Executive Summary / Key Takeaways

• LivePerson is undergoing a significant transformation, pivoting from legacy digital chat to an AI-powered orchestration platform for enterprise customer engagement, aiming to become a "system of action and intelligence."
• The company's core technology enables the "tango" of humans and AI, integrating proprietary and third-party LLMs and bots across channels, driving quantifiable benefits like improved agent efficiency (30% time cut, 3x concurrent conversations) and customer outcomes (10-point NPS boost, 70% to 90% intent match).
• Despite a 24% year-over-year revenue decline in Q1 2025 to $64.7 million, driven by prior customer churn, the company exceeded guidance and continues to improve its cost structure, reporting adjusted EBITDA of $0.2 million.
• Management forecasts sequential revenue declines through the first half of 2025 but expects positive net new Annual Recurring Revenue (ARR) in the second half, driven by improving renewal rates, expansions, new logos, and momentum from strategic partnerships and simplified pricing.
• Key risks include the need to refinance the 2026 convertible notes, potential Nasdaq delisting, ongoing litigation, and the successful execution of the transformation strategy to achieve sustained growth and profitability.

The Orchestrator's Pivot: LivePerson's Quest for Conversational AI Leadership

Founded in 1998, LivePerson has evolved from a pioneer in digital customer conversation to a provider of enterprise-grade platforms powering billions of AI-driven interactions annually. Operating across diverse sectors, including highly regulated industries like financial services, healthcare, and telecommunications, the company's core business centers on its LivePerson Platform. This platform is designed to enable meaningful connections between brands and consumers through digital and AI-powered conversations, integrating seamlessly across channels like mobile apps, web, SMS, social media, and third-party messaging.

At the heart of LivePerson's offering is its vision of the "tango of humans, LivePerson bots, third-party bots and LLMs." This concept positions the platform as a sophisticated orchestration layer where AI assists human agents, handles repetitive tasks, and seamlessly steps in or out of conversations as needed. This approach aims to transform customer engagement from a static "system of record" that merely logs interactions into a dynamic "system of action and intelligence" that proactively drives outcomes.

The company's differentiated technology provides tangible benefits for enterprises. Its AI engine, including generative AI capabilities, empowers agents by surfacing relevant content and defining next-best actions. Quantifiable results cited by management include a health insurance provider boosting intent match rates from 70% to 90% in just two weeks and cutting human agent conversation times by 30% through AI agent implementation. The AI-powered Copilot and automation tools have enabled agents to handle up to three times more concurrent conversations. Furthermore, features like AI Rewrite have led to a 10-point improvement in Net Promoter Score (NPS) and better outcomes in over 95% of messages where it was used. Recent architectural improvements to the web channel have also resulted in up to 50% performance improvement for customers.

LivePerson's product roadmap emphasizes high-value innovation and foundational capabilities. This includes developing AI builder and blueprint tools, core generative AI agents for specific use cases (FAQs, data collection, routing), unified analytics for real-time insights, and AI assistance/agent co-pilots. A key strategic pivot involves embracing voice integration; the company launched its Agent Workspace for Voice, integrating third-party voice providers like Avaya, with planned launches for Amazon Connect (AMZN) and Cisco (CSCO) integrations in the first half of 2025. This aims to unify digital and voice experiences, creating a "single pane of glass" for brands and expanding LivePerson's addressable market to capture a significant portion of voice interactions. The "Bring Your Own LLM" capability allows enterprises to integrate their preferred models from vendors like OpenAI, Meta (META), Cohere, and Google (GOOGL), mitigating vendor lock-in and positioning LivePerson as an agnostic orchestrator of the broader AI ecosystem.

Navigating a Challenging Competitive Terrain

LivePerson operates in a competitive landscape populated by a mix of direct and indirect rivals. Direct competitors like Zendesk (ZEN), Salesforce (CRM), and Twilio (TWLO) offer overlapping customer engagement and communication platforms. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, LivePerson holds an estimated 5-10% share in conversational AI, trailing behind leaders like Salesforce.

Compared to Zendesk, LivePerson's strength lies in its specialized AI for conversational commerce and niche AI automation for mobile messaging, potentially offering greater efficiency in high-volume interactions and better AI accuracy for intent detection. However, Zendesk often leads in overall integration speed and scalability, processing interactions faster due to its advanced API ecosystem, which can translate to lower operating costs for enterprises. Financially, Zendesk has demonstrated stronger revenue growth and profitability, maintaining positive gross and operating margins and a positive return on equity, in contrast to LivePerson's recent revenue declines and net losses.

