Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which are prepared in conformity with accounting principles generally accepted 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. These estimates and assumptions relate to estimates of the carrying amount of goodwill, intangibles, depreciation, stock based-compensation, valuation allowances for deferred income taxes, accounts receivable, the expected term of a customer relationship, accruals and other factors. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. In addition, our actual results could differ from our estimates and assumptions based upon impacts on our business and general economic conditions due to the current COVID-19 pandemic. Overview LivePerson is a leading Conversational AI company creating digital experiences that are Curiously Human. Conversational AI allows humans and machines to interact using natural language, including speech or text. During the past decade, consumers have made mobile devices the center of their digital lives, and they have made mobile messaging the center of communication with friends, family and peers. This trend has been significantly accelerated by the COVID-19 pandemic and we believe 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 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, SMS, social media and third-party consumer messaging platforms. Brands can also use the Conversational Cloud to message consumers when they dial a 1-800 number instead of forcing them to navigate IVRs and wait on hold. Similarly, the Conversational Cloud can ingest traditional emails and convert them into messaging conversations, or embed messaging conversations directly into web advertisements, rather than redirect consumers to static website landing pages. Agents can manage all conversations with consumers through a single console interface, regardless of where the conversations originated. LivePerson's robust, cloud-based suite of rich messaging, real-time chat, AI and automation offerings features consumer and agent facing bots, intelligent routing and capacity mapping, real-time intent detection and analysis, queue prioritization, customer sentiment, analytics and reporting, content delivery, PCI compliance, co-browsing and a sophisticated proactive targeting engine. An extensible API stack facilitates a lower cost of ownership by facilitating robust integration into back-end systems, as well as enabling developers to build their own programs and services on top of the platform. More than 40 APIs and software development kits are available on the Conversational Cloud. 33 --------------------------------------------------------------------------------
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 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 for our customers. 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 efficiencies at least twice those of voice agents, reducing labor costs by at least 50%;
•Improving the overall customer experience, thereby fueling an increase in the customer satisfaction score of up to 20 percentage points, and improving retention and loyalty;
• More practical, 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, reducing agent churn by up to 50%.
•Valued connection with consumers via mobile devices, either through native apps, websites, SMS or third-party messaging platforms;
• leveraged spending that drives visitor traffic by increasing visitor conversions;
•Refine and improve performance by understanding which initiatives provide the highest rate of return; and
•increased lead generation by providing a single platform that engages consumers through advertisements and listings on branded and third-party websites.
As a "cloud computing" or software-as-a service ("SaaS") provider, LivePerson provides solutions on a hosted basis. This model offers significant benefits over premise-based software, including lower up-front costs, faster implementation, lower total cost of ownership, scalability, cost predictability, and simplified upgrades. Organizations that adopt a fully-hosted, multi-tenant architecture that is maintained by LivePerson eliminate the majority of the time, server infrastructure costs, and information technology ("IT") resources required to implement, maintain, and support traditional on-premise software. To further enhance our platform, in
September 2020we signed a partnership with a digital services and consulting company to transform our technology infrastructure on the public cloud, to build integrated solutions and a global practice around our Conversational Cloud to sell into this company's channels and global enterprise customer base, and to redefine how the world's top brands communicate. 34 -------------------------------------------------------------------------------- More than 18,000 businesses, including HSBC, Orange, and GM Financial use our conversational solutions to orchestrate humans and AI, at scale, and create a convenient, deeply personal relationship with their customers. LivePerson's consumer services offering is an online marketplace that connects Experts who provide information and knowledge for a fee via mobile and online messaging with Users. Users seek assistance and advice in various categories including personal counseling and coaching, computers and programming, education and tutoring, spirituality and religion, and other topics.
