LivePerson

About LivePerson

LivePerson (NASDAQ: LPSN) makes life easier for people and brands everywhere through trusted Conversational AI. We 
empower brands to give customers better experiences through AI-powered messaging instead of forcing them to waste time on 
hold or crawling through websites.

For consumers, AI-powered conversations make it natural and easy to buy products and resolve questions in the messaging 
channels they use every day, including Apple Business Chat, WhatsApp, Facebook Messenger, SMS, and more. For brands, this 
means happier customers, higher efficiency, and lower costs. Most importantly for both, conversational relationships run deep.

Over 18,000 customers — including leading brands like HSBC, Orange, GM Financial, and The Home Depot — have deployed our 
conversational platform to orchestrate how AI and human agents serve customers at scale. Together, we help millions of people 
shop and get customer service through the world’s most popular messaging channels, as well as brand websites and apps.

LivePerson is headquartered in New York City and has adopted an employee-centric workforce model that does not rely on 
traditional offices, allowing our employees to work from anywhere. Our employees are located in more than 12 countries across 
the Americas, Europe, Middle East and Africa and Asia-Pacific.

Total revenue (in millions)

Annual revenue per user* (in thousands)

$91.6

$94.8

$102.1

$78.1

$395

$425

$465

$365

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2020

Q2 2020

Q3 2020

Q4 2020

66%

Enterprise adoption of messaging

80%

60%

40%

20%

0

2016

2017

2018

2019

2020

*ARPU is for enterprise and midmarket customers

Nearly

70%

of messaging conversations 
use automation

~400

brands powering 
conversational commerce on 
the Conversational Cloud

1,200

employees globally

Safe Harbor Statement 
Statements in this report about LivePerson that are not historical facts are forward-looking statements based on our current expectations, assumptions, 

estimates and projections about LivePerson and our industry 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 year or each quarter 

in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change. 

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 provided herewith, 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. We do not undertake any obligation to revise these forward-looking 

statements to reflect future events or circumstances.

Dear Fellow Stockholders,

More than four years ago, we began a strategic pivot to Conversational AI and automation, 
arising from our strong belief that conversational commerce would come to dominate 
how brands and consumers interact. While 2020 upended many of our expectations 
about work and life, one thing we can now say for certain is that it cemented 
conversational commerce’s place in the global economy, validating our vision even 
earlier than we expected. 

Our latest research shows that 85% of consumers worldwide report they want to message 
with brands, and we’re growing our AI and commerce capabilities every day to meet 
this overwhelming demand. Today, approximately 70% of messaging conversations on 
our Conversational Cloud are now fully or partially automated. What’s more, our latest 
estimates show we’re already supporting approximately $5 billion in annual transaction 
value — a figure with the potential to grow significantly as brands look to enhance 
traditional advertising and shopping experiences with conversational marketing and sales. 

The rapid growth in our AI and automation capabilities, along with the massive commerce 
opportunity, has helped us reach new milestones ahead of schedule. For example, we 
reached our goal of growing revenues 25%, which was targeted for 2021, a year earlier 
in 2020 at 26%. We also achieved our first $100 million revenue quarter in Q420, also 
a year ahead of plan, in addition to new records for many other metrics. All told, our 
performance in 2020 — marked by faster adoption of Conversational AI, sustained 
growth in conversation volume, and compressed sales cycles — proves we are leading 
the way as brands try to keep pace with the ever-growing demand for AI-powered 
conversational experiences. 

With the rise of AI representing one of the greatest leaps forward in human history, I’d like 
to share what it really means to us at LivePerson. Simply put, AI enables the processing of 
outcomes at a scale far beyond what any set of human brains can do. Creating AI starts 
with having a very large set of data, and LivePerson’s data set is unequivocally one of 
the largest for brand-consumer interactions in the world. Analyzing that dataset with our 
proprietary tools allows us to solve huge challenges between brands and consumers. For 
example, telco and credit card companies face an overwhelming number of questions 
around bill pay. When we create an AI to automate bill pay, we deliver tens of millions of 
dollars in savings for them. By layering in our full suite of AI capabilities, we can scale 
these experiences for brands and continually optimize them.  

Since our strategic pivot to AI and automation began, we have built significant intellectual 
capital in the space, with nearly 100 patents to date from some of the best data science 
and engineering talent in the world. Our four year lead, singular data set, talent, intellectual 
property, and vision put us ahead of any competitors in the contact center space and also 
put us in the company of Google, Amazon, and Microsoft when it comes to conversational 
AI. Equally important, our world-class messaging platform provides a unique foundation 
for building and delivering these AI-powered experiences — and it’s this combination 
that differentiates us now and that we expect to differentiate us going forward as the 
permanent shift to conversational commerce takes over not just customer care, but also 
sales, marketing, and more.

But we’re not stopping there. We’re aiming to bring a sense of magic and wonder to every 
conversational experience. To start, we’re exploring how to make AI more compassionate 
and empathetic — you might even say more human. In the last few months, we’ve 
launched our first expedition in this space: BELLA, a new banking experience that spreads 
kindness and love. BELLA is just the first representative of a new breed of AI that will 

change digital experiences forever, and I can’t wait to see how brands around the world 
use and evolve this new technology with us. 

Best regards,

Rob 
Rob@liveperson.com 

Select LivePerson Customers

Chipotle leverages LivePerson’s 
Conversational AI for an interconnected 
concierge experience across customer-facing 
and employee-facing intents.

"Everything we have done on this end-to-end transformation journey has 
been about delivering exceptional digital experiences to our customers 
and our crews," said Nicole West, VP Digital Strategy & Product at 
Chipotle. "We're using the Conversational Cloud to curate convenient, 
frictionless, engaging experiences that are aligned with our purpose to 
Cultivate a Better World."

HSBC provides customers a secure, 
seamless way to perform day-to-day banking 
transactions over messaging through 
LivePerson’s Conversational Cloud.

"AI-powered messaging creates an easy, secure connection to our 
service center, where clients dip in and out of the conversation at 
their own pace and avoid call wait times. Whether accessing our relief 
programs or managing a wide range of day-to-day banking, our skilled 
conversational banking team is ready to help,” said Katie Jenkins, Head 
of Direct Banking at HSBC.

Built and optimized on the Conversational 
Cloud, David's Bridal's AI-powered messaging 
experiences help customers plan the events of 
their dreams.

"From our Zoey bot concierge to video chats with our expert stylists, we 
can't overstate how critical conversational commerce has become to the 
immersive shopping experiences our brides expect," said Kassandra Palo, 
Director, Customer Service at David's Bridal.

William Hill Group, a global top 5 gaming 
company, is re-envisioning consumer 
experience through LivePerson’s customer 
service and marketing solutions.

“We’re strategically implementing and expanding the Conversational 
Cloud across our key brands, with the goal of replacing legacy chat and 
taking advantage of the effective and lasting power of messaging and 
conversational commerce,” said Stephen Parry, Group Chief Operating 
Officer at William Hill.

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, 2020

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 or other jurisdiction
of incorporation)

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

13-3861628
(IRS Employer
Identification No.)

10018
(Zip Code)

(212) 609-4200
(Registrant’s telephone Number, including area Code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

LPSN

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Accelerated Filer ☐

Large 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 has filed a report on and attestation to its management’s assessment of the effectiveness of

its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒

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, 2020 (the last business day
of the registrant’s most recently completed second fiscal quarter) was approximately $2,500,040,734 (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 February 26, 2021, 67,784,058 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the 2021 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.

LIVEPERSON, INC.

2020 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I

Item 1.

Business

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

Item 1A. Risk Factors

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

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

Item 2.

Item 3.

Item 4.

Item 5.

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

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

Mine Safety Disclosures

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

PART II

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

Item 6.
Item 7.

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.

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial
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.

PART IV

Item 15.
Item 16.

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

Page

1

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i

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

STATEMENTS IN THIS REPORT ABOUT LIVEPERSON, INC. THAT ARE NOT HISTORICAL
FACTS ARE FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS,
ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT LIVEPERSON AND OUR INDUSTRY.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL FUTURE EVENTS OR RESULTS TO DIFFER MATERIALLY
FROM SUCH STATEMENTS. 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 INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS, INCLUDING,
WITHOUT 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

PART I

Item 1. Business

Overview

LivePerson, Inc. (“LivePerson”, the “Company”, “we” or “our”) makes life easier for people and
brands everywhere through trusted Conversational AI. Conversational AI allows humans and machines to
interact using natural language, including speech or text. During the past decade, consumers have made
mobile devices the center of their digital lives, and they have made mobile messaging the center of
communication with friends, family and peers. This trend has been significantly accelerated by the COVID-19
pandemic and can now be viewed as a permanent, structural shift in consumer behavior. Our technology
enables consumers to connect with businesses through these same preferred conversational interfaces,
including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger
and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to
power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery
and research, to sales, service and support, and increasingly marketing, social, and brick and mortar
engagements. For example, consumers can look up product info like ratings, images and pricing, search for
stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or
payments — all without ever leaving the messaging channel. These AI and human-assisted conversational
experiences constitute the Conversational Space, within which LivePerson has strategically developed one of
the industry’s largest ecosystems of messaging endpoints and use cases.

The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to become

conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of
customers and many thousands of agents. The Conversational Cloud powers conversations across each of a
brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, short message
service (SMS), social media and third-party consumer messaging platforms. Brands can also use the
Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to
navigate interactive voice response systems (IVRs) and wait on hold. Similarly, the Conversational Cloud
can ingest traditional emails and convert them into messaging conversations, or embed messaging
conversations directly into web advertisements, rather than redirect consumers to static website landing
pages. Agents can manage all conversations with consumers through a single console interface, regardless of
where the conversations originated.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings

features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection
and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment
Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. An extensible
application programming interface (API) stack facilitates a lower cost of ownership by facilitating robust
integration into back-end systems, as well as enabling developers to build their own programs and services
on top of the platform. More than 40 APIs and software development kits are available on the Conversational
Cloud.

For your reference:

• Conversational AI: Conversational AI allows humans and machines to interact using natural

language, including speech or text.

• Conversational Space:

In the Conversational Space, consumers message with brands on their own
schedule, using natural language, to resolve their intents — all on their preferred messaging service.
The core capabilities of the Conversational Space are voice and text-based interfaces, powered by
AI and humans working together. Conversational Space is the simplest, most intuitive interface of all.

• Conversational Cloud: LivePerson’s enterprise-class, AI-powered Conversational Cloud platform

empowers consumers to message their favorite brands, just as they do with friends and family.

LivePerson’s Conversational AI offerings put the power of bot development, training, management
and analysis into the hands of the contact center and its agents, the teams most familiar with how to structure

1

sales and service conversations to drive successful outcomes. The platform enables what we call “the tango”
of humans, AI and bots, whereby human agents act as bot managers, overseeing AI-powered conversations
and seamlessly stepping into the flow when a personal touch is needed. Agents become ultra-efficient,
leveraging the AI engine to serve up relevant content, define next-best actions and take over repetitive
transactional work, so that the agent can focus on relationship building. By seamlessly integrating messaging
with our proprietary Conversational AI, as well as third-party bots, the Conversational Cloud offers
brands a comprehensive approach to scaling automations across their millions of customer conversations.

Complementing our proprietary messaging and Conversational AI offerings are teams of technical,
solutions and consulting professionals that have developed deep domain expertise in the implementation
and optimization of conversational services across industries and messaging endpoints. We are a leading
authority in the Conversational Space. LivePerson’s products, coupled with our domain knowledge, industry
expertise and professional services, have been proven to maximize the effectiveness of the Conversational
Space and deliver measurable return on investment. Certain of our customers have achieved the following
advantages from our offerings:

• the ability for each agent to manage as many as 40 messaging conversations at a time, as compared

to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots
provides even greater scale to the number of conversations managed;

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

least 50%;

• improving the overall customer experience, thereby fueling customer satisfaction increases of up to

20 percentage points, and enhancing retention and loyalty;

• more convenient, personalized and content-rich conversations that increase sales conversion by up to

20%, increase average order value and reduce abandonment;

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

• maintain a valued connection with consumers via mobile devices, either through native applications,

websites, text messages, or third-party messaging platforms;

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

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

and

• increase lead generation by providing a single platform that engages consumers through advertisements

and listings on branded and third-party websites.

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

To further enhance our platform, in September 2020 we signed a partnership with Infosys, a leader in next-

generation digital services and consulting. We will work with Infosys to transform our technology
infrastructure on the public cloud, to build integrated solutions and a global practice around our
Conversational Cloud to sell into their channels and global enterprise customer base, and to redefine how
the world’s top brands communicate.

More than 18,000 businesses, including HSBC, Orange, The Home Depot, and GM Financial use our

conversational solutions to orchestrate humans and AI, at scale, and create a convenient, deeply personal
relationship with their customers.

LivePerson’s consumer services offering is an online marketplace that connects independent service
providers (Experts) who provide information and knowledge for a fee via mobile and online messaging with

2

individual consumers (Users). Users seek assistance and advice in various categories including personal
counseling and coaching, computers and programming, education and tutoring, spirituality and religion,
and other topics.

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service
was introduced in November 1998. In April 2000, the company completed an initial public offering and is
currently traded on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange. LivePerson is
headquartered in New York City. In light of the COVID-19 pandemic and the company’s strong performance
working remotely, LivePerson has adopted an “employee-centric” workforce model that does not rely on
traditional offices.

Market Opportunity

LivePerson’s proprietary messaging and Conversational AI enable consumers and businesses to use
natural language over conversational interfaces such as SMS, Messenger, Apple Business Chat, Google’s
Rich Business Messenger, and in-home personal assistants like Alexa, in order to get answers to questions,
make purchases and resolve customer care inquiries. These conversational messaging capabilities target lower
costs and increased customer satisfaction, retention and revenue by utilizing human agents, AI and bots to
provide convenient, personalized and content-rich communication as alternatives to calling a 1-800 number,
navigating a website or downloading an app.

Our view is that once a consumer has established their favorite brands as contacts in their preferred
messaging app, they will no longer see a need to call that brand’s 1-800 number, visit their website or download
their app. Instead, they will simply select the contact, open up the thread with their entire history with the
brand, and then renew the conversation. As a result, the billions of dollars previously invested by brands
across these legacy channels will be increasingly allocated to experiences powered by our platform.

Historically, brands have predominantly promoted calling the 1-800 number or using email as the

primary means of contact with consumers. According to a 2018 IBM report, approximately 270 billion
customer service calls are made to contact centers each year. With a median cost per call of approximately
$5.60, according to US Contact Center Decision-Makers’ Guide, we estimate that businesses spend
approximately $1.5 trillion annually to support their 1-800 number call centers. We believe that moving
these calls to messaging represents the largest portion of what we estimate is a $60 billion go-to-market
opportunity. We estimate that nearly half of this market opportunity is tied to service, and the other half tied
to sales, marketing, social and brick and mortar use cases.

LivePerson is already capitalizing on this Conversational Space transformation. We cite the following

considerations:

• Consumer preference has already shifted away from calling to messaging in our personal lives.

Gartner, a technology research firm, estimates that the proportion of voice-based communication
will drop from 41% in 2017 to 12% in 2022. In contrast, WhatsApp and Facebook users combined send
more than 65 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. According to Gartner, by the
end of 2020, more than 500 million consumers have used voice-enabled conversational AI to purchase
on digital commerce platforms, growing from 160 million in 2017. 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.

• Calling a 1-800 number typically leads to a poor customer experience. 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

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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.

• Conversational experiences, which harness the power of human agents, bots and AI over messaging

have been demonstrated to provide a superior alternative to voice calls. LivePerson customers typically
see contact center agent efficiency increase by at least two times for messaging on our platform
versus voice, while fueling higher customer satisfaction and increased sales conversions. 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. 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 the combination of strong alignment to consumer communication preferences, high
returns on investment and a growing list of proven referenceable customers have positioned the
Conversational Space at an inflection point. Approximately 66% of our enterprise customers have
adopted messaging by the end of 2020, up from nearly 55% at the end of 2019 and approximately 40%
at the end of 2018. In addition, nearly 70% of messaging conversations had automation attached at
the end of 2020, up from nearly 60% at the end of 2019 and up from approximately 25% at the end of
2017. In the first year of its launch, our Conversation Bot Builder was deployed by nearly 300 brands.
The Conversational Space is growing very rapidly; according to Gartner, by 2022, 70% of customer
interactions will involve emerging technologies such as machine learning applications, chatbots and
mobile messaging, up from 15% in 2018.

In addition to market share opportunities in the legacy 1-800 number call center, we believe that

consumer traffic and digital spending will increasingly shift away from websites and mobile apps to
conversational engagements. We think that websites and e-commerce have not lived up to the expectations
of businesses and that consumers are likewise frustrated with the navigational experience and the challenges
of getting questions answered on websites. In fact, after more than 20 years and a global pandemic,
e-commerce still only accounts for approximately 18% of total retail sales and, in the United States,
Amazon.com accounts for approximately 40% of this share.

The low penetration rates of online and mobile e-commerce reflect disappointing website conversion

rates, which average less than 5%. Low conversion rates are likely a factor of the trend for websites to be
designed for content, as opposed to commerce, so that they can be indexed to show up in web searches.
According to Forrester Research, 53% of customers are likely to abandon their online purchases if they can’t
find quick answers to their questions. This conflict between content and commerce not only impacts
revenue, but also drives higher costs, as we estimate that 60%-80% of all calls to 1-800 numbers originate
from consumers first visiting a website and then getting confused or not obtaining the answers they seek.

We believe that LivePerson’s proprietary messaging and Conversational AI offerings provide a superior
alternative. Certain LivePerson customers have demonstrated increases in website sales of up to 20%, while
lowering the cost of engagement relative to voice or email. No longer are consumers navigating through clicks
and searches to find answers across multiple static web pages. Instead they use natural language to engage
conversationally with a brand. These conversations can be personalized to each brand’s unique identity and
to each consumer’s unique history and preferences. The engagements are content rich, featuring images,
reviews, ratings, and videos, and they are convenient, letting the consumer drive the conversation when it
meets their needs, and offering the ability to integrate to credit cards, pay wallets and calendars.

We also believe that the Conversational Space will steadily eliminate the need for investment in branded

apps. We conclude that consumers will increasingly opt to connect with brands through their preferred
messaging channels, such as Apple Business Chat, WhatsApp, SMS, Messenger, or Twitter, rather than clutter
their mobile devices, waste storage, and potentially impact performance by downloading a multitude of
individual apps.

Another emerging market opportunity for LivePerson is the leveraging of brick and mortar operations

as an extension of the contact center. Retailers, telecommunications companies, and financial services
companies, among others, all operate brick and mortar storefronts, where thousands of employees often sit
idle during off peak hours. The Conversational Cloud enables our customers to set up campaigns where

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these employees can connect through messaging to customers in their community, with check-ins, follow
ups, and special offers, reinforcing relationships at the local level. For example, a telecommunications company
targeted consumers that were local to its storefronts with a trade-in offer. Additionally, our platform can
arm employees in the field with the ability to rapidly obtain answers to questions as they engage with
customers in the stores. For example, a consumer may have a specific question about a new appliance in a
home improvement store, and the employee can engage through our platform with a specialist bot or human
agent to obtain detailed information on that appliance. The COVID-19 pandemic has only accelerated
adoption of these experiences. While in-store traffic on Black Friday fell by 52% in 2020 compared with
2019, according to Sensormatic Solutions, peak conversation volume on the Conversational Cloud during
the 2020 Black Friday to Cyber Monday period grew 200% year over year.

Strategy

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

Build awareness and drive adoption of the Conversational Space. LivePerson brought our first
customer live on messaging in June 2016. Since that time, we have been focused on building awareness for
conversational experiences and driving adoption. We have educated businesses on the financial and operational
transformation that occurs when a contact center shifts to an asynchronous messaging environment, where
the consumer controls the pace of the conversation, which can last minutes, hours or days, from a synchronous
call or chat center, where conversations occur in real-time and have a distinct start and end.

A key component of our industry awareness marketing strategy has been to hold multiple global
customer summits each year (events in 2020 were held virtually in light of the COVID-19 pandemic) that
target executives from enterprise customers and prospects, and feature a key theme within the Conversational
Space, such as Apple Business Chat, Google Rich Business Messenger, IVR deflection or AI. LivePerson
customers are the center point of these summits, presenting why they chose LivePerson for conversational
experiences, how they achieved success, and what type of ROI they have realized. Each attendee then receives
a blueprint for how they can achieve similar outcomes. We have found this strategy to drive strong results
for LivePerson, as we have seen a greater than 40% conversion rate on opportunities that were created or
advanced as part of the customer summits. By year-end 2020, we had brought approximately 400 customers
live on messaging and increased adoption within our enterprise customers to 66%. In addition, nearly 70%
of messaging conversations had automation attached. We will continue to focus on building awareness for the
Conversational Space and driving adoption of messaging and AI across our customer base.

Increase messaging volumes by developing a broad ecosystem, expanding customer use cases, and focusing

on AI and automation. Our strategy is to drive higher messaging volumes by going both wide across
messaging endpoints, deep across consumer use cases, and focusing on AI and automation as the means to
deliver powerful scale. LivePerson offers a platform usage pricing model, where customers are offered access
to our entire suite of messaging technologies across their entire agent pool for a pre-negotiated cost per
interaction. We believe that over time this model will drive higher revenue for LivePerson by reducing barriers
to adoption of new messaging endpoints and use cases.

In order to drive broad messaging adoption, it is imperative that the Conversational Cloud integrates
to all of the messaging apps that consumers prefer to use for communication and addresses all key use cases.
For example, if a consumer is an avid WhatsApp user, and a brand only offers SMS as a messaging option,
that consumer may be reluctant to try messaging the brand. Therefore, a key strategy of ours has been to build
one of the industry’s broadest ecosystems of messaging endpoints and use cases. In June 2016, we launched
with In-App messaging. In 2017, we introduced Facebook Messenger, SMS, Web messaging and IVR
deflection integrations. In 2018, we added Apple Business Chat, Google Rich Business Messenger, Line,
WhatsApp, Alexa, Google Home, Google Ad Lingo and Twitter. In 2019, we added email, allowing brands
to manage emails through the same console they use for messaging, and to convert legacy emails into
messaging conversations. We also added social monitoring and conversational tools for Twitter and
Facebook, and introduced proactive messaging, allowing brands to transform traditional one-way
notifications such as flight cancellations or phone plan overage alerts into two-way conversations. Finally,
we connected to Facebook and WhatsApp digital advertisements, enabling consumers to initiate messaging
conversations for marketing and customer care directly within the advertisement. In 2020, we added Instagram

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and Google’s Business Messages, allowing brands to bring customer-initiated conversations into the
Conversational Cloud directly from Instagram, Google Search, and Google Maps.

Each channel and use case added opens the door to hundreds of millions of new consumers, providing

brands a greater opportunity to shift share away from their legacy contact center channels into messaging.
For example, in 2019, leading airlines launched on WhatsApp and Apple Business Chat with the ability to
make secure payments; a baseball stadium launched an automated conversational concierge providing
answers to a wide range of questions from restroom locations to player stats; and a multinational
telecommunications company used proactive two-way messaging for outbound campaigns. In 2020, one of
the largest telcos in Australia fully virtualized their contact centers, a leading U.S. quick-serve restaurant
launched on Facebook Messenger to help customers order meals, one of the biggest banks in the world
launched an Apple Business Chat channel to provide a secure way to perform day-to-day banking, and one
of the world’s largest jewelry retailers used the Conversational Cloud and QR codes to sell millions of
dollars of product.

LivePerson makes the management of all these disparate channels seamless to the brand. AI-based
intelligent routing, queuing and prioritization software orchestrates these conversations at scale, regardless
of which messaging endpoint they originated from, so that human and bot agents can engage with all
customers through just one console.

We believe LivePerson is leading the structural shift to Conversational AI. In the wake of the COVID-19

pandemic, leading brands are turning to LivePerson’s AI-powered messaging to overcome a capacity gap
created by voice call agent work-from-home measures and increased demand for digital engagement as
consumers practice social distancing. LivePerson is powering Conversational AI, automation and messaging
strategies across a growing number of use cases from care and sales, to marketing, social, conversational
advertising and brick and mortar. Our Conversational AI leadership and the increase in adoption have
influenced LivePerson’s enterprise and mid-market revenue retention rate, (the trailing-twelve-month change
in total revenue from existing customers after upsells, downsells and attrition) which exceeded the high end
of our target range of 105% to 115% for 2020. The benefit can also be seen in LivePerson’s average revenue per
user (ARPU) for our enterprise and mid-market customers, which increased approximately 35% in 2020 to
$465,000 from approximately $345,000 in 2019.

Attract the industry’s best AI, machine learning and conversational talent. We believe that AI and

machine learning are critical to successfully scaling in the Conversational Space, and that in order to
develop the industry’s leading technology, we need to attract the industry’s best talent. In 2018, LivePerson
recruited Alex Spinelli, key architect of the Alexa Operating System at Amazon.com, as our Global CTO.
Under Mr. Spinelli’s leadership, LivePerson hired more than 280 of the industry’s brightest data scientists,
machine learning engineers and automation engineers, many from firms such as Nike, Amazon.com,
Microsoft and Target, who are working exclusively on applying AI to the Conversational Space. LivePerson
also expanded its development talent base in Germany, and added key development talent through the
acquisitions of BotCentral in Mountain View, California and Conversable in Austin, Texas.

Bring to market best-in-class AI and machine learning technologies designed for the Conversational
Space. We believe that in the last decade many vendors introduced AI and bot offerings that created
frustrating experiences for consumers and businesses alike, which in turn has eroded trust in automation.
Many of these solutions have proven difficult to build and scale, and have been limited by stand-alone
implementations that lacked the measurement, reporting and human oversight of conversational platforms
such as the Conversational Cloud. In December 2018, LivePerson announced its patent pending AI
engine that is designed to overcome these shortcomings and help brands rapidly bring to market conversational
AI that can scale to millions of interactions, while increasing customer satisfaction and conversion rates.

Unlike alternative solutions designed solely for IT departments, LivePerson’s Conversational AI was
built to be used by developers and contact center agents. By putting the power of conversational design and
bot management in the hands of contact center agents, LivePerson’s Conversational AI gives brands the
ability to leverage the employees closest to the customer, those who are most versed in the voice of the brand,
and with the most expertise in how to craft successful outcomes for customer service and sales journeys.

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Some of the key innovations behind LivePerson’s Conversational AI include:

• a holistic approach to scaling AI by combining consumer facing bots, agent facing bots, intelligent

routing and real-time intent understanding, with an analytics dashboard that helps users focus on the
intents that are impacting their business and prioritize which intents to automate next;

• bot building software that is based on dialogue instead of workflow or code, so non-technical

employees like contact center agents can design automations;

• leveraging data moat from hundreds of millions of conversations to feed the machine learning that

rapidly and accurately detects consumer sentiment and intents in real-time. Customers of LivePerson
can use intent understanding for advanced routing, next-best actions, and to fully contain
conversations with automation;

• the establishing of contact center agents as bot managers, ensuring that every conversation is

safeguarded by a human and that agents are continuously training the AI to be smarter and drive
more successful outcomes;

• powerful Assist technology that multiplies the efficiency of agents by analyzing intents in real time
and then suggesting next best actions, predefined content, and bots that can take over transactional
work;

• pre-built templates for target verticals that provide out of the box support for the top intents and

back-end integrations;

• the ability to bootstrap conversations with existing transcripts, reducing design effort and speeding

time to market;

• third-party AI natural language understanding (NLU) integration, so customers aren’t boxed into

one vendor; and

• AI analytics and reporting tailored to the Conversational Space, providing brands with immediate,

actionable insights about their businesses and contact center operations.

Our strategy is to continue to enhance the Conversational AI engine and related products, by leveraging
our global R&D footprint and substantial library of mobile and online conversational data, with the aim of
increasing agent efficiency, decreasing customer care costs, improving the customer experience and
increasing customer lifetime value.

Sustain our leadership position by aligning brands to a vision that transforms how they communicate with

consumers and delivers a superior return on investment. We believe that most contact center technology
vendors incorrectly view messaging as a feature. They are content with building integrations to a messaging
endpoint and offering messaging as just another product in their suite. LivePerson holds the perspective
that messaging and AI are the foundation for transforming conversational experiences, disrupting how agents
operate and how brands engage with consumers. Brands must adapt their contact centers to an
asynchronous messaging environment and leverage a combination of human agents, bots and AI to achieve
scale and efficiencies. When done correctly, the entire consumer lifecycle with a brand will be maintained
within the Conversational Space, and traffic will steadily shift away from lower returning voice calls, websites,
emails and apps to higher returning messaging endpoints.

We believe that LivePerson is uniquely positioned to deliver this transformation due to our technology

and expertise:

• The Conversational Cloud, LivePerson’s enterprise-class, automation-first, cloud-based platform,
was designed for AI-assisted and human-powered messaging in mobile and online channels. The
platform offers best-in-class security and scalability, offers the broadest ecosystem of messaging
endpoints, is designed for ease of use, and features an AI engine custom built for the Conversational
Space, intent recognition, robust real-time reporting, role-based real-time analytics, predictive
intelligence, and innovations in customer satisfaction and connection measurement. Additionally,
the Conversational Cloud is an open platform with pre-built, enterprise-grade integrations into
back-end systems as well as the ability to work across NLU providers.

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• The Company has a data moat built on hundreds of millions of conversations across industries,

geographies and use cases that is feeding the machine learning engines that power intent understanding.

• The platform has expanded to power conversations across a broad spectrum of channels and use

cases, from traditional sales and customer service, to marketing, social, email, advertising, and brick
and mortar.

