LIVEPERSON INCLPSN
LIVEPERSON INC Income Taxes Disclosure
Income Taxes
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 and certain interest expense and penalties, if any, related to unrecognized tax benefits as a component of the income tax provision. The Company recorded a valuation allowance against its U.S., e-bot7 Germany, and Bulgaria deferred tax assets as it considered its cumulative losses in recent years as a significant piece of negative evidence. Since valuation allowances are evaluated by jurisdiction, the Company believes that the deferred tax assets related to LivePerson Australia Pty. Ltd., Engage Pty. Ltd., LivePerson (UK) Ltd., LivePerson Japan, and LivePerson Ltd. (Israel) are more likely than not to be realized as these jurisdictions have positive cumulative pre-tax book income after adjusting for permanent and one-time items.
The Company had a valuation allowance on certain deferred tax assets for the years ended December 31, 2024, 2023, and 2022 of $234.6 million, $211.2 million, and $187.5 million, respectively. For the years ended December 31, 2024 and 2023, increases in the valuation allowance in the amounts of $23.4 million and $23.7 million were recorded as an expense.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the Company’s use of its federal net operating loss (“NOL”) carryforwards may be limited if the Company experiences an ownership change, as defined in Section 382 of the Code. The use of NOLs from acquired businesses may also be limited under Section 382. Such an annual limitation could result in the expiration of the NOL carryforwards before utilization. Corresponding provisions of state law may limit the Company’s ability to utilize NOL carryforwards for state tax purposes. As of December 31, 2024, the Company had $644.0 million of federal NOL carryforwards available to offset future taxable income. Included in this amount is $0.9 million of
federal NOL carryovers from the Company’s acquisition of Proficient in 2006, $49.4 million of federal NOL carryovers from the Company’s acquisition of Tenfold in 2021, $64.9 million of federal NOL carryovers from the Company’s acquisition of VoiceBase in 2021 and $1.0 million of federal NOL carryovers from the Company’s acquisition of WildHealth in 2022. Of these federal NOL carryforwards, $70.3 million were generated in taxable years ending on or before December 31, 2017 and will expire in various years through 2037. Federal NOL carryforwards generated in taxable years ending after December 31, 2017, do not expire, but generally may only offset up to 80% of federal taxable income earned in a taxable year.
On January 22, 2024, the Company entered into a Tax Benefits Preservation Plan designed to reduce the risk of substantial impairment to its NOLs that could result from an “ownership change” within the meaning of Section 382 of the Code. The Tax Benefits Preservation Plan creates a disincentive for any person or group of affiliated or associated persons to acquire 4.9% or more of the Company’s outstanding common stock (any such person or group, an “Acquiring Person”), or to further accumulate shares of the Company’s outstanding common stock if such person or group of person already owns 4.9% or more of the Company’s outstanding common stock, without the approval of the Company’s Board, unless and until the Board determines that the Tax Benefits Preservation Plan is no longer necessary or desirable for preservation of the Company’s NOLs.
In connection therewith, on January 22, 2024, the Board authorized a dividend of one right (a “Right”) for each outstanding share of common stock of the Company. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, at a price of $18.00, subject to certain adjustments. The Rights will separate from the common stock and become exercisable and separately transferable at the close of business on the date that is the tenth (10th) business day after the earlier of (i) the date on which on which a press release is issued or other public announcement is made indicating that a person or group of affiliated or associated persons has become an Acquiring Person and (ii) the date on which a tender offer or exchange offer is commenced that, upon consummation, would result in a person or group of affiliated or associated persons becoming an Acquiring Person. If issued and not redeemed by the Company, each holder of a Right (other than the Acquiring Person, the Rights of which shall become null and void) will, upon exercise, be entitled to purchase shares of the Company’s common stock having a then-current market value equal to two times the exercise price of the Right. However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.
The domestic and foreign components of loss before provision for income taxes consist of the following:
Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| United States | $ | (125,764) | $ | (95,773) | $ | (220,060) | |||||||||||
| Israel | (42) | 1,074 | 1,464 | ||||||||||||||
| United Kingdom | 1,681 | 1,481 | 1,428 | ||||||||||||||
| Netherlands | 725 | 2,030 | 2,514 | ||||||||||||||
| Australia | 662 | (412) | 533 | ||||||||||||||
| Germany | (10,246) | (5,453) | (10,400) | ||||||||||||||
Other (1) | 1,446 | 781 | 501 | ||||||||||||||
| Total | $ | (131,538) | $ | (96,272) | $ | (224,020) | |||||||||||
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(1)Includes Bulgaria, Canada, France, India, Italy, Japan, Poland, Singapore and Spain.
No additional provision has been made for U.S. income taxes on the undistributed earnings of its wholly-owned Israeli subsidiary, LivePerson Ltd., as such earnings have been taxed in the U.S. A provision for the undistributed earnings of the Company’s other foreign subsidiaries have not been provided because the Company intends to indefinitely reinvest such earnings outside of the U.S., though if these foreign earnings were to be repatriated in the future the related U.S. tax liability would be immaterial through December 31, 2024.
