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

General

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

Overview

technology enables consumers to connect with businesses through these same preferred conversational interfaces, including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and increasingly marketing, social, and brick and mortar engagements. For example, consumers can look up product info like ratings, images and pricing, search for stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or payments - all without ever leaving the messaging channel. These AI and human-assisted conversational experiences constitute the Conversational Space, within which LivePerson has strategically developed one of the industry's largest ecosystems of messaging endpoints and use cases.

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

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

For your reference:

• Conversational AI: Conversational AI allows humans and machines to interact using natural language, including speech or text.

• Conversational Space: In the Conversational Space, consumers message with brands on their own schedule, using natural language, to resolve their intents - all on their preferred messaging service. The core capabilities

of the Conversational Space are voice and text-based interfaces, powered by AI and humans working together. Conversational Space is the simplest, most intuitive interface of all.

• Conversational Cloud: LivePerson's enterprise-class, AI-powered Conversational Cloud platform empowers consumers to message their favorite brands, just as they do with friends and family.

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

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

•the ability for each agent to manage as many as 40 messaging conversations at a time, as compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots provides even greater scale to the number of conversations managed;

•labor efficiency gains of at least two times that of voice agents, effectively cutting labor costs by at least 50%;

•improving the overall customer experience, thereby fueling customer satisfaction increases of up to 20 percentage points, and enhancing retention and loyalty;

•more convenient, personalized and content-rich conversations that increase sales conversion by up to 20%, increase average order value and reduce abandonment;

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

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

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

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

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

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

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

digital services and consulting. We will work with Infosys to transform our technology infrastructure on the public cloud, to

build integrated solutions and a global practice around our Conversational Cloud to sell into their channels and global enterprise

customer base, and to redefine how the world’s top brands communicate.

More than 18,000 businesses, including HSBC, Orange, The Home Depot, and GM Financial use our conversational solutions to orchestrate humans and AI, at scale, and create a convenient, deeply personal relationship with their customers.

LivePerson's consumer services offering is an online marketplace that connects independent service providers

(Experts) who provide information and knowledge for a fee via mobile and online messaging with individual consumers (Users). Users seek assistance and advice in various categories including personal counseling and coaching, computers and

programming, education and tutoring, spirituality and religion, and other topics.

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

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

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

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

In order to drive broad messaging adoption, it is imperative that the Conversational Cloud integrates to all of the messaging apps that consumers prefer to use for communication and addresses all key use cases. For example, if a consumer is

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

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

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

We believe LivePerson is leading the structural shift to Conversational AI. In the wake of the COVID-19 pandemic, leading brands are turning to LivePerson's AI-powered messaging to overcome a capacity gap created by voice call agent work-from-home measures and increased demand for digital engagement as consumers practice social distancing. LivePerson is powering Conversational AI, automation and messaging strategies across a growing number of use cases from care and sales, to marketing, social, conversational advertising and brick and mortar. Our Conversational AI leadership and the increase in adoption have influenced LivePerson’s enterprise and mid-market revenue retention rate, (the trailing-twelve-month change in total revenue from existing customers after upsells, downsells and attrition) which exceeded the high end of our target range of 105% to 115% for 2020. The benefit can also be seen in LivePerson’s average revenue per user (ARPU) for our enterprise and mid-market customers, which increased approximately 35% in 2020 to $465,000 from approximately $345,000 in 2019.

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

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

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

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

•a holistic approach to scaling AI by combining consumer facing bots, agent facing bots, intelligent routing and real-time intent understanding, with an analytics dashboard that helps users focus on the intents that are impacting their business and prioritize which intents to automate next;

•bot building software that is based on dialogue instead of workflow or code, so non-technical employees like contact center agents can design automations;

•leveraging data moat from hundreds of millions of conversations to feed the machine learning that rapidly and accurately detects consumer sentiment and intents in real-time. Customers of LivePerson can use intent understanding for advanced routing, next-best actions, and to fully contain conversations with automation;

•the establishing of contact center agents as bot managers, ensuring that every conversation is safeguarded by a human and that agents are continuously training the AI to be smarter and drive more successful outcomes;

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

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

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

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

•AI analytics and reporting tailored to the Conversational Space, providing brands with immediate, actionable insights about their businesses and contact center operations.

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

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

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

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

•The Company has a data moat built on hundreds of millions of conversations across industries, geographies and use cases that is feeding the machine learning engines that power intent understanding.

•The platform has expanded to power conversations across a broad spectrum of channels and use cases, from traditional sales and customer service, to marketing, social, email, advertising and brick and mortar.

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

We believe that LivePerson’s differentiated approach to the Conversational Space, combined with our unique technology and expertise has established us as a market leader, with an ability to deliver superior returns on investment. LivePerson customers manage as many as 40 messaging conversations at a time, as compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots provides even greater scale to the number of conversations managed. Our customers often see labor efficiency gains of at least two times that of voice agents, effectively cutting labor

costs by at least 50%. Furthermore, our ability to deliver more convenient, personalized and content-rich conversations often drives increases in customer satisfaction of up to 20 percentage points and increases in sales conversions of up to 20%, while

enhancing average order value, customer retention and loyalty.

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

with new conversational businesses, including some that are in regulated industries, like online banking. We are increasingly structuring our field organization to emphasize our domain expertise and strengthen customer relationships across target industries.

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

Leverage our open architecture to support partners and developers. In addition to developing our own applications, we continue to cultivate a partner eco-system capable of offering additional applications and services to our customers. We integrate into third-party messaging endpoints including SMS, Facebook Messenger, Apple Business Chat, Google Rich Business Messenger, Line, WhatsApp, Alexa, Google Home, WeChat, Google Ad Lingo, Google Search, Google Maps, Instagram and Twitter, multiple IVR vendors and dozens of branded apps. The Conversational Cloud integrates our proprietary messaging and Conversational AI with third-party bot offerings, empowering our customers to manage a mix of different bots, human agents and technologies from one control panel, thereby optimizing contact center efficiency. LivePerson’s proprietary and third-party AI/bots enable brands to partially or fully automate communications with their customers.