• LivePerson has deep domain expertise across verticals and messaging endpoints, a global footprint,
referenceable enterprise brands and a team of technical, solutions and consulting professionals to
assist customers along their transformational journeys. We are positioned as an authority in the
Conversational Space. We have developed a Transformation Model that is introduced to existing and
prospective customers to help guide them on their journeys from legacy and often times inefficient
legacy voice, email and chat solutions to modern conversational ones powered by messaging and AI.

We believe that LivePerson’s differentiated approach to the Conversational Space, combined with our

unique technology and expertise has established us as a market leader, with an ability to deliver superior
returns on investment. LivePerson customers manage as many as 40 messaging conversations at a time, as
compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and
bots provides even greater scale to the number of conversations managed.

Strengthen our position in both existing and new industries. We plan to continue to develop our market
position by increasing our customer base, and expanding within our installed base. We will continue to focus
primarily on key target markets: consumer/retail, telecommunications, financial services, travel/hospitality,
technology and automotive within both our enterprise and mid-market sectors, as well as the small business
(SMB) sector. In 2019, we made strong inroads into new verticals with key wins in the airline, food service
and healthcare industries. In 2020, we strengthened our presence in key markets including travel/hospitality
and retail, and opened new verticals like healthcare and government. We are experimenting with new
conversational businesses, including some that are in regulated industries, like online banking. We are
increasingly structuring our field organization to emphasize our domain expertise and strengthen customer
relationships across target industries.

Continue to build our international presence. We are focused on building our international presence

and expanding our international revenue contribution, which accounted for 38% and 41% of total revenue
in 2020 and 2019, respectively. We are generating positive results from our recent investments in the
Asia Pacific, Europe and Latin America regions.

Leverage our open architecture to support partners and developers.

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. We integrate into third-party messaging endpoints including SMS, Facebook
Messenger, Apple Business Chat, Google Rich Business Messenger, Line, WhatsApp, Alexa, Google
Home, WeChat, Google Ad Lingo, Google Search, Google Maps, Instagram and Twitter, multiple IVR
vendors and dozens of branded apps. The Conversational Cloud integrates our proprietary messaging and
Conversational AI with third-party bot offerings, empowering our customers to manage a mix of different
bots, human agents and technologies from one control panel, thereby optimizing contact center efficiency.
LivePerson’s 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 more than 40 APIs and

software development kits that allow customers and 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 2019, we launched LivePerson Functions, a serverless Function
as a Service (FaaS) integration which enables brands to develop custom behaviors within LivePerson’s
conversational platform to easily and rapidly tailor conversation flows to their specific needs.

Expand sales partnerships to broaden our presence and accelerate sales cycles. We are focused on
broadening our market reach and accelerating sales cycles by partnering with systems integrators, technology
providers, business process outsourcers, value added resellers and other sales partners. We formalized a
relationship with IBM Global Business Services in 2017 and Accenture in 2018. In 2019, we announced
strategic partnerships with TTEC, a leading BPO focused on customer experience, and DMI, a digital

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transformation company, to redefine the customer experience with digital engagement, messaging, and AI-
driven automation. In 2020, Infosys joined LivePerson’s network with a first-of-its-kind 360 degree partnership
focusing not only on capturing the global rising demand for conversational commerce and building a
personalized experience for customers, but also driving the transformation for internal corporate messaging
and the employee experience through Conversational AI. LivePerson increased the number of partners
focused on SMBs to more than 300 at year-end 2020 and 2019, from over 150 at year-end 2018, and
approximately 40 at the end of 2017. Approximately one quarter of all opportunities were influenced by
partners in 2020 and we are focused on driving that contribution toward 50% longer term.

Maintain 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.
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.

Evaluate 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

Business solutions offerings

LivePerson’s hosted platforms harness human, AI and bot-powered 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. Revenue
attributable to our monthly hosted Business services accounted for 79% of total revenue for the year
ended December 31, 2020, 77% of total revenue for the year ended December 31, 2019 and 79% of total
revenue for the year ended December 31, 2018. Our strategy is to increase the percentage of our total revenue
attributable to Business services by leveraging the partner network for a portion of professional services
work and the adoption of our self-service tools.

The Conversational Cloud. The Conversational Cloud, 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 is targeted
at 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 the Conversational Cloud include increased agent efficiency, decreased customer care
costs, improved customer experiences, higher conversion rates and increased customer lifetime value.

The Conversational Cloud was designed for conversational experiences, enabling businesses 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. The platform powers conversations across each of a brand’s primary
digital channels, including mobile apps, mobile and desktop web browsers, SMS, social media and third-party
consumer messaging platforms. Brands can also use the Conversational Cloud to message consumers when
they dial a 1-800 number instead of forcing them to navigate interactive voice response systems (IVRs) and

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wait on hold. Similarly, the Conversational Cloud can ingest traditional emails and convert them into
messaging conversations, or embed messaging conversations directly into web advertisements, rather than
redirect consumers to static website landing pages. The platform seamlessly integrates LivePerson’s
Conversational AI engine as well as third-party bots, enabling brands to manage both AI-based agents and
human agents from a single console.

Our robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features

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

The Conversational Cloud 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. The platform 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. The platform also reduces costs in the contact center relative to voice, by identifying
consumers who may be struggling with their self-serve 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.

LivePerson’s Conversational AI. LivePerson’s Conversational AI, announced in December 2018,
operates as the brains behind new LivePerson AI-based products, and was developed using our conversational
data set of millions of brand-to-consumer interactions. LivePerson’s Conversational AI was custom
designed for the Conversational Space, putting the power of bot development, training and management
into the hands of the contact center and its agents, the teams most familiar with how to structure sales and
service conversations to drive successful outcomes. The platform enables what we call “the tango” of humans,
AI and bots, whereby human agents act as bot managers, overseeing AI-powered conversations and
seamlessly stepping into the flow when a personal touch is needed. Through the Conversational Cloud,
agents become ultra-efficient, leveraging the AI engine to serve up relevant content, define next-best actions
and take over repetitive transactional work, so that the agent can focus on relationship building. By
seamlessly integrating the Conversational Cloud with our proprietary AI, as well as third-party bots, the
platform provides businesses with a comprehensive view of all AI-based and human-based conversations
from a single console. Some of the first products developed on LivePerson’s Conversational AI engine include:

• Conversation Builder, which non-technical staff such as contact center agents use to design

high-quality automated conversations. The conversations are not built from scratch. Conversation
Builder creates the initial versions by mining a brand’s existing conversation transcripts. Prebuilt
industry templates are also available, providing the dialogue and integrations necessary for common
use cases such as billing.

• Conversation Manager, a console that suggests automated responses and next best actions to contact
center agents, who edit and select from them. Edits and selections dynamically improve the responses
and next best actions. When the content reaches a brand-set accuracy threshold, it can be offered to
consumers without human intervention. Conversation Manager also includes sentiment monitoring
to alert contact center agents to conversations that require their attention. Designed for use in large
contact centers, Conversation Manager sends these requests to agents who have the capacity and

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appropriate skills to respond. A major retail brand that adopted this approach in its sales operation
increased agent productivity up to 220% within 12 weeks of launch.

• Conversation Analytics, dashboards and reporting which take the true voice of the customer — their

direct discussions with a brand, spoken in their natural language — and turn it into actionable
sales and service intelligence. A major wireless provider using early versions of Conversation Analytics
reported the product identifies the root cause of service issues faster than monitoring software,
enabling the provider to accelerate the fix and reduce inbound customer inquiries. A leading hospitality
firm used Conversation Analytics to identify and add new, top-selling items to its menu selection.

• Intent Manager, a real-time intent recognition and classification engine that analyzes consumer

intentions at every turn of the conversation. Intent Manager is powered by LivePerson’s proprietary
natural language understanding capabilities and machine learning algorithms, which are grounded in
20+ years of conversational data and more than one billion messaging transcripts across a variety
of industries. Intent Manager is currently being used by top brands to gain real-time insights and take
action to improve customer service, marketing, and sales automation

• Performance Optimizer, a measurement tool to help brands to measure and manage the health of

their conversational operations in a single self-service dashboard. Performance Optimizer measures
critical metrics for conversational experiences and uses AI to automatically assess performance, provide
actionable insights, and deliver executive reporting.

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 mobile and 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 conversational design, 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, 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 channels and human/bot agent optimization is an important component of the
LivePerson offering, and gives our customers a competitive advantage in the digital world. Revenue
attributable to professional services accounted for 13%, 14% and 13% of total revenue for the years ended
December 31, 2020, 2019 and 2018, respectively.

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. Revenue from our Consumer segment accounted for approximately 8% of total revenue for the years
ended December 31, 2020, 2019 and 2018, respectively.

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
messaging and chat. We plan to continue to focus on key target markets: consumer/retail, telecommunications,
financial services, travel/hospitality, technology, healthcare and automotive, 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 2020, 2019 or 2018.

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Sales and Marketing

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

direct and indirect sales channels.

Our sales process focuses on the perspective that the Conversational Space requires an operational
transformation that changes how brands engage with consumers across service, sales, marketing, social and
brick and mortar. Brands must adapt their contact centers to an asynchronous messaging environment
and leverage a combination of human agents, bots and AI to achieve scale and efficiencies. When done right,
the entire consumer lifecycle with a brand will be maintained within the Conversational Space, and traffic
will steadily shift away from lower returning voice calls, websites, emails and apps to higher returning
messaging endpoints.

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,
sales and marketing 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 with a
combination of direct sales and customer success teams, and partners. 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 strength in
messaging and AI, and highlight existing reference customers who share their successes on our platform and
how they achieved positive ROIs. Increasingly, we are 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.

In 2018, we introduced a pilot accelerator program, where we offer customers the option to test our
entire platform, across all messaging endpoints and customer use cases, at an entry level price point for a
period of three to nine months. This pilot program is intended to accelerate sales cycles and enable customers
to rapidly assess the potential ROI and differentiation of our solutions before committing to a more
substantial and extended deployment.

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.

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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, the consumer experience, marketing, sales, IT, and consumer service
operations of their organization.

Our main focus is on the consumer/retail, telecommunications, financial services, travel/hospitality,

technology, healthcare and automotive industries. Our integrated marketing strategy is focused on driving
demand, building customer and consumer advocacy, driving adoption of our platform, and supporting key
areas of business, especially large enterprise, but also including mid-sized and small business, partners 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 trade shows
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 believe that most contact center technology vendors incorrectly view messaging as a feature. They

are content with building integrations to a messaging endpoint and offering messaging as just another product
in their suite. LivePerson holds the perspective that messaging and AI are the foundation for conversational
experiences, which transform how agents operate and how brands engage with consumers across service,
sales, marketing, and brick and mortar. Brands must adapt their contact centers to an asynchronous messaging
environment and leverage a combination of human agents, bots and AI to achieve scale and efficiencies.
When done correctly, the entire consumer lifecycle with a brand will be maintained within the Conversational
Space, and traffic will steadily shift away from lower returning voice calls, websites, email and apps to
higher returning messaging endpoints.

We believe that our differentiated approach to the Conversational Space, combined with our unique
technology and expertise, has established the Company as a market leader, with an ability to deliver superior
returns on investment:

• The Conversational Cloud, LivePerson’s enterprise-class, automation-first, cloud-based platform,
was designed for AI-assisted and human-powered messaging in mobile and online channels. The

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platform offers best-in-class security and scalability, offers the broadest ecosystem of messaging
endpoints, is designed for ease of use, and features an AI engine custom built for the Conversational
Space, intent recognition, robust real-time reporting, role-based real-time analytics, predictive
intelligence, and innovations in customer satisfaction and connection measurement. Additionally,
the Conversational Cloud is an open platform with pre-built, enterprise-grade integrations into back-
end systems as well as the ability to work across NLU providers.

• The platform has expanded to power conversations across a broad spectrum of channels and use

cases, from traditional sales and customer service, to marketing, social, email, advertising and brick
and mortar.

• The Company has a data moat built on hundreds of millions of conversations across industries,

geographies and use cases that is feeding the machine learning engines that power intent understanding.

• LivePerson has deep domain expertise across verticals and messaging endpoints, a global footprint,
referenceable enterprise brands and a team of technical, solutions and consulting professionals to
assist customers along their transformational journeys. We are positioned as an authority in the
Conversational Space,. We have developed a Transformation Model that is introduced to existing
and prospective customers to help guide them on their journeys from legacy and often times inefficient
legacy voice, email and chat solutions to modern conversational ones powered by messaging and
AI.

We believe this focus on technological innovation, expertise and enterprise-class capabilities is
positioning LivePerson as a leader in the Conversational Space. For example, we estimate that LivePerson
held an approximate 33% share of Apple Business Chat deployments in 2018, and that the Company at least
maintained that position in 2019 and 2020.

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 business-to-business solutions;
and

• customers that develop and manage their messaging solutions in-house.

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.

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Technology

Four 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.

• LivePerson’s powerful Conversational AI is powered by over 20 years of proprietary, verbatim

conversation data that the company has accumulated helping thousands of clients, including the
world’s largest brands, message with consumers at scale. The strength of the company’s Conversational
AI can also be attributed to the company’s laser focus on brand-consumer conversations. Unlike
other AIs, which are applied to wide-ranging and unrelated use cases, LivePerson’s AI has been built
specifically to power conversations between brands and consumers, giving it the edge in understanding
consumer intents and the resolutions that best satisfy them.

Software Design. Our software design is based on client-server architecture. Since we are a SaaS
provider, Conversational Cloud 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 the Conversational Cloud 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 comply with security standards such as SOC2 and PCI. For increased security,
through a multi-layered approach, we use advanced firewall architecture and 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 and on mobile devices, such as laws
regarding data privacy, data protection, information security, cybersecurity, restrictions or technological
requirements regarding the collection, use, storage, protection, disposal transfer or other processing 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.

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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 laws and regulations
relating to data privacy and data protection, 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 as a result of lawsuits, investigations, and legislative
proposals and enactments could harm our reputation or otherwise impact the growth of our business.

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.

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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.

Human Capital Management

As a leading provider of conversational solutions, we are at the forefront of a consumer-led shift to
Conversational AI, and our Conversational Cloud is setting the industry standard for this future. As a result
of these efforts, LivePerson was named to Fast Company’s annual list of the World’s Ten Most Innovative
Artificial Intelligence Companies of 2020. Our employees understand that they are critical to our mission of
making life easier for people and brands everywhere through trusted Conversational AI. We will continue
to invest in the diversity, inclusiveness, health and happiness of our employees in order to foster creativity,
productivity and growth.

As of December 31, 2020, we had 1,201 full-time employees worldwide, located in more than

12 countries. Of these, 603 were located in the Americas, 502 in Europe, Middle East and Africa and 96 in
Asia-Pacific. Although we have statutory employee representation obligations in certain countries, our
U.S. employees are not covered by collective bargaining arrangements. We believe we have good relations
with our employees. For 2020, our key human capital management efforts focused on the following:

Talent Acquisition and Development

We place a high priority on attracting, recruiting, developing and retaining diverse global talent. As a
company, we are focused on benefits and programs that support our employees across the entire employee
lifecycle, from recruitment and onboarding, to well-being, learning and development. Our recruiting processes
are designed to ensure that we bring on employees who are aligned to our values and culture, and we
follow a comprehensive process in order to solicit multiple perspectives and eliminate bias. In 2020, we
scaled and expanded an internal program to train employees to become objective “hiring experts” and to
reduce unconscious bias in the hiring process. We also launched a new virtual onboarding and orientation
program for new hires globally, which includes a multi-day immersion into our principles and team building
exercises.

In 2020, we also launched a “LivePerson AI Native” program, a four week seminar style cohort
program to ensure LivePerson employees understand the foundation of AI and how AI is transforming
industries and society. The program also features monthly external AI speakers and a monthly podcast series
showcasing internal product leaders and AI specialists. Approximately 25% of employees earned LivePerson
AI Native certificates during 2020, and we plan to expand the program during 2021 due to continuing
employee demand.

Diversity, Equity and Inclusion

Diversity, equity and inclusion (“DEI”) is core to our global strategy. We believe that diverse and

inclusive teams foster innovation, creativity and productivity. We have invested resources in this area for
some time, and will continue to enhance and improve our efforts. For example, we required all employees hired
for recruiting roles in 2020 to have demonstrated previous DEI recruiting experience. We also began
working with two diversity recruiting platforms, intentionally diversified our interview panels, and
recalibrated our job description templates to focus more heavily on inclusivity.

We are committed to fostering a diverse and inclusive workplace that celebrates different perspectives,

cultures and experiences. We regularly measure the representation of women and minority groups in the
company, including in leadership and technical positions, and will continue our ongoing efforts to increase

17

hiring of employees from these groups. We are committed to equal pay for equal work. As part of that
commitment, we run a pay equity analysis when we conduct our annual compensation assessments and when
we grant equity.

During 2020, we launched an employee-led diversity council empowered to drive global programs
focused on DEI as well as to support independent employee resource groups and help ensure the diversity
of teams and projects within our company. We have launched several employee-led DEI programs under this
umbrella in 2020, including a Women in Technology (WiT) program, a peer mentoring program that we
plan to scale in 2021, and multiple thought leadership programs and seminars devoted to DEI topics.

Employee Wellness and COVID-19 Response

We remain focused on programs that promote the total wellness of our employees, including resources
and services to support physical, mental and financial wellness. We offer industry-leading benefits packages
based on the diverse needs of our employees and their families, including comprehensive healthcare,
accident insurance, a 401(k) plan, an employee stock purchase program, and time off programs. We work
hard to ensure that our employees are aware of and take advantage of these opportunities, and we review our
programs annually to ensure they remain competitive.

This was particularly important during the COVID-19 pandemic, where we proactively prioritized the

safety and health of our employees. Before local health experts suggested shelter in place initiatives, we began
to limit business travel and encourage all employees to work remotely. We went on to adopt a company
policy for all employees to work from home and closed virtually all of our offices (including our corporate
headquarters). Since transitioning to a remote work environment, we established multiple employee-led
committees to design future of work programs and launched two surveys to gather employee feedback. Based
on survey results from over 75% of our global workforce, we identified key themes and opportunities for
enhancement, and we have already implemented several employee recommendations.

We also provided opportunities for virtual peer connection, virtual learning, and enhanced emotional
well being benefits and programs, along with flexible work arrangements to ensure our employees have the
resources they need to care for themselves and their families. We will continue to offer time away, wellness and
caregiving leave and financial support and reimbursement for work from home equipment to foster a
healthy and happy workforce and community with support for productive remote workspaces.

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. The SEC maintains an
Internet site that contains reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at www.sec.gov.

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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 to be immaterial, could also materially and adversely affect our business, results of
operations, financial condition, cash flows, prospects and/or the price of our outstanding securities.

Summary of Risk Factors

The following is a summary of the principal risks and uncertainties that could materially adversely affect

our business, results of operations, financial condition, cash flows, prospects and/or the price of our outstanding
securities, and make an investment in our securities speculative or risky. You should read this summary
together with the more detailed description of each risk factor contained below.

Risks Related to Operating our Business

• Our business depends significantly on our ability to retain our key personnel, attract new personnel,

and manage attrition.

• Supporting our existing and growing customer base could strain our personnel resources and

infrastructure, and if we are unable to scale our operations and increase productivity, we may not be
able to successfully implement our business plan.

• The success of our business depends on retention of existing customers and their purchase of

additional services, and attracting new customers and new consumer users of our consumer services.

• Our expansion into new products, services and technologies could subject us to additional risks.

• Major public health issues, and specifically the pandemic caused by the spread of COVID-19, could
have a material adverse impact on our business, results of operations, financial condition, cash flows,
prospects and/or the price of our outstanding securities.

• 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 be adversely impacted.

• 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.

• 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.

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

Risks Related to our Financial Condition and Operating Results

• Our quarterly revenue and operating results may fluctuate significantly, which may cause a substantial

decline in the trading price of our securities.

• In the past we have experienced losses, we had an accumulated deficit of $391.9 million as of

December 31, 2020 and we may incur losses in the future.

• 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.

• 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.

Risks Related to Industry Dynamics and Competition

• If we are unable to develop and maintain successful relationships with social media and other

third-party consumer messaging platforms and endpoints, our business, results of operations and
financial condition could be adversely affected.

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

• 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.

• 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.

Risks Related to Security Vulnerabilities and Service Reliability

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

• We may be liable if third parties access or misappropriate confidential or personal data from our

systems or services.

• 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.

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

• 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.

Risks Related to Regulatory and Data Privacy Issues

• 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 may be subject to governmental export controls and economic sanctions regulations that could

impair our ability to compete in international markets due to licensing requirements and could subject
us to liability if we are not in compliance with applicable laws.

• Industry-specific regulation is evolving and unfavorable industry-specific laws, regulations or

interpretive positions could harm our business.

• Future regulation of the Internet or mobile devices may slow our growth, resulting in decreased

demand for our services and increased costs of doing business.

Risks Related to our Intellectual Property

• 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.

• Our business and prospects would suffer if we are unable to protect and enforce our intellectual

property rights.

• Issues in the use of AI in our product offerings may result in reputational harm or liability.

Risks Related to our International Operations and Tax Issues

• Our results of operations may be adversely impacted due to our exposure to foreign currency

exchange rate fluctuations.

• 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.

• Our operations may expose us to greater than anticipated income, non-income and transactional tax

liabilities, which could harm our financial condition and results of operations.

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• Our ability to use our net operating losses to offset future taxable income may be subject to certain

limitations.

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

Risks Related to our Outstanding Convertible Notes

• Servicing our debt may require a significant amount of cash, and we may not have sufficient cash

flow from our business to pay our indebtedness.

• We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or
to repurchase the Notes upon a fundamental change, and any future debt may contain limitations
on our ability to pay cash upon conversion or repurchase of the Notes.

• Provisions in the indentures for the Notes may deter or prevent a business combination that may be

favorable to you.

• The conditional conversion feature of the Notes, if triggered, may adversely affect our financial

condition and operating results.

• The accounting method for convertible debt securities that may be settled in cash, such as the Notes,

could have a material effect on our reported financial results.

• The capped call transactions may affect the value of the Notes and our common stock.

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.

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

• 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.

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

• Provisions in our charter documents and Delaware law could discourage, delay or prevent a takeover

that stockholders may consider favorable.

Risks Related to Operating our Business

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, and put us at a competitive disadvantage.

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 impact our ability to innovate and deliver new or
updated products to our customers, which could harm our business. Among other things, our decision to close
virtually all of our offices following the onset of the COVID-19 pandemic may make it harder for us to
recruit and retain our personnel. If our retention and recruitment efforts are ineffective, employee turnover

21

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.

Supporting our existing and growing customer base could strain our personnel resources and infrastructure, and
if we are unable to scale our operations and increase productivity, we may not be able to successfully implement
our business plan.

We continue to experience significant growth in our customer base and personnel, which has placed a

strain on our management, administrative, operational and financial infrastructure. We anticipate that
additional investments in our internal infrastructure, data center capacity, research, customer support and
development, and real estate spending will be required to scale our operations and increase productivity, to
address the needs of our customers, to further develop and enhance our services, to expand into new
geographic areas, and to scale with our overall growth. We may also need to make additional investments
with third party outsourcing providers, such our announced plans to work with Infosys to move our
technology infrastructure to the public cloud. The additional investments we are making will increase our
cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses
in the short term, and there is no guarantee that they will be successful or meet our customers’ needs.

We regularly upgrade or replace our various software systems. If the implementations of these new

applications are delayed, or if we encounter unforeseen problems with our new systems or in migrating away
from our existing applications and systems, our operations and our ability to manage our business could
be negatively impacted.

Our success will depend in part upon the ability of our senior management to manage our projected

growth effectively. To do so, we must continue to increase the productivity of our existing employees and to
hire, train and manage new employees as needed. To manage the expected domestic and international
growth of our operations and personnel, we will need to continue to improve our operational, financial and
management controls, our reporting systems and procedures, and our utilization of real estate. If we fail
to successfully scale our operations and increase productivity, we may be unable to execute our business plan
and the market price of our securities could decline.

The success of our business depends on retention of existing customers and their purchase of additional
services, 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

22

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. The success of our consumer
offerings similarly depends on our ability to attract and retain new customers. Our revenue could decline
unless we are able to obtain additional customers or alternate revenue sources.

Our expansion into new products, services and technologies could subject us to additional risks.

We may have limited or no experience in new market segments that we enter or new services that we
decide to offer, and customers may not choose to buy or use our service offerings. These offerings, which
can present new and difficult technology challenges, may subject us to claims if customers of these offerings
experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our
newer activities may not meet our expectations, and we may not be successful enough in these newer activities
to recoup our investments in them. Failure to realize the benefits of amounts we invest in new technologies,
products, or services could result in the value of those investments being written down or written off.

Major public health issues, and specifically the pandemic caused by the spread of COVID-19, could have a
material adverse impact on our business, results of operations, financial condition, cash flows, prospects and/or
the price of our outstanding securities.

Our results of operations could in the future be materially adversely impacted by the coronavirus
(COVID-19) pandemic. We closely monitor developments related to the COVID-19 pandemic to assess its
impact on our business. While still evolving, the global spread of the COVID-19 pandemic has created
significant economic disruption, and financial volatility and uncertainty both in the U.S. and around the
world. Though vaccines believed to be highly effective at preventing symptomatic COVID-19 have been
produced and are currently in the process of being distributed, it is not possible to estimate how long it will
take to halt the spread of the virus or the longer term-effects that the COVID-19 pandemic could have on
our business. The extent to which the COVID-19 pandemic impacts our business, results of operations,
financial condition, cash flows or prospects will depend on future developments, which are highly uncertain
and that we may not be able to accurately predict, including the duration and severity of the pandemic;
governmental, business and individuals’ actions that have been and continue to be taken in response to the
pandemic; the rate of vaccine adoption, the efficacy of vaccines in the broader population, and how
widespread such vaccine adoption is; the impact of the pandemic on economic activity and actions taken in
response; the effect on our clients and client demand for our services and solutions, including the potential
lengthening of the sales cycle; our ability to sell and provide our services and solutions, including through
in-person global customer summits, which have proven successful for us in the past, travel restrictions and
people working from home; the ability of our clients to pay for our services and solutions; and any closures
of our and our clients’ offices and facilities. Clients may also slow down decision making, delay planned
work, seek to terminate existing agreements and/or delay payment terms.

While we have implemented risk management and contingency plans and taken preventive measures

and other precautions, the ultimate impact of the COVID-19 pandemic on our business is uncertain. In
2020, due to health concerns related to the global novel coronavirus (COVID-19) pandemic, we vacated our
physical offices around the world, and began transitioning to a work-from-anywhere model. While we
have been able to operate effectively from remote locations, the long-term impact of such work arrangements
remains unknown. For example, such remote work arrangements may increase the risk of cyber incidents
or data breaches. Furthermore, we have incurred, and will in the future incur, expenses associated with the
early termination of various leases at our office locations around the world.

We also outsource certain critical business activities to third parties and plan to continue to increase
these activities, such as through our announced outsourcing partnership with Infosys. As a result, we rely
upon the successful implementation and execution of the business continuity and repopulation planning of
such entities in the current environment. While we closely monitor the business continuity activities of
these third parties, successful implementation and execution of their business continuity and repopulation
strategies are largely outside our control. If one or more of the third parties to whom we outsource certain
critical business activities experience operational failures as a result of the impacts from the spread of
COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect
on our business, financial condition, results of operations, liquidity and cash flows.

23

While governmental and non-governmental organizations are engaging in efforts to combat the spread
and severity of the COVID-19 pandemic and related public health issues, these measures may not be effective.
We also cannot predict how legal and regulatory responses to concerns about the COVID-19 pandemic
and related public health issues will impact our business. Such events or conditions could result in additional
regulation or restrictions affecting the conduct of our business in the future.

Any of these events or other currently unforeseen consequences of the coronavirus pandemic, or of

other pandemics, epidemics or similar widespread public health concerns, could cause or contribute to the
risks and uncertainties enumerated in this Annual Report on Form 10-K, and could materially adversely affect
our business, results of operations, financial condition, cash flows, prospects and/or the price of our
outstanding securities.

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 be 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 in the past, including three in 2018. In October 2018, we acquired AdvantageTec,
Inc., a leading provider of texting solutions for service departments of automotive dealerships that helps
enable the conversational experience across the entire dealership, including variable and fixed operations. In
September 2018, we acquired the employees and technology assets of Conversable, Inc. a SaaS based
Artificial Intelligence powered conversational platform. In January 2018, we acquired the employees and
technology assets of BotCentral, Inc., a Silicon Valley based startup which has created a number of bot
solutions for major brands in banking, insurance, and travel, running on LivePerson’s conversational platform.

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

• 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

management and employees, increase our expenses and adversely affect our results of operations.
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.

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, warrants and convertible notes. 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,

24

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.

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.

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.

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 and 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 in such a way as to make
compliance infeasible. 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

25

affected. As we offer new payment options to our users, we may be subject to additional regulations,
compliance requirements, and fraud.

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.

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 and Experts who respond to the inquiries of our
customers’ users are employees or agents of our customers or independent consultants rather than employees
of LivePerson. As a result, we are not able to control the actions of these operators or Experts and the
impression that such operator or Expert leaves the user with whom they interact. A user may not know that
the operator or Expert is not a LivePerson employee. If a 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. Additionally, 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.

We are subject to risks related to corporate and social responsibility and reputation.

