, 2017 and
consisted primarily of the proceeds from the issuance of common stock in connection with the exercise of
stock options offset partially by the repurchase of our common stock. Net cash used in financing activities
was $7.1 million in the year ended December 31, 2016 and consisted primarily of the repurchase of our
common stock offset in part by the proceeds from the issuance of common stock in connection with the
exercise of stock options.

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 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.

58

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 years ended December 31, 2017, 2016 and 2015, was approximately $8.9 million,
$10.0 million and $9.9 million, respectively.

As of December 31, 2017, our principal commitments were approximately $24.5 million under various
operating leases, of which approximately $9.8 million is due in 2018. We currently expect that our principal
commitments for the year ending December 31, 2018 will not exceed approximately $10.0 million in the
aggregate.

Our contractual obligations at December 31, 2017 are summarized as follows (amounts in thousands):

Contractual Obligations

Payments Due by Period

Total

Less Than
1 Year

1 – 3 Years

3 – 5 Years

Operating leases . . . . . . . . . . . . . . . . . . . . . . . .

$24,512

$9,797

$10,432

$2,571

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,512

$9,797

$10,432

$2,571

More Than
5 Years

$1,712

$1,712

Capital Expenditures

Total capital expenditures in 2017 were approximately $17.4 million, primarily related to the continued
expansion of our co-location facilities. Our total capital expenditures are not currently expected to exceed
$14.5 million in 2018. We anticipate that our current cash and cash equivalents and cash from operations
will be sufficient to fund these capital expenditures.

Indemnifications

We enter into service and license agreements in the ordinary course of business. Pursuant to some of
these agreements, we agree to indemnify certain customers from and against certain types of claims and
losses suffered or incurred by them as a result of using our products.

We also have agreements whereby our executive officers and directors are indemnified for certain
events or occurrences while the officer or director is, or was serving, at our request in such capacity. The
maximum potential amount of future payments we could be required to make under these indemnification
agreements is unlimited; however, we have a directors and officers insurance policy that reduces our
exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance
policy coverage, we believe the estimated fair value of these indemnification agreements is minimal.
Currently, we have no liabilities recorded for these agreements as of December 31, 2017.

Critical Accounting Policies and Estimates

Our consolidated financial statements 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
consolidated financial statements and the reported amounts of revenue and expenses during the reporting
periods.

We believe that the assumptions and estimates associated with revenue recognition, stock-based
compensation, accounts receivable, the valuation of goodwill and intangible assets, income taxes and legal
contingencies have the greatest potential impact on our consolidated financial statements. 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. For further information on all of our significant
accounting policies, see Note 1 of the Notes to Consolidated Financial Statements under Item 8.

59

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. 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 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 of services. 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 from our Consumer segment 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 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 December 31, 2017, there was approximately $9.1 million of total unrecognized compensation
cost related to nonvested stock options. That cost is expected to be recognized over a weighted average
period of approximately 2.7 years. As of December 31, 2017, there was approximately $6.3 million of total
unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be
recognized over a weighted average period of approximately 2.4 years.

60

Accounts Receivable

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 consolidated financial statements. No single customer accounted for or exceeded 10% of our total
revenue in 2017, 2016 or 2015. No single customer accounted for or exceeded 10% of our total accounts
receivable in 2017 and 2016. During 2017, we decreased our allowance for doubtful accounts from
$1.7 million to approximately $1.3 million, principally due to analysis of the accounts receivable aging.

A large proportion of receivables are due from larger corporate customers that typically have longer

payment cycles.

Goodwill

The Company records goodwill when the consideration paid in a business combination exceeds the fair
value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but
instead is required to be tested for impairment annually and whenever events or changes in circumstances
indicate that the carrying value of goodwill may exceed its fair value.

The Company performs testing for impairment of goodwill in its third quarter, or as events occur or
the Company’s
circumstances change that would more likely than not reduce the fair value of
reporting units below their carrying amounts. A qualitative assessment is first made to determine whether
it is necessary to perform the two-step quantitative goodwill impairment test. This initial qualitative
assessment includes, among other things, consideration of: (i) market capitalization of the Company,
(ii) past, current and projected future earnings and equity; (iii) recent trends and market conditions; and
(iv) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar
companies, if available. If this initial qualitative assessment indicates that it is more likely than not that
impairment exists, a second analysis will be performed, involving a comparison between the estimated fair
values of the Company’s reporting unit with its respective carrying amount including goodwill. If the
carrying value exceeds estimated fair value, there is an indication of potential impairment, and a third
analysis is performed to measure the amount of impairment. The third analysis involves calculating an
implied fair value of goodwill by measuring the excess of the estimated fair value of the reporting unit over
the aggregate estimated fair values of the individual assets less liabilities. If the carrying value of goodwill
exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.

We evaluate for goodwill impairment annually at September 30th. At the end of the third quarter of
2017, 2016, 2015, we determined that it was not more-likely that the fair value of the reporting units is 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. During the year ended December 31, 2016, the
Company determined certain long-lived assets related to the legacy platform and purchased intangibles of
technology licenses to be impaired. The write-off of net book value of these assets, of approximately
$0.2 million and $2.6 million, was included in restructuring costs and general and administrative expenses,
respectively.

61

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences are expected to become deductible. We consider the
scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in
making this assessment. We include interest accrued on the underpayment of income taxes in interest
expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses.
We recorded a valuation allowance as we considered our cumulative loss in recent years as a significant
piece of negative evidence. During the year ended December 31, 2017, there was a reduction in the
valuation allowance of $4.6 million.

Legal Contingencies

We are subject to legal proceedings and litigation arising in the ordinary course of business.
Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the
potential loss from any legal proceeding or litigation is considered probable and the amount can be
reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to
determine the probability of a loss and whether the amount of the loss is reasonably estimable. The
outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential
liability and the amount of accruals recorded are based only on the information available at the time. As
additional information becomes available, we reassess the potential liability related to the legal proceeding
or litigation, and may revise our estimates. Any revisions could have a material effect on our results of
operations. See Note 13, Legal Matters, of the Notes to the Consolidated Financial Statements under
Item 8 for additional information on our legal proceedings and litigation.

Recently Issued Accounting Standards

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update No. 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). This new
standard allows a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in ASU 2018-02
affects any entity that is required to apply the provisions of Topic 220, Income Statement-Reporting
Comprehensive Income, and has items of other comprehensive income for which the related tax effects are
presented in other comprehensive income as required by GAAP. We are currently evaluating the impact of
this updated standard, but do not believe this update will have a significant impact on our consolidated
financial statements.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12 “Derivatives and
Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). This
new standard refines and expands hedge accounting for both financial (e.g., interest rate) and commodity
risks. Its provisions create more transparency around how economic results are presented, both on the face
of the financial statements and in the footnotes, for investors and analysts. ASU 2017-12 is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, for public
companies. Early adoption is permitted in any interim period or fiscal years before the effective date of the
standard. We do not expect the adoption of ASU 2017-12 to have a material effect on our financial
position, results of operations or cash flows.

62

In May 2017, the FASB issued Accounting Standards Update 2017-09, “Compensation-Stock
Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). This update clarifies and
reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718,
to a change to the terms and conditions of a share-based payment award. ASU 2017-09 is effective for
financial statements issued for annual periods, and interim periods within those annual periods, beginning
after December 15, 2017. Early adoption is permitted. The amendments in this ASU should be applied
prospectively to an award modified on or after the adoption date. We are currently evaluating the impact of
this updated standard, but do not believe this update will have a significant impact on our consolidated
financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles —
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). This
update addresses concerns over the cost and complexity of the two-step goodwill impairment test. The
amendments in this update remove the second step of the test. An entity will apply a one-step quantitative
test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over
its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance
does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-04 is effective for
financial statements issued for annual periods beginning after December 15, 2019, and interim periods
within those annual periods. We do not expect the adoption of ASU 2017-04 to have a material effect on
our financial position, results of operations or cash flows.

In January 2017,

the FASB issued Accounting Standards Update No. 2017-01, “Business
Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). This update clarifies
the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this
update provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that
to be considered a business, a set must include, at a minimum, an input and a substantive process that
together significantly contribute to the ability to create output and (2) removes the evaluation of whether a
market participant could replace the missing elements. ASU 2017-01 is effective for financial statements
issued for annual periods beginning after December 15, 2017, and interim periods within those annual
periods. We do not expect the adoption of ASU 2017-01 to have a material effect on our financial position,
results of operations or cash.

718):

(Topic

Improvements

to Employee

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation-Stock
Compensation
Share-Based Payment Accounting”
(“ASU 2016-09”). This update is intended to improve the accounting for employee share-based payments
and affects all organizations that issue share-based payment awards to their employees. Several aspects of
the accounting for share-based payment award transactions are simplified, including: (a) income tax
consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the
statement of cash flows. We adopted this ASU as of the beginning of the first quarter of 2017 and have
elected to continue to estimate expected forfeitures over the course of a vesting period. Further, this
ASU eliminates the requirement to delay the recognition of excess tax benefits until they reduce current
taxes payable. The adoption of ASU 2016-09 did not have any material impact on our financial statements.

In February 2016,

the FASB issued Accounting Standards Update No. 2016-02, “Leases”
(“ASU 2016-02”). ASU 2016-02 requires lessees to recognize the following for all leases (with the exception
of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset
that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the
new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align,
where necessary,
lessor accounting with the lessee accounting model and Topic 606, “Revenue from
Contracts with Customers”. The new lease guidance also simplified the accounting for sale and leaseback
transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer
be provided with a source of off-balance sheet financing. Lessees (for capital and operating leases) and
lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The modified retrospective approach would not require any transition

63

accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may
not apply a full retrospective transition approach. ASU 2016-02 is effective for financial statements issued
for annual periods beginning after December 15, 2018. We are currently assessing the provisions of this
guidance and evaluating the timing and impact the guidance will have on our consolidated financial
statements and related disclosures. We are also in the process of aggregating lease documentation for review.
The adoption of this ASU primarily impacts the balance sheet through the recognition of a right-of-use
asset and a lease liability for all leases with terms in excess of 12 months. This guidance is effective
January 1, 2019 using a modified retrospective transition approach with early adoption permitted.

In May 2014, the FASB issued ASC Update No. 2014-09, Revenue from Contracts with Customers
(“Topic 606”), which has been subsequently updated. The purpose of Update No. 2014-09 is to provide
enhancements to the quality and consistency of how revenue is reported while also improving comparability
in the financial statements of companies using U.S. GAAP and International Financial Reporting
Standards. The core principle requires entities to recognize revenue in a manner that depicts the transfer of
goods or services to customers in amounts that reflect the consideration an entity expects to be entitled to
in exchange for those goods or services. Topic 606, as amended, becomes effective for annual periods
beginning after December 15, 2017. We currently plan to adopt the standard using the “modified
retrospective method.” Under that method, we will apply the rules to contracts that are not completed as of
January 1, 2018, and recognize the cumulative effect of the initial adoption as an adjustment to the opening
balance of retained earnings.

