LEGALZOOM.COM, INC. 10-K

Item 8. Financial Statements and Supplementary Data LEGALZOOM.COM, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 71 Audited Consolidated Financial Statements: Consolidated Balance Sheets 72 Consolidated Statements of Operations 73 Consolidated Statements of Comprehensive (Loss) Income 74 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity ( Deficit ) 75 Consolidated Statements of Cash Flows 101 Notes to Consolidated Financial Statements 103 70 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of LegalZoom.com, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of LegalZoom.com, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive (loss) income, of redeemable convertible preferred stock and stockholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2019. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Los Angeles, California March 24, 2022 We have served as the Company’s auditor since 2006. 71 LegalZoom.com, Inc. Consolidated Balance Sheets (In thousands, except par values) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 239,297 $ 114,470 Accounts receivable, net of allowance of $ 4,060 and $ 5,256 10,635 8,555 Prepaid expenses and other current assets 16,589 10,536 Total current assets 266,521 133,561 Property and equipment, net 47,013 51,374 Goodwill 59,910 11,404 Intangible assets, net 16,031 815 Deferred income taxes 27,653 22,807 Restricted cash equivalent — 25,000 Available-for-sale debt securities 1,122 1,050 Other assets 12,765 6,053 Total assets $ 431,015 $ 252,064 Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) Current liabilities: Accounts payable $ 31,788 $ 28,734 Accrued expenses and other current liabilities 50,817 41,028 Deferred revenue 146,364 127,142 Current portion of long-term debt — 3,029 Total current liabilities 228,969 199,933 Long-term debt, net of current portion — 512,362 Deferred revenue 1,554 2,937 Other liabilities 2,941 16,558 Total liabilities 233,464 731,790 Commitments and contingencies (Note 12) Series A redeemable convertible preferred stock, $ 0.001 par value; 30,512 shares authorized at December 31, 2020; 23,081 issued and outstanding at December 31, 2020 — 70,906 Stockholders’ equity (deficit): Preferred stock, $ 0.001 par value; 100,000 shares authorized at December 31, 2021, none issued or outstanding at December 31, 2021 — — Common stock,$ 0.001 par value; 1,000,000 and 264,720 shares authorized; 198,084 and 125,037 shares issued and outstanding at December 31, 2021 and 2020, respectively 198 126 Additional paid-in capital 947,160 102,417 Accumulated deficit ( 748,012 ) ( 639,348 ) Accumulated other comprehensive loss ( 1,795 ) ( 13,827 ) Total stockholders’ equity (deficit) 197,551 ( 550,632 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 431,015 $ 252,064 The accompanying notes are an integral part of these consolidated financial statements 72 LegalZoom.com, Inc. Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended December 31, 2021 2020 2019 Revenue $ 575,080 $ 470,636 $ 408,380 Cost of revenue 189,364 154,563 136,915 Gross profit 385,716 316,073 271,465 Operating expenses: Sales and marketing 279,281 171,390 115,913 Technology and development 84,003 41,863 37,204 General and administrative 106,584 51,017 57,762 Impairment of goodwill, long-lived and other assets 924 1,105 14,321 Loss on sale of business — 1,764 — Total operating expenses 470,792 267,139 225,200 (Loss) income from operations ( 85,076 ) 48,934 46,265 Interest expense, net ( 27,984 ) ( 35,504 ) ( 38,559 ) Other income, net 1,193 3,713 2,577 Loss on debt extinguishment ( 7,748 ) — — Impairment of available-for-sale debt securities of $ 4,912 , net of $ 94 loss recognized in other comprehensive loss — ( 4,818 ) — (Loss) income before income taxes and income from equity method investment ( 119,615 ) 12,325 10,283 (Benefit from) provision for income taxes ( 10,951 ) 2,429 3,161 (Loss) income before income from equity method investment ( 108,664 ) 9,896 7,122 Income from equity method investment — — 321 Net (loss) income $ ( 108,664 ) $ 9,896 $ 7,443 