Many factors influence our reputation including the perception held by our customers, business

partners and other key stakeholders. Businesses face increasing scrutiny related to environmental, social and
governance activities. We risk damage to our reputation if we fail to act responsibly in a number of areas,
such as diversity and inclusion, sustainability and social responsibility. Any harm to our reputation could
impact employee engagement and retention, our corporate culture and the willingness of customers and our
partners to do business with us, which could have a material adverse effect on our business, results of
operations and cash flows.

Risks Related to our Financial Condition and Operating Results

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

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;

• demand from customers and consumers for our services;

• our ability to innovate and provide new services to current and future customers;

• our ability to continue to add artificial intelligence, machine learning and automation into our

services;

• the introduction of new services by us or our competitors;

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

• changes in our pricing models or policies or in those of our competitors;

• our ability to maintain and add integrations with third-party consumer messaging platforms and

endpoints;

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

• investments in growing our sales and marketing programs;

• continued adoption by Experts and Users of web-based advice services;

• 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:

• new laws, regulations or regulatory or law enforcement initiatives;

• economic conditions specific to the web, mobile technology, electronic commerce and cloud

computing;

• consequences of unexpected geopolitical events, natural disasters, acts of war or terrorism, outbreaks

of contagious disease (e.g., coronavirus) or climate change; 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 securities could decline significantly.

In the past we have experienced losses, we had an accumulated deficit of $391.9 million as of December 31,
2020 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
through 2012, while we recorded net losses for the years ended December 31, 2008, and 2013 through
2020. We recorded a net loss of $107.6 million for the year ended December 31, 2020. As of December 31,
2020, our accumulated deficit was approximately $391.9 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 securities.

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 2020, we increased our allowance for doubtful accounts from $3.1 million to approximately

$5.3 million. During 2019, we increased our allowance for doubtful accounts from $2.3 million to
approximately $3.1 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. We adjust
our allowance for doubtful accounts when accounts previously reserved have been collected. 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 the market price of our securities
to decline.

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

27

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 securities could decline.

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, 2020, we had $654.2 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 any ongoing uncertainty in the
United States and global credit markets. 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.

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 immediately.

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

Financial Accounting Standards Board (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.

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

28

flow estimates, and slower growth rates in our industry. Based on our annual review for 2020, we determined
that it is not more likely than not 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.

Risks Related to Industry Dynamics and Competition

If we are unable to develop and maintain successful relationships with social media and other third-party
consumer messaging platforms and endpoints, our business, results of operations and financial condition could
be adversely affected.

We believe that continued growth for companies in our industry depends, in part, on enabling brands

to connect with consumers across consumers’ preferred conversational interfaces and messaging endpoints,
such as SMS, Facebook Messenger, WhatsApp, Apple Business Chat, Google Rich Business Messenger, Line
and Alexa. In order to grow our business, we have identified and developed, and maintain, strategic
relationships with many key technology partners. As part of our growth strategy, we plan to further develop
partnerships and specific solution areas with additional technology partners. If we fail to establish these
relationships in a timely and cost-effective manner, or at all, or if we lose any or all of our current relationships,
then our business, results of operations and financial condition could be adversely affected. Additionally,
even if we are successful at developing these relationships, but there are problems or issues with the
integrations, or our ability to scale and onboard our customers onto new endpoints, our reputation and
ability to grow our business may be adversely affected.

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, or are not widely adopted by our
customers and consumers, we may fail to retain existing customers and we may have difficulty attracting new
customers. Such solutions may also create new risks related to privacy and security, which could subject us
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.

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.

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 and AI 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 pressure. If we are unable to
accurately anticipate technology developments and continue to innovate in the markets in which we

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compete and develop successful integrations with third-party consumer messaging platforms, AI providers
and endpoints, or our competitors are more successful than us at developing compelling new products, services
and integrations, 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; and

• customers that develop and manage their messaging solutions in-house.

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.

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 consumers’ requirements or preferences, our business, results of operations and financial
condition would be materially and adversely affected. Online business 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 consumer requirements and preferences, frequent new product
and service introductions embodying new technologies, 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

consumers; 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
consumers’ 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.

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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.

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.

Risks Related to Security Vulnerabilities and Service Reliability

Failures or security breaches in our services or systems, those of our third party service 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 our customers and their users, as well as experts and consumers, and theft and
security breaches expose us to a risk of loss of such information and data, improper use and disclosure
thereof, litigation, regulatory investigation, 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 service providers, or customers, or otherwise. Additionally, in response to
the COVID-19 pandemic, a majority of our office employees are working remotely. We currently expect this
to continue for the foreseeable future, which may potentially further increase the risk of cyber incidents or

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data breaches. 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. We engage third parties to review and assist in safeguarding our
products and services from such threats. Those parties may identify vulnerabilities, some of which may not
be immediately remedied. A significant cyber-attack, or a security incident of any magnitude that is profiled
in the media, involving our, our third party 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.

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 to customer-authorized third parties, or
the processing of such data by customer authorized third parties, we cannot ensure the integrity or security
of such transmissions or processing. Because our 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.

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’ 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 required to comply 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. While we currently maintain insurance

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coverage that may cover certain cyber security risks, such insurance coverage is subject to certain exclusions
and exceptions and may be insufficient to cover all losses.

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 properly secure, and securely transmit and store,
confidential information online has historically been a significant barrier to e-commerce and online
communications, and will become increasingly highlighted 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, which has occurred
on several occasions in the past and could occur in the future, we may be 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 or
reduce their contracts, which has occurred from time to time, 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

and mobile connectivity of consumers, 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 user messaging requests 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
their consumers 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.

In addition, we rely in part on third party service providers and other third parties for various services,
including, but not limited 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 existing third party service providers or transition to new third party service
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 service providers to protect our proprietary information

and information of our customers. Information technology system failures, including a breach of our or
our third party service 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 service
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’

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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.

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 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 their use of the Conversational Cloud) 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.

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 consumers 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.

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;

• contract terminations;

• loss of market share;

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

• unexpected expenses and diversion of resources to remedy errors.

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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.

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 products and services 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 requirements, 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 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 headquarters are located in New York City and
we have a significant employee presence 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.

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Risks Related to Regulatory and Data Privacy Issues

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 laws
and regulations relating to data privacy and data protection, 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 as a result of lawsuits and
legislative proposals and enactments 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, and in many instances, enacted increased regulation and changes in industry
practices. For example, the European Union (“E.U.”) General Data Protection Regulation (“GDPR”),
which became effective in May 2018, replacing the E.U. Data Protection Directive, imposes significantly
greater compliance burdens on companies that control or process personal data of users primarily located
in the E.U. and, for noncompliance, provides for considerable fines up to the higher of 20 million Euros or 4%
of global annual revenue. European regulators have issued numerous fines pursuant to the GDPR. One
material change is that data processors (as that term is defined by applicable E.U. data protection law) have
direct obligations, including implementing technical and organizational measures, and are subject to
enhanced notification rules. The GDPR also imposes certain technological requirements that may, from
time to time, require us to make changes to our services to enable LivePerson and/or our customers to meet
legal requirements and may impact how data protection is addressed in our customer and vendor
agreements. Ensuring compliance with the GDPR is an ongoing commitment that involves substantial
costs, and it is possible that despite our efforts, governmental authorities or third parties will assert that our
services or business practices fail to comply. We also must require vendors that 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, we could be subject to enforcement actions or investigations
by Data Protection Authorities (including in the EU) or lawsuits by private parties, and our business could
be negatively impacted.

The E.U. has also released a proposed Regulation on Privacy and Electronic Communications
(e-Privacy Regulation) to replace the E.U.’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 E.U. member
state e-privacy data protection laws. Compliance with changes in laws and regulations related to privacy

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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, litigation, regulatory investigation and/or governmental orders requiring us to change our data
practices, which could damage our reputation and harm our business.

Additionally, as web and mobile 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,
recent legal developments in Europe have created complexity and regulatory compliance uncertainty regarding
certain transfers of personal information from the European Economic Area (the “EEA”) to the
United States and certain other third countries. For example, on July 16, 2020, the Court of Justice of the
European Union (“CJEU”) invalidated the E.U.-U.S. Privacy Shield Framework (the “E.U.-U.S. Privacy
Shield”) under which personal information could be transferred from the EEA to U.S. entities who had
self-certified under the Privacy Shield program. While the CJEU upheld the adequacy of E.U.-specified
standard contractual clauses as an adequate personal information transfer mechanism, it made clear that
reliance on them alone may not necessarily be sufficient in all circumstances and that their use must be
assessed on a case-by-case basis taking into account the surveillance laws in and the right of individuals
afforded by, the destination country. The CJEU went on to state that, if the competent supervisory
authority believes that the standard contractual clauses cannot be complied with in the destination country
and the required level of protection cannot be secured by other means, such supervisory authority is
under an obligation to suspend or prohibit that transfer unless the data exporter has already done so itself.
Similarly, on September 8, 2020, the Swiss Data Protection Authority announced in a position statement that
it no longer considers the Swiss-U.S. Privacy Shield adequate for the purpose of transferring personal data
from Switzerland to the United States.

We rely on a mixture of mechanisms to govern the transfer of personal data from our E.U. business to
the U.S. and are continuing to evaluate what additional mechanisms may be required to establish adequate
safeguards for the cross-border transfer of personal data. In November 2020, the European Commission
released a draft set of new standard contractual clauses. It is unclear when the new contractual standards
may be approved and what additional changes will be made, however we will ultimately need to be prepared
to adopt and comply with them in order to legitimize data transfers between E.U. and the U.S. As
supervisory authorities issue further guidance on personal data export mechanisms, including circumstances
where the standard contractual clauses cannot be used and/or start taking enforcement action, we could
incur increased costs, lower revenue, reduced efficiency, and 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.

Moreover, if we are otherwise unable to transfer personal data or information between and among
countries and regions in which we operate, it could affect how we provide our services and could adversely
impact our financial results.

On January 31, 2020, the United Kingdom (“U.K.”) withdrew its membership from the European
Union (“E.U.”), which is commonly referred to as “Brexit.” In the U.K., Brexit has created uncertainty with
regard to the regulation of data protection. In particular, while the Data Protection Act of 2018, which
implements and complements the GDPR achieved Royal Assent on May 23, 2018 and is now effective in
the United Kingdom, it is still unclear whether transfer of personal data from the EEA to the United Kingdom
will remain lawful under the GDPR after Brexit. In December 2020, the Brexit Trade and Cooperation
Agreement (“TCA”) established a four- to six-month grace period during which transfers of personal data
from the E.U. to the U.K. can continue without additional safeguards, provided that the U.K. maintains its
pre-TCA data protection laws. On February 19, 2021, the European Commission released a draft adequacy
decision for review by the European Data Protection Board. If adopted, that decision would permit the
continued flow of personal data between the U.K. and the E.U. However, it is unclear how data transfers
to and from the U.K. will be regulated after the grace period expires and whether or not the U.K. will receive
a final adequacy decision from the European Commission permitting cross-border data transfer from the
E.U. to the U.K. In addition, we cannot fully predict how the Data Protection Act and other U.K. data
protection laws or regulations may develop in the medium to longer term.

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In addition to the changing regulatory landscape in the E.U. and the U.K., in June 2018, the State of

California legislature passed the California Consumer Privacy Act of 2018 (“CCPA”), which came into
effect in January of 2020. The CCPA gives California residents new data privacy rights, allows consumers to
opt out of certain data sharing with third parties, and provides a new private cause of action for data
breaches. Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by voters
in California in a ballot proposition in the November 3, 2020 election. The CPRA will significantly modify
the CCPA, and will impose additional data protection obligations on companies doing business in California,
potentially resulting in further complexity and requiring us to incur additional costs and expenses in an
effort to comply. We also may be subject to additional compliance obligations as other states consider and
adopt similar legislation.

In addition to government activity, privacy advocacy and other industry groups have established and

may continue to 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 consumers 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 data security
and data 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 or mobile devices, such as laws
regarding data privacy, data protection, information security, cybersecurity, restrictions or technological
requirements regarding the collection, use, storage, protection, transfer or other processing 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 do not have a local
entity, employees or infrastructure. Foreign data protection, privacy, and other laws and regulations may
often be 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 users. Various federal, state and
foreign government bodies and agencies impose laws regarding collection, use, storage, retention, disposal,
transfer or other processing 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 privacy and data security 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.

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Further, various federal, state and foreign government bodies and agencies are highly focused on
consumer protection initiatives, particularly in light of the increase in new technologies and services that
incorporate or use bots, artificial intelligence and/or machine learning. For example, the California B.O.T.
Act came into effect in July 2019 and requires that companies using bots on platforms with more than
10 million unique monthly visitors from the U.S. use clear and conspicuous disclosure to inform consumers
that they are not speaking to a human. Similar bills entitled the “Bot Disclosure and Accountability Act
of 2019” were introduced to the U.S. House and Senate in July 2019. Regulation in this area could impact
how businesses use our products and services to interact with consumers and how we provide our services to
our customers. AI tools can also present unique technological and legal challenges, such as the possibility
of insufficient data sets, or data sets that contain biased information, which can negatively impact the
decisions, predictions or analyses that AI applications produce. Deficiencies such as these could cause us
reputational harm and subject us to legal liability, including claims of product liability, breach of warranty
or negligence.

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 in 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
laws and regulations in additional jurisdictions. We may 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.

We monitor 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. The CCPA,
California’s new consumer privacy legislation, came into effect in January 2020. Outside the E.U. 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 proposed “Do Not Track” regulations,

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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 Federal Trade Commission (“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.

Various governmental bodies and many customers and businesses are increasingly focused on

environmental, social and governance issues, which has in the past resulted, and may in the future continue
to result, in the adoption of new laws and regulations and changing buying practices. If we fail to keep pace
with these developments, our reputation and results of operations could be adversely impacted.

We might unintentionally violate such laws now or 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.

We may be subject to governmental export controls and economic sanctions regulations that could impair our
ability to compete in international markets due to licensing requirements and could subject us to liability if we are
not in compliance with applicable laws.

Certain of our products and services may be subject to export control and economic sanctions
regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations and various
economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign
Assets Control. Exports of our products and the provision of our services must be made in compliance
with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our
employees could be subject to substantial civil or criminal penalties, including: the possible loss of export
privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme
cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations,
including any required license, for a particular deployment may be time-consuming, is not guaranteed and
may result in the delay or loss of sales opportunities. In addition, changes in our products or services, or
changes in applicable export or economic sanctions regulations may create delays in the introduction and
deployment of our products and services in international markets, or, in some cases, prevent the export of our
products or provision of our services to certain countries or end users. Any change in export or economic
sanctions regulations, shift in the enforcement or scope of existing regulations, or change in the countries,
governments, persons or technologies targeted by such regulations, could also result in decreased use of our
products and services, or in our decreased ability to export our products or provide our services to existing
or prospective customers with international operations. Any decreased use of our products and services or
limitation on our ability to export our products and provide our services could adversely affect our business,
results of operations and financial condition. Further, we incorporate encryption technology into certain of
our products. Various countries regulate the import of certain encryption technology, including through
import permitting and licensing requirements, and have enacted laws that could limit our customers’ ability
to import our products into those countries. Encryption products and the underlying technology may
also be subject to export control restrictions. Governmental regulation of encryption technology and
regulation of exports of encryption products, or our failure to obtain required approval for our products,
when applicable, could harm our international sales and adversely affect our revenue. Compliance with

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applicable regulatory requirements regarding the export of our products and provision of our services,
including with respect to new releases of our products and services, may create delays in the introduction of
our products and services in international markets, prevent our customers with international operations
from deploying our products and using our services throughout their globally-distributed systems or, in some
cases, prevent the export of our products or provision of our services to some countries altogether.

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 of various 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 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 and we may be unable to conduct business with
customers in such industries. 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.

In addition, we may become subject to additional regulatory and compliance burdens as we expand

our product offerings into new conversational businesses. For example, we recently launched a new
conversational banking initiative. While we are relying on the banking license of a third party and certain of
their compliance programs for this initiative, if we or our partner fail to comply with applicable laws, rules
and regulations, fail to successfully manage our regulatory or compliance obligations, or fail to obtain and
maintain required licenses, we could be subject to fines and/or proceedings by governmental agencies,
regulatory bodies, and/or private litigation, which could materially and adversely affect our business, financial
condition and results of operations.

Future regulation of the Internet or mobile devices 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 or
mobile commerce. 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 or mobile devices,
including but not limited to laws affecting net neutrality could also decrease demand for our services and
increase our costs. Some jurisdictions have adopted regulations prohibiting certain forms of discrimination
by Internet access providers; however, substantial uncertainty exists in the United States and elsewhere. For
example, in the United States, the Federal Communications Commission repealed net neutrality rules
effective June 11, 2018, which could lead internet access providers to restrict, block, degrade or charge for
access to our products and services. Further, regulatory focus on data privacy, data security and consumer
protection continues to expand on a worldwide basis and is becoming more complex, which will increase the
risks to our business on reputational, operational, and compliance bases.

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 or mobile-based
communications or the information contained in these communications or the ways in which information

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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 or smartphone usage. A decline in the growth
of the Internet or smartphone usage, 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, mobile and other online
services could increase our costs and harm our growth.

Risks Related to our Intellectual Property

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
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 and
may in the future 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

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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.

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.

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 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,

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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.

Issues in the use of AI in our product offerings may result in reputational harm or liability.

We have built, and will continue to build, AI into many of our product offerings and we expect this
element of our business to grow. We envision a future in which AI operating in our devices, applications and
the cloud helps our customers be more productive in their business activities and interactions with
consumers. As with many disruptive innovations, AI presents risks and challenges that could affect its
adoption, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient or contain
biased information. Inappropriate or controversial data practices by us or others could impair the
acceptance of AI solutions. These deficiencies could undermine the decisions, predictions, or analysis AI
applications produce, subjecting us to competitive harm, legal liability, and brand or reputational harm. Some
AI scenarios present ethical issues. If we enable or offer AI solutions that are controversial because of their
impact on human rights, privacy, employment, or other social issues, we may experience a material adverse
effect on our business, results of operations and cash flows.

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 web or
via mobile devices. 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.

The Digital Millennium Copyright Act, or DMCA, is intended, among other things, to reduce the
liability of online service providers for transmitting or storing materials that infringe copyrights of others or
referring, listing or linking to third party web properties that include materials that infringe copyrights of
others. Additionally, Section 230 of the Communications Decency Act, or CDA, is intended to provide
statutory protections to online service providers who host or 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. There are various
Congressional efforts to restrict the scope of the protections from liability for service providers in certain
circumstances. 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 or mobile 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

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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, mobile devices, 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, mobile devices, 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, mobile devices, 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.

Risks Related to our International Operations and Tax Issues

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 the year ended December 31, 2020, we experienced a foreign currency exchange impact of
approximately 0.6% percent, or approximately $2.2 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). As of December 31, 2019, we are no longer party to any foreign
currency hedging transactions. 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.

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

On January 31, 2020, the United Kingdom (“U.K.”) withdrew its membership from the European
Union (“E.U.”), which is commonly referred to as “Brexit.” Pursuant to the withdrawal arrangements
entered into between the U.K. and the E.U. in connection with Brexit, the U.K. was no longer a part of the
E.U. at the end of the transition period on December 31, 2020. While the U.K. has for the most part
chosen to retain existing E.U. law and on December 24, 2020 the U.K. and E.U. agreed to a trade and

45

cooperation agreement which took provisional effect from January 1, 2020, the longer term economic, legal,
political and social implications for the U.K. and the E.U. remain unclear and may lead to ongoing
political, regulatory and economic uncertainty and periods of exacerbated volatility in both the U.K. and in
wider European markets for some time. Such uncertainty may have a material adverse effect on our ability
to operate in the U.K. and the E.U.

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 and global economic uncertainty. The continuing uncertainty 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.

Further volatility in exchange rates resulting from Brexit is expected to continue in the short term as a

result of Brexit. 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 longer term economic, legal, political and social implications of Brexit 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. They may also impact how we deliver our products and services to
customers in the U.K. and in the E.U., which may cause us to lose customers, suppliers and/or employees and
could result in increased operating expenses. In addition, Brexit could lead to further legal uncertainty and
potentially divergent laws and regulations, as well as other adverse effects that we are unable to anticipate. Any
of these effects of Brexit, among others, could negatively impact our business, results of operations,
financial condition, cash flows and prospects.

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, Bulgaria, Canada,

France, Germany, Israel, Italy, Japan, Latin America, Netherlands, Singapore, Spain 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 or mobile 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, for instance, data

privacy laws;

• fluctuations in currency exchange rates;

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

• 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

46

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.

Our operations may expose us to greater than anticipated income, non-income and transactional tax liabilities,
which could harm our financial condition and results of operations.

There is heightened scrutiny by fiscal authorities in many jurisdictions on the potential taxation of
e-commerce businesses. The Organization for Economic Co-operation and Development (OECD) has
issued guidelines, referred to as the Base Erosion and Profit Shifting project (BEPS), to its member-nations
aimed at encouraging broad-based legislative initiatives intended to prevent perceived base erosion
transactions and income shifting in a tax-advantaged manner. Further, for the past several years, the OECD
has had a specific focus on the taxation implications of e-commerce business, generally referred by the
OECD as the “digital economy.” In the fourth quarter of 2019, the OECD released details on its proposed
approach which would, among other changes, create a new right to tax certain “digital economy” income not
necessarily based on traditional nexus concepts nor on the “arm’s length principle.” At this point, there is
a lack of consensus among the key members, particularly the United States, with the latest OECD proposal.
The United States has expressed that it would generally support a solution along the lines proposed by the
OECD only if the solution was in the form of a “safe-harbor” rather than a mandatory requirement. A failure
to reach full consensus on an executable plan within the tight timeframe under which the OECD is operating
could result in individual jurisdictions legislating digital tax provisions in an uncoordinated and unilateral
manner, and further result in greater or even double taxation that companies may not have sufficient means
to remedy. For example, a number of jurisdictions, including the U.K., France and Italy, have already
adopted or have formally proposed legislation to effect the taxation of certain e-commerce business based
on differing criteria and metrics. Efforts to alleviate this increased tax burden will increase the cost of
structuring and compliance as well as the cost of doing business internationally. Any changes to the taxation
of our international activities may increase our worldwide effective tax rate and adversely impact our
financial position and results of operations.

Further, the prospective taxation by multiple jurisdictions of e-commerce businesses could subject us
to exposure to withholding, sales, VAT and/or other transaction taxes on our past and future transactions
in such jurisdictions where we currently or in the future may be required to report taxable transactions. A
successful assertion by any jurisdiction that we failed to pay such withholding, sales, VAT or other transaction
taxes, or the imposition of new laws requiring the registration for, collection of, and payment of such
taxes, could result in substantial tax liabilities related to past, current and future sales, create increased
administrative burdens and costs, discourage customers from purchasing content from us, or otherwise
substantially harm our business and results of operations. We are currently subject to and in the future may
become subject to additional compliance requirements for certain of these taxes. Changes in our exposure
to withholding, sales, VAT and/or other transaction taxes could have an adverse impact on our financial
condition in the future.

In addition, an increasing number of states have considered or adopted laws that attempt to impose tax
collection obligations on out-of-state companies. In June 2018, the Supreme Court of the United States issued
its decision in the matter of South Dakota v. Wayfair, Inc. This decision effectively reversed the 25-year-old
“physical presence doctrine” previously established by the Supreme Court in Quill Corp. v. North Dakota,
which required a minimum level of physical presence within a state before the state could impose an
obligation to register and remit sales tax on revenue derived within that state. This decision may significantly
increase the effort, resources and costs associated with the sales tax collection and compliance burden.
Since the decision, a number of states have enacted sales tax enabling legislation which has had the effect of
significantly expanding the liability of e-commerce companies to register, collect and remit state sales
taxes from customers. A successful assertion by one or more states requiring us to collect taxes where we

47

presently do not do so, or to collect more taxes in a jurisdiction in which we currently do collect some taxes,
could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The
imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers
could also create additional administrative burdens for us, put us at a competitive disadvantage if they do
not impose similar obligations on our competitors, and decrease our future sales, which could have a material
adverse effect on our business and results of operations.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2020, we had federal net operating loss carryforwards (“NOLs”) of approximately

$310.7 million which are available to offset future federal taxable income. In general, under Section 382 of
the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership
change” (generally defined as a greater than 50-percentage-point cumulative change (by value) in the
equity ownership of certain stockholders over a rolling three-year period) is subject to limitations on its
ability to utilize its pre-change NOLs to offset post-change taxable income. Under Section 382 of the Code,
our existing NOLs may be subject to limitations arising from previous ownership changes, and if we
undergo an ownership change in the future, our ability to utilize NOLs could be further limited by Section 382
of the Code, or as a result of a corresponding provision of state law. Future changes in our stock ownership,
some of which may be outside of our control, could result in an ownership change under Section 382 of
the Code. Federal NOLs generated in taxable years ending on or before December 31, 2017, are eligible to
be carried forward for up to 20 tax years (and carried back up to two tax years) following their incurrence.
Federal NOLs generated in taxable years ending after December 31, 2017, are eligible to be carried forward
indefinitely, but generally may only offset up to 80% of federal taxable income earned in a taxable year. As of
December 31, 2020, approximately $41.2 million of our approximately $310.7 million of federal NOLs
were generated in taxable years ending on or before December 31, 2017. If our ability to utilize federal NOLs
were limited by Section 382 of the Code, it could result in NOLs generated on or before December 31,
2017, expiring unused. Our ability to utilize our NOLs is conditioned upon our maintaining profitability in
the future and generating U.S. federal taxable income. Since we do not know whether or when we will
generate the U.S. federal taxable income necessary to utilize our remaining NOLs, our NOLs generated on
or prior to December 31, 2017 could expire unused.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed
into law making several changes to the Code including, but not limited to, allowing companies to carryback
certain NOLs and increasing the amount of NOL carryforwards that corporations can use to offset
taxable income in the 2018 through 2020 taxable years. As a result of the CARES Act, we amended returns
for net operating loss carrybacks available from 2013 to 2018 and for foreign tax, and research and
development credit carrybacks from 2012 to 2013, resulting in refund claims of approximately $580,000.

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

A substantial portion of our product development staff, help desk and online sales support operations

are located in Israel. As of December 31, 2020, we had 325 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,
Hamas (an Islamist militia and political group that controls the Gaza Strip), Hezbollah (an Islamist militia
and political group based in Lebanon) and other armed groups. Furthermore, Iran has threatened to attack
Israel and may be developing nuclear weapons.

In addition, the State of Israel and Israeli companies have been subject to economic boycotts. Several

countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and
policies may have an adverse impact on our results of operations, financial condition or the expansion of
our business. A campaign of boycotts, divestment, and sanctions has been undertaken against Israel, which
could also adversely affect our business. Actual or perceived political instability in Israel or any negative
changes in the political environment, may individually or in the aggregate adversely affect the Israeli economy
and, in turn, our business, financial condition and results of operations.

48

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.

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 securities. 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.

Risks Related to our Outstanding Convertible Notes

Servicing our debt may require a significant amount of cash, and we may not have sufficient cash flow from
our business to pay our indebtedness.

In March 2019, we issued $230.0 million in aggregate principal amount of 0.75% Convertible Senior
Notes due 2024 in a private placement (the “2024 Notes”). The interest rate on the 2024 Notes is fixed at
0.75% per annum and is payable semi-annually in arrears on March 1 and September 1 of each year. In
December 2020, we issued $517.5 million in aggregate principal amount of 0% Convertible Senior Notes due
2026 in a private placement (the “2026 Notes,” and together with the 2024 Notes, the “Notes”). The 2026
Notes do not bear any regular interest payments.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our

Notes or any additional future indebtedness depends on our future performance, which is subject to
economic, financial, competitive and other factors beyond our control. Our business may not generate cash
flow from operations in the future sufficient to service our debt and make necessary capital expenditures.
If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as
selling assets, restructuring debt or obtaining additional debt financing or equity capital on terms that may be
onerous or highly dilutive. Our ability to refinance our current or any future indebtedness will depend on
the capital markets and our financial condition at such time. We may not be able to engage in any of these
activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us
from adopting any of these alternatives. Our failure to comply with these covenants could result in an event
of default which, if not cured or waived, could result in the acceleration of our debt.

We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to
repurchase the Notes upon a fundamental change, and any future debt may contain limitations on our ability to
pay cash upon conversion or repurchase of the Notes.

Holders of the Notes have the right to require us to repurchase all or a portion of their Notes upon the
occurrence of a fundamental change before the maturity date at a fundamental change repurchase price equal
to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to
settle such conversion (other than paying cash in lieu of delivering any fractional share), we are required to
make cash payments in respect of the Notes being converted. However, we may not have enough available
cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered

49

therefor or pay cash with respect to Notes being converted. In addition, our ability to repurchase Notes or
to pay cash upon conversions of Notes may be limited by law, regulatory authority, or any agreements
governing our future indebtedness. Our failure to repurchase Notes at a time when the repurchase is
required by the indenture or to pay any cash upon conversions of Notes as required by the indenture would
constitute a default under the indenture. A default under the indenture or the fundamental change itself
could also lead to a default under agreements governing any future indebtedness. If the payment of the related
indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient
funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversions of Notes.

Provisions in the indentures for the Notes may deter or prevent a business combination that may be favorable
to you.

If a fundamental change occurs prior to the maturity date of the Notes, the holders of the Notes will
have the right, at their option, to require us to repurchase all or a portion of their Notes. In addition, if a
make-whole fundamental change occurs prior the maturity date of the Notes, we will in some cases be
required to increase the conversion rate for a holder that elects to convert its Notes in connection with such
make-whole fundamental change. Furthermore, the indentures for the Notes prohibit us from engaging in
certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under
the Notes. These and other provisions in the indentures governing the Notes could deter or prevent a
third party from acquiring us even when the acquisition may be favorable to you.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and
operating results.

