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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________

Commission File Number: 000-30141
LIVEPERSON, INC.
(Exact name of registrant as specified in its charter)
Delaware13-3861628
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
475 Tenth Avenue, 5th Floor
New York, New York
10018
(Address of principal executive offices)(Zip Code)
(212) 609-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareLPSNThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
On May 4, 2021, 68,953,584 shares of the registrant’s common stock were outstanding.
1


LIVEPERSON, INC.
March 31, 2021
FORM 10-Q
INDEX
PAGE
Part I.Financial Information
   
Item 1.Financial Statements (Unaudited):
   
 Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020
   
 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020
   
 Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020
   
Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2021 and 2020
   
 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020
 Notes to Condensed Consolidated Financial Statements
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
Item 3.Quantitative and Qualitative Disclosures about Market Risk
   
Item 4.Controls and Procedures
   
Part II.Other Information
   
Item 1.Legal Proceedings
   
Item 1A.Risk Factors
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
   
Item 3.Defaults Upon Senior Securities
   
Item 4.Mine Safety Disclosures
   
Item 5.Other Information
   
Item 6.Exhibits
Signatures

2


FORWARD-LOOKING STATEMENTS
 
Statements in this Quarterly Report on Form 10-Q about LivePerson, Inc. (“LivePerson”) that are not historical facts are forward-looking statements. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about LivePerson and our industry. Our expectations, assumptions, estimates and projections are expressed in good faith, and we believe there is a reasonable basis for them, but we cannot assure you that our expectations, assumptions, estimates and projections will be realized. Examples of forward-looking statements include, but are not limited to, statements regarding future business, future results of operations or financial condition (including based on examinations of historical operating trends), management strategies and the COVID-19 pandemic. Many of these statements are found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q. When used in this Form 10-Q, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. However, not all forward-looking statements contain these words. Forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-Q include those set forth in our Annual Report on Form 10-K filed with the SEC on March 8, 2021 in the section entitled “Item 1A — Risk Factors.” It is routine for our internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we are under no obligation to inform you if they do. Our policy is generally to provide our expectations only once per quarter, and not to update that information until the next quarter. We do not undertake any obligation to revise forward-looking statements to reflect future events or circumstances. All forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.


3


Part I. Financial Information
Item 1. Financial Statements
4


LIVEPERSON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
 March 31,
2021
December 31,
2020
 (Note 1)
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$668,225 $654,152 
Accounts receivable, net of allowances of $5,396 and $5,344 as of March 31, 2021 and December 31, 2020, respectively92,263 80,423 
Prepaid expenses and other current assets19,965 14,236 
Total current assets780,453 748,811 
Operating lease right of use asset437 614 
Property and equipment, net111,314 106,055 
Contract acquisition costs40,855 41,021 
Intangibles, net11,058 10,927 
Goodwill95,087 95,192 
Deferred tax assets3,620 2,032 
Other assets1,713 1,780 
Total assets$1,044,537 $1,006,432 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$13,626 $14,115 
Accrued expenses and other current liabilities96,346 99,870 
Deferred revenue108,415 88,848 
Operating lease liability5,097 5,718 
Total current liabilities223,484 208,551 
Deferred revenue, net of current portion573 409 
Convertible senior notes, net547,159 538,432 
Other liabilities5,411 6,304 
Operating lease liability, net of current portion6,170 7,180 
Deferred tax liability1,723 1,622 
Total liabilities784,520 762,498 
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY:  
Preferred stock, $0.001 par value - 5,000,000 shares authorized, none issued
  
Common stock, $0.001 par value - 200,000,000 shares authorized, 71,351,202 and 70,264,265 shares issued, 68,641,372 and 67,554,435 shares outstanding as of March 31, 2021 and December 31, 2020, respectively
71 70 
Additional paid-in capital674,695 635,672 
Treasury stock; 2,709,830 shares
(3)(3)
Accumulated deficit(413,080)(391,885)
Accumulated other comprehensive (loss) income(1,666)80 
Total stockholders’ equity260,017 243,934 
Total liabilities and stockholders’ equity$1,044,537 $1,006,432 
 