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 and 2021 were held virtually in light of the COVID-19 pandemic) that target executives from enterprise customers and prospects, and feature a key theme within the Conversational Space, such as Apple Business Chat, Google Rich Business Messenger, IVR deflection or AI. LivePerson customers are the center point of these summits, presenting why they chose LivePerson for conversational experiences, how they achieved success, and what type of return on investment they have realized. Each attendee then receives a blueprint for how they can pursue similar outcomes. We have found this strategy to drive strong results for LivePerson, as we have seen a greater than 40% conversion rate on opportunities that were created or advanced as part of the customer summits. By year-end 2021, nearly 75% of messaging conversations had automation attached. We will continue to focus on building awareness for the Conversational Space and driving adoption of messaging and AI across our customer base. Increase messaging volumes by developing a broad ecosystem, expanding customer use cases, and focusing on AI and automation. Our strategy is to drive higher messaging volumes by going both wide across messaging endpoints, deep across consumer use cases, and focusing on AI and automation as the means to deliver powerful scale. By year-end 2021, nearly 75% of messaging conversations had automation attached. We will continue to focus on building awareness for the Conversational Space and driving adoption of messaging and AI across our customer base. 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, Ad Lingoand 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 Australiafully 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. In 2021, one of the ten largest healthcare companies in the world launched web messaging to enable their customers to check the status of their orders and request prescription refills with ease, and a multi-billion-dollar entertainment and media company enabled their consumers to plan trips, buy tickets or change reservations with in-app messaging. LivePerson makes the management of all these disparate channels seamless to the brand. AI-based intelligent routing, queuing and prioritization software orchestrates these conversations at scale, regardless of which messaging endpoint they originated from, so that human and bot agents can engage with all customers through just one console. We believe LivePerson is leading the structural shift to Conversational AI. 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 2021. The benefit can also be seen in LivePerson's average revenue per user ("ARPU") for our enterprise and mid-market customers, which increased approximately 32% for the trailing twelve months ended March 31, 2022to $645,000from approximately $490,000for the trailing twelve months ended March 31, 2021. We believe these ARPU trends are a clear indication of how LivePerson's strategy to drive messaging adoption has successfully influenced our revenue growth by taking share from legacy communication channels. Attract the industry's best AI, machine learning and conversational talent. We believe that AI and machine learning are critical to successfully scaling in the Conversational Space, and that in order to develop the industry's leading technology, we need to attract the industry's best talent. We have hired some of the industry's brightest data scientists, machine learning engineers and automation engineers, many from firms such as Nike, Amazon.com, Microsoft and Target, who are working exclusively on applying AI to the Conversational Space. LivePerson also expanded its development talent base in Germany, and added key development talent through the acquisitions of BotCentral in Mountain View, California; Callinize, Inc.(dba Tenfold) ("Tenfold") in Austin, Texas; e-bot7 GmbH("e-bot7") in Munich, Germany; VoiceBase, Inc.("VoiceBase") in San Francisco, California; and WildHealth, Inc.in Lexington, Kentucky. 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-protected AI engine that is designed to overcome these shortcomings and help brands rapidly bring to market conversational AI that can scale to millions of interactions, while increasing customer satisfaction and conversion rates. Unlike alternative solutions designed solely for IT departments, LivePerson's Conversational AI was built to be used by developers and contact center agents. By putting the power of conversational design and bot management in the hands of contact center agents, LivePerson's Conversational AI gives brands the ability to leverage the employees closest to the customer, those who are most versed in the voice of the brand, and with the most expertise in how to craft successful outcomes for customer service and sales journeys.
Some of the key innovations behind LivePerson’s conversational AI include:
•a holistic approach to scaling AI by combining consumer facing bots, agent facing bots, intelligent routing and real-time intent understanding, with an analytics dashboard that helps users focus on the intents that are impacting their business and prioritize which intents to automate next;
• Dialog-based bot-building software rather than workflow or code, so non-technical workers like contact center agents can design automations.
36 -------------------------------------------------------------------------------- •leveraging a data moat from hundreds of millions of conversations to feed the machine learning that rapidly and accurately detects consumer sentiment and intents in real-time. Customers of LivePerson can use intent understanding for advanced routing, next-best actions, and to fully contain conversations with automation; •the establishing of contact center agents as bot managers, ensuring that every conversation is safeguarded by a human and that agents are continuously training the AI to be smarter and drive more successful outcomes;
• Powerful Assist technology that multiplies agent efficiency by analyzing intent in real time, then suggesting the best next actions, predefined content, and bots that can support transactional work;
• Pre-built templates for target verticals that provide out-of-the-box support for core intents and core integrations;
•the ability to start conversations with existing transcripts, reducing design effort and speeding time to market;
• Integration of third-party AI Natural Language Understanding (“NLU”) so that customers are not locked into a single vendor; and
•AI analytics and reporting tailored to the Conversational Space, providing brands with immediate, actionable insights about their businesses and contact center operations. Our strategy is to continue to enhance the Conversational AI engine and related products, by leveraging our global research and development ("R&D") footprint and substantial library of mobile and online conversational data, with the aim of increasing agent efficiency, decreasing customer care costs, improving the customer experience and increasing customer lifetime value. Sustain our leadership position by aligning brands to a vision that transforms how they communicate with consumers and delivers a superior return on brands' investment. Over the past four years we have made good progress in developing our conversational AI platform and within the next 12 months, we expect to have a solution in place for our automations to self-heal, which is the ultimate goal of any AI platform. Our acquisitions of VoiceBase and Tenfold provide us with a mechanism for data capture in the voice channel. This additional data and the associated analytics and system integration give us an even greater ability to scale the usage of our platforms, by building on our strength in messaging. Brands must adapt their contact centers to an asynchronous messaging environment and leverage a combination of human agents, bots, and AI to achieve scale and efficiencies. When done correctly, the entire consumer lifecycle with a brand will be maintained within the Conversational Space, and traffic will steadily shift away from lower returning traditional voice calls, websites, emails, and apps to higher returning messaging endpoints.