Net (loss) income attributable to common stockholders—basic $ ( 108,664 ) $ 7,223 $ 5,422 Net (loss) income attributable to common stockholders—diluted $ ( 108,664 ) $ 7,262 $ 5,476 Net (loss) income per share attributable to common stockholders: Basic $ ( 0.67 ) $ 0.06 $ 0.04 Diluted $ ( 0.67 ) $ 0.06 $ 0.04 Weighted-average shares used to compute net (loss) income per share attributable to common stockholders: Basic 161,424 124,709 123,826 Diluted 161,424 127,259 128,546 The accompanying notes are an integral part of these consolidated financial statements 73 LegalZoom.com, Inc. Consolidated Statements of Comprehensive (Loss) Income (In thousands) Year Ended December 31, 2021 2020 2019 Net (loss) income $ ( 108,664 ) $ 9,896 $ 7,443 Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustments 936 ( 1,296 ) ( 2,507 ) Change in available-for-sale debt securities: Unrealized gains 38 108 565 Reclassifications of losses to net income — ( 94 ) — Reclassification upon conversion into other equity security — — ( 334 ) Total change in available-for-sale debt securities 38 14 231 Change in unrealized gain (loss) on cash flow hedges: Unrealized gain (loss) on interest rate cap and swaps 1,448 ( 9,578 ) ( 3,847 ) Reclassification of prior hedge effectiveness and losses from interest rate cap to net (loss) income 2,315 2,760 — Reclassification to net (loss) income upon discontinuance of interest rate swaps and prior hedge effectiveness 7,295 — — Total net changes in cash flow hedges 11,058 ( 6,818 ) ( 3,847 ) Total other comprehensive income (loss) 12,032 ( 8,100 ) ( 6,123 ) Total comprehensive (loss) income $ ( 96,632 ) $ 1,796 $ 1,320 The accompanying notes are an integral part of these consolidated financial statements 74 LegalZoom.com, Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (In thousands) Series A Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (loss) Income Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance at December 31, 2018 23,081 $ 70,906 123,617 $ 124 $ 92,201 $ ( 649,256 ) $ 396 $ ( 556,535 ) Cumulative-effect adjustment upon adoption of ASC 606 — — — — — 996 — $ 996 Issuance of common stock upon exercise of stock options — — 1,029 1 193 — — $ 194 Issuance of common stock upon vesting of restricted stock awards — — 263 — — — — $ — Shares surrendered for settlement of minimum statutory tax withholdings — — ( 357 ) — ( 3,784 ) — — $ ( 3,784 ) Stock-based compensation — — — — 5,287 — — $ 5,287 Net issuance and repayments of full recourse notes receivable — — — — ( 3 ) — — $ ( 3 ) Repurchase and retirement of common stock — — ( 170 ) — — ( 1,535 ) — $ ( 1,535 ) Repurchase of vested stock options and restricted stock units — — — — — ( 1,953 ) — $ ( 1,953 ) Special dividends — — — — ( 978 ) — — $ ( 978 ) Other comprehensive loss — — — — — — ( 6,123 ) $ ( 6,123 ) Net income — — — — — 7,443 — $ 7,443 Balance at December 31, 2019 23,081 $ 70,906 124,382 $ 125 $ 92,916 $ ( 644,305 ) $ ( 5,727 ) $ ( 556,991 ) Issuance of common stock upon exercise of stock options — — 1,270 1 599 — — 600 Issuance of common stock upon vesting of restricted stock awards — — 245 — — — — — Shares surrendered for settlement of minimum statutory tax withholdings — — ( 371 ) — ( 3,825 ) — — ( 3,825 ) Stock-based compensation — — — — 12,940 — — 12,940 Net issuance and repayments of full recourse notes receivable — — — — ( 8 ) — — ( 8 ) Repurchase and retirement of common stock — — ( 489 ) — — ( 4,939 ) — ( 4,939 ) Special dividends — — — — ( 205 ) — — ( 205 ) Other comprehensive loss — — — — — — ( 8,100 ) ( 8,100 ) Net income — — — — — 9,896 — 9,896 Balance at December 31, 2020 23,081 $ 70,906 125,037 $ 126 $ 102,417 $ ( 639,348 ) $ ( 13,827 ) $ ( 550,632 ) Issuance of common stock upon exercise of stock options — — 831 — 534 — — 534 Issuance of common stock upon vesting of restricted stock awards and ESPP — — 938 1 1,244 — — 1,245 Shares surrendered for settlement of minimum statutory tax withholdings — — ( 87 ) — ( 2,342 ) — — ( 2,342 ) Stock-based compensation — — — — 113,270 — — 113,270 Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering ( 23,081 ) ( 70,906 ) 46,162 46 70,860 — — 70,906 Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions — — 21,989 22 581,811 — — 581,833 Private placement of common stock, net of underwriting discounts and commissions — — 3,214 3 85,047 — — 85,050 Stock issuance costs — — ( 5,636 ) — — ( 5,636 ) Net issuance and repayments of full recourse notes receivable — — — — 43 — — 43 Special dividends — — — — ( 88 ) — — ( 88 ) Other comprehensive income — — — — — — 12,032 12,032 Net loss — — — — — ( 108,664 ) — ( 108,664 ) Balance at December 31, 2021 — $ — 198,084 $ 198 $ 947,160 $ ( 748,012 ) $ ( 1,795 ) $ 197,551 The accompanying notes are an integral part of these consolidated financial statements 75 LegalZoom.com, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2021 2020 2019 Cash flows from operating activities Net (loss) income $ ( 108,664 ) $ 9,896 $ 7,443 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,686 20,097 16,390 Amortization of debt issuance costs 1,392 2,591 2,565 Amortization of prior hedge effectiveness 3,095 3,481 — Stock-based compensation 112,596 12,894 5,181 Impairment of goodwill and long-lived assets 924 1,105 14,321 Impairment of available-for-sale debt securities — 4,818 — Loss on debt extinguishment 7,955 — — Discontinuance of interest rate swaps and write-off of prior hedge effectiveness 8,688 — — Loss on sale of business — 1,764 — Deferred income taxes ( 11,595 ) 1,325 472 Change in fair value of financial guarantee ( 150 ) ( 1,750 ) 1,900 Change in fair value of derivative instruments 392 205 439 Change in fair value of other equity security ( 1,812 ) — — Unrealized foreign exchange loss (gain) 943 ( 1,755 ) ( 2,572 ) Other 4 22 ( 299 ) Changes in operating assets and liabilities, net of effects of business combinations and disposal of business: Accounts receivable ( 1,511 ) 954 ( 413 ) Prepaid expenses and other current assets ( 4,965 ) ( 799 ) ( 128 ) Other assets ( 3,648 ) 1,153 470 Accounts payable 2,360 12,416 3,914 Accrued expenses and other liabilities 13,781 1,418 ( 1,568 ) Income tax payable ( 185 ) 10 ( 985 ) Deferred revenue 17,866 23,204 5,565 Net cash provided by operating activities 54,152 93,049 52,695 Cash flows from investing activities Acquisitions, net of cash acquired ( 61,523 ) ( 934 ) — Purchase of property and equipment ( 11,740 ) ( 10,587 ) ( 18,349 ) Payment upon extinguishment of interest rate swaps ( 3,283 ) — — Purchase of other equity security ( 1,127 ) — ( 668 ) Purchase of available-for-sale debt securities — — ( 2,013 ) Proceeds from sale of equity method investment — — 313 Sale of business, net of cash sold — ( 1,206 ) — Net cash used in investing activities ( 77,673 ) ( 12,727 ) ( 20,717 ) Cash flows from financing activities Repayment of capital lease obligations ( 31 ) ( 31 ) ( 26 ) Payment of debt issuance costs ( 767 ) — — Repayment of 2018 Term Loan ( 524,300 ) ( 5,350 ) ( 5,350 ) The accompanying notes are an integral part of these consolidated financial statements 101 LegalZoom.com, Inc. Consolidated Statements of Cash Flows (continued) (In thousands) Year Ended December 31, 2021 2020 2019 Proceeds from 2018 Revolving Facility — 40,000 — Repayment of 2018 Revolving Facility — ( 40,000 ) — Repayment of hybrid debt ( 1,332 ) ( 1,249 ) — Payment upon extinguishment of hybrid debt ( 9,774 ) — — Payment of contingent consideration ( 1,049 ) — — Repurchase of common stock — ( 4,805 ) ( 1,535 ) Tender offer costs — ( 145 ) — Repurchase of common stock and restricted stock units — — ( 927 ) Payment of special dividends ( 112 ) ( 284 ) ( 877 ) Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions 581,833 — — Proceeds from private placement, net of underwriting discounts and commissions 85,050 — — Payment of stock issuance costs ( 5,636 ) — — Payment of deferred purchase consideration — — ( 547 ) Repurchases of common stock for tax withholding obligations ( 2,342 ) ( 3,606 ) ( 3,784 ) Proceeds from issuance of stock under employee stock plans 1,819 381 194 Net cash provided by (used in) financing activities 123,359 ( 15,089 ) ( 12,852 