Executive Summary / Key Takeaways

• Decisive Deleveraging: LivePerson has executed a transformative refinancing agreement, exchanging $341.1 million of its 2026 Convertible Senior Notes for a mix of cash, new 2029 Second Lien Notes, and equity. This significantly deleverages the balance sheet by $226 million and extends debt maturities to 2029, addressing a critical headwind to commercial progress and providing a runway for strategic execution.
• AI Orchestration at the Core: The company is strategically positioning its LivePerson Platform as an "AI-driven system of action and intelligence," moving beyond traditional systems of record. Its Generative AI Suite is demonstrating tangible, quantifiable benefits for enterprise customers, including up to 60% cost savings, 20%+ CSAT boosts, and 3x agent efficiency.
• Strategic Partnerships & Innovation: LivePerson is deepening its technology partnerships with Google Cloud (GOOGL) and Databricks to enhance AI capabilities and infrastructure, alongside expanding voice integrations with major CCaaS providers like Amazon Connect (AMZN) and Cisco (CSCO). This "innovation without disruption" strategy allows enterprises to adopt AI without costly overhauls.
• Revenue Headwinds Persist, EBITDA Improves: Despite the strategic advancements, Q2 2025 revenue declined 25.4% year-over-year to $59.6 million, and full-year 2025 revenue guidance has been revised down to $230-$240 million due to macroeconomic uncertainty and past financial stability concerns. However, aggressive cost discipline has led to an upward revision of full-year Adjusted EBITDA guidance to a positive $2 million midpoint.
• Execution is Key: The investment thesis hinges on LivePerson's ability to translate its strengthened capital structure and technological leadership into sustained commercial performance, driving positive net new Annual Recurring Revenue (ARR) in the second half of 2025 and navigating competitive pressures in the rapidly evolving conversational AI market.

The Dawn of a New Era: LivePerson's Strategic Rebirth

LivePerson, Inc. (NASDAQ:LPSN) has been a pioneer in digital customer conversations since its inception in 1995, enabling AI-powered connections between consumers and brands since 1998. The company's core offering, the LivePerson Platform, is an enterprise-class digital customer conversation platform designed to facilitate meaningful interactions across a myriad of channels, including mobile apps, web browsers, SMS, social media, and third-party messaging platforms. In a rapidly evolving industry landscape, LivePerson is strategically transforming itself to meet the escalating demand for AI-driven customer engagement, aiming to become a "system of action and intelligence" rather than merely a system of record.

This strategic pivot, initiated in early 2024 with the appointment of CEO John Sabino, is built on three foundational pillars: reinvigorating go-to-market capabilities, innovating products with a focus on voice integrations and AI vendor flexibility, and strengthening its capital structure. The company's historical journey, marked by early adoption of AI and the establishment of robust equity incentive programs, has laid the groundwork for its current strategic responses to market dynamics. LivePerson's value proposition is particularly compelling for enterprises burdened by legacy CX infrastructure, offering "innovation without disruption" by enabling the adoption of advanced AI and digital capabilities without requiring costly system overhauls.

Technological Edge: Orchestrating AI for Tangible Outcomes

At the heart of LivePerson's strategy is its differentiated technology, the LivePerson Platform, which orchestrates a "tango of humans, LivePerson bots, third-party bots and LLMs." This sophisticated approach allows AI to assist human agents, automate repetitive tasks, and enable agents to focus on relationship building, thereby scaling automations across customer conversations. The company's Generative AI Suite is a critical component of this strategy, demonstrating significant, quantifiable benefits for its enterprise customers.

In Q2 2025, LivePerson reported a 45% sequential increase in conversations powered by its Generative AI Suite, with over 17% of all platform conversations now leveraging at least one Gen AI feature, marking a 5 percentage point increase from the prior quarter. These aren't abstract metrics; they translate directly into measurable business outcomes. For instance, a premier diagnostic provider deployed LivePerson's AI agentic bot and, within three weeks, saw a 7x increase in messaging volumes, achieved 97% routing accuracy, and an 86% CSAT score. Similarly, a major media technology company using Agentic AI-powered routing contained 20% of conversations without human intervention, boasting an 86% first contact resolution rate and an 89% CSAT score. A leading technology services organization reduced AI routing errors by 38% and resolved 62% more unique requests on the first try. Across its customer base, LivePerson's AI has driven up to 60% in cost savings, boosted CSAT scores by more than 20%, and enabled agents to handle three times more concurrent conversations with its AI-powered Copilot and automation.

