Throughout this section, unless otherwise noted, the "Company," "
LiveVox," "we," "us," and "our" refers to LiveVox Holdings, Inc., and its subsidiaries, collectively. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with other sections of this Annual Report, including "Item 1. Business," and the audited consolidated financial statements and related notes thereto included in Part II, Item 8 of this Annual Report. In addition to historical information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth in the section entitled "Item 1A. Risk Factors" in this Annual Report.
We enable next-generation cloud contact center functionality through a cloud contact-center-as-a-service (or CCaaS) platform that we provide for enterprises, business process outsourcers (BPOs) and collections agencies. Our CCaaS platform provides customers with a scalable, cloud-based architecture and pre-integrated artificial intelligence (AI) capabilities to support enterprise-grade deployments of our solutions including omnichannel customer connectivity, customer relationship management (CRM) and workforce optimization (WFO). Our omnichannel product offerings enable our customers to connect with their customers via their channel of choice, including human voice, virtual agents powered by artificial intelligence (AI), email, text or web chat. Our platform features a native CRM which unifies disparate, department-level systems of record to present contact center agents with a single view of its customers without displacing or replacing existing CRMs or other systems of record. Our WFO offerings include a lightweight yet fully-featured product that meets the needs of smaller or less mature contact center operations as well as seamless integration with WFO products from other providers. We typically sell our products to customers under one- to three-year subscription contracts that stipulate a minimum amount of monthly usage and associated revenue with the ability for the customer to consume more usage above the minimum contract amount each month. Our subscription revenue is comprised of the minimum usage revenue under contract (which we call "contract revenue") and amounts billed for usage above the minimum contract value (which we call "excess usage revenue"), both of which are recognized on a monthly basis following deployment to the customer. Excess usage revenue is deemed to be specific to the month in which the usage occurs, since the minimum usage commitments reset at the beginning of each month. For the years ended
December 31, 2021, 2020 and 2019, subscription revenue (including contract revenue and excess usage revenue) accounted for 98%, 99% and 99%, respectively, of our total revenue with the remainder consisting of professional services and other non-recurring revenue derived from the implementation of our products.
Pursuant to Accounting Standards Codification ("ASC") 805, Business Combinations, the merger between
LiveVox Holdings, Inc.(hereinafter referred to as "Old LiveVox") and Crescent Acquisition Corp("Crescent") consummated on June 18, 2021(the transaction referred to as the "Merger") was accounted for as a Reverse Recapitalization, rather than a business combination, for financial accounting and reporting purposes. Accordingly, Old LiveVox was deemed the accounting acquirer (and legal acquiree) and Crescent was treated as the accounting acquiree (and legal acquirer). Under this method of accounting, the Reverse Recapitalization was treated as the equivalent of Old LiveVox issuing stock for the net assets of Crescent, accompanied by a recapitalization. The net assets of Crescent are stated at historical cost, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the Merger are those of Old LiveVox. The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement dated January 13, 2021. There have been no material changes to the aggregate consideration received or the total transaction costs incurred as a result of the Merger previously disclosed in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission("SEC") on August 13, 2021.
Impact of COVID-19
While impacts associated with COVID-19 had certain adverse impacts on our business and operating results in the first two quarters of fiscal 2020, we have not experienced a sustained disruption in our overall business other than as described below. In March of fiscal 2020, we began to experience softness in our excess usage revenue in relation to our contract revenue (as evidenced by the calculation of total revenue divided by contract revenue which we call the "usage multiplier") as a result of the 44
COVID-19 pandemic and this softness continued to persist through the end of fiscal 2021. We attribute this softness to financial stimulus packages designed to address the financial hardships of Americans brought about by the COVID-19 pandemic which allowed many of our customers in the collections industry to meet their collection goals with fewer interactions with debtors. As a result, our usage multiplier declined sequentially from the fourth quarter of fiscal 2020 to the second quarter of fiscal 2021. In the second half of fiscal 2021 our usage multiplier increased slightly over the second quarter of fiscal 2021, but remained below the first quarter of fiscal 2021. When the effects of the pandemic and the associated financial stimulus (including, but not limited to direct stimulus payments, extensions and enhancements of unemployment benefits and loan forbearances) dissipate and there is a return to growth in consumer debt relative to disposable income, we believe the usage multiplier will recover to normal historical levels. As that relationship moves towards normal historical levels, our excess usage revenue is likely to grow faster than our contract revenue.
The dialing practices of several of our larger BPOs and collection customers were constrained by Regulation F, which took effect on
November 30, 2021. Regulation F governs third-party debt collectors and, among other things, limits the number of call attempts that a debt collector may make to a consumer to seven calls per account within a seven day period (sometimes referred to as "7 in 7"). Once the debt collector makes actual contact with a consumer, the debt collector may not call the consumer again about that same account for a seven-day period. Excess usage revenue in December 2021was impacted by approximately $1.0 millionas many customers conservatively changed their dialing pattern to less than 7 in 7. We are actively presenting a best practice designed to enhance our customers' profitability that replaces their previous behavior with a Regulation F-compliant calling regimen supplemented by best-time dial technology and/or 2 text messages per week. Sales of our Attempt Supervisor product have increased in the fourth quarter of fiscal 2021, and while we expect sales of this product to continue to increase, we believe the conservative dialing behavior demonstrated by our customers immediately following the implementation of Regulation F will be replaced by behavior that optimizes the profitability of our customers in the future. We believe that our recommended best practices, if implemented, will result in higher collection results for our customers, at a lower labor cost with a slight increase in software costs. However, there can be no assurance as to when our customers will adopt our recommended Regulation F-compliant practices, if at all. For the fourth quarter of fiscal 2021, our usage multiplier was unfavorably impacted by approximately 0.04x. LiveVox'sSegments
The Company has determined that its CEO is its chief operating decision maker. The Company’s Chief Executive Officer reviews the financial information presented on a consolidated basis to assess performance and make decisions on how to allocate resources. Accordingly, the Company has determined that it operates in a single reportable segment.