In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be
entitled to convert their Notes at any time during specified periods at their option. If one or more holders
elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of
our common stock (other than paying cash in lieu of delivering any fractional share), we would be required
to settle a portion or all of our conversion obligation through the payment of cash, which could adversely
affect our liquidity. In addition, even if holders of Notes do not elect to convert their Notes, we could be
required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the
Notes as a current rather than long-term liability, which would result in a material reduction of our net
working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have
a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options, or
ASC 470-20, an entity must separately account for the liability and equity components of the convertible
debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a
manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the
Notes is that the equity component, net of issuance costs, is required to be included in the additional
paid-in capital section of stockholders’ equity on our condensed consolidated balance sheet at the issuance
date and the value of the equity component is treated as original issue discount for purposes of accounting for
the liability component of the Notes. As a result, we are required to record a greater amount of non-cash
interest expense in current periods presented as a result of the amortization of the discounted carrying value
of the Notes to their face amount over the term of the Notes. We will report larger net losses (or lower net
income) in our financial results because ASC 470-20 requires interest to include both the current period’s
amortization of the debt discount and the instrument’s non-convertible coupon interest rate, which could
adversely affect our reported or future financial results, the trading price of our common stock and the
trading price of the Notes.

In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be
settled entirely or partly in cash may be accounted for utilizing the treasury stock method, the effect of which
is that the shares issuable upon conversion of such Notes are not included in the calculation of diluted
earnings per share except to the extent that the conversion value of such Notes exceeds their principal amount.
Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for

50

as if the number of shares of common stock that would be necessary to settle such excess, if we elected to
settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will
continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in
accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share
would be adversely affected.

The capped call transactions may affect the value of the Notes and our common stock.

In connection with the transaction in which we issued the Notes, we entered into capped call transactions
with certain option counterparties. The capped call transactions are expected generally to reduce the potential
dilution to our common stock upon any conversion of Notes and/or offset any cash payments we are
required to make in excess of the principal amount of the converted Notes, as the case may be, upon any
conversion of Notes, with such reduction and/or offset subject to a cap.

The option counterparties or their respective affiliates are expected to modify their hedge positions by

entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling
our common stock, the Notes or other of our securities or instruments (if any), in secondary market
transactions prior to the maturity of the Notes (and are likely to do so during any observation period related
to a conversion of Notes or following any earlier conversion or any repurchase of Notes by us on any
fundamental change repurchase date or otherwise). This activity could also cause or avoid an increase or a
decrease in the market price of our common stock or the Notes, which could affect a holder’s ability to convert
the Notes and, to the extent the activity occurs during any observation period related to a conversion of
Notes, it could affect the amount and value of the consideration that a holder will receive upon conversion
of such Notes.

The potential effect, if any, of these transactions and activities on the market price of our common
stock or the Notes will depend in part on market conditions and cannot be ascertained at this time. Any of
these activities could adversely affect the value of our common stock and the value of the Notes (and as a
result, the amount and value of the consideration that a holder would receive upon the conversion of any
Notes) and, under certain circumstances, a holder’s ability to convert his or her Notes.

We do not make any representation or prediction as to the direction or magnitude of any potential

effect that the transactions described above may have on the price of our common stock or the Notes. In
addition, we do not make any representation that the option counterparties or their respective affiliates will
engage in these transactions or that these transactions, once commenced, will not be discontinued without
notice.

We are subject to counterparty risk with respect to the capped call transactions.

The option counterparties to the capped call transactions are financial institutions, and we are subject
to the risk that any or all of them may default under the capped calls. Our exposure to the credit risk of the
option counterparties is not secured by any collateral. Global economic conditions have in the recent past
resulted in, and may again result in, the actual or perceived failure or financial difficulties of many financial
institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an
unsecured creditor in those proceedings, with a claim equal to our exposure at that time under our
transactions with that option counterparty. Our exposure depends on many factors but, generally, an increase
in our exposure will be correlated to an increase in the market price and in the volatility of our common
stock. In addition, upon a default by an option counterparty, we may suffer more dilution than we currently
anticipate with respect to our common stock. We can provide no assurances as to the financial stability or
viability of the option counterparties.

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:

51

• 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;

• consequences of unexpected geopolitical events, natural disasters, acts of war or climate change;

• pandemics, epidemics or similar widespread public health concerns; 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.

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, 2020, our executive officers, directors and holders of 5% or more of our outstanding
common stock and their affiliates in the aggregate beneficially owned approximately 44.2% 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
LivePerson’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, or upon the conversion of the Notes, 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.

52

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.

• 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.

We cannot assure our stockholders that any stock repurchase programs will be fully consummated or will
enhance long-term stockholder value, and stock repurchases could increase the volatility of the price of our
common stock and will diminish our cash reserves.

From 2012 through 2018, we had a stock repurchase program in place, pursuant to which we were

authorized to repurchase shares of our 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. The timing and actual number of shares repurchased
depended on a variety of factors including the timing of open trading windows, price, corporate and
regulatory requirements, and other market conditions. The program was discontinued at the end of 2018.
We may or may not enter into a new stock repurchase program in the future.

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, repurchases under a stock repurchase program would 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.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

LivePerson is headquartered in New York City, and we maintain a globally distributed, remote
workforce. In 2020, due to health concerns related to the global novel coronavirus disease (“COVID-19”)
pandemic, the Company vacated its physical offices around the world, and began transitioning to an
“employee-centric” workforce model, leveraging its expertise in AI and asynchronous communication to
support operations, culture and productivity in this new environment.

As of December 31, 2020, 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. (“[24]/7”) 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. Rulings by both the Court and the United States Patent Office in our favor have invalidated
the majority of [24]7 patents that were asserted in the patent cases. Trial for our intellectual property and other
claims asserted against [24]7 is set for May 24, 2021. Trial for [24]7’s patent infringement claims has been
vacated, to be reset after the trial on our claims. 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 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,

54

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.

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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 under the symbol LPSN TA.

Holders

As of February 26, 2021, there were approximately 120 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

There were no repurchases of the Company’s equity securities during the year ended December 31,

2020.

56

Stock Performance Graph

The graph depicted below compares the annual percentage changes in 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.

(1) The graph covers the period from December 31, 2015 to December 31, 2020.

(2) The graph assumes that $100 was invested at the market close on December 31, 2015 in LivePerson’s

Common Stock, in the Standard & Poor’s SmallCap 600 Index and in the Standard & Poor’s 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.

57

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data with respect to our consolidated balance sheets as of
December 31, 2020 and 2019 and the related consolidated statements of operations for the years ended
December 31, 2020, 2019 and 2018 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,
2018, 2017 and 2016 and the related statements of operations for the years ended December 31, 2017 and
2016 have been derived from our audited financial statements which are not included herein. Due to our
acquisitions of AdvantageTec, Conversable, and Bot Central in 2018, 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.”

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

3,885
242,188
(19,409)

5
(535)
(530)
(19,939)
5,934
(25,873)

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 (expense) income, net

2020

Year Ended December 31,
2018
(In Thousands, Except Share and per Share Data)

2019

2017

2016

366,620 $

291,609 $

249,838 $

218,876 $

222,779

106,268
149,773
60,557
108,414
29,420

1,639
456,071
(89,451)

78,878
156,814
56,967
82,145
2,043

1,794
378,641
(87,032)

62,479
103,344
45,873
55,707
4,468

1,670
273,541
(23,703)

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

1,840
236,702
(17,826)

Interest (expense) income . . . . . . . . .
. . . . . . .
Other (expense) income, net
Other (expense) income . . . . . . . . . . . .
Loss before provision for income taxes . .
Provision for income taxes . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . $ (107,594) $
Net loss per share of common stock:

(14,334)
(1,343)
(15,677)
(105,128)
2,466

(7,407)
1,213
(6,194)
(93,226)
2,845
(96,071) $

22
(493)
(471)
(24,174)
858
(25,032) $

26
110
136
(17,690)
501
(18,191) $

Basic . . . . . . . . . . . . . . . . . . . . . . . $

Diluted . . . . . . . . . . . . . . . . . . . . . . $

(1.63) $

(1.63) $

(1.53) $

(1.53) $

(0.42) $

(0.42) $

(0.32) $

(0.32) $

(0.46)

(0.46)

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

65,888,450
65,888,450

62,593,026
62,593,026

59,203,400
59,203,400

56,358,017
56,358,017

56,063,777
56,063,777

Other Financial and Operational Data:
Adjusted EBITDA(1) . . . . . . . . . . . . . . $
Adjusted operating income (loss)(2) . . . . $

37,931 $

(13,612) $

19,090 $

18,400 $

19,198

15,105 $

(29,978) $

4,902 $

6,042 $

7,503

(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 charges. Please see “Adjusted EBITDA” below for more information and for

58

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”).

(2) We define adjusted operating income as income (loss) before provision for income taxes excluding

amortization, stock-based compensation, restructuring costs, acquisition costs, contingent earn-out
adjustments, other charges and other (expense) income. Please see “Adjusted Operating Income” below
for more information and for a reconciliation of adjusted operating income to income (loss) before
provision for income taxes, the most directly comparable financial measure calculated and presented in
accordance with U.S. generally accepted accounting principles or GAAP.

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

thousands):

Year Ended December 31,

2020

2019

2018

2017

2016

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

$ 6,511

$ 4,218

$

996

$ 448

$ 429

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

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

Product development

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

16,106

15,772

27,557

10,010

12,216

17,661

5,374

4,921

3,550

2,500

3,691

2,305

2,515

3,304

3,488

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

$65,946

$44,105

$14,841

$8,944

$9,736

As of December 31,

2020

2019

2018

2017

2016

(In Thousands)

Consolidated Balance Sheet Data:

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

$ 654,152
540,260
1,006,432
243,934

$176,523
107,674
512,710
148,535

$ 66,449
7,873
290,103
170,729

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

$ 50,889
17,548
219,638
138,476

Adjusted EBITDA and Adjusted Operating Income

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

We have included adjusted EBITDA and adjusted operating 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 operating 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 operating income provide useful information
to investors and others in understanding and evaluating our operating results in the same manner as our
management and board of directors.

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

• although depreciation and amortization are non-cash charges, the assets being depreciated and

amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements or for new capital expenditure requirements;

59

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

• 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 costs;

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

us; and

• other companies, including companies in our industry, may calculate adjusted EBITDA differently,

which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial
performance measures, including various 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):

Reconciliation of Adjusted EBITDA:

GAAP Net loss . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles and

Year Ended December 31,

2020

2019

2018

2017

2016

$(107,594) $(96,071) $(25,032) $(18,191) $(25,873)

finance leases . . . . . . . . . . . . . . . . . . . .

3,552

2,932

2,813

4,682

6,673

Stock-based compensation . . . . . . . . . . . .
Contingent earn-out adjustments . . . . . . . .
. . . . . . . . . . . . . . . . .
Restructuring costs

Depreciation and amortization . . . . . . . . .
. . . . .
Other litigation and consulting costs

. . . . . . . . . . . .
Provision for income taxes
Acquisition costs . . . . . . . . . . . . . . . . . . .
Interest expense (income) . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Other expense (income)

65,946
263
29,420(1)
22,826
5,375(5)
2,466
—
14,334
1,343

44,105
—
2,043(2)
16,366
7,974(6)
2,845
—
7,407
(1,213)

14,841
—
4,468(3)
14,188
5,928(7)
858
555
(22)
493

8,944
—
2,594(4)
12,358
7,648(8)
501
—
(26)
(110)

9,736
—
2,369(9)
12,011
7,818(10)
5,934
—
(5)
535

Adjusted EBITDA (loss)

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

$ 37,931

$(13,612) $ 19,090

$ 18,400

$ 19,198

Our use of adjusted operating 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 operating income does not reflect cash capital expenditure requirements for
such replacements or for new capital expenditure requirements;

• adjusted operating income does not consider the impact of acquisition costs;

• adjusted operating income does not consider the impact of restructuring costs;

• adjusted operating income does not consider the impact of other non-recurring costs; and

• other companies, including companies in our industry, may calculate adjusted operating income

differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted operating income (loss) alongside other

financial performance measures, including various pre-tax GAAP loss and our other GAAP results. The
following table presents a reconciliation of adjusted operating income (loss) for each of the periods indicated
(amounts in thousands):

60

Year Ended December 31,

2020

2019

2018

2017

2016

Reconciliation of Adjusted Operating Income

(Loss)

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

$(105,128) $(93,226) $(24,174) $(17,690) $(19,939)

Amortization of purchased intangibles and

finance leases . . . . . . . . . . . . . . . . . . . .

3,552

2,932

2,813

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

Restructuring costs

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

Other litigation and consulting costs
. . . . .
Contingent earn-out adjustments . . . . . . . .

Acquisition costs . . . . . . . . . . . . . . . . . . .

Interest expense (income) . . . . . . . . . . . . .

Other expense (income)

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

65,946
29,420(1)
5,375(5)
263

—

14,334

1,343

44,105
2,043(2)
7,974(6)
—

—

7,407

(1,213)

14,841
4,468(3)
5,928(7)
—

555

(22)

493

4,682

8,944
2,594(4)
7,648(8)
—

—

(26)

(110)

6,673

9,736
2,369(9)
8,134(10)
—

—

(5)

535

Adjusted operating income (loss)

. . . . . . . . .

$ 15,105

$(29,978) $ 4,902

$ 6,042

$ 7,503

(1)

Includes lease restructuring costs of $24.3 million and severance and other compensation related costs
of $5.1 million for the year ended December 31, 2020. As detailed in Note 14 of the Notes to the
Consolidated Financial Statements, the Company’s lease restructuring costs relate to a transition to
an employee-centric workforce model that does not rely on traditional offices, while the severance and
other compensation costs relate to the Company re-prioritizing and reallocating resources to focus on
areas showing high growth potential.

(2) These costs include severance and associated costs of $2.0 million for the year ended December 31,

2019. The restructuring costs relate to resource reallocation for the Company’s platform transformation.

(3) Consists of severance costs of $4.5 million for the year ended December 31, 2018. Please refer to

footnote (2) above for additional information related to the nature of these restructuring and severance
costs.

(4)

(5)

(6)

(7)

(8)

(9)

Includes wind down costs of legacy platform of $1.9 million and severance costs of $0.7 million for the
year ended December 31, 2017. Please refer to footnote (2) above for additional information related
to the nature of these restructuring and severance costs.

Includes other litigation costs of $5.4 million for the year ended December 31, 2020. Other litigation
costs relate to lease restructuring costs, along with other general legal matters.

Includes other litigation costs of $4.4 million, consulting costs of $3.2 million, and fair value earn-out
adjustment of $0.3 million for the year ended December 31, 2019. The Company’s other litigation costs
relate to the Company’s intellectual property lawsuit against [24]7 Customer, Inc.

Includes litigation costs of $4.1 million, consulting costs of $1.3 million, executive recruitment costs of
$0.3 million, and executive relocation costs of $0.2 million for the year ended December 31, 2018.
Please refer to footnote (6) above for additional information related to the nature of these other litigation
costs.

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 year ended December 31, 2017. Please refer to
footnote (6) above for additional information related to the nature of these other litigation costs.

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 year ended
December 31, 2016. Please refer to footnote (2) above for additional information related to the nature
of these restructuring and severance costs.

(10) 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 year ended
December 31, 2016. Please refer to footnote (6) above for additional information related to the nature
of these other litigation costs.

61

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, Inc. (“LivePerson”, the “Company”, “we” or “our”) makes life easier for people and
brands everywhere through trusted Conversational AI. Conversational AI allows humans and machines to
interact using natural language, including speech or text. During the past decade, consumers have made
mobile devices the center of their digital lives, and they have made mobile messaging the center of
communication with friends, family and peers. This trend has been significantly accelerated by the COVID-19
pandemic and can now be viewed as a permanent, structural shift in consumer behavior. Our technology
enables consumers to connect with businesses through these same preferred conversational interfaces,
including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger
and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to
power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery
and research, to sales, service and support, and increasingly marketing, social, and brick and mortar
engagements. For example, consumers can look up product info like ratings, images and pricing, search for
stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or
payments — all without ever leaving the messaging channel. These AI and human-assisted conversational
experiences constitute the Conversational Space, within which LivePerson has strategically developed one of
the industry’s largest ecosystems of messaging endpoints and use cases.

The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to become

conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of
customers and many thousands of agents. The Conversational Cloud powers conversations across each of a
brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, short message
service (SMS), social media and third-party consumer messaging platforms. Brands can also use the
Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to
navigate interactive voice response systems (IVRs) and wait on hold. Similarly, the Conversational Cloud
can ingest traditional emails and convert them into messaging conversations, or embed messaging
conversations directly into web advertisements, rather than redirect consumers to static website landing
pages. Agents can manage all conversations with consumers through a single console interface, regardless of
where the conversations originated.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings

features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection
and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment
Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. An extensible
application programming interface (API) stack facilitates a lower cost of ownership by facilitating robust
integration into back-end systems, as well as enabling developers to build their own programs and services
on top of the platform. More than 40 APIs and software development kits are available on the Conversational
Cloud.

For your reference:

• Conversational AI: Conversational AI allows humans and machines to interact using natural

language, including speech or text.

• Conversational Space:

In the Conversational Space, consumers message with brands on their own
schedule, using natural language, to resolve their intents — all on their preferred messaging service.
The core capabilities of the Conversational Space are voice and text-based interfaces, powered by
AI and humans working together. Conversational Space is the simplest, most intuitive interface of all.

62

• Conversational Cloud: LivePerson’s enterprise-class, AI-powered Conversational Cloud platform

empowers consumers to message their favorite brands, just as they do with friends and family.

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

Complementing our proprietary messaging and Conversational AI offerings are teams of technical,
solutions and consulting professionals that have developed deep domain expertise in the implementation
and optimization of conversational services across industries and messaging endpoints. We are a leading
authority in the Conversational Space. LivePerson’s products, coupled with our domain knowledge, industry
expertise and professional services, have been proven to maximize the effectiveness of the Conversational
Space and deliver measurable return on investment. Certain of our customers have achieved the following
advantages from our offerings:

• the ability for each agent to manage as many as 40 messaging conversations at a time, as compared

to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots
provides even greater scale to the number of conversations managed;

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

least 50%;

• improving the overall customer experience, thereby fueling customer satisfaction increases of up to

20 percentage points, and enhancing retention and loyalty;

• more convenient, personalized and content-rich conversations that increase sales conversion by up to

20%, increase average order value and reduce abandonment;

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

• maintain a valued connection with consumers via mobile devices, either through native applications,

websites, text messages, or third-party messaging platforms;

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

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

and

• increase lead generation by providing a single platform that engages consumers through advertisements

and listings on branded and third-party websites.

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

To further enhance our platform, in September 2020 we signed a partnership with Infosys, a leader in next-

generation digital services and consulting. We will work with Infosys to transform our technology
infrastructure on the public cloud, to build integrated solutions and a global practice around our
Conversational Cloud to sell into their channels and global enterprise customer base, and to redefine how
the world’s top brands communicate.

63

More than 18,000 businesses, including HSBC, Orange, The Home Depot, and GM Financial use our

conversational solutions to orchestrate humans and AI, at scale, and create a convenient, deeply personal
relationship with their customers.

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

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

Build awareness and drive adoption of the Conversational Space. LivePerson brought our first
customer live on messaging in June 2016. Since that time, we have been focused on building awareness for
conversational experiences and driving adoption. We have educated businesses on the financial and operational
transformation that occurs when a contact center shifts to an asynchronous messaging environment, where
the consumer controls the pace of the conversation, which can last minutes, hours or days, from a synchronous
call or chat center, where conversations occur in real-time and have a distinct start and end.

A key component of our industry awareness marketing strategy has been to hold multiple global
customer summits each year (events in 2020 were held virtually in light of the COVID-19 pandemic) that
target executives from enterprise customers and prospects, and feature a key theme within the Conversational
Space, such as Apple Business Chat, Google Rich Business Messenger, IVR deflection or AI. LivePerson
customers are the centerpoint of these summits, presenting why they chose LivePerson for conversational
experiences, how they achieved success, and what type of ROI they have realized. Each attendee then receives
a blueprint for how they can achieve similar outcomes. We have found this strategy to drive strong results
for LivePerson, as we have seen a greater than 40% conversion rate on opportunities that were created or
advanced as part of the customer summits. By year-end 2020, we had brought approximately 400 customers
live on messaging and increased adoption within our enterprise customers to 66%. In addition, nearly 70%
of messaging conversations had automation attached. We will continue to focus on building awareness for the
Conversational Space and driving adoption of messaging and AI across our customer base.

Increase messaging volumes by developing a broad ecosystem, expanding customer use cases, and focusing

on AI and automation. Our strategy is to drive higher messaging volumes by going both wide across
messaging endpoints, deep across consumer use cases, and focusing on AI and automation as the means to
deliver powerful scale. LivePerson offers a platform usage pricing model, where customers are offered access
to our entire suite of messaging technologies across their entire agent pool for a pre-negotiated cost per
interaction. We believe that over time this model will drive higher revenue for LivePerson by reducing barriers
to adoption of new messaging endpoints and use cases.

In order to drive broad messaging adoption, it is imperative that the Conversational Cloud integrates
to all of the messaging apps that consumers prefer to use for communication and addresses all key use cases.
For example, if a consumer is an avid WhatsApp user, and a brand only offers SMS as a messaging option,
that consumer may be reluctant to try messaging the brand. Therefore, a key strategy of ours has been to build
one of the industry’s broadest ecosystems of messaging endpoints and use cases. In June 2016, we launched
with In-App messaging. In 2017, we introduced Facebook Messenger, SMS, Web messaging and IVR
deflection integrations. In 2018, we added Apple Business Chat, Google Rich Business Messenger, Line,
WhatsApp, Alexa, Google Home, Google Ad Lingo and Twitter. In 2019, we added email, allowing brands
to manage emails through the same console they use for messaging, and to convert legacy emails into
messaging conversations. We also added social monitoring and conversational tools for Twitter and
Facebook, and introduced proactive messaging, allowing brands to transform traditional one-way
notifications such as flight cancellations or phone plan overage alerts into two-way conversations. Finally,
we connected to Facebook and WhatsApp digital advertisements, enabling consumers to initiate messaging
conversations for marketing and customer care directly within the advertisement. In 2020, we added Instagram
and Google’s Business Messages, allowing brands to bring customer-initiated conversations into the
Conversational Cloud directly from Instagram, Google Search, and Google Maps.

Each channel and use case added opens the door to hundreds of millions of new consumers, providing

brands a greater opportunity to shift share away from their legacy contact center channels into messaging.

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For example, in 2019, leading airlines launched on WhatsApp and Apple Business Chat with the ability to
make secure payments; a baseball stadium launched an automated conversational concierge providing answers
to a wide range of questions from restroom locations to player stats; and a multinational telecommunications
company used proactive two-way messaging for outbound campaigns. In 2020, one of the largest telcos in
Australia fully virtualized their contact centers, a leading U.S. quick-serve restaurant launched on Facebook
Messenger to help customers order meals, one of the biggest banks in the world launched an Apple
Business Chat channel to provide a secure way to perform day-to-day banking, and one of the world’s
largest jewelry retailers used the Conversational Cloud and QR codes to sell millions of dollars of product.

LivePerson makes the management of all these disparate channels seamless to the brand. AI-based
intelligent routing, queuing and prioritization software orchestrates these conversations at scale, regardless
of which messaging endpoint they originated from, so that human and bot agents can engage with all
customers through just one console.

We believe LivePerson is leading the structural shift to Conversational AI. In the wake of the COVID-19

pandemic, leading brands are turning to LivePerson’s AI-powered messaging to overcome a capacity gap
created by voice call agent work-from-home measures and increased demand for digital engagement as
consumers practice social distancing. LivePerson is powering Conversational AI, automation and messaging
strategies across a growing number of use cases from care and sales, to marketing, social, conversational
advertising and brick and mortar. Our Conversational AI leadership and the increase in adoption have
influenced LivePerson’s enterprise and mid-market revenue retention rate, (the trailing-twelve-month change
in total revenue from existing customers after upsells, downsells and attrition) which exceeded the high end
of our target range of 105% to 115% for 2020. The benefit can also be seen in LivePerson’s average revenue per
user (ARPU) for our enterprise and mid-market customers, which increased approximately 35% in 2020 to
$465,000 from approximately $345,000 in 2019.

Attract the industry’s best AI, machine learning and conversational talent. We believe that AI and

machine learning are critical to successfully scaling in the Conversational Space, and that in order to
develop the industry’s leading technology, we need to attract the industry’s best talent. In 2018, LivePerson
recruited Alex Spinelli, key architect of the Alexa Operating System at Amazon.com, as our Global CTO.
Under Mr. Spinelli’s leadership, LivePerson hired more than 280 of the industry’s brightest data scientists,
machine learning engineers and automation engineers, many from firms such as Nike, Amazon.com,
Microsoft and Target, who are working exclusively on applying AI to the Conversational Space. LivePerson
also expanded its development talent base in Germany, and added key development talent through the
acquisitions of BotCentral in Mountain View, California and Conversable in Austin, Texas.

Bring to market best-in-class AI and machine learning technologies designed for the conversational
space. We believe that in the last decade many vendors introduced AI and bot offerings that created
frustrating experiences for consumers and businesses alike, which in turn has eroded trust in automation.
Many of these solutions have proven difficult to build and scale, and have been limited by stand-alone
implementations that lacked the measurement, reporting and human oversight of conversational platforms
such as the Conversational Cloud. In December 2018, LivePerson announced its patent pending AI
engine that is designed to overcome these shortcomings and help brands rapidly bring to market conversational
AI that can scale to millions of interactions, while increasing customer satisfaction and conversion rates.

Unlike alternative solutions designed solely for IT departments, LivePerson’s Conversational AI was
built to be used by developers and contact center agents. By putting the power of conversational design and
bot management in the hands of contact center agents, LivePerson’s Conversational AI gives brands the
ability to leverage the employees closest to the customer, those who are most versed in the voice of the brand,
and with the most expertise in how to craft successful outcomes for customer service and sales journeys.

Some of the key innovations behind LivePerson’s Conversational AI include:

• a holistic approach to scaling AI by combining consumer facing bots, agent facing bots, intelligent

routing and real-time intent understanding, with an analytics dashboard that helps users focus on the
intents that are impacting their business and prioritize which intents to automate next;

• bot building software that is based on dialogue instead of workflow or code, so non-technical

employees like contact center agents can design automations;

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• leveraging data moat from hundreds of millions of conversations to feed the machine learning that

rapidly and accurately detects consumer sentiment and intents in real-time. Customers of LivePerson
can use intent understanding for advanced routing, next-best actions, and to fully contain
conversations with automation;

• the establishing of contact center agents as bot managers, ensuring that every conversation is

safeguarded by a human and that agents are continuously training the AI to be smarter and drive
more successful outcomes;

• powerful Assist technology that multiplies the efficiency of agents by analyzing intents in real time
and then suggesting next best actions, predefined content, and bots that can take over transactional
work;

• pre-built templates for target verticals that provide out of the box support for the top intents and back-

end integrations;

• the ability to bootstrap conversations with existing transcripts, reducing design effort and speeding

time to market;

• third-party AI natural language understanding (NLU) integration, so customers aren’t boxed into

one vendor;

• AI analytics and reporting tailored to the Conversational Space, providing brands with immediate,

actionable insights about their businesses and contact center operations.

Our strategy is to continue to enhance the Conversational AI engine and related products, by leveraging
our global R&D footprint and substantial library of mobile and online conversational data, with the aim of
increasing agent efficiency, decreasing customer care costs, improving the customer experience and
increasing customer lifetime value.

Sustain our leadership position by aligning brands to a vision that transforms how they communicate with

consumers and delivers a superior return on investment. We believe that most contact center technology
vendors incorrectly view messaging as a feature. They are content with building integrations to a messaging
endpoint and offering messaging as just another product in their suite. LivePerson holds the perspective
that messaging and AI are the foundation for transforming conversational experiences, disrupting how agents
operate and how brands engage with consumers. Brands must adapt their contact centers to an
asynchronous messaging environment and leverage a combination of human agents, bots and AI to achieve
scale and efficiencies. When done correctly, the entire consumer lifecycle with a brand will be maintained
within the Conversational Space, and traffic will steadily shift away from lower returning voice calls, websites,
emails and apps to higher returning messaging endpoints.

We believe that LivePerson is uniquely positioned to deliver this transformation due to our technology

and expertise:

• The Conversational Cloud, LivePerson’s enterprise-class, automation-first, cloud-based platform,
was designed for AI-assisted and human-powered messaging in mobile and online channels. The
platform offers best-in-class security and scalability, offers the broadest ecosystem of messaging
endpoints, is designed for ease of use, and features an AI engine custom built for the Conversational
Space, intent recognition, robust real-time reporting, role-based real-time analytics, predictive
intelligence, and innovations in customer satisfaction and connection measurement. Additionally,
the Conversational Cloud is an open platform with pre-built, enterprise-grade integrations into back-
end systems as well as the ability to work across NLU providers.

• The Company has a data moat built on hundreds of millions of conversations across industries,

geographies and use cases that is feeding the machine learning engines that power intent understanding.

• The platform has expanded to power conversations across a broad spectrum of channels and use

cases, from traditional sales and customer service, to marketing, social, email, advertising and brick
and mortar.