We will adopt the guidance relating to Topic 606 using the modified retrospective approach effective
January 1, 2018 and expect no adjustment to retained earnings. We will record revenue over time as control
is transferred to our customer, due to the stand-ready nature of our services provided. We will adopt the
standard through the application of the portfolio approach. To assess the amended guidance and formulate
an implementation plan, we read the amended guidance, attended trainings and consulted with external
accounting professionals. Collaboratively we identified all major contract types and assessed the potential
impact of the amended guidance. We selected a sample of customer contracts to assess under the guidance
of the new standard that were characteristically representative of each revenue stream. We then made an
additional sample of customer contracts based on size to validate our analysis and conclusions. We do not
expect to have any significant changes to the timing of revenue recognition as a result of adopting the new
standard. In assessing the impact of adopting the guidance on disclosures, we anticipate to have additional
disclosures regarding the disaggregation of revenues by business segment, the presentation and roll forward
of various contract account balances, changes to our accounting policy, as well as other significant
judgments and disclosures regarding performance obligations and the implementation of the amended
guidance.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Currency Rate Fluctuations

As a result of the scope of our Israeli operations, there is currency rate fluctuation risk associated with
the exchange rate movement of the U.S. dollar against the New Israeli Shekel (“NIS”). For the year ended
December 31, 2017, the U.S dollar depreciated as compared to the NIS by an average of 7% as compared to
December 31, 2016. For the year ended December 31, 2017, expenses generated by our Israeli operations
totaled approximately $59.8 million. During 2017, we hedged our foreign currency risk exposure relating to
the NIS. 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, Germany, France and Italy is the Euro; the functional currency of our operations in Australia
is the Australian Dollar; the functional currency of our operations in Japan is the Japanese Yen.

64

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 2017, we decreased our allowance for doubtful accounts from $1.7 million to
approximately $1.3 million, principally due to an increase in write-offs compared to 2016. During 2016, we
increased our allowance for doubtful accounts by approximately $0.5 million to approximately $1.7 million,
principally due to analysis of the accounts receivable aging. A large 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 Rate 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.

65

Item 8.

Consolidated Financial Statements and Supplementary Data

INDEX

Report of BDO USA, LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . .

Consolidated Balance Sheets as of December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations for each of the years ended December 31, 2017, 2016 and
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Loss for each of the years ended December 31, 2017,
2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2017,
2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for each of the years ended December 31, 2017, 2016

and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

67

68

69

70

71

72

73

66

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
LivePerson, Inc.
New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of LivePerson, Inc. and subsidiaries
(the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations,
comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2017, in conformity with
accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report
dated March 15, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 2005.

New York, New York
March 15, 2018

67

LIVEPERSON, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

December 31,

2017

2016

ASSETS

CURRENT ASSETS:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 56,115

$ 50,889

Cash held as collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,451

3,962

Accounts receivable, net of allowance for doubtful accounts of $1,318 and

$1,732, in 2017 and 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

37,926

7,352

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102,844

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34,705

12,366
80,531
753
1,600

31,823

5,477

92,151

28,397

16,510
80,245
773
1,562

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 232,799

$ 219,638

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,481
48,011
35,563

89,055
2,766
915

92,736

$

7,288
40,250
27,145

74,683
3,147
3,332

81,162

Commitments and contingencies (See Note 9)
STOCKHOLDERS’ EQUITY:

Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60
305,676
(3)
(163,135)
(2,535)

58
289,524
(2)
(144,944)
(6,160)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

140,063

138,476

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 232,799

$ 219,638

See notes to consolidated financial statements.
68

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:(1)(2)(3)

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General and administrative . . . . . . . . . . . . . . . . . . . . . . . .

Product development . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization of purchased intangibles

. . . . . . . . . . . . . . .

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . .

Loss from operations

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . .

Loss before provision for income taxes . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2017

2016

2015

$

218,876

$

222,779

$

239,012

58,205

90,905

43,124

40,034

2,594

1,840

236,702

(17,826)

136

(17,690)
501

63,161

89,529

43,046

40,198

2,369

3,885

242,188

(19,409)

(530)

(19,939)
5,934

70,310

94,728

37,171

38,974

3,384

4,873

249,440

(10,428)

(202)

(10,630)
15,814

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(18,191) $

(25,873) $

(26,444)

Net loss per share of common stock:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

(0.32) $

(0.46) $

(0.32) $

(0.46) $

(0.47)

(0.47)

Weighted-average shares used to compute net loss income per

share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,358,017

56,063,777

56,452,408

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,358,017

56,063,777

56,452,408

(1) Amounts include stock compensation expense, as follows:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product development

$ 448
2,500
3,691
2,305

$ 429
2,515
3,304
3,488

$1,396
3,088
3,692
3,638

(2) Amounts include depreciation expense, as follows:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product development

$7,150
1,625
1,226
2,357

$8,234
1,315
1,418
1,044

$9,091
1,232
893
898

(3) Amounts include amortization of purchased intangibles, as follows:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,842

$2,788

$3,167

See notes to consolidated financial statements.
69

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(18,191) $(25,873) $(26,444)

Foreign currency translation adjustment

. . . . . . . . . . . . . . . . . . . . . . .

3,625

(3,624)

(1,398)

Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(14,566) $(29,497) $(27,842)

Year Ended December 31,

2017

2016

2015

See notes to consolidated financial statements.
70

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . 56,701,331

$57

(544,396) $ (1) $274,046

$ (92,627)

$(1,138)

$180,337

Common Stock

Treasury Stock

Shares

Amount

Shares Amount

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss

Total

Common stock issued upon exercise of stock options . . .

645,531 —

Stock-based compensation . . . . . . . . . . . . . . . . . . .

— —

—

—

—

—

Common stock issued under Employee Stock Purchase

Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

170,857 —

2,904

11,814

1,497

Common stock repurchase . . . . . . . . . . . . . . . . . . .

(142,812) —

(277,360) —

(4,202)

Tax benefit from exercise of employee stock options . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss

. . . . . . . . . . . . . . . . . . .

— —

— —

— —

— 797

—

—

—

—

—

—

—

—

—

—

(26,444)

—

—

—

—

797

—

2,904

11,814

1,497

(4,202)

(26,444)

—

(1,398)

(1,398)

Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . 57,374,907

57

(821,756)

Common stock issued upon exercise of stock options . . .

324,502 —

Common stock issued upon vesting of restricted stock

units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

393,504

1

Stock-based compensation . . . . . . . . . . . . . . . . . . .

— —

Common stock issued under Employee Stock Purchase

Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

183,534 —

—

—

—

—

Common stock repurchase . . . . . . . . . . . . . . . . . . .

— — (1,518,349)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive loss

. . . . . . . . . . . . . . . . . . .

— —

— —

—

—

Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . 58,276,447

58

(2,340,105)

Common stock issued upon exercise of stock options . . .

853,885

Common stock issued upon vesting of restricted stock

units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

363,429

1

1

Stock-based compensation . . . . . . . . . . . . . . . . . . .

— —

Common stock issued under Employee Stock Purchase

Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

170,208 —

—

—

—

—

Common stock repurchase . . . . . . . . . . . . . . . . . . .

— —

(247,430)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income . . . . . . . . . . . . . . . . .

— —

— —

—

—

—

—

(1)

—

—

—

—

(1)

—

—

(2)

—

—

—

—

(1)

—

—

286,856

(119,071)

(2,536)

165,305

1,806

—

9,736

1,092

(9,966)

—

—

—

—

—

—

—

(25,873)

—

—

—

—

—

—

1,806

1

9,736

1,092

(9,967)

(25,873)

—

(3,624)

(3,624)

289,524

(144,944)

(6,160)

138,476

7,490

—

8,944

1,459

(1,741)

—

—

—

—

—

—

—

(18,191)

—

—

—

—

—

—

7,491

1

8,944

1,459

(1,742)

(18,191)

—

3,625

3,625

Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . 59,663,969

$60

(2,587,535) $ (3) $305,676

$(163,135)

$(2,535)

$140,063

See notes to consolidated financial statements.
71

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)

Year Ended December 31,
2016

2015

2017

OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash provided by operating

activities:

Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of tenant allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . .
Provision for doubtful accounts, net . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities
Net cash provided by operating activities . . . . . . . . . . . . . . . . . .

INVESTING ACTIVITIES:

$(18,191) $(25,873) $(26,444)

8,944
12,358
—
(166)
4,682
—
1,895
(2,397)

(7,998)
(1,867)
(38)
(2,743)
7,838
8,418
(445)
10,290

9,736
12,011
2,600
(180)
6,673
—
1,831
1,852

(3,265)
3,845
196
185
2,982
13,283
(1,316)
24,560

11,814
12,114
—
—
8,040
(3,680)
2,361
14,456

(1,368)
724
130
(1,916)
1,193
1,869
2,538
21,831

Purchases of property and equipment, including capitalized software . .
Payments for acquisitions and intangible assets, net of cash acquired . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash held as collateral
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . .

(17,390)
(441)
2,511
(15,320)

(12,344)
(555)
1,447
(11,452)

(12,980)
(150)
(5,409)
(18,539)

FINANCING ACTIVITIES:

Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from the exercise of employee stock options . . . . . .
Payments related to contingent consideration . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock in connection with the

exercise of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .

Net cash provided by (used in) financing activities

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

(1,742)
—
—

8,951
7,209

(9,967)
—
—

2,899
(7,068)

(4,202)
797
(2,883)

4,401
(1,887)

AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS – Beginning of the year . . . . . . . .
CASH AND CASH EQUIVALENTS – End of the year . . . . . . . . . . . .

3,047
5,226
50,889
$ 56,115

(3,954)
2,086
48,803
$ 50,889

(1,974)
(569)
49,372
$ 48,803

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW

INFORMATION:

Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,551

$

424

$ 1,882

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING

AND FINANCING ACTIVITIES:
Purchase of property and equipment recorded in accounts payable . . .
Leasehold improvements funded by landlord . . . . . . . . . . . . . . . . . .

$
$

936
$ 2,497
— $ 1,440

$ 1,926
326
$

See notes to consolidated financial statements.
72

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

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 an U.S. office in Alpharetta
(Georgia) and Mountain View (CA), and international offices in Amsterdam, Berlin, London, Mannheim,
Melbourne, Milan, Paris, Ra’anana (Israel), Reading (UK), Tel Aviv (Israel), and Tokyo.

LivePerson provides mobile and online business messaging solutions that power digital communication
between brands and consumers. LiveEngage, the Company’s enterprise-class, cloud-based platform, enables
interfaces, such as in-app and mobile
businesses and consumers to connect through conversational
messaging, while leveraging bots and artificial intelligence (AI) to increase efficiency. As consumers have
reoriented their digital
lives around the smartphone, messaging apps have become their preferred
communication channel to connect with each other. LivePerson allows brands to align with this new
consumer preference, and deploy messaging at scale for customer care, marketing, and sales, instead of
requiring that consumers use email or call a 1-800 number.