Key Non-GAAP Operational and Financial Performance Indicators
In addition to the financial performance measures presented in our consolidated financial statements, we monitor the key indicators set out below to help us assess growth trends, establish budgets, measure the effectiveness of our sales efforts and marketing and to assess operational effectiveness.
LTM Net Revenue Retention Rate
We believe that our LTM Net Revenue Retention Rate provides us and investors with insight into our ability to retain and grow revenue from our customers and is a meaningful measure of the long-term value of our customer relationships. We calculate LTM Net Revenue Retention Rate by dividing the recurring revenue recognized during the most recent LTM period by the recurring revenue recognized during the LTM period immediately preceding the most recent LTM period, provided, however, that recurring revenue from a customer in the most recent LTM period is excluded from the calculation if recurring revenue was not recognized from that customer in the preceding LTM period. Customers who cease using our products during the most recent LTM period are included in the calculation. For example, LTM Net Revenue Retention for the 12-month period ending
December 2021includes recurring revenue from all customers for whom revenue was recognized in 2020 regardless of whether such customers increased, decreased, or stopped their use of our products during 2021 (i.e., old customers), but excludes recurring revenue from all customers who began using our services during 2021 (i.e., new customers). We define monthly recurring revenue as recurring monthly contract and excess usage revenue, which we calculate separately from one-time, non-recurring revenue by month by customer. We consider all contract and excess usage revenue, which represents 98% of our revenue, to be recurring revenue as all of our contracts provide for a minimum commitment amount. We consider professional services revenue and one-time adjustments, which are booked on a one-time, nonrecurring basis, to be non-recurring revenue. Professional services and other one-time adjustments are generally not material to the result of the calculation. However, one-time non-recurring revenue is important with respect to timing as we bill installation and non-standard statement of work fees immediately and recognize the revenue as the work is completed, which is generally in advance of the beginning of recurring revenue which is when we recognize the beginning of the LTM period immediately preceding the most recent LTM period. 45
The following table shows our LTM Net Revenue Retention Rate for the periods presented: Twelve Months Ended December 31, 2021 2020 2019 LTM Net Revenue Retention Rate 105 % 106 % 118 % Our LTM Net Revenue Retention Rate reflects the expansion over time of our existing customers as they add new products and additional units of service. A much higher percentage of the product revenue from our customers is contracted on our variable per minute pricing model with a minimum commitment as compared to our per agent pricing model with minimum commitments for both agents and units of service. Our LTM Net Revenue Retention Rate decreased by 1% percentage points, to 105% in the twelve months ended
December 31, 2021from 106% in the twelve months ended December 31, 2020primarily as a result of the impacts of COVID-19 and the related decrease in excess usage revenue, described above. Despite the decline in LTM Net Revenue Retention Rate, monthly minimum contract revenue for customers grew by 26% from fiscal 2020 to fiscal 2021. Our LTM Net Revenue Retention Rate decreased by 12 percentage points, to 106% in the twelve months ended December 31, 2020from 118% in the twelve months ended December 31, 2019primarily as a result of the impacts of COVID-19 and the related decrease in excess usage revenue, described above. Despite the decline in LTM Net Revenue Retention Rate, monthly minimum contract revenue for customers grew by 20 % from fiscal 2019 to fiscal 2020.
We monitor Adjusted EBITDA, a non-generally accepted accounting principle ("Non-GAAP") financial measure, to analyze our financial results and believe that it is useful to investors, as a supplement to
U.S.GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. We believe that Adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude from Adjusted EBITDA. Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance. We also believe that Adjusted EBITDA provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S.GAAP, and our calculation of Adjusted EBITDA may differ from that of other companies in our industry. We compensate for the inherent limitations associated with using Adjusted EBITDA through disclosure of these limitations, presentation of our consolidated financial statements in accordance with U.S.GAAP and reconciliation of Adjusted EBITDA to the most directly comparable U.S.GAAP measure, net loss. We calculate Adjusted EBITDA as net loss before (i) depreciation and amortization, (ii) long-term equity incentive bonus, (iii) stock-based compensation expense, (iv) interest expense, net, (v) change in the fair value of warrant liability, (vi) other expense (income), net, (vii) provision for income taxes, and (viii) other items that do not directly affect what we consider to be our core operating performance.