LivePerson's R&D initiatives are focused on expanding these capabilities and integrating them across the enterprise. In the first half of 2024, the company introduced "Bring Your Own LLM," allowing brands to integrate their preferred large language models from providers like Google, Amazon, and OpenAI. Other innovations include "Copilot Rewrite" for refining agent messages, "Routing AI agent" for efficient customer routing, and "Data Collection AI Agent" for streamlined information gathering. A significant strategic move was the launch of "Agent Workspace for Voice" in the second half of 2024, which integrates third-party voice providers like Avaya (AVYA) into LivePerson's digital agent workspace, extending AI capabilities to voice conversations. Integrations with Cisco and Amazon Connect are planned for the first half of 2025, with a general availability release of unified omni-channel workspace capabilities anticipated by the end of Q3 2024. This expansion aims to capture nearly 65% of the total addressable market for voice calls.

The company is also deepening its technology partnerships, notably with Google Cloud, announced in August 2025. This collaboration unifies LivePerson's platform with Google Cloud's AI innovations, including Gemini and Vertex AI, and involves a joint global go-to-market strategy. The ongoing migration to Google Cloud is expected to optimize infrastructure, improve resiliency, and free engineers to focus on customer value, with some customers seeing benefits from Vertex and Gemini integrations as early as October 2025. An expanded relationship with Databricks aims to unify conversational data into a high-performance system within Google Cloud, promising smarter analytics, faster Agentic AI development, and secure solutions for partners. For investors, these technological advancements and partnerships are critical. They not only enhance LivePerson's competitive moat through superior AI orchestration and flexibility but also directly contribute to improved customer ROI, which is essential for driving retention, expansion, and new logo acquisition in a competitive market.

Navigating a Competitive Arena

LivePerson operates in a dynamic and competitive landscape, facing both direct and indirect rivals. Key direct competitors include Salesforce (CRM), Twilio (TWLO), and NICE (NICE), all offering various customer engagement and communication solutions. LivePerson's competitive positioning is defined by its specialized focus on conversational AI and orchestration, particularly within highly regulated industries such as healthcare, financial services, and telecommunications. Its "innovation without disruption" strategy is a significant differentiator, allowing enterprises to integrate LivePerson's advanced AI with existing legacy CX infrastructure, thereby avoiding the costly and disruptive "rip-and-replace" often associated with broader platform overhauls.

Compared to Salesforce (CRM), LivePerson offers a more specialized suite of AI messaging and automation tools, while Salesforce (CRM) provides a comprehensive CRM platform. While Salesforce (CRM) boasts greater scale, a broader ecosystem, and stronger financial health (e.g., Salesforce's (CRM) TTM Gross Profit Margin of 77% and Operating Profit Margin of 19% significantly outpace LivePerson's 70.93% and -51.67%, respectively), LivePerson's agility in targeted conversational use cases can be a distinct advantage. Against Twilio (TWLO), LivePerson's end-to-end conversational platform offers a more streamlined user experience for customer service, whereas Twilio's strength lies in its modular, API-based approach for communications infrastructure. While Twilio's financial health appears more stable with near-breakeven operating margins, LivePerson's focus on sophisticated, personalized generative AI bots, which are noted to be superior to "robotic" legacy chatbot systems, provides a qualitative edge in customer engagement. When measured against NICE (NICE), which emphasizes analytics and workforce management, LivePerson's strength lies in direct consumer messaging and faster real-time interactions. NICE generally exhibits stronger margins and capital efficiency, but LivePerson's strategic pivot into unified voice and digital experiences, aiming to capture a significant portion of the voice market, directly addresses a broader market opportunity.

LivePerson's LLM-agnostic approach, coupled with its "Bring Your Own LLM" capability and robust AI guardrails, is a crucial competitive advantage, especially as increasing AI demand introduces new approval gates for risk and compliance. The company's new simplified "Bronze, Silver, and Gold" pricing model, which bundles services and platform capabilities with minimal add-on costs, also allows brands to integrate their own LLMs and third-party AI without additional charges, a flexibility not typically offered by "most other vendors." This strategic pricing and technological flexibility are designed to counter competitive pressures and drive adoption.

Financial Performance and Liquidity: A Turnaround in Progress

LivePerson's financial performance in the first half of 2025 reflects a company in the midst of a significant turnaround, balancing revenue headwinds with aggressive cost management. For the second quarter ended June 30, 2025, total revenue was $59.6 million, a 25.4% decrease compared to $79.9 million in Q2 2024. This decline was primarily driven by a 25.24% decrease in hosted services revenue to $50.3 million and a 26.12% decrease in professional services revenue to $9.3 million, largely due to customer cancellations, downsells, and slower new business bookings. Recurring revenue for Q2 2025 stood at $55 million, representing 92% of total revenue. Average Revenue Per Customer (ARPC) for the trailing twelve months ended June 30, 2025, increased 4% year-over-year to approximately $655,000, indicating some success in expanding relationships with larger customers. However, Net Revenue Retention (NRR) continued its decline, reaching 78% in Q2 2025, down from 80% in Q1 2025, which management acknowledges as a lagging indicator that will only improve with a return to revenue growth.