The provision for income taxes consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current income taxes: | |||||||||||||||||
| U.S. Federal | $ | — | $ | — | $ | — | |||||||||||
| State and local | 366 | 239 | 431 | ||||||||||||||
| Foreign | 1,746 | 2,878 | 2,458 | ||||||||||||||
| Total current income taxes | 2,112 | 3,117 | 2,889 | ||||||||||||||
| Deferred income taxes: | |||||||||||||||||
| U.S. Federal | 72 | 651 | (1,153) | ||||||||||||||
| State and local | 532 | 488 | 79 | ||||||||||||||
| Foreign | 19 | (93) | (88) | ||||||||||||||
| Total deferred income taxes | 623 | 1,046 | (1,162) | ||||||||||||||
| Total provision for income taxes | $ | 2,735 | $ | 4,163 | $ | 1,727 | |||||||||||
The difference between the total income taxes computed at the federal statutory rate and the provision for income taxes consists of the following:
December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Federal statutory rate | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||
| State taxes, net of federal benefit | 3.16 | % | 3.94 | % | 2.89 | % | |||||||||||
| Non-deductible expenses – stock-based compensation | (0.14) | % | (0.55) | % | (1.30) | % | |||||||||||
| Non-deductible expenses – earn-out | — | % | 5.50 | % | (3.15) | % | |||||||||||
| Non-deductible excess compensation | (0.14) | % | (0.04) | % | (0.14) | % | |||||||||||
| Foreign taxes | (0.53) | % | (0.94) | % | (0.15) | % | |||||||||||
| Valuation allowance | (18.19) | % | (24.40) | % | (17.33) | % | |||||||||||
| Stock based compensation – excess tax benefit / (tax deficiency) | (5.00) | % | (7.00) | % | (2.12) | % | |||||||||||
Goodwill impairment | (7.96) | % | (2.59) | % | — | % | |||||||||||
Sale of subsidiary | 7.18 | % | 1.69 | % | — | % | |||||||||||
| Debt restructuring | (1.83) | % | — | % | — | % | |||||||||||
| Other | 0.37 | % | (0.93) | % | (0.48) | % | |||||||||||
| Total provision | (2.08) | % | (4.32) | % | (0.78) | % | |||||||||||
The effects of temporary differences and federal NOL carryforwards that give rise to significant portions of federal deferred tax assets and deferred tax liabilities as of the dates presented:
December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 172,923 | $ | 157,919 | |||||||
| R&D tax credit | 1,757 | 1,757 | |||||||||
| Original issue discount | 7,330 | 6,236 | |||||||||
| Interest | 7,544 | 4,582 | |||||||||
Operating lease liabilities | (1) | 2,111 | |||||||||
| Accounts payable and accrued expenses | 4,266 | 6,934 | |||||||||
| Non-cash compensation | 7,617 | 10,632 | |||||||||
Intangibles amortization | 3,170 | — | |||||||||
| R&D capitalization | 58,237 | 52,878 | |||||||||
| Allowance for credit loss | 2,067 | 1,884 | |||||||||
| Total deferred tax assets | 264,910 | 244,933 | |||||||||
| Less valuation allowance | (234,620) | (211,234) | |||||||||
| Deferred tax assets, net of valuation allowance | 30,290 | 33,699 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | (12,337) | (13,214) | |||||||||
| Intangibles amortization | — | (8,985) | |||||||||
| Goodwill amortization and contingent earn-out adjustments | (9,048) | (7,999) | |||||||||
| Outside basis difference in subsidiary stock | (8,040) | — | |||||||||
Operating lease right-of-use assets | 4 | (1,904) | |||||||||
| Total deferred tax liabilities | (29,421) | (32,102) | |||||||||
| Net deferred tax assets | $ | 869 | $ | 1,597 | |||||||
The Company has U.S. federal, Australian, and German NOLs of $644.0 million, $0.6 million, and $26.8 million, respectively. The Australian and German NOLs can be carried forward indefinitely. For the federal NOLs, $573.7 million can be carried forward indefinitely, $0.9 million will expire between 2025 and 2030, and $69.4 million will expire between 2030 and 2037. The Company has $491.1 million of state NOLs, of which $107.0 million can be carried forward indefinitely and $384.1 million expire between 2024 and 2045.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with other provisions contained within this guidance. This topic prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate audit settlement. The Company had unrecognized tax benefits of $3.5 million as of December 31, 2024 and $3.1 million as of December 31, 2023, respectively, that would affect the effective tax rate if recognized. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits and recorded in Accrued expenses and other current liabilities was $0.7 million and $0.5 million as of December 31, 2024 and 2023, respectively. There are no unrecognized tax benefits expected to reverse in the next twelve months and impact the effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Unrecognized tax benefits balance, beginning of year | $ | 3,061 | $ | 2,721 | $ | 2,917 | |||||||||||
Gross increase for tax positions of prior years | 204 | — | — | ||||||||||||||
Gross increase for tax positions of current year | 271 | 340 | 205 | ||||||||||||||
| Uncertain tax basis classified as held-for-sale liabilities | — | — | (401) | ||||||||||||||
| Unrecognized tax benefits, end of year | $ | 3,536 | $ | 3,061 | $ | 2,721 | |||||||||||
The tax years subject to examination by major tax jurisdictions include the years 2020 and forward for U.S. states and cities, the years 2021 and forward for U.S. Federal, and the years 2019 and forward for certain foreign jurisdictions.
Tax Legislation
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA imposes a number of significant changes, including, among other things, a 15% minimum tax on the book income of certain corporations and a 1% excise tax on stock buybacks by U.S. public companies. Only limited guidance has been issued to date with respect to these changes. The Company does not currently expect the tax-related provisions of the IRA to have a material impact on its financial results.
A statutory rate change in the United Kingdom was enacted as of the balance sheet date ended December 31, 2021. Effective April 1, 2023, the tax rate increased from 19% to 25%. The Company assessed and concluded the impact of the rate change is immaterial to its deferred taxes.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 14, 2025 | Showing above |
| 2023 | Mar 4, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Feb 28, 2022 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.