In addition, we have opened up access to our platform and our products with more than 40 APIs and software development kits that allow customers and third parties to develop on top of our platform. Customers and partners can utilize these APIs to build our capabilities into their own applications and to enhance our applications with their services. In 2019, we launched LivePerson Functions, a serverless Function as a Service (FaaS) integration which enables brands to develop custom behaviors within LivePerson's conversational platform to easily and rapidly tailor conversation flows to their specific needs.

Expand sales partnerships to broaden our presence and accelerate sales cycles. We are focused on broadening our market reach and accelerating sales cycles by partnering with systems integrators, technology providers, business process outsourcers, value added resellers and other sales partners. We formalized a relationship with IBM Global Business Services in 2017 and Accenture in 2018. In 2019, we announced strategic partnerships with TTEC, a leading BPO focused on customer experience, and DMI, a digital transformation company, to redefine the customer experience with digital engagement, messaging, and AI-driven automation. In 2020, Infosys joined LivePerson’s network with a first-of-its-kind 360-degree partnership focusing not only on capturing the global rising demand for conversational commerce and building a personalized experience for customers, but also driving the transformation for internal corporate messaging and the employee experience through Conversational AI. LivePerson increased the number of partners focused on SMBs to more than 300 at year-end 2020 and 2019, from over 150 at year-end 2018, and approximately 40 at the end of 2017. Approximately one quarter of all opportunities were influenced by partners in 2020, and we are focused on driving that contribution toward 50% longer term.

Maintain market leadership in technology and security expertise. As described above, we are devoting significant resources to creating new products and enabling technologies designed to accelerate innovation. We evaluate emerging technologies and industry standards and continually update our technology in order to retain our leadership position in each market we serve. We monitor legal and technological developments in the area of information security and confidentiality to ensure our policies and procedures meet or exceed the demands of the world’s largest and most demanding corporations. We believe that these efforts will allow us to effectively anticipate changing customer and consumer requirements in our rapidly evolving industry.

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

Key Metrics

Financial overview of the three and twelve months ended December 31, 2020 compared to the comparable periods in 2019 is as follows:

•Revenue increased 29% and 26% to $102.1 million and $366.6 million in the three and twelve months ended December 31, 2020, respectively, from $79.1 million and $291.6 million in the comparable periods in 2019.

•Revenue from our Business segment increased 29% and 26% to $94.1 million and $336.9 million in the three and twelve months ended December 31, 2020, respectively, from $72.8 million and $267.1 million in the comparable periods in 2019.

•Gross profit margin increased to 73% in the three months ended December 31, 2020 from 72% in the comparable period in 2019. Gross profit margin decreased to 71% in the twelve months ended December 31, 2020 from 73% in the comparable period in 2019.

•Cost and expenses increased 5% and 20% to $108.8 million and $456.1 million in the three and twelve months ended December 31, 2020, respectively, from $103.6 million and $378.6 million in the comparable periods in 2019.

•Net loss increased to $13.3 million and to $107.6 million in the three and twelve months ended December 31, 2020, respectively, from net loss of $27.3 million and $96.1 million for the three and twelve months ended December 31, 2019, respectively.

•Trailing-twelve-month average revenue per enterprise and mid-market customer was approximately $465,000 in 2020, as compared to approximately $345,000 in 2019.

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

Revenue

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

We determine revenue recognition through the following steps:

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

•identification of the performance obligations in the contract;

•determination of the transaction price;

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

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

For more information about our revenue recognition policies, please see “-- Critical Accounting Policies and Estimates

-- Revenue Recognition.”

Hosted Services- Business Revenue

Revenue attributable to our monthly hosted Business services accounted for 78% of total revenue for the year ended December 31, 2020, 77% of total revenue for the year ended December 31, 2019 and 79% of total revenue for the year ended December 31, 2018.

Professional Services Revenue

Revenue attributable to professional services accounted for 14% of total revenue for the year ended December 31, 2020, 14% of total revenue for the year ended December 31, 2019 and 13% of total revenue for the year ended December 31, 2018.

Contracts with Multiple Performance Obligations

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

Hosted Services- Consumer Revenue

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

Deferred Revenues

We record deferred revenues when cash payments are received or due in advance of our performance. The decrease of $0.1 million in the deferred revenue balance for the year ended December 31, 2020 is primarily driven by satisfying our performance obligations and the revenue recognized of approximately $103.2 million that were included in the deferred revenue balance as of December 31, 2019.

Costs and Expenses

Our cost of revenue consists of:

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

•outside labor provider costs;

•compensation costs relating to our network support staff;

•depreciation of certain hardware and software;

•allocated occupancy costs and related overhead;

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

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

•amortization of certain intangibles.

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

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

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

During 2020, we increased our allowance for doubtful accounts from approximately $3.1 million to approximately $5.3 million. During 2019, we increased our allowance for doubtful accounts from approximately $2.3 million to approximately $3.1 million. We perform a detailed assessment of the collectability of our accounts receivable. In estimating the allowance for doubtful accounts, management considers, among other factors, the aging of the accounts receivable, historical write-offs and the creditworthiness of each customer. A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles.