See Notes to Condensed Consolidated Financial Statements (unaudited).
5


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
    
Three Months Ended
March 31,
 20212020
Revenue$107,891 $78,088 
Costs and expenses (1) (2)
  
Cost of revenue (3)
33,519 22,820 
Sales and marketing36,953 42,680 
General and administrative14,486 16,469 
Product development33,455 25,716 
Restructuring costs2,732 3,190 
Amortization of purchased intangibles375 405 
Total costs and expenses121,520 111,280 
Loss from operations(13,629)(33,192)
Other (expense) income, net
      Interest expense, net(9,129)(2,791)
      Other income (expense), net712 (667)
Total other (expense) income, net(8,417)(3,458)
Loss before (benefit from) provision for income taxes(22,046)(36,649)
(Benefit from) provision for income taxes(851)352 
Net loss$(21,195)$(37,001)
Net loss per share of common stock:
Basic $(0.31)$(0.57)
Diluted $(0.31)$(0.57)
Weighted-average shares used to compute net loss per share:
Basic 67,901,809 64,388,850 
Diluted67,901,809 64,388,850 
(1) Amounts include stock-based compensation expense, as follows:
Cost of revenue $1,895 $1,249 
Sales and marketing 3,782 5,138 
General and administrative 2,650 2,727 
Product development 6,284 5,581 
(2) Amounts include depreciation expense, as follows:
Cost of revenue $2,534 $2,373 
Sales and marketing 603 667 
General and administrative 60 105 
Product development 3,408 2,392 
(3) Amounts include amortization of purchased intangibles, as follows:
Cost of revenue $1,175 $284 
See Notes to Condensed Consolidated Financial Statements (unaudited).
6


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
 20212020
Net loss$(21,195)$(37,001)
Foreign currency translation adjustment(1,746)2,469 
Comprehensive loss$(22,941)$(34,532)
     
See Notes to Condensed Consolidated Financial Statements (unaudited).

7


LIVEPERSON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended March 31, 2021
Common StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
SharesAmountSharesAmountTotal
Balance at December 31, 202070,264,265 $70 (2,709,830)$(3)$635,672 $(391,885)$80 $243,934 
Common stock issued upon exercise of stock options209,185 — — — 2,617 — — 2,617 
Common stock issued upon vesting of restricted stock units454,508 1 — — (1)— —  
Stock-based compensation— — — — 9,225 — — 9,225 
Cash awards settled in shares of the Company's common stock400,700 — — — 25,925 — — 25,925 
Common stock issued under Employee Stock Purchase Plan22,544 — — — 1,257 — — 1,257 
Net loss— — — — — (21,195)— (21,195)
Other comprehensive loss— — — — — — (1,746)(1,746)
Balance at March 31, 202171,351,202 $71 (2,709,830)$(3)$674,695 $(413,080)$(1,666)$260,017 



Three Months Ended March 31, 2020
Common StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
SharesAmountSharesAmountTotal
Balance at December 31, 2019 66,543,073 $67 (2,709,830)$(3)$436,557 $(283,562)$(4,524)$148,535 
Common stock issued upon exercise of stock options199,215 — — — 1,955 — — 1,955 
Common stock issued upon vesting of restricted stock units203,690 — — — — — —  
Common stock as earn-out payment in connection with AdvantageTec Inc.11,508 1 — — 293 — — 294 
Stock-based compensation— — — — 9,519 — — 9,519 
Cash awards settled in shares of the Company's common stock991,905 — — — 24,656 — — 24,656 
ASU 2016-13 (Topic 326) Adjustment (See note 1)— — — — — (729)— (729)
Common stock issued under Employee Stock Purchase Plan50,818 — — — 1,626 — — 1,626 
Net loss— — — — — (37,001)— (37,001)
Other comprehensive loss— — — — — — $(2,469)(2,469)
Balance at March 31, 202068,000,209 $68 (2,709,830)$(3)$474,606 $(321,292)$(6,993)$146,386 
See Notes to Condensed Consolidated Financial Statements (unaudited).
8