We believe LivePerson is uniquely positioned to drive this transformation with our technology and expertise:
•The Conversational Cloud, LivePerson's enterprise-class, automation-first, cloud-based platform, was designed for AI-assisted and human-powered messaging in mobile and online channels. The platform offers best-in-class security and scalability, offers the broadest ecosystem of messaging endpoints, is designed for ease of use, and features an AI engine custom built for the Conversational Space, intent recognition, robust real-time reporting, role-based real-time analytics, predictive intelligence, and innovations in customer satisfaction and connection measurement. Additionally, the Conversational Cloud is an open platform with pre-built, enterprise-grade integrations into back-end systems as well as the ability to work across NLU providers.
• The company believes it has a data moat built on hundreds of millions of conversations across industries, geographies, and use cases that feed the machine learning engines that power understanding of the ‘intention.
• The platform has expanded to power conversations across a wide range of channels and use cases, from traditional sales and customer service to marketing, social media, email, advertising and brick and mortar.
•LivePerson has deep domain expertise across verticals and messaging endpoints, a global footprint, referenceable enterprise brands and a team of technical, solutions and consulting professionals to assist customers along their transformational journeys. We are positioned as an authority in the Conversational Space. We have developed a Transformation Model that is introduced to existing and prospective customers to help guide them on their journeys from legacy and oftentimes inefficient legacy voice, email and chat solutions to modern conversational ones powered by messaging and AI. •The Company has developed Gainshare - a Transformation Model that is introduced to existing and prospective customers to help guide them on their journeys from legacy and oftentimes inefficient legacy voice, email, and 37 -------------------------------------------------------------------------------- chat solutions to modern conversational ones powered by messaging and AI. Gainshare is a fully managed solution where LivePerson not only provides the messaging and AI automation technology, but also the labor, automation, and end-to-end program management, leveraging the Company's expertise with Conversational AI and messaging operations. Gainshare is an option for brands that want to accelerate a transformation to Conversational AI, or that want a worry-free solution where LivePerson manages the entire operation, from staffing to automation building and optimization, to conversation design and consumer experience. Gainshare pricing is bespoke, and is typically structured around a brand's desired goals, whether driving incremental revenue or reducing operational costs. We believe that LivePerson's differentiated approach to the Conversational Space, combined with our unique technology and expertise has established us as a market leader, with an ability to deliver superior returns on investment. LivePerson customers manage as many as 40 messaging conversations at a time, as compared to one at a time for a voice agent and two to four at a time for a good chat agent. Adding AI and bots provides even greater scale to the number of conversations managed. Our customers often see labor efficiency gains of at least two times that of voice agents, effectively cutting labor costs by at least 50%. Furthermore, our ability to deliver more convenient, personalized and content-rich conversations often drives increases in customer satisfaction of up to 20 percentage points and increases in sales conversions of up to 20%, while enhancing average order value, customer retention and loyalty. Strengthen our position in both existing and new industries. We plan to continue to develop our market position by increasing our customer base, and expanding within our installed base. We plan to continue to focus primarily on key target markets: consumer/retail, telecommunications, financial services, travel/hospitality, technology and automotive within both our enterprise and mid-market sectors, as well as the small business sector ("SMB"). In 2021, we continued to grow in verticals such as healthcare and financial services. We plan to continue experimenting with new conversational businesses, including some that are in regulated industries, like online banking and healthcare. We are increasingly structuring our field organization to emphasize our domain expertise and strengthen customer relationships across target industries. Continue to build our international presence. We are focused on continuing to build our international presence through expansion of our international revenue contribution, which accounted for 35% of total revenue in 2021. We are generating positive results from our recent investments in the
Asia Pacific, Europe, and Latin Americaregions. Expanding go-to-market capacity in international theaters is one of our key strategic focuses and also part of our motivation for our recent acquisition of e-bot7. Leverage our open architecture to support partners and developers. In addition to developing our own applications, we continue to cultivate a partner eco-system capable of offering additional applications and services to our customers. We integrate into third-party messaging endpoints including SMS, Facebook Messenger, Apple Business Chat, Google Rich Business Messenger, Line, 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, a digital services and consulting company joined LivePerson's network with a first-of-its-kind 360 degree partnership focusing not only on capturing the global rising demand for conversational commerce and building a personalized experience for customers, but also driving the transformation for internal corporate messaging and the employee experience through Conversational AI. In 2021, we announced strategic integration partnerships with
customer and employee experience management through the power of AI. Our network has also expanded with the Tech Mahindra partnership to help brands deliver personalized conversational experiences to consumers at scale.