The following table provides a reconciliation of net loss and adjusted EBITDA for the periods presented (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Net loss
$ (103,194) $ (4,645) $ (6,913)Non-GAAP adjustments: Depreciation and amortization (1) 6,579 6,065 4,894
Expenses related to long-term incentive awards and stock-based compensation (2)(3)
74,489 1,323 9,182 Interest expense, net 3,732 3,890 3,320 Change in the fair value of warrant liability (1,242) - - Other expense (income), net (460) 154 (22) Acquisition and financing related fees and expenses (4) 1,537 25 1,664 Transaction-related costs (5) 2,263 707 - Golden Gate Capital management fee expenses (6) 135 781 732 Provision for income taxes 166 196 149 Other non-recurring expenses - - 249 Adjusted EBITDA
$ (15,995) $ 8,496 $ 13,25546
(1) Amortization expense included in our results of operations is as follows (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Cost of revenue
$ 3,776 $ 3,826 $ 3,130Sales and marketing expense 2,390 1,961 1,531 General and administrative expense 281 160 153 Research and development expense 132 118 80 Total depreciation and amortization $ 6,579 $ 6,065 $ 4,894
(2) The long-term equity incentives included in our results of operations are as follows (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Cost of revenue
$ 9,697 $ 123 $ 1,007Sales and marketing expense
18,405 277 1,874
General and administrative expense
Research and development expense
23 888 31 1 881
Total long-term equity incentive bonus $
(3) Stock-based compensation expense included in our results of operations is as follows (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Cost of revenue
$ 500 $ 57$ -
Sales and marketing expense
865 113 –
General and administrative expense
Research and development expense
Total stock-based compensation expenses $
(4) Acquisition-related and financing-related costs and expenses included in our results of operations are as follows (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Cost of revenue $ - $ - $ - Sales and marketing expense - - - General and administrative expense 1,537 25 1,664 Research and development expense - - - Total acquisition and financing related fees and expenses $
(5) The transaction-related costs included in our results of operations are as follows (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Cost of revenue $ - $ - $ - Sales and marketing expense - - - General and administrative expense 2,263 707 - Research and development expense - - - Total transaction-related costs
$ 2,263 $ 707$ -
Table of Contents Years Ended December 31, 2021 2020 2019 Cost of revenue $ - $ - $ - Sales and marketing expense - - - General and administrative expense 135 781 732 Research and development expense - - -
Total Golden Gate Capitalmanagement fee expenses $
Non-GAAP Gross Profit and Non-GAAP Gross Margin Percentage
U.S.GAAP defines gross profit as revenue less cost of revenue. Cost of revenue includes all expenses associated with our various product offerings as more fully described under the caption "Components of Results of Operations-Cost of Revenue" below. We define Non-GAAP gross profit as gross profit after adding back the following items:
•depreciation and amortization;
•long-term stock incentive and stock-based compensation expense; and
• other non-recurring expenses
We add back depreciation and amortization, long-term equity incentive bonus and stock-based compensation expenses and other non-recurring expenses because they are one-time or non-cash items. We eliminate the impact of these one-time or non-cash items because we do not consider them indicative of our core operating performance. Their exclusion facilitates comparisons of our operating performance on a period-to-period basis. Therefore, we believe showing Non-GAAP gross margin to remove the impact of these one-time or non-cash expenses is helpful to investors in assessing our gross profit and gross margin performance in a way that is similar to how management assesses our performance.
We calculate non-GAAP gross profit percentage by dividing non-GAAP gross profit by revenue, expressed as a percentage of revenue.
Management uses Non-GAAP gross profit and Non-GAAP gross margin percentage to evaluate operating performance and to determine resource allocation among our various product offerings. We believe Non-GAAP gross profit and Non-GAAP gross margin percentage provide useful information to investors and others to understand and evaluate our operating results in the same manner as our management and board of directors and allows for better comparison of financial results among our competitors. Non-GAAP gross profit and Non-GAAP gross margin percentage may not be comparable to similarly titled measures of other companies because other companies may not calculate Non-GAAP gross profit and Non-GAAP gross margin percentage or similarly titled measures in the same manner as we do.
The following table provides a reconciliation between gross margin and non-GAAP gross margin percentage for the periods presented (in thousands of dollars):
Years Ended December 31, 2021 2020 2019 Gross profit
$ 58,592 $ 63,069 $ 54,502Depreciation and amortization 3,776 3,826 3,130 Long-term equity incentive bonus and stock-based compensation expenses 10,197 180 1,007 Other non-recurring expenses - - 211 Non-GAAP gross profit $ 72,565 $ 67,075 $ 58,850Non-GAAP gross margin % 60.9 % 65.4 % 63.4 %
Components of operating results
We derive revenue by providing products under a variety of pricing models. Our recently released AI Virtual Agent product and our historical Voice product are provided under a usage-based pricing model with prices calculated on a per-minute basis with a contracted minimum commitment in accordance with the terms of the underlying pricing agreements. Voice is our predominant source of revenue. Other revenue sources are derived from products under the following pricing models:
1)a per “unit of measure” with minimum commitment (e.g. Speech IQ);
2) combining per-agent and per-“unit-of-measure” models with minimum contractual commitments for each (eg, SMS, email, U-CRM services);
3)a per agent pricing model with a minimum agent commitment (e.g., U-Script, U-Ticket, U-Chat, U-Quality Management, U-Screen Capture, U-CSAT, U-BI, Hosted PBX services); and
4) A per agent pricing model with a minimum agent commitment with a maximum monthly commitment (eg PDAS – our compliance product, U-BI).
Outside of Voice, our pricing models detailed above are relatively new to the market and not yet financially material to our business.
