LEGALZOOM.COM, INC. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk We have operations both within the U.S. and, to a lesser extent, in the United Kingdom, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate fluctuations and foreign currency exchange risks, and to a lesser extent, inflation risk. Interest rate fluctuation risk At June 30, 2021 and December 31, 2020, we had cash and cash equivalents of $167.0 million and $114.5 million, respectively, which consisted of cash on deposit with banks and short-term highly liquid money market funds. Interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. We also had total outstanding debt subject to interest rate risk of $521.6 million and $524.3 million in principal as of June 30, 2021 and December 31, 2020. Given the repayment of our 2018 Term Loan and settlement of interest rate swaps in July 2021, we are not expected to be exposed to further fluctuations in interest rates in the foreseeable future. We would be subject to fluctuation in interest rates if upon drawdown on our available line of credit under our 2021 Revolving Facility. Foreign currency exchange risk We have foreign currency risks related to our revenue and expenses denominated in currencies other than our functional currency, the U.S. Dollar, principally GBP. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net loss as a result of transaction gains and losses related to translating certain cash balances, trade accounts receivable and payable balances and intercompany loans that are denominated in currencies other than the U.S. Dollar. We recognized foreign currency gains of $0.4 million in the six months ended June 30, 2021. A 10% adverse change in foreign exchange rates on foreign-denominated accounts for the six months ended June 30, 2021, including intercompany balances, would have resulted in a $0.5 million decrease in our reported foreign currency income for the six months ended June 30, 2021. In the event our non-U.S. Dollar-denominated sales and expenses increase, our results of operations may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities could have on our results of operations. Inflation risk We do not believe that inflation has had a material effect on our business, financial condition, results of operations or future prospects. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition, results of operations and future prospects.