LIVEPERSON, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)    

Three Months Ended
March 31,
 20212020
OPERATING ACTIVITIES:  
Net loss$(21,195)$(37,001)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Stock-based compensation expense14,611 14,695 
Depreciation and amortization6,605 5,538 
Amortization of tenant allowance (129)
Amortization of purchased intangibles and finance leases1,550 689 
Amortization of debt issuance costs609 298 
Accretion of debt discount on convertible senior notes8,118 2,368 
Changes in fair value of contingent consideration (263)
Provision for doubtful accounts, net801 615 
Deferred income taxes(1,595)212 
Changes in operating assets and liabilities: 
Accounts receivable(13,658)24,112 
Prepaid expenses and other current assets(5,822)(1,878)
Contract acquisition costs noncurrent(436)(2,445)
Other assets47 (7)
Accounts payable(1,920)(3,412)
Accrued expenses and other current liabilities17,208 2,987 
Deferred revenue21,642 (2,473)
Operating lease liabilities(1,441)390 
Other liabilities105 (3)
Net cash provided by operating activities25,229 4,293 
INVESTING ACTIVITIES:  
Purchases of property and equipment, including capitalized software(10,630)(10,805)
Payments for intangible assets(807)(225)
Net cash used in investing activities(11,437)(11,030)
FINANCING ACTIVITIES:  
Principal payments for financing leases
(859) 
Proceeds from issuance of common stock in connection with the exercise of options and ESPP3,874 3,098 
Net cash provided by financing activities3,015 3,098 
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(2,734)(1,405)
CHANGE IN CASH AND CASH EQUIVALENTS14,073 (5,044)
CASH AND CASH EQUIVALENTS - Beginning of the period654,152 176,523 
CASH AND CASH EQUIVALENTS - End of the period$668,225 $171,479 
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION: 
Cash paid for income taxes$329 $1,337 
Cash paid for interest$957 $863 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment recorded in accounts payable$1,530 $1,408 
Issuance of 11,508 shares of common stock as earn-out payment in connection with AdvantageTec Inc.$ $294 
Issuance of shares of common stock to settle cash awards$25,925 $24,656 
Right of use assets obtained in exchange for operating lease liabilities (1)$ $1,406 
Fair value of contingent earn-out in connection with the acquisition of AdvantageTec Inc. recorded in accrued expenses$132 $— 
(1) Includes leases that commenced during the year ended December 31, 2020, as well as balances related to leases in existence as of the date of the adoption of Topic 842.
9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)