Cost of Revenue Our cost of revenue consists of personnel costs and associated costs such as travel, information technology, facility allocations and stock-based compensation for Implementation and Training Services, Customer Care, Technical Support, Professional Services, User Acceptance Quality Assurance, Technical Operations and VoIP services to our customers. Other costs of revenue include non-cash costs associated with depreciation and amortization including acquired technology, charges from telecommunication providers for communications, data center costs and costs to providers of cloud communication services, software, equipment maintenance and support costs to maintain service delivery operations. In the fourth quarter of fiscal 2021, we completed a major strategic milestone when our data center transitioned from a model based on maintaining a co-location facility with our own capital equipment to a 100% cloud strategy based on monthly recurring charges for capacity added in generally small step function increments. As a result, we have reduced our capital expenditures for data center equipment, which has slowed growth in depreciation and increased our data center costs for our cloud provisioning. We expect feature release efficiencies for our cloud operations as research and development resources eliminate the release effort associated with our co-location deployment. We have accelerated depreciation expense associated with the change in useful life estimate of the co-location facility. As our business grows, we expect to realize economies of scale in our cost of revenue. We use the
LiveVoxplatform to facilitate data-driven innovations to identify and facilitate efficiency improvement to our implementation, customer care and support, and technical operations teams. Additionally, our research and development priorities include ease of implementation, reliability and ease of use objectives that reduce costs and result in economies of scale relative to revenue growth. Operating Expenses
We classify our operating expenses into sales and marketing, general and administrative expenses, and research and development.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries and related expenses, including stock-based compensation, for personnel in sales and marketing, sales commissions, channel special program incentive funds (SPIFF) and channel commissions, travel costs, as well as marketing pipeline management, content delivery, programs, campaigns, lead generation, and allocated overhead. We believe it is important to continue investing in sales and marketing to continue to generate revenue growth, and we expect sales and marketing expenses to increase in absolute dollars and fluctuate as a percentage of revenue as we continue to support our growth initiatives. General and Administrative. General and administrative expenses consist primarily of salary and related expenses, including stock-based compensation, for management, finance and accounting, legal, information systems and human resources personnel, professional fees, compliance costs, other corporate expenses and allocated overhead. We expect that general and administrative expenses will fluctuate in absolute dollars from period to period but decline as a percentage of revenue over time. Research and Development. Research and development expenses consist primarily of salary and related expenses, including stock-based compensation, for
LiveVoxpersonnel as well as limited outsourced software development resources related to the identification and development of improvements, and expanded features for our products, as well as quality assurance, testing, product management and allocated overhead. Research and development costs are expensed as incurred. We have not performed research and development for internal-use software that would meet the qualifications for capitalization. We believe it is important to continue investing in research and development to continue to expand and improve our products and generate future revenue growth, and we expect research and development expenses to increase in absolute dollars and fluctuate as a percentage of revenue as we continue to support our growth initiatives. 49
Comparison of years ended
The following tables summarize key components of our results of operations for the years ended
December 31, 2021and 2020 (in thousands, except per share data): Years Ended December 31, 2021 2020 Revenue $ 119,231 $ 102,545Cost of revenue 60,639 39,476 Gross profit 58,592 63,069 Operating expenses Sales and marketing expense 62,333 29,023 General and administrative expense 44,694 14,291 Research and development expense 52,562 20,160 Total operating expenses 159,589 63,474 Loss from operations (100,997) (405) Interest expense, net 3,732 3,890 Change in the fair value of warrant liability (1,242) - Other expense (income), net (459) 154 Total other expense, net 2,031 4,044 Pre-tax loss (103,028) (4,449) Provision for income taxes 166 196 Net loss $ (103,194) $ (4,645)Net loss per share-basic and diluted $ (1.29) $ (0.07)Weighted average shares outstanding-basic and diluted 79,964 66,637 Revenue Years Ended December 31, 2021 2020 $ Change % Change Revenue $ 119,231 $ 102,545 $ 16,68616.3 % Revenue increased by $16.7 million, or 16.3%, to $119.2 millionin fiscal 2021 from $102.5 millionin fiscal 2020, primarily due to the acquisition of new customers and upsells to our existing customer base. The recent stimulus packages designed to address the COVID-19 pandemic have allowed our customers to meet their goals with less effort, reducing usage volumes, which was more than offset by 26% growth in contract revenue. Cost of revenue Years Ended December 31, 2021 2020 $ Change % Change Cost of revenue $ 60,639 $ 39,476 $ 21,16353.6 % % of revenue 50.9 % 38.5 % Cost of revenue increased by $21.2 million, or 53.6%, to $60.6 millionin fiscal 2021 from $39.5 millionin fiscal 2020. The increase was attributable primarily to increased personnel costs of $11.0 million, of which $9.5 millionwas associated with our Value Creation Incentive Plan ("VCIP") and Option-based Incentive Plan ("OBIP") awards that fully vested upon a liquidity event (i.e., the Merger) and were recorded as compensation expense within cost of revenue in the consolidated statements of operations and comprehensive loss in the second quarter of fiscal 2021. We also experienced increased cloud data center costs of $4.8 millionin fiscal 2021 while transitioning from our co-location deployment. With the transition to the cloud complete in late 2021, going forward, we expect continued benefit from reduced technical debt (i.e., the implied cost of additional rework caused by choosing an easy 50
solution now instead of using a better approach that would take longer), increased development efficiency and significantly reduced capital expenditure needs. Additionally, stock-based compensation expenses increased
$0.4 millionassociated with restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") granted under the 2021 Equity Incentive Plan (the "2021 Plan") in fiscal 2021. Gross profit Years Ended December 31, 2021 2020 $ Change % Change Gross profit $ 58,592 $ 63,069 $ (4,477)(7.1) % Gross margin percentage 49.1 % 61.5 % Gross profit decreased by $4.5 million, or 7.1%, to $58.6 millionin fiscal 2021 from $63.0 millionin fiscal 2020. The decrease in gross profit was a result of increased personnel costs of $11.0 million, of which $9.5 millionwas associated with our VCIP and OBIP awards that fully vested upon a liquidity event (i.e. the Merger) and were recognized as compensation expense in the second quarter of fiscal 2021, increased cloud data center costs of $4.8 millionin fiscal 2021 while transitioning from our co-location deployment which we began in early 2020 and completed in late 2021, and increased stock-based compensation expenses of $0.4 millionassociated with the RSUs and PSUs granted under the 2021 Plan in fiscal 2021, partially offset by higher revenue. Sales and marketing expense Years Ended December 31, 2021 2020 $ Change % Change Sales and marketing expense $ 62,333 $ 29,023 $ 33,310114.8 % % of revenue 52.3 % 28.3 % Sales and marketing expense increased by $33.3 million, or 114.8%, to $62.3 millionin fiscal 2021 from $29.0 millionin fiscal 2020. The increase was primarily due to increased personnel costs of $28.7 millionof which $18.1 millionwas associated with the VCIP and OBIP awards that fully vested upon a liquidity event (i.e., the Merger) and were recorded as compensation expense within sales and marketing expense in the consolidated statements of operations and comprehensive loss in the second quarter of fiscal 2021. Additionally, marketing, promotions and tradeshow expenses increased $2.7 million, and stock-based compensation expenses increased $0.8 millionassociated with the RSUs and PSUs granted under the 2021 Plan in fiscal 2021.