Maintain market leadership in technology and security expertise. As described above, we are devoting significant resources to creating new products and enabling technologies designed to accelerate innovation. We evaluate emerging technologies and industry standards and continually update our technology in order to retain our leadership position in each market we serve. We monitor legal and technological developments in the area of information security and confidentiality to ensure our policies and procedures meet or exceed the demands of the world's largest and most demanding corporations. We believe that these efforts will allow us to effectively anticipate changing customer and consumer requirements in our rapidly evolving industry. Evaluate strategic alliances and acquisitions when appropriate. In
July 2021, we acquired German conversational AI company e-bot7, which propels our self-service capabilities and continued growth across Europe. In October 2021, we acquired VoiceBase, a leader in real-time speech recognition and conversational analytics; and Tenfold, an advanced customer engagement platform for integrating communication systems with leading CRM and support services. In February 2022, we acquired WildHealth, a precision medicine company. Once fully integrated, we expect these acquisitions to allow LivePerson to deliver our AI and automation capabilities, insights, and integration as a single integrated product offering across all channels including voice and messaging. Key Metrics
Financial overview for the three months ended
• Total revenue increased by 21% to reach
• Revenue in our Business segment increased by 22% to reach
• Gross profit margin decreased from 69% to 62%.
• Costs and expenses increased by 61% to reach
• Net loss increased to
•Average annual revenue per enterprise and mid-market customer increased approximately 32% to
$645,000for the trailing twelve months ended March 31, 2022, as compared to $490,000for the trailing twelve months ended March 31, 2021. •Our target for enterprise and mid-market revenue retention in 2022 matches 2021, and is a range of 105% to 115%. Revenue retention rate for enterprise and mid-market customers on the Conversational Cloud was within our target range of 105% to 115% in the first quarter of 2022 and exceeded the high end of our target range of 105% to 115% in the first quarter of 2021. Revenue retention rate measures the percentage of revenue retained at quarter end, from full service customers that were on the Conversational Cloud at the same period a year ago. Adjusted EBITDA and Adjusted Operating (Loss) Income To provide investors with additional information regarding our financial results, we have disclosed adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") and adjusted operating income (loss), which are non-GAAP financial measures. The tables below present a reconciliation of adjusted EBITDA and adjusted operating income to net (loss) income, the most directly comparable GAAP financial measures. We have included adjusted EBITDA and adjusted operating income (loss) in this Quarterly Report on Form 10-Q because these are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and adjusted operating income (loss) can provide a useful measure for period-to-period comparisons of our core business. Additionally, adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that adjusted EBITDA and adjusted operating income (loss) provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. 39 -------------------------------------------------------------------------------- Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• Adjusted EBITDA does not reflect variations or cash requirements for our working capital requirements;
• adjusted EBITDA does not consider the impact of acquisition costs; • adjusted EBITDA does not consider the impact of restructuring costs; • adjusted EBITDA does not consider the impact of other costs;
• Adjusted EBITDA does not reflect tax payments which may represent a reduction in the cash available to us; and
• Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Due to these limitations, you should consider Adjusted EBITDA alongside other measures of financial performance, including various pretax GAAP losses and our other GAAP results. The following table provides a reconciliation of Adjusted EBITDA for each of the periods indicated:
Three Months Ended March 31, 2022 2021 (In thousands) Reconciliation of Adjusted EBITDA GAAP net loss
$ (65,364) $ (21,195)Amortization of purchased intangibles and finance leases 6,257 1,550 Stock-based compensation 31,866 14,611 Contingent earn-out adjustments - 132 Restructuring costs (1) (23) 2,732 Depreciation 7,224 6,605 Other litigation and consulting costs (2) 1,751 1,347 Benefit from income taxes (193) (851) Acquisition costs 419 - Interest expense, net 490 9,129 Other income, net (3) (60) (712) Adjusted EBITDA (loss) $ (17,633) $ 13,348--------------
(1)Includes severance pay
(2)Includes sales tax liability of
$0.3 million, litigation costs of $0.7 million, employee benefit cost of $0.2 millionand consulting costs of $0.6 millionfor the three months ended March 31, 2022. Includes litigation costs of $1.2 millionand consulting costs of $0.1 millionfor the three months ended March 31, 2021. (3)Includes financial (income) expense which is primarily attributable to currency rate fluctuations. Our use of adjusted operating (loss) income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: • although amortization is a non-cash charge, the assets being amortized may have to be replaced in the future, and adjusted operating (loss) income does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• adjusted operating income does not take into account the impact of acquisitions;
• adjusted operating income does not take into account the impact of restructuring costs;
• adjusted operating income does not take into account the impact of other costs;
• Other companies, including companies in our industry, may calculate adjusted operating profit (loss) differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted operating income (loss) alongside other measures of financial performance, including various pretax GAAP losses and our other GAAP results. The following table provides a reconciliation of adjusted operating income for each of the periods indicated:
Three Months Ended
March 31, 20222021
(000s) Reconciliation of adjusted operating income (loss) Loss before income tax benefit
$ (65,557) $ (22,046)Amortization of purchased intangibles and finance leases 6,257 1,550 Stock-based compensation 31,866 14,611 Restructuring costs (1) (23) 2,732 Other litigation and consulting costs (2) 1,751 1,347 Contingent earn-out adjustments - 132 Acquisition costs 419 - Interest expense, net 490 9,129 Other income, net (3) (60) (712) Adjusted operating (loss) income $
(1)Includes severance pay
(2)Includes sales tax liability of
$0.3 million, litigation costs of $0.7 million, employee benefit cost of $0.2 millionand consulting costs of $0.6 millionfor the three months ended March 31, 2022. Includes litigation costs of $1.2 millionand consulting costs of $0.1 millionfor the three months ended March 31, 2021.
