LivePerson, Inc. (LPSN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to LivePerson's Town Hall. My name is Dean, and I will be your conference operator today. [Operator Instructions]. I would now like to turn the conference call over to Mr. Jon Perachio, Vice President, Investor Relations.

Hello, and thank you all for joining us. I'm Jon Perachio, LivePerson's Vice President of Investor Relations. Joining me today is John Sabino, LivePerson's Chief Executive Officer. We'll be discussing our previously announced transaction with Downtown AI and addressing questions submitted by stockholders. I'd like to remind everyone that certain statements made during today's presentation may constitute forward-looking information. These statements reflect the current expectations of management and are subject to risks and uncertainties that could cause actual results to differ materially. I encourage all participants to refer to the full disclaimer and forward-looking statements disclosure contained within the press releases issued on July 10, July 23 and June 28, all of which are available at voteliveperson.com and on the SEC's website at sec. gov. Nothing on this call constitutes an offer to sell, buy or exchange or solicitation of an offer to sell, buy or exchange any securities. A transcript of this webcast will be filed with the SEC and made available on the Investor Relations section of LivePerson's website as well as on our transaction website, voteliperson.com. With that, I'll turn it over to John.

Thanks so much, Jon, and thank you, everybody, for joining today. Look, we wanted to hold this town hall because we know there's a lot of information out there about this transaction. There are press releases, SEC filings, letters, voting materials, and we know that all this can be difficult to sort through. So today, I want to speak plainly about what's at stake and why the Board is recommending this transaction and why your vote matters. We'll spend a few minutes today to walk through some key points, and then we'll answer some questions submitted by stockholders, as Jon just said. So let's kick this off. And let me start with the vote itself. The special meeting for the vote is going to be on the 20th of August, and approval requires the support of a majority of the outstanding LivePerson shares. So this is not simply about letting your votes sit there. We need a majority of the shares to be voted. And that means that a share not voted is the same as effectively voting against the transaction. So however many shares you own, your participation is really important. And this vote will help determine both the future of LivePerson and the value that stockholders have the opportunity to receive from their investment. Now before we get into the details, let me summarize why the Board is recommending that stockholders vote for this transaction. This transaction will bring together the complementary capabilities across voice, digital engagement, Agentic AI and AI assurance. Most LivePerson stockholders would become stockholders of the combined company with SoundHound, with a strong balance sheet, no debt, greater scale, broader strategic capabilities and an accelerated path to profitability. And after a comprehensive review of LivePerson's alternatives, the Board determined that the transaction with SoundHound really does represent the best alternative for maximizing stockholder value. So with that as the background and the context, let me spend a few minutes on how the Board reached its decision and why this transaction is expected, and what this transaction is expected to mean for stockholders. Some of the points I'm about to share cover specific transaction terms and financial details. So I'm going to stay close to my notes and make sure I describe them accurately for all of you who are listening today. First and foremost, the LivePerson Board of Directors undertook a comprehensive review of alternatives in which 66 potential counterparties were contacted. Following that process, the Board determined that the transaction with SoundHound represents the best alternative for maximizing stockholder value, including when compared with continuing as a stand-alone company given the business, financial, competitive industry and market risks that are facing LivePerson. This transaction would also unite complementary capabilities across voice, digital engagement, Agentic AI and AI assurance. The combined base of our 2 companies together includes over 25 of the Fortune 100 companies, creating one of the conversational AI sector's most comprehensive enterprise customer footprints and a significant opportunity to introduce additional capabilities across the company's existing customer base. So that's why the Board is leaning in and wants all of us to vote for the transaction with our shares. All right. So let's talk a little bit about LivePerson's debt and the agreement we reached with noteholders. It was an important part of the Board's assessment, and it really did revolve around LivePerson's financial position. LivePerson's outstanding debt currently exceeds the total value of the transaction. And as part of this transaction, our secured noteholders have agreed to exchange their notes at a value reflecting a substantial discount to the notes' approximate $350 million par value. Given LivePerson's valuation and significant debt without these substantial concessions from our noteholders, stockholders may not have had the opportunity to receive any value for their shares in any strategic transaction. So this transaction is not occurring in isolation from our financial circumstances. The agreement with our noteholders really is a critical part of the overall transaction and the opportunity for our common stockholders to receive value. Now let me address the consideration LivePerson stockholders are expected to receive if the transaction is approved and completed. Based on the assumptions described in our proxy statement and prospectus, most LivePerson stockholders will receive SoundHound stock. As of the announcement of the transaction on April 21, 2026, the SoundHound stock consideration to be received by LivePerson stockholders represented approximately $3.33 in value per LivePerson share. That represents a premium of approximately 22% over LivePerson's 30-day volume-weighted average trading price before the announcement. The exact number of SoundHound shares a stockholder receives will not be finalized until closing. It will be determined using the formula described in our proxy statement and prospectus and will depend in part on SoundHound's stock price near the closing. The calculation uses a 10-day volume-weighted average price of SoundHound stock ending 3 trading days before the closing and is subject to a caller. If the average price is above $12 per share, $12 will be used in the calculation. If a SoundHound share is below $7 per share, $7 will be used in the calculation. The aggregate consideration is also subject to a possible downward adjustment based on LivePerson's cash balance shortly before closing as described in our public filings. Because the final exchange ratio depends on a formula with variable factors, we encourage stockholders to visit voteliveperson.com and use the Interactive illustrated calculator to see what consideration could mean for their individual holdings on an estimated basis. Stockholders holding LivePerson shares listed on the Tel Aviv Stock Exchange are expected to receive an equivalent value in cash instead of SoundHound shares, subject to the terms described in our proxy statement and prospectus. So, to pull this together, stockholders receiving SoundHound shares, the second component of the transaction is an opportunity to participate in the potential future upside of the combined companies. And I think this is a good thing. LivePerson stockholders receiving SoundHound stock will become stockholders of the combined company with a strong balance sheet with no debt and an accelerated path to profitability. SoundHound has stated that assuming the transaction closes in the second half of 2026, it expects to achieve a combined revenue range of a minimum of $350 million to $400 million in 2027. And SoundHound has also stated that the combined business is expected to reach $500 million in revenue based on the existing customer base alone. So in summary, I know there was a lot of detail and the full terms are available in the proxy statement and prospectus. But I encourage everyone to review those materials. But let me bring you back to the central point. The Board conducted a comprehensive process, considered LivePerson's financial position and evaluated the alternatives available to the company. And based on that review, the Board unanimously determined that the SoundHound transaction is the best alternative for maximizing value for LivePerson's stockholders. It provides stockholders the opportunity to receive value from their LivePerson shares and for most stockholders to participate in the potential upside of the combined company with broader capabilities, greater scale and a strong balance sheet with no debt. And that is why the Board is recommending that you vote for this transaction. It brings me back to what you're hearing from us so frequently. A share that is not voted is the same as voting against the transaction. We do not want anyone to miss the opportunity to participate simply because an e-mail was overlooked or a proxy card was not sent. Voting takes only a few minutes, and you must vote, or your vote must be received by 11:59 p.m. Eastern Time on August 19, 2026, or you must attend a special meeting online and vote during that meeting if your shares are held directly in your name as a stockholder of record. Even if you plan on attending the LivePerson special meeting, we recommend that you vote your shares today so that your vote will be counted if you later decide not to attend a special meeting. However many shares you own, your vote matters, and we stress please vote for the transaction. So hopefully, that gives a good overview to everybody, Jon, and we could probably start moving on to some of the questions we've received from some investors on things that we think are on the minds of stockholders today.

