LIVEVOX HOLDINGS, INC. Throughout this section, unless otherwise noted, the "Company," "LiveVox ," "we," "us," and "our" refers toLiveVox Holdings, Inc. , and its subsidiaries, collectively. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited interim consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"). In addition to historical information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth in the section entitled "Item 1A. Risk Factors" in our Annual Report on Form 10-K ("Annual Report") filed with theSEC onMarch 11, 2022 . Overview We enable next-generation cloud contact center functionality through a cloud contact-center-as-a-service (or CCaaS) platform that we provide for enterprises, business process outsourcers (BPOs) and collections agencies. Our CCaaS platform provides customers with a scalable, cloud-based architecture and pre-integrated artificial intelligence (AI) capabilities to support enterprise-grade deployments of our solutions including omnichannel customer connectivity, customer relationship management (CRM) and workforce optimization (WFO). Our omnichannel product offerings enable our customers to connect with their customers via their channel of choice, including human voice, virtual agents powered by artificial intelligence (AI), email, text or web chat. Our platform features a native CRM which unifies disparate, department-level systems of record to present contact center agents with a single view of its customers without displacing or replacing existing CRMs or other systems of record. Our WFO offerings include a lightweight yet fully-featured product that meets the needs of smaller or less mature contact center operations as well as seamless integration with WFO products from other providers. We typically sell our products to customers under one- to three-year subscription contracts that stipulate a minimum amount of monthly usage and associated revenue with the ability for the customer to consume more usage above the minimum contract amount each month. Our subscription revenue is comprised of the minimum usage revenue under contract (which we call "contract revenue") and amounts billed for usage above the minimum contract value (which we call "excess usage revenue"), both of which are recognized on a monthly basis following deployment to the customer. Excess usage revenue is deemed to be specific to the month in which the usage occurs, since the minimum usage commitments reset at the beginning of each month. For the three months endedMarch 31, 2022 and 2021, subscription revenue (i.e., contract revenue and excess usage revenue) accounted for 97.2% and 97.6%, respectively, of our total revenue with the remainder consisting of professional services and other non-recurring revenue derived from the implementation of our products.
Matters Affecting Comparability
Pursuant to Accounting Standards Codification ("ASC") 805, Business
Combinations, the merger between LiveVox Holdings, Inc. (hereinafter referred to
as "Old LiveVox") and Crescent Acquisition Corp ("Crescent") consummated on June
18, 2021 (the transaction referred to as the "Merger") was accounted for as a
reverse recapitalization, rather than a business combination, for financial
accounting and reporting purposes. Accordingly, Old LiveVox was deemed the
accounting acquirer (and legal acquiree) and Crescent was treated as the
accounting acquiree (and legal acquirer). Under this method of accounting, the
reverse recapitalization was treated as the equivalent of Old LiveVox issuing
stock for the net assets of Crescent, accompanied by a recapitalization. The net
assets of Crescent are stated at historical cost, with no goodwill or other
intangible assets recorded. The consolidated assets, liabilities and results of
operations prior to the Merger are those of Old LiveVox. The shares and
corresponding capital amounts and earnings per share available for common
stockholders, prior to the Merger, have been retroactively restated as shares
reflecting the exchange ratio established in the Merger Agreement dated January
13, 2021 .
Impact of COVID-19
While impacts associated with COVID-19 had certain adverse impacts on our
business and operating results in the first two quarters of fiscal 2020, we have
not experienced a sustained disruption in our overall business other than as
described below.
In March of fiscal 2020, we began to experience softness in our excess usage
revenue in relation to our contract revenue (as evidenced by the calculation of
total revenue divided by contract revenue which we call the "usage multiplier")
as a result of the COVID-19 pandemic and this softness continued to persist
through the end of fiscal 2021. We attribute this softness to financial stimulus
packages designed to address the financial hardships of Americans brought about
by the COVID-19 pandemic which allowed
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many of our customers in the collections industry to meet their collection goals
with fewer interactions with debtors. As a result, our usage multiplier declined
sequentially from the fourth quarter of fiscal 2020 to the second quarter of
fiscal 2021. In the second half of fiscal 2021 our usage multiplier increased
slightly over the second quarter of fiscal 2021, but remained below the first
quarter of fiscal 2021. When the effects of the pandemic and the associated
financial stimulus (including, but not limited to direct stimulus payments,
extensions and enhancements of unemployment benefits and loan forbearances)
dissipate and there is a return to growth in consumer debt relative to
disposable income, we believe the usage multiplier will recover to normal
historical levels. As that relationship moves towards normal historical levels,
our excess usage revenue is likely to grow faster than our contract revenue. The
impact of COVID-19 in the first quarter of fiscal 2022 is described under
"-Usage Impacts on the First Quarter of Fiscal 2022 relative to the Fourth
Quarter of Fiscal 2021-" below.