1. Description of Business and Basis of Presentation
LivePerson, Inc. (“LivePerson”, the “Company”, “we” or “us”) makes life easier for people and brands everywhere through trusted Conversational AI. Conversational AI allows humans and machines to interact using natural language, including speech or text. During the past decade, consumers have made mobile devices the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers. This trend has been significantly accelerated by the COVID-19 pandemic and can now be viewed as a permanent, structural shift in consumer behavior. Our technology enables consumers to connect with businesses through these same preferred conversational interfaces, including Facebook Messenger, SMS, WhatsApp, Apple Business Chat, Google Rich Business Messenger and Alexa. These messaging conversations harness human agents, bots and Artificial Intelligence (AI) to power convenient, personalized and content-rich journeys across the entire consumer lifecycle, from discovery and research, to sales, service and support, and increasingly marketing, social, and brick and mortar engagements. For example, consumers can look up product info like ratings, images and pricing, search for stores, see product inventory, schedule appointments, apply for credit, approve repairs, and make purchases or payments - all without ever leaving the messaging channel. These AI and human-assisted conversational experiences constitute the Conversational Space, within which LivePerson has strategically developed one of the industry's largest ecosystems of messaging endpoints and use cases.
The Conversational Cloud, our enterprise-class cloud-based platform, enables businesses to become conversational by securely deploying AI-powered messaging at scale for brands with tens of millions of customers and many thousands of agents. The Conversational Cloud powers conversations across each of a brand’s primary digital channels, including mobile apps, mobile and desktop web browsers, short message service (SMS), social media and third-party consumer messaging platforms. Brands can also use the Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to navigate interactive voice response systems (IVRs) and wait on hold. Similarly, the Conversational Cloud can ingest traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages. Agents can manage all conversations with consumers through a single console interface, regardless of where the conversations originated.
LivePerson's robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, Payment Card Industry (PCI) compliance, cobrowsing and a sophisticated proactive targeting engine. An extensible application programming interface (API) stack facilitates a lower cost of ownership by facilitating robust integration into back-end systems, as well as enabling developers to build their own programs and services on top of the platform. More than 40 APIs and software development kits are available on the Conversational Cloud.
For your reference:
Conversational AI: Conversational AI allows humans and machines to interact using natural language, including speech or text.
Conversational Space: In the Conversational Space, consumers message with brands on their own schedule, using natural language, to resolve their intents - all on their preferred messaging service. The core capabilities of the Conversational Space are voice and text-based interfaces, powered by AI and humans working together. Conversational Space is the simplest, most intuitive interface of all.
Conversational Cloud: LivePerson's enterprise-class, AI-powered Conversational Cloud platform empowers consumers to message their favorite brands, just as they do with friends and family.
LivePerson’s Conversational AI offerings put the power of bot development, training, management and analysis into the hands of the contact center and its agents, the teams most familiar with how to structure sales and service conversations to drive successful outcomes. The platform enables what we call “the tango” of humans, AI and bots, whereby human agents act as bot managers, overseeing AI-powered conversations and seamlessly stepping into the flow when a personal touch is needed. Agents become ultra-efficient, leveraging the AI engine to serve up relevant content, define next-best actions and take over repetitive transactional work, so that the agent can focus on relationship building. By seamlessly integrating messaging with our proprietary Conversational AI, as well as third-party bots, the Conversational Cloud offers brands a comprehensive approach to scaling automations across their millions of customer conversations.
Complementing our proprietary messaging and Conversational AI offerings are teams of technical, solutions and consulting professionals that have developed deep domain expertise in the implementation and optimization of conversational services across industries and messaging endpoints. We are a leading authority in the Conversational Space. LivePerson’s
10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





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 score increases of up to 20 percentage points, and enhancing retention and loyalty;
more convenient, personalized and content-rich conversations that increase sales conversion by up to 20%, increase average order value and reduce abandonment;
more satisfied contact center agents, thereby reducing agent churn by up to 50%;
a valued connection with consumers via mobile devices, either through native applications, websites, text messages, or third-party messaging platforms;
leverage of spending that drives visitor traffic by increasing visitor conversions;
refinement and improvement of performance by understanding which initiatives deliver the highest rate of return; and
increased lead generation through 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 LivePerson signed a partnership with Infosys, a leader in next-generation digital services and consulting. The Company is working 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.
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.

Basis of Presentation
The accompanying condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 are unaudited. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the consolidated financial position of LivePerson as of March 31, 2021, and the consolidated results of operations, comprehensive loss and cash flows for the interim periods ended March 31, 2021 and 2020. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to these periods are unaudited. The results of operations for any interim period are not necessarily indicative of the results of operations for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited consolidated financial statements at that date.
11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2021.

Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.
Many of the Company’s estimates require increased judgment due to the significant volatility, uncertainty and economic disruption of the COVID-19 pandemic. The Company will continue to monitor the effects of the COVID-19 pandemic, and its estimates and judgments may change materially as new events occur or additional information becomes available.

Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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
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 what impact ASU 2020-06 will have on its condensed consolidated financial statements.     