• LivePerson has deep domain expertise across verticals and messaging endpoints, a global footprint,
referenceable enterprise brands and a team of technical, solutions and consulting professionals to

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assist customers along their transformational journeys. We are positioned as an authority in the
Conversational Space. We have developed a Transformation Model that is introduced to existing and
prospective customers to help guide them on their journeys from legacy and often times inefficient
legacy voice, email and chat solutions to modern conversational ones powered by messaging and AI.

We believe that LivePerson’s differentiated approach to the Conversational Space, combined with our

unique technology and expertise has established us as a market leader, with an ability to deliver superior
returns on investment. LivePerson customers manage as many as 40 messaging conversations at a time, as
compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and
bots provides even greater scale to the number of conversations managed. Our customers often see labor
efficiency gains of at least two times that of voice agents, effectively cutting labor costs by at least 50%.
Furthermore, our ability to deliver more convenient, personalized and content-rich conversations often drives
increases in customer satisfaction of up to 20 percentage points and increases in sales conversions of up to
20%, while enhancing average order value, customer retention and loyalty.

Strengthen our position in both existing and new industries. We plan to continue to develop our market
position by increasing our customer base, and expanding within our installed base. We will continue to focus
primarily on key target markets: consumer/retail, telecommunications, financial services, travel/hospitality,
technology and automotive within both our enterprise and mid-market sectors, as well as the small business
(SMB) sector. In 2019, we made strong inroads into new verticals with key wins in the airline, food service
and healthcare industries. In 2020, we strengthened our presence in key markets including travel/hospitality
and retail, and opened new verticals like healthcare and government. We are experimenting with new
conversational businesses, including some that are in regulated industries, like online banking. We are
increasingly structuring our field organization to emphasize our domain expertise and strengthen customer
relationships across target industries.

Continue to build our international presence. We are focused on building our international presence

and expanding our international revenue contribution, which accounted for 38% and 41% of total revenue
in 2020 and 2019, respectively. We are generating positive results from our recent investments in the Asia
Pacific, Europe and Latin America regions.

Leverage our open architecture to support partners and developers.

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. We integrate into third-party messaging endpoints including SMS, Facebook
Messenger, Apple Business Chat, Google Rich Business Messenger, Line, WhatsApp, Alexa, Google
Home, WeChat, Google Ad Lingo, Google Search, Google Maps, Instagram and Twitter, multiple IVR
vendors and dozens of branded apps. The Conversational Cloud integrates our proprietary messaging and
Conversational AI with third-party bot offerings, empowering our customers to manage a mix of different
bots, human agents and technologies from one control panel, thereby optimizing contact center efficiency.
LivePerson’s 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 more than 40 APIs and

software development kits that allow customers and 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 2019, we launched LivePerson Functions, a serverless Function
as a Service (FaaS) integration which enables brands to develop custom behaviors within LivePerson’s
conversational platform to easily and rapidly tailor conversation flows to their specific needs.

Expand sales partnerships to broaden our presence and accelerate sales cycles. We are focused on
broadening our market reach and accelerating sales cycles by partnering with systems integrators, technology
providers, business process outsourcers, value added resellers and other sales partners. We formalized a
relationship with IBM Global Business Services in 2017 and Accenture in 2018. In 2019, we announced
strategic partnerships with TTEC, a leading BPO focused on customer experience, and DMI, a digital
transformation company, to redefine the customer experience with digital engagement, messaging, and AI-
driven automation. In 2020, Infosys joined LivePerson’s network with a first-of-its-kind 360-degree
partnership focusing not only on capturing the global rising demand for conversational commerce and
building a personalized experience for customers, but also driving the transformation for internal corporate

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messaging and the employee experience through Conversational AI. LivePerson increased the number of
partners focused on SMBs to more than 300 at year-end 2020 and 2019, from over 150 at year-end 2018, and
approximately 40 at the end of 2017. Approximately one quarter of all opportunities were influenced by
partners in 2020, and we are focused on driving that contribution toward 50% longer term.

Maintain 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.
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.

Evaluate 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, 2020 compared to the

comparable periods in 2019 is as follows:

• Revenue increased 29% and 26% to $102.1 million and $366.6 million in the three and twelve months

ended December 31, 2020, respectively, from $79.1 million and $291.6 million in the comparable
periods in 2019.

• Revenue from our Business segment increased 29% and 26% to $94.1 million and $336.9 million in

the three and twelve months ended December 31, 2020, respectively, from $72.8 million and
$267.1 million in the comparable periods in 2019.

• Gross profit margin increased to 73% in the three months ended December 31, 2020 from 72% in the

comparable period in 2019. Gross profit margin decreased to 71% in the twelve months ended
December 31, 2020 from 73% in the comparable period in 2019.

• Cost and expenses increased 5% and 20% to $108.8 million and $456.1 million in the three and

twelve months ended December 31, 2020, respectively, from $103.6 million and $378.6 million in the
comparable periods in 2019.

• Net loss increased to $13.3 million and to $107.6 million in the three and twelve months ended

December 31, 2020, respectively, from net loss of $27.3 million and $96.1 million for the three and
twelve months ended December 31, 2019, respectively.

• Trailing-twelve-month average revenue per enterprise and mid-market customer was approximately

$465,000 in 2020, as compared to approximately $345,000 in 2019.

• Revenue retention rate for enterprise and mid-market customers on Conversational Cloud exceeded

the high end of our target range of 105% to 115% in 2020, and was within our target range of 105% to
115% for 2019.

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

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performance reporting requirements, and are likely to engage our professional services organization to
provide such analysis and reporting on a recurring basis.

We determine revenue recognition through the following steps:

• identification of the contract, or contracts, with a customer;

• identification of the performance obligations in the contract;

• determination of the transaction price;

• allocation of the transaction price to the performance obligations in the contract; and

• recognition of revenue when, or as, the Company satisfies a performance obligation.

For more information about our revenue recognition policies, please see “— Critical Accounting

Policies and Estimates — Revenue Recognition.”

Hosted Services — Business Revenue

Revenue attributable to our monthly hosted Business services accounted for 78% of total revenue for

the year ended December 31, 2020, 77% of total revenue for the year ended December 31, 2019 and 79% of
total revenue for the year ended December 31, 2018.

Professional Services Revenue

Revenue attributable to professional services accounted for 14% of total revenue for the year ended

December 31, 2020, 14% of total revenue for the year ended December 31, 2019 and 13% of total revenue
for the year ended December 31, 2018.

Contracts with Multiple Performance Obligations

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

Hosted Services — Consumer Revenue

Revenue from our Consumer segment accounted for approximately 8% of total revenue for the years

ended December 31, 2020, 2019 and 2018, respectively.

Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of our performance.

The decrease of $0.1 million in the deferred revenue balance for the year ended December 31, 2020 is primarily
driven by satisfying our performance obligations and the revenue recognized of approximately $103.2 million
that were included in the deferred revenue balance as of December 31, 2019.

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;

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• 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, global customer summits 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 2020, we increased our allowance for doubtful accounts from approximately $3.1 million to

approximately $5.3 million. During 2019, we increased our allowance for doubtful accounts from
approximately $2.3 million to approximately $3.1 million. We perform a detailed assessment of the
collectability of our accounts receivable. In estimating the allowance for doubtful accounts, management
considers, among other factors, the aging of the accounts receivable, historical write-offs and the
creditworthiness of each customer. A large proportion of receivables are due from larger corporate customers
that typically have longer payment cycles.

Non-Cash Compensation Expense

The net non-cash compensation amounts for the years ended December 31, 2020, 2019 and 2018

consist of (amounts in thousands):

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

$65,946

$44,105

$14,841

2020

2019

2018

Results of Operations

We are organized into two operating segments for purposes of making operating decisions and
assessing performance. The Business segment enables brands to leverage the Conversational Cloud
sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and
online business messaging technologies. The Consumer segment facilitates online transactions between
Experts and Users seeking information and knowledge for a fee via mobile and online messaging.

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.

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

Costs and expenses:
Cost of revenue(3)
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Year Ended December 31,

2020

2019

2018

(as a percentage of revenue)

100% 100% 100%

29% 27% 25%

41% 54% 41%

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

17% 20% 18%

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

30% 28% 22%

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

Amortization of purchased intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8%

—%

1%

1%

2%

1%

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

124% 130% 109%

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(24)% (30)% (9)%

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

(4)% (2)% —%

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

(29)% (32)% (10)%
1% —%

1%

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

(29)% (33)% (10)%

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

Revenue

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

(in thousands)

(in thousands)

Revenue by Segment:

Business . . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . .

$336,856
29,764

$267,129
24,480

26% $267,129
24,480
22%

$230,285
19,553

Total

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

$366,620

$291,609

26% $291,609

$249,838

16%
25%

17%

Business Revenue increased by 26% to $336.9 million for the year ended December 31, 2020, from
$267.1 million for the year ended December 31, 2019. This increase in Business revenue is driven mainly by
increases in hosted services of approximately $60.9 million and an increase in professional services of
approximately $8.8 million. Included in hosted services, is an increase in revenue that is variable based on
interactions and usage of approximately $30.1 million.

Business revenue increased by 16% to $267.1 million for the year ended December 31, 2019, from

$230.3 million for the year ended December 31, 2018. This increase in Business revenue is primarily
attributable to an increase in hosted services of approximately $28.2 million and an increase in professional
services of approximately $8.6 million.

The increase in Business revenue was driven in nearly equal parts by existing and new customers as
LivePerson generated greater demand for its Conversational Commerce software and Gainshare (formerly
“Pay for Performance”) solutions. In the wake of the COVID-19 pandemic, leading brands are turning to
LivePerson’s AI-powered messaging to overcome a capacity gap created by voice call agent work-from-
home measures and increased demand for digital engagement as consumers practice social distancing.
LivePerson is powering Conversational AI, automation and messaging strategies across a growing number
of use cases from care and sales, to marketing, social, conversational advertising, and brick and mortar. As
adoption increases, we are seeing higher revenue per customer. Our average annual revenue per enterprise
and midmarket customer was approximately $465,000 in 2020, as compared to approximately $345,000 in

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2019. Similarly, we are seeing strong revenue retention rates. Revenue retention rate for enterprise and mid-
market customers on Conversational Cloud exceeded the high end of our target range of 105% to 115% in
2020, and was within our target range of 105% to 115% for 2019.

Consumer revenue increased by 22% to $29.8 million for the year ended December 31, 2020, from
$24.5 million for the year ended December 31, 2019. This increase is primarily attributable to an increase in
chat minutes and price per minute. Consumer revenue increased by 25% to $24.5 million for the year
ended December 31, 2019, from $19.6 million for the year ended December 31, 2018. This increase is primarily
attributable to an increase in chat minutes and price per minute.

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,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

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

$99,394

$74,460

33%

$74,460

$58,420

27%

27%
245

26%
257

(5)%

26%

257

23%

228

13%

Cost of revenue increased by 33% to $99.4 million for the year ended December 31, 2020, from

$74.5 million for the year ended December 31, 2019. This increase in expense is primarily attributable to an
increase in business services and outsourced subcontracted labor of approximately $17.0 million as the
Company saw a significant increase in demand for its Gainshare (formerly “Pay for Performance”) services,
which power Conversational Commerce programs on behalf of customers. The Company also recognized
an increase in salary and employee related expenses of approximately $5.0 million, in expenses for backup
server facilities of approximately $1.6 million, in depreciation expense of approximately $1.2 million and in
amortization expense of approximately $0.8 million.

Cost of revenue increased by 27% to $74.5 million for the year ended December 31, 2019, from

$58.4 million for the year ended December 31, 2018. This increase in expense is primarily attributable to an
increase in business services and outsourced subcontracted labor of approximately $7.2 million, in salary
and related employee expenses of approximately $4.4 million, in expenses for backup server facilities of
approximately $4.0 million and in depreciation expense of approximately $0.5 million.

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.

Cost of revenue – Consumer . . . . . . .
Percentage of total revenue . . . . . . . .

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

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

$6,874

$4,418

56%

$4,418

$4,059

2%

21

2%

17

24%

2%

17

2%

16

9%

6%

Cost of revenue increased by 56% to $6.9 million for the year ended December 31, 2020, from

$4.4 million for the year ended December 31, 2019. This increase in expense is primarily related to an
increase in outsourcing subcontracted labor of approximately $1.3 million is due to the investment in
technology infrastructure. We increased outside labor to accelerate a technology change which assisted us in

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the rollout of HeyExpert, a leading platform for online expert guidance. In addition, there was an increase
in salary and employee related expenses of approximately $0.4 million, in credit card processing fees of
approximately $0.3 million, in depreciation expense of approximately $0.3 million and backup server
facilities of approximately $0.1 million.

Cost of revenue increased by 9% to $4.4 million for the year ended December 31, 2019, from $4.1 million

for the year ended December 31, 2018. This increase in expense is primarily related to an increase in credit
card processing fees of approximately $0.3 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,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

Sales and Marketing – Business . . . . .

$128,752

$140,880

(9)% $140,880

$94,339

49%

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

35%

309

48%
449

(31)%

48%

449

38%

352

28%

Sales and marketing expenses decreased by 9% to $128.8 million for the year ended December 31, 2020,

from $140.9 million for the year ended December 31, 2019. This is primarily related to a decrease in salary
and employee related expenses of approximately $7.5 million, a decrease in marketing events, advertising,
public relations and trade show exhibit expenses of approximately $3.3 million, and a decrease in business
services and outsourcing subcontracted labor of approximately $2.6 million. These decreases were offset in
part by an increase in backup server facilities of approximately $0.7 million and in depreciation expense of
approximately $0.6 million.

In 2020, the Company delayed its planned marketing events due to the COVID-19 pandemic and has
also seen an impact in terms of the on-boarding and hiring of employees. The Company has been able to
adjust its marketing and hiring efforts in this new environment going forward. Additionally, we have adapted
our marketing strategy to include targeted digital experiences that emphasize the unique positioning of
our messaging and AI offerings to help brands succeed in this new environment. Our marketing message
has shifted to include business continuity and virtualization of the contact center in addition to business
improvement.

Sales and marketing expenses increased by 49% to $140.9 million for the year ended December 31,

2019, from $94.3 million for the year ended December 31, 2018. This is primarily related to an increase in
salary, recruitment, and related employee expenses of approximately $29.5 million, as the Company doubled
the number of quota carrying salespeople to approximately 100 at year-end 2019 from 50 at year-end 2018.
Business services and outsourced labor increased approximately $6.5 million, and marketing events,
advertising, public relations, and trade show exhibit expenses increased approximately $5.4 million. Other
costs consisted of increases in facilities and allocated overhead of $5.1 million, and in depreciation expense
of $0.1 million.

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.

73

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

Sales and Marketing – Consumer . . . .

$21,021

$15,934

32%

$15,934

$9,005

77%

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

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

6%

19

5%

18

6%

5%

18

4%

13

38%

Sales and marketing expenses increased by 32% to $21.0 million for the year ended December 31, 2020,
from $15.9 million for the year ended December 31, 2019. This increase is primarily attributable to an increase
in marketing expense of approximately $4.8 million, in outsourcing subcontracted labor of approximately
$0.2 million, and credit card processing fees of approximately $0.1 million.

Sales and marketing expenses increased by 77% to $15.9 million for the year ended December 31, 2019,
from $9.0 million for the year ended December 31, 2018. This increase is primarily attributable to an increase
in advertising and online expenses of approximately $6.7 million, and an increase in compensation and
related costs for additional and existing sales and marketing personnel of approximately $0.2 million.

General and Administrative

Our general and administrative expenses consist primarily of compensation and related expenses for

executive, accounting, legal, information technology, human resources and administrative personnel,
professional fees and other general corporate expenses.

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

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

$60,557

$56,967

6%

$56,967

$45,873

24%

17%
140

20%
149

(6)%

20%

149

18%

128

16%

General and administrative expenses increased by 6% to $60.6 million for the year ended December 31,
2020, from $57.0 million for the year ended December 31, 2019. This is primarily related to a increase in salary
and employee related expenses of approximately $4.3 million and in business services and outsourced labor
of approximately $2.6 million. These increases were offset in part by a decrease in facilities of approximately
$2.7 million and depreciation expense of approximately $0.7 million.

General and administrative expenses increased by 24% to $57.0 million for the year ended December 31,

2019, from $45.9 million for the year ended December 31, 2018. This is primarily related to an increase in
salaries and employee related expenses of approximately $9.2 million and in business services and outsourced
labor of approximately $3.8 million. These increases were offset in part by a decrease in allocated occupancy
costs, related overhead, information technology, and other general corporate expenses of approximately
$1.9 million.

Product Development

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

74

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

Product development

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

$108,414

$82,145

32%

$82,145

$55,707

47%

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

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

30%

467

28%

451

4%

28%

451

22%

369

22%

Product development costs increased by 32% to $108.4 million for the year ended December 31, 2020,
from $82.1 million for the year ended December 31, 2019. This is primarily related to an increase in salaries
and employee related expenses of approximately $11.9 million, in business services and outsourcing
subcontracted labor of approximately $8.6 million, in backup server facilities of approximately $1.1 million
related to costs supporting our backup servers and in depreciation expense of approximately $5.0 million.
The Company made investments in public cloud migration, and in enhancing and expanding new features of
the Conversational Cloud. Also, the Company invested in bringing more data scientists and machine
learning engineers to focus on Conversational Al.

Product development costs increased by 47% to $82.1 million for the year ended December 31, 2019,

from $55.7 million for the year ended December 31, 2018. This is primarily related to an increase in
compensation, recruitment, and related costs of approximately $15.3 million, as the Company built out its
Seattle Advanced Technology Center, ending 2019 with more than 125 data scientists, machine learnings
engineers and automation engineers focused on Conversational AI. The increase was also related to an
increase in outsourced labor of approximately $5.0 million, primarily tied to supporting demand for technical
services. Facility, allocated occupancy costs and overhead related to costs of supporting our server and
network infrastructure increased approximately $4.3 million, depreciation expenses increased approximately
$1.5 million, and marketing related costs increased $0.3 million.

We continue to invest in new product development efforts to expand the capability of the Conversational
Cloud. In accordance with ASC 350-40, “Internal- Use Software”, as new projects are initiated that provide
functionality to the Conversational Cloud platform, the associated development and employee costs will
be capitalized. Upon completion, the project costs will be depreciated over five years. During the years ended
December 31, 2020 and 2019, $33.9 million and $29.1 million was capitalized, respectively.

Restructuring Costs

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

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

$29,420

$2,043

1,340% $2,043

$4,468

(54)%

8%

1%

1%

2%

Restructuring costs increased by 1,340% to $29.4 million for the year ended December 31, 2020, from

$2.0 million for the year ended December 31, 2019. This increase is attributable to an increase in restructuring
costs related to lease abandonment of approximately $24.1 million, along with severance and other
compensation costs of approximately $5.3 million.

In response to the COVID-19 pandemic, the Company went through a re-evaluation of our real estate
needs. In connection with this re-evaluation, and the success we have had working remotely, it was decided
in July 2020 that we would significantly reduce the real estate space we lease. This decision resulted in the
significant reduction of the real estate space we lease and the removal of the associated right of use assets
(“ROU assets”). Furthermore, this resulted in various one-time expenses in connection with the abandonment
of the majority of our leased facilities. The lease restructuring costs noted above are a result of this
transition to an employee-centric workforce model that does not rely on traditional offices.

Restructuring costs decreased by 54% to $2.0 million for the year ended December 31, 2019, from
$4.5 million for the year ended December 31, 2018. This decrease is attributable to a decrease in severance

75

and other associated costs of approximately $2.5 million. Severance costs are associated with re-prioritizing
and reallocating resources to focus on areas showing high growth potential.

Amortization of Purchased Intangibles

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

Amortization of purchased intangibles . . .

$1,639

$1,794

(9)% $1,794

$1,670

7%

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

—%

1%

1%

1%

Amortization expense for purchased intangibles decreased by 9% to $1.6 million for the year ended

December 31, 2020, from $1.8 million for the year ended December 31, 2019, and increased by 7% to
$1.8 million for the year ended December 31, 2019, from $1.7 million for the year ended December 31,
2018. The year over year variance is primarily attributable to amortization of patents and customer
relationships.

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,
Australian dollar and the Euro.

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

Interest (expense) income . . . . . . . . . .
Other income (expense) . . . . . . . . . . .

(14,334)
$ (1,343)

(7,407)
$ 1,213

94%

(7,407)
(211)% $ 1,213

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

$(15,677)

$(6,194)

153%

$(6,194)

22
$(493)

$(471)

(33,768)%
(346)%

1,215%

Other (expense) income increased by $9.5 million to an expense of $15.7 million for the year ended

December 31, 2020, from an expense of $6.2 million for the year ended December 31, 2019. This increase
was primarily attributable to an increase in interest expense attributable to the 0.750% Convertible Senior
Notes due 2024 (the “2024 Notes”), offset in part by interest income on cash and cash equivalents and financial
income which is attributable to currency rate fluctuations.

Other (expense) income increased by $5.7 million to an expense of $6.2 million for the year ended

December 31, 2019, from an income of $0.5 million for the year ended December 31, 2018. This was
primarily attributable to an increase in interest expense attributable to the 2024 Notes, offset in part by
interest income on cash and cash equivalents and financial income which is attributable to currency rate
fluctuations.

Provision for Income Taxes

Year Ended December 31,

Year Ended December 31,

2020

2019

% Change

2019

2018

% Change

($ in thousands)

($ in thousands)

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

$2,466

$2,845

(13)% $2,845

$858

232%

Income tax expense decreased by 13% to $2.5 million for the year ended December 31, 2020, from
$2.8 million for the year ended December 31, 2019. Our consolidated effective tax rate was impacted by the
statutory income tax rates applicable to each of the jurisdictions in which we operate. During 2020, we
recognized a benefit of $0.6 million due to net operating loss and research and development credits carryback
resulting from the CARES Act. The decrease in tax expense is primarily due to these factors.

76

Income tax expense increased by 232% to $2.8 million for the year ended December 31, 2019, from
$0.9 million for the year ended December 31, 2018. Our consolidated effective tax rate was impacted by the
statutory income tax rates applicable to each of the jurisdictions in which we operate. During 2018, we
recognized a benefit of $2.0 million related to a settlement with the Israeli Tax Authority. As a result of the
settlement, we recognized a benefit as the recorded liability was less than the final settlement. A benefit
was also recorded for U.S. federal tax refunds that were recognized due to increased foreign tax credits and
increased federal NOLs from foreign tax deductions. The increase in tax expense was primarily due to these
factors.

Net Loss

We had a net loss of $107.6 million for the year ended December 31, 2020 compared to a net loss of

$96.1 million for the year ended December 31, 2019. Revenue increased approximately $75.0 million,
operating expenses increased by approximately $77.4 million, the provision for income taxes decreased
approximately $0.4 million, and other (expense) income net increased by $9.5 million, contributing to a net
increase in net loss of approximately $11.5 million.

We had a net loss of $96.1 million for the year ended December 31, 2019 compared to a net loss of

$25.0 million for the year ended December 31, 2018. Revenue increased approximately $41.8 million,
operating expenses increased by approximately $105.1 million, the provision for income taxes increased
approximately $2.0 million, and other (expense) income, net decreased by approximately $5.7 million,
contributing to a net increase in net loss of approximately $71.0 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, 2020. 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,
2020

Sept. 30,
2020

June 30,
2020

March 31,
2020

Dec. 31,
2019

Sept. 30,
2019

June 30,
2019

March 31,
2019

(in thousands, except share and per share data)

Quarter ended

Consolidated Statements of Operations

Data:

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

102,125 $

94,804 $

91,603 $

78,088 $

79,073 $

75,175 $

70,959 $

66,402

Costs and Expenses:

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

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

General and administrative . . . . . . .

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

28,049

39,700

12,844

27,995

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

(212)

27,692

32,775

14,891

27,736

26,442

Amortization of purchased

intangibles

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

419

411

27,707

34,618

16,353

26,967

—

404

22,820

42,680

16,469

25,716

3,190

405

22,060

42,661

15,079

23,213

134

448

20,120

41,774

13,958

20,577

1,425

447

18,049

39,343

13,763

20,182

205

438

18,649

33,036

14,167

18,173

279

461

Total costs and expenses

. . . . . . .

108,795

129,947

106,049

111,280

103,595

98,301

91,980

84,765

Loss from operations . . . . . . . . . . . .

Interest expense, net

. . . . . . . . . . .

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

Total Other (expense) income, net . .

Loss before provision for income taxes

(6,670)

(5,173)

1,141

(4,032)

(35,143)

(14,446)

(33,192)

(24,522)

(23,126)

(21,021)

(18,363)

(3,159)

(508)

(3,667)

(3,211)

(1,309)

(4,520)

(2,791)

(667)

(3,458)

(2,535)

(2,189)

352

379

(2,183)

(1,810)

(2,017)

(250)

(2,267)

(667)

733

66

(benefit from) . . . . . . . . . . . . . . .

(10,702)

(38,810)

(18,966)

(36,649)

(26,705)

(24,936)

(23,288)

(18,297)

77

Dec. 31,
2020

Sept. 30,
2020

June 30,
2020

March 31,
2020

Dec. 31,
2019

Sept. 30,
2019

June 30,
2019

March 31,
2019

(in thousands, except share and per share data)

Quarter ended

Provision for (benefit from) income

taxes

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

2,553

(100)

(339)

352

617

936

699

593

Net loss . . . . . . . . . . . . . . . . . . . . $

(13,255) $

(38,710) $

(18,627) $

(37,001) $

(27,322) $

(25,872) $

(23,987) $

(18,890)

Net loss per share of common stock:

Basic . . . . . . . . . . . . . . . . . . . . . . $

(0.20) $

(0.58) $

(0.28) $

(0.57) $

(0.43) $

(0.41) $

(0.38) $

Diluted . . . . . . . . . . . . . . . . . . . . $

(0.20) $

(0.58) $

(0.28) $

(0.57) $

(0.43) $

(0.41) $

(0.38) $

(0.31)

(0.31)

Weighted-average shares used to compute

net loss per share

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

67,027,572

66,451,414

65,650,782

64,388,850

63,556,205

63,014,802

62,350,787

61,422,227

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

67,027,572

66,451,414

65,650,782

64,388,850

63,556,205

63,014,802

62,350,787

61,422,227

Liquidity and Capital Resources

Year Ended December 31,

2020

2019

2018

(in thousands)

Consolidated Statements of Cash Flows Data:

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

$ 33,605
(43,476)
483,843

$ (59,158) $ 4,779
(27,773)
33,926

(48,506)
217,851

As of December 31, 2020, we had approximately $654.2 million in cash and cash equivalents, an
increase of approximately $477.6 million from December 31, 2019. The increase is primarily attributable to
cash provided by financing activities relating to issuance of the 2026 Notes, as described in Note 7 of the
Notes to the Consolidated Financial Statements, and the issuance of common stock. This was partially
offset by purchases of capped calls, as described in Note 7 of the Notes to the Consolidated Financial
Statements, fixed assets for our co-location facilities, capitalization of internally developed software, debt
issuance costs, and increases in prepaid expenses and accounts receivable.

Net cash provided by operating activities was $33.6 million in the year ended December 31, 2020. Our

net loss was $107.6 million, which includes the effect of non-cash expenses related to stock-based
compensation, amortization of purchased intangibles and finance leases, depreciation, and provision for
doubtful accounts, as well as increases in operating lease liability due to the transition to an employee centric
model under which employees will work remotely, and increase in accrued expenses and decrease in
accounts receivable. This was partially offset by increases in prepaid expenses and other current assets and
decrease in deferred revenue. Net cash used in operating activities was $59.2 million in the year ended
December 31, 2019. Our net loss was $96.1 million, which includes the effect of non-cash expenses related
to stock-based compensation, amortization of purchased intangibles, depreciation, and provision for doubtful
accounts, as well as increases in deferred revenue due to more of our customers moving to cash payments
in advance on annual billings and in accounts payable and accrued expenses. This was partially offset by
increases in prepaid expenses, other current assets and accounts receivable, and decrease in deferred tax
liability.

Net cash used in investing activities was $43.5 million in the year ended December 31, 2020 due
primarily to the purchase of fixed assets for our co-location facilities and capitalization of internally
developed software. Net cash used in investing activities was $48.5 million in the year ended December 31,
2019 and consisted primarily of the purchase of fixed assets for our co-location facilities and capitalization of
internally developed software.

78

Net cash provided by financing activities was $483.8 million in the year ended December 31, 2020 due
primarily to the proceeds from issuance of the 2026 Notes and proceeds from issuance of common stock in
connection with the exercise of stock options by employees. This was partially offset by purchases of
capped calls, debt issuance costs, and payment of our finance lease. The net proceeds of the 2026 Notes was
approximately $506.6 million, after deducting initial purchaser debt issuance costs paid or payable by us,
from issuance of the 2026 Notes, as described in Note 7 of the Notes to the Consolidated Financial Statements.
Net cash provided by financing activities was $217.9 million in the year ended December 31, 2019 and
consisted primarily of proceeds from issuance of the 2024 Notes and proceeds from issuance of common
stock in connection with the exercise of stock options by employees. This was partially offset by purchases of
capped calls, debt issuance costs, and repurchase of our common stock. The net proceeds of the 2024
Notes was approximately $221.4 million, after deducting initial purchaser debt issuance costs paid or payable
by us, from issuance of the 2024 Notes, as described in Note 7 of the Notes to the Consolidated Financial
Statements.

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.

Off Balance Sheet Arrangements

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.

Contractual Obligations and Commitments

We lease facilities and certain equipment under agreements accounted for as operating and finance
leases. These leases generally require us to pay all executory costs such as maintenance and insurance. Total
lease cost for the years ended December 31, 2020, 2019 and 2018, was approximately $13.5 million,
$13.0 million and $10.9 million, respectively.