Impact of
The dialing practices of several of our larger BPOs and collection customers were constrained by Regulation F, which took effect onNovember 30, 2021 . Regulation F governs third-party debt collectors and, among other things, limits the number of call attempts that a debt collector may make to a consumer to seven calls per account within a seven day period (sometimes referred to as "7 in 7"). Once the debt collector makes actual contact with a consumer, the debt collector may not call the consumer again about that same account for a seven-day period. Excess usage revenue inDecember 2021 was impacted by approximately$1.0 million as many customers conservatively changed their dialing pattern to less than 7 in 7. We have been actively presenting a best practice designed to enhance our customers' profitability that replaces their previous behavior with a Regulation F-compliant calling regimen supplemented by best-time dial technology and/or 2 text messages per week. Sales of our Attempt Supervisor product have increased in the fourth quarter of fiscal 2021, and while we expect sales of this product to continue to increase in 2022, we continue to believe the conservative dialing behavior demonstrated by our customers immediately following the implementation of Regulation F will be replaced by behavior that optimizes the profitability of our customers in the future. We believe that our recommended best practices, if implemented, will result in higher collection results for our customers, at a lower labor cost with a slight increase in software costs. However, there can be no assurance as to when our customers will adopt our recommended Regulation F-compliant practices, if at all. For the fourth quarter of fiscal 2021, our usage multiplier was unfavorably impacted by approximately 0.04x. The impact of Regulation F rules in the first quarter of fiscal 2022 is described under "-Usage Impacts on the First Quarter of Fiscal 2022 relative to the Fourth Quarter of Fiscal 2021-" below.
Usage Impacts on the First Quarter of Fiscal 2022 relative to the Fourth Quarter of Fiscal 2021
Our business and operating results in the first quarter of fiscal 2022 were affected by a number of variables, including:
•Regulation F rules were in effect for all three months of the first quarter of fiscal 2022, relative to just the month of December in fiscal 2021. It is unclear how many customers have adopted our recommended best practices;
•Increased originations and delinquencies, which are leading indicators of the expected dissipation of the effects of the COVID-19 pandemic and the associated financial stimulus. In the first quarter of fiscal 2022, these increases have translated, and we believe will continue to translate into higher minute and digital volumes over time;
•An increase in volume during tax season as refunds improve the yield of our collections customers efforts;
•The cumulative effect of external events on the behavior of our customers, a tight labor market, increased uncertainty caused by higher inflation and the invasion ofUkraine byRussia ; and •Our mix of non-recurring and professional services revenue declined from 4% of total revenue in the fourth quarter of fiscal 2021 to 3% in the first quarter of fiscal 2022, driving a 0.01x unfavorable reduction in the multiplier. The combined effect of these variables has unfavorably impacted our usage multiplier metric which measures the relationship between total revenue and contracted revenue. Total revenue divided by contracted revenue decreased from 1.31x in the fourth quarter of fiscal 2021 to 1.27x in the first quarter of fiscal 2022. While we can quantify the effect of product mix on the multiplier indicator, we cannot differentiate the impact of the other variables. However, our collections customers were flat sequentially, indicating that the decline was driven by our blended BPOs and customer engagement customer categories.
The Company has determined that its Chief Executive Officer ("CEO") is its chief operating decision maker. The Company's CEO reviews financial information presented on a consolidated basis for purposes of assessing performance and making decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single reportable segment.
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--------------------------------------------------------------------------------Key Operating and Non-GAAP Financial Performance Metrics
In addition to measures of financial performance presented in our consolidated financial statements, we monitor the key metrics set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies.
LTM Net Revenue Retention Rate
We believe that our LTM Net Revenue Retention Rate provides us and investors with insight into our ability to retain and grow revenue from our customers and is a meaningful measure of the long-term value of our customer relationships. We calculate LTM Net Revenue Retention Rate by dividing the recurring revenue recognized during the most recent LTM period by the recurring revenue recognized during the LTM period immediately preceding the most recent LTM period, provided, however, that recurring revenue from a customer in the most recent LTM period is excluded from the calculation if recurring revenue was not recognized from that customer in the preceding LTM period. Customers who cease using our products during the most recent LTM period are included in the calculation. For example, LTM Net Revenue Retention for the 12-month period endingMarch 2022 includes recurring revenue from all customers for whom revenue was recognized from April of 2020 to March of 2021 regardless of whether such customers increased, decreased, or stopped their use of our products during that period (i.e., old customers), but excludes recurring revenue from all customers who began using our services from April of 2021 to March of 2022 (i.e., new customers). We define monthly recurring revenue as recurring monthly contract and excess usage revenue, which we calculate separately from one-time, non-recurring revenue by month by customer. We consider all contract and excess usage revenue, which represents 97% of our revenue, to be recurring revenue as all of our contracts provide for a minimum commitment amount. We consider professional services revenue and one-time adjustments, which are booked on a one-time, nonrecurring basis, to be non-recurring revenue. Professional services and other one-time adjustments are generally not material to the result of the calculation. However, one-time non-recurring revenue is important with respect to timing as we bill installation and non-standard statement of work fees immediately and recognize the revenue as the work is completed, which is generally in advance of the beginning of recurring revenue which is when we recognize the beginning of the LTM period immediately preceding the most recent LTM period. The following table shows our LTM Net Revenue Retention Rate for the periods presented: Twelve Months Ended March 31, Twelve Months Ended December 31, 2022 2021 2021 2020 LTM Net Revenue Retention Rate 113 % 99 % 105 % 106 % Our LTM Net Revenue Retention Rate reflects the expansion over time of our existing customers as they add new products and additional units of service. A much higher percentage of the product revenue from our customers is contracted on our per minute pricing model with a minimum commitment as compared to our per agent pricing model with minimum commitments for both agents and units of service. Our LTM Net Revenue Retention Rate increased by 14 percentage points, to 113% in the twelve months endedMarch 31, 2022 from 99% in the twelve months endedMarch 31, 2021 primarily as a result of the tapering of the impact of COVID-19 and the related decrease in excess usage revenue that occurred from the first quarter of fiscal 2020 (which is no longer included in the calculation to the second quarter of 2020). In addition, monthly minimum contract revenue for customers grew by 25% from the twelve months endedMarch 31, 2021 to the twelve months endedMarch 31, 2022 . Our LTM Net Revenue Retention Rate decreased by 1 percentage point, to 105% in the twelve months endedDecember 31, 2021 from 106% in the twelve months endedDecember 31, 2020 primarily as a result of the impact of COVID-19 and the related decrease in excess usage revenue, described above. Despite the decline in LTM Net Revenue Retention Rate, monthly minimum contract revenue for customers grew by 26% from fiscal 2020 to fiscal 2021.