Recently Adopted Accounting Pronouncements
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 expenses 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 has adopted ASU 2019-12 in the first quarter of 2021 and determined that the ASU had no material impact on its condensed consolidated financial statements.

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





2. 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. No single customer accounted for 10% or more of the Company’s total revenue for the three months ended March 31, 2021.

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 $107.9 million and $78.1 million was recognized during the three months ended March 31, 2021 and 2020, respectively.

Under Topic 606, the Company defers all incremental commission costs to obtain the contract (contract acquisition costs). The contract acquisition costs, which consist of prepaid sales commissions, have balances as of March 31, 2021 and December 31, 2020 of $40.9 million and $41.0 million, respectively. The Company amortizes these costs over the related period of benefit using the expected life of the customer contract, which the Company determines to be three to five years, which is consistent with the transfer to the customer of the services to which the asset relates. The Company classifies contract acquisition costs as long-term unless they have an original amortization period of one year or less.

Hosted Services- Business Revenue

Hosted Services- Business Revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consists 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 the Company incurs with the labor provider and its fee for the hosted services through to the Company’s 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 the Company controls the specified goods or services before they are transferred to the customer.

Professional Services Revenues

Professional Services Revenues 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 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.

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Remaining Performance Obligation

As of March 31, 2021, 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 $330.6 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 obligations 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.

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,” primarily because the Expert is the primary obligor. The Company does not act as a principal in a transaction since the Company does not control the specified goods or services before they are transferred to the customer. 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 the Company’s performance. The increase in the deferred revenue balance as of March 31, 2021 is primarily driven by cash payments received or due in advance of the Company’s performance obligations, partially offset by $46.7 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2020.
The following table presents deferred revenue by revenue source (amounts in thousands):
Deferred Revenue
As of March 31, 2021As of December 31, 2020
Hosted services – Business$105,900 $86,144 
Hosted services – Consumer875 835 
Professional services – Business1,640 1,869 
Total deferred revenue - short term$108,415 $88,848 
Professional services – Business573 409 
Total deferred revenue - long term$573 $409 
14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source (amounts in thousands):
Three Months Ended
March 31,
20212020
Revenue:
Hosted services – Business$83,640 $61,051 
Hosted services – Consumer9,011 6,240 
Professional services15,240 10,797 
Total revenue$107,891 $78,088 
Revenue by Geographic Location

The following table presents the Company’s revenues attributable to domestic and foreign operations for the periods presented (amounts in thousands):
Three Months Ended
March 31,
20212020
United States$68,782 $48,549 
Other Americas (1)
3,913 2,020 
Total Americas72,695 50,569 
EMEA (2) (4)
21,760 19,491 
APAC (3)
13,436 8,028 
Total revenue$107,891 $78,088 
(1) Canada, Latin America and South America
(2) Europe, the Middle East and Africa (“EMEA”)
(3) Asia-Pacific (“APAC”)
(4) Includes revenues from the United Kingdom of $13.3 million and $12.6 million for the three months ended March 31, 2021 and 2020, respectively, and from the Netherlands of $1.3 million for the three months ended March 31, 2021 and 2020.

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 condensed consolidated balance sheet. Contract acquisition costs represent prepaid sales commissions. The opening and closing balances of the Company’s accounts receivable, unbilled receivables, contract acquisition costs and deferred revenues are as follows (amounts in thousands):
Accounts ReceivableUnbilled ReceivableContract Acquisition Costs noncurrentDeferred Revenue (current)Deferred Revenue (long term)
Opening Balance as of December 31, 2020$61,801 $18,622 $41,021 $88,848 $409 
(Decrease) Increase, net6,576 5,264 (166)19,567 164 
Ending Balance as of March 31, 2021$68,377 $23,886 $40,855 $108,415 $573 


Accounts Receivable, Net
15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)