General and administrative costs
2021 2020 $ Change % Change General and administrative expense
$ 44,694 $ 14,291 $ 30,403212.7 % % of revenue 37.5 % 13.9 % General and administrative expense increased by $30.4 million, or 212.7%, to $44.7 millionin fiscal 2021 from $14.3 millionin fiscal 2020. The increase was primarily due to increased personnel costs of $21.0 millionof which $18.4 millionwas associated with the VCIP and OBIP awards that fully vested upon a liquidity event (i.e., the Merger) and were recorded as compensation expense within general and administrative expense in the consolidated statements of operations and comprehensive loss in the second quarter of fiscal 2021. Additionally, accounting, audit and legal fees increased $3.8 millionin connection with our transition to a public company, miscellaneous general and administrative expenses increased $3.3 millionprimarily attributable to $1.5 millionfor directors' and officers' insurance, and stock-based compensation expenses increased $0.9 millionassociated with the RSUs and PSUs granted under the 2021 Plan in fiscal 2021.
Research and development costs
Table of Contents Years Ended December 31, 2021 2020 $ Change % Change Research and development expense
$ 52,562 $ 20,160 $ 32,402160.7 % % of revenue 44.1 % 19.7 % Research and development expense increased by $32.4 million, or 160.7%, to $52.6 millionin fiscal 2021 from $20.2 millionin fiscal 2020. The increase was primarily due to increased personnel costs of $29.1 millionof which $23.5 millionwas associated with the VCIP and OBIP awards that fully vested upon a liquidity event (i.e., the Merger) and were recorded as compensation expense within research and development expense in the consolidated statements of operations and comprehensive loss in the second quarter of fiscal 2021. Additionally, computing costs used in the development of software increased $1.6 million, and stock-based compensation expenses increased $1.3 millionassociated with the RSUs and PSUs granted under the 2021 Plan in fiscal 2021. Interest expense, net Years Ended December 31, 2021 2020 $ Change % Change Interest expense, net $ 3,732 $ 3,890 $ (158)(4.1) % % of revenue 3.1 % 3.8 %
Net debit interest less
Change in fair value of warrant liability
2021 2020 $ Change
Change in fair value of warrant liability
$ (1,242)% of revenue (1.0) % - % Gain recognized due to change in the fair value of warrant liability increased by $1.2 millionto $1.2 millionin fiscal 2021 from $0in fiscal 2020. The increase was attributable primarily to decrease in the fair value of Forward Purchase Warrants. Upon the consummation of the Merger on June 18, 2021, the Company recorded a liability related to the Forward Purchase Warrants of $2.0 million, with an offsetting entry to additional paid-in capital. On December 31, 2021, the fair value of the Forward Purchase Warrants decreased to $0.8 million, with the adjustment reflected as a warrant liability within the consolidated balance sheets, and the gain on fair value change recorded as a change in the fair value of warrant liability within the consolidated statements of operations and comprehensive loss.
Comparison of years ended
A comparison of our results of operations for the years ended
December 31, 2020and 2019 can be found in the section entitled "LiveVox Management's Discussion and Analysis of Financial Condition and Results of Operations" in Crescent's Definitive Proxy Statement filed with the SECon May 14, 2021.
Cash and capital resources
Sources of cash
LiveVox'sconsolidated financial statements have been prepared assuming the Company will continue as a going concern for the 12-month period from the date of issuance of the consolidated financial statements, which contemplates the realization of assets and 52
the settlement of liabilities and commitments in the normal course of business. Historically, the Company's main sources of liquidity were cash generated by operating cash flows and debt. For the years ended
December 31, 2021, 2020 and 2019, the Company's cash flow from operations was $(69.1) million, $1.1 millionand $1.6 million, respectively. During the year ended December 31, 2021, the Company's cash flows also include net cash proceeds of $157.6 millionfrom the Merger and the related PIPE, net of transaction costs, which are available for general corporate purposes. As of December 31, 2021and December 31, 2020, the Company held cash and cash equivalents of $47.2 millionand $18.1 million, respectively. In addition, the Company had restricted cash of $0.1 millionas of December 31, 2021related to the holdback amount for one acquisition the Company made in 2019 and $1.5 millionin restricted cash as of December 31, 2020related to the holdback amount for two acquisitions the Company made in 2019. The Company invested in various marketable securities in the year ended December 31, 2021, and held marketable securities of $49.4 millionas of December 31, 2021. On February 28, 2018, the Company entered into an amendment to its term loan and revolving credit facility with PNC Bank originally dated November 7, 2016(as so amended, the "Credit Facility") to provide for a $45.0 millionterm loan, a $5.0 millionline of credit and a $1.5 millionletter of credit sub-facility. The agreement governing the Credit Facility initially had a five-year term ending November 7, 2021, which has been extended as described below. The Credit Facility is collateralized by a first-priority perfected security interest in substantially all the assets of the Company and is subject to certain financial covenants before and after a covenant conversion date. Covenant conversion may be elected early by the Company if certain criteria are met, including, but not limited to, meeting fixed charge coverage and liquidity ratio targets as of the most recent twelve-month period. Prior to the covenant conversion date, the Company is required to maintain minimum levels of liquidity and recurring revenue. As of the covenant conversion date, the Company is required to maintain the Fixed Charge Coverage Ratio and Leverage Ratio (as defined in the Credit Facility) measured on a quarter-end basis for the four-quarter period ending on each such date through the end of the agreement. On December 16, 2019, the Company amended the Credit Facility, increasing the term loan borrowing therein by $13.9 millionto $57.6 millionand amending certain terms and conditions. The amendment to the Credit Facility reset the minimum recurring revenue covenant and qualified cash amounts through December 31, 2021and extended the quarterly measurement dates through September 30, 2023and the maturity date to November 7, 2023. On August 2, 2021, the Company further amended the Credit Facility, extending the maturity date to December 31, 2025. The amendment to the Credit Facility reset the minimum recurring revenue covenant amounts through December 31, 2025and extended the quarterly measurement dates through September 30, 2025. The Company was in compliance with all debt covenants at December 31, 2021and December 31, 2020and was in compliance with all debt covenants as of the date of issuance of these consolidated financial statements. There was no unused borrowing capacity under the term loan portion of the Credit Facility at December 31, 2021and December 31, 2020. On March 17, 2020, as a precautionary measure to ensure financial flexibility and maintain maximum liquidity in response to the COVID-19 pandemic, the Company drew down approximately $4.7 millionunder the revolving portion of the Credit Facility, which was repaid in full by the Company in connection with the Merger in the second quarter of fiscal 2021. Cash Requirements LiveVox'scash requirements within the next 12 months consist primarily of operation and administrative activities including employee related expenses and general, operating and overhead expenses, current maturities of the Company's term loan, operating and finance leases and other obligations.