(3) Includes financial expenses (income) which are mainly attributable to fluctuations in exchange rates.
41 -------------------------------------------------------------------------------- Critical Accounting Policies and Estimates Our condensed 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. We believe that the assumptions and estimates associated with revenue recognition, depreciation, stock-based compensation, accounts receivable, the valuation of goodwill and intangible assets, income taxes and legal contingencies have the greatest potential impact on our consolidated financial statements. We evaluate these estimates on an ongoing basis. Actual results could differ from those estimates under different assumptions or conditions, and any differences could be material. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating the reported consolidated financial results include the following:
The majority of our revenue is generated from hosted service revenues, which is inclusive of our platform usage pricing model, and related professional services from the sale of our services. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. A large proportion of our revenue from new customers comes from large corporations. These companies typically have more significant implementation requirements and more stringent data security standards. Such customers also have more sophisticated data analysis and performance reporting requirements, and are likely to engage our professional services organization to provide such analysis and reporting on a recurring basis.
We determine revenue recognition through the following steps:
•identification of the contract(s) with a customer;
•identification of performance obligations in the contract;
•determination of the transaction price;
•the allocation of the transaction price to the performance obligations of the contract; and
•recognition of revenue when, or as we meet a performance obligation.
Total income of
We defer all incremental commission costs to obtain the contract ("contract acquisition costs"). The contract acquisition costs consist of prepaid sales commissions and have balances as of
March 31, 2022and December 31, 2021of $42.7 millionand $40.7 million, respectively. We amortize these costs over the related period of benefit using the expected life of the customer contract, which we determine to be three to five years, consistent with the transfer to the customer of the services to which the asset relates. We classify contract acquisition costs as long-term unless they have an original amortization period of one year or less.
Hosted Services – Business Revenue
Hosted services - Business revenue is reported at the amount that reflects the ultimate consideration expected to be received and primarily consist of fees that provide customers access to the Conversational Cloud. We have determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. We recognize this revenue over time on a ratable basis over the contract term, beginning on the date that access to the Conversational Cloud platform is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by our performance. Subscription contracts are generally one year or longer in length, billed monthly, quarterly or annually in advance. Additionally, for certain of our larger 42 -------------------------------------------------------------------------------- customers, we may provide call center labor through an arrangement with one or more of several qualified vendors. For most of these customers, we pass the fee we incur with the labor provider and its fee for the hosted services through to our customers in the form of a fixed fee for each order placed via our online engagement solutions. For these Gainshare arrangements, we act as a principal in a transaction if we control the specified goods or services before they are transferred to the customer. Revenue attributable to our monthly hosted Business services accounted for 82% and 78% of total revenue for the three months ended
March 31, 2022and 2021, respectively.
Professional services income
Professional Services revenue primarily consists of fees for deployment and optimization services, as well as training delivered on an on-demand basis which is deemed to represent a distinct stand-ready performance obligation and is recognized at a point in time. Professional Services revenue is reported at the amount that reflects the ultimate consideration we expect to receive in exchange for such services. Control for the majority of our Professional Services contracts passes over time to the customer and is recognized ratably over the contracted period, as the passage of time is deemed to be the most faithful depiction of the transfer of control. For certain deployment services, which are not deemed to represent a distinct performance obligation, revenue will be recognized in the same manner as the fee for access to the Conversational Cloud platform, and as such will be recognized on a straight-line basis over the contract term. For services billed on a fixed price basis, revenue is recognized over time based on the proportion performed using time and materials as the measure of progress toward complete satisfaction of the performance obligation. Our Professional Services contracts are generally one year or longer in length, billed monthly, quarterly or annually in advance. There is no significant variable consideration related to these arrangements.
Revenue attributable to professional services represented 11% and 14% of total revenue for the three months ended
Hosted Services – Consumer Revenue
For revenue from our Consumer segment generated from online transactions between Experts and Users, revenue is recognized at an amount net of Expert fees primarily because the Expert is the primary obligor. We do not act as a principal in a transaction since we do not control the specified goods or services before they are transferred to the customer. Additionally, we perform as an agent without any risk of loss for collection, and we are not involved in selecting the Expert or establishing the Expert's fee. We collect a fee from the consumer and retain a portion of the fee, and then remit the balance to the Expert. Revenue from these transactions is recognized at the point in time when the transaction is complete and no significant performance obligations remain.
