LIVEPERSON, INC. General
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted inthe United States of America . As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed 36 -------------------------------------------------------------------------------- consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates and assumptions relate to estimates of the carrying amount of goodwill, intangibles, depreciation, stock based-compensation, valuation allowances for deferred income taxes, accounts receivable, the expected term of a customer relationship, accruals and other factors. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. In addition, our actual results could differ from our estimates and assumptions based upon impacts on our business and general economic conditions. Overview LivePerson is a leading Conversational AI company creating digital experiences that are Curiously Human. 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. The Company's 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 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, the Company's 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, 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 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, PCI compliance, co-browsing and a sophisticated proactive targeting engine. An extensible 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 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 the
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--------------------------------------------------------------------------------Company's proprietary Conversational AI, as well as third-party bots, the Conversational Cloud offers brands a comprehensive approach to scaling automations across their millions of customer conversations.
Complementing the Company's proprietary messaging and Conversational AI offerings are teams of technical, solutions and consulting professionals that have developed deep domain expertise in the implementation and optimization of conversational services across industries and messaging endpoints. The Company is a leading authority in the Conversational Space. LivePerson's products, coupled with its domain knowledge, industry expertise and professional services, have been proven to maximize the effectiveness of the Conversational Space and deliver measurable return on investment for LivePerson's customers. Certain of the Company's customers have achieved the following advantages from its 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 score 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%;
•a valued connection with consumers via mobile devices, either through native applications, websites, text messages, or third-party messaging platforms;
•leveraged spending that drives visitor traffic by increasing visitor conversions;
•refining and improving performance by understanding which initiatives deliver the highest rate of return; and
•increased 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 information technology ("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
a digital services and consulting company to transform our technology
infrastructure on the public cloud, to build integrated solutions and a global
practice around our Conversational Cloud to sell into this company's channels
and global enterprise customer base, and to redefine how the world's top brands
communicate.
More than 18,000 businesses, including HSBC, Orange, 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
Experts who provide information and knowledge for a fee via mobile and online
messaging with 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 inJune 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. 38 -------------------------------------------------------------------------------- A key component of our industry awareness marketing strategy has been to hold multiple global customer summits each year (events in 2020 and 2021 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 return on investment they have realized. Each attendee then receives a blueprint for how they can pursue 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 2021, nearly 75% 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. We will continue to focus on building awareness for the Conversational Space and driving adoption of messaging and AI across our customer base. 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. InJune 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,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 andCallinize, Inc. (bda Tenfold) ("Tenfold"), which allows our brands to bring the LivePerson Conversational Cloud into other applications, starting withSalesforce and expanding into other leading CRM and Helpdesk platforms. The ability to power conversational experiences beyond our own workspace opens up further messaging volumes and workflows for LivePerson to participate in. Each channel and use case added opens the door to 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 inAustralia fully virtualized their contact centers, a leadingU.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. In 2021, one of the ten largest healthcare companies in the world launched web messaging to enable their customers to check the status of their orders and request prescription refills with ease, and a multi-billion-dollar entertainment and media company enabled their consumers to plan trips, buy tickets or change reservations with in-app messaging. 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. 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 39 -------------------------------------------------------------------------------- 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 was above 100% but just below our target range of 105% to 115%. The benefit can also be seen in LivePerson's average revenue per user ("ARPU") for our enterprise and mid-market customers, which increased approximately 23% for the trailing twelve months endedJune 30, 2022 to$660,000 from approximately$535,000 for the trailing twelve months endedJune 30, 2021 . We believe these ARPU trends are a clear indication of how LivePerson's strategy to drive messaging adoption has successfully influenced our revenue growth by taking share from legacy communication channels. 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. We have hired some 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 inGermany , and added key development talent through the acquisitions of BotCentral inMountain View, California ; e-bot7GmbH ("e-bot7") inMunich, Germany ; andVoiceBase, Inc. ("VoiceBase") inSan Francisco, California . 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. InDecember 2018 , LivePerson announced its patent-protected 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;
•leveraging a 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 are not 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.
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Our strategy is to continue to enhance the Conversational AI engine and related
products, by leveraging our global research and development ("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 brands'
investment. Over the past four years we have made good progress in developing
our conversational AI platform and within the next 12 months, we expect to have
a solution in place for our automations to self-heal, which is the ultimate goal
of any AI platform. Our acquisitions of VoiceBase and Tenfold provide us with a
mechanism for data capture in the voice channel. This additional data and the
associated analytics and system integration give us an even greater ability to
scale the usage of our platforms, by building on our strength in messaging.