Adjusted EBITDA
We monitor Adjusted EBITDA, a non-generally accepted accounting principle
("Non-GAAP") financial measure, to analyze our financial results and believe
that it is useful to investors, as a supplement to U.S. GAAP measures, in
evaluating our ongoing operational performance and enhancing an overall
understanding of our past financial performance. We believe that Adjusted EBITDA
helps illustrate underlying trends in our business that could otherwise be
masked by the effect of the income or expenses that we exclude from Adjusted
EBITDA. Furthermore, we use this measure to establish budgets and operational
goals for managing our business and evaluating our performance. We also believe
that Adjusted EBITDA provides an additional tool for investors to use in
comparing our recurring core business operating results over multiple periods
with other companies in our industry.
Adjusted EBITDA should not be considered in isolation from, or as a substitute
for, financial information prepared in accordance with U.S. GAAP, and our
calculation of Adjusted EBITDA may differ from that of other companies in our
industry. We
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compensate for the inherent limitations associated with using Adjusted EBITDA
through disclosure of these limitations, presentation of our consolidated
financial statements in accordance with U.S. GAAP and reconciliation of Adjusted
EBITDA to the most directly comparable U.S. GAAP measure, net loss. We calculate
Adjusted EBITDA as net loss before (a) depreciation and amortization,
(b) long-term equity incentive bonus, (c) stock-based compensation expense,
(d) interest expense, net, (e) change in the fair value of warrant liability,
(f) other income (expense), net, (g) provision for income taxes, and (h) other
items that do not directly affect what we consider to be our core operating
performance.
The following table shows a reconciliation of net loss to Adjusted EBITDA for the periods presented (dollars in thousands):
Three Months Ended
March 31,
(unaudited)
2022 2021
Net loss $ (12,987) $ (4,175)
Non-GAAP adjustments:
Depreciation and amortization (1) 1,347 1,604
Long-term equity incentive bonus and stock-based compensation expenses (2)
2,479 139
Interest expense, net 750 944
Change in the fair value of warrant liability (392) -
Other income, net (64) (7)
Acquisition and financing related fees and expenses (3) 10 284
Transaction-related costs (3) - 733
Golden Gate Capital management fee expenses (3) - 171
Provision for income taxes 544 35
Adjusted EBITDA $ (8,313) $ (272) (1) Depreciation and amortization expenses included in our results of operations are as follows (dollars in thousands):
Three Months Ended
March 31, (unaudited)
2022 2021
Cost of revenue $ 609 $ 944
Sales and marketing expense 611 580
General and administrative expense 91 48
Research and development expense 36 32
Total depreciation and amortization
(2) There were no long-term equity incentive bonus during the periods presented.
Stock-based compensation expenses included in our results of operations are as
follows (dollars in thousands):
Three Months Ended
March 31, (unaudited)
2022 2021
Cost of revenue $ 312 $ 14
Sales and marketing expense 607 29
General and administrative expense 660 68
Research and development expense 900 28
Total stock-based compensation expenses (3) Included in general and administrative expense for all periods presented.
Non-GAAP Gross Profit and Non-GAAP Gross Margin Percentage
U.S. GAAP defines gross profit as revenue less cost of revenue. Cost of revenue includes all expenses associated with our various product offerings as more fully described under the caption "-Components of Results of Operations-Cost of Revenue-" below. We define Non-GAAP gross profit as gross profit after adding back the following items:
•depreciation and amortization;
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--------------------------------------------------------------------------------•long-term equity incentive bonus and stock-based compensation expenses; and
•other non-recurring expenses
We add back depreciation and amortization, long-term equity incentive bonus and stock-based compensation expenses and other non-recurring expenses because they are one-time or non-cash items. We eliminate the impact of these one-time or non-cash items because we do not consider them indicative of our core operating performance. Their exclusion facilitates comparisons of our operating performance on a period-to-period basis. Therefore, we believe showing Non-GAAP gross margin to remove the impact of these one-time or non-cash expenses is helpful to investors in assessing our gross profit and gross margin performance in a way that is similar to how management assesses our performance.
We calculate Non-GAAP gross margin percentage by dividing Non-GAAP gross profit by revenue, expressed as a percentage of revenue.
Management uses Non-GAAP gross profit and Non-GAAP gross margin percentage to evaluate operating performance and to determine resource allocation among our various product offerings. We believe Non-GAAP gross profit and Non-GAAP gross margin percentage provide useful information to investors and others to understand and evaluate our operating results in the same manner as our management and board of directors and allows for better comparison of financial results among our competitors. Non-GAAP gross profit and Non-GAAP gross margin percentage may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin percentage or similarly titled measures in the same manner as we do.