The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities, which are included in accrued liabilities and other long-term liabilities) on the condensed consolidated balance sheet. Under the typical payment terms of the Company’s over time contracts, the customer pays the Company either performance-based payments or progress payments. Amounts billed and due from the Company’s customers are classified as receivables on the condensed consolidated balance sheet. Accounts receivable is presented net of an allowance for doubtful accounts and sales reserve of $5.4 million and $2.7 million as of March 31, 2021, respectively and $5.3 million and $3.4 million as of December 31, 2020, respectively.
An allowance for doubtful accounts is established to recognize expected credit losses on accounts receivable balances. Judgment is required in the estimation of the allowance and the Company evaluates the collectability of its accounts receivable based on a combination of factors. If the Company becomes aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, the Company uses an aging schedule and recognizes allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and the Company’s historical collection experience adjusted for current expectations for the customer or industry. Accounts receivable are written off against the allowance for uncollectible accounts when the Company determines amounts are no longer collectible.

Three Months
Allowance for doubtful accounts (in thousands):
March 31, 2021
Balance at beginning of the year$5,344 
Additions Charged to Costs and Expenses801 
Deductions/Write-offs(749)
Balance as of March 31, 2021$5,396 



16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





3. Net Loss Per Share
The Company calculates earnings per share (“EPS”) in accordance with the provisions of ASC 260-10. Under the guidance, basic EPS excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock 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 share of common stock for the three months ended March 31, 2021 does not include the effect of 6,703,307 outstanding common stock awards, as the effect of their inclusion is anti-dilutive. Diluted net loss per share of common stock for the three months ended March 31, 2020 does not include the effect of 9,128,000 outstanding common stock awards, as the effect of their inclusion is anti-dilutive.
A reconciliation of shares used in calculating basic and diluted net loss per share follows:
Three Months Ended
March 31,
20212020
Basic67,901,809 64,388,850 
Effect of assumed exercised options  
Diluted67,901,809 64,388,850 

In December 2020, the Company issued $517.5 million aggregate principal amount of 0% Convertible Senior Notes due 2026 (“2026 Notes”) in a private placement, which amount includes $67.5 million aggregate principal amount of the 2026 Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional 2026 Notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. It is the Company’s current intent to settle the principal amount of its outstanding 2026 Notes upon conversion in cash and any excess over the principal amount in shares of the Company’s common stock. The Company uses the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of $75.23 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid special interest. Holders of the 2026 Notes may convert their 2026 Notes at their option at any time prior to the close of business on the business day immediately preceding August 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2026 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2026 Notes) per $1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2026 Notes on each such trading day; (3) with respect to any Notes that LivePerson calls for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after August 15, 2026, holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.
    
In March 2019, the Company issued $230.0 million aggregate principal amount of 0.750% Convertible Senior Notes due 2024 (“2024 Notes” and, together with the 2026 Notes, the “Notes”) in a private placement, which amount includes $30.0 million aggregate principal amount of the 2024 Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional 2024 Notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. It is the Company’s current intent to settle the principal amount of its outstanding 2024 Notes in cash and any excess over the principal amount in shares of the Company’s common stock. The Company uses the treasury stock method for calculating any potential
17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





dilutive effect of the conversion spread on diluted net income per share, if applicable. The conversion spread will have a dilutive impact on diluted net income per share of common stock when the average market price of the Company’s common stock for a given period exceeds the initial conversion price of 130% of $38.58 per share for the 2024 Notes. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, holders may convert all or any portion of their 2024 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.

See Note 8 for a full description of the Notes.