Non-Cash Compensation Expense

The net non-cash compensation amounts for the years ended December 31, 2020, 2019 and 2018 consist of (amounts in thousands):

Results of Operations

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

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

Year Ended December 31,

(as a percentage of revenue)

Consolidated Statements of Operations Data: (1)

Costs and expenses:

Sales and marketing 41 % 54 % 41 %

General and administrative 17 % 20 % 18 %

Product development 30 % 28 % 22 %

Restructuring costs 8 % 1 % 2 %

Amortization of purchased intangibles — % 1 % 1 %

Loss from operations (24) % (30) % (9) %

Total Other (expense) income, net (4) % (2) % — %

Loss before provision for income taxes (29) % (32) % (10) %

Provision for income taxes 1 % 1 % — %

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

Revenue

Year Ended December 31, Year Ended December 31,

(in thousands) (in thousands)

Revenue by Segment:

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

Business revenue increased by 16% to $267.1 million for the year ended December 31, 2019, from $230.3 million for the year ended December 31, 2018. This increase in Business revenue is primarily attributable to an increase in hosted services of approximately $28.2 million and an increase in professional services of approximately $8.6 million.

The increase in Business revenue was driven in nearly equal parts by existing and new customers as LivePerson generated greater demand for its Conversational Commerce software and Gainshare (formerly “Pay for Performance”) solutions. In the wake of the COVID-19 pandemic, leading brands are turning to LivePerson's AI-powered messaging to overcome a capacity gap created by voice call agent work-from-home measures and increased demand for digital engagement as consumers practice social distancing. LivePerson is powering Conversational AI, automation and messaging strategies across a growing number of use cases from care and sales, to marketing, social, conversational advertising, and brick and mortar. As adoption increases, we are seeing higher revenue per customer. Our average annual revenue per enterprise and midmarket customer was approximately $465,000 in 2020, as compared to approximately $345,000 in 2019. Similarly, we are seeing strong revenue retention rates. Revenue retention rate for enterprise and mid-market customers on Conversational Cloud exceeded the high end of our target range of 105% to 115% in 2020, and was within our target range of 105% to 115% for 2019.

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

Cost of Revenue - Business

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 27 % 26 % 26 % 23 %

Cost of revenue increased by 33% to $99.4 million for the year ended December 31, 2020, from $74.5 million for the year ended December 31, 2019. This increase in expense is primarily attributable to an increase in business services and outsourced subcontracted labor of approximately $17.0 million as the Company saw a significant increase in demand for its Gainshare (formerly “Pay for Performance”) services, which power Conversational Commerce programs on behalf of customers. The Company also recognized an increase in salary and employee related expenses of approximately $5.0 million, in expenses for backup server facilities of approximately $1.6 million, in depreciation expense of approximately $1.2 million and in amortization expense of approximately $0.8 million.

Cost of revenue increased by 27% to $74.5 million for the year ended December 31, 2019, from $58.4 million for the year ended December 31, 2018. This increase in expense is primarily attributable to an increase in business services and outsourced subcontracted labor of approximately $7.2 million, in salary and related employee expenses of approximately $4.4 million, in expenses for backup server facilities of approximately $4.0 million and in depreciation expense of approximately $0.5 million.

Cost of Revenue - Consumer

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 2 % 2 % 2 % 2 %

Cost of revenue increased by 56% to $6.9 million for the year ended December 31, 2020, from $4.4 million for the year ended December 31, 2019. This increase in expense is primarily related to an increase in outsourcing subcontracted labor of approximately $1.3 million is due to the investment in technology infrastructure. We increased outside labor to accelerate a technology change which assisted us in the rollout of HeyExpert, a leading platform for online expert guidance. In addition, there was an increase in salary and employee related expenses of approximately $0.4 million, in credit card processing fees of approximately $0.3 million, in depreciation expense of approximately $0.3 million and backup server facilities of approximately $0.1 million.

Cost of revenue increased by 9% to $4.4 million for the year ended December 31, 2019, from $4.1 million for the year ended December 31, 2018. This increase in expense is primarily related to an increase in credit card processing fees of approximately $0.3 million.

Sales and Marketing - Business

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 35 % 48 % 48 % 38 %

Sales and marketing expenses decreased by 9% to $128.8 million for the year ended December 31, 2020, from $140.9 million for the year ended December 31, 2019. This is primarily related to a decrease in salary and employee related expenses of approximately $7.5 million, a decrease in marketing events, advertising, public relations and trade show exhibit expenses of approximately $3.3 million, and a decrease in business services and outsourcing subcontracted labor of approximately $2.6 million. These decreases were offset in part by an increase in backup server facilities of approximately $0.7 million and in depreciation expense of approximately $0.6 million.

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

Sales and marketing expenses increased by 49% to $140.9 million for the year ended December 31, 2019, from $94.3 million for the year ended December 31, 2018. This is primarily related to an increase in salary, recruitment, and related employee expenses of approximately $29.5 million, as the Company doubled the number of quota carrying salespeople to approximately 100 at year-end 2019 from 50 at year-end 2018. Business services and outsourced labor increased approximately $6.5 million, and marketing events, advertising, public relations, and trade show exhibit expenses increased approximately $5.4 million. Other costs consisted of increases in facilities and allocated overhead of $5.1 million, and in depreciation expense of $0.1 million.

Sales and Marketing — Consumer

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 6 % 5 % 5 % 4 %

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

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

General and Administrative

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 17 % 20 % 20 % 18 %

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

General and administrative expenses increased by 24% to $57.0 million for the year ended December 31, 2019, from $45.9 million for the year ended December 31, 2018. This is primarily related to an increase in salaries and employee related expenses of approximately $9.2 million and in business services and outsourced labor of approximately $3.8 million. These increases were offset in part by a decrease in allocated occupancy costs, related overhead, information technology, and other general corporate expenses of approximately $1.9 million.

