LivePerson Announces Fourth Quarter 2016 Financial Results

During the fourth quarter, the Company signed contracts with the following new customers:

• A North American leader in real-time communications
• A leading European insurance company and a member of the FTSE 100
• A major Internet service provider in the Asia-Pacific
• A multi-billion-dollar global information technology company
• A leading global human resources management software vendor

The Company also expanded business with:

• Two leading European financial services institutions
• Telstra, Australia's leading telecommunications and technology company
• A multi-billion-dollar international energy supplier
• One of the ten largest telecommunications companies in the world
• One of the leading Internet domain registrar and web hosting companies

Net Loss and Adjusted Net (Loss) Income

Net loss for the fourth quarter of 2016 was $9.6 million or $0.17 per share, as compared to a net loss of $21.0 million or $0.37 per share in the fourth quarter of 2015. Adjusted net loss for the fourth quarter of 2016 was $2.4 million or $0.04 per share, as compared to adjusted net income of $4.1 million or $0.07 per share in the fourth quarter of 2015. Adjusted net (loss) income excludes amortization, stock-based compensation, restructuring costs, acquisition costs, deferred tax asset valuation allowance, other non-recurring charges and the related income tax effect of these adjustments.

Net loss in the fourth quarter of 2016 includes charges of $7.2 million or $0.13 per share. These charges were comprised of $2.8 million of write down costs related to shutting down the legacy platform, a $2.6 million write off relating to a previous investment and $1.8 million in litigation fees. The fourth quarter 2015 net loss included a $0.28 per share adjustment as the Company established a valuation allowance for a significant portion of its deferred tax assets on its balance sheet.

Adjusted EBITDA

Adjusted EBITDA for the fourth quarter of 2016 was $5.3 million or $0.09 per share, as compared to $6.4 million or $0.11 per share in the fourth quarter of 2015. Adjusted EBITDA excludes provision for (benefit from) income taxes, other (income)/expense, net, depreciation and amortization, stock-based compensation, restructuring costs, acquisition costs and other non-recurring charges.

A reconciliation of the non-GAAP financial measures to GAAP measures has been provided in the financial tables included in this press release. An explanation of the non-GAAP financial measures and how they are calculated is included below under the heading "Non-GAAP Financial Measures."

Cash and Cash Equivalents

The Company's cash balance was $54.9 million at December 31, 2016, including $4.0 million of cash being used as collateral for foreign currency hedging instruments. The Company generated approximately $24.6 million of cash from operations in 2016 and incurred capital expenditures of approximately $12.3 million. The Company also spent approximately $10.0 million to repurchase 1.5 million shares of its common stock in 2016. As of December 31, 2016, approximately $20.0 million remained available for purchases under the previously announced stock repurchase program.

Financial Expectations

The Company anticipates that 2017 revenue will be 6% to 10% (5% to 8% in constant currency) lower as compared to 2016, as the Company completes the migration to LiveEngage and recognize the final attrition from winding down its Legacy offering. The Company is focused on returning to growth and targets exiting the year stronger than it started.

The Company also expects to preserve profitability and margins in 2017, by capturing another $16 million to $19 million of savings (excluding one-time, restructuring and non-cash charges) from the elimination of Legacy support and technology cost and by realigning the Company around the LiveEngage growth strategy. These savings are in addition to the nearly $15 million of expense reductions (excluding one-time, restructuring and non-cash charges) realized in 2016.

The Company's detailed 2017 financial expectations are as follows:

First Quarter 2017

Full Year 2017

Other Full Year 2017 Assumptions

• A negative foreign exchange impact on revenue of approximately $3.0 million
• Estimated one-time and restructuring charges of $2.7 million to $3.1 million ($0.05 per share) tied to winding down the Legacy offering and realigning around our LiveEngage strategy
• Estimated one-time legal expense of $6.0 million to $6.5 million ($0.11 per share) tied to litigation
• Amortization of purchased intangibles of approximately $4.7 million
• Stock-based compensation expense of approximately $10.5 million
• Depreciation of approximately $10.5 million
• Cash taxes paid of $1.0 million to $3.0 million. Adjusted tax rate of approximately 35%
• Capital expenditures of approximately $14.5 million

*Changes to Future and Historical Presentation of Non-GAAP Financial Measures

Note that in 2017, the Company updated the methodology for calculating adjusted net income. Whereas the Company previously incorporated the GAAP tax rate into its calculation, the Company now starts with GAAP pre-tax profit (loss), add back restructuring, one-time and non-cash expenses, and then applies a standardized 35% tax rate.

The goal of the revised calculation is to limit the volatility of GAAP tax rate fluctuations and to more closely align non-GAAP taxes with cash taxes. A full reconciliation of 2016 adjusted net income under the historical and updated methodologies is available on the Supplemental Fourth Quarter Earnings Presentation that you may find on the investor relations section of the Company's web site at http://www.liveperson.com/company/ir.

Stock-Based Compensation

Included in the accompanying financial results are expenses related to stock-based compensation, as follows (in thousands):

Amortization of Purchased Intangible Assets

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