Against Salesforce's dominant Service Cloud, LivePerson competes with its Conversational Cloud, emphasizing affordability and specialized messaging tools. While Salesforce offers a more comprehensive, end-to-end CRM ecosystem and faster innovation cycles, LivePerson's AI engine can deliver lower operating costs per interaction in certain segments. However, Salesforce's superior margins and cash flow provide it with significant resources for R&D and aggressive market strategies.

Twilio, focused on programmable communications, competes with LivePerson in messaging and API services. LivePerson's AI accuracy for intent detection may offer an edge in reducing error rates and support costs, but Twilio's platform is generally more scalable, allowing faster deployment. Both companies have faced profitability challenges, but Twilio's revenue growth has recently outpaced LivePerson's decline.

Indirect competitors, including basic messaging features in platforms like Microsoft Teams (MSFT) and emerging AI platforms like OpenAI's direct integrations, pose a threat through price competition, offering potentially lower per-user costs for less feature-rich solutions.

LivePerson's strategic response to this competitive pressure involves leveraging its core AI differentiation, focusing on regulated industries where its compliance track record is a strength, and building a robust partner ecosystem. The planned deep integration with a major global CCaaS player is a critical move to counteract the trend of platform consolidation seen with some customer churn, providing access to a significantly larger installed base of agents and channel partners and positioning the joint offering to "reprog the competition" in omnichannel innovation. The simplified pricing strategy also aims to improve competitiveness by making it easier and more cost-effective for brands to adopt LivePerson's platform and integrate their existing AI investments.

Financial Performance and the Path to Positive ARR

LivePerson's recent financial performance reflects the challenges of its transformation journey and the impact of prior customer churn. For the first quarter ended March 31, 2025, the company reported total revenue of $64.7 million, a decrease of 24% compared to $85.1 million in the prior-year period. This decline was primarily driven by customer cancellations and downsells in hosted services, including a decrease in variable usage-based revenue, and a decrease in professional services revenue. Despite the revenue contraction, the company exceeded the midpoint of its guidance range for Q1 2025 revenue and surpassed the high end of its adjusted EBITDA guidance, reporting $0.2 million compared to a loss of $1.3 million in Q1 2024.

The improvement in adjusted EBITDA, despite lower revenue, highlights the impact of rigorous cost structure rightsizing efforts undertaken in 2024, including a reduction in force and the divestiture of non-core assets like Wild Health (which contributed $1.5 million to Q1 2024 revenue and was divested in Q2 2024). Cost of revenue, sales and marketing, general and administrative, and product development expenses all decreased year-over-year in Q1 2025, largely due to lower employee-related costs from attrition, reduced outsourced labor, and decreased software/hosting expenses. Depreciation and amortization also saw a significant decrease due to lower intangible and internal-use software balances resulting from impairments in 2024. Restructuring costs decreased as activities were substantially completed by March 31, 2025. Other income saw a notable increase, primarily driven by an $8.8 million gain from the change in fair value of Warrants, partially offset by increased interest expense on convertible debt.

Average Annual Revenue Per Customer (ARPC) for enterprise and mid-market customers increased to approximately $640,000 for the trailing twelve months ended March 31, 2025, up from $625,000 a year prior. This suggests that while the customer base has contracted, the value derived from the remaining or expanding large customers has increased. However, Net Revenue Retention (NRR) for enterprise and mid-market customers stood at approximately 80% in Q1 2025, below the company's target range and the prior year, indicating continued churn and downsells within the existing base. Management views NRR as a lagging indicator and expects short-term attrition to continue through the first half of 2025, particularly from customers whose renewal decisions were made before the new customer success motion was fully installed.

As of March 31, 2025, LivePerson held $176.3 million in cash and cash equivalents, a decrease from $183.2 million at the end of 2024, primarily due to cash used in operating and investing activities. The company used $3.1 million in operating activities and $4.1 million in investing activities (mainly property, equipment, and capitalized software) in Q1 2025. This follows significant cash usage in Q1 2024 ($72.7 million in financing activities) for the full repayment of the $72.5 million principal amount of the 2024 notes. The company has an accumulated deficit of $1005.4 million as of March 31, 2025, reflecting historical losses.