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 traditional 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 believes it 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 oftentimes inefficient legacy voice, email and chat
solutions to modern conversational ones powered by messaging and AI.
•The Company has developed Gainshare - a Transformation Model that is introduced
to existing and prospective customers to help guide them on their journeys from
legacy and oftentimes inefficient legacy voice, email, and chat solutions to
modern conversational ones powered by messaging and AI. Gainshare is a fully
managed solution where LivePerson not only provides the messaging and AI
automation technology, but also the labor, automation, and end-to-end program
management, leveraging the Company's expertise with Conversational AI and
messaging operations. Gainshare is an option for brands that want to accelerate
a transformation to Conversational AI, or that want a worry-free solution where
LivePerson manages the entire operation, from staffing to automation building
and optimization, to conversation design and consumer experience. Gainshare
pricing is bespoke, and is typically structured around a brand's desired goals,
whether driving incremental revenue or reducing operational costs.
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.
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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 plan to 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 sector ("SMB"). In 2021, we
continued to grow in verticals such as healthcare and financial services. We
plan to continue experimenting with new conversational businesses, including
some that are in regulated industries, like online banking and healthcare. 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 continuing to
build our international presence through expansion of our international revenue
contribution, which accounted for 35% of total revenue in 2021. We are
generating positive results from our recent investments in the Asia-Pacific ,
Europe , and Latin America regions. Expanding go-to-market capacity in
international theaters is one of our key strategic focuses and also part of our
motivation for our recent acquisition of e-bot7.
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. In 2022, we
launched our partnership with Celonis to embed Voicebase analytics and Celonis
conversation mining into an application capable of analyzing omni-channel
conversational data to enable operational improvements and automate the customer
journey.
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, a digital services and consulting company 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. In 2021, we announced strategic integration
partnerships with Google Cloud, Adobe and Medallia to help brands make contact
center agents more efficient and effective, and empower and enrich the
management of customer and employee experience through the power of AI. Our
network also expanded with the Tech Mahindra partnership to help brands deliver
personalized conversational experiences to consumers at scale.
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. In July 2021 , we
acquired German conversational AI company e-bot7, which propels our self-service
capabilities and continued growth across Europe . In October 2021 , we acquired
VoiceBase, a leader in real-time speech recognition and conversational
analytics; and Tenfold, an advanced customer engagement platform for integrating
communication systems with leading CRM and support services. In February 2022 ,
we acquired WildHealth, a precision medicine company. Once fully integrated, we
expect these acquisitions to allow LivePerson to
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--------------------------------------------------------------------------------deliver our AI and automation capabilities, insights, and integration as a single integrated product offering across all channels including voice and messaging.
Key Metrics
Financial overview of the three months ended
•Total revenue increased 11% to
•Revenue from our Business segment increased 12% to
•Gross profit margin decreased to 66% from 67%.
•Cost and expenses increased 52% to
•Net loss increased to
•Average annual revenue per enterprise and mid-market customer increased
approximately 23% to
•Our target for enterprise and mid-market revenue retention in second quarter
2022 matches 2021, and is a range of 105% to 115%. Revenue retention rate for
enterprise and mid-market customers on the Conversational Cloud was just below
our target range for the second quarter 2022 and the comparable period in 2021.
Revenue retention rate measures the percentage of revenue retained at quarter
end, from full service customers that were on the Conversational Cloud at the
same period a year ago.
Adjusted EBITDA and Adjusted Operating Income (Loss)
To provide investors with additional information regarding our financial
results, we have disclosed adjusted earnings before interest, taxes,
depreciation, and amortization ("EBITDA") and adjusted operating income (loss),
which are non-GAAP financial measures. The tables below present a reconciliation
of adjusted EBITDA and adjusted operating income (loss) to net income (loss),
the most directly comparable GAAP financial measures.