4. 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’s sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between independent service providers (“Experts”) and individual consumers (“Users”) seeking information and knowledge for a fee via mobile and online messaging. 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 condensed consolidated financial statements which are described in the summary of Critical Accounting Policies and Estimates. The Company allocates cost of revenue, sales and marketing and amortization of purchased intangibles to the segments, but it does not allocate product development expenses, general and administrative expenses, restructuring costs and income tax expense because management does not use this information to measure performance of the operating segments. There are currently no inter-segment sales.
Summarized financial information by segment for the three months ended March 31, 2021, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):
BusinessConsumerCorporateConsolidated
Revenue:
Hosted services – Business$83,640 $— $— $83,640 
Hosted services – Consumer— 9,011 — 9,011 
Professional services15,240 — — 15,240 
Total revenue98,880 9,011 — 107,891 
Cost of revenue31,610 1,909 — 33,519 
Sales and marketing30,203 6,750 — 36,953 
Amortization of purchased intangibles375 — — 375 
Unallocated corporate expenses— — 50,672 50,672 
Operating income (loss)$36,692 $352 $(50,672)$(13,629)
18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Summarized financial information by segment for the three months ended March 31, 2020, based on the Company’s internal financial reporting system utilized by the Company’s chief operating decision maker, follows (amounts in thousands):
BusinessConsumerCorporateConsolidated
Revenue:
Hosted services – Business$61,051 $— $— $61,051 
Hosted services – Consumer— 6,240 — 6,240 
Professional services10,797 — — 10,797 
Total revenue71,848 6,240 — 78,088 
Cost of revenue21,345 1,475 — 22,820 
Sales and marketing37,469 5,211 — 42,680 
Amortization of purchased intangibles405 — — 405 
Unallocated corporate expenses— — 45,375 45,375 
Operating income (loss) $12,629 $(446)$(45,375)$(33,192)
Geographic Information
The Company is domiciled in the United States and has international operations around the globe. The following table presents the Company’s long-lived assets by geographic region as of the dates presented (amounts in thousands):
March 31,December 31,
20212020
United States$207,165 $202,275 
Israel18,672 16,657 
Australia13,494 13,792 
Netherlands7,962 8,301 
Other (1)
16,791 16,596 
Total long-lived assets$264,084 $257,621 
(1) United Kingdom, Germany, Japan, France, and Italy

5. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2021 are as follows (amounts in thousands):
BusinessConsumerConsolidated
Balance as of December 31, 2020$87,168 $8,024 $95,192 
Adjustments to goodwill:
Foreign exchange adjustment(105) (105)
Balance as of March 31, 2021$87,063 $8,024 $95,087 
19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





Intangible Assets
Intangible assets are summarized as follows (amounts in thousands):
As of March 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying AmountWeighted
Average
Amortization
Period
Amortizing intangible assets:
Technology$30,460 $(27,183)$3,277 5.3 years
Customer relationships16,974 (14,186)2,788 8.4 years
Patents5,876 (962)4,914 13.2 years
Other314 (235)79 2.2 years
Total$53,624 $(42,566)$11,058 

As of December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying AmountWeighted
Average
Amortization
Period
Amortizing intangible assets:
Technology$30,499 $(26,818)$3,681 5.4 years
Customer relationships16,981 (13,982)2,999 8.4 years
Patents5,076 (908)4,168 12.5 years
Other314 (235)79 2.2 years
Total$52,870 $(41,943)$10,927 
 
Amortization expense is calculated over the estimated useful life of the asset. Aggregate amortization expense for intangible assets was $1.6 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021 and 2020, respectively, a portion of this amortization is included in cost of revenue. Estimated amortization expense for the next five years is as follows (amounts in thousands):  
Estimated Amortization Expense
Remaining 2021$1,977 
20222,266 
2023985 
2024784 
2025223 
Thereafter4,823 
Total$11,058 

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





6. Property and Equipment
The following table presents the detail of property and equipment for the periods presented (amounts in thousands):
March 31,
2021
December 31,
2020
Computer equipment and software$111,709 $107,666 
Internal-use software development costs94,614 86,454 
Finance lease right-of-use assets9,157 10,045 
215,480 204,165 
Less: accumulated depreciation(104,166)(98,110)
Total$111,314 $106,055 