LiveEngage was designed to securely deploy messaging, coupled with bots and AI, at scale for brands
with tens of millions of customers and many thousands of customer care agents. LiveEngage powers
conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop
web browsers, short message services (SMS), social media and third-party consumer messaging platforms.
Brands can also use LiveEngage to message consumers when they dial a 1-800 number instead of having
them navigate interactive voice response systems (IVR) and wait on hold. The platform seamlessly
integrates with third-party bots, enabling brands to manage both AI- based agents and human agents from
a single console.

LivePerson optimizes campaign outcomes for sales and service transaction by combining website
visitor data with other historical, behavioral, and operational information to develop insights into each step
of a consumer’s journey. LivePerson’s products, coupled with its domain knowledge, industry expertise and
consulting services, have been proven to maximize the effectiveness of consumer engagement.

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”).

Principles of Consolidation

The consolidated financial statements reflect the operations of LivePerson and its wholly-owned

subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification

For comparability, certain 2015 and 2016 amounts have been reclassified where appropriate, to

conform to the financial presentation in 2017.

Use of Estimates

The preparation of the consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America (“GAAP”) requires the Company’s management to
make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the period. Significant items subject to such estimates
and assumptions include revenue recognition, stock-based compensation, accounts receivable, the valuation
of goodwill and intangible assets, income taxes and legal contingencies. Actual results could differ from
those estimates.

73

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk
consist primarily of cash and cash equivalents and accounts receivable which approximate fair value at
December 31, 2017 because of the short-term nature of these instruments. The Company invests its cash
and cash equivalents with financial institutions that it believes are of high quality, and the Company
performs periodic evaluations of these instruments and the relative credit standings of the institutions with
which it invests. At certain times, the Company’s cash balances with any one financial institution may
exceed Federal Deposit Insurance Corporation insurance limits. The Company believes it mitigates its risk
by depositing its cash balances with high credit, quality financial institutions.

The Company performs ongoing credit evaluations of its customers’ financial condition (except for
customers who purchase the LivePerson services by credit card via Internet download) and has established
an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical
trends and other information. Concentration of credit risk is limited due to the Company’s large number of
customers. No single customer accounted for or exceeded 10% of revenue in 2017, 2016 or 2015. No single
customer accounted for or exceeded 10% of the Company’s total accounts receivable in 2017 and 2016.

Foreign Currency Translation

The Company’s operations are conducted in various countries around the world and the financial
its foreign subsidiaries are reported in the applicable foreign currencies (functional
statements of
currencies). Financial information is translated from the applicable functional currency to the U.S. dollar
(the reporting currency) for inclusion in the Company’s consolidated financial statements. Income, expenses
and cash flows are translated at weighted average exchange rates prevailing during the fiscal period, and
assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are
included as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
Foreign exchange transaction gain or losses are included in Other Income, net in the accompanying
consolidated statements of operations.

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of 3 months or less when
acquired to be cash equivalents. Cash equivalents, which primarily consist of money market funds, are
recorded at cost, which approximates fair value.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for
doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s
existing accounts receivable. The Company determines the allowance based on historical write-off
experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over
90 days and over a specified amount are reviewed individually for collectability. All other balances are
reviewed on a pooled basis. Account balances are charged off against the allowance after all means of

74

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

collection have been exhausted and the potential for recovery is considered remote. The Company does not
have any off-balance sheet credit exposure related to its customers. The activity in the allowance for
doubtful accounts is as follows (amounts in thousands):

Year Ended December 31,

Additions
Charged to
Costs and
Expenses

Beginning
Balance

Deductions/
Write-Offs

Ending
Balance

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,275

$2,361

$(2,452)

$1,184

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,184

$1,831

$(1,283)

$1,732

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,732

$1,895

$(2,309)

$1,318

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated
using the straight-line method over the estimated useful lives of the related assets, generally three to
five years for equipment and software. Leasehold improvements are depreciated using the straight-line
method over the shorter of the lease term or the estimated useful life of the asset. Depreciation expense,
which includes depreciation of internal use software totaled $12.4 million, $12.0 million, and $12.1 million
for the years ended December 31, 2017, 2016 and 2015, respectively.

Internal-Use Software Development Costs

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 350-40, Internal-Use Software, the Company capitalizes its costs to develop its
internal use software when preliminary development efforts are successfully completed, management has
authorized and committed project funding, and it is probable that the project will be completed and the
software will be used as intended. These costs are included in property and equipment in the Company’s
consolidated balance sheets and are amortized on a straight-line basis over the estimated useful life of the
related asset, which approximates three years. Costs incurred prior to meeting these criteria, together with
costs incurred for training and maintenance, are expensed as incurred.

The Company capitalized internal-use software costs of $8.3 million, $3.7 million, and $2.4 million for

the years ended December 31, 2017, 2016 and 2015, respectively.

Goodwill and Intangible Assets

The Company records goodwill when the consideration paid in a business combination exceeds the fair
value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but
instead is required to be tested for impairment annually and whenever events or changes in circumstances
indicate that the carrying value of goodwill may exceed its fair value.

The Company performs testing for impairment of goodwill in its third quarter, or as events occur
the Company’s
or circumstances change that would more likely than not reduce the fair value of
reporting units below their carrying amounts. A qualitative assessment is first made to determine whether it
is necessary to perform the two-step quantitative goodwill
impairment test. This initial qualitative
assessment includes, among other things, consideration of: (i) market capitalization of the Company,
(ii) past, current and projected future earnings and equity; (iii) recent trends and market conditions; and
(iv) valuation metrics involving similar companies that are publicly-traded and acquisitions of similar
companies, if available. If this initial qualitative assessment indicates that it is more likely than not that
impairment exists, a second analysis will be performed, involving a comparison between the estimated fair
values of the Company’s reporting unit with its respective carrying amount including goodwill. If the

75

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

carrying value exceeds estimated fair value, there is an indication of potential impairment, and a third
analysis is performed to measure the amount of impairment. The third analysis involves calculating an
implied fair value of goodwill by measuring the excess of the estimated fair value of the reporting unit over
the aggregate estimated fair values of the individual assets less liabilities. If the carrying value of goodwill
exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to
in accordance with ASC 360-10-35,

their estimated residual values, and reviewed for impairment
“Accounting for Impairment or Disposal of Long-Lived Assets.”

The Company evaluates for goodwill impairment annually at September 30th and at the end of the
third quarter of 2017, 2016, and 2015, the Company determined that it was not more-likely that the fair
value of the reporting units is less than their carrying amount. Accordingly, the Company did not perform
the two-step goodwill impairment test on both the Company’s Business and Consumer segments. The
Company assessed qualitative facts while summarizing the totality of events and circumstances and
considered the extent to which adverse events or circumstances could affect the reporting unit’s fair value as
well as the consideration of positive and mitigating events and circumstances that would affect the
determination of whether it was more likely than not that the fair value of a reporting unit is less than its
carrying amount.

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. During the year ended December 31, 2016, the
Company determined certain long-lived assets related to the legacy platform and purchased intangibles of
technology licenses to be impaired. The net book value of these assets, of approximately $0.2 million and
$2.6 million, was included in restructuring costs and general and administrative expenses, respectively.

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, quarterly or annual 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

76

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

the
collection risk, subject to the merchant bank’s right to hold back cash pending settlement of
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 12 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 of services and customer acceptance. 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 from our Consumer segment 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.

Advertising Costs

The Company expenses the cost of advertising and promoting its services as incurred in the sales and
marketing expense on the consolidated statement of operations. Such costs totaled approximately
$15.8 million, $10.9 million, and $10.7 million for the years ended December 31, 2017, 2016 and 2015,
respectively.

Stock-based Compensation

In accordance with ASC Topic 718-10, “Stock Compensation”, the Company measures stock based
awards at fair value and recognizes compensation expense for all share-based payment awards made to its
employees and directors, including employee stock options.

The Company estimates the fair value of stock options granted using the Black-Scholes valuation
model. This model requires the Company to make estimates and assumptions including, among other
things, estimates regarding the length of time an employee will retain vested stock options before exercising
them, the estimated volatility of its common stock price and the number of options that will be forfeited
prior to vesting. The fair value is then recognized on a straight line basis over the requisite service period of
the award, which is generally four years. Changes in these estimates and assumptions can materially affect
the determination of the fair value of the stock-based compensation and consequently, the related amount
recognized in the consolidated statement of operations.

Deferred Rent

The Company records rent expense on a straight-line basis over the term of the related lease. The
difference between the rent expense recognized for financial reporting purposes and the actual payments
made in accordance with the lease agreement is recognized as deferred rent liability included in other
liabilities on the Company’s consolidated balance sheets.

77

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in results of operations in the period that the tax change occurs. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Loss

In accordance with ASC 220, “Comprehensive Income”, the Company reports by major components
and as a single total, the change in its net assets during the period from non-owner sources. Comprehensive
income (loss) consists of net income (loss), and accumulated other comprehensive income (loss), which
includes certain changes in equity that are excluded from net income (loss). The Company’s comprehensive
loss for all periods presented is related to the effect of foreign currency translation.

Recently Issued Accounting Standards

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update No. 2018-02 “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”). This new
standard allows a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in ASU 2018-02
affects any entity that is required to apply the provisions of Topic 220, Income Statement-Reporting
Comprehensive Income, and has items of other comprehensive income for which the related tax effects are
presented in other comprehensive income as required by GAAP. The Company is currently evaluating the
impact of this updated standard, but does not believe this update will have a significant impact on its
consolidated financial statements.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12 “Derivatives and
Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). This
new standard refines and expands hedge accounting for both financial (e.g., interest rate) and commodity
risks. Its provisions create more transparency around how economic results are presented, both on the face
of the financial statements and in the footnotes, for investors and analysts. ASU 2017-12 is effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, for public
companies. Early adoption is permitted in any interim period or fiscal years before the effective date of the
standard. The Company does not expect the adoption of ASU 2017-12 to have a material effect on its
financial position, results of operations or cash flows.

In May 2017, FASB issued Accounting Standards Update No. 2017-09, “Compensation-Stock
Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). This update clarifies and
reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718,
to a change to the terms and conditions of a share-based payment award. ASU 2017-09 is effective for
financial statements issued for annual periods, and interim periods within those annual periods, beginning
after December 15, 2017. Early adoption is permitted. The amendments in this ASU should be applied
prospectively to an award modified on or after the adoption date. The Company is currently evaluating the
impact of this updated standard, but does not believe this update will have a significant impact on its
consolidated financial statements.