The following table shows a reconciliation of gross profit to Non-GAAP gross profit for the periods presented (dollars in thousands):
Three Months Ended
March 31,
(unaudited)
2022 2021
Gross profit $ 18,461 $ 16,765
Depreciation and amortization 609 944
Long-term equity incentive bonus and stock-based compensation expenses
312 14
Non-GAAP gross profit Gross margin % 57.5 % 60.0 % Non-GAAP gross margin % 60.4 % 63.4 %
Components of Results of Operations
Revenue
We derive revenue by providing products under a variety of pricing models. Our recently released AI Virtual Agent product and our historical Voice product are provided under a usage-based pricing model with prices calculated on a per-minute basis with a contracted minimum commitment in accordance with the terms of the underlying pricing agreements. Voice is our predominant source of revenue. Other revenue sources are derived from products under the following pricing models:
1)a per "unit of measure" with a minimum commitment (e.g., Speech IQ);
2)the combination of per agent and per "unit of measure" models with minimum contracted commitments for each (e.g., SMS, email, U-CRM services);
3)a per agent pricing model with a minimum agent commitment (e.g., U-Script, U-Ticket, U-Chat, U-Quality Management, U-Screen Capture, U-CSAT, U-BI, Hosted PBX services); and
4)a per agent pricing model with a minimum agent commitment with a monthly maximum commitment (e.g., PDAS-our compliance product, U-BI).
Outside of Voice, our pricing models detailed above are relatively new to the market and are not yet material to our business from a financial perspective.
Cost of Revenue
Our cost of revenue consists of personnel costs and associated costs such as
travel, information technology, facility allocations and stock-based
compensation for Implementation and Training Services, Customer Care, Technical
Support, Professional Services, User Acceptance Quality Assurance, Technical
Operations and VoIP services to our customers. Other costs of revenue include
non-
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cash costs associated with depreciation and amortization including acquired
technology, charges from telecommunication providers for communications, data
center costs and costs to providers of cloud communication services, software,
equipment maintenance and support costs to maintain service delivery operations.
In the fourth quarter of fiscal 2021, we completed a major strategic milestone
when our data center transitioned from a model based on maintaining a
co-location facility with our own capital equipment to a 100% cloud strategy
based on monthly recurring charges for capacity added in generally small step
function increments. As a result, we have reduced our capital expenditures for
data center equipment, which has slowed growth in depreciation and increased our
data center costs for our cloud provisioning. We expect feature release
efficiencies for our cloud operations as research and development resources
eliminate the release effort associated with our co-location deployment. We have
accelerated depreciation expense associated with the change in useful life
estimate of the co-location facility.
As our business grows, we expect to realize economies of scale in our cost of
revenue. We use the LiveVox platform to facilitate data-driven innovations to
identify and facilitate efficiency improvement to our implementation, customer
care and support, and technical operations teams. Additionally, our research and
development priorities include ease of implementation, reliability and ease of
use objectives that reduce costs and result in economies of scale relative to
revenue growth.
Operating Expenses
We classify our operating expenses as sales and marketing, general and administrative, and research and development.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for personnel in sales and marketing, sales commissions, channel special program incentive funds (SPIFF) and channel commissions, travel costs, as well as marketing pipeline management, content delivery, programs, campaigns, lead generation, and allocated overhead. We believe it is important to continue investing in sales and marketing to continue to generate revenue growth, and we expect sales and marketing expenses to increase in absolute dollars and fluctuate as a percentage of revenue as we continue to support our growth initiatives. General and Administrative. General and administrative expenses consist primarily of salary and related expenses, including stock-based compensation, for management, finance and accounting, legal, information systems and human resources personnel, professional fees, compliance costs, other corporate expenses and allocated overhead. We expect that general and administrative expenses will fluctuate in absolute dollars from period to period but decline as a percentage of revenue over time. Research and Development. Research and development expenses consist primarily of salary and related expenses, including stock-based compensation, forLiveVox personnel as well as limited outsourced software development resources related to the identification and development of improvements, and expanded features for our products, as well as quality assurance, testing, product management and allocated overhead. Research and development costs are expensed as incurred. We have not performed research and development for internal-use software that would meet the qualifications for capitalization. We believe it is important to continue investing in research and development to continue to expand and improve our products and generate future revenue growth, and we expect research and development expenses to increase in absolute dollars and fluctuate as a percentage of revenue as we continue to support our growth initiatives. 40 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three months ended