As of December 31, 2020, our principal commitments were approximately $24.4 million under various
operating and finance leases, of which approximately $10.2 million is due in 2021. We currently expect that
our principal commitments for the year ending December 31, 2021 will not exceed approximately $10.2 million
in the aggregate.

Our contractual obligations at December 31, 2020 are summarized as follows (amounts in thousands):

Contractual Obligations

Operating leases . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior notes(1)

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

Payments Due by Period

Total

$14,197
$10,200

Less Than
1 Year

$ 6,377
$ 3,814

1 – 3 Years

3 – 5 Years

More Than
5 Years

$ 5,759
$ 6,386

$
$

1,798

$
— $

263
—

$ — $ — $ — $230,000

$517,500

Total

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

$24,397

$10,191

$12,145

$231,798

$517,763

(1) See Note 7 of the Notes to the Consolidated Financial Statements included elsewhere in this Form 10-K

for a discussion of our convertible senior notes.

79

Capital Expenditures

Total capital expenditures in 2020 were approximately $41.6 million, primarily related to software
capitalization and to the continued expansion of our co-location facilities. Our total capital expenditures are
not currently expected to exceed $47.3 million in 2021. 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, 2020.

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 the Consolidated Financial Statements under Item 8 of this
Annual Report on Form 10-K.

Revenue Recognition

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

We determine revenue recognition through the following steps:

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the contract;

• Determination of the transaction price;

• Allocation of the transaction price to the performance obligations in the contract; and

• Recognition of revenue when, or as, we satisfy a performance obligation.

80

Total revenue of $366.6 million, $291.6 million, and $249.8 million was recognized during the years

ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

Hosted Services — Business Revenue

Hosted Services Business revenue is reported at the amount that reflects the ultimate consideration

expected to be received and primarily consist of fees that provide customers access to the Conversational
Cloud, our enterprise-class, cloud-based platform. We have determined such access represents a stand-ready
service provided continually throughout the contract term. As such, control and satisfaction of this stand-
ready performance obligation is deemed to occur over time. We recognize this revenue over time on a ratable
basis over the contract term, beginning on the date that access to the Conversational Cloud platform is
made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer
of control of the services as the customer simultaneously receives and consumes the benefit provided by
our performance. Subscription contracts are generally one year or longer in length, billed, monthly, quarterly
or annually in advance. There is no significant variable consideration related to these arrangements.
Additionally, for certain of 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 its 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 Gainshare (formerly “Pay for Performance”)
arrangements in accordance with ASC-606, “Principal Agent Considerations,” we act as a principal in a
transaction if we control the specified goods or services before they are transferred to the customer.

Professional Services Revenues

Professional services revenue primarily consists of fees for deployment and optimization services, as

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

Contracts with Multiple Performance Obligations

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

Hosted Services — Consumer Revenue

For revenue from our Consumer segment generated from online transactions between Experts and
Users, revenue is recognized at an amount net of Expert fees in accordance with ASC 606, “Principal Agent
Considerations,” due primarily to the fact that we do not act as a principal in a transaction since we do
not control the specified goods or services before they are transferred to the customer. Additionally, we
perform as an agent without any risk of loss for collection, and we 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 at the point in time when
the transaction is complete and no significant performance obligations remain.

81

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, 2020, there was approximately $17.9 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 2.5 years. As of December 31, 2020, there was approximately $66.8 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 2.8 years.

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, if we experience a significant write-off from
one of our 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 2020, 2019 and 2018. No single
customer accounted for or exceeded 10% of our total accounts receivable in 2020 and 2018. Two customers
exceeded 10% of our total accounts receivable in 2019. During 2020, we increased our allowance for
doubtful accounts from approximately $3.1 million to approximately $5.3 million. A large proportion of
receivables are due from larger corporate customers that typically have longer payment cycles.

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable

assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least
annually or whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. The Company has determined that it operates as two reporting units and has selected
September 30 as the date to perform its annual impairment test. In the valuation of goodwill, management
must make assumptions regarding estimated future cash flows to be derived from the Company’s business. If
these estimates or their related assumptions change in the future, the Company may be required to record
impairment for these assets.

The Company has the option to first perform a qualitative assessment to determine if it is more likely

than not that the fair value of a reporting unit is less than its carrying amount. However, the Company may
elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The
impairment test involves comparing the fair value of the reporting unit to its carrying value, including
goodwill. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its
fair value. The impairment is limited to the carrying amount of goodwill.

No goodwill impairment charges have been recorded for any period presented.

Impairment of Long-Lived Assets

The carrying amounts of our long-lived assets, including property and equipment, lease right-of-use

assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of
these assets may not be recoverable or that the useful lives are shorter than originally estimated.
Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to

82

future undiscounted net cash flows the asset is expected to generate over its remaining life. If the asset is
considered to be impaired, the amount of any impairment is measured as the difference between the carrying
value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, we
amortize the remaining carrying value over the new shorter useful life. There was a loss on disposal of
approximately $5.1 million in October 2020. The Company recognized accelerated depreciation of fixed assets
that were determined to no longer be of future economic benefit to the Company based on the decision to
vacate the leased office space.

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. In evaluating our ability to
recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive
and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income,
tax-planning strategies, and results of recent operations. 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, 2020, there was
an increase in the valuation allowance of $6.9 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 of this Annual Report on Form 10-K
for additional information on our legal proceedings and litigation.

Recently Issued Accounting Standards

See Note 1 of the Notes to the Consolidated Financial Statements for a full description of recently

issued accounting standards.

Recently Adopted Accounting Pronouncements

See Note 1 of the Notes to the Consolidated Financial Statements for a full description of recently

adopted accounting pronouncements.

83

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, 2020, the U.S dollar appreciated as compared to the NIS by an average of 4% as compared to
December 31, 2019. For the year ended December 31, 2020, expenses generated by our Israeli operations
totaled approximately $72.6 million. Based on our exposure to NIS exchange rate fluctuation against a dollar
as of December 31, 2018, a 1% increase or decrease in the value of the NIS would increase or decrease our
income before income taxes by approximately $0.7 million.

We actively monitor the movement of the U.S. dollar against the NIS, Pound Sterling, Euro, Australian

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; and the functional currency of our operations in Japan is the Japanese Yen.

Collection Risk

Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly
assess these risks and have established policies and business practices to protect against the adverse effects
of collection risks. During 2020, we increased our allowance for doubtful accounts from $3.1 million to
approximately $5.3 million. During 2019, we increased our allowance for doubtful accounts by approximately
$2.3 million to approximately $3.1 million. 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.

84

Item 8. Consolidated Financial Statements and Supplementary Data

INDEX

Report of BDO USA, LLP, An Independent Registered Public Accounting Firm . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

86
89

Consolidated Statements of Operations for each of the years ended December 31, 2020, 2019 and

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90

Consolidated Statements of Comprehensive Loss for each of the years ended December 31, 2020,

2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

91

Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, 2020,

2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

92

Consolidated Statements of Cash Flows for each of the years ended December 31, 2020, 2019 and

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93

95

85

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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2020, 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, 2020, 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 8, 2021 expressed an unqualified opinion thereon.

Change in Accounting Principle

On January 1, 2019, the Company changed its method of accounting for leases due to the adoption of
Accounting Standards Codification Topic 842, Leases. The effects of the adoption are described in Note 1
to the consolidated financial statements.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the

consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (i) relate to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.

86

Revenue Contracts with Multiple Performance Obligations

As described in Note 1 to the consolidated financial statements, certain of the Company’s revenue
contracts contain multiple performance obligations primarily relating to the sale of hosted subscription
and professional services. For these revenue contracts, the Company accounts for the individual performance
obligations separately if they are distinct. The transaction price is allocated to the performance obligations
based on their relative standalone selling prices. The Company determines the standalone selling prices
based on its overall pricing objectives, taking into consideration market conditions and other factors,
including the value of its contracts, the cloud applications sold, and the number and types of users within
its contracts.

We identified revenue recognition related to contracts that contain multiple performance obligations as

a critical audit matter. The determination of whether multiple services within a contract are distinct
performance obligations that should be accounted for separately and the estimates of the standalone selling
price for each distinct performance obligation require management to exercise significant judgment that
includes a high degree of subjectivity. Auditing these elements involved especially challenging auditor judgment
due to the nature and extent of audit effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of certain controls relating to management’s

determination of standalone selling prices for each of the performance obligations.

• Evaluating management’s technical accounting positions and assessing the reasonableness of

management’s judgments and assumptions in the determination of whether the products and services
are distinct performance obligations and the determination of the standalone selling prices for each
of the performance obligations.

• Testing the reasonableness of the identification of distinct performance obligations and determination

of the standalone selling prices through review of a sample of revenue contracts.

Convertible Senior Notes

As described in Note 7 to the consolidated financial statements, the Company issued $517.5 million
aggregate principal amount of 0% Convertible Senior Notes (the “2026 Notes”) in a private placement in
2020. In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability
and equity components. The carrying amount of the liability component was calculated by measuring the
fair value of a similar debt instrument that does not have an associated convertible feature. The carrying
amount of the equity component representing the conversion option was determined by deducting the fair
value of the liability component from the par value of the 2026 Notes.

We identified the accounting evaluation, including the related fair value determinations, of the 2026

Notes as a critical audit matter. The principal considerations for our determination were: (i) the evaluation
of the potential derivatives that needed to be bifurcated, and (ii) considerations related to determination of
the fair value of the 2026 Notes and the conversion option including complex valuation models and
assumptions utilized by management. Auditing these elements involved especially challenging auditor
judgment due to the nature and extent of audit effort required to address these matters, including the extent
of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Utilizing personnel with specialized knowledge and skill in technical accounting to assist in:

(i) evaluating the relevant terms and conditions of the 2026 Notes’ agreements, and (ii) assessing the
appropriateness of conclusions reached by the Company with respect to the accounting for the 2026
Notes and identification, assessment and accounting for potential derivatives.

87

• Utilizing personnel with specialized knowledge and skill in valuation to assist in assessing the

appropriateness of the valuation models utilized by management to determine the fair value of the
2026 Notes and assessing the reasonableness of assumptions incorporated into the valuation models.

/s/ BDO USA, LLP

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

New York, New York
March 8, 2021

88

December 31,

2020

2019

$ 654,152

$ 176,523

80,423
14,236
748,811
614
106,055
41,021
10,927
95,192
2,032
1,780
$1,006,432

87,620
13,964
278,107
15,680
76,236
31,965
11,812
94,987
2,179
1,744
$ 512,710

$ 12,302
62,778
88,751
6,602
170,433
438
179,012
72
12,865
1,355
364,175

LIVEPERSON, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $5,344 and

$3,070, in 2020 and 2019, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior notes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability, net of current portion . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

14,115
99,870
88,848
5,718
208,551
409
538,432
6,304
7,180
1,622
762,498

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

Preferred stock, $0.001 par value – 5,000,000 shares authorized, none issued . .
Common stock, $0.001 par value – 200,000,000 and 200,000,000 shares

authorized, 70,264,265 and 66,543,073 shares issued, and 67,554,435 and
63,833,243 shares outstanding as of December 31, 2020 and 2019,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost; 2,709,830 shares . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit
. . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

70
635,672
(3)
(391,885)
80
243,934
$1,006,432

67
436,557
(3)
(283,562)
(4,524)
148,535
$ 512,710

See notes to consolidated financial statements.
89

LIVEPERSON, INC.

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

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

Year Ended December 31,

2020
366,620 $

2019
291,609 $

2018
249,838

Cost of revenue (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . .
Product development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .

106,268
149,773
60,557
108,414
29,420
1,639
456,071
(89,451)

78,878
156,814
56,967
82,145
2,043
1,794
378,641
(87,032)

Other (expense) income, net

Interest (expense) income . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income, net . . . . . . . . . . . . . . . . . . . . . . .
Total Other (expense) income, net . . . . . . . . . . . . . . . . . . . . . .
Loss before provision for income taxes
. . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (107,594) $

(14,334)
(1,343)
(15,677)
(105,128)
2,466

(7,407)
1,213
(6,194)
(93,226)
2,845
(96,071) $

62,479
103,344
45,873
55,707
4,468
1,670
273,541
(23,703)

22
(493)
(471)
(24,174)
858
(25,032)

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

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

(1.63) $

(1.63) $

(1.53) $

(1.53) $

(0.42)

(0.42)

Weighted-average shares used to compute net loss income per

share:

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

65,888,450

62,593,026

59,203,400

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

65,888,450

62,593,026

59,203,400

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

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

(2) Amounts include depreciation and amortization expense, as follows:

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

(3) Amounts include amortization of purchased intangibles and finance

leases, as follows:

$ 6,511
16,106
15,772
27,557

$10,082
2,268
239
10,237

$ 4,218
10,010
12,216
17,661

$ 8,557
1,642
908
5,259

$ 996
5,374
4,921
3,550

$7,831
1,520
1,083
3,754

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

$ 1,913

$ 1,138

$1,143

See notes to consolidated financial statements.
90

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)

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

$(107,594) $(96,071) $(25,032)

Foreign currency translation adjustment

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

4,604

(93)

(1,896)

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

$(102,990) $(96,164) $(26,928)

Year Ended December 31,

2020

2019

2018

See notes to consolidated financial statements.
91

LIVEPERSON, INC.

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

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

Common stock issued upon exercise of stock

Common Stock
Shares

Amount
60

Treasury Stock
Shares
(2,587,535)

Amount
(3)

Additional
Paid-in
Capital
305,676

Accumulated
Deficit
(163,135)

Accumulated
Other
Comprehensive
Loss
(2,535)

options . . . . . . . . . . . . . . . . . . . . . . . . .

3,120,404

3

— —

32,788

Total
140,063

32,791

1
14,841

2,480
(1,345)
676

8,150
(25,032)
(1,896)
170,729

16,918

1,000
25,083

4,142
(903)
52,900

—

—
—

—
—
676

—

—
—

—
—
—

—

—
—

—
—
—

—

—
—

—
—
—

Balance at December 31, 2018 . . . . . . . . . . . . . . 63,676,229

Common stock issued upon exercise of stock

options . . . . . . . . . . . . . . . . . . . . . . . . .

1,523,018

2

— —

16,916

379,328 —
— —
— —
64

— —
— —
— —
(3)

(2,681,285)

8,150

—
— (25,032)
—
—
(187,491)
362,590

—
—
(1,896)
(4,431)

Common stock issued upon vesting of restricted

stock units . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . .
Common stock issued under Employee Stock

Purchase Plan . . . . . . . . . . . . . . . . . . . . .
Common stock repurchase . . . . . . . . . . . . . .
ASC 606 prior period adjustment . . . . . . . . . .
Issuance of common stock in connection with

acquisitions . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . .

Common stock issued upon vesting of restricted

stock units . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . .
Common stock issued under Employee Stock

Purchase Plan . . . . . . . . . . . . . . . . . . . . .
Common stock repurchase . . . . . . . . . . . . . .
Equity component of convertible senior notes . .
Equity component of convertible senior notes

issuance costs . . . . . . . . . . . . . . . . . . . . .
Purchase of capped call option . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . .

361,539

1
— —

150,989 —
— —
— —

— —
— —

—
14,841

— —
(93,750) —
— —

2,480
(1,345)
—

1,197,576

1
— —

— —
— —

999
25,083

146,250 —
— —
— —

— —
(28,545) —
— —

4,142
(903)
52,900

— —
— —
— —
— —
$67

— —
— —
— —
— —
(2,709,830) $ (3)

(1,986)
(23,184)

—
—
— (96,071)
—
—
$436,557 $(283,562)

—
—
—
(93)
$(4,524)

(1,986)
(23,184)
(96,071)
(93)
$ 148,535

Balance at December 31, 2019 . . . . . . . . . . . . . . 66,543,073

Common stock issued upon exercise of stock

options . . . . . . . . . . . . . . . . . . . . . . . . .

1,683,315

Common stock issued upon vesting of restricted

stock units . . . . . . . . . . . . . . . . . . . . . . .

915,827

1

1

— —

21,353

— —

—

Common stock as earnout payment in
connection with AdvantageTec Inc.

. . . . . . .
Stock-based compensation . . . . . . . . . . . . . .
Bonus cash payment settled in shares of the

11,508 —
— —

— —
— —

293
36,132

Company’s common stock . . . . . . . . . . . . .

991,905

1

— —

24,656

ASU 2016-13 (Topic 326) Adjustment

—

—

—
—

—

(See note 1). . . . . . . . . . . . . . . . . . . . . . .

— —

— —

—

(729)

Common stock issued under Employee Stock

Purchase Plan . . . . . . . . . . . . . . . . . . . . .
Equity component of convertible senior notes . .
Equity component of convertible senior notes

issuance costs . . . . . . . . . . . . . . . . . . . . .
Purchase of capped call option . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . .

Balance at December 31, 2020 . . . . . . . . . . . . . . 70,264,265

118,637 —
— —

4,002
— —
— — 162,534

—
—

— —
— —
— —
— —
$70

— —
— —
— —
— —
(2,709,830) $ (3)

(3,797)
(46,058)

—
—
— (107,594)
—
—
$635,672 $(391,885)

—
—
—
4,604
80

$

—

—

—
—

—

—

—
—

21,354

1

293
36,132

24,657

(729)

4,002
162,534

(3,797)
(46,058)
(107,594)
4,604
$ 243,934

See notes to consolidated financial statements.
92

LIVEPERSON, INC.

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

OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(107,594) $ (96,071) $(25,032)

Year Ended December 31,

2020

2019

2018

Adjustments to reconcile net loss to net cash provided by (used in)

operating activities:

Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal
Amortization of tenant allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of purchased intangibles and finance leases . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion of debt discount on convertible senior notes . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . .
Contract acquisition costs noncurrent . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in net operating lease asset and liability . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . . . . .

65,946
22,826
5,147
—
3,552
1,340
11,564
(263)
3,211
579

6,371
23
(6,463)
(37)
(733)
22,931
(3,118)
8,276
—
47
33,605

44,105
16,366
—
(516)
2,932
956
7,605
(328)
2,159
(1,207)

(43,757)
(4,712)
(13,718)
(30)
3,808
(10,882)
33,953
388
—
(209)
(59,158)

14,841
14,188
—
(326)
2,813
—
—
—
1,788
(309)

(9,662)
(12,993)
(1,635)
(107)
2,199
(205)
19,005
—
—
214
4,779

INVESTING ACTIVITIES:

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

(41,641)
(1,835)
—
(43,476)

(47,582)
(924)

(21,938)
(7,286)
— 1,451
(27,773)

(48,506)

FINANCING ACTIVITIES:

Principal payments for financing leases
. . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock in connection with the

exercise of options and ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of convertible senior notes . . . . . . . . . . . . . . .
Payment of issuance costs in connection with convertible senior notes . .
Payment related to contingent consideration . . . . . . . . . . . . . . . . . . . .
Purchase of capped call option . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . .

(1,154)
—

—
(903)

—
(1,345)

25,355
517,500
(11,800)
—
(46,058)
483,843

21,060
230,000
(8,635)
(487)
(23,184)
217,851

35,271
—
—
—
—
33,926

See notes to consolidated financial statements.
93

— $ 21,588 $ —
— $ —

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

Year Ended December 31,

2020

2019

2018

(598)
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,334
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS – Beginning of the year
56,115
. . . . . . . .
CASH AND CASH EQUIVALENTS – End of the year . . . . . . . . . . . . . $654,152 $176,523 $66,449

(113)
110,074
66,449

3,657
477,629
176,523

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW

INFORMATION:
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,651 $
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,931 $

3,304 $ 5,144
848 $ —

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND

FINANCING ACTIVITIES:
Purchase of property and equipment recorded in accounts payable . . . . $ 1,638 $
— $
Leasehold improvements funded by landlord . . . . . . . . . . . . . . . . . . . $
Right of use assets obtained in exchange for operating lease

1,198 $

190
— $ 1,551

liabilities(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Right of use assets obtained in exchange for finance lease liabilities . . . . $ 10,818 $
Issuance of 38,462 shares of common stock in connection with the

Conversable transaction on December 13, 2019 . . . . . . . . . . . . . . . . $

— $ 1,000 $ —

Issuance of 85,861 shares of common stock in connection with the

BotCentral transaction on January 24, 2018 . . . . . . . . . . . . . . . . . . $

— $

— $ 1,000

Issuance of 115,385 shares of common stock in connection with the

Conversable transaction on September 27, 2018 . . . . . . . . . . . . . . . . $

— $

— $ 2,850

Issuance of 178,082 shares of common stock in connection with the

AdvantageTec transaction on October 11, 2018 . . . . . . . . . . . . . . . . $

— $

— $ 4,300

Fair value of contingent earn-out in connection with the acquisition of

Conversable recorded in accrued expenses . . . . . . . . . . . . . . . . . . . . $

— $

— $ 1,496

Fair value of contingent earn-out in connection with the acquisition of

AdvantageTec recorded in accrued expenses . . . . . . . . . . . . . . . . . . $

— $

— $

876

Issuance of 11,508 shares of common stock as earn-out payment in

connection with AdvantageTec Inc.

293 $
Issuance of 991,905 shares of common stock to settle cash awards . . . . $ 24,657 $

. . . . . . . . . . . . . . . . . . . . . . . . $

— $ —
— $ —

(1)

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

See notes to consolidated financial statements.
94

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

LivePerson was incorporated in the State of Delaware in November 1995 and the LivePerson service
was introduced in November 1998. In April 2000, the company completed an initial public offering and is
currently traded on the NASDAQ Global Select Market and the Tel Aviv Stock Exchange. LivePerson is
headquartered in New York City. In light of the COVID-19 pandemic and the company’s strong performance
working remotely, LivePerson has adopted an “employee-centric” workforce model that does not rely on
traditional offices.

LivePerson, Inc. (“LivePerson”, the “Company”, “we” or “our”) makes life easier for people and
brands everywhere through trusted Conversational AI. Conversational AI allows humans and machines to
interact using natural language, including speech or text. During the past decade, consumers have made
mobile devices the center of their digital lives, and they have made mobile messaging the center of
communication with friends, family and peers. This trend has been significantly accelerated by the COVID-19
pandemic and can now be viewed as a permanent, structural shift in consumer behavior. Our technology
enables consumers to connect with businesses through these same preferred conversational interfaces,
including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger
and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to
power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery
and research, to sales, service and support, and increasingly marketing, social, and brick and mortar
engagements. For example, consumers can look up product info like ratings, images and pricing, search for
stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or
payments — all without ever leaving the messaging channel. These AI and human-assisted conversational
experiences constitute the Conversational Space, within which LivePerson has strategically developed one of
the industry’s largest ecosystems of messaging endpoints and use cases.

The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to become

conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of
customers and many thousands of agents. The Conversational Cloud powers conversations across each of a
brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, short message
service (SMS), social media and third-party consumer messaging platforms. Brands can also use the
Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to
navigate interactive voice response systems (IVRs) and wait on hold. Similarly, the Conversational Cloud
can ingest traditional emails and convert them into messaging conversations, or embed messaging
conversations directly into web advertisements, rather than redirect consumers to static website landing
pages. Agents can manage all conversations with consumers through a single console interface, regardless of
where the conversations originated.

LivePerson’s robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings

features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection
and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment
Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. An extensible
application programming interface (API) stack facilitates a lower cost of ownership by facilitating robust
integration into back-end systems, as well as enabling developers to build their own programs and services
on top of the platform. More than 40 APIs and software development kits are available on the Conversational
Cloud.

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

95

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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.

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.

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, 2020 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 2020, 2019 and 2018 No single
customer accounted for or exceeded 10% of the Company’s total accounts receivable in 2020 and 2018.
Two customers exceeded 10% of the Company’s total accounts receivable in 2019.

Foreign Currency Translation

The Company’s operations are conducted in various countries around the world and the financial
statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies).
Financial information is translated from the applicable functional currency to the U.S. dollar (the reporting
currency) for inclusion in the Company’s consolidated financial statements. Income, expenses and cash
flows are translated at weighted average exchange rates prevailing during the fiscal period, and assets and
liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as

96

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

a component of accumulated other comprehensive income (loss) in stockholders’ equity. Foreign exchange
transaction gain or losses are included in Other Income (Expense), net in the accompanying consolidated
statements of operations.

Cash and Cash Equivalents

The Company considers all highly liquid securities with original maturities of three 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
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

ASU 2016-13
(Topic 326)
Adjustment

2018 . . . . . . . . . . . . . . . . . . . . . . . . .

$1,318

$1,788

$ (830)

2019 . . . . . . . . . . . . . . . . . . . . . . . . .

$2,276

$2,159

$(1,365)

2020 . . . . . . . . . . . . . . . . . . . . . . . . .

$3,070

$3,211

$(1,666)

$ —

$ —

$729

Ending
Balance

$2,276

$3,070

$5,344

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation, and amortization.

Depreciation and amortization 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
amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the
asset. Depreciation expense, which includes amortization of internal use software totaled $22.8 million,
$16.4 million, and $14.2 million for the years ended December 31, 2020, 2019 and 2018, 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 five 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 $33.9 million, $29.1 million, and $11.7 million

for the years ended December 31, 2020, 2019 and 2018, respectively.

97

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill and Intangible Assets

Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable

assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least
annually or whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. The Company has determined that it operates as two reporting units and has selected
September 30 as the date to perform its annual impairment test. In the valuation of goodwill, management
must make assumptions regarding estimated future cash flows to be derived from the Company’s business. If
these estimates or their related assumptions change in the future, the Company may be required to record
impairment for these assets.

The Company has the option to first perform a qualitative assessment to determine if it is more likely

than not that the fair value of a reporting unit is less than its carrying amount. However, the Company may
elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The
impairment test involves comparing the fair value of the reporting unit to its carrying value, including
goodwill. A goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its
fair value. The impairment is limited to the carrying amount of goodwill.

No goodwill impairment charges have been recorded for any period presented.

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to
their estimated residual values, and reviewed for impairment in accordance with ASC 360-10-35, “Accounting
for Impairment or Disposal of Long-Lived Assets.”

Acquired intangible assets consist of identifiable intangible assets, primarily developed technology and

customer relationships, resulting from our acquisitions. Intangible assets are recorded at fair value on the
date of acquisition.

Business Combinations

Business combinations are accounted for using the acquisition method and accordingly, the assets
acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in
the acquired business are recorded at their acquisition date fair values. The Company’s acquisition model
typically provides for an initial payment at closing and for future additional contingent purchase price
obligations. Contingent purchase price obligations are recorded as deferred acquisition consideration on the
balance sheet at the acquisition date fair value and are remeasured at each reporting period. Changes in
such estimated values are recorded in the results of operations. For further information, see Note 8 of the
Notes to the Consolidated Financial Statements included herein.

For each acquisition, the Company undertakes a detailed review to identify other intangible assets and

a valuation is performed for all such identified assets. The Company uses several market participant
measurements to determine estimated value. This approach includes consideration of similar and recent
transactions, as well as utilizing discounted expected cash flow methodologies. A substantial portion of the
intangible asset value that the Company acquires is the specialized know-how of the workforce, which is
treated as part of goodwill and is not required to be valued separately. The majority of the value of the
identifiable intangible assets acquired is derived from customer relationships, including the related customer
contracts, as well as trade names. In executing the Company’s overall acquisition strategy, one of the
primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand
the existing client relationships. The expected benefits of the Company’s acquisitions are typically shared
across multiple agencies and regions.

Impairment of Long-Lived Assets

The carrying amounts of our long-lived assets, including property and equipment, lease right-of-use

assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets,

98

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of
these assets may not be recoverable or that the useful lives are shorter than originally estimated.
Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to
future undiscounted net cash flows the asset is expected to generate over its remaining life. If the asset is
considered to be impaired, the amount of any impairment is measured as the difference between the
carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated,
we amortize the remaining carrying value over the new shorter useful life. There was a loss on disposal of
approximately $5.1 million in September 2020. The Company recognized accelerated depreciation of fixed
assets that were determined to no longer be of future economic benefit to the Company based on the decision
to vacate the leased office space. Please refer to Note 14 for additional information regarding this shift to
an employee-centric working model.

Revenue Recognition

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

The Company determines revenue recognition through the following steps:

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the contract;

• Determination of the transaction price;

• Allocation of the transaction price to the performance obligations in the contract; and

• Recognition of revenue when, or as, the Company satisfies a performance obligation.

Total revenue of $366.6 million, $291.6 million, and $249.8 million was recognized during the years

ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

The Company has made the following accounting policy election and elected to use a practical
expedient specific to certain revenue streams, as permitted by the FASB, in applying Topic 606. The
Company utilizes the right-to-invoice practical expedient with regard to the recognition of revenue upon the
invoicing of certain revenue streams, as revenue for those streams are billed monthly.

Under Topic 606, the Company defers all incremental commission costs (“contract acquisition costs”)
to obtain the contract. The contract acquisition costs, which are comprised of prepaid sales commissions,
have balances at December 31, 2020 and 2019 of $41.0 million and $32.0 million, respectively. The Company
amortizes these costs over the related period of benefit using the customer expected life that the Company
determined to be three to five years which is consistent with the transfer to the customer of the services to
which the asset relates. The Company classifies contract acquisition costs as long-term unless they have
an original amortization period of one year or less.

