LivePerson's Strategic AI Bet and Debt Restructuring: A Path to Value Creation in a Declining Revenue Environment?

In the high-stakes arena of enterprise AI, LivePerson (NASDAQ: LPSN) has embarked on a dual strategy: leveraging generative AI to redefine customer engagement while executing a high-cost debt restructuring to buy time. The question for investors is whether these moves can transform a company with declining revenue into a viable long-term player.

The AI Gambit: Innovation Amid Revenue Headwinds

LivePerson's core business—omnichannel customer engagement—faces a paradox. While its revenue fell 25.4% year-over-year to $59.6 million in Q2 2025, the company reported a 45% sequential increase in conversations powered by its generative AI suite. This growth underscores a critical shift: AI is no longer a peripheral feature but a central driver of customer experience. By partnering with Google Cloud to integrate Gemini 2.5 and Vertex AI, LivePerson aims to enhance self-service automation and agent productivity, aligning with Gartner's 2025 Hype Cycle, which positions AI as a cornerstone of customer service innovation.

Yet, the financials tell a mixed story. Despite a 4.0% rise in average revenue per enterprise customer, LivePerson's net revenue retention rate dipped to 79% from 83% in the prior year, and remaining performance obligations fell to $197 million from $283 million. These metrics suggest that while AI adoption is accelerating, it has yet to translate into meaningful revenue stabilization.

Debt Restructuring: A Lifeline with Strings Attached

To address its looming $341.1 million debt maturity in 2026, LivePerson executed a complex exchange: swapping its convertible notes for $45 million in cash, $115 million in 10% secured notes due 2029, and 39% of its equity. This restructuring reduces debt by $226 million and extends its financial runway through 2029 but at a steep cost. The new secured notes carry a 10% interest rate, and the Series B Preferred Stock includes escalating dividend rates (15% initially, rising to 20% after one year). For shareholders, this means a significant transfer of value to former debtholders, with equity dilution potentially undermining long-term returns.

Analysts like Drew Kraus of Gartner acknowledge the necessity of the move but caution that it reflects a “desperation play” rather than a strategic advantage. The company's forward guidance—projecting 21–25% revenue declines in Q3 and 23–26% for 2025—further clouds the outlook.

Balancing the Scales: Can AI Justify the Risk?

The key to LivePerson's revival lies in its ability to monetize AI-driven customer engagement. Its recent wins in regulated sectors (e.g., financial services, healthcare) and international markets signal a strategic pivot toward high-margin, mission-critical use cases. For instance, a global financial services client and a major European retailer now rely on LivePerson's AI to streamline compliance-heavy interactions, a trend that could drive ARPC growth.

However, the path to profitability remains fraught. The company's adjusted EBITDA of $2.9 million in Q2, while exceeding guidance, masks a 12-month EBITDA loss of $16.9 million. Investors must weigh whether the AI-driven efficiency gains and customer retention improvements can offset the financial drag from high-cost debt and equity dilution.

Investment Implications: A High-Conviction Play?

For risk-tolerant investors, LivePerson's AI strategy offers a compelling narrative. The company is positioned to benefit from the broader shift toward AI-powered customer service, a market expected to grow at a double-digit CAGR through 2030. Its partnerships with Google Cloud and focus on regulated industries could differentiate it from competitors.

Yet, the debt restructuring introduces significant downside. The 10% interest on new notes and 20% dividend escalators on preferred stock create a financial overhang that could resurface if AI adoption slows or revenue growth stalls. Additionally, the stock's volatility—trading between $0.61 and $2.08 over the past year—reflects market skepticism.

Conclusion: A Calculated Bet on the Future

LivePerson's strategic bets are ambitious but not without precedent. Companies like Salesforce and ServiceNow navigated similar transitions by aligning AI innovation with operational discipline. For LivePerson, the coming quarters will test its ability to execute: Can it convert AI-driven engagement into revenue growth while managing its debt burden?

Investors should approach with caution. A long-term, high-conviction position might be justified for those who believe in the transformative power of AI in customer service and LivePerson's ability to execute its vision. However, the risks—persistent revenue declines, high debt costs, and equity dilution—demand a realistic assessment of the company's capacity to deliver on its promises. In a market where AI hype often outpaces reality, LivePerson's story is one of potential, not certainty.