Yes, sure. Great. Thanks for that, John. So the first question for you is, why does the Board believe the merger consideration fairly compensates LivePerson stockholders?

Okay. So at signing, the consideration was set to deliver roughly $3.33 per share, as I've already said. And this is a premium of about 22% of the 30-day average price the day the deal was announced. The Board considered a few things. First, the Board ran a comprehensive review contacting over 66 parties, and you can read about every detail of that in the review process in our proxy statement. Second, LivePerson's financial adviser, Houlihan Lokey, delivered an opinion that the consideration is fair from a financial point of view to LivePerson's common stockholders, and that was based on assumptions and qualifications that are from their opinion. Then lastly and arguably most importantly, LivePerson's debt exceeds the total value of this transaction. As we've said many times before, without the noteholders agreeing to accept substantially less than what they're owed, there would be no value available to distribute to all stockholders. So considering these facts, the Board determined that SoundHound's offer provides the best path forward to stockholders. Offering a premium above the trading price at signing, an opportunity to participate in the future of the combined entity with a more comprehensive platform, and, as I've stated many times before, 0 debt. And look, if you really want to take a look at this for yourself, you can refer to the calculator at voteliveperson.com, and we encourage everybody to do that.

Thanks, John. Second question for you is, why did the Board conclude that selling now was superior to continuing LivePerson's stand-alone turnaround?

That's a good question. So it's true that our turnaround was progressing. We extended our debt maturities, and we gained some flexibility to continue investing in our platform. However, we continue to face an extremely competitive landscape, and there are a lot of headwinds, which contributed to a slower turnaround than originally planned. So it was critical that we sought out alternatives. And after review, the Board concluded that this transaction really does offer stockholders a much better path to value and for most future upside as part of a company that has flexibility to invest in the right technologies and opportunities.  The fact is we're just constrained as LivePerson alone right now. And the Board determined in its review that any other alternatives, including being a stand-alone company, may result in leaving no value for stockholders. And that is something we really wanted to avoid.

Thanks, John. It's a very important context. Next question is, what happens if the transaction is not approved by stockholders?

Right. So look, if this deal does not go through, we remain an independent company, but we will face substantial risks and an increasing entry of well-funded competitors in our space. You don't need me to tell you that. You can just look at the news every day. We'll immediately face 2 problems: managing our debt obligations while also dealing with the fact that our revenue is contracted. And this makes it tougher to invest in the future and run the company as it stands today. That's why this vote is so important. And it's not a matter of comparing the merits of a sale versus a stand-alone path because a stand-alone path is going to be very difficult for this company, and they end up with stockholders not getting anything, and we want to avoid that.

Great. Thanks, John. Another question from a shareholder referenced that LivePerson contacted 66 counterparties in the process. Were there any other or better offers?

Yes. So we did run a highly rigorous and comprehensive strategy review process led by very capable advisers. Out of the 66 potential counterparties contacted, only SoundHound submitted a formal bid. SoundHound's offer was the highest, most definitive, and only actionable proposal that really did preserve value for our common stockholders.

And what are the chances of a competing bid emerging before the meeting later in August?