We have included adjusted EBITDA and adjusted operating income (loss) in this
Quarterly Report on Form 10-Q because these are key measures used by our
management and board of directors to understand and evaluate our core operating
performance and trends, to prepare and approve our annual budget and to develop
short and long-term operational plans. In particular, the exclusion of certain
expenses in calculating adjusted EBITDA and adjusted operating income (loss) 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 (loss) provide useful information to
investors and others in understanding and evaluating our operating results in
the same manner as our management and board of directors.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:
• although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized may have to be replaced in the future, and adjusted
EBITDA does not reflect cash capital expenditure requirements for such
replacements or for new capital expenditure requirements;
• adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
• adjusted EBITDA does not consider the impact of acquisition related 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.
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--------------------------------------------------------------------------------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.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(In thousands)
Reconciliation of Adjusted EBITDA
GAAP net loss $ (75,411) $ (21,119) $ (140,775) $ (42,314)
Amortization of purchased intangibles and
finance leases 5,483 1,558 10,799 3,108
Stock-based compensation 36,517 15,087 68,383 29,698
Contingent earn-out adjustments - - - 132
Restructuring costs (1) 10,861 493 10,838 3,225
Depreciation 7,127 6,973 14,351 13,578
Other litigation and consulting costs (2) 3,053 2,835 4,804 4,182
Provision for (benefit from) income taxes 1,214 598 1,021 (253)
Acquisition costs 1,703 - 2,122 -
Interest expense, net 682 9,281 2,114 18,410
Other (expense) income, net (3) 3,266 (2,338) 3,206 (3,050)
Adjusted EBITDA (loss) $ (5,505) $ 13,368 $ (23,137) $ 26,716
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(1)Includes severance costs and other compensation related costs of
$10.5 million and lease restructuring costs of $0.4 million for the three months
ended June 30, 2022 . Includes lease restructuring costs of $0.3 million and
severance costs and other compensation related costs of $0.2 million for the
three months ended June 30, 2021 . Includes severance costs and other
compensation related costs of $10.5 million and lease restructuring costs of
$0.3 million for the six months ended June 30, 2022 . Includes lease
restructuring costs of $0.5 million and severance costs and other compensation
related costs of $2.7 million for the six months ended June 30, 2021 .
(2)Includes consulting costs of $0.2 million , litigation costs of $2.3 million
and accrued expenses and fees of $0.5 million for the three months ended June
30, 2022 . Includes litigation costs of $1.6 million , employee benefit costs of
$0.6 million , consulting costs of $0.4 million and an increase to the reserve
for sales and use tax liability of $0.2 million for the three months ended
June 30, 2021 . Includes litigation costs of $3.0 million , employee benefit costs
of $0.7 million , consulting costs of $0.8 million , and an increase to the
reserve for sales and use tax liability of $0.3 million for the six months ended
June 30, 2022 . Includes litigation costs of $2.8 million , employee benefit cost
of $0.6 million , consulting costs of $0.6 million and an increase to the reserve
for sales and use tax liability of $0.2 million for the six months ended
June 30, 2021 .
(3)Includes $0.2 million of other income related to the settlement of leases,
offset by $1.8 million of costs related to elimination entries for our Equity
Method Investment , for the three and six months ended June 30, 2022 . The
remaining amount of other (income) expense for the three and six months ended
June 30, 2022 is attributable to currency rate fluctuations. Includes
$3.3 million of other income related to the settlement of leases for the three
and six months ended June 30, 2021 . The remaining amount of other (income)
expense for the three and six months ended June 30, 2021 is attributable to
currency rate fluctuations.
Our use of adjusted operating income (loss) 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 (loss) does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted operating income (loss) does not consider the impact of acquisition related costs;
• adjusted operating income (loss) does not consider the impact of restructuring costs;
• adjusted operating income (loss) does not consider the impact of other costs;
• other companies, including companies in our industry, may calculate adjusted operating income (loss) differently, which reduces its usefulness as a comparative measure.