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent ( 11 ) 57 ( 495 ) Net increase in cash, cash equivalents and restricted cash equivalent 99,827 65,290 18,631 Cash, cash equivalents and restricted cash equivalent, at beginning of the period 139,470 74,180 55,549 Cash, cash equivalents and restricted cash equivalent, at end of the period $ 239,297 $ 139,470 $ 74,180 Supplemental cash flow data Cash paid during the year for: Interest $ 12,284 $ 27,864 $ 37,276 Income taxes 1,459 1,485 1,469 Reconciliation of cash, cash equivalents, and restricted cash equivalent reported in the consolidated balance sheets Cash and cash equivalents $ 239,297 $ 114,470 $ 49,180 Restricted cash equivalent — 25,000 25,000 Total cash, cash equivalents, and restricted cash equivalent shown in the consolidated statements of cash flows $ 239,297 $ 139,470 $ 74,180 Non-cash investing and financing activities Conversion of Series A redeemable convertible preferred stock into common stock in connection with initial public offering $ 70,906 $ — $ — Purchase of property and equipment included in accounts payable and accrued expenses and other current liabilities 676 717 1,268 Conversion of available-for-sale debt security into other equity security — — 791 Change in fair value of hedged interest rate swaps and interest rate cap ( 5,817 ) 412 5,234 Transfer of interest rate swaps derivative liability to hybrid debt — 12,345 — Contingent consideration for business acquired — 1,250 — Capitalized stock-based compensation 674 46 98 The accompanying notes are an integral part of these consolidated financial statements 102 LegalZoom.com, Inc. Notes to Consolidated Financial Statements Note 1. Description of the Business LegalZoom.com, Inc., was initially formed as a California corporation in 1999 and reincorporated as a Delaware corporation in 2007. LegalZoom.com, Inc., and its wholly owned subsidiaries, referred to herein as “we,” “us,” or “our,” has its executive headquarters in Glendale, California, its operational headquarters in Austin, Texas and additional locations in Frisco and San Antonio, Texas, Beaverton, Oregon and London in the United Kingdom, or U.K. We are a provider of services that meet the legal needs of small businesses and consumers. Our position at business inception allows us to become a trusted business advisor, supporting the evolving needs of a new business across its lifecycle. Along with formation, our offerings include ongoing compliance and tax advice and filings, trademark filings, and estate plans. Additionally, we have insights into our customers and leverage our offerings as a channel to introduce small businesses to leading brands in our partner ecosystem, solving even more of their business needs. Initial Public Offering The registration statement related to our initial public offering, or IPO, was declared effective on June 29, 2021, and our common stock began trading on the Nasdaq Global Select Market on June 30, 2021. On July 2, 2021, we completed our IPO for the sale of 19,121,000 shares of our common stock, $ 0.001 par value per share at an offering price of $ 28.00 per share, for proceeds of $ 505.9 million, net of underwriting discounts and commissions. In addition, we sold 2,868,150 shares of our common stock for net proceeds of $ 75.9 million pursuant to the full exercise of the underwriter’s option to purchase additional shares in connection with the IPO. In addition, on July 2, 2021, we sold 3,214,285 shares of our common stock in a private placement with an existing related party stockholder for proceeds of $ 85.0 million, net of underwriting discounts and commissions. We raised aggregate proceeds of $ 666.9 million from our IPO and private placement after deducting underwriting discounts and commissions. We incurred stock issuance costs of $ 5.6 million. Proceeds raised from our IPO were used to repay the full outstanding balance of $ 521.6 million on our 2018 Term Loan. Upon the completion of our IPO, 23,081,080 outstanding shares of redeemable convertible preferred stock with a carrying value of $ 70.9 million converted