•Term loan - The Company has contractual obligations under its term loan to make principal and interest payments. Please see Note 11 to the Company's consolidated financial statements included in Part II, Item 8 of this Annual Report for a discussion of the contractual obligations under the Company's term loan and the timing of principal maturities. The principal amount is due
December 31, 2025; •Operating and finance lease obligations - The Company leases its corporate headquarters and worldwide offices under operating leases, and finance computer and networking equipment and software purchases for its co-location data centers under finance leases. Please see Note 10 to the Company's consolidated financial statements included in Part II, Item 8 of this Annual Report for further detail of the Company's obligations under operating and finance leases and the timing of expected future lease payments; •Other liabilities - These include other long-term liabilities reflected in the Company's consolidated balance sheets as of December 31, 2021, including obligations associated with certain employee and non-employee incentive plans, Forward Purchase Warrants, unrecognized tax benefits and various long-term liabilities, which have some inherent uncertainty in the timing of these payments. 53
Future capital requirements will depend on many factors, including the Company's customer growth rate, customer retention, timing and extent of development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, the continuing market acceptance of the Company's products, effective integration of acquisition activities, and maintaining the Company's bank credit facility. Additionally, the duration and extent of the impact from the COVID-19 pandemic continues to depend on future developments that cannot be accurately predicted at this time, such as the ongoing severity and transmission rate of the virus, the extent and effectiveness of vaccine programs and other containment actions, the duration of social distancing, office closure and other restrictions on businesses and society at large, and the specific impact of these and other factors on the Company's business, employees, customers and partners. While the COVID-19 pandemic has caused operational difficulties, and may continue to create unprecedented challenges, it has not thus far had a substantial net impact on the Company's liquidity position. The Company believes the cash generated by operating cash flows and debt will be sufficient to meet the Company's anticipated cash requirements for at least the next 12 months from the date of this Annual Report and beyond, while maintaining sufficient liquidity for normal operating purposes.
The Company believes that there may be opportunity for further consolidation in
LiveVox'sindustry. From time to time, the Company evaluates potential strategic opportunities, including acquisitions of other providers of cloud-based services. The Company has been in, and from time to time may engage in, discussions with counterparties in respect of various potential strategic acquisition and investment transactions. Some of these transactions could be material to the Company's business and, if completed, could require significant commitments of capital, result in increased leverage or dilution and/or subject the Company to unexpected liabilities. In connection with evaluating potential strategic acquisition and investment transactions, the Company may incur significant expenses for the evaluation and due diligence investigation of these potential transactions.
Comparison of cash flows for the years ended
The following table summarizes the main components of our cash flows for the years ended
Net cash (used in) provided by operating activities
$ 1,070Net cash used in investing activities (49,803) (773) Net cash provided by financing activities 146,689 2,768 Effect of foreign currency translation (78) (12)
Net increase in cash, cash equivalents and restricted cash
Net cash (used in) provided by operating activities
Cash flows from operating activities in fiscal 2021 decreased by
$70.1 millionto $(69.1) millionfrom $1.1 millionin fiscal 2020. The decrease to net cash provided by operating activities was primarily attributable to a $98.5 millionincrease to net loss and an increase of $35.8 millionin non-cash adjustments to net loss. These non-cash items primarily consisted of a $32.6 millionincrease of compensation expense associated with the VCIP and OBIP awards fully vesting in connection with the Merger in the second quarter of fiscal 2021, and a $3.3 millionincrease of stock-based compensation expenses associated with the RSUs and PSUs granted under the 2021 Plan in fiscal 2021. Net cash used in operating activities also included a decrease of $7.4 millionin cash from operating assets and liabilities, primarily due to the payment of indirect or non-incremental transaction costs of $2.1 millionassociated with the Merger, and the timing of cash payments to vendors and cash receipts from customers.