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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:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(In thousands)
Reconciliation of Adjusted Operating Income
(Loss)
Loss before provision for (benefit from)
income taxes $ (74,197) $ (20,521) $ (139,754) $ (42,567)
Amortization of purchased intangibles and
finance leases 5,483 1,558 10,799 3,108
Stock-based compensation 36,517 15,087 68,383 29,698
Restructuring costs (1) 10,861 493 10,838 3,225
Other litigation and consulting costs (2) 3,053 2,835 4,804 4,182
Contingent earn-out adjustments - - - 132
Acquisition costs 1,703 - 2,122 -
Interest expense, net 682 9,281 2,114 18,410
Other (expense) income, net (3) 3,266 (2,338) 3,206 (3,050)
Adjusted Operating income (loss) $ (12,632) $ 6,395 --------------
(1)Includes severance costs and other compensation related costs of$10.5 million and lease restructuring costs of$0.4 million for the three months endedJune 30, 2022 . Includes lease restructuring costs of$0.3 million and severance costs and other compensation related costs of$0.2 million for the three months endedJune 30, 2021 . Includes severance costs and other compensation related costs of$10.5 million and lease restructuring costs of$0.3 million for the six months endedJune 30, 2022 . Includes lease restructuring costs of$0.5 million and severance costs and other compensation related costs of$2.7 million for the six months endedJune 30, 2021 . (2)Includes consulting costs of$0.2 million , litigation costs of$2.3 million and accrued expenses and fees of$0.5 million for the three months endedJune 30, 2022 . Includes litigation costs of$1.6 million , employee benefit costs of$0.6 million , consulting costs of$0.4 million and an increase to the reserve for sales and use tax liability of$0.2 million for the three months endedJune 30, 2021 . Includes litigation costs of$3.0 million , employee benefit costs of$0.7 million , consulting costs of$0.8 million , and an increase to the reserve for sales and use tax liability of$0.3 million for the six months endedJune 30, 2022 . Includes litigation costs of$2.8 million , employee benefit costs of$0.6 million , consulting costs of$0.6 million , and an increase to the reserve for sales and use tax liability of$0.2 million for the six months endedJune 30, 2021 . (3)Includes$0.2 million of other income related to the settlement of leases, offset by$1.8 million of costs related to elimination entries for ourEquity Method Investment , for the three and six months endedJune 30, 2022 . The remaining amount of other (income) expense for the three and six months endedJune 30, 2022 is attributable to currency rate fluctuations. Includes$3.3 million of other income related to the settlement of leases for the three and six months endedJune 30, 2021 . The remaining amount of other (income) expense for the three and six months endedJune 30, 2021 is attributable to currency rate fluctuations. 45 -------------------------------------------------------------------------------- Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted inthe United States of America . As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. We believe that the assumptions and estimates associated with revenue recognition, depreciation, 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. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating the reported consolidated financial results include the following:
Revenue Recognition
The majority of our revenue is generated from monthly service revenues, which is inclusive of our platform usage pricing model, and related professional services from the sale of our services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. A large proportion of our revenue from new customers comes from large corporations. These companies typically have more significant implementation requirements and more stringent data security standards. Such customers also have more sophisticated data analysis and performance reporting requirements, and are likely to engage our professional services organization to provide such analysis and reporting on a recurring basis.
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.
Total revenue of$132.6 million and$119.6 million was recognized for the three months endedJune 30, 2022 and 2021, respectively, and$262.8 million and$227.5 million during the six months endedJune 30, 2022 and 2021, respectively. We defer all incremental commission costs to obtain the contract (contract acquisition costs). The contract acquisition costs consist of prepaid sales commissions and have balances as ofJune 30, 2022 andDecember 31, 2021 of$43.4 million and$40.7 million , respectively. We amortize these costs over the related period of benefit using the expected life of the customer contract, which we determine to be three to five years, consistent with the transfer to the customer of the services to which the asset relates. We classify 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. 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.
Additionally, for certain of our larger
46
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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 arrangements, we act as a principal in
a transaction if we control the specified goods or services before they are
transferred to the customer.
Revenue attributable to our monthly hosted Business services accounted for 72%
and 80% of total revenue for the three months ended June 30, 2022 and 2021,
respectively, and 77% and 79% for the six months ended June 30, 2022 and 2021,
respectively.
Professional Services Revenue
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 and is recognized at a point in time. Professional Services revenue is 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. Our Professional Services 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. Revenue attributable to Professional Services accounted for 22% and 12% of total revenue for the three months endedJune 30, 2022 and 2021, respectively, and 16% and 13% for the six months endedJune 30, 2022 and 2021, respectively.
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 primarily because the Expert is the primary obligor. 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. Revenue from our Consumer segment accounted for 7% and 8% of total revenue for the three months endedJune 30, 2022 and 2021, respectively, and 7% and 8% for the six months endedJune 30, 2022 and 2021, respectively.