Revenues from our Consumer segment represented approximately 7% and 8% of total revenues for the three months ended
Remaining performance obligation
March 31, 2022, the aggregate amount of the total transaction price allocated in contracts with original duration of one year or greater to the remaining performance obligations was $448.0 million. Approximately 91% of our remaining performance obligations is expected to be recognized during the next 24 months, with the balance recognized thereafter. The aggregate balance of unsatisfied performance obligations represents contracted revenue that has not yet been recognized, and does not include contract amounts that are cancellable by the customer, amounts associated with optional renewal periods, and any amounts related to performance obligations, which are billed and recognized as they are delivered. We have elected the optional exemption, which allows for the exclusion of the amounts for remaining performance obligations that are part of contracts with an original expected duration of less than one year. Such remaining performance obligations represent unsatisfied or partially unsatisfied performance obligations pursuant to ASC 606, "Revenue from Contracts with Customers."
Contracts with multiple performance obligations
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing 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. 43 --------------------------------------------------------------------------------
We record deferred revenues when cash payments are received or due in advance of our performance. The increase in the deferred revenue balance as of
March 31, 2022is primarily driven by cash payments received or due in advance of our performance obligations, partially offset by $55.4 millionof revenues recognized that were included in the deferred revenue balance as of December 31, 2021. Stock-Based Compensation We follow ASC 718-10, "Stock Compensation," which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. Our forfeiture rate assumptions, which estimate the share-based awards that will ultimately vest, requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period of change and could be materially different from share-based compensation expense recorded in prior periods. For the three months ended March 31, 2022and 2021, we accrued approximately $7.1 millionand $5.3 millionfor cash awards, respectively, related to bonus to be settled in shares of our stock and recorded a corresponding expense, which is included as a component of stock-based compensation expense in the accompanying condensed consolidated financial statements for the three months ended March 31, 2022and 2021, respectively. For the three months ended March 31, 2022and 2021, there was approximately $42.4 millionand $17.6 million, respectively, of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of approximately 2.7 years. For the three months ended March 31, 2022and 2021, there was approximately $149.0 millionand $65.7 million, respectively, of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over the remaining weighted average period of approximately 3.1 years.
Non-cash compensation expenses
The net amounts of non-cash compensation are as follows:
Three Months Ended
March 31, 20222021 (In thousands)
Stock-based compensation expense
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 condensed consolidated financial statements. No single customer accounted for or exceeded 10% of our total revenue for the three months ended
March 31, 2022and 2021. During the three months ended March 31, 2022, we increased our allowance for doubtful accounts from $6.3 millionas of December 31, 2021to approximately $7.2 million. A large proportion of receivables are due from larger corporate customers that typically have longer payment cycles. Accounts receivable is presented net of an allowance for doubtful accounts and sales reserve of 44 --------------------------------------------------------------------------------
An allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances. Judgment is required in the estimation of the allowance and we evaluate the collectability of our accounts receivable based on a combination of factors. If we become aware of a customer's inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, we use an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and our historical collection experience adjusted for current expectations for the customer or industry. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.
Goodwill Goodwillrepresents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwillis not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We have determined that we operate as three reporting units and have selected September 30as the date to perform our annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from our business. If these estimates or their related assumptions change in the future, we may be required to record impairment for these assets. We have the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, we may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The impairment test involves comparing the fair value of the reporting unit to its carrying value, including goodwill. A goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value. The impairment is limited to the carrying amount of goodwill.
No goodwill impairment charge has been recorded for any of the periods presented.
Impairment of long-lived assets
The carrying amounts of our long-lived assets, including property and equipment, lease right of use assets, capitalized internal-use software, costs to obtain customer contracts, and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable or that the useful lives are shorter than originally estimated. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future undiscounted net cash flows the asset is expected to generate over its remaining life. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. If the useful life is shorter than originally estimated, we amortize the remaining carrying value over the new shorter useful life.
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company includes interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. The Company recorded a valuation allowance against its
U.S.and Germanydeferred tax assets as it considered its cumulative loss in recent years as a significant piece of negative evidence. Since valuation allowances are evaluated on a jurisdiction by jurisdiction basis, we believe that the deferred tax assets related to LivePerson Australia Holdings Ptd. Ltd., LivePerson (UK) Limited, Kasamba Inc., LivePerson Japan and LivePerson Limited. ( Israel) are more likely than not 45 --------------------------------------------------------------------------------
to be realized given that these jurisdictions have positive cumulative pre-tax accounting income after adjusting for permanent and non-recurring items. During the year ended
We are subject to legal proceedings and litigation arising in the ordinary course of business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding or litigation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of accruals recorded are based only on the information available at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding or litigation, and may revise our estimates. Any revisions could have a material effect on our results of operations. See Note 15 - Legal Matters for additional information on our legal proceedings and litigation.
Recently issued accounting standards
Except as referenced below under "Recently Adopted Accounting Pronouncements," there were no other recently issued accounting pronouncements or changes in accounting pronouncements during the quarter ended
March 31, 2022, that are of significance or potential significance to the Company.