Net cash used in investing activities
Cash used in investing activities in fiscal year 2021 increased by
Net cash provided by financing activities
Cash flows provided by financing activities in fiscal 2021 increased by
$143.9 millionto $146.7 millionfrom $2.8 millionduring the same period in 2020, reflecting the net cash proceeds of $159.7 millionreceived in fiscal 2021 as a result of the Merger, net of direct and incremental transaction costs. Net cash provided by financing activities was partially offset by the repayment of $4.7 million, representing the revolving portion of the Credit Facility, made in conjunction with the Merger, and the cash payment made in 54
from the third quarter of fiscal 2021 to the fair value of the contingent consideration liability at the date of acquisition of
Comparison of cash flows for the years ended
A comparison of our cash flows for the years ended
Critical accounting estimates
Management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements included in Part II, Item 8 of this Annual Report, which have been prepared in accordance with
U.S.GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the determination of the useful lives of long-lived assets, allowances for doubtful accounts, fair value of goodwill and long-lived assets, fair value of incentive awards, fair value of Warrants, establishing standalone selling price, valuation of deferred tax assets, income tax uncertainties, and other contingencies. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates, and such differences could be material to the Company's consolidated financial position and results of operations, requiring adjustment to these balances in future periods. While our significant accounting policies are more fully described in the notes to the consolidated financial statements included in Part II, Item 8 of this Annual Report, we believe that the following accounting estimates are critical to our business operations and understanding of our financial results. We consider an accounting judgment, estimate or assumption to be critical when (i) the estimate or assumption is complex in nature or requires a high degree of subjectivity and judgment and (ii) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements.
Impairment of long-lived assets, including intangible assets
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset and long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value. No impairment losses have been recognized in any of the periods presented. We perform our annual impairment review of goodwill on
October 1of each year, and when a triggering event occurs between annual impairment tests. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine if it is more likely than not that the fair value of the Company's single reporting unit is less than its carrying amount, including goodwill. In the fourth quarter of 2021, the Company elected to bypass the qualitative assessment and proceed directly to the quantitative impairment test to determine if the fair value of the reporting unit exceeds its carrying amount. If the fair value is determined to be less than the carrying value, an impairment charge is recorded for the amount by which the reporting unit's carrying amount exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. No impairment losses have been recognized in any of the periods presented. Intangible assets, consisting of acquired developed technology, corporate name, customer relationships and workforce, are reviewed for impairment whenever events or changes in circumstances indicate an asset's carrying value may not be recoverable. No impairment losses have been recognized in any of the periods presented.
Impairment of marketable securities
The Company monitors the carrying value of debt securities compared to their fair value to determine whether an other-than-temporary impairment has occurred. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. If a decline in fair value of debt securities is determined to be other-than-temporary, an impairment charge related to that specific investment is recorded in the consolidated statements of operations and comprehensive loss. The Company has determined that the unrealized losses for debt securities at
December 31, 2021were temporary in nature and did not consider any debt securities to be other-than-temporarily impaired. The Company will continue to assess whether a debt security is other-than-temporarily impaired at every reporting period (i.e., on quarterly basis). 55 -------------------------------------------------------------------------------- Table of Contents Revenue Recognition
The Company recognizes revenue in accordance with
The Company derives substantially all of its revenue by providing cloud-based contact center voice products under a usage-based model. The Company's performance obligations are satisfied over time as the customer has continuous access to its hosted technology platform solutions through one of its data centers and simultaneously receives and consumes the benefits and the Company performs its services. Other immaterial ancillary revenue is derived from call recording, local caller identification packages, performance/speech analytics, text messaging services and professional services billed monthly on primarily usage-based fees, and to a lesser extent, fixed fees. Professional services, which represents approximately 2% of revenue, are billed on a fixed-price or on a time and material basis and the revenue is recognized over time as the services are rendered. The Company has service-level agreements with customers warranting defined levels of uptime reliability and performance. If the services do not meet certain criteria, fees are subject to adjustment or refund representing a form of variable consideration. The Company records reductions to revenue for these estimated customer credits at the time the related revenue is recognized. These customer credits are estimated based on current and historical customer trends, and communications with its customers. Such customer credits have not been significant to date. For contracts with multiple performance obligations (e.g., including various combinations of services), the Company allocates the contract price to each performance obligation based on its relative standalone selling price ("SSP"). The Company generally determines SSP based on the prices charged to customers. In instances where SSP is not directly observable, the Company determines the SSP using information that generally includes market conditions or other observable inputs.
The Company accounts for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences arising from the temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements, as well as from net operating loss and tax credit carryforwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will be paid or refunds received, as provided for under currently enacted tax law. A valuation allowance is provided for deferred tax assets that, based on available evidence, are not expected to be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained in a court of last resort. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company does not believe its consolidated financial statements include any uncertain tax positions. It is the Company's policy to recognize interest and penalties accrued on any unrecognized tax benefit as a component of income tax expense. Judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial statements.
Employee and non-employee profit sharing plans
Value creation incentive plan and option-based incentive plan
During 2014, the Company established two bonus incentive plans, the VCIP and the OBIP, pursuant to which eligible participants receive a predetermined bonus based on the Company's equity value at the time of a liquidity event. Awards under the VCIP and OBIP generally time vest over five years and performance vest upon certain liquidity event conditions, subject to continued service through the vesting dates. The Company also has an option to repurchase awards under either plan at an amount deemed to be fair value for which the time-based vesting period has been completed, contingent on the employee's termination of service. The fair value used by the Company has historically been determined by the Company's board of directors with assistance of management at each reporting period by considering a number of objective and subjective factors including important developments in the Company's operations, valuations performed by an independent third party, actual results and financial performance, the conditions in the CCaaS industry and the economy in general, volatility of comparable public companies, among other factors. On
June 18, 2021, the Company consummated the Merger in which all outstanding VCIP and OBIP awards became fully vested and were recorded as compensation expense. The VCIP and OBIP awards were paid to the plan participants in a combination of cash awards and equity awards. The cash portion of the awards was recorded to accrued liability for unpaid cash awards, and the stock portion of the awards was recorded to additional paid-in capital for undelivered equity shares. The fair value of the VCIP and OBIP accrued liability for unpaid cash awards was determined based on the terms of the respective VCIP and OBIP agreements. Since the inputs used to measure fair value are directly or indirectly observable in the marketplace, VCIP and OBIP accrued liability was transferred out of the Level 3 fair value measurement to the Level 2 fair value measurement upon the consummation of the Merger on June 18, 2021. As of December 31, 56
2021, the VCIP and ROBA awards were paid in full and the fair value of the VCIP and ROBA accrual was transferred out of the Level 3 fair value measurement and reduced to zero.