Product Development

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 30 % 28 % 28 % 22 %

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

Product development costs increased by 47% to $82.1 million for the year ended December 31, 2019, from $55.7 million for the year ended December 31, 2018. This is primarily related to an increase in compensation, recruitment, and related costs of approximately $15.3 million, as the Company built out its Seattle Advanced Technology Center, ending 2019 with more than 125 data scientists, machine learnings engineers and automation engineers focused on Conversational AI. The increase was also related to an increase in outsourced labor of approximately $5.0 million, primarily tied to supporting demand

for technical services. Facility, allocated occupancy costs and overhead related to costs of supporting our server and network infrastructure increased approximately $4.3 million, depreciation expenses increased approximately $1.5 million, and marketing related costs increased $0.3 million.

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

Restructuring Costs

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue 8 % 1 % 1 % 2 %

Restructuring costs increased by 1,340% to $29.4 million for the year ended December 31, 2020, from $2.0 million for the year ended December 31, 2019. This increase is attributable to an increase in restructuring costs related to lease abandonment of approximately $24.1 million, along with severance and other compensation costs of approximately $5.3 million.

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

Restructuring costs decreased by 54% to $2.0 million for the year ended December 31, 2019, from $4.5 million for the year ended December 31, 2018. This decrease is attributable to a decrease in severance and other associated costs of approximately $2.5 million. Severance costs are associated with re-prioritizing and reallocating resources to focus on areas showing high growth potential.

Amortization of Purchased Intangibles

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Percentage of total revenue — % 1 % 1 % 1 %

Amortization expense for purchased intangibles decreased by 9% to $1.6 million for the year ended December 31, 2020, from $1.8 million for the year ended December 31, 2019, and increased by 7% to $1.8 million for the year ended December 31, 2019, from $1.7 million for the year ended December 31, 2018. The year over year variance is primarily attributable to amortization of patents and customer relationships.

Other (Expense) Income, net

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

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

Other (expense) income increased by $9.5 million to an expense of $15.7 million for the year ended December 31, 2020, from an expense of $6.2 million for the year ended December 31, 2019. This increase was primarily attributable to an increase in interest expense attributable to the 0.750% Convertible Senior Notes due 2024 (the ‘‘2024 Notes’’), offset in part by interest income on cash and cash equivalents and financial income which is attributable to currency rate fluctuations.

Other (expense) income increased by $5.7 million to an expense of $6.2 million for the year ended December 31, 2019, from an income of $0.5 million for the year ended December 31, 2018. This was primarily attributable to an increase in interest expense attributable to the 2024 Notes, offset in part by interest income on cash and cash equivalents and financial income which is attributable to currency rate fluctuations.

Provision for Income Taxes

Year Ended December 31, Year Ended December 31,

($ in thousands) ($ in thousands)

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

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

Net Loss

We had a net loss of $107.6 million for the year ended December 31, 2020 compared to a net loss of $96.1 million for the year ended December 31, 2019. Revenue increased approximately $75.0 million, operating expenses increased by approximately $77.4 million, the provision for income taxes decreased approximately $0.4 million, and other (expense) income net increased by $9.5 million, contributing to a net increase in net loss of approximately $11.5 million.

We had a net loss of $96.1 million for the year ended December 31, 2019 compared to a net loss of $25.0 million for the year ended December 31, 2018. Revenue increased approximately $41.8 million, operating expenses increased by approximately $105.1 million, the provision for income taxes increased approximately $2.0 million, and other (expense) income, net decreased by approximately $5.7 million, contributing to a net increase in net loss of approximately $71.0 million.

Quarterly Results of Operations Data

The following table sets forth, for the periods indicated, the Company’s financial information for the eight most recent quarters ended December 31, 2020. In the Company’s opinion, this unaudited information has been prepared on a basis consistent with the annual consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the unaudited information for the periods presented. This information should be read in conjunction with the consolidated financial statements, including the related notes, included herein.

Quarter ended

(in thousands, except share and per share data)

Consolidated Statements of Operations Data:

Costs and Expenses:

Net loss per share of common stock:

Weighted-average shares used to compute net loss per share

Liquidity and Capital Resources

Year Ended December 31,

(in thousands)

Consolidated Statements of Cash Flows Data:

As of December 31, 2020, we had approximately $654.2 million in cash and cash equivalents, an increase of approximately $477.6 million from December 31, 2019. The increase is primarily attributable to cash provided by financing activities relating to issuance of the 2026 Notes, as described in Note 7 of the Notes to the Consolidated Financial Statements, and the issuance of common stock. This was partially offset by purchases of capped calls, as described in Note 7 of the Notes to

the Consolidated Financial Statements, fixed assets for our co-location facilities, capitalization of internally developed software, debt issuance costs, and increases in prepaid expenses and accounts receivable.

Net cash provided by operating activities was $33.6 million in the year ended December 31, 2020. Our net loss was $107.6 million, which includes the effect of non-cash expenses related to stock-based compensation, amortization of purchased intangibles and finance leases, depreciation, and provision for doubtful accounts, as well as increases in operating lease liability due to the transition to an employee centric model under which employees will work remotely, and increase in accrued expenses and decrease in accounts receivable. This was partially offset by increases in prepaid expenses and other current assets and decrease in deferred revenue. Net cash used in operating activities was $59.2 million in the year ended December 31, 2019. Our net loss was $96.1 million, which includes the effect of non-cash expenses related to stock-based compensation, amortization of purchased intangibles, depreciation, and provision for doubtful accounts, as well as increases in deferred revenue due to more of our customers moving to cash payments in advance on annual billings and in accounts payable and accrued expenses. This was partially offset by increases in prepaid expenses, other current assets and accounts receivable, and decrease in deferred tax liability.

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

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

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

Off Balance Sheet Arrangements

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

Contractual Obligations and Commitments

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

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

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

Payments Due by Period

(1) See Note 7 of the Notes to the Consolidated Financial Statements included elsewhere in this Form 10-K for a discussion of our convertible senior notes.