The following tables summarize key components of our results of operations for the three months endedMarch 31, 2022 and 2021 (in thousands, except per share data): Three Months Ended March 31, (unaudited) 2022 2021 Revenue $ 32,093$ 27,945 Cost of revenue 13,632 11,180 Gross profit 18,461 16,765 Operating expenses Sales and marketing expense 14,652 8,908 General and administrative expense 7,468 4,880 Research and development expense 8,490 6,180 Total operating expenses 30,610 19,968 Loss from operations (12,149) (3,203) Interest expense, net 750 944 Change in the fair value of warrant liability (392) - Other income, net (64) (7) Total other expense, net 294 937 Pre-tax loss (12,443) (4,140) Provision for income taxes 544 35 Net loss$ (12,987) $ (4,175) Net loss per share-basic and diluted $ (0.14)$ (0.06) Weighted average shares outstanding-basic and diluted 91,478 66,637 Revenue Three Months Ended March 31, (unaudited) 2022 2021 $ Change % Change Revenue $ 32,093$ 27,945 $ 4,148 14.8 % Revenue increased by$4.1 million , or 14.8%, to$32.1 million in the three months endedMarch 31, 2022 from$27.9 million in the three months endedMarch 31, 2021 , primarily due to 21.4% growth in contracted revenue driven by the acquisition of new customers and upsells to our existing customer base, partially offset by a reduction in usage driven by several variables as discussed above. Cost of revenue Three Months Ended March 31, (unaudited) 2022 2021 $ Change % Change Cost of revenue$ 13,632 $ 11,180 $ 2,452 21.9 % % of revenue 42.5 % 40.0 % Cost of revenue increased by$2.5 million , or 21.9%, to$13.6 million in the three months endedMarch 31, 2022 from$11.2 million in the three months endedMarch 31, 2021 . The increase was attributable primarily to increased cloud data center costs of$1.3 million while we continue to build out new virtual production instances to migrate customers from our co-location deployment. With the transition to the cloud complete in late 2021, going forward, we expect continued benefit from reduced technical debt (i.e., a concept in software development that reflects the implied cost of additional rework caused by choosing an easy solution now instead 41 -------------------------------------------------------------------------------- of using a better approach that would take longer), increased development efficiency and significantly reduced capital expenditure needs. We also continue to invest to support the growth of our business, including by increasing headcount, which resulted in increased personnel costs of$0.6 million . Stock-based compensation expenses increased$0.3 million associated with restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") granted under the 2021 Equity Incentive Plan (the "2021 Plan") since the second quarter of fiscal 2021, and other costs associated with the delivery of our services increased$0.5 million . These increases were partially offset by a decrease in depreciation and amortization expense of$0.3 million as we closed our private data center. Gross profit Three Months Ended March 31, (unaudited) 2022 2021 $ Change % Change Gross profit$ 18,461 $ 16,765 $ 1,696 10.1 % Gross margin percentage 57.5 % 60.0 % Gross profit increased by$1.7 million , or 10.1%, to$18.5 million in the three months endedMarch 31, 2022 from$16.8 million in the three months endedMarch 31, 2021 . The increase in gross profit was a result of increased revenue of$4.1 million and decreased depreciation and amortization expense of$0.3 million , which were partially offset by increased cloud data center costs of$1.3 million , increased personnel costs of$0.6 million , increased stock-based compensation expenses of$0.3 million and increased other costs of$0.5 million described above.
Sales and marketing expense
Three Months Ended March 31,
(unaudited)
2022 2021 $ Change % Change
Sales and marketing expense $ 14,652 $ 8,908 $ 5,744 64.5 %
% of revenue 45.7 % 31.9 %
Sales and marketing expense increased by $5.7 million , or 64.5%, to $14.7
million in the three months ended March 31, 2022 from $8.9 million in the three
months ended March 31, 2021 . The increase was attributable primarily to
increased personnel costs of $3.4 million resulting from increased headcount,
increased travel expenses of $0.8 million as travel restrictions related to the
COVID-19 pandemic continued to ease, increased marketing, promotions and
tradeshow expenses of $0.7 million , and increased stock-based compensation
expenses of $0.6 million associated with the RSUs and PSUs granted under the
2021 Plan since the second quarter of fiscal 2021.
General and administrative expense
Three Months Ended March 31,
(unaudited)
2022 2021 $ Change % Change
General and administrative expense $ 7,468 $ 4,880 $ 2,588 53.0 %
% of revenue 23.3 % 17.5 %
General and administrative expense increased by $2.6 million , or 53.0%, to $7.5
million in the three months ended March 31, 2022 from $4.9 million in the three
months ended March 31, 2021 . The increase was primarily due to increased
personnel costs of $0.8 million resulting from increased headcount, increased
miscellaneous general and administrative expenses of $0.9 million primarily
attributable to directors' and officers' insurance, and increased stock-based
compensation expenses of $0.6 million associated with the RSUs and PSUs granted
under the 2021 Plan since the second quarter of fiscal 2021. Additionally,
software expenses increased by $0.1 million and office space and utilities
expenses increased by $0.1 million .
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--------------------------------------------------------------------------------Research and development expense
Three Months Ended March 31,
(unaudited)
2022 2021 $ Change % Change
Research and development expense $ 8,490 $ 6,180 $ 2,310 37.4 %
% of revenue 26.5 % 22.1 %
Research and development expense increased by $2.3 million , or 37.4%, to $8.5
million in the three months ended March 31, 2022 from $6.2 million in the three
months ended March 31, 2021 . The increase was attributable primarily to
increased personnel costs of $1.1 million resulting from increased headcount,
increased computing costs used in the development of software of $0.2 million ,
and increased stock-based compensation expenses of $0.9 million associated with
the RSUs and PSUs granted under the 2021 Plan since the second quarter of fiscal
2021.
Interest expense, net
Three Months Ended March 31,
(unaudited)
2022 2021 $ Change % ChangeInterest expense, net$ 750 $ 944 $ (194) (20.6) % % of revenue 2.3 % 3.4 % Interest expense, net decreased by$0.2 million , or 20.6%, to$0.8 million in the three months endedMarch 31, 2022 from$0.9 million in the three months endedMarch 31, 2021 . The decrease was attributable primarily to increased interest income of$0.2 million associated with the marketable securities which we invested since the fourth quarter of fiscal 2021.
Change in the fair value of warrant liability
Three Months Ended March 31, (unaudited)
2022 2021 $ Change
Change in the fair value of warrant
liability $ (392) $ - $ (392)
% of revenue (1.2) % - %
Gain recognized due to change in the fair value of warrant liability increased
by $0.4 million to $0.4 million in the three months ended March 31, 2022 from $0
in the three months ended March 31, 2021 , due to a decrease in the fair value of
Forward Purchase Warrants. For more information, see Note 19 of the Company's
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report.