Management incentive units
LiveVox TopCo, LLC("LiveVox TopCo"), a Delawarelimited liability company and the sole stockholder of the Company prior to the Merger, established a Management Incentive Unit program whereby the LiveVox TopCo board of directors has the power and discretion to approve the issuance of Class B Unitsof LiveVoxTopCo that represent management incentive units (which we call "Management Incentive Units" or "MIUs") to any manager, director, employee, officer or consultant of the Company or its subsidiaries. Vesting begins on the date of issuance, and the MIUs vest ratably over five years with 20% of the MIUs vesting on each anniversary of a specified vesting commencement date, subject to the grantee's continued employment with the Company on the applicable vesting date. Vesting of the MIUs will accelerate upon consummation of a "sale of the company", which is defined in the LiveVox TopCo limited liability company agreement. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of five years. Stock-based compensation for MIUs is measured based on the grant date fair value of the award using a Monte Carlo simulation. Assumptions used in the Monte Carlo simulation are holding period, expected share price volatility, discount for lack of marketability, and risk-free interest rate.
2021 Stock Incentive Plan
June 16, 2021, the stockholders of the Company approved the 2021 Equity Incentive Plan (the "2021 Plan"), which became effective upon the closing of the Merger on June 18, 2021. The Compensation Committee of the Companyapproved 5,091,331 RSU and 1,611,875 PSU awards in the year ended December 31, 2021to employees, executive officers, directors, and consultants of the Company. RSUs are subject only to service conditions and typically vest over periods ranging from three to six years based on the grantee's role in the Company. PSUs are granted to certain key employees and vest either based on the achievement of predetermined market conditions, or based on both service and market conditions. All RSU and PSU awards will be settled in shares of Class A common stock and are classified as equity. Equity-classified awards are generally recognized as stock-based compensation expense over an employee's requisite service period or a nonemployee's vesting period on the basis of the grant-date fair value. The Company recognizes stock-based compensation expense of RSUs using the straight-line method, and recognizes stock-based compensation expense of PSUs subject to graded market vesting using the accelerated attribution method. The fair value of the RSUs is estimated by using the closing price of the Company's Class A common stock on Nasdaq on the measurement date. The fair value of the PSUs at each measurement date is estimated by using a Monte Carlo simulation. The key inputs used in the Monte Carlo simulation are stock price, expected share price volatility, expected life, risk-free interest rate, and vesting hurdles. While the Company believes that the assumptions used in these calculations are reasonable, differences in actual experience or changes in assumptions could materially affect the expense related to the Company's 2021 Plan. Acquisitions The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets. If an acquisition is determined to be a business combination, the assets acquired and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. If an acquisition is determined to be an asset acquisition, the cost of the asset acquisition, including transaction costs, are allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. If the cost of the asset acquisition is less than the fair value of the net assets acquired, no gain is recognized in earnings. The excess fair value of the acquired net assets acquired over the consideration transferred is allocated on a relative fair value basis to the identifiable net assets (excluding non-qualifying assets). Determining estimated fair value requires a significant amount of judgment and estimates. If our assumptions change or errors are determined in our calculations, the fair value could materially change resulting in a change in our goodwill or identifiable net assets acquired.
Public and term warrants
Prior to the Merger, Crescent issued 7,000,000 private placement warrants (“Private Warrants”) and 12,499,995 public warrants (“Public Warrants”) at the closing of the initial public offering ( “IPO”) of Crescent on
into the Merger Agreement, pursuant to the Sponsor Support Agreement dated
January 13, 2021, Crescent's sponsor agreed to the cancellation of all of the Private Warrants prior to the Closing Date. 833,333 Forward Purchase Warrants ("Forward Purchase Warrants") were issued pursuant to the Forward Purchase Agreement dated January 13, 2021between Crescent and LiveVox. The 12,499,995 Public Warrants and the 833,333 Forward Purchase Warrants (collectively "Warrants") remain outstanding after the Merger. Each whole warrant entitles the holder to purchase one share of the Company's Class A common stock at a price of $11.50per share, subject to adjustments. Upon consummation of the Merger, the Company concluded that (a) the Public Warrants meet the derivative scope exception for contracts in the Company's own stock and are recorded in stockholders' equity and (b) the Forward Purchase Warrants do not meet the derivative scope exception and are recorded as liabilities on the consolidated balance sheets at fair value upon the Merger, with subsequent changes in the fair value recognized in the consolidated statements of operations and comprehensive loss at each reporting date. The Forward Purchase Warrants are classified as Level 3 fair value measurement and the fair value is measured using a Black-Scholes option pricing model. Inherent in options pricing models are assumptions related to current stock price, exercise price, expected share price volatility, expected life, risk-free interest rate and dividend yield. While the Company believes that the assumptions used in these calculations are reasonable, changes in assumptions could materially affect the liabilities related to the Warrants.
Recently Adopted Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted at the balance sheet date included in this report annual.
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