7. Accrued Expenses and Other Current Liabilities
The following table presents the detail of accrued expenses and other current liabilities for the periods presented (amounts in thousands):
March 31,
2021
December 31,
2020
Payroll and other employee related costs$27,299 $39,820 
Professional services and consulting and other vendor fees48,477 38,796 
Unrecognized tax benefits2,032 2,039 
Sales commissions3,680 6,988 
Restructuring (see Note 13)4,914 4,732 
Non Income Tax 2,232 2,954 
Other7,712 4,541 
Total$96,346 $99,870 
21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)






8. Convertible Senior Notes and Capped Call Transactions
March 2019 Convertible Senior Notes
In March 2019, the Company issued $230.0 million aggregate principal amount of its 0.750% Convertible Senior Notes due 2024 in a private placement, which amount includes $30.0 million aggregate principal amount of such Notes issued pursuant to the exercise in full by the initial purchasers of their option to purchase additional “2024 Notes”. Interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019.
The 2024 Notes will mature on March 1, 2024, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms. The total net proceeds from the offering of the 2024 Notes, after deducting debt issuance costs, paid or payable by the Company, was approximately $221.4 million.
Each $1,000 in principal amount of the 2024 Notes is initially convertible into 25.9182 shares of the Company’s common stock par value $0.001, which is equivalent to an initial conversion price of approximately $38.58 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2024 Notes in connection with such a corporate event. The 2024 Notes are not redeemable prior to the maturity date of the 2024 Notes and no sinking fund is provided for the 2024 Notes. If the Company undergoes a fundamental change (as defined in the indenture governing the 2024 Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Holders of the 2024 Notes may convert their 2024 Notes at their option at any time prior to the close of business on the business day immediately preceding November 1, 2023, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day as determined by the Company; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the indenture governing the 2024 Notes) per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the 2024 Notes on each such trading day; or (3) upon the occurrence of specified corporate events. On or after November 1, 2023, holders may convert all or any portion of their 2024 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.
Upon conversion, it is the Company’s current intent to settle the principal amount of its outstanding 2024 Notes in cash and any excess over the principal amount in shares of the Company’s common stock.
During the quarter ended March 31, 2021, the conditions allowing holders of the 2024 Notes to convert were met and, thus, holders of the 2024 Notes maintain the option to convert their 2024 Notes during the quarter ending March 31, 2021.
The 2024 Notes are senior unsecured obligations and will rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the 2024 Notes; equal in right of payment with the Company’s existing and future liabilities that are not so subordinated; effectively subordinated to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of current or future subsidiaries of the Company.
In accounting for the issuance of the 2024 Notes, the Company separated the 2024 Notes into liability and equity components.  The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was $52.9 million and was determined by deducting the fair value of the liability component from the par value of the 2024 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount, or the debt discount, is amortized to interest expense at an effective interest rate over the contractual terms of the 2024 Notes.
In accounting for the transaction costs related to the 2024 Notes, the Company allocated the total amount incurred of approximately $8.6 million to the liability and equity components of the 2024 Notes based on the proportion of the proceeds
22

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $6.6 million, were recorded as an additional debt discount and are amortized to interest expense using the effective interest method over the contractual term of the 2024 Notes. Issuance costs attributable to the equity component were approximately $2.0 million and recorded as a reduction of additional paid in capital in stockholders’ equity.
In connection with the offering of the 2024 Notes, the Company entered into privately-negotiated capped call option transactions with certain counterparties (the “2024 capped calls”). The 2024 capped calls each have an initial strike price of approximately $38.58 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes. The 2024 capped calls have initial cap prices of $57.16 per share, subject to certain adjustment events. The 2024 capped calls cover, subject to anti-dilution adjustments, approximately 5.96 million shares of common stock. The 2024 capped calls are generally intended to reduce or offset the potential dilution to the common stock upon any conversion of the 2024 Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. The 2024 capped calls expire on March 1, 2024, subject to earlier exercise. The 2024 capped calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the 2024 capped calls are subject to certain specified additional disruption events that may give rise to a termination of the 2024 capped calls, including changes in law, failure to deliver, and hedging disruptions. The 2024 capped calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of