Liquidity and Capital Resources
Sources of Cash
LiveVox's consolidated financial statements have been prepared assuming the Company will continue as a going concern for the 12-month period from the date of issuance of the consolidated financial statements, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company's main sources of liquidity are cash generated by operating cash flows and debt. For the three months endedMarch 31, 2022 and 2021, the Company's cash flow used in operating activities was$14.6 million and$5.1 million , respectively. As ofMarch 31, 2022 andDecember 31, 2021 , the Company held cash and cash equivalents of$32.1 million and$47.2 million , respectively. In addition, the Company had restricted cash of$0.1 million as of bothMarch 31, 2022 andDecember 31, 2021 , related to the holdback amount for an acquisition the Company made in 2019. The Company also held marketable securities of$48.1 million and$49.4 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively. 43 -------------------------------------------------------------------------------- The term loan and revolving credit facility that the Company entered into with PNC Bank, as amended (the "Credit Facility"), provides for a$57.6 million term loan, a$5.0 million line of credit and a$1.5 million letter of credit sub-facility. The Credit Facility is collateralized by a first-priority perfected security interest in substantially all the assets of the Company and is subject to certain financial covenants before and after a covenant conversion date. Covenant conversion may be elected early by the Company if certain criteria are met, including, but not limited to, meeting fixed charge coverage and liquidity ratio targets as of the most recent twelve-month period. Prior to the covenant conversion date, the Company is required to maintain minimum levels of liquidity and recurring revenue. As of the covenant conversion date, the Company is required to maintain the Fixed Charge Coverage Ratio and Leverage Ratio (as defined in the Credit Facility) measured on a quarter-end basis for the four-quarter period ending on each such date through the end of the agreement. The term loan is dueDecember 31, 2025 . The Company was in compliance with all debt covenants atMarch 31, 2022 andDecember 31, 2021 and was in compliance with all debt covenants as of the date of issuance of these consolidated financial statements. There was no unused borrowing capacity under the term loan portion of the Credit Facility atMarch 31, 2022 orDecember 31, 2021 . There were no amounts outstanding under the revolving portion of the Credit Facility as ofMarch 31, 2022 orDecember 31, 2021 .
Cash Requirements
LiveVox's cash requirements within the next 12 months consist primarily of operating and administrative activities including employee related expenses and general, operating and overhead expenses, current maturities of the Company's term loan, operating and finance leases and other obligations.
•Term loan - The Company has contractual obligations under its term loan to make principal and interest payments. Please see Note 9 to the Company's consolidated financial statements included in Part I, Item 1 of this Quarterly Report for a discussion of the contractual obligations under the Company's term loan and the timing of principal maturities. The principal amount is dueDecember 31, 2025 ; •Operating and finance lease obligations - The Company leases its corporate headquarters and worldwide offices under operating leases, and finance computer and networking equipment and software purchases for its co-location data centers under finance leases. Please see Note 8 to the Company's consolidated financial statements included in Part I, Item 1 of this Quarterly Report for further detail of the Company's obligations under operating and finance leases and the timing of expected future lease payments; •Other liabilities - These include other long-term liabilities reflected in the Company's consolidated balance sheets as ofMarch 31, 2022 , including obligations associated with certain employee and non-employee incentive plans, Forward Purchase Warrants, unrecognized tax benefits and various long-term liabilities, which have some inherent uncertainty in the timing of these payments. Future capital requirements will depend on many factors, including the Company's customer growth rate, customer retention, timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced services offerings, the continuing market acceptance of the Company's services, effective integration of acquisition activities, if any, and maintaining the Company's bank credit facility. Additionally, the duration and extent of the impact from the COVID-19 pandemic continues to depend on future developments that cannot be accurately predicted at this time. While the COVID-19 pandemic has caused operational difficulties, and may continue to create challenges for the Company's performance, it has not, thus far, had a substantial net impact on the Company's liquidity position. The Company believes the cash generated by operating cash flows and debt will be sufficient to meet the Company's anticipated cash requirements for at least the next 12 months from the date of this Quarterly Report and beyond, while maintaining sufficient liquidity for normal operating purposes.
Acquisition Opportunities
The Company believes that there may be opportunity for further consolidation inLiveVox's industry. From time to time, the Company evaluates potential strategic opportunities, including acquisitions of other providers of cloud-based services. The Company has been in, and from time to time may engage in, discussions with counterparties in respect of various potential strategic acquisition and investment transactions. Some of these transactions could be material to the Company's business and, if completed, could require significant commitments of capital, result in increased leverage or dilution and/or subject the Company to unexpected liabilities. In connection with evaluating potential strategic acquisition and investment transactions, the Company may incur significant expenses for the evaluation and due diligence investigation of these potential transactions.
Comparison of cash flows for the three months ended
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The following table summarizes key components of our cash flows for the three
months ended
Three Months Ended March 31,
(unaudited)
2022 2021
Net cash used in operating activities $ (14,626) $ (5,091)
Net cash (used in) provided by investing activities (256) 1,136
Net cash used in financing activities (146) (1,319)
Effect of foreign currency translation (97) (21)
Net increase in cash, cash equivalents and restricted cash
Net cash used in operating activities
Cash flows from operating activities in the three months endedMarch 31, 2022 decreased by$9.5 million to$(14.6) million from$(5.1) million during the same period in 2021. The increase to net cash used in operating activities was primarily attributable to a$8.8 million increase to net loss and an increase of$2.2 million in non-cash adjustments to net loss. These non-cash items primarily consisted of a$2.3 million increase of stock-based compensation expenses associated with the RSUs and PSUs granted under the 2021 Plan since the second quarter of fiscal 2021. Net cash used in operating activities also included an increase of$3.0 million in cash from operating assets and liabilities, primarily due to the timing of cash payments to vendors and cash receipts from customers.