Despite the top-line challenges, LivePerson demonstrated strong operational discipline. Adjusted EBITDA for Q2 2025 came in at $2.9 million, exceeding the high end of its guidance range. This was achieved through significant cost reductions across the board. General and administrative expenses saw a substantial 67% year-over-year decrease in Q2 2025 to $7.95 million, primarily due to reduced legal and consulting costs ($7.6 million) and lower bad debt expense ($4.8 million). Sales and marketing expenses decreased 23% to $19.89 million, and product development costs fell 30% to $13.84 million, driven by attrition, reduced marketing, and lower software/hosting expenses. Depreciation and amortization expense also decreased by 50% to $5.76 million, reflecting the impact of 2024 asset impairments. The divestiture of Wild Health in Q2 2024, a non-core asset, further contributed to earnings accretion by saving an estimated $3 million to $5 million in full-year expenses.

Liquidity and capital structure have been central to LivePerson's turnaround. As of June 30, 2025, cash and cash equivalents stood at $162 million, a decrease of $21.3 million from December 31, 2024, primarily due to operating activities and capital expenditures. The company's negative TTM Debt/Equity Ratio of -6.53 highlights its precarious equity position prior to recent actions. However, a pivotal development occurred in August 2025 with the announcement of a binding agreement to exchange $341.1 million of its 2026 Convertible Senior Notes. This transaction involves a mix of $45.0 million in cash, $115.0 million of 10.0% Second Lien Senior Subordinated Secured Notes due 2029, and common and preferred equity representing 39.0% of the company's fully diluted common stock. This move "meaningfully delevers" the balance sheet by $226 million, captures $181 million of debt discount, and critically extends debt maturities to 2029. This refinancing directly addresses the "clear headwind" that uncertainty around the capital structure posed to commercial processes and customer confidence. LivePerson remains in compliance with its 2029 Notes covenant, which requires maintaining a minimum cash balance of $60 million.

Outlook and Risks: A Path Forward

LivePerson's outlook for the remainder of 2025 reflects a cautious but strategically focused approach. The company revised its full-year 2025 revenue guidance downwards to a range of $230 million to $240 million, representing an approximate 5% decrease at the midpoint from previous guidance. This adjustment is attributed to slower bookings and renewal hesitation from larger customers, driven by broader macroeconomic uncertainty extending enterprise buying cycles for high-value AI solutions, and lingering concerns about the company's financial stability prior to the recent refinancing. For Q3 2025, revenue is projected to be between $56 million and $59 million, indicating a sequential decline.

Despite the revenue revision, LivePerson raised its full-year 2025 Adjusted EBITDA guidance to a range of a loss of $3 million to a profit of $7 million, with a positive $2 million midpoint. This significant improvement of $9 million from prior guidance underscores the company's aggressive cost discipline and focused cash preservation efforts, which are effectively offsetting top-line declines. Management anticipates sequential revenue declines through most of 2025, with an inflection point for sequential growth expected by the end of the year. This turnaround is predicated on achieving positive net new Annual Recurring Revenue (ARR) in the second half of 2025, driven by improving renewal rates, expansions, and new logo acquisitions. Recurring revenue is expected to constitute approximately 93% of total revenue for both Q3 and the full year.

Several risks could impact this trajectory. The company received a Nasdaq notification in May 2025 regarding non-compliance with the minimum bid price requirement. Failure to regain compliance could lead to delisting, which would constitute a "Fundamental Change" under its convertible notes indentures, potentially accelerating debt obligations. While the recent refinancing addresses a major financial stability concern, the company's ability to secure additional financing on favorable terms, if needed, remains a factor. Furthermore, ongoing stockholder litigation and governmental inquiries related to discontinued COVID-19 products present potential liabilities and management distractions. The macroeconomic environment continues to pose a risk, as extended enterprise buying cycles for complex AI solutions could further delay commercial progress.

Conclusion

LivePerson is at a pivotal juncture in its multi-quarter transformation. The recent, decisive refinancing agreement, which significantly deleverages the balance sheet and extends debt maturities to 2029, is a game-changer for the company's financial stability and its ability to execute its long-term strategy. This move directly addresses a critical headwind that had impacted commercial momentum and customer confidence.

The core investment thesis for LivePerson now hinges on its ability to leverage its differentiated AI orchestration platform and "innovation without disruption" strategy to drive tangible business outcomes for enterprises. Its robust Generative AI Suite, coupled with strategic partnerships with tech giants like Google Cloud and Databricks, and expanded voice integrations, positions LivePerson to capture a growing share of the AI-driven customer engagement market. While revenue headwinds persist in the near term, the company's aggressive cost discipline and improved Adjusted EBITDA outlook demonstrate a focused approach to operational efficiency. The path ahead requires diligent execution, particularly in translating technological leadership and a strengthened capital structure into sustained commercial growth and positive net new ARR. Investors should closely monitor the company's progress on these fronts as it strives to solidify its position as an indispensable "system of action and intelligence" in the evolving world of enterprise customer experience.