Outlook and the Road Ahead

Management is guiding for sequential revenue declines to continue in the second quarter of 2025, with expected revenue between $57 million and $60 million. This anticipated decline is primarily attributed to the full impact of Q1 2025 attrition events tied to the prior renewal cycle.

However, the core of LivePerson's forward-looking narrative rests on the expectation of achieving positive net new Annual Recurring Revenue (ARR) in the second half of 2025. This pivotal shift is anticipated to drive an inflection point for sequential revenue growth by the end of the year. The confidence in this outlook stems from several factors: sequentially increasing renewal rates expected from Q2 2025 onwards (as the company moves past the legacy renewal cycle impact), momentum in expansions and new logo wins, building pipeline generation (described as healthy and improving), growing demand for AI agents and orchestration (despite some deal timing shifts due to new AI approval gates), and the impact of strategic initiatives.

Key strategic drivers for the expected H2 2025 turnaround include the reinvigorated go-to-market motion with new leadership and improved processes, the accelerating momentum from the simplified Bronze, Silver, and Gold pricing and packaging strategy (which saw substantial increases in deal volume and ARR under the new structure in Q4 2024), and the strengthening partner ecosystem. The launch of new voice integrations (Amazon Connect, Cisco) and the planned major CCaaS partnership are expected to open significant new avenues for growth by addressing the critical enterprise need for unified voice and digital experiences.

Management has reaffirmed its full-year 2025 guidance, expecting revenue in the range of $240 million to $255 million and adjusted EBITDA between a loss of $14 million and break even. This guidance implies continued cost discipline while preserving investments necessary for growth. The company does not expect to be free cash flow positive in 2025, reflecting these planned investments and working capital needs.

Risks on the Horizon

Despite the strategic pivot and operational improvements, LivePerson faces significant risks. A critical near-term challenge is addressing the remaining balance of the 2026 convertible notes and the 2029 notes. While the Lynrock Lake transaction in June 2024 improved the capital structure, the company will need to refinance the outstanding 2026 notes on or prior to their maturity. The 2029 notes also mature earlier if a significant principal amount of the 2026 notes remains outstanding 91 days prior to their maturity. Both note indentures contain covenants and events of default that could accelerate amounts owed, and the 2029 notes require maintaining a minimum cash balance.

The company also faces a Nasdaq delisting risk, having received notification in May 2025 for failing to meet the minimum $1.00 bid price requirement. Failure to regain compliance could negatively impact stock price, liquidity, and the ability to raise capital, and would constitute a Fundamental Change under the debt indentures, potentially triggering repurchase rights.

Ongoing litigation, including stockholder class actions, derivative lawsuits, and the Starboard Value LP lawsuit (scheduled for trial in June 2025), poses financial and reputational risks. The company is also cooperating with governmental inquiries related to prior COVID-19 related products.

Execution risk on the transformation strategy is paramount. Achieving positive net new ARR in the second half of 2025 and returning to sustained growth depends on the successful implementation of new go-to-market strategies, the adoption of new product capabilities (especially AI and voice integrations), and the effectiveness of partnerships. Macroeconomic factors could also impact enterprise spending and buying cycles, potentially delaying the anticipated recovery.

Conclusion

LivePerson is in the midst of a critical transformation, seeking to leverage its foundational strength in enterprise digital conversation and its evolving AI orchestration platform to regain growth momentum. The strategic pivot towards becoming a "system of action and intelligence," integrating third-party AI and voice channels, and simplifying its go-to-market motion represents a clear response to market demands and competitive pressures. While recent financial results reflect the lingering impact of prior challenges, the company's ability to exceed guidance and improve its cost structure signals progress on operational execution.

The investment narrative hinges on the successful realization of positive net new ARR in the second half of 2025, driven by improving retention, expansions, new business, and the strategic impact of partnerships and simplified pricing. Investors should closely monitor the company's progress on these fronts, alongside its efforts to resolve debt obligations and maintain its Nasdaq listing. LivePerson's future trajectory will ultimately depend on its ability to execute its transformation plan, demonstrate the quantifiable value of its AI orchestration capabilities at scale, and navigate the complex competitive and financial landscape.