78

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

In January 2017, FASB issued Accounting Standards Update No. 2017-04, “Intangibles — Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). This update
addresses concerns over the cost and complexity of
test. The
amendments in this update remove the second step of the test. An entity will apply a one-step quantitative
test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over
its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance
does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-04 is effective for
financial statements issued for annual periods beginning after December 15, 2019, and interim periods
within those annual periods. The Company does not expect the adoption of ASU 2017-04 to have a
material effect on its financial position, results of operations or cash flows.

the two-step goodwill

impairment

In January 2017,

the FASB issued Accounting Standards Update No. 2017-01, “Business
Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). This update clarifies
the definition of a business with the objective of adding guidance to assist entities with evaluating whether
transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this
update provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that
to be considered a business, a set must include, at a minimum, an input and a substantive process that
together significantly contribute to the ability to create output and (2) removes the evaluation of whether a
market participant could replace the missing elements. ASU 2017-01 is effective for financial statements
issued for annual periods beginning after December 15, 2017, and interim periods within those annual
periods. The Company does not expect the adoption of ASU 2017-01 to have a material effect on its
financial position, results of operations or cash flows.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation-Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU
2016-09”). This update is intended to improve the accounting for employee share-based payments and
affects all organizations that issue share-based payment awards to their employees. Several aspects of the
accounting for share-based payment award transactions are simplified,
income tax
consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the
statement of cash flows. The Company adopted this ASU as of the beginning of the first quarter of 2017
and has elected to continue to estimate expected forfeitures over the course of a vesting period. Further, the
ASU eliminates the requirement to delay the recognition of excess tax benefits until they reduce current
taxes payable. The adoption of ASU 2016-09 did not have any material impact on the Company’s financial
statements.

including:

(a)

In February 2016,

the FASB issued Accounting Standards Update No. 2016-02, “Leases”
(“ASU 2016-02”). ASU 2016-02 requires lessees to recognize the following for all leases (with the exception
of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset
that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the
new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align,
where necessary,
lessor accounting with the lessee accounting model and Topic 606, “Revenue from
Contracts with Customers”. The new lease guidance also simplified the accounting for sale and leaseback
transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer
be provided with a source of off-balance sheet financing. Lessees (for capital and operating leases) and
lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition
approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements. The modified retrospective approach would not require any transition
accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may
not apply a full retrospective transition approach. ASU 2016-02 is effective for financial statements issued
for annual periods beginning after December 15, 2018. The Company is currently assessing the provisions

79

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies – (Continued)

of this guidance and evaluating the timing and impact the guidance will have on its consolidated financial
statements and related disclosures. The Company is also in the process of aggregating lease documentation
for review. The adoption of this ASU primarily impacts the balance sheet through the recognition of a
right-of-use asset and a lease liability for all leases with terms in excess of 12 months. This guidance is
effective January 1, 2019 using a modified retrospective transition approach with early adoption permitted.

In May 2014, the FASB issued ASC 2014-09, Revenue from Contracts with Customers (“Topic 606”).
The purpose of Update No. 2014-09 is to provide enhancements to the quality and consistency of how
revenue is reported while also improving comparability in the financial statements of companies using U.S.
GAAP and International Financial Reporting Standards. The core principle requires entities to recognize
revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the
consideration an entity expects to be entitled to in exchange for those goods or services. Topic 606, becomes
effective for annual periods beginning after December 15, 2017. The Company currently plans to adopt the
standard using the “modified retrospective method.” Under that method, the Company will apply the rules
to contracts that are not completed as of January 1, 2018, and recognize the cumulative effect of the initial
adoption as an adjustment to the opening balance of retained earnings.

The Company will adopt the guidance relating to Topic 606 using the modified retrospective approach
effective January 1, 2018 and will expect no adjustment to retained earnings. The Company will record
revenue over time as control is transferred to the customer, due to the stand-ready nature of our services
provided. The Company will adopt the standard through the application of the portfolio approach. To
assess the amended guidance and formulate an implementation plan, the Company has read the amended
guidance, attended trainings and consulted with external accounting professionals. Collaboratively the
Company has identified all major contract types and assessed the potential impact of the amended
guidance. The Company has selected a sample of customer contracts to assess under the guidance of the
new standard that were characteristically representative of each revenue stream. The Company then made
an additional sample of customer contracts based on size to validate its analysis and conclusions. The
Company does not expect to have any significant changes to the timing of revenue recognition as a result of
adopting the new standard. In assessing the impact of adopting the guidance on disclosures, the Company
anticipates to have additional disclosures regarding the disaggregation of revenues by business segment, the
presentation and roll forward of various contract account balances, changes to its accounting policy, as well
as other significant judgments and disclosures regarding performance obligations and the implementation
of the amended guidance.

2. 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 year ended December 31, 2017 does not include the effect
of options to purchase 8,831,798 shares of common stock awards as the effect of their inclusion is
anti-dilutive. Diluted net income per common share for the year ended December 31, 2016 does not include
the effect of options to purchase 8,956,932 shares of common stock awards as the effect of their inclusion is
anti-dilutive. Diluted net income per common share for the year ended December 31, 2015 does not include
the effect of options to purchase 10,345,356 shares of common stock awards as the effect of their inclusion
is anti-dilutive.

80

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Net Loss per Share – (Continued)

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

Year Ended December 31,

2017

2016

2015

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,358,017

56,063,777

56,452,408

Effect of assumed exercised options . . . . . . . . . . . . . . . . . . . . . .

—

—

—

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

56,358,017

56,063,777

56,452,408

3. 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. The chief operating decision-maker evaluates performance, makes operating decisions, and
allocates resources based on the operating income of each segment. The reporting segments follow the same
accounting polices used in the preparation of the Company’s 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
intersegment sales. Additionally, assets are not available for review by segment and therefore no segment
asset disclosure is presented.

Summarized financial information by segment for the year ended December 31, 2017, based on the
Company’s internal financial reporting system utilized by the Company’s chief operating decision maker,
follows (amounts in thousands):

Business

Consumer

Corporate

Consolidated

Revenue:

Hosted services – Business . . . . . . . . . . . . . . . . . . . . . .
Hosted services – Consumer . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services

$178,686

$ — $

— 17,450
—

22,740

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

201,426

17,450

— $178,686
17,450
—
22,740
—

— 218,876

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . .
Unallocated corporate expenses . . . . . . . . . . . . . . . . . . . .

54,600
82,420
1,840
—

3,605
8,485
—
—

—
—
—
85,752

58,205
90,905
1,840
85,752

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 62,566

$ 5,360

$(85,752)

$ (17,826)

81

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Segment Information – (Continued)

Summarized financial information by segment for the year ended December 31, 2016, based on the
Company’s internal financial reporting system utilized by the Company’s chief operating decision maker,
follows (amounts in thousands):

Business

Consumer

Corporate

Consolidated

Revenue:

Hosted services – Business . . . . . . . . . . . . . . . . . . . . . .

$183,551

$ — $

— $183,551

Hosted services – Consumer . . . . . . . . . . . . . . . . . . . . .

— 16,258

Professional services

. . . . . . . . . . . . . . . . . . . . . . . . . .

22,970

—

—

—

16,258

22,970

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

206,521

16,258

— 222,779

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . .
Unallocated corporate expenses . . . . . . . . . . . . . . . . . . . .

60,352

82,063
3,885
—

2,809

7,466
—
—

—

—
—
85,613

63,161

89,529
3,885
85,613

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 60,221

$ 5,983

$(85,613)

$ (19,409)

Summarized financial information by segment for the year ended December 31, 2015, based on the
Company’s internal financial reporting system utilized by the Company’s chief operating decision maker,
follows (amounts in thousands):

Business

Consumer

Corporate

Consolidated

Revenue:

Hosted services – Business . . . . . . . . . . . . . . . . . . . . . .
Hosted services – Consumer . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services

$200,576

$ — $

— 15,209
—

23,227

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

223,803

15,209

— $200,576
15,209
—
23,227
—

— 239,012

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . .
Unallocated corporate expenses . . . . . . . . . . . . . . . . . . . .

67,901
87,975
4,873
—

2,409
6,753
—
—

—
—
—
79,529

70,310
94,728
4,873
79,529

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 63,054

$ 6,047

$(79,529)

$ (10,428)

82

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Segment Information – (Continued)

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 years ended (amounts in thousands):

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Americas(1)
Total Americas

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA(2)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APAC(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2017

2016

2015

$137,433

$146,733

$159,539

6,987

6,818

12,296

144,420
56,310
18,146

153,551
50,511
18,717

171,835
51,548
15,629

$218,876

$222,779

$239,012

(1) Canada, Latin America and South America
(2) Europe, the Middle East and Africa (“EMEA”)
(3) Asia-Pacific (“APAC”)
(4)

Includes revenue from the United Kingdom of $38.9 million, $35.3 million, and $38.2 million for the
twelve months ended December 31, 2017, 2016, and 2015, respectively.

The following table presents the Company’s long-lived assets by geographic region for the years ended

(amounts in thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 95,716
13,079
9,504
8,363
3,293

$ 93,845
13,940
9,496
7,495
2,711

Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$129,955

$127,487

December 31,

2017

2016

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

83

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Property and Equipment

The following table presents the detail of property and equipment for the periods presented (amounts

in thousands):

December 31,

2017

2016

Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$100,815

$ 82,477

Furniture, equipment and building improvements

. . . . . . . . . . . . . . . . . . . . . . . .

15,355

116,170

15,027

97,504

Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(81,465)

(69,107)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 34,705

$ 28,397

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an
ongoing basis. This review indicated that the actual lives of certain co-location assets were longer than the
estimated useful lives used for depreciation purposes in the Company’s financial statements. As a result,
effective August 1, 2016, the Company changed its estimates of the useful lives of its co-location assets to
better reflect the estimated periods during which these assets will remain in service. The estimated useful
lives of the co-location assets that previously averaged three years were increased to an average of
four years. The effect of this change in estimate was to reduce depreciation expense and net loss by
$1.4 million and $1.0 million and decrease basic and diluted loss per share by $0.02 for the twelve months
ended December 31, 2017 and December 31, 2016, respectively. Aggregate depreciation expense for
property and equipment was $12.4 million, $12.0 million and $12.1 million for the years ended
December 31, 2017, 2016, and 2015, respectively.

5. Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the year ended December 31, 2017 are as follows

(amounts in thousands):

Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,221

$8,024

$80,245

Business

Consumer

Total

Adjustments to goodwill:

Foreign exchange adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

286

—

286

Balance as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,507

$8,024

$80,531

The changes in the carrying amount of goodwill for the year ended December 31, 2016 are as follows

(amounts in thousands):

Balance as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,298

$8,024

$80,322

Business

Consumer

Total

Adjustments to goodwill:

Foreign exchange adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(77)

—

(77)

Balance as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$72,221

$8,024

$80,245

The total accumulated goodwill impairment charges are $23.5 million through December 31, 2017. No

impairment was recognized for the years ended December 31, 2017, 2016, and 2015.