Remaining Performance Obligation
As ofJune 30, 2022 , the aggregate amount of the total transaction price allocated in contracts with original duration of one year or greater to the remaining performance obligations was$408.8 million . Approximately 92% of our remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered. We have 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 less than one year. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606, "Revenue from Contracts with Customers."
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
47
--------------------------------------------------------------------------------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.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance. The increase of$11.7 million in deferred revenue balance as ofJune 30, 2022 from the deferred revenue balance of$98.9 million as ofDecember 31, 2021 is primarily driven by cash payments received or due in advance of our performance obligations, partially offset by$95.8 million in revenues recognized that were included in the deferred revenue balance as ofDecember 31, 2021 . 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. Our forfeiture rate assumptions, which estimate the share-based awards that will ultimately vest, requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period of change and could be materially different from share-based compensation expense recorded in prior periods. For the three months endedJune 30, 2022 and 2021, we accrued approximately$4.8 million and$5.1 million in cash awards, respectively, and for the six months endedJune 30, 2022 and 2021, we accrued approximately$11.9 million and$10.4 million in cash awards, respectively, to be settled in shares of our stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying condensed consolidated financial statements for the three and six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , there was approximately$29.6 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.7 years. As ofJune 30, 2022 , there was approximately$129.5 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over the remaining weighted average period of approximately 3.0 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 10% or more of our total revenue for the three and six months endedJune 30, 2022 and 2021. Two customers exceeded 10% of our total accounts receivable as ofJune 30, 2022 . No single customer accounted for 10% or more of our total accounts receivable as ofDecember 31, 2021 . During the six months endedJune 30, 2022 , we increased our allowance for doubtful accounts from$6.3 million as ofDecember 31, 2021 to approximately$8.2 million . A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles. Accounts receivable is presented net of an allowance for doubtful accounts and sales reserve of$8.2 million and$2.9 million as ofJune 30, 2022 , respectively, and$6.3 million and$4.1 million as ofDecember 31, 2021 , respectively. An allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances. Judgment is required in the estimation of the allowance and we evaluate the collectability of our accounts receivable based on a 48 -------------------------------------------------------------------------------- combination of factors. If we become aware of a customer's inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, we use an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and our historical collection experience adjusted for current expectations for the customer or industry. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.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. We have determined that we operate as three reporting units and have selectedSeptember 30 as the date to perform our annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from our business. If these estimates or their related assumptions change in the future, we may be required to record impairment for these assets. We have 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, we 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 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.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company includes interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. The Company recorded a valuation allowance against itsU.S. andGermany deferred tax assets 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 toLivePerson Australia Holdings Pty. Ltd. ,LivePerson (UK) Limited ,Kasamba Inc. ,LivePerson Japan and LivePerson Limited (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 endedDecember 31, 2021 , there was an increase in the valuation recorded of$51.7 million . 49 --------------------------------------------------------------------------------
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 15 - Legal Matters for additional information on our legal proceedings and litigation.
Recently Issued Accounting Standards
See Note 1 - Description of Business and Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements for a full description of recently issued accounting standards.
Recently Adopted Accounting Pronouncements
See Note 1 - Description of Business and Basis of Presentation in the Notes to the Condensed Consolidated Financial Statements for a full description of recently adopted accounting pronouncements.
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's sophisticated intelligence engine to connect
with consumers through an integrated suite of mobile and online business
messaging technologies. The Consumer segment facilitates online transactions
between Experts and Users seeking information and knowledge for a fee via mobile
and online messaging.
Comparison of the Three and Six Months Ended
Revenue
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.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Revenue by Segment:
Business $ 123,436 $ 109,795 12 % $ 244,511 $ 208,675 17 %
Consumer 9,129 9,810 (7) % 18,251 18,821 (3) %
Total $ 132,565 $ 119,605 11 % $ 262,762 $ 227,496 16 %
Business revenue increased by 12% to $123.4 million and by 17% to $244.5 million
for the three and six months ended June 30, 2022 , respectively, from $109.8
million and $208.7 million , respectively, for the comparable periods in 2021.
The increase in Business revenue is driven primarily by increases in hosted
services of $22.4 million during the six months ended June 30, 2022 , partially
offset by decreases in hosted services of $0.2 million during the three months
ended June 30, 2022 and increases in professional services of $13.9 million and
$13.4 million during the three and six months ended June 30, 2022 , respectively.