Hosted Services — Business Revenue

Hosted Services Business revenue is reported at the amount that reflects the ultimate consideration

expected to be received and primarily consist of fees that provide customers access to the Conversational
Cloud, the Company’s enterprise-class, cloud-based platform. The Company has determined such access
represents a stand-ready service provided continually throughout the contract term. As such, control and
satisfaction of this stand-ready performance obligation is deemed to occur over time. The Company recognizes
this revenue over time on a ratable basis over the contract term, beginning on the date that access to the

99

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the
most faithful depiction of the transfer of control of the services as the customer simultaneously receives and
consumes the benefit provided by the Company’s performance. Subscription contracts are generally one
year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable
consideration related to these arrangements. Additionally, for certain of the Company’s larger customers, the
Company may provide call center labor through an arrangement with one or more of several qualified
vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its
fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the
Company’s online engagement solutions. For these Gainshare (formerly “Pay for Performance”)
arrangements in accordance with ASC-606, “Principal Agent Considerations”, the Company acts as a
principal in a transaction if it controls the specified goods or services before they are transferred to the
customer.

Professional Services Revenues

Professional services revenue primarily consists of fees for deployment and optimization services, as

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

Remaining Performance Obligation

As of December 31, 2020, the aggregate amount of the total transaction price allocated in contracts
with original duration of greater than one year to the remaining performance obligations was $285.7 million.
Approximately 90% of the Company’s remaining performance obligations is expected to be recognized
during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied
performance obligations represents contracted revenue that has not yet been recognized, and does not include
contract amounts that are cancellable by the customer, amounts associated with optional renewal periods,
and any amounts related to performance obligations, which are billed and recognized as they are delivered.
The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining
performance obligations that are part of contracts with an original expected duration of one year or less.
Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligation
pursuant to ASC 606.

Contracts with Multiple Performance Obligations

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

100

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Hosted Services — Consumer Revenue

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

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its
performance. The decrease in the deferred revenue balance for the year ended December 31, 2020 is primarily
driven by satisfying our performance obligations and the revenue recognized of approximately $103.2 million
that were included in the deferred revenue balance as of December 31, 2019.

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

December 31,

2020

2019

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

$86,144
835
1,869

$82,892
687
5,172

Total deferred revenue – short term . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$88,848

$88,751

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

$ — $ —
438

409

Total deferred revenue – long term . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

409

$

438

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source (amounts in

thousands):

Revenue:

December 31,

2020

2019

2018

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

$286,588
29,764
50,268

$225,705
24,480
41,424

$197,474
19,553
32,811

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

$366,620

$291,609

$249,838

Revenue by Geographic Location

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):

101

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

December 31,

2020

2019

2018

$230,557

$170,815

$146,702

13,420

11,462

7,315

243,977

182,277

154,017

83,326
39,317

78,301
31,031

71,318
24,503

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

$366,620

$291,609

$249,838

(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 $53.4 million, $50.4 million, and $46.5 million for
the years ended December 31, 2020, 2019, and 2018, respectively. and from the Netherlands of
$3.2 million, $10.0 million, and $8.7 million for the years ended December 31, 2020, 2019, and 2018,
respectively.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly

all of the Company’s deferred revenue balance is related to Hosted Services — Business Revenue.

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

Accounts
Receivable(1)

Unbilled
Receivable(1)

Opening Balance as of December 31, 2019 . .
Increase (decrease), net . . . . . . . . . . . . .

$70,318
(8,517)

Ending Balance as of December 31, 2020 . .

$61,801

$17,302
1,320

$18,622

Contract
Acquisition
Costs
(noncurrent)

$31,965
9,056

Deferred
Revenue
(current)

$88,751
97

$41,021

$88,848

Deferred
Revenue
(long term)

$438
(29)

$409

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

(Topic 326).

Advertising

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
$29.1 million, $28.6 million, and $17.4 million for the years ended December 31, 2020, 2019 and 2018,
respectively.

102

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 three to 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.

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. In evaluating our ability to recover our
deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative
evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-
planning strategies, and results of recent operations. 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. 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 August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06,
“Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity’s Own Equity”, which simplifies the accounting for convertible instruments by eliminating
existing accounting models that require separation of a cash conversion or beneficial conversion feature from

103

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

the host contract. Accordingly, a convertible debt instrument will be accounted as a single liability measured
at its amortized cost and a convertible preferred stock will be accounted as a single equity instrument
measured at its historical cost, as long as no other embedded features require bifurcation as derivatives and
the convertible debt was not issued at a substantial premium. The ASU also simplifies the derivative scope
exception for accounting for contracts in an entity’s own equity by:

• removing certain conditions required to meet the settlement criterion

• clarifying that Instruments that are not indexed to the issuer’s own stock must be remeasured at fair

value through earnings at each reporting period; and

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

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

For SEC filers, excluding smaller reporting companies, the ASU is effective for fiscal years beginning

after December 15, 2021, including interim periods within those fiscal years. The ASU specifies that the
guidance should be adopted as of the beginning of the annual fiscal year. The Company is assessing and
evaluating the impact ASU 2020-06 will have on its consolidated financial statements.

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

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update ASU 2016-13, “Financial Instruments —

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

In January 2017, the FASB issued Accounting Standards Update ASU 2017-04, “Simplifying the Test

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

104

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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, 2020 does not include the effect of
options to purchase 7,283,938 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted
net loss per common share for the year ended December 31, 2019 does not include the effect of options to
purchase 8,848,907 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted net loss per
common share for the year ended December 31, 2018 does not include the effect of options to purchase
8,957,672 shares of common stock as the effect of their inclusion is anti-dilutive.

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

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

65,888,450

62,593,026

59,203,400

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

—

—

—

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

65,888,450

62,593,026

59,203,400

Year Ended December 31,

2020

2019

2018

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 enables brands to leverage the Conversational Cloud
sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online
business messaging technologies. The Consumer segment facilitates online transactions between independent
service providers (“Experts”) and individual consumers (“Users”) seeking information and knowledge for
a fee via mobile and online messaging. Both segments currently generate their revenue primarily in the

105

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Segment Information — (Continued)

United States. The chief operating decision maker, who is the chief executive officer, evaluates performance,
makes operating decisions, and allocates resources based on the operating income of each segment. The
reporting segments follow the same accounting polices used in the preparation of the Company’s consolidated
financial statements which are described in the summary of significant accounting policies. The Company
allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but
it does not allocate product development expenses, general and administrative expenses, restructuring costs
and income tax expense because management does not use this information to measure performance of the
operating segments. There are currently no inter-segment sales.

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

Business

Consumer

Corporate

Consolidated

Revenue:

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

$286,588

$ — $

— 29,764
—

50,268

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

336,856

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

99,394
128,752
1,639
—

29,764

6,874
21,021
—
—

— $286,588
29,764
—
50,268
—

— 366,620

— 106,268
— 149,773
1,639
—
198,391
198,391

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

$107,071

$ 1,869

$(198,391)

$ (89,451)

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

Business

Consumer

Corporate

Consolidated

Revenue:

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

$225,705

$ — $

— 24,480
—

41,424

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

267,129

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

74,460
140,880
1,794
—

24,480

4,418
15,934
—
—

— $225,705
24,480
—
41,424
—

— 291,609

—
78,878
— 156,814
1,794
—
141,155
141,155

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

$ 49,995

$ 4,128

$(141,155)

$ (87,032)

Summarized financial information by segment for the year ended December 31, 2018, based on the
Company’s internal financial reporting system utilized by the Company’s chief operating decision maker,
follows (amounts in thousands):

106

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Segment Information — (Continued)

Revenue:

Business

Consumer

Corporate

Consolidated

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

$197,474

$ — $

— $197,474

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

— 19,553

Professional services – Business . . . . . . . . . . . . . . . . . .

32,811

—

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

230,285

19,553

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

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

Amortization of purchased intangibles . . . . . . . . . . . . . .

Unallocated corporate expenses . . . . . . . . . . . . . . . . . . .

58,420

94,339

1,670

—

4,059

9,005

—

—

—

—

19,553

32,811

— 249,838

—

62,479

— 103,344

—

1,670

106,048

106,048

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

$ 75,856

$ 6,489

$(106,048)

$ (23,703)

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 long-lived assets by geographic region for the periods presented
(amounts in thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Israel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2020

2019

$202,275
16,657
13,792
8,301

$177,776
16,680
13,765
7,705

16,596

18,677

$257,621

$234,603

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

4. Property and Equipment

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

in thousands):

December 31,

2020

2019

Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, equipment and building improvements . . . . . . . . . . . . . . . . . .
Internal-use software development costs . . . . . . . . . . . . . . . . . . . . . . . .

$107,666
—
86,454

$ 92,493
16,487
52,544

Finance lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,045

—

Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . .

(98,110)

(85,288)

Total

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

$106,055

$ 76,236

204,165

161,524

107

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Property and Equipment — (Continued)

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an
ongoing basis. As of December 31, 2020 and 2019, there was approximately $30.5 million, and $25.3 million,
respectively, of internal-use software development costs related to projects currently still in development,
which are, therefore, not yet subject to amortization. Aggregate depreciation and amortization expense for
property and equipment was $22.8 million, $16.4 million and $14.2 million for the years ended December 31,
2020, 2019, and 2018, respectively.

5. Goodwill and Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the year ended December 31, 2020 are as follows

(amounts in thousands):

Balance as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . .

$86,963

$8,024

$94,987

Business

Consumer

Total

Adjustments to goodwill:

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

205

—

205

Balance as of December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . .

$87,168

$8,024

$95,192

The changes in the carrying amount of goodwill for the year ended December 31, 2019 are as follows

(amounts in thousands):

Balance as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . .

$87,007

$8,024

$95,031

Business

Consumer

Total

Adjustments to goodwill:

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

—
(44)

—
—

—
(44)

Balance as of December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . .

$86,963

$8,024

$94,987

The total accumulated goodwill impairment charges are $23.5 million through December 31, 2020. No

impairment was recognized for the years ended December 31, 2020, 2019, and 2018.

Intangible Assets

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

December 31, 2020

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Amortizing intangible assets:

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$30,499

$(26,818)

$ 3,681

Customer relationships . . . . . . . . . . . . . . . . . . . . . .

16,981

(13,982)

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,076

314

(908)

(235)

2,999

4,168

79

Total

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

$52,870

$(41,943)

$10,927

108

Weighted
Average
Amortization
Period

5.4 years

8.4 years

12.5 years

2.2 years

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Goodwill and Intangible Assets — (Continued)

December 31, 2019

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Amortizing intangible assets:

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$30,413

$(25,187)

$ 5,226

Customer relationships . . . . . . . . . . . . . . . . . . . . . .

16,964

(12,958)

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,267

262

(714)

(235)

4,006

2,553

27

Total

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

$50,906

$(39,094)

$11,812

Weighted
Average
Amortization
Period

5.3 years

8.4 years

12.8 years

2.7 years

Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization

expense for intangible assets was $2.8 million, $2.9 million and $2.8 million for the years ended December 31,
2020, 2019 and 2018, respectively. For the years ended December 31, 2020, 2019 and 2018, a portion of
this amortization is included in cost of revenue. Estimated amortization expense for the next five years is as
follows (amounts in thousands):

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated
Amortization
Expense

$ 2,611
2,240
959
756
334
4,027

Total

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

$10,927

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):

Payroll and other employee related costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional services, consulting and other vendor fees . . . . . . . . . . . . . . . .
Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent earn-out (Note 8)

Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,

2020

2019

$39,820
38,796
2,039
6,988
—

4,732

2,954

4,541

$27,920
20,382
2,053
9,654
557

314

—

1,898

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$99,870

$62,778

109

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Convertible Senior Notes and Capped Call Transactions

March 2019 Convertible Senior Notes

In March 2019, the Company issued $230.0 million aggregate principal amount of 0.750% Convertible

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

The 2024 Notes will mature on March 1, 2024, unless earlier repurchased or redeemed by the Company

or converted pursuant to their terms. The total net proceeds from the debt offering, after deducting debt
issuance costs, paid or payable by us, was approximately $221.4 million.

Each $1,000 principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the

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

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

It is the Company’s current intent to settle the principal amount of its outstanding 2024 Notes in cash

and any excess in shares of the Company’s common stock.

During the year ended December 31, 2020, the conditions allowing holders of the 2024 Notes to
convert were met, and, thus, holders of the 2024 Notes maintain the option to convert their 2024 Notes. No
2024 Notes were converted during the year ended December 31, 2020. The Company continues to classify
the 2024 Notes as a long-term liability in its consolidated balance sheet as at December 31, 2020, based on
contractual settlement provisions.

110

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Convertible Senior Notes and Capped Call Transactions — (Continued)

The 2024 Notes are senior unsecured obligations and will rank senior in right of payment to any of the
Company’s indebtedness that is expressly subordinated in right of payment to the 2024 Notes; equal in right
of payment with the Company’s existing and future liabilities that are not so subordinated; effectively
subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing
such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables)
of current or future subsidiaries of the Company.

In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability

and equity components. The carrying amount of the liability component was calculated by measuring the
fair value of a similar debt instrument that does not have an associated convertible feature. The carrying
amount of the equity component representing the conversion option was $52.9 million and was determined
by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity
component is not remeasured as long as it continues to meet the conditions for equity classification. The
excess of the principal amount of the liability component over its carrying amount, or the debt discount, is
amortized to interest expense at an effective interest rate over the contractual terms of the 2024 Notes.

In accounting for the transaction costs related to the 2024 Notes, the Company allocated the total amount

incurred of approximately $8.6 million to the liability and equity components of the 2024 Notes based on
the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the
liability component were approximately $6.6 million, were recorded as an additional debt discount and are
amortized to interest expense using the effective interest method over the contractual terms of the 2024 Notes.
Issuance costs attributable to the equity component were approximately $2.0 million and recorded as a
reduction of additional paid in capital in stockholders’ equity.

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

The remaining term over which the March 2019 Convertible Senior Notes debt discount and debt
issuance costs will be amortized is 3.2 years. The effective interest rate on the debt was 4.66% for the year
ended December 31 2020.

December 2020 Convertible Senior Notes

In December 2020, the Company issued $517.5 million aggregate principal amount of 0% Convertible

Senior Notes due 2026 in a private placement, which amount includes $67.5 million aggregate principal
amount of such Notes pursuant to the exercise in full of the over-allotment options of the initial purchasers
(collectively, the “2026 Notes”, and, together with the 2024 Notes, the “Notes”).

111

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Convertible Senior Notes and Capped Call Transactions — (Continued)

The 2026 Notes will mature on December 15, 2026, unless earlier repurchased or redeemed by the

Company or converted pursuant to their terms. The total net proceeds from the debt offering, after
deducting debt issuance costs, paid or payable by us, was approximately $505.3 million.

Each $1,000 principal amount of the 2026 Notes is initially convertible into 13.2933 shares of the

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

Holders of the 2026 Notes may convert their 2026 Notes at their option at any time prior to the close

of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal
amount, only under the following circumstances: (1) during any calendar quarter commencing after the
calendar quarter ending on March 31 2021 (and only during such calendar quarter), if the last reported sale
price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2026 Notes on each
applicable trading day as determined by the Company; (2) during the five business day period after any
five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in
the indenture governing the 2026 Notes) per $1,000 principal amount of 2026 Notes for each trading day of
the measurement period was less than 98% of the product of the last reported sale price of the Company’s
common stock and the conversion rate for the 2026 Notes on each such trading day; or (3) upon the occurrence
of specified corporate events. On or after August 15, 2026, holders may convert all or any portion of their
2026 Notes at any time prior to the close of business on the second scheduled trading day immediately
preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will
pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares
of its common stock, at the Company’s election.

It is the Company’s current intent to settle the principal amount of its outstanding 2026 Notes in cash

and any excess in shares of the Company’s common stock.

As of December 31, 2020, the conditions allowing holders of the 2026 Notes to convert were not met.

The 2026 Notes are senior unsecured obligations and will rank senior in right of payment to any of the
Company’s indebtedness that is expressly subordinated in right of payment to the 2026 Notes; equal in right
of payment with the Company’s existing and future liabilities that are not so subordinated; effectively
subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing
such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables)
of current or future subsidiaries of the Company.

In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability

and equity components. The carrying amount of the liability component was calculated by measuring the
fair value of a similar debt instrument that does not have an associated convertible feature. The carrying
amount of the equity component representing the conversion option was $162.5 million and was determined
by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity
component is not remeasured as long as it continues to meet the conditions for equity classification. The

112

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Convertible Senior Notes and Capped Call Transactions — (Continued)

excess of the principal amount of the liability component over its carrying amount, or the debt discount, is
amortized to interest expense at an effective interest rate over the contractual terms of the 2026 Notes.

In accounting for the transaction costs related to the 2026 Notes, the Company allocated the total amount

incurred of approximately $12.2 million to the liability and equity components of the 2026 Notes based on
the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the
liability component were approximately $8.5 million, were recorded as an additional debt discount and are
amortized to interest expense using the effective interest method over the contractual terms of the 2026 Notes.
Issuance costs attributable to the equity component were approximately $3.7 million and recorded as a
reduction of additional paid in capital in stockholders’ equity.

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

The remaining term over which the December 2020 Convertible Senior Notes debt discount and debt
issuance costs will be amortized is 5.9 years. The effective interest rate on the debt was 6.61% for the year
ended December 31 2020.

The net carrying amount of the liability component of the Notes was as follows (in thousands):

As of
December 31,
2020

As of
December 31,
2019

Principal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 747,500
(196,269)
(12,799)

$230,000
(45,295)
(5,693)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 538,432

$179,012

The net carrying amount of the equity component of the Notes was as follows (in thousands):

Proceeds allocated to the conversion options (debt discount)

. . . . . . .

$215,434

$52,900

Issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5,783)

(1,986)

Net carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$209,651

$50,914

As of
December 31,
2020

As of
December 31,
2019

113

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Convertible Senior Notes and Capped Call Transactions — (Continued)

The following table sets forth the interest expense recognized related to the Notes (in thousands):

Contractual interest expense . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,725

Amortization of issuance costs . . . . . . . . . . . . . . . . . . . . . .

Amortization of debt discount . . . . . . . . . . . . . . . . . . . . . .

1,340

11,564

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,629

$1,438

956

7,605

$9,999

For the Year Ended
December 31, 2020

For the Year Ended
December 31, 2019

Interest expense of $14.6 million is reflected as a component of interest (expense) income, net in the

accompanying consolidated statement of operations for the year ended December 31, 2020.

8. Acquisitions

AdvantageTec Inc.

In October 2018, the Company entered into a stock purchase agreement to acquire the outstanding

equity interest of AdvantageTec Inc. (“AdvantageTec”), a leading provider of texting solutions for service
departments of automotive dealerships that helps enable the conversational experience across the entire
dealership, including both front end/variable operations (new and used vehicle sales) and back end/fixed
operations (parts and services). The purchase agreement was for total consideration of approximately
$11.2 million, which includes approximately $6.0 million in cash, approximately $4.3 million in shares of
common stock, and approximately $0.9 million of potential earn-out consideration in cash and shares of
common stock. The earn-out is contingent upon achieving certain targeted financial, strategic and integration
objectives and milestones and is included as part of the purchase price. During 2019, the Company
recorded a $0.2 million fair value re-measurement adjustment and made payments of $0.5 million in earn-
out consideration. The Company settled the remaining contingent earn-out of approximately $0.3 million in
stock. As of December 31, 2020, there are no additional contingent earn-out payments.

The purchase price allocation resulted in approximately $9.1 million of goodwill and approximately
$2.2 million of intangible assets. The goodwill will not be deductible for tax purposes. The intangible assets
are being amortized over their expected period of benefit. A deferred tax liability for the identified
intangibles has been recorded.

AdvantageTec Inc. enhances the Company’s messaging platform available for the automotive industry

and is included in the Company’s business segment.

Conversable, Inc.

In September 2018, the Company acquired the employees and technology assets of Conversable, Inc. a
SaaS based Artificial Intelligence powered conversational platform, headquartered in Austin, Texas, for an
aggregate estimated purchase price of $5.7 million. The estimated purchase price consisted of $1.3 million in
cash, approximately $2.9 million in shares of common stock of the Company, and a potential earn-out
consideration of $1.5 million in cash, which is based on achieving certain targeted financial, strategic, and
integration objectives and milestones and is included as part of the purchase price. During 2019, the Company
recorded a $0.5 million fair value re-measurement adjustment and settled the remaining contingent earn-
out in stock.

The purchase price allocation resulted in approximately $5.5 million of goodwill and approximately
$0.5 million of intangible assets. The goodwill will be deductible for tax purposes. The intangible assets are
being amortized over their expected period of benefit. The allocation of the purchase price to net book value

114

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Acquisitions — (Continued)

of acquired assets and liabilities resulted in a net liability $0.3 million, which includes accounts receivable,
property and equipment, accrued expenses, and deferred revenue.

Conversable Inc.’s capabilities will accelerate the ongoing expansion of the Company’s Conversational

Space solutions and enhance the Company’s ability to deliver proactive and personalized content and services
when and where the customer needs it, helping consumers find immediate service through messaging.
Conversable, Inc. will be included in the Company’s business segment. The results of this acquisition were
not significant to the results of operations for the year ended December 31, 2018.

BotCentral, Inc.

In January 2018, the Company acquired the employees and technology assets of BotCentral, Inc., a
Silicon Valley based startup, for an approximate purchase price of $1.0 million in common stock of the
Company. The Company incurred an additional $0.2 million related to acquisition costs. This transaction
was accounted for as an asset purchase. The aggregate amount of approximately $0.2 million is included in
intangibles on the Company’s consolidated balance sheet. With the team’s expertise and knowledge of the
Conversational Cloud platform, the team is bringing valuable insight for the Company’s customers and
partners, and enabling the Company to more rapidly optimize its bot deployment capabilities, and grow the
ecosystem. BotCentral, Inc. will be included in the Company’s business segment. The results of this
acquisition were not significant to the results of operations for the year ended December 31, 2018.

9. Fair Value Measurements

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

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

active markets.

• Level 2:

Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active;

quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that
are observable for the assets or liabilities; or inputs that are derived principally from or corroborated
by observable market data by correlation or other means.

• Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation

techniques used to determine fair value. These assumptions are required to be consistent with market
participant assumptions that are reasonably available.

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, 2020 and December 31, 2019,
are summarized as follows (amounts in thousands).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Fair Value Measurements — (Continued)

December 31, 2020

December 31, 2019

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

Cash equivalents:

Money market funds . . . . .

$328,195

$ — $ — $328,195

$2,899

$ — $ — $2,899

Total assets

. . . . . . . . . . .

$328,195

$ — $ — $328,195

$2,899

$ — $ — $2,899

Liabilities:

Contingent earn-out . . . . .

Total liabilities . . . . . . . . .

$

$

— $ — $ — $

— $ — $ — $ 557

$ 557

— $ — $ — $

— $ — $ — $ 557

$ 557

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 is measured at fair value on a recurring basis and is classified as level 3 within the
fair value hierarchy. On a nonrecurring basis, the Company uses fair value measures when analyzing asset
impairment. Long-lived tangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such
indicators are present and the review indicates that the assets will not be fully recoverable, based on
undiscounted estimated cash flows over the remaining amortization periods, their carrying values are
reduced to estimated fair value. The Company uses an income approach and inputs that constitute level 3.
During the third quarter of each year, the Company evaluates goodwill for impairment at the reporting unit
level. The Company uses 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 a goodwill impairment test. This measurement is classified
based on level 3 input.

As of December 31, 2020 the fair value of the Notes issued in the two Convertible Senior Note
transactions, as further described in Note 7 above, was approximately $557.5 million. Management
determines the fair value by utilizing an independent valuation specialist using the antithetic variable
technique and is considered a Level 2 fair value measurement.

The Company recorded a contingent earn-out of $2.4 million in December 2018 in connection with the

acquisitions of Conversable, Inc. and AdvantageTec Inc. The contingent earn-out is based on achieving
certain targeted financial, strategic, and integration objectives. The unobservable inputs considered are
probability factors and the time value of money. During the year ended December 31, 2020, the contingent
earn-out decreased by $0.6 million due to a decrease in re-measurement to fair value of AdvantageTec Inc,
Inc. of approximately $0.3 million and payments of approximately $0.3 million in shares.

116

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Fair Value Measurements — (Continued)

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

Contingent Earn-Out

December 31,

2020

2019

Balance, Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 557

$ 2,372

Conversable, Inc. fair value adjustment (see Note 8) . . . . . . . . . . . . . . . . .

AdvantageTec, Inc. fair value adjustment (see Note 8) . . . . . . . . . . . . . . . .

Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(263)

(294)

(496)

168

(1,487)

Balance, End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ — $

557

10. Commitments and Contingencies

Contractual Obligations

The Company has entered into various non-cancelable operating lease agreements for certain of our
offices and vehicles. We have also entered into various non-cancelable finance lease agreements for certain
network equipment. The leases have initial lease terms ranging from 1 to 12 years. Payments due under the
lease contracts include primarily fixed payments. The lease terms include periods under options to extend or
terminate the lease when it is reasonably certain that we will exercise that option. We do not assume
renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured.
Our lease agreements generally do not contain any material residual value guarantees or material restrictive
covenants.

The Company has evaluated its facility leases and determined which leases met the definition of the

new standard in accordance with Topic 842. The Company also performed an evaluation of their other
contracts with suppliers in accordance with Topic 842 and have determined that, except for the facilities,
car, and network equipment leases described above, none of its supply contracts contain a lease. Further, the
Company has made an accounting policy election to keep leases with a term of twelve months or less off
the balance sheet. This policy applies to all classes of the underlying assets. The Company will recognize those
lease payments and associated interest expense in the consolidated statement of operations evenly over the
lease term.

The Company elected the “package of practical expedients,” which permits the Company not to
reassess under ASC 842 its prior conclusions about lease identification, lease classification and initial direct
costs. The Company also made a policy election not to separate non-lease components from lease
components. Furthermore, the Company elected to not capitalize leases with a term of 12 months or less
and recognize the lease expense for such leases generally on a straight-line basis over the lease term.

The determination of the discount rate used to calculate the present value of the right-of-use assets and

lease liabilities depends on whether an interest rate is implicit in the lease or not. If a rate is implicit in the
lease, that rate is used when calculating the present value of lease payments. If the rate is not readily
determinable, which is generally the case for the Company, the Company’s incremental borrowing rate
(“IBR”) as of the date of inception of the lease is used (for initial measurement, the IBR was determined as
of the adoption date of the standard). The IBR is the rate of interest that the Company would have to pay
to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar
economic environment. The Company used a ratings benchmark report against its peers in the technology
sector.

The Company has operating and finance leases for its corporate offices and other service agreements.
The Company’s leases have remaining lease terms of 1 to 5 years, some of which include options to extend.

117

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Commitments and Contingencies — (Continued)

The Company’s lease expense for the year ended December 31, 2020 consisted of operating and finance
leases was approximately $13.5 million.

Operating leases are included in operating lease right of use (“ROU”) assets and current and noncurrent

operating lease liabilities on the Company’s consolidated balance sheets. Finance leases are included in
property and equipment, accrued expenses and other liabilities, and other noncurrent liabilities on the
Company’s consolidated balance sheets.

On July 13, 2020, the Company announced its decision to transition to an employee-centric model

under which employees will work remotely rather than in traditional offices. In connection with this
decision, the Company abandoned 14 leases in its global portfolio of office leases during the twelve months
ended December 31, 2020. As a result, the Company recognized accelerated amortization to fully reduce
the carrying value of the associated ROU assets between the decision date, which was determined to be
July 13, 2020 and the cease use date. There were no changes to the accounting for the lease liabilities associated
with the leased office spaces. Additionally, the Company recognized accelerated depreciation of fixed
assets that were determined to no longer be of future economic benefit to the Company based on the decision
to vacate the leased office space. Lease restructuring expenses of $24.3 million are included in restructuring
costs in the condensed consolidated statements of operations for the twelve months ended December 31,
2020. The Company also incurred other non-recurring expenses of $5.1 million in restructuring costs in the
condensed consolidated statements of operations for the twelve months ended December 31, 2020
associated with the transition to an employee-centric workforce model that does not rely on traditional
offices. These expenses include termination penalties, moving expenses, storage expenses and incremental
legal and consulting fees. The associated liability is presented on the condensed consolidated balance sheets
within accrued expenses and other current liabilities as of December 31, 2020. Subsequent adjustments to
these liabilities, including final settlement of the amounts, will be reflected in future period earnings.

Supplemental cash flow information related to leases for the years ended December 31, 2020 and 2019

are as follows (in thousands):

Year Ended December 31,

2020

2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases . . . . . . . . . . . . . . . . . . . . . .
Operating cash flows for finance leases . . . . . . . . . . . . . . . . . . . . . . . .
Financing cash flows for finance leases . . . . . . . . . . . . . . . . . . . . . . . .

4,901
88
1,154

6,963
—
—

The components of lease costs for the years ended December 31, 2020 and 2019 are as follows

(in thousands):

Finance lease cost

Year Ended December 31,

2020

2019

Amortization of right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating lease cost

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

Total lease cost

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

772
88

12,649

13,509

—
—

12,984

12,984

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LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Commitments and Contingencies — (Continued)

Supplemental balance sheet information related to leases is as follows:

As of December 31, 2020

As of December 31, 2019

(in thousands, except lease term and discount rate)

Operating Leases

Right-of-use asset, net . . . . . . . . . . . . . . . . . . . .

Current operating lease liability . . . . . . . . . . . . . . .

Long term operating lease liability . . . . . . . . . . . . .

Total operating lease liability . . . . . . . . . . . . . . .

Finance Leases

Right-of-use asset, net . . . . . . . . . . . . . . . . . . . .

Current finance lease liability . . . . . . . . . . . . . . . .
Long term finance lease liability . . . . . . . . . . . . . .

Total finance lease liability . . . . . . . . . . . . . . . . .