84

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Goodwill and Intangible Assets – (Continued)

Intangible Assets

Intangible assets are summarized as follows (see Note 7) (amounts in thousands):

Amortizing intangible assets:

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
Trade names
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Amortizing intangible assets: . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names
Non-compete agreements . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

December 31, 2017

Accumulated
Amortization

Net Carrying
Amount

$(22,575)
(10,336)
(1,294)
(1,450)
(493)
(235)
$(36,383)

$ 5,684
5,521
6
—
1,128
27
$12,366

December 31, 2016

Accumulated
Amortization

Net Carrying
Amount

$(19,736)
(8,857)
(1,277)
(1,220)
(376)
(235)
$(31,701)

$ 8,282
7,152
18
226
804
28
$16,510

Gross
Carrying
Amount

$28,259
15,857
1,300
1,450
1,621
262
$48,749

Gross
Carrying
Amount

$28,018
16,009
1,295
1,446
1,180
263
$48,211

Weighted
Average
Amortization
Period

5.3 years
8.0 years
2.1 years
2.3 years
13.1 years
2.7 years

Weighted
Average
Amortization
Period

5.3 years
8.0 years
2.1 years
2.3 years
12.4 years
2.7 years

Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization
expense for intangible assets was $4.7 million, $6.7 million and $8.0 million for the years ended
December 31, 2017, 2016 and 2015, respectively. For the years ended December 31, 2017, 2016 and 2015, 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):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Estimated Amortization
Expense
$ 2,602
2,394
2,205
1,988
1,645
1,532
$12,366

85

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Accrued Liabilities and Other Current Liabilities

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

presented (amounts in thousands):

December 31,

2017

2016

Payroll and other employee related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,431

$13,887

Professional services, consulting and other vendor fees . . . . . . . . . . . . . . . . . . . . . . .

15,674

14,559

Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contingent earn-out (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,924

5,259

—

2,338

3,385

4,240

3,312

210

2,551

1,491

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$48,011

$40,250

7. 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.

86

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Fair Value Measurements – (Continued)

Financial Assets and Liabilities

The carrying amount of cash, accounts receivable, and accounts payable approximate their fair value
due to their short-term nature. The Company’s assets and liabilities that are measured at fair value on a
recurring basis, by level, within the fair value hierarchy as of December 31, 2017 and December 31, 2016,
are summarized as follows (amounts in thousands). The Company’s restricted cash balance of $1.5 million
at December 31, 2017 and $4.0 million at December 31, 2016 is not held in a money market account and is
not included in the following table.

December 31, 2017

December 31, 2016

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:
Cash equivalents:

Money market funds . . . . . . . . .
Foreign currency derivative

$2,806

$—

$— $2,806

$3,076

$ — $ — $3,076

contracts

. . . . . . . . . . . . . . .

—

Total assets . . . . . . . . . . . . . . . .

$2,806

65

$65

—

65

— 108

—

108

$— $2,871

$3,076

$108

$ — $3,184

Liabilities:

Contingent earn-out . . . . . . . . .
Foreign currency derivative

$ — $—

$ — $ — $ — $210

$ 210

contracts

. . . . . . . . . . . . . . .

—

2

—

Total liabilities . . . . . . . . . . . . .

$ — $ 2

$— $

2

2

—

66

—

66

$ — $ 66

$210

$ 276

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

The Company’s money market funds are measured at fair value on a recurring basis based on quoted
market prices in active markets and are classified as level 1 within the fair value hierarchy. The Company’s
contingent earn-out liability and foreign currency derivative contracts are measured at fair value on a
recurring basis and are classified as level 3 and level 2, respectively, 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 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.

During the twelve months ended December 31, 2016, the final payment of $0.2 million was made in
connection with contingent earnout recorded as a result of the acquisition of CAO!, based on the
achievement of certain targeted financial, strategic, and integration objectives. As of December 31, 2016,

87

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Fair Value Measurements – (Continued)

there was $0.2 million of contingent earnout relating to the acquisition of Synchronite, based on the
fulfillment of a complete product integration and a minimum number of “Co-Browse” interactions per
month. During the twelve months ended December 31, 2017, the contingent earnout relating to Synchronite
was fully paid, and therefore, there was no remaining contingent earn-out as of December 31, 2017.

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

Contingent Earn-Out

December 31,

2017

2016

Balance, Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 210

$ 377

Cash payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(210)

(167)

Balance, End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $ 210

Derivative Financial Instruments

The Company is exposed to foreign exchange risks that are managed in part by using derivative
financial
instruments. The Company enters into foreign currency forward contracts related to risks
associated with foreign operations. The Company does not use derivatives for trading purposes and at
December 31, 2017 has no derivatives that are designated as fair value hedges. Derivatives are recorded at
their estimated fair values based upon Level 2 inputs. Derivatives designated and effective as cash flow
hedges are reported as a component of other comprehensive income and reclassified to earnings in the same
periods in which the hedged transactions impact earnings. Gains and losses related to derivatives not
meeting the requirements of hedge accounting and the portion of derivatives related to hedge
ineffectiveness are recognized in current earnings.

In accordance with the foreign currency forward contracts, the Company was required to pledge cash
as collateral security to be maintained at the bank. The collateral shall remain in control of the lender, and
these funds can be used to satisfy the outstanding obligation. Accordingly, the Company had cash at the
bank of approximately $1.5 million at December 31, 2017 and is recorded as cash held as collateral in
current assets.

The following summarizes certain information regarding the Company’s outstanding foreign currency
derivative contracts related primarily to intercompany receivables and payables for the periods presented (in
thousands):

Notional amount of foreign currency derivative contracts . . . . . . . . . . . . . . . .
Fair value of foreign currency derivatives contracts . . . . . . . . . . . . . . . . . . . . .

$2,866
63

$44,438
42

December 31,
2017

December 31,
2016

88

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Fair Value Measurements – (Continued)

The fair value of the Company’s derivative instruments is summarized below (in thousands):

Fair Value of Derivative Instruments

Balance Sheet Location

December 31,
2017

December 31,
2016

Derivative Assets

Derivatives not designated as hedging

instruments:

Foreign currency derivatives

contracts . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets

$65

108

Derivative Liabilities

Derivatives not designated as hedging

instruments:
Foreign currency derivatives

contracts . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities

$ 2

66

The following summarizes certain information regarding the Company’s derivatives that are not

designated or are not effective as hedges (in thousands):

Gain (losses) on Derivative Instruments Recognized in Income Statement

Income Statement Location

December 31,
2017

December 31,
2016

Foreign currency derivatives contracts . . Other (Expense) Income, net

$236

73

8.

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 received access to this company’s patents as
well as certain consulting services. During the year ended December 31, 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. During the year ended December 31, 2016, the Company
determined the investment was impaired and wrote off approximately $0.6 million that was allocated to
other assets and $2.0 million that represented the remaining net book value in intangible assets.

9. 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 years ended December 31, 2017, 2016, and 2015 was
approximately $8.9 million, $10.0 million and $9.9 million, respectively.

89

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Commitments and Contingencies – (Continued)

Future minimum lease payments under non-cancellable operating leases (with an initial or remaining

lease terms in excess of one year) are as follows (amounts in thousands):

Year Ending December 31,

Operating
Leases

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,797

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,319

4,113

1,373

1,198

1,712

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,512

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 in to the employees 401(k)
account and are subject to 5 year graded vesting. Total Company matching contributions were $1.4 million
for the year ended December 31, 2017. Total Company matching contributions were $1.3 million for
the years ended December 31, 2016 and 2015, respectively.

Indemnifications

The Company enters into service and license agreements in its ordinary course of business. Pursuant to
some of these agreements, the Company agrees to indemnify certain customers from and against certain
types of claims and losses suffered or incurred by them as a result of using the Company’s products.

The Company also has agreements whereby its executive officers and directors are indemnified for
certain events or occurrences while the officer or director is, or was serving, at the Company’s request in
such capacity. The maximum potential amount of future payments the Company could be required to make
under these indemnification agreements is unlimited; however, the Company has a directors and officers
insurance policy that reduces its exposure and enables the Company to recover a portion of any future
amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of
these indemnification agreements is minimal. Currently, the Company has no liabilities recorded for these
agreements as of December 31, 2017.

Letters of Credit

As of December 31, 2017, the Company has a $1.9 million letter of credit outstanding substantially in
favor of a certain landlord for office space. In addition, the Company has a letter of credit totaling
$0.1 million as a security deposit for the due performance by the Company of the terms and conditions of a
supply contract. There were no draws against these letters of credit during the year ended December 31,
2017.

90

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stockholders’ Equity

Common Stock

At December 31, 2017, there were 100,000,000 shares of common stock authorized, and 59,663,969
shares issued and outstanding. As of December 31, 2016, there were 100,000,000 shares of common stock
authorized, and 58,276,447 shares issued and outstanding. The par value for common shares is $0.001.

Preferred Stock

As of December 31, 2017 and 2016, 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 increased the aggregate purchase price of the stock repurchase program
from $40.0 million to $50.0 million. On February 16, 2016, the Company’s Board of Directors increased the
aggregate purchase price of the total stock repurchase program by an additional $14.0 million. On
November 21, 2016, the Company’s Board of Directors increased the aggregate purchase price of the stock
repurchase program from $64.0 million to $74.0 million and extended the expiration date of the program
out to December 31, 2017. There were 247,430 shares repurchased under this program during 2017 which
were recorded in treasury stock at par on the consolidated balance sheets as of December 31, 2017. As of
December 31, 2017, approximately $18.4 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 per share weighted average fair value of stock options granted during the years ended
December 31, 2017, 2016 and 2015 was $4.25, $3.10, and $4.45, 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 for the years ended December 31, 2017, 2016 and 2015:

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2017

—%

December 31,

2016

—%

2015

—%

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . .

1.7% – 2.1%

1.0% – 1.8%

1.3% – 1.7%

Expected life (in years)

. . . . . . . . . . . . . . . . . . . . . .

5.0

5.0

5.0

Historical volatility . . . . . . . . . . . . . . . . . . . . . . . . .

46.6% – 48.1% 46.8% – 48.2% 47.4% – 49.7%

91

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stockholders’ Equity – (Continued)

A description of the methods used in the significant assumptions used to estimate the fair value of

stock-based-based compensation awards follows:

Dividend yield — The Company uses 0% as it has never issued dividends and does not anticipate

issuing dividends in the near term.

Risk-free interest rate — The Company uses the market yield on U.S. Treasury securities at 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.

On June 2, 2017, the Company’s Board of Directors amended and restated the Amended 2009 Plan
effective April 30, 2017. The amended and restated plan increased the number of shares authorized for
issuance under the plan by an additional 4,000,000, 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 December 31, 2017, approximately 4.9 million shares of common stock were reserved for issuance
under the 2009 Plan (taking into account all option exercises through December 31, 2017).

Employee Stock Purchase Plan

In June 2010, our stockholders approved the 2010 Employee Stock Purchase Plan with 1,000,000
shares of common stock initially reserved for issuance. Subject to stockholder approval, which was obtained
on June 2, 2017, the Company’s Board of Directors amended and restated the 2010 Employee Stock
Purchase Plan effective April 30, 2017. The amended and restated plan increased the number of shares
authorized for issuance under the plan by an additional 1,000,000, thereby reserving for issuance 2,000,000
shares of common stock in the aggregate. As of December 31, 2017, approximately 1,027,016 shares of
common stock were reserved for issuance under the Employee Stock Purchase Plan (taking into account all
share purchases through December 31, 2017).