Net cash (used in) provided by investing activities
Cash flows from investing activities in the three months endedMarch 31, 2022 decreased by$1.4 million to$(0.3) million from$1.1 million during the same period in 2021. Net cash used in investing activities in the first quarter of fiscal 2022 was comprised of the purchases of debt securities of$1.5 million and the purchases of property and equipment of$0.5 million , partially offset by proceeds from sale of debt securities of$1.5 million and principal collected on matured debt securities of$0.2 million .
Net cash used in financing activities
Cash flows from financing activities in the three months endedMarch 31, 2022 increased by$1.2 million to$(0.1) million from$(1.3) million during the same period in 2021. The decrease to net cash used in financing activities was primarily attributable to a decrease of$1.0 million in the repayment on loans payable and a decrease of$0.1 million in the repayment on finance lease obligations.
Critical Accounting Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included in Part I, Item 1 of this Quarterly Report, which have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the determination of the useful lives of long-lived assets, period of benefit of deferred sales commissions, allowances for doubtful accounts, fair value of marketable securities, fair value of goodwill and long-lived assets, fair value of incentive awards, fair value of warrants, establishing standalone selling price, valuation of deferred tax assets, income tax uncertainties and other contingencies. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates, and such differences could be material to the Company's consolidated financial position and results of operations, requiring adjustment to these balances in future periods. While our significant accounting policies are more fully described in the notes to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report, we believe that the following accounting estimates are critical to our business operations and understanding of our financial results. We consider an accounting judgment, estimate or assumption to be critical when (a) the estimate or assumption is complex in nature or requires a high degree of subjectivity and judgment and (b) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements.
Impairment of long-lived assets, including intangible assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized
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based on the fair value of the asset and long-lived assets to be disposed of are
reported at the lower of the carrying amount or fair value. No impairment losses
have been recognized in any of the periods presented.
We perform our annual impairment review of goodwill on October 1 of each year,
and when a triggering event occurs between annual impairment tests. In testing
for goodwill impairment, the Company has the option to first assess qualitative
factors to determine if it is more likely than not that the fair value of the
Company's single reporting unit is less than its carrying amount, including
goodwill, or bypass the qualitative assessment and proceed directly to the
quantitative impairment test to determine if the fair value of the reporting
unit exceeds its carrying amount. If the fair value is determined to be less
than the carrying value, an impairment charge is recorded for the amount by
which the reporting unit's carrying amount exceeds its fair value, limited to
the total amount of goodwill allocated to that reporting unit. No impairment
losses have been recognized in any of the periods presented.
Intangible assets, consisting of acquired developed technology, corporate name,
customer relationships and workforce, are reviewed for impairment whenever
events or changes in circumstances indicate an asset's carrying value may not be
recoverable. No impairment losses have been recognized in any of the periods
presented.
Impairment of marketable securities
The Company evaluates the amortized cost of debt securities compared to their
fair value to determine whether a debt security is impaired and whether an
impaired debt security is other-than-temporary impaired ("OTTI") at each
reporting period. Factors considered in determining whether an OTTI occurs
include the length of time and extent to which fair value has been less than the
cost basis, credit quality of the issuer and the Company's ability and intent to
hold the investment for a period of time sufficient to allow for any anticipated
recovery in market value. For a debt security deemed to be OTTI, the value of
the debt security is reduced, the credit related component of OTTI is recorded
in earnings and the noncredit related component is charged to other
comprehensive income (loss) in the consolidated statements of operations and
comprehensive loss.
At
Revenue Recognition
The Company recognizes revenue in accordance with
The Company derives substantially all of its revenue by providing cloud-based
contact center voice products under a usage-based model. The Company's
performance obligations are satisfied over time as the customer has continuous
access to its hosted technology platform solutions through one of its data
centers and simultaneously receives and consumes the benefits and the Company
performs its services. Other immaterial ancillary revenue is derived from call
recording, local caller identification packages, performance/speech analytics,
text messaging services and professional services billed monthly on primarily
usage-based fees, and to a lesser extent, fixed fees. Professional services,
which represents approximately 2% of revenue, are billed on a fixed-price or on
a time and material basis and the revenue is recognized over time as the
services are rendered.
The Company has service-level agreements with customers warranting defined
levels of uptime reliability and performance. If the services do not meet
certain criteria, fees are subject to adjustment or refund representing a form
of variable consideration. The Company records reductions to revenue for these
estimated customer credits at the time the related revenue is recognized. These
customer credits are estimated based on current and historical customer trends,
and communications with its customers. Such customer credits have not been
significant to date.
For contracts with multiple performance obligations (e.g., including various
combinations of services), the Company allocates the contract price to each
performance obligation based on its relative standalone selling price ("SSP").
The Company generally determines SSP based on the prices charged to customers.
In instances where SSP is not directly observable, the Company determines the
SSP using information that generally includes market conditions or other
observable inputs.
Income Taxes
The Company accounts for income taxes using the asset and liability approach.
Deferred tax assets and liabilities are recognized for the future tax
consequences arising from the temporary differences between the tax basis of an
asset or liability and its reported amount in the consolidated financial
statements, as well as from net operating loss and tax credit carryforwards.
Deferred tax amounts are determined by using the tax rates expected to be in
effect when the taxes will be paid or refunds received, as provided for under
currently enacted tax law. A valuation allowance is provided for deferred tax
assets that, based on available evidence, are not expected to be realized.
The Company recognizes the effect of income tax positions only if those
positions are more likely than not to be sustained in a court of last resort.