Included in hosted services is a decrease in revenue that is variable based on
interaction and usage of approximately $9.8 million and $1.0 million during the
three and six months ended June 30, 2022 , respectively.
The increase in Business revenue was driven by both existing and new customers
as LivePerson generated greater demand for its Conversational Commerce software.
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
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and mortar. As adoption increases, we are seeing higher revenue per customer.
Our average annual revenue per enterprise and mid-market customer increased
approximately 23% year-over-year to $660,000 for the trailing twelve months
ended June 30, 2022 , as compared to $535,000 for the trailing twelve months
ended June 30, 2021 . Revenue retention for our enterprise and mid-market
customers on the Conversational Cloud was just below our target range of 105% to
115% for the second quarter 2022 and comparable period in 2021. However, we are
seeing some potential elongation of sales cycles driven by current
macro-environmental factors.
Consumer revenue decreased by 7% to $9.1 million and by 3% to $18.3 million for
the three and six months ended June 30, 2022 , respectively, from $9.8 million
and $18.8 million for the comparable periods in 2021. This decrease was driven
by slightly lower demand by consumers to engage with experts and advisors
through conversational messaging channels.
Cost of Revenue - Business
Cost of revenue - business consists of compensation costs relating to employees
who provide customer service to our customers, compensation costs relating to
our network support staff, outside labor provider costs, the cost of supporting
our server and network infrastructure, and allocated occupancy costs and related
overhead.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Cost of revenue - business $ 43,616 $ 38,265 14 % $ 91,837 $ 69,875 31 %
Percentage of total revenue 33 % 32 % 35 % 31 %
Headcount (at period end) 219 236 (7) % 219 236 (7) %
Cost of revenue - business increased by 14% to
Cost of revenue - business increased by 31% to$91.8 million for the six months endedJune 30, 2022 from$69.9 million for the comparable period in 2021. This increase in expense is primarily attributable to an increase in salary and related employee expenses of approximately$8.0 million , an increase in expenses for backup server facilities of approximately$4.1 million , an increase in business services and outsourced contracting of$2.5 million , and an increase in amortization expense of approximately$6.6 million .
Cost of Revenue - Consumer
Cost of revenue - consumer consists of compensation costs relating to employees
who provide customer service to Experts and Users, compensation costs relating
to our network support staff, the cost of supporting our server and network
infrastructure, credit card and transaction processing fees and related costs,
and allocated occupancy costs and related overhead.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Cost of revenue - consumer $ 1,433 $ 1,798 (20) % $ 2,779 $ 3,707 (25) %
Percentage of total revenue 1 % 2 % 1 % 2 %
Headcount (at period end) 15 20 (25) % 15 20 (25) %
Cost of revenue - consumer decreased by 20% to $1.4 million for the three months
ended June 30, 2022 from $1.8 million for the comparable period in 2021. This
decrease in expense is primarily related to decreases in salary and employee
related expenses, backup server facilities expenses, and credit card processing
fees, partially offset by increases in business services and outsourced
contracting.
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Cost of revenue - consumer decreased by 25% to $2.8 million for the six months
ended June 30, 2022 from $3.7 million for the comparable period in 2021. This
decrease in expense is primarily related to decreases in salary and employee
related expenses, business services and outsourced contracting, and in credit
card processing fees.
Sales and Marketing - Business
Sales and marketing - business expenses consist of compensation and related
expenses for sales and marketing personnel, as well as advertising, marketing
events, public relations, trade show exhibit expenses and allocated occupancy
costs and related overhead.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Sales and marketing -
business $ 53,260 $ 31,915 67 % $ 105,543 $ 62,118 70 %
Percentage of total
revenue 40 % 27 % 40 % 27 %
Headcount (at period end) 724 327 121 % 724 327 121 %
Sales and marketing - business expenses increased by 67% to $53.3 million for
the three months ended June 30, 2022 from $31.9 million for the comparable
period in 2021. This increase was primarily attributable to an increase in
salary and related employee expenses of approximately $17.0 million , an increase
in marketing expenses of approximately $2.1 million , and an increase in backup
server facilities of approximately $2.4 million .