92

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stockholders’ Equity – (Continued)

Stock Option Activity

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

Stock Option Activity

Options
(in thousands)

Balance outstanding at December 31, 2014 . . . . . . . .

10,769

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

857

(646)

Cancelled or expired . . . . . . . . . . . . . . . . . . . . . .

(1,837)

Balance outstanding at December 31, 2015 . . . . . . . .

Options vested and expected to vest

. . . . . . . . . . . . .

Options exercisable at December 31, 2015 . . . . . . . . .

Balance outstanding at December 31, 2015 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2016 . . . . . . . .

Options vested and expected to vest

. . . . . . . . . . . . .

Options exercisable at December 31, 2016 . . . . . . . . .

Balance outstanding at December 31, 2016 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2017 . . . . . . . .

Options vested and expected to vest

. . . . . . . . . . . . .

Options exercisable at December 31, 2017 . . . . . . . . .

9,144

8,356

5,401

9,144
635
(325)
(1,685)

7,769

7,348

5,580

7,769
2,042
(854)
(998)

7,959

7,163

5,163

Weighted
Average
Exercise
Price

$10.95

10.06

4.41

12.22

$11.05

$11.08

$10.95

$11.05
7.32
5.66
11.49

$10.88

$11.00

$11.31

$10.88
9.87
8.80
11.98

$10.71

$10.75

$11.17

Weighted
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic
Value
(in thousands)

6.66

6.49

5.60

6.05

5.90

5.27

5.85

5.49

4.50

$ 2,117

$ 2,117

$ 2,117

$ 2,641

$ 2,529

$ 2,347

$14,881

$13,197

$ 8,648

The total fair value of stock options exercised during the years ended December 31, 2017 and 2016 was
approximately $3.7 million and $1.1 million, respectively. As of December 31, 2017,
there was
approximately $9.1 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 2.7 years.

93

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stockholders’ Equity – (Continued)

The following table summarizes information about outstanding and vested stock options as of

December 31, 2017:

Options Outstanding

Options Exercisable

Number of
Shares
Outstanding
(in thousands)

Weighted-
Average
Remaining
Contractual
Life (Years)

Weighted-
Average
Exercise Price

Number of
Shares
(in thousands)

Weighted-
Average
Exercise Price

825

354

873

865

1,468
874
924
946
825
5

7,959

2.81

7.54

8.27

6.02

6.46
6.12
3.99
7.45
4.27
4.58

5.85

$ 5.21

7.26

7.60

9.03

9.97
11.17
13.13
13.90
17.11
18.24

656

227

—

739

977
490
880
364
825
5

$ 4.85

7.22

—

9.15

10.04
11.39
13.13
13.48
17.11
18.24

$10.71

5,163

$11.17

Range of Exercise Prices

$1.79 – $7.02 . . . . . . . . . . . . . . . . . .

$7.04 – $7.45 . . . . . . . . . . . . . . . . . .

$7.60 – $7.60 . . . . . . . . . . . . . . . . . .

$7.95 – $9.34 . . . . . . . . . . . . . . . . . .

$9.44 – $10.13 . . . . . . . . . . . . . . . . . .
$10.31 – $12.32 . . . . . . . . . . . . . . . . .
$12.46 – $13.28 . . . . . . . . . . . . . . . . .
$13.34 – $14.30 . . . . . . . . . . . . . . . . .
$15.66 – $18.09 . . . . . . . . . . . . . . . . .
$18.24 – $18.24 . . . . . . . . . . . . . . . . .

Restricted Stock Unit Activity

A summary of the Company’s restricted stock units (“RSUs”) activity and weighted average exercise

prices follows:

Restricted Stock Unit Activity

Number of Shares
(in thousands)

Weighted Average
Grant Date Fair
Value (Per Share)

Aggregate Fair Value
(in thousands)

Balance outstanding at December 31, 2015 . . . . . . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-vested and outstanding at December 31, 2016 . .

Balance outstanding at December 31, 2016 . . . . . . . .

Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-vested and outstanding at December 31, 2017 . .

Expected to vest

. . . . . . . . . . . . . . . . . . . . . . . . . .

1,202
571
(394)
(191)

1,188

1,188

332
(363)
(284)

873

680

$10.31
6.32
10.31
10.01

$ 8.44

$ 8.44

8.16
8.48
8.46

$ 8.29

$ 8.41

$ 6,220
—
—
—

$ 8,968

$ 8,968

—
—
—

$10,053

$ 7,820

RSUs granted to employees generally vest over a four-year period. As of December 31, 2017, total
unrecognized compensation cost, adjusted for estimated forfeitures, related to nonvested RSUs was
approximately $6.3 million and the weighted-average remaining vesting period was 2.4 years.

94

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences are expected to become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment. The Company includes interest accrued on the underpayment of income taxes in
interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative
expenses. The Company recorded a valuation allowance against its U.S. and Australia deferred tax asset as
it considered its cumulative loss in recent years as a significant piece of negative evidence. Since valuation
allowances are evaluated on a jurisdiction by jurisdiction basis, we believe that the deferred tax assets related
to LivePerson UK, Engage, Kasamba Israel and LivePerson LTD Israel are “more likely than not” to be
realized as these jurisdictions have positive cumulative pre-tax book income after adjusting for permanent
and onetime items. During the year ended December 31, 2017, there was a reduction in the valuation
recorded of $4.6 million.

Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s use of its
federal net operating loss (“NOL”) carryforwards may be limited if the Company experiences an ownership
change, as defined in Section 382. Such an annual limitation could result in the expiration of the net
operating loss carryforwards before utilization. As of December 31, 2017, the Company had approximately
$32.8 million of federal NOL carryforwards available to offset future taxable income. Included in this
amount is $5.1 million of federal NOL carryovers from the Company’s acquisition of Proficient. These
carryforwards expire in various years through 2027.

The domestic and foreign components of (loss) income before provision for income taxes consist of the

following (amounts in thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2017

2016

2015

$(25,585) $(40,774) $(16,362)
2,257
15,622
1,564
2,345
1,919
3,104
(565)
(2,774)
327
2,085
230
453

3,458
2,087
1,568
(1,979)
2,424
337

$(17,690) $(19,939) $(10,630)

(1)

Includes Japan, Italy, Singapore, Canada, and France

No additional provision has been made for U.S. income taxes on the undistributed earnings of its
Israeli subsidiary, LivePerson Ltd. (formerly HumanClick Ltd.), as such earnings have been taxed in the
U.S. and accumulated earnings of the Company’s other foreign subsidiaries are immaterial through
December 31, 2017.

95

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

Income Taxes – (Continued)

The provision for income taxes consists of the following (amounts in thousands):

Year Ended December 31,

2017

2016

2015

Current income taxes:

U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $1,829

$ (524)

State and local

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

2,852

2,899

27

2,226

4,082

309

1,573

1,358

Deferred income taxes:

U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,289)

(1,144)
35

841

99
912

13,791

876
(211)

Total deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,398)

1,852

14,456

Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

501

$5,934

$15,814

The difference between the total income taxes computed at the federal statutory rate and the provision

for income taxes consists of the following:

Federal Statutory Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses – ISO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses – Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differential
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return to provision true-up adjustment . . . . . . . . . . . . . . . . . . . . . . .
Effect of new tax legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2017

2016

2015

34.00%
34.00%
34.00%
0.35%
3.24%
4.09%
(8.57)%
(0.78)% (1.85)%
(2.20)%
(1.19)% (0.88)%
(12.41)%
0.89%
(1.97)%
26.12% (53.55)% (148.24)%
—%
(9.22)%
—%
—%
—%
(56.84)%
(6.26)% (2.42)% (11.15)%

Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

(2.83)% (29.79)% (148.22)%

96

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

Income Taxes – (Continued)

The effects of temporary differences and tax loss carryforwards that give rise to significant portions of
federal deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016 are presented below
(amounts in thousands):

Year Ended December 31,

2017

2016

Deferred tax assets:

Net operating loss carryforwards

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8,093

$ 6,186

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-cash compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intangibles amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts
Intangibles related to acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,429

9,510

5,513

232
—

4,906

12,541

6,151

447
118

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27,777
(23,260)

30,349
(27,881)

Deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . . .

4,517

2,468

Deferred tax liabilities:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
Goodwill amortization and contingent earn-out adjustments . . . . . . . . . . . . . . .

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,010)
(2,669)

(4,679)

(1,695)
(3,332)

(5,027)

Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(162) $ (2,559)

ASC Topic 740-10 clarifies the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with other provisions contained within this guidance. This topic prescribes a
recognition and
recognition threshold and a measurement attribute for
measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be more likely than not to be sustained upon examination by the taxing
authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50%
likely of being realized upon ultimate audit settlement. The Company had unrecognized tax benefits of
$4.9 million and $4.2 million as of December 31, 2017 and 2016, respectively. Accrued interest and penalties
included in our liability related to unrecognized tax benefits were immaterial at December 31, 2017 and
2016.

the financial

statement

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in

thousands):

Unrecognized tax benefits balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increase for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . .

Gross increase for tax positions of current years . . . . . . . . . . . . . . . . . . . . . . . .

Decrease due to expiration of statue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2017

$4,240
—

684

—

2016

$3,519
200

700

(179)

Gross unrecognized tax benefits at December 31 . . . . . . . . . . . . . . . . . . . . . . . . .

$4,924

$4,240

97

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

Income Taxes – (Continued)

The tax years subject to examination by major tax jurisdictions include the years 2011 and forward for
U.S states and New York City, the years 2012 and forward for U.S. Federal, and the years 2012 and forward
for certain foreign jurisdictions.

Tax Reform

In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to
as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act makes broad and complex changes to
the U.S. tax code that affect fiscal 2017, including, but not limited to requiring a one-time repatriation tax
on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years (the “Repatriation
Tax”). The Tax Act also establishes new tax laws that will affect 2018 and later years, including, but not
limited to, a reduction of the U.S. federal corporate tax rate from 34% to 21%, a general elimination of U.S.
federal income taxes on dividends from foreign subsidiaries and a new provision designed to tax global
intangible low-taxed income (“GILTI”).