Recently Adopted Accounting Pronouncements
See Note 1 – Description of Business and Basis of Presentation for a complete description of recently adopted accounting pronouncements.
Results of Operations We are organized into two operating segments for purposes of making operating decisions and assessing performance. The Business segment enables brands to leverage the Conversational Cloud's sophisticated intelligence engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between Experts and Users seeking information and knowledge for a fee via mobile and online messaging. Comparison of the Three Months Ended
March 31, 2022and March 31, 2021
The following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results. Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Revenue by Segment: Business
$ 121,075 $ 98,88022 % Consumer 9,122 9,011 1 % Total $ 130,197 $ 107,89121 % Business revenue increased by 22% to $121.1 millionfor the three months ended March 31, 2022from $98.9 millionfor the comparable period in 2021. The increase in B2B revenue during the three months ended March 31, 2022is driven mainly by year-over-year increase in hosted services of $22.7 million. Included in hosted services is an increase in revenue that is variable based on interaction and usage of approximately $8.8 million. The increase in Business revenue was driven in nearly equal parts by existing and new customers as we generated greater demand for its Conversational Commerce software and Gainshare solutions. Business revenue also benefited from timing of revenue between the first and second quarter. Our ARPU for our enterprise and mid-market customers was approximately $645,000for the trailing twelve months ended March 31, 2022, as compared to approximately $490,000for the comparable period in 2021. Similarly, we are seeing strong revenue retention rates. Revenue retention rate for enterprise and mid-market customers on the Conversational Cloud was within our target range 46 --------------------------------------------------------------------------------
105% to 115% in the first quarter of 2022 and exceeded the upper end of our target range of 105% to 115% in the first quarter of 2021.
Consumer income increased by 1% to reach
Cost of Revenue – Business
Cost of revenue - business consists of compensation costs relating to employees who provide customer service to our customers, compensation costs relating to our network support staff, outside labor provider costs, the cost of supporting our server and network infrastructure, and allocated occupancy costs and related overhead. Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Cost of revenue - business
$ 48,221 $ 31,61053 % Percentage of total revenue 37 % 29 % Headcount (at period end) 218 251 (13) % Cost of revenue - business increased by 53% to $48.2 millionfor the three months ended March 31, 2022, from $31.6 millionfor the comparable period in 2021. This increase in expense is primarily attributable to business services and outsourced subcontracted labor of approximately $7.7 milliondriven by Health and Gainshare services, which power Conversational Commerce programs on behalf of customers. We also recognized an increase in expenses for backup server facilities of approximately $3.4 million, in amortization expense of approximately $3.2 million, an increase in salary and employee related expenses of approximately $1.9 million.
Revenue Cost – Consumer
Cost of revenue - consumer consists of compensation costs relating to employees who provide customer service to Experts and Users, compensation costs relating to our network support staff, the cost of supporting our server and network infrastructure, credit card and transaction processing fees and related costs, and allocated occupancy costs and related overhead. Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Cost of revenue - consumer
$ 1,346 $ 1,909(29) % Percentage of total revenue 1 % 2 % Headcount (at period end) 13 24 (46) % Cost of revenue - consumer decreased by 29% to $1.3 millionfor the three months ended March 31, 2022from $1.9 millionfor the comparable period in 2021. This decrease in expense is primarily related to a decrease in salary and employee related expenses of approximately $0.2 millionand in credit card processing fees of approximately $0.2 million.
Sales and Marketing – Business
Sales and marketing - business expenses consist of compensation and related expenses for sales and marketing personnel, as well as advertising, marketing events, public relations, trade show exhibit expenses and allocated occupancy costs and related overhead. Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands)
Sales and marketing - business
$ 52,283 $ 30,20373 % Percentage of total revenue 40 % 28
% Headcount (at period end) 701 312 125 % 47
-------------------------------------------------------------------------------- Sales and marketing - business expenses increased by 73% to
$52.3 millionfor the three months ended March 31, 2022from $30.2 millionfor the comparable period in 2021. This increase was primarily attributable to an increase in salary and related employee expenses of approximately $15.1 million, an increase in marketing expense of approximately $4.3 million, an increase in business services of approximately $1.8 million, and an increase in backup server facilities of approximately $0.9 million. We have adjusted our marketing and hiring efforts to account for the impact of the COVID-19 pandemic. In particular, 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 – Consumer
Sales and Marketing – Consumer expenses include compensation and related expenses for marketing personnel, as well as online promotion, public relations and allocated occupancy costs and related overhead.
Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands)
Sales and marketing - consumer
$ 5,849 $ 6,750
Percentage of total revenue 4 % 6
Headcount (at period end) 16 19
Sales and marketing - consumer expenses decreased by 13% to
$5.8 millionfor the three months ended March 31, 2022from $6.8 millionfor the comparable period in 2021. This decrease is primarily attributable to a decrease in marketing expense of approximately $0.5 million, a decrease in business services and outsourced subcontracted labor of approximately $0.4 million, and a decrease in salary and related expenses of approximately $0.1 million, partially offset by a an increase in backup server facilities of approximately $0.1 million.