Capital Expenditures

Total capital expenditures in 2020 were approximately $41.6 million, primarily related to software capitalization and to the continued expansion of our co-location facilities. Our total capital expenditures are not currently expected to exceed $47.3 million in 2021. We anticipate that our current cash and cash equivalents and cash from operations will be sufficient to fund these capital expenditures.

Indemnifications

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

We also have agreements whereby our executive officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a directors and officers insurance policy that reduces our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. Currently, we have no liabilities recorded for these agreements as of December 31, 2020.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that management believes are reasonable based upon the information available. We base these estimates on our historical experience, future expectations and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments that may not be readily apparent from other sources. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, accounts receivable, the valuation of goodwill and intangible assets, income taxes and legal contingencies have the greatest potential impact on our consolidated financial statements. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. For further information on all of our significant accounting policies, see Note 1 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.

Revenue Recognition

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

We determine revenue recognition through the following steps:

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

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

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

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

Total revenue of $366.6 million, $291.6 million, and $249.8 million was recognized during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

Hosted Services- Business Revenue

Hosted Services Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to the Conversational Cloud, our enterprise-class, cloud-based platform. We have determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. We recognize this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by our performance. Subscription contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements. Additionally, for certain of our larger customers, we may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, we pass the fee we incur with the labor provider and its fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions. For these Gainshare (formerly “Pay for Performance”) arrangements in accordance with ASC-606, ‘‘Principal Agent Considerations,’’ we act as a principal in a transaction if we control the specified goods or services before they are transferred to the customer.

Professional Services Revenues

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

Contracts with Multiple Performance Obligations

Hosted Services- Consumer Revenue

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

Stock-Based Compensation

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

As of December 31, 2020, there was approximately $17.9 million of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted average period of approximately 2.5 years. As of December 31, 2020, there was approximately $66.8 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted average period of approximately 2.8 years.

Accounts Receivable

We perform ongoing credit evaluations of our customers’ financial condition (except for customers who purchase the LivePerson services by credit card via Internet download) and have established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information that we believe to be reasonable, although they may change in the future. If there is a deterioration of a customer’s credit worthiness or actual write-offs are higher than our historical experience, our estimates of recoverability for these receivables could be adversely affected. Although our large number of customers limits our concentration of credit risk, if we experience a significant write-off from one of our large customers, it could have a material adverse impact on our consolidated financial statements. No single customer accounted for or exceeded 10% of our total revenue in 2020, 2019 and 2018 . No single customer accounted for or exceeded 10% of our total accounts receivable in 2020 and 2018. Two customers exceeded 10% of our total accounts receivable in 2019. During 2020, we increased our allowance for doubtful accounts from approximately $3.1 million to approximately $5.3 million. A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles.

Goodwill

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

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

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

Impairment of Long-Lived Assets

The carrying amounts of our long-lived assets, including property and equipment, lease right-of-use assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful lives are shorter than originally estimated. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future undiscounted net cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life. There was a loss on disposal of approximately $5.1 million in October 2020. The Company recognized accelerated depreciation of fixed assets that were determined to no longer be of future economic benefit to the Company based on the decision to vacate the leased office space.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. We include interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. We recorded a valuation allowance as we considered our cumulative loss in recent years as a significant piece of negative evidence. During the year ended December 31, 2020, there was an increase in the valuation allowance of $6.9 million.

Legal Contingencies

We are subject to legal proceedings and litigation arising in the ordinary course of business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of accruals recorded are based only on the information available at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations. See Note 13, Legal Matters, of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for additional information on our legal proceedings and litigation.

Recently Issued Accounting Standards

See Note 1 of the Notes to the Consolidated Financial Statements for a full description of recently issued accounting standards.

Recently Adopted Accounting Pronouncements

See Note 1 of the Notes to the Consolidated Financial Statements for a full description of recently adopted accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Currency Rate Fluctuations

As a result of the scope of our Israeli operations, there is currency rate fluctuation risk associated with the exchange rate movement of the U.S. dollar against the New Israeli Shekel (“NIS”). For the year ended December 31, 2020, the U.S dollar appreciated as compared to the NIS by an average of 4% as compared to December 31, 2019. For the year ended December 31, 2020, expenses generated by our Israeli operations totaled approximately $72.6 million. Based on our exposure to NIS exchange rate fluctuation against a dollar as of December 31, 2018, a 1% increase or decrease in the value of the NIS would increase or decrease our income before income taxes by approximately $0.7 million.

We actively monitor the movement of the U.S. dollar against the NIS, Pound Sterling, Euro, Australian dollar and Japanese Yen and have considered the use of financial instruments, including but not limited to derivative financial instruments, which could mitigate such risk. If we determine that our risk of exposure materially exceeds the potential cost of derivative financial instruments, we may in the future enter in to these types of investments. The functional currency of our wholly-owned Israeli subsidiaries, LivePerson Ltd. (formerly HumanClick Ltd.) and Kasamba Ltd., is the U.S. dollar; the functional currency of our operations in the United Kingdom is the Pound Sterling; the functional currency of our operations in the Netherlands, Germany, France and Italy is the Euro; the functional currency of our operations in Australia is the Australian Dollar; and the functional currency of our operations in Japan is the Japanese Yen.

Collection Risk

Our accounts receivable are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. During 2020,

we increased our allowance for doubtful accounts from $3.1 million to approximately $5.3 million. During 2019, we increased our allowance for doubtful accounts by approximately $2.3 million to approximately $3.1 million. A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles. We base our allowance for doubtful accounts on specifically identified credit risks of customers, historical trends and other information that we believe to be reasonable. We adjust our allowance for doubtful accounts when accounts previously reserved have been collected.