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which
provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement
period that should not extend beyond one year from the Tax Act enactment date for companies to complete
the accounting under ASC 740. To the extent that a company’s accounting for certain income tax effects of
those aspects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a
provisional estimate to be included in the financial statements. If a company cannot determine a provisional
estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the
provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The legislation reduced the U.S. corporate tax rate from the current rate of 35% to 21% for tax years
beginning after December 31, 2017. Under the Tax Act, our $32.8 million in federal net operating loss
carryforwards generated as of December 31, 2017 will continue to be carried forward for 20 years and are
expected to be available to fully offset taxable income earned in future tax years. Federal net operating
losses generated after 2017 will be carried forward indefinitely, but generally may only offset up to 80% of
taxable income earned in a tax year. In the quarter ending December 31, 2017, we revalued our deferred tax
assets and liabilities due to these changes, including (a) revaluing our federal net deferred tax assets before
valuation allowance using the 21% tax rate, resulting in a decreased federal deferred tax provision of
$10.1 million; (b) revaluing our federal valuation allowance using the 21% tax rate, including the impact of
tax planning strategies, resulting in a federal deferred tax benefit to continuing operations of $12.6 million;
(c) recognizing a federal deferred tax benefit of $2.0 million for 80% of indefinite lived deferred tax
liabilities, which are anticipated to be available as a source of taxable income upon reversal of deferred tax
assets that would also have indefinite lives; and (d) recognizing $1.2 million state deferred tax provision
unaffected by the changes in the Tax Act. The new legislation will require the Company to pay tax on the
unremitted earnings of its foreign subsidiaries though December 31, 2017. Because of the complexities
involved in determining the previously unremitted earnings and profits of all our foreign subsidiaries, the
Company is still in the process of obtaining, preparing, and analyzing the required information. The
Company estimates that the tax on unremitted earnings will be zero due to an overall accumulated deficit in
earnings and profits.

The Tax Act creates a new requirement that certain income earned by a foreign subsidiary must be
included in the income of the U.S. shareholder. This income (called Global Intangible Low-Taxed Income,
or GILTI) is defined as the excess of a foreign subsidiaries income over a nominal return on fixed assets.
The Company expects to be subject to this inclusion in future years. Under U.S. GAAP, the Company is
allowed to make an accounting policy choice of either accounting for the effects of the GILTI inclusion as a
current period expense, when incurred, or factoring such amounts into the Company’s measurement of its
deferred taxes. The Company has elected to treat the effects of this provision as a period cost, and therefore,
has not considered the impacts of GILTI on its deferred tax liabilities at December 31, 2017.

98

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.

Income Taxes – (Continued)

The Company’s consolidated financial statements do not provide for any related tax liability on
amounts that may be repatriated from foreign operations as the Company intends for these earnings to be
indefinitely reinvested in operations outside the U.S. Accordingly, no provision has been made for United
States income taxes that may become payable if those undistributed earnings of foreign subsidiaries are
paid as dividends. At December 31, 2017, the estimated amount of foreign earnings for which the Company
has taken a permanently reinvested position is $14.5 million.

12. Legal Matters

The Company previously filed an intellectual property suit against [24]7 Customer, Inc. in the Southern
District of New York on March 6, 2014 seeking damages on the grounds that [24]7 reverse engineered and
misappropriated the Company’s technology to develop competing products and misused the Company’s
business information. On June 22, 2015, [24]7 Customer, Inc. filed suit against the Company in the
Northern District of California alleging patent infringement. On December 7, 2015, [24]7 Customer Inc.
filed a second patent infringement suit against the Company, also in the Northern District of California. On
March 16, 2017, the New York case was voluntarily transferred and consolidated with the two California
cases in the Northern District of California for all pre-trial purposes. Recent Court rulings in the
Company’s favor have invalidated multiple [24]7 patents that were asserted in the patent cases. Trial for the
Company’s intellectual property and other claims asserted against [24]7 in the original litigation is currently
set for November 26, 2018. The Company believes the claims filed by [24]7 are entirely without merit and
intends to defend them vigorously.

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 disclosure 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.

From time to time, third parties assert claims against the Company regarding intellectual property
rights, privacy issues and other matters arising in the ordinary course of business. Although the Company
cannot be certain of the outcome of any litigation or the disposition of any claims, nor the amount of
damages and exposure, if any, that the Company could incur, the Company currently believes that the final
disposition of all existing matters will not have a material adverse effect on our business, results of
operations, financial condition or cash flows. In addition, in the ordinary course of business, the Company
is also subject to periodic threats of lawsuits, investigations and claims. Regardless of the outcome,

99

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Legal Matters – (Continued)

litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of
management resources and other factors.

13. Restructuring Costs

The Company’s restructuring costs relate to wind-down and severance costs associated with
re-prioritizing and reallocating resources to focus on areas showing high growth potential, as well as the
termination of a large customer contract. The expense associated with this restructuring was approximately
$2.6 million, $2.8 million, and $3.4 million during the years ended December 31, 2017, 2016, and 2015,
respectively, and is classified in the consolidated statements of operations as restructuring costs. During the
year ended 2016, restructuring expense was partially offset by a benefit of $0.4 million due to cash
collection of previously written off bad debt. The restructuring liability was approximately $2.3 million and
$2.6 million as of December 31, 2017 and 2016, respectively, and is classified as accrued expenses and other
current liabilities on the consolidated balance sheets.

The following table presents the detail of the liability for the Company’s restructuring charges for the

periods presented (amounts in thousands):

December 31,
2017

December 31,
2016

Balance, Beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and other associated costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wind down costs of legacy platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,551
648
(2,807)
1,946

Balance, End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,338

$ 1,328
1,585
(1,328)
966

$ 2,551

The following table presents the detail of expenses for the Company’s restructuring charges for the

periods presented (amounts in thousands):

. . . . . . . . . . . . . . . . . . . . . . . . . .
Contract termination benefit
Severance and other associated costs . . . . . . . . . . . . . . . . . . . . .
Wind down costs of legacy platform . . . . . . . . . . . . . . . . . . . . .

Total restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
648
1,946

$2,594

$ (384)
1,585
1,168

$2,369

$1,745
1,639
—

$3,384

December 31,
2017

December 31,
2016

December 31,
2015

100

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A. Controls and Procedures

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, including the Chief Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting, as that term is defined in
Rule 13a-15(f) promulgated under the Exchange Act. Our internal control system is designed to provide
reasonable assurance to our management and Board of Directors regarding the preparation and fair
presentation of published financial statements. Our management, including the Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of
December 31, 2017 based on the framework established in “Internal Control — Integrated Framework
(2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on its evaluation, our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that as of December 31, 2017, our internal control over financial reporting was effective
based on those criteria.

The effectiveness of our internal control over financial reporting as of December 31, 2017 has been
audited by BDO USA, LLP, an independent registered public accounting firm. Their attestation is included
herein.

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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended
December 31, 2017 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.

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 Exchange Act, as of December 31, 2017. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2017 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, 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.

101

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
LivePerson, Inc.
New York, New York

Opinion on Internal Control over Financial Reporting

We have audited LivePerson, Inc.’s (the “Company’s”) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of
December 31, 2017 and 2016, the related consolidated statements of income and comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and
the related notes and our report dated March 15, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

New York, New York
March 15, 2018

102

Item 9B. Other Information

None.

103

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item 10 is incorporated by reference to the sections captioned
“Matters to be Considered at Annual Meeting — Election of Directors,” “Executive Officers,” “Board
Committees and Meetings — Audit Committee,” “Codes of Conduct and Corporate Governance
Documents” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy
statement for our 2018 Annual Meeting of Stockholders.

There have been no changes to the procedures by which stockholders may recommend nominees to our
Board of Directors since our last disclosure of such procedures, which appeared in the definitive proxy
statement for our 2017 Annual Meeting of Stockholders.

We have adopted a Code of Ethics that applies to our Chief Executive Officer, who is our principal
executive officer, and other senior financial officers. Our Code of Ethics is available at: www.liveperson.com
under “Investor Relations/Corporate Governance.” The Company’s web site address provided above is not
intended to function as a hyperlink, and the information on the Company’s web site is not and should not be
considered part of this Annual Report on Form 10-K and is not incorporated by reference herein. The
Company will post on this website any amendments to our Code of Ethics.

Item 11.

Executive Compensation

The information required by this Item 11 is incorporated by reference to the sections captioned
“Compensation Discussion and Analysis,” “Compensation Committee Report” (which information shall be
deemed furnished in this Annual Report on Form 10-K), “Executive and Director Compensation” and
“Compensation Committee Interlocks and Insider Participation” in the definitive proxy statement for our
2018 Annual Meeting of Stockholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information required by this Item 12 is incorporated by reference to the sections captioned
“Ownership of Securities” and “Potential Payments Upon Termination or Change-in-Control” in the
definitive proxy statement for our 2018 Annual Meeting of Stockholders.

The following table provides certain information regarding the common stock authorized for issuance

under our equity compensation plans, as of December 31, 2017:

Plan Category
Equity compensation plans approved by stockholders(1) . . .
Equity compensation plans not approved by stockholders . .

Number of
Securities to Be
Issued Upon
Exercise of
Outstanding
Options, (a)

14,743,089

—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,743,089

Number of
Securities
Remaining
Available for Future
Issuance Under
Equity
Compensation
Plans(2) (c)

4,907,194

—

4,907,194

Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights (b)

$10.71

$ —

$10.71

(1) Our equity compensation plans which were approved by our stockholders are the 2009 Stock Incentive

Plan and the 2010 Employee Stock Purchase Plan.

(2) Excludes securities reflected in column (a). Also see Note 10 to our consolidated financial statements.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated by reference to the sections captioned
“Certain Relationships and Related Transactions” and “Director Independence” in the definitive proxy
statement for our 2018 Annual Meeting of Stockholders.

104

Item 14.

Principal Accountant Fees and Services

The information required by this Item 14 is incorporated by reference to the section captioned
“Independent Registered Public Accounting Firm Fees and Pre-Approval Policies and Procedures” in the
definitive proxy statement for our 2018 Annual Meeting of Stockholders.

105

PART IV

Item 15.

Exhibits and Financial Statement Schedules

The following documents are filed as part of this Annual Report on Form 10-K:

1. Financial Statements.

Incorporated by reference to the index of consolidated financial statements included in Item 8 of this

Annual Report on Form 10-K.

2. Financial Statements Schedules.

None.

3. Exhibits.

Incorporated by reference to the Exhibit Index immediately preceding the exhibits attached to this

Annual Report on Form 10-K.

Item 16.

Form 10-K Summary

None.

106

Pursuant to the requirements of Section 13 or 15(d) 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, on March 15, 2018.

SIGNATURES

LIVEPERSON, INC.

By:

/s/ Robert P. LoCascio
Name: Robert P. LoCascio
Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities indicated on
March 15, 2018.