Weighted Average Remaining Lease Term

614

5,718

7,180

12,898

10,045

3,488
6,176

9,664

15,680

6,602

12,865

19,467

—

—
—

—

Operating leases . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . .

3.0 years
2.8 years

3.5 years
—

Weighted Average Discount Rate

Operating leases . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . .

7%
4%

7%

—

Future minimum lease payments under non-cancellable operating and finance 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

Finance
Leases

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

$ 6,377
3,804
1,955
1,166
632
263

3,814
3,814
2,572
—
—
—

Total minimum lease payments

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

$14,197

$10,200

Less: present value adjustment

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

(1,299)

(536)

Total lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,898

$ 9,664

The timing and amounts of future minimum lease payments under non-cancellable operating leases in

the above table may be subject to change as a result of the restructuring (see Note 14).

Rental expense for operating leases and other service agreements was approximately $13.5 million,

$13.0 million and $10.9 million for the years ended December 31, 2020, 2019 and 2018 respectively.

Employee Benefit Plans

The Company has a 401(k) defined contribution plan covering all eligible employees. In 2018, the
Company provided for employer matching contributions equal to 50% of employee contributions, up to the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Commitments and Contingencies — (Continued)

lesser of 5% of eligible compensation or $6,000. Matching contributions are deposited into the employee’s
401(k) account and are subject to 5 year graded vesting. Beginning in 2019, the Company’s 401(k) policy was
changed to a Safe Harbor Plan, whereby the Company matches 100% of the first 3% of eligible
compensation and 50% of the next 2% of eligible compensation. Furthermore, the match is immediately
vested. Total Company matching contributions were $3.1 million, $3.2 million, and $1.6 million for the years
ended December 31, 2020, 2019 and 2018, respectively.

Letters of Credit

As of December 31, 2020, the Company has a $0.1 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. As a result of our transition to an employee-centric workforce model that does not rely
on traditional offices, there were two draws against our letter of credit in the aggregate amount of $1.8 million
in connection with exiting leases in Alpharetta Georgia and Israel during the twelve months ended
December 31, 2020.

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. The Company has no liabilities recorded for these agreements
as of December 31, 2020 and 2019.

Non-Income Related Taxes

The Company is in the process of finalizing its sales tax liability analysis for states in which it has
economic nexus. During the first quarter of 2020, the Company determined it was probable the Company
would be subject to sales tax liabilities plus applicable interest in these states and has estimated the potential
exposure to range between $2.5 million to $6.3 million. The Company determined that its best estimate of
what would be reasonably expected for the Company to settle the potential exposure was $2.5 million and
accordingly, the Company accrued this amount with a corresponding charge to earnings as of March 31,
2020. There has not been any significant changes in the Company’s process of finalizing its sales tax
liability nor in the overall accrued amount.

COVID-19 Pandemic

In December 2019, a novel coronavirus disease (“COVID-19”) was first reported. On March 11, 2020,

due to worldwide spread of the virus, the World Health Organization characterized COVID-19 as a pandemic.
The COVID-19 global pandemic has resulted in a widespread health crisis, and the resulting impact on
governments, businesses and individuals and actions taken by them in response to the situation have resulted
in widespread economic disruptions, significantly affecting broader economies, financial markets, and
overall demand for the Company’s products. The COVID-19 outbreak also has caused increased uncertainty
in estimates and assumptions affecting the reported amounts of assets and liabilities, and the disclosure of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Commitments and Contingencies — (Continued)

contingent assets and liabilities in the Company’s Condensed Consolidated Financial Statements as the
extent and period of recovery from the COVID-19 outbreak and related economic disruption is difficult to
forecast.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on

numerous evolving factors including, but not limited to, the magnitude and duration of COVID-19, the
extent to which it will impact worldwide macroeconomic conditions, the speed of the anticipated recovery,
and governmental and business reactions to the pandemic. The Company assessed certain accounting matters
that generally require consideration of forecasted financial information in context with the information
reasonably available to the Company and the unknown future impacts of COVID-19. The accounting matters
assessed included, but were not limited to, the Company’s allowance for credit losses and the carrying
value of the goodwill and other long-lived assets. While there was not any significant impact to the operations
of the Company, during the twelve months ended December 31, 2020, the Company moved to an employee-
centric model under which employees will work remotely rather than in traditional offices due to concerns
about COVID-19. As a result of this decision, the Company recognized accelerated amortization to fully
reduce the carrying value of the associated right of use assets (“ROU assets”) for 14 leases within its
global lease portfolio, which is a material impact to the Company’s consolidated financial statements as of
and for the twelve months ended December 31, 2020. Refer to earlier paragraphs of this Note 10 for a detailed
discussion of the impacts of this lease restructuring.

The Company’s future assessment of the magnitude and duration of COVID-19, as well as other
factors, could result in other material impacts to the Company’s consolidated financial statements in future
reporting periods.

11. Stockholders’ Equity

Common Stock

In November 2019, the Company filed an amendment to its Certificate of Incorporation to authorize
an additional 100,000,000 shares of common stock. As December 31, 2020, there were 200,000,000 shares
of common stock authorized, and 70,264,265 and 67,554,435 shares issued and outstanding, respectively. As
of December 31, 2019, there were 200,000,000 shares of common stock authorized, and 66,543,073 and
63,833,243 shares issued and outstanding, respectively. The par value for the common stock is $0.001 per
share.

Preferred Stock

As of December 31, 2020 and 2019, there were 5,000,000 shares of preferred stock authorized, and

zero shares issued and outstanding. The par value for the preferred stock is $0.001 per share.

Stock Repurchase Program

From 2012 through 2018, the Company had a stock repurchase program in place pursuant to which
the Company was 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. 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 was discontinued at the
end of 2018. The Company may or may not enter into a new stock repurchase program in the future.

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

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11. Stockholders’ Equity — (Continued)

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. 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,

2020, 2019 and 2018 was $13.84, $12.12, and $6.60, 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, 2020, 2019 and 2018:

Dividend yield . . . . . . . . . . . . . . . . . . . . . . .

2020

—%

December 31,

2019

—%

2018

—%

Risk-free interest rate . . . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . . . . .
Historical volatility . . . . . . . . . . . . . . . . . . . .

0.26% – 0.66%
5.0
46.50% – 53.91%

1.66% – 3.05%
5.0
43.42% – 44%

2.5% – 3.1%
5.0
43.5% – 48.4%

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 (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 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.

On April 11, 2019, the Company’s Board of Directors adopted, and on June 6, 2019, the Company’s
stockholders approved, the 2019 Stock Incentive Plan (“2019 Stock Incentive Plan”) to replace the Amended
2009 Plan, which was set to expire under its terms on June 9, 2019. Under the 2019 Stock Incentive Plan,
the number of shares underlying options and other equity awards which remain outstanding, as well as the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Stockholders’ Equity — (Continued)

number of shares that remained available for grant, under the Amended 2009 Plan and under the Amended
2000 Plan were incorporated, as of June 6, 2019, into the 2019 Stock Incentive Plan. In addition, under
the 2019 Stock Incentive Plan, 4,250,000 new shares were authorized for issuance.

On April 29, 2020, the Company’s Board of Directors adopted, and on June 11, 2020, the company’s
stockholders approved, certain amendments to the 2019 Stock Incentive Plan, including an increase in the
number of shares authorized for issuance by 3,000,000 new shares.

The number of shares authorized for issuance under the 2019 Stock Incentive Plan, the Amended 2009

Plan, and the 2000 Plan is 35,067,744 shares in the aggregate. Options to acquire common stock granted
thereunder have 10-year terms. As of December 31, 2020, approximately 3.3 million shares of common stock
remained available for issuance under the 2019 Stock Incentive Plan (taking into account all option
exercises and other equity award settlements through December 31, 2020).

Employee Stock Purchase Plan

In June 2010, the Company’s stockholders approved the 2010 Employee Stock Purchase Plan with

1,000,000 shares of common stock initially reserved for issuance. 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.

On April 11, 2019, the Company’s Board of Directors adopted, and on June 6, 2019, the Company’s

stockholders approved, the 2019 Employee Stock Purchase Plan (the “2019 Employee Stock Purchase
Plan”) to replace the Amended and Restated 2010 Employee Stock Purchase Plan which was set to expire
under its terms in June 2020. There are 1,000,000 shares authorized and reserved for issuance under the 2019
Employee Stock Purchase Plan. As of December 31, 2020, approximately 0.8 million shares of common
stock remain available for issuance under the 2019 Employee Stock Purchase Plan (taking into account all
share purchases through December 31 2019).

Inducement Plan

During January 2018, the Company established the Inducement Plan (the “2018 Plan”). Under the
2018 Plan, the Board of Directors can issue nonqualified stock options or other equity-based awards in
respect of up to 1,500,000 shares of common stock. On April 25, 2018, the Company’s Board of Directors
amended and restated the 2018 Plan (the “Amended 2018 Plan”). The Amended 2018 Plan increased the
number of shares authorized for issuance under the plan by an additional 500,000 shares, and subsequently
the Board of Directors approved and ratified, effective as of July 31, 2018, October 29, 2018 and February 13,
2019, increases of the number of shares authorized for issuance under the Amended 2018 Plan by 500,000,
250,000 and 618,048 shares, respectively, constituting 3,368,048 shares of common stock in the aggregate
being reserved for issuance pursuant to grants under the Amended 2018 Plan. As of December 31, 2020,
approximately 1.2 million shares of common stock remained available for issuance under the Amended 2018
Plan (taking into account all option exercises and other equity award settlements through December 31,
2020).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Stockholders’ Equity — (Continued)

Stock Option Activity

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

Balance outstanding at December 31, 2017 . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . .
Balance outstanding at December 31, 2018 . . . . . . . . . .
Options vested and expected to vest
. . . . . . . . . . . . . . .
Options exercisable at December 31, 2018 . . . . . . . . . . .
Balance outstanding at December 31, 2018 . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . .
Balance outstanding at December 31, 2019 . . . . . . . . . .

. . . . . . . . . . . . . . .
Options vested and expected to vest
Options exercisable at December 31, 2019 . . . . . . . . . . .
Balance outstanding at December 31, 2019 . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . .
Balance outstanding at December 31, 2020 . . . . . . . . . .
. . . . . . . . . . . . . . .
Options vested and expected to vest
Options exercisable at December 31, 2020 . . . . . . . . . . .

Stock Option Activity

Options
(in thousands)
7,959
2,033
(3,120)
(606)
6,266
5,550
3,278
6,266
1,425
(1,523)
(369)
5,799

5,096
2,901
5,799
737
(1,683)
(521)
4,332
1,470
2,280

Weighted
Average
Exercise
Price
$10.71
15.00
10.70
10.03
$12.13
$11.89
$11.12
$12.13
29.76
11.12
14.76
$16.57

$15.29
$12.03
$16.57
31.21
12.69
23.27
$19.78
$23.88
$14.80

Weighted
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)

6.55
6.28
4.64

6.79

6.49
4.95

6.79
8.19
5.40

$ 43,348
$ 39,521
$ 25,367

$119,064

$110,934
$ 72,424

$183,825
$ 56,382
$108,128

The total fair value of stock options exercised during the years ended December 31, 2020 and 2019 was
approximately $10.0 million and $8.0 million, respectively. As of December 31, 2020, there was approximately
$17.9 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
2.5 years.

Restricted Stock Unit Activity

A summary of the Company’s restricted stock units (“RSUs”) activity and weighted average exercise

prices follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Stockholders’ Equity — (Continued)

Balance outstanding at December 31, 2017 . . . . . . . . . . . . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested and outstanding at December 31, 2018 . . . . . . . .

Balance outstanding at December 31, 2018 . . . . . . . . . . . . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested and outstanding at December 31, 2019 . . . . . . . .

Balance outstanding at December 31, 2019 . . . . . . . . . . . . . .
Awarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested and outstanding at December 31, 2020 . . . . . . . .

Expected to vest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restricted Stock Unit Activity

Number of
Shares
(in thousands)

873
2,568
(361)
(390)
2,690

2,690
1,979
(1,197)
(423)
3,049

3,049
2,530
(1,906)
(723)
2,950

1,939

Weighted Average
Grant Date Fair
Value (Per Share)
$ 8.29
17.02
9.49
9.49
$15.81

Aggregate
Fair Value
(in thousands)
$ 10,053
—
—
—
$ 50,756

$15.81
30.99
14.24
20.28
$24.73

$24.73
26.51
23.40
25.19
$27.00

$26.17

$ 50,756
—
—
—
$112,848

$112,848
—
—
—
$183,781

$120,674

RSUs granted to employees generally vest over a three to four-year period, or upon achievement of
certain performance conditions. As of December 31, 2020, total unrecognized compensation cost, adjusted
for estimated forfeitures, related to nonvested RSUs was approximately $66.8 million and the weighted-
average remaining vesting period was 2.8 years.

For the year ended December 31, 2020, the Company accrued approximately $20.4 million and
$8.9 million for cash awards related to bonus and for the achievement of long term incentive plan awards,
respectively, to be settled in shares of the Company’s stock and recorded a corresponding expense, which is
included as a component of stock-based compensation expense in the accompanying consolidated financial
statements. For the year ended December 31, 2019, the Company accrued approximately $19.0 million in
cash awards to be settled in shares of the Company’s stock and recorded a corresponding expense, which is
included as a component of stock-based compensation expense in the accompanying consolidated financial
statements.

Stock-based compensation expense recognized in the Company’s consolidated statements of operations

and cash flows was $65.9 million and $44.1 million for the years ended December 31, 2020 and 2019,
respectively.

12.

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

125

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

Income Taxes — (Continued)

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. 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
Australia, LivePerson UK, Kasamba Israel, LivePerson Japan 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 one-time items. During the year ended December 31, 2020, there was an increase in the
valuation recorded of $6.9 million.

The Company had a valuation allowance on certain deferred tax assets for the years ended December 31,

2018, December 31, 2019 and December 31, 2020 of $30.2 million, $48.5 million and $55.4 million,
respectively. An increase in the valuation allowance in the amount of $35.1 million was recorded as an
expense and a decrease of $28.2 million related to convertible notes was charged to equity during 2020. An
increase in the valuation allowance in the amount of $25.0 million was recorded as an expense and a decrease
of $6.7 million related to the issuance of convertible notes was charged to equity during 2019.

Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), 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 of the Code. Such an annual limitation could result in the
expiration of the NOL carryforwards before utilization. Corresponding provisions of state law may limit
the Company’s ability to utilize NOL carryforwards for state tax purposes. As of December 31, 2020, the
Company had approximately $311.7 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 in 2006. Approximately $41.2 million of these federal NOL carryforwards were generated in
taxable years ending on or before December 31, 2017 and will expire in various years through 2037.
Federal NOL carryforwards generated in taxable years ending after December 31, 2017, do not expire, but
generally may only offset up to 80% of federal taxable income earned in a taxable year.

The domestic and foreign components of income (loss) before provision for income taxes consist of the

following (amounts in thousands):

Year Ended December 31,

2020

2019

2018

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(113,689) $(105,961) $(38,078)

Israel

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

United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,214

536

3,398

1,663

243

507

2,791

5,377

(465)

716

3,854

462

3,163

3,690

3,235

686

2,900

230

$(105,128) $ (93,226) $(24,174)

(1)

Includes Japan and France

126

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

Income Taxes — (Continued)

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, 2020.

The provision for income taxes consists of the following (amounts in thousands):

Year Ended December 31,

2020

2019

2018

Current income taxes:

U.S. Federal

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

$ (581) $ (452) $(1,932)

State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

59

2,408

1,886

89

4,415

4,052

67

3,032

1,167

Deferred income taxes:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Federal
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . .

(151)
459
272

580

126
135
(1,468)

(1,207)

(295)
(28)
14

(309)

Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . .

$2,466

$ 2,845

$

858

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 – stock based compensation . . . . . . .
Global Intangible Low Tax Income Inclusion . . . . . . . . . . . . .
Non-deductible expenses – Other
. . . . . . . . . . . . . . . . . . . . .
Non-deductible excess compensation . . . . . . . . . . . . . . . . . . .
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation – excess tax benefit
. . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2020

2019

2018

21.00%
4.82%
(1.21)%

21.00%
21.00%
3.30%
2.95%
4.73%
1.82%
—% (2.29)% (7.99)%
0.14% (0.37)% (0.28)%
(5.52)% (1.20)% (2.30)%
(3.98)% (1.86)% (1.34)%
(30.87)% (26.42)% (28.91)%
6.10%
9.93%
6.18%
2.09%
3.34% (2.86)%

Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2.35)% (3.05)% (3.60)%

The effects of temporary differences and federal NOL carryforwards that give rise to significant
portions of federal deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 are
presented below (amounts in thousands):

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LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

Income Taxes — (Continued)

Year Ended December 31,

2020

2019

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 78,651

$ 49,423

Foreign Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Original Issue Discount

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

Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-cash compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Intangibles amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,222

16,464

1,986

5,150

7,289

7,401

3,620
954

—

5,201

875

3,306

5,934

4,195

3,273
419

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

122,737
(55,357)

72,626
(48,451)

Deferred tax assets, net of valuation allowance . . . . . . . . . . . . . . . . . . . . . .

67,380

24,175

Deferred tax liabilities:

Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization and contingent earn-out adjustments . . . . . . . . . . . . .
Convertible Notes Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right of use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10,048)
(5,294)
(49,118)
(2,511)

(6,361)
(3,430)
(11,055)
(2,504)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(66,971)

(23,350)

Net deferred tax assets (liabilities)

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

$

409

$

825

We have income tax NOL carryforwards related to federal and Australian income tax carryforwards of

$311.7 million and $2.0 million respectively. The Australian NOLs can be carried forward indefinitely.
$270.4 million of the federal NOLs can be carried forward indefinitely. $6.0 million of the federal NOLs will
expire between 2021 and 2026, and $35.2 million will expire between 2036 and 2037. We have $221.9 million
of state NOLs, of which $47.3 million can be carried forward indefinitely and $174.6 million expire
between 2023 and 2040.

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 threshold and a measurement attribute for the financial statement recognition and 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 $3.6 million as of
December 31, 2020 and $2.0 million as of December 31, 2019, respectively. Accrued interest and penalties
included in the Company’s liability related to unrecognized tax benefits and recorded in accrued expenses and
other current liabilities were immaterial at December 31, 2020 and 2019.

128

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.

Income Taxes — (Continued)

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 decrease for tax positions of prior years
. . . . . . . . . . . . . . . . . .
Gross increase for tax positions of current years . . . . . . . . . . . . . . . . .
Decrease due to expiration of statue . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease due to settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross unrecognized tax benefits at December 31 . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2020
$2,053
(438)
2,984
—
(984)
$3,615

2019
$1,921
—
584
(452)
—
$2,053

The tax years subject to examination by major tax jurisdictions include the years 2015 and forward for
U.S states and New York City, the years 2016 and forward for U.S. Federal, and the years 2015 and forward
for certain foreign jurisdictions.

Tax Legislation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed
into law making several changes to the Internal Revenue Code. The changes include, but are not limited to:
increasing the limitation on the amount of deductible interest expense, allowing companies to carryback
certain net operating losses, and increasing the amount of net operating loss carryforwards that
corporations can use to offset taxable income. As a result of the CARES Act, the Company filed refund
claims relating to prior years totaling $0.6 million.

13. Legal Matters

The Company previously filed an intellectual property suit against [24]7 Customer, Inc. (“[24]7”) 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. Rulings by both the Court and the
United States Patent Office in the Company’s favor have invalidated the majority of [24]7 patents that were
asserted in the patent cases. Trial for the Company’s intellectual property and other claims asserted against
[24]7 is set for May 24, 2021. Trial for [24]7’s patent infringement claims has been vacated, to be reset after
the trial on the Company’s claims. 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

129

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Legal Matters — (Continued)

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, litigation
can have an adverse impact on the Company because of defense and settlement costs, diversion of
management resources and other factors.

14. Restructuring Costs

In response to the COVID-19 pandemic, the Company went through a re-evaluation of its real estate

needs. In connection with this re-evaluation, and the success the Company has had working remotely, it was
decided in July 2020 that the Company would significantly reduce the real estate space it leases. This
decision resulted in the significant reduction of the real estate space leased by the Company and the removal
of the associated ROU assets. Furthermore, this resulted in various one-time expenses in connection with
the abandonment of the majority of the Company’s leased facilities. The lease restructuring costs noted below
are a result of this transition to an employee-centric workforce model that does not rely on traditional
offices.

On top of the lease restructuring costs, the Company went through a further restructuring related to

costs associated with re-prioritizing and reallocating resources to focus on areas showing high growth
potential.

The expenses associated with these restructuring events were approximately $29.4 million, $2.0 million,
and $4.5 million during the years ended December 31, 2020, 2019, and 2018, respectively, and is classified in
the consolidated statements of operations as restructuring costs. The restructuring liability was approximately
$4.7 million and $0.3 million as of December 31, 2020 and 2019, 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):

Balance, Beginning of the year

Lease restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and other associated costs . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2020

December 31,
2019

$

314
5,034
5,090
(5,706)
$ 4,732

$

$

977
—
2,043
(2,706)
314

130

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Restructuring Costs — (Continued)

The following table presents the detail of expenses for the Company’s restructuring charges for the

periods presented (amounts in thousands):

December 31,
2020

December 31,
2019

December 31,
2018

Lease restructuring costs:

ROU assets write down . . . . . . . . . . . . . . . . . . . . . .

$13,938

$ —

$ —

Abandonment of property and equipment . . . . . . . . .

Other lease restructuring costs . . . . . . . . . . . . . . . . .

Total Lease restructuring costs . . . . . . . . . . . . . . . . . . .

Severance and other associated costs . . . . . . . . . . . . . .

Total restructuring costs

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

5,147

5,245

$24,330

$ 5,090

$29,420

—

—

$ —

$2,043

$2,043

—

—

$ —

$4,468

$4,468

131

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, 2020 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, 2020, 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, 2020 has been

audited by BDO USA, LLP, an independent registered public accounting firm. Their attestation report 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, 2020 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, 2020. 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, 2020 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.

132

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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and
the related notes and our report dated March 8, 2021 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 8, 2021

133

Item 9B. Other Information

None.

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 2021 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 2020 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
2021 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,” “Potential Payments Upon Termination or Change-in-Control” and “Securities
Authorized for Issuance Under Equity Compensation Plans” in the definitive proxy statement for our 2021
Annual Meeting of Stockholders.

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 Party Transactions” and “Director Independence” in the definitive
proxy statement for our 2021 Annual Meeting of Stockholders.

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 2021 Annual Meeting of Stockholders.

134

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.

135

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 8, 2021.

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 8,
2021.

Signature

Title(s)

/s/Robert P. LoCascio
Robert P. LoCascio

/s/ John D. Collins
John D. Collins

/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)

Chief Financial Officer
(Principal Financial Officer)

Senior Vice President, Global and Corporate Controller
(Principal Accounting Officer)

Director

Director

Director

Director

Director

136

Number

2.1

2.2

3.1(a)

3.1(b)

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

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)

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 (File No. 000-30141))

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”))

Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
effective as of November 12, 2019 (incorporated by reference to Exhibit 4.2 to LivePerson’s
Registration Statement on Form S-8 filed on November 13, 2019 (File No. 333-234676))

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)

Indenture, dated as of March 4, 2019, by and between LivePerson, Inc. and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4.1 to LivePerson’s
Current Report on Form 8-K filed on March 5, 2019 (File No. 000-30141))

Form of 0.750% Convertible Senior Notes due 2024 (included within the Indenture filed as
Exhibit 4.3 hereto)

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934

Indenture, dated as of December 4, 2020, by and between LivePerson, Inc. and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4.1 to LivePerson’s
Current Report on Form 8-K/A filed on December 10, 2020 (File No. 000-30141))

Form of 0% Convertible Senior Notes due 2026 (included within the Indenture filed as
Exhibit 4.6 hereto)

10.1(a)*

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 (File No. 000-30141))

10.1(b)*

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
(File No. 000-30141))

137

Number

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14*

10.15*

Description

LivePerson, Inc. 2010 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.1 to LivePerson’s Registration Statement on Form S-8 filed on August 19, 2010
(File No. 000-30141))

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 onMay 9, 2014) (File No. 000-30141))

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) (File No. 000-30141))

Amendment to Separation Agreement General Release between LivePerson and Daniel
Murphy, dated as of February 9, 2018 (incorporated by reference to Exhibit 10.11 to
LivePerson’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on
March 15, 2018 (File No. 000-30141))

Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.12
to LivePerson’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on
March 15, 2018 (File No. 000-30141))

Form of Restricted Stock Unit Award Agreement for Robert Locascio (incorporated by
reference to Exhibit 10.13 to LivePerson’s Annual Report on Form 10-K for the year ended
December 31, 2017, filed on March 15, 2018 (File No. 000-30141))

Inducement Plan dated January 19, 2018 (incorporated by reference to Exhibit 10.14 to
LivePerson’s Annual Report on Form 10-K for the year ended December 31, 2017, filed on
March 15, 2018 (File No. 000-30141))

Amended Employment Agreement between LivePerson and Robert LoCascio, dated as of
December 27, 2017 (incorporated by reference to Exhibit 10.15 to LivePerson’s Annual
Report on Form 10-K for the year ended December 31, 2017, filed on March 15, 2018
(File No. 000-30141))

Agreement between LivePerson and Alex Spinelli, dated as of January 12, 2018 (incorporated
by reference to Exhibit 10.1 to LivePerson’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2018, filed May 8, 2018 (File No. 000-30141))

138

Number

10.16*

10.17*

10.18*

10.19

10.20

10.21*

10.22*

10.23*

10.24*

10.25

10.26

21.1

23.1

31.1

31.2

Description

Agreement between LivePerson and Chris Greiner, dated as of February 19, 2018
(incorporated by reference to Exhibit 10.2 to LivePerson’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2018, filed May 8, 2018 (File No. 000-30141))

Long Term Incentive Plan dated July 31, 2018 (incorporated by reference to Exhibit 10.1 to
LivePerson’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed on
August 6, 2018 (File No. 000-30141))

Separation Agreement General Release between LivePerson and Eran Vanounou, dated as of
April 30, 2018 (incorporated by reference to Exhibit 10.2 to LivePerson’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2018, filed on August 6, 2018 (File No. 000-30141))

Form of Capped Call Transaction Confirmation relating to the 0.750% Convertible Senior
Notes due 2024 (incorporated by reference to Exhibit 10.1 to LivePerson’s Form 8-K filed on
March 5, 2019 (000-30141))

Form of Additional Capped Call Transaction Confirmation relating to the 0.750% Convertible
Senior Notes due 2024 (incorporated by reference to Exhibit 10.1 to LivePerson’s Form 8-K
filed on March 14, 2019 (000-30141))

Nonstatutory Stock Option Agreement, by and between LivePerson, Inc. and Robert P.
LoCascio, dated as of February 21, 2019 (incorporated by reference to Exhibit 10.3 to
LivePerson’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed on
May 7, 2019 (File No.000-30141))

2009 Stock Incentive Plan Restricted Stock Unit Award Agreement, by and between
LivePerson, Inc.and Robert P. LoCascio, dated as of February 21, 2019 (incorporated by
reference to Exhibit 10.4 toLivePerson’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2019, filed on May 7,2019 (File No. 000-30141))

LivePerson, Inc. 2019 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to
LivePerson’s Registration Statement on Form S-8 filed on August 14, 2020
(File No. 333-245808))

LivePerson, Inc. 2019 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.2 to LivePerson’s Registration Statement on Form S-8 filed on November 13, 2019
(File No. 333-234676))

Form of Base Capped Call Transaction Confirmation relating to the 0% Convertible Senior
Notes due 2026 (incorporated by reference to Exhibit 10.1 to LivePerson’s Current Report on
Form 8-K/A filed on December 10, 2020 (File No. 000-30141))

Form of Additional Capped Call Transaction Confirmation relating to the 0% Convertible
Senior Notes due 2026 (incorporated by reference to Exhibit 10.2 to LivePerson’s Current
Report on Form 8-K/A filed on December 10, 2020 (File No. 000-30141))

Subsidiaries

Consent of BDO USA, LLP, an Independent Registered Public Accounting Firm

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

139

Number

32.1**

32.2**

Description

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†

Inline XBRL Instance Document — The instance document does not appear in the interactive
Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH† Inline XBRL Taxonomy Extension Schema Document

101.CAL† Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF† Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB† Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE† Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL)

* 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.

140

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.

Ernest L. Cu
President and CEO of Globe Telecom, 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

John Collins
Executive Vice President, Chief Financial Officer

Alexander Spinelli
Executive Vice President,  
Global Chief Technology Officer

Monica L. Greenberg
Executive Vice President,  
Public Policy & General Counsel

Norman Osumi
Senior Vice President, Chief Accounting Officer 

Norm Osumi assumed the role of  
Chief Accounting Officer on March 9, 2021

Stockholder Information 

Corporate Headquarters
LivePerson, Inc. 
475 Tenth Avenue 
New York, NY 10018

Investor Relations
Copies of our Annual Report on Form 10-K for the  
year ended December 31, 2020 are available free  
of charge, upon request to:

Investor Relations 
LivePerson, Inc. 
475 Tenth Avenue 
New York, NY 10018

Stock Listings
Our common stock is listed on the Nasdaq Global  
Select Market and the Tel Aviv Stock Exchange under  
the symbol “LPSN” 

Counsel 
Fried, Frank, Harris, Shriver & Jacobson LLP 
One New York Plaza 
New York, NY 10004

Independent Registered  
Public Accounting Firm
BDO USA, LLP 
100 Park Avenue 
New York, NY 10017

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