Interest Rate Risk

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

Inflation Rate Risk

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

Item 8. Consolidated Financial Statements and Supplementary Data

INDEX

Page

Report of BDO USA, LLP, An Independent Registered Public Accounting Firm 73

Consolidated Balance Sheets as of December 31, 2020 and 2019 75

Notes to Consolidated Financial Statements 81

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

LivePerson, Inc.

New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of LivePerson, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 8, 2021 expressed an unqualified opinion thereon.

Change in Accounting Principle

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

Basis for Opinion

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

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

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

Critical Audit Matters

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

Revenue Contracts with Multiple Performance Obligations

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

other factors, including the value of its contracts, the cloud applications sold, and the number and types of users within its contracts.

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

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

•Testing the design and operating effectiveness of certain controls relating to management’s determination of standalone selling prices for each of the performance obligations.

•Evaluating management’s technical accounting positions and assessing the reasonableness of management’s judgments and assumptions in the determination of whether the products and services are distinct performance obligations and the determination of the standalone selling prices for each of the performance obligations.

•Testing the reasonableness of the identification of distinct performance obligations and determination of the standalone selling prices through review of a sample of revenue contracts.

Convertible Senior Notes

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

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

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

•Utilizing personnel with specialized knowledge and skill in technical accounting to assist in: (i) evaluating the relevant terms and conditions of the 2026 Notes' agreements, and (ii) assessing the appropriateness of conclusions reached by the Company with respect to the accounting for the 2026 Notes and identification, assessment and accounting for potential derivatives.

•Utilizing personnel with specialized knowledge and skill in valuation to assist in assessing the appropriateness of the valuation models utilized by management to determine the fair value of the 2026 Notes and assessing the reasonableness of assumptions incorporated into the valuation models.

/s/ BDO USA, LLP

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

New York, New York

March 8, 2021

LIVEPERSON, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

December 31,

ASSETS

CURRENT ASSETS:

Prepaid expenses and other current assets 14,236 13,964

Operating lease right of use asset 614 15,680

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accrued expenses and other current liabilities 99,870 62,778

Deferred revenue, net of current portion 409 438

Operating lease liability, net of current portion 7,180 12,865

Commitments and contingencies (See Note 9)

STOCKHOLDERS' EQUITY:

Preferred stock, $0.001 par value - 5,000,000 shares authorized, none issued — —

Treasury stock, at cost; 2,709,830 shares (3) (3)

Accumulated other comprehensive income (loss) 80 (4,524)

See notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Year Ended December 31,

Costs and expenses: (1) (2)

Other (expense) income, net

Net loss per share of common stock:

Weighted-average shares used to compute net loss income per share:

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

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

See notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(IN THOUSANDS)

Year Ended December 31,

Foreign currency translation adjustment 4,604 (93) (1,896)

See notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

Shares Amount Shares Amount Total

Common stock issued upon vesting of restricted stock units 361,539 1 — — — — — 1

ASC 606 prior period adjustment — — — — — 676 — 676

Other comprehensive loss — — — — — — (1,896) (1,896)

Equity component of convertible senior notes — — — — 52,900 — — 52,900

Purchase of capped call option — — — — (23,184) — — (23,184)

Other comprehensive income — — — — — — (93) (93)

Common stock issued upon vesting of restricted stock units 915,827 1 — — — — — 1

Equity component of convertible senior notes — — — — 162,534 — — 162,534

Purchase of capped call option — — — — (46,058) — — (46,058)

Other comprehensive income — — — — — — 4,604 4,604

See notes to consolidated financial statements.

LIVEPERSON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT SHARE DATA)

Year Ended December 31,

OPERATING ACTIVITIES:

Loss on disposal 5,147 — —

Amortization of tenant allowance — (516) (326)

Amortization of purchased intangibles and finance leases 3,552 2,932 2,813

Amortization of debt issuance costs 1,340 956 —

Accretion of debt discount on convertible senior notes 11,564 7,605 —

Change in fair value of contingent consideration (263) (328) —

Changes in operating assets and liabilities, net of acquisitions:

Prepaid expenses and other current assets 23 (4,712) (12,993)

Accrued expenses and other current liabilities 22,931 (10,882) (205)

Decrease in net operating lease asset and liability 8,276 388 —

Deferred tax liability — — —

Net cash provided by (used in) operating activities 33,605 (59,158) 4,779

INVESTING ACTIVITIES:

Cash held as collateral — — 1,451

FINANCING ACTIVITIES:

Principal payments for financing leases (1,154) — —

Repurchase of common stock — (903) (1,345)

Proceeds from issuance of convertible senior notes 517,500 230,000 —

Payment related to contingent consideration — (487) —

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:

Cash paid for interest $ 1,931 $ 848 $ —

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Leasehold improvements funded by landlord $ — $ — $ 1,551

See notes to consolidated financial statements.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Summary of Significant Accounting Policies

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

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

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Principles of Consolidation

The consolidated financial statements reflect the operations of LivePerson and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable which approximate fair value at December 31, 2020 because of the short-term nature of these instruments. The Company invests its cash and cash equivalents with financial institutions that it believes are of high quality, and the Company performs periodic evaluations of these instruments and the relative credit standings of the institutions with which it invests. At certain times, the Company’s cash balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits. The Company believes it mitigates its risk by depositing its cash balances with high credit, quality financial institutions.

The Company performs ongoing credit evaluations of its customers’ financial condition (except for customers who purchase the LivePerson services by credit card via Internet download) and has established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. Concentration of credit risk is limited due to the Company’s large number of customers. No single customer accounted for or exceeded 10% of revenue in 2020, 2019 and 2018 No single customer accounted for or exceeded 10% of the Company’s total accounts receivable in 2020 and 2018. Two customers exceeded 10% of the Company's total accounts receivable in 2019.