General and administrative
Our general and administrative expenses include compensation and related costs of management, accounting, legal, human resources and administrative personnel, professional fees and other general corporate expenses.
Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) General and administrative
$ 29,735 $ 14,486105 % Percentage of total revenue 23 % 13 % Headcount (at period end) 165 111 49 % General and administrative expenses increased by 105% to $29.7 millionfor the three months ended March 31, 2022from $14.5 millionfor the comparable period in 2021. This increase is primarily related to an increase in salary and employee related expenses of approximately $11.1 million, an increase in business services and outsourced labor of approximately $1.8 million, an increase in facilities of approximately $1.2 million, and an increase in hosting services of approximately $1.1 million. 48 --------------------------------------------------------------------------------
Our product development expenses consist of compensation and related expenses for product development personnel as well as allocated occupancy costs and related overhead and outsourced labor and expenses for testing new versions of our software. Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Product development
$ 56,072 $ 33,45568 % Percentage of total revenue 43 % 31 % Headcount (at period end) 674 501 35 % Product development costs increased by 68% to $56.1 millionfor the three months ended March 31, 2022from $33.5 millionfor the comparable period in 2021. This increase is primarily related to an increase in salaries and employee related expenses of approximately $16.2 million, an increase in business services and outsourcing subcontracted labor of approximately $4.6 million, an increase in credit card processing and bank fees of $1.2 million, and an increase in depreciation expense of approximately $0.6 million. We continued to make investments in public cloud migration, and in enhancing and expanding new features of the Conversational Cloud, including Voice. Also, we continued to invest in bringing more data scientists and machine learning engineers to focus on Conversational AI. We continue to invest in new product development efforts to expand the capability of Conversational Cloud. Upon completion, the project costs will be depreciated over five years. For the three months ended March 31, 2022, $9.8 millionwas capitalized, compared to $8.2 millionfor the comparable period in 2021. Restructuring Costs
Restructuring costs consist of reprioritizing and reallocating resources to focus on areas considered to have high growth potential.
Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Restructuring costs
$ (23) $ 2,732(101) % Percentage of total revenue - % 3 % Restructuring costs decreased by 101% to less than $0.1 millionduring the three months ended March 31, 2022from $2.7 millionfor the comparable period in 2021. The restructuring cost for the three months ended March 31, 2021was a result of our partnership with Infosys to transform our technology infrastructure on the public cloud, to build integrated solutions and a global practice around our Conversational Cloud, and to redefine how brands communicate. This variance was primarily attributable to an increase in restructuring costs related to lease abandonment, along with severance and other compensation costs.
Amortization of purchased intangible assets
Three months completed
2022 2021 % Change (Dollar in
Amortization of purchased intangibles
$ 1,841 $ 375391 % Percentage of total revenues 1 % - % Amortization expense for purchased intangibles increased by 391% to $1.8 millionfor the three months ended March 31, 2022from $0.4 millionfor the comparable period in 2021. The increase is primarily attributable to amortization of patents and customer relationships as well as the intangible assets acquired in the acquisitions of VoiceBase, Tenfold, and e-bot7 that occurred in 2021 and the acquisition of WildHealth in the first quarter of 2022. 49 --------------------------------------------------------------------------------
An additional depreciation charge of an amount of
for the three months ended
Other expenses, net
Other expense, net consists of interest income on cash and cash equivalents, investment income and financial (expense) income which is a result of currency rate fluctuations associated with exchange rate movement of the
U.S.dollar against the New Israeli Shekel ("NIS"), British Pound, Euro, Australian Dollar, and Japanese Yen. Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Interest expense $ (490) $ (9,129)
Other income, net 60 712
Other expense, net
$ (430) $ (8,417)
Other expense, net decreased to
$0.4 millionfor the three months ended March 31, 2022, respectively, from other expense of $8.4 millionfor the comparable periods in 2021 primarily due to the adoption of ASU 2020-06 and the elimination of the debt discount that was previously being amortized to interest expense over the contractual term of the Notes. Benefit from Income Taxes Three Months Ended March 31, 2022 2021 % Change (Dollar in thousands) Benefit from income taxes $ (193) $
Benefit from income taxes was
$0.2 millionand $0.9 millionfor the three months ended March 31, 2022and 2021, respectively. Our consolidated effective tax rate was impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate. The tax benefit of $0.2 millionfor the period was made up of a tax benefit for the period of $1.2 millionon operating earnings coupled with a stock compensation tax deficiency of $0.2 millionrelated to the stock compensation arrangements of LivePerson, Inc., LivePerson (UK) Limitedand LivePerson Limited( Israel). During the quarter, the Company acquired WildHealth in a non-taxable transaction that resulted in a tax provision of $1.6 millionrelated to the release of valuation allowance on certain LivePerson, Inc.(acquirer) net operating losses.
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