LivePerson’s stock rocked as executives choose cash over company shares for bonuses

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Shares of LivePerson Inc. were suffering a record one-day selloff Thursday, heading toward a seven-year low, after the provider of natural-language chat services reported a surprise fourth-quarter loss as Medicare pulled payments and executives chose to pay out bonuses in cash instead of company stock.

The company reported late Wednesday net losses that narrowed to $41.7 million, or 55 cents a share, from $49.9 million, or 70 cents a share, in the same period a year ago. Excluding nonrecurring items, FactSet said the company’s adjusted per-share loss of 24 cents missed the average analyst estimate for earnings per share of 12 cents.

Revenue fell 1.1% to $122.5 million from $123.8 million, while the FactSet consensus was for a rise to $127 million. Cost of revenue increased 4.3% to $46.4 million, as gross margin contracted to 62.1% from 64.1%.

The stock

plummeted 57.7% to $4.13, the lowest close since Feb. 11, 2016, and its biggest one-day selloff since the company went public in April 2000. The previous record drop was 41.9% on Oct. 4, 2000.

The company said results were hurt by two “unanticipated” changes during the quarter.

First, as disclosed last week, LivePerson said its WildHealth subsidiary was notified that Medicare was suspending reimbursements for services “pending further governmental review.”

The company said that although it believes the services rendered were valid, given the uncertainty around the timing and amount of further reimbursements, the company decided not to recognize revenue for any reimbursements that have not yet been collected.

“We currently believe that the services rendered under the program in the fourth quarter of 2022 were valid and should ultimately be reimbursable,” said Chief Financial Officer John Collins in a post-earnings call with clients, according to a transcript provided by AlphaSense.

Second, Collins said it was decided that executive incentive bonuses would be paid out in cash instead of company shares.

“[I]n light of the remaining capacity under our 2019 stock incentive plan and in order to mitigate dilution to our shareholders, especially in light of current valuations and more generally, to improve the quality of earnings, we’ve decided to pay the 2022 employee bonus in cash instead of stock,” Collins said.

When incentive bonuses get paid out in stock, the supply of shares is increased, which in effect reduces each shareholder’s stake in the company. A higher share count with the same amount of earnings means earnings per share are reduced, or losses per share are increased. An unanticipated cash payout, meanwhile, increases expenses and reduces net income.

For the first quarter, the company expects revenue of $106 million to $109 million, below the FactSet consensus of $125.9 million. For 2023, the company said it expects revenue of $422 million to $436 million, compared with the FactSet consensus as of the end of February of $550 million.

On the bright side, Collins said the company has “rationalized” its costs during the past 12 months, leading to an expected $200 million, or 36%, reduction in annualized costs. He said the company has also made additional cost cuts in the current quarter.

Part of the cost savings comes from having fewer employees. In the company’s 2022 annual report filed early Thursday, the company said it had 1,301 full-time employees as of Dec. 31. That’s down 15.5% from the 1,540 employees it had at the end of 2021.

KeyBanc Capital analyst Thomas Blakey downgraded the stock to sector weight, after being at overweight since September 2022. While he believes LivePerson is well positioned to benefit from emerging trends in digital engagement and conversational artificial intelligence, he said he he’s concerned about the outlook for growth and margins, as well as increased execution risks.

B. Riley’s Zach Cummins reiterated the neutral rating he’s had on the stock since February 2022 but cut his price target to $7 from $12, saying the near-term upside for the stock is likely capped by the “substantially reset expectations.”

The stock has tumbled 83.2% over the past 12 months through Wednesday, while the S&P 500

has lost 10.2%.

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