Foreign Currency Translation

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

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.The activity in the allowance for doubtful accounts is as follows (amounts in thousands):

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation, and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the related assets, generally three to five years for equipment and software. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Depreciation expense, which includes amortization of internal use software totaled $22.8 million, $16.4 million, and $14.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Internal-Use Software Development Costs

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

The Company capitalized internal-use software costs of $33.9 million, $29.1 million, and $11.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Goodwill and Intangible Assets

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

Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360-10-35, “Accounting for Impairment or Disposal of Long-Lived Assets.”

Acquired intangible assets consist of identifiable intangible assets, primarily developed technology and customer relationships, resulting from our acquisitions. Intangible assets are recorded at fair value on the date of acquisition.

Business Combinations

Business combinationsare accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values. The Company’s acquisition model typically provides for an initial payment at closing and for

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

future additional contingent purchase price obligations. Contingent purchase price obligations are recorded as deferred acquisition consideration on the balance sheet at the acquisition date fair value and are remeasured at each reporting period. Changes in such estimated values are recorded in the results of operations. For further information, see Note 8 of the Notes to the Consolidated Financial Statements included herein.

For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is performed for all such identified assets. The Company uses several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. A substantial portion of the intangible asset value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names. In executing the Company’s overall acquisition strategy, one of the primary drivers in identifying and executing a specific transaction is the existence of, or the ability to, expand the existing client relationships. The expected benefits of the Company’s acquisitions are typically shared across multiple agencies and regions.

Impairment of Long-Lived Assets

The carrying amounts of our long-lived assets, including property and equipment, lease right-of-use assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful lives are shorter than originally estimated. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future undiscounted net cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life. There was a loss on disposal of approximately $5.1 million in September 2020. The Company recognized accelerated depreciation of fixed assets that were determined to no longer be of future economic benefit to the Company based on the decision to vacate the leased office space. Please refer to Note 14 for additional information regarding this shift to an employee-centric working model.

Revenue Recognition

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

The Company determines revenue recognition through the following steps:

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

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

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

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

Total revenue of $366.6 million, $291.6 million, and $249.8 million was recognized during the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.

The Company has made the following accounting policy election and elected to use a practical expedient specific to certain revenue streams, as permitted by the FASB, in applying Topic 606. The Company utilizes the right-to-invoice practical expedient with regard to the recognition of revenue upon the invoicing of certain revenue streams, as revenue for those streams are billed monthly.

Under Topic 606, the Company defers all incremental commission costs ("contract acquisition costs") to obtain the contract. The contract acquisition costs, which are comprised of prepaid sales commissions, have balances at December 31, 2020 and 2019 of $41.0 million and $32.0 million, respectively. The Company amortizes these costs over the related period of benefit using the customer expected life that the Company determined to be three to five years which is consistent with the

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

transfer to the customer of the services to which the asset relates. The Company classifies contract acquisition costs as long-term unless they have an original amortization period of one year or less.

Hosted Services- Business Revenue

Hosted Services Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to the Conversational Cloud, the Company’s enterprise-class, cloud-based platform. The Company has determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. The Company recognizes this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by the Company’s performance. Subscription contracts are generally one year or longer in length, billed, monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements. Additionally, for certain of the Company’s larger customers, the Company may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, the Company passes the fee it incurs with the labor provider and its fee for the hosted services through to its customers in the form of a fixed fee for each order placed via the Company’s online engagement solutions. For these Gainshare (formerly “Pay for Performance”) arrangements in accordance with ASC-606, ‘‘Principal Agent Considerations’’, the Company acts as a principal in a transaction if it controls the specified goods or services before they are transferred to the customer.

Professional Services Revenues

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

Remaining Performance Obligation

As of December 31, 2020, the aggregate amount of the total transaction price allocated in contracts with original duration of greater than one year to the remaining performance obligations was $285.7 million. Approximately 90% of the Company’s remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered. The Company has elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of one year or less. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligation pursuant to ASC 606.

Contracts with Multiple Performance Obligations

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

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Hosted Services- Consumer Revenue

For revenue from the Company’s Consumer segment generated from online transactions between Experts and Users, revenue is recognized at an amount net of Expert fees in accordance with ASC 606, “Principal Agent Considerations”, due primarily to the fact that the Expert is the primary obligor. Additionally, the Company performs as an agent without any risk of loss for collection, and is not involved in selecting the Expert or establishing the Expert’s fee. The Company collects a fee from the consumer and retains a portion of the fee, and then remits the balance to the Expert. Revenue from these transactions is recognized at the point in time when the transaction is complete and no significant performance obligations remain.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its performance. The decrease in the deferred revenue balance for the year ended December 31, 2020 is primarily driven by satisfying our performance obligations and the revenue recognized of approximately $103.2 million that were included in the deferred revenue balance as of December 31, 2019.

The following table presents deferred revenue by revenue source (amounts in thousands):

December 31,

Hosted services – Consumer 835 687

Professional services – Business 1,869 5,172

Total deferred revenue - short term $ 88,848 $ 88,751

Hosted services – Business $ — $ —

Professional services – Business 409 438

Total deferred revenue - long term $ 409 $ 438

Disaggregated Revenue

The following table presents the Company's revenues disaggregated by revenue source (amounts in thousands):

December 31,

Revenue:

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Revenue by Geographic Location

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

December 31,

(1) Canada, Latin America and South America

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

(3) Asia-Pacific (“APAC”)

(4) Includes revenue from the United Kingdom of $53.4 million, $50.4 million, and $46.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. and from the Netherlands of $3.2 million, $10.0 million, and $8.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Information about Contract Balances

Amounts collected in advance of services being provided are accounted for as deferred revenue. Nearly all of the Company's deferred revenue balance is related to Hosted Services- Business Revenue.