Sales and marketing - business expenses increased by 70% to $105.5 million for
the six months ended June 30, 2022 from $62.1 million for the comparable period
in 2021. This increase was primarily attributable to an increase in salary and
related employee expenses of approximately $32.1 million , an increase in
marketing expenses of approximately $6.4 million , an increase in backup server
facilities of $3.3 million , and an increase in business services and outsourced
contracting of $1.7 million .
Sales and Marketing - Consumer
Sales and marketing - consumer expenses consist of compensation and related expenses for marketing personnel, as well as online promotion, public relations and allocated occupancy costs and related overhead.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Sales and marketing -
consumer $ 6,723 $ 6,707 - % $ 12,572 $ 13,457 (7) %
Percentage of total
revenue 5 % 6 % 5 % 6 %
Headcount (at period end) 15 16 (6) % 15 16 (6) %
Sales and marketing - consumer expenses remained relatively flat at
Sales and marketing - consumer expenses decreased by 7% to$12.6 million for the six months endedJune 30, 2022 from$13.5 million for the comparable period in 2021. This decrease is primarily attributable to decreases in marketing expenses of approximately$0.4 million and a decrease in outsourced subcontracting of$0.4 million . 52 --------------------------------------------------------------------------------
General and Administrative
Our general and administrative expenses consist of compensation and related expenses for executive, accounting, legal, human resources and administrative personnel, professional fees and other general corporate expenses.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars inthousands)
General and administrative$ 30,246 $ 16,105 88 %$ 59,981 $ 30,591 96 % Percentage of total revenue 23 % 13 % 23 % 13 % Headcount (at period end) 162 112 45 % 162 112 45 % General and administrative expenses increased by 88% to$30.2 million for the three months endedJune 30, 2022 from$16.1 million for the comparable period in 2021. This increase is primarily attributable to an increase in salary and related employee expenses of approximately$2.8 million , an increase in contingent compensation of$9.2 million in conjunction with acquisitions, an increase in facilities expense of$1.2 million , and an increase in business services of approximately$0.8 million . General and administrative expenses increased by 96% to$60.0 million for the six month endedJune 30, 2022 from$30.6 million for the comparable period in 2021. This increase is primarily attributable to an increase in salary and related employee expenses of approximately$8.4 million , an increase in contingent compensation of$14.7 million in conjunction with acquisitions, an increase in business services expenses of$3.8 million and an increase in facilities expense of$2.4 million .
Product Development
Our product development expenses consist of compensation and related expenses
for product development personnel as well as allocated occupancy costs and
related overhead and outsourced labor and expenses for testing new versions of
our software.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Product development $ 55,752 $ 37,526 49 % $ 111,824 $ 70,981 58 %
Percentage of total revenue 42 % 31 % 43 % 31 %
Headcount (at period end) 604 524 15 % 604 524 15 %
Product development costs increased by 49% to $55.8 million for the three months
ended June 30, 2022 from $37.5 million for the comparable period in 2021. This
increase is primarily related to increases in salary and employee related
expenses of approximately $8.3 million , an increase in contingent compensation
of $3.9 million in conjunction with acquisitions, an increase in business
services and outsourcing subcontracted labor of approximately $3.4 million , an
increase in software expenses of approximately $2.4 million , and an increase in
depreciation expenses of approximately $0.3 million . We also made investments in
public cloud migration, and in enhancing and expanding new features of the
Conversational Cloud. Further, we invested in hiring more data scientists and
machine learning engineers to focus on Conversational AI.
Product development costs increased by 58% to $111.8 million for the six months
ended June 30, 2022 from $71.0 million for the comparable period in 2021. This
increase is primarily related to an increase in salary and employee related
expenses of approximately $23.3 million , an increase in contingent compensation
of $5.0 million in conjunction with acquisitions, an increase in business
services and outsourcing subcontracted labor of approximately $8.0 million , an
increase in software expenses of approximately $3.7 million , and an increase in
depreciation expenses of approximately $0.9 million .
We continue to invest in new product development efforts to expand the
capability of the Conversational Cloud. Upon completion, the project costs will
be depreciated over five years. For the three and six months ended June 30,
2022 , $9.3 million and $19.1 million was capitalized, respectively, compared to
$9.2 million and $17.4 million , respectively, for the comparable periods in
2021.