Signature

Title(s)

/s/ Robert P. LoCascio
Robert P. LoCascio

/s/ Daryl J. Carlough
Daryl J. Carlough

/s/ Peter Block
Peter Block

/s/ Kevin C. Lavan
Kevin C. Lavan

/s/ Jill Layfield
Jill Layfield

/s/ Fred Mossler
Fred Mossler

/s/ William G. Wesemann
William G. Wesemann

Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)

Senior Vice President, Global and Corporate Controller
(Principal Financial Officer)

Director

Director

Director

Director

Director

107

Number

2.1

3.1

3.2

4.1

4.2

10.1(a)*

10.1(b)*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9

EXHIBIT INDEX

Description

Agreement and Plan of Merger, dated as of June 22, 2006, among LivePerson, Inc., Soho
Acquisition Corp., Proficient Systems,
Inc. and Gregg Freishtat as Shareholders’
Representative (incorporated by reference to the identically numbered exhibit in the Current
Report on Form 8-K filed on June 22, 2006)

Fourth Amended and Restated Certificate of Incorporation (incorporated by reference to
the identically-numbered exhibit to LivePerson’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 and filed March 30, 2001 (the “2000 Form 10-K”))

Second Amended and Restated Bylaws, as amended (incorporated by reference to the
identically-numbered exhibit to the 2000 Form 10-K)

Specimen common stock certificate (incorporated by reference to the identically-numbered
exhibit to LivePerson’s Registration Statement on Form S-1, as amended (Registration
No. 333-96689) (“Registration No. 333-96689”))

Second Amended and Restated Registration Rights Agreement, dated as of January 27,
2000, by and among LivePerson, the several persons and entities named on the signature
pages thereto as Investors, and Robert LoCascio (incorporated by reference to the
identically-numbered exhibit to Registration No. 333-96689)

2009 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to LivePerson’s
Registration Statement on Form S-8 filed on June 9, 2009) and Forms of Grant Agreements
under the 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to
LivePerson’s Quarterly Report on Form 10-Q filed on May 6, 2011)

2009 Stock Incentive Plan (amended and restated as of June 7, 2012) (incorporated by
reference to Exhibit 99.1 to LivePerson’s Current Report on Form 8-K filed on
June 8, 2012)

LivePerson, Inc. 2010 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.1 to the LivePerson’s Registration Statement on Form S-8 filed on
August 19, 2010)

Employment Agreement between LivePerson and Robert P. LoCascio, dated as of
January 1, 1999 (incorporated by reference to Exhibit 10.1 to Registration No. 333-96689)

Agreement between LivePerson and Dan Murphy, dated as of March 27, 2011
(incorporated by reference to Exhibit 10.5 to LivePerson’s Annual Report on Form 10-K for
the year ended December 31, 2011 and filed March 13, 2012)

Form of Indemnification Agreement entered into with Executive Officers and Directors of
LivePerson (incorporated by reference to Exhibit 10.6 to LivePerson’s Annual Report on
Form 10-K for the year ended December 31, 2011 and filed March 13, 2012)

Agreement between LivePerson and Monica L. Greenberg, dated as of October 25, 2006
(incorporated by reference to Exhibit 10.8 to LivePerson’s Annual Report on Form 10-K for
the year ended December 31, 2011 and filed March 13, 2012)

Incentive Plan (incorporated by reference to Exhibit 10.1 to LivePerson’s Current Report on
Form 8-K filed on April 28, 2011)

Employment Agreement between LivePerson and Eran Vanounou, dated as of February 22,
2014(incorporated by reference to Exhibit 10.2 to LivePerson’s Quarterly Report on
Form 10-Q filed on May 9, 2014)

Agreement and Plan Merger, dated as of November 5, 2014, among LivePerson, Inc.
Catalyst Lightning LLC, Contact At Once!, LLC and Fulcrum Growth Fund II QP, LLC
(incorporated by reference to Exhibit 2.1 to LivePerson’s Current Report on Form 8-K filed
on November 12, 2014)

108

Number

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

21.1

23.1

31.1

31.2

32.1**

32.2**

Description

Separation Agreement General Release between LivePerson and Daniel Murphy, dated as of
November 9, 2017 (incorporated by reference to Exhibit 10.5 (B) to LivePerson’s Quarterly
Report on Form 10-Q filed on November 9, 2017)

Amendment
Daniel Murphy, dated as of February 9, 2018

to Separation Agreement General Release between LivePerson and

Form of Restricted Stock Unit Award Agreement

Form of Restricted Stock Unit Award Agreement for Robert Locascio

Inducement Plan dated January 19, 2018

Amended Employment Agreement between LivePerson and Robert LoCascio, dated as of
December 27, 2017

Subsidiaries

Consent of BDO USA, LLP

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

Certification by principal financial officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

Certification by principal 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

* Management contract or compensatory plan or arrangement

** The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany the Annual Report on
Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed
“filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.

†

Pursuant to applicable securities laws and regulations, the Registrant is deemed to have complied with
the reporting obligation relating to the submission of interactive data files in such exhibits and is not
subject to liability under any anti-fraud provisions of the federal securities laws as long as the
Registrant has made a good faith attempt to comply with the submission requirements and promptly
amends the interactive data files after becoming aware that the interactive data files fail to comply with
the submission requirements. These interactive data files are deemed not filed or part of a registration
statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended,
are deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended,
and otherwise are not subject to liability under these sections.

109

SUBSIDIARIES OF LIVEPERSON, INC.

Exhibit 21.1

LivePerson Ltd. (formerly HumanClick Ltd.) — Israel
Kasamba Inc. — Delaware
Engage Pty Ltd. — Australia
LivePerson (UK) Ltd. — United Kingdom
LivePerson Netherlands B.V. — Netherlands
Contact At Once!, LLC — Georgia

Consent of Independent Registered Public Accounting Firm

Exhibit 23.1

LivePerson, Inc.
New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3
(No. 333-112019, 333-112018, 333-136249 and 333-147929) and Form S-8 (No. 333-34230, 333-147572,
333-159850, 333-168945, 333-194590 and 333-219573) of LivePerson, Inc. of our reports dated March 15,
2018, relating to the consolidated financial statements and the effectiveness of LivePerson, Inc.’s internal
control over financial reporting, which appear in this Form 10-K.

/s/ BDO USA, LLP
BDO USA, LLP
New York, New York

March 15, 2018

CERTIFICATIONS

I, Robert P. LoCascio, certify that:

1.

I have reviewed this Annual Report on Form 10-K of LivePerson, Inc.;

Exhibit 31.1

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: March 15, 2018

By:

/s/ ROBERT P. LOCASCIO
Name: Robert P. LoCascio
Title: Chief Executive Officer

(principal executive officer)

Exhibit 31.2

CERTIFICATIONS

I, Daryl J. Carlough, certify that:

1.

I have reviewed this Annual Report on Form 10-K 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: March 15, 2018

By:

/s/ Daryl J. Carlough
Name: Daryl J. Carlough
Title: Senior Vice President, Global and

Corporate Controller
(principal financial officer)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

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 Annual Report of the Company on Form 10-K for the period ended December 31, 2017, 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: March 15, 2018

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.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.2

I, Daryl J. Carlough, Senior Vice President, Global and Corporate Controller 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 Annual Report of the Company on Form 10-K for the period ended December 31, 2017, 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: March 15, 2018

By:

/s/ Daryl J. Carlough
Name: Daryl J. Carlough
Title: Senior Vice President, Global and

Corporate Controller
(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.

Select LivePerson Customers

Sky UK, part of Europe's leading entertainment 
and communications business, uses LivePerson's 
LiveEngage platform to transform customer 
connections, giving consumers the ability to message 
with the brand just as they do with friends and family.

"We’re transforming the way we do customer care. With the exciting, new 
technology in messaging and in bots, we’re looking forward to explore 
additional ways in which we can better serve our customers." said Lucien 
Bowater, digital director at Sky.

Liberty Global, the world's largest international cable 
and internet provider is partnering with LivePerson to 
transform how customers connect with the brand in a 
new conversational era.

“We understand that the lives of our customers are fluid and demanding. 
We simply don’t have time to wait for answers to our questions – that’s why 
we are messaging each other more than ever in our personal lives. Knowing 
this, we are using LivePerson’s market-leading technology to ensure 
Liberty Global goes fully digital, and align with consumers, empowering 
them to use our services on their own terms and at their own pace, for a 
best-in-class experience.” said Melanie Longdon, VP, Customer Experience 
Operations at Liberty Global, a company with over 30,000 employees and in 
the top 100 of the Forbes Most Innovative Companies list.

Singtel, Asia’s leading communications group, uses  
LiveEngage as the foundation for its real-time 
engagement with its customers. The solution allows 
Singtel to take advantage of predictive intelligent 
targeting and behavioral intent tools to enhance 
web service and customers’ overall communication 
experience with Singtel.

"As Singtel continually grows its suite of next-generation communications 
and digital services, we are also investing in new IT capabilities to support 
these services. We want to give customers a seamless and effortless 
experience when they look for information or transact with us. For example, 
with LivePerson, we can proactively reach out to customers to render timely 
support when they are surfing our website," said Candy Chua, Singtel vice 
president, consumer operations.

Citi uses LivePerson software to facilitate more than 
70 different online journeys, such as paying a bill, 
increasing a credit line, and opening an account.

“Consumers used to quick, intuitive e-commerce transactions now expect 
similar service from banks,” said Dawn Cooper, who, as global head of client 
at Citigroup, helped lead customer experience worldwide. “So many clients 
are going online, and they need help and real-time responsiveness.”

Board of Directors

Executive Officers

Robert P. LoCascio
Chairman of the Board,  
Chief Executive Officer  
LivePerson, Inc.

Peter Block
Independent Consultant and  
Partner in Designed Learning Inc.

Kevin C. Lavan
CFO, Autoclear LLC

Jill Layfield
Co-founder & CEO, Tamara Mellon Brand

Fred Mossler 
Independent Consultant

William G. Wesemann 
Independent Consultant

Robert P. LoCascio
Chairman of the Board,  
Chief Executive Officer

Christopher Greiner
Executive Vice President,  
Chief Financial Officer

Alexander Spinelli
Executive Vice President,  
Global Chief Technology Officer

Monica L. Greenberg
Executive Vice President,  
Business Affairs and General Counsel

Daryl J. Carlough
Senior Vice President,  
Global and Corporate Controller

Stockholder Information

Corporate Headquarters
LivePerson, Inc. 
475 Tenth Avenue 
New York, NY 10018

Counsel
Fried, Frank, Harris, Shriver & Jacobson LLP 
One New York Plaza 
New York, NY 10004

Investor Relations
Copies of our Annual Report on Form 10-K for the year  
ended December 31, 2017 are available free of charge,  
upon request to:

Independent Registered  
Public Accounting Firm
BDO USA, LLP 
100 Park Avenue 
New York, NY 10017

Investor Relations 
LivePerson, Inc. 
475 Tenth Avenue 
New York, NY 10018

Stock Listing
Our common stock is listed on the Nasdaq Global Select 
Market and Tel Aviv Stock Exchange under the symbol 
“LPSN”

Transfer Agent
American Stock Transfer & Trust Company  
6201 15th Avenue 
Brooklyn, NY 11219

Company Information on the Web
Current information about LivePerson, press releases  
and investor information are available on our website  
at www.liveperson.com

475 Tenth Avenue, New York, NY, 10018 

475 Tenth Avenue, New York, NY, 10018 

© 2018 LivePerson, Inc. All Rights Reserved.

© 2018 LivePerson, Inc. All Rights Reserved.