Recognized income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition or measurement
are reflected in the period in which the change in judgment occurs. The Company
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--------------------------------------------------------------------------------does not believe its consolidated financial statements include any uncertain tax positions. It is the Company's policy to recognize interest and penalties accrued on any unrecognized tax benefit as a component of income tax expense.
Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.
Stock-Based Compensation
Management Incentive Units
During 2019,LiveVox TopCo, LLC ("LiveVox TopCo"), the sole stockholder of the Company prior to the Merger, established a Management Incentive Unit program whereby the LiveVox TopCo board of directors has the power and discretion to approve the issuance of ClassB Units of LiveVox TopCo that represent management incentive units ("MIUs") to any manager, director, employee, officer or consultant of the Company or its subsidiaries. Vesting begins on the date of issuance, and the MIUs vest ratably over five years with 20% of the MIUs vesting on each anniversary of a specified vesting commencement date, subject to the grantee's continued employment with the Company on the applicable vesting date. Vesting of the MIUs will accelerate upon consummation of a "sale of the company", which is defined in the LiveVox TopCo limited liability company agreement. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of five years, reduced for actual forfeited MIUs. Stock-based compensation expense for MIUs is measured based on the grant date fair value of the award using a Monte Carlo simulation. Assumptions used in the Monte Carlo simulation are holding period, expected share price volatility, discount for lack of marketability, and risk-free interest rate.
2021 Equity Incentive Plan
OnJune 16, 2021 , the stockholders of the Company approved the 2021 Equity Incentive Plan (the "2021 Plan"), which became effective upon the closing of the Merger onJune 18, 2021 . The Company grants RSUs and PSUs to employees, executive officers, directors, and consultants of the Company. RSUs are subject only to service conditions and typically vest over periods ranging from three to six years based on the grantee's role in the Company. PSUs are granted to certain key employees and vest either based on the achievement of predetermined market conditions, or based on both service and market conditions. All RSUs and PSUs will be settled in shares of Class A common stock and are classified as equity awards. Equity-classified awards are recognized as stock-based compensation expense over an employee's requisite service period or a nonemployee's vesting period on the basis of the grant-date fair value. Generally, the Company recognizes stock-based compensation expense of RSUs using the straight-line method, and recognizes stock-based compensation expense of PSUs subject to graded market vesting on a tranche-by-tranche basis (i.e., the accelerated attribution method). The fair value of the RSUs is estimated by using the closing price of the Company's Class A common stock on Nasdaq on the measurement date. The fair value of the PSUs at each measurement date is estimated by using a Monte Carlo simulation. The key inputs used in the Monte Carlo simulation are stock price, expected share price volatility, expected life, risk-free interest rate, and vesting hurdles. While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense related to the Company's 2021 Plan.
Acquisitions
The Company evaluates acquisitions of assets and other similar transactions to
assess whether or not the transaction should be accounted for as a business
combination or asset acquisition by first applying a screen test to determine if
substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of similar identifiable assets. If the
screen is met, the transaction is accounted for as an asset acquisition. If the
screen is not met, further determination is required as to whether or not the
Company has acquired inputs and processes that have the ability to create
outputs which would meet the definition of a business. Significant judgment is
required in the application of the screen test to determine whether an
acquisition is a business combination or an acquisition of assets.
If an acquisition is determined to be a business combination, the assets
acquired and liabilities assumed are recorded at their respective estimated fair
values at the date of the acquisition. Any excess of the purchase price over the
estimated fair values of the identifiable net assets acquired is recorded as
goodwill.
If an acquisition is determined to be an asset acquisition, the cost of the
asset acquisition, including transaction costs, are allocated to identifiable
assets acquired and liabilities assumed based on a relative fair value basis. If
the cost of the asset acquisition is less than the fair value of the net assets
acquired, no gain is recognized in earnings. The excess fair value of the
acquired net assets acquired over the consideration transferred is allocated on
a relative fair value basis to the identifiable net assets (excluding
non-qualifying assets).
Determining estimated fair value requires a significant amount of judgment and
estimates. If our assumptions change or errors are determined in our
calculations, the fair value could materially change resulting in a change in
our goodwill or identifiable net assets acquired.
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--------------------------------------------------------------------------------Public and Forward Purchase Warrants
Immediately following the Merger, the Company assumed 833,333 Forward Purchase
Warrants ("Forward Purchase Warrants") and 12,499,995 public warrants ("Public
Warrants") (collectively "Warrants") that had been previously issued by
Crescent. Each whole Warrant entitles the holder to purchase one share of the
Company's Class A common stock at a price of $11.50 per share, subject to
adjustments.
Upon consummation of the Merger, the Company concluded that (a) the Public
Warrants meet the derivative scope exception for contracts in the Company's own
stock and are recorded in stockholders' equity and (b) the Forward Purchase
Warrants do not meet the derivative scope exception and are recorded as
liabilities on the consolidated balance sheets at fair value upon the Merger,
with subsequent changes in the fair value recognized in the consolidated
statements of operations and comprehensive loss at each reporting date. The
Forward Purchase Warrants are classified as Level 3 fair value measurement and
the fair value is measured using a Black-Scholes option pricing model. Inherent
in options pricing models are assumptions related to current stock price,
exercise price, expected share price volatility, expected life, risk-free
interest rate and dividend yield. While the Company believes that the
assumptions used in these calculations are reasonable, changes in assumptions
could materially affect the liabilities related to the Warrants.
Recently Adopted Accounting Pronouncements
See Note 2 to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the balance sheet date included in this Quarterly Report.
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