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--------------------------------------------------------------------------------Restructuring Costs
Restructuring costs consist of re-prioritizing and reallocating resources to focus on areas believed to show high growth potential.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Restructuring costs $ 10,861 $ 493 2,103 % $ 10,838 $ 3,225 236 %
Percentage of total revenue 8 % - % 4 % 1 %
Restructuring costs increased to$10.9 million during the three months endedJune 30, 2022 from$0.5 million for the comparable period in 2021. The restructuring cost for the three months endedJune 30, 2022 is driven by a restructuring initiative commenced during the second quarter of 2022. The purpose of this restructuring plan was to realign our cost structure to better reflect significant product and business model innovation and changes over the past year due to acquisitions and factors outside of our control. As part of the restructuring initiative, we reoriented our global product and engineering organization for greater efficiency and focus, and reallocated some spending to increase our investment in customer success and go-to-market initiatives. We believe these initiatives will better align resources to provide further operating flexibility and position the business for long-term success.
Amortization of Purchased Intangibles
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Amortization of purchased
intangibles $ 923 $ 374 147 % $ 1,822 $ 749 143 %
Percentage of total
revenues 1 % - % 1 % - %
Amortization expenses for purchased intangibles increased by 147% to $0.9
million and by 143% to $1.8 million for the three and six months ended June 30,
2022 , respectively, from $0.4 million and $0.7 million for the comparable
periods in 2021, respectively, primarily driven by additional amortization of
intangibles obtained during acquisitions of e-bot7 in July 2021 , Tenfold and
VoiceBase in October 2021 and WildHealth in February 2022 .
Additional amortization expenses in the amount of $4.6 million and $9.0 million
for the three and six months ended June 30, 2022 , respectively, and $1.2 million
and $2.4 million for the three and six months ended June 30, 2021 , respectively,
is included in cost of revenue.
Other Expense, net
Other expense, net consists of interest income on cash and cash equivalents, investment income and financial (expense) income which is a result of currency rate fluctuations associated with exchange rate movement of theU.S. dollar against the New Israeli Shekel ("NIS"), British Pound, Euro, Australian Dollar, and Japanese Yen. Three Months Ended Six Months Ended June 30, June 30, 2022 2021 % Change 2022 2021 % Change (Dollars in thousands) Interest expense, net$ (682) $ (9,281) 93 %$ (2,114) $ (18,410) 89 % Other (expense) income, net (3,266) 2,338 (240) % (3,206) 3,050 (205) % Other expense, net$ (3,948) $ (6,943) 43 %$ (5,320) $ (15,360) 65 % 54
-------------------------------------------------------------------------------- Other expense, net decreased by 43% to$3.9 million for the three months endedJune 30, 2022 from$6.9 million for the comparable period in 2021 primarily due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of the Notes, offset by other expense associated with the Company's equity method investment. Other expense, net decreased by 65% to$5.3 million for the six months endedJune 30, 2022 from$15.4 million for the comparable period in 2021 primarily due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of the Notes, offset by other expense associated with the Company's equity method investment.
Provision for (Benefit from) Income Taxes
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 % Change 2022 2021 % Change
(Dollars in thousands)
Provision for (benefit
from) income taxes $ 1,214 $ 598 103 % $ 1,021 $ (253) (504) %
We had a tax provision of $1.2 million and $1.0 million for the three and six
months ended June 30, 2022 , respectively. Provision for income taxes was $0.6
million for the three months ended June 30, 2021 and benefit from income taxes
was $0.3 million for the six months ended June 30, 2021 . Our consolidated
effective tax rate was impacted by the statutory income tax rates applicable to
each of the jurisdictions in which we operate.
For the three months ended June 30, 2022 , the Company recorded a tax provision
of $1.2 million . This amount consists mainly of a tax provision of $2.5 million
on operating earnings for the period coupled with a stock compensation tax
deficiency of $0.3 million related to stock compensation arrangements for
LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel ), offset by a
tax benefit of $1.6 million related to the release of a valuation allowance in
conjunction with the WildHealth transaction.
For the six months ended June 30, 2022 , the Company recorded a tax provision of
$1.0 million . This amount consists of a tax provision of $2.5 million on
operating earnings for the period coupled with a stock compensation tax
deficiency of $0.1 million related to stock compensation arrangements for
LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel ), offset by a
tax benefit of $1.6 million related to the release of a valuation allowance in
conjunction with the WildHealth transaction.
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