In some arrangements, the Company allows customers to pay for access to the Conversational Cloud over the term of the software license. The Company refers to these as subscription transactions. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables, anticipated to be invoiced in the next twelve months, are included in accounts receivable on the consolidated balance sheet. The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows (amounts in thousands):

(1) These accounts include the $0.7 million adjustment in connection with the adoption of ASU 2016-13 (Topic 326).

Advertising

The Company expenses the cost of advertising and promoting its services as incurred in the sales and marketing expense on the consolidated statement of operations. Such costs totaled approximately $29.1 million, $28.6 million, and $17.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock-Based Compensation

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

The Company estimates the fair value of stock options granted using the Black-Scholes valuation model. This model requires the Company to make estimates and assumptions including, among other things, estimates regarding the length of

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

time an employee will retain vested stock options before exercising them, the estimated volatility of its common stock price and the number of options that will be forfeited prior to vesting. The fair value is then recognized on a straight line basis over the requisite service period of the award, which is generally three to four years. Changes in these estimates and assumptions can materially affect the determination of the fair value of the stock-based compensation and consequently, the related amount recognized in the consolidated statement of operations.

Deferred Rent

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

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. We include interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Loss

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

Recently Issued Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity”, which simplifies the accounting for convertible instruments by eliminating existing accounting models that require separation of a cash conversion or beneficial conversion feature from the host contract. Accordingly, a convertible debt instrument will be accounted as a single liability measured at its amortized cost and a convertible preferred stock will be accounted as a single equity instrument measured at its historical cost, as long as no other embedded features require bifurcation as derivatives and the convertible debt was not issued at a substantial premium. The ASU also simplifies the derivative scope exception for accounting for contracts in an entity's own equity by:

• removing certain conditions required to meet the settlement criterion

• clarifying that Instruments that are not indexed to the issuer's own stock must be remeasured at fair value through

earnings at each reporting period; and

• clarifying the scope of reassessment guidance and disclosure requirements in Subtopic 815-40. The ASU also makes

targeted improvements to the disclosure requirements for convertible instruments and earnings-per-share guidance.

For SEC filers, excluding smaller reporting companies, the ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The ASU specifies that the guidance should be adopted as of the beginning of the annual fiscal year. The Company is assessing and evaluating the impact ASU 2020-06 will have on its consolidated financial statements.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The new guidance is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around franchise taxes, goodwill recognized for tax purposes, the allocation of current and deferred tax expense among legal entities, among other minor changes. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company is assessing what impact ASU 2019-12 will have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. Such required disclosures include, but are not limited to, the Company's methodology for estimating its allowance for credit losses. The Company adopted ASU 2016-13 effective January 1, 2020 and applied the guidance using a modified retrospective approach requiring that the Company recognize the cumulative effect of initially applying the impairment standard as an adjustment to opening accumulated deficit for the incremental increase in its allowance for credit losses as of January 1, 2020 over its allowance for bad debts as of December, 31, 2019, which amounted to $0.7 million. The Company will continue to actively monitor the impact of the recent COVID-19 pandemic on expected credit losses. As of December 31, 2020, there has not been an impact to accounts receivable from the recent pandemic.

In January 2017, the FASB issued Accounting Standards Update ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which eliminates the computation of the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record a goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2017-04 in the first quarter of 2020 which reduced the complexity surrounding the evaluation of goodwill for impairment. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which clarifies the accounting for implementation costs in cloud computing arrangements. The new standard aligns the treatment of implementation costs incurred by customers in cloud computing arrangements that are service contracts with the treatment of similar costs incurred to develop or obtain internal-use software. Under the new standard, implementation costs are deferred and presented in the same financial statement caption on the condensed consolidated balance sheet as a prepayment of related arrangement fees. The deferred costs are recognized over the term of the arrangement in the same financial statement caption in the condensed consolidated income statement as the related fees of the arrangement. The Company adopted ASU 2018-15 in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements.

LIVEPERSON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Net Loss per Share

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

Diluted net loss per common share for the year ended December 31, 2020 does not include the effect of options to purchase 7,283,938 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the year ended December 31, 2019 does not include the effect of options to purchase 8,848,907 shares of common stock as the effect of their inclusion is anti-dilutive. Diluted net loss per common share for the year ended December 31, 2018 does not include the effect of options to purchase 8,957,672 shares of common stock as the effect of their inclusion is anti-dilutive.

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

Year Ended December 31,

Effect of assumed exercised options — — —

3. Segment Information

The Company accounts for its segment information in accordance with the provisions of ASC 280-10, “Segment Reporting.” ASC 280-10 establishes annual and interim reporting standards for operating segments of a company. ASC 280-10 requires disclosures of selected segment-related financial information about products, major customers, and geographic areas based on the Company’s internal accounting methods. The Company is organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage the Conversational Cloud sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between independent service providers (“Experts”) and individual consumers (“Users”) seeking information and knowledge for a fee via mobile and online messaging. Both segments currently generate their revenue primarily in the United States. The chief operating decision maker, who is the chief executive officer, evaluates performance, makes operating decisions, and allocates resources based on the operating income of each segment. The reporting segments follow the same accounting polices used in the preparation of the Company’s consolidated financial statements which are described in the summary of significant accounting policies. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses, restructuring costs and income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.

LPSN US Equity

LPSN · 10-K · period ended 2020-12-31

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Consolidated Financial Statements and Supplementary Data

LPSN US Equity☆

LPSN · 10-K · period ended 2020-12-31

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Consolidated Financial Statements and Supplementary Data

LPSN US Equity