into 46,162,160 shares of common stock. Following the completion of the IPO, we have one class of authorized and outstanding common stock. Immediately upon the completion of our IPO, we filed an Amended and Restated Certificate of Incorporation, which authorized a total of 1,000,000,000 shares of common stock, $ 0.001 par value per share and 100,000,000 shares of preferred stock, par value $ 0.001 per share. Note 2. Summary of Significant Accounting Policies A summary of the significant accounting policies we follow in the preparation of the accompanying consolidated financial statements is set forth below. Basis of Presentation and Consolidation The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. All intercompany balances and transactions have been eliminated in consolidation. On occasion, we enter into relationships or investments with other entities that may be a variable interest entity, or VIE. We analyze our interests, including agreements, loans, guarantees, and equity investments on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. If we determine that the entity is a VIE, we then assess if we must consolidate the VIE as the primary beneficiary. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that we absorb, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, however not limited to, revenue recognition, sales allowances and credit reserves, available-for-sale debt securities, valuation of long-lived assets and goodwill, income taxes, commitments and contingencies, valuation of assets and liabilities acquired in business combinations, fair value of derivative instruments and stock-based compensation. Actual results could differ materially from those estimates. The extent to which COVID-19 continues to impact our business and financial results will depend on numerous continuously evolving factors including, but not limited to, the magnitude and duration of COVID-19, including 103 resurgences; the impact on our employees; the extent to which it will impact worldwide macroeconomic conditions, including interest rates, employment rates, and health insurance coverage; the speed and degree of the anticipated recovery, as well as variability in such recovery across different geographies, industries, and markets; and governmental and business reactions to the pandemic. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of COVID-19 as of December 31, 2021 and through the date of issuance of these consolidated financial statements. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, sales allowances, and the carrying value of goodwill and other long-lived assets. While there was not a material impact as a result of COVID-19 on our consolidated financial statements at and for the year ended December 31, 2021, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods. Business Combinations The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess purchase consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. We perform valuations of assets acquired and liabilities assumed for an acquisition and allocate the purchase price to their respective net tangible and intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management to use judgment and estimates including the selection of valuation methodologies, estimates of cash flows, discount rates and selection of comparable companies. We generally engage the assistance of a third-party valuation firm in determining fair values of assets acquired and liabilities assumed and contingent consideration, if any, in a business combination. Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations. Segment and Geographic Information Our Chief Executive Officer, as the Chief Operating Decision Maker, or CODM, organizes our company, manages resource allocations, and measures performance on the basis of one operating segment. Revenue outside of the U.S., based on the location of the customer, represented less than 1 %, 1 % and 4 % of our consolidated revenue for the years ended December 31, 2021, 2020 and 2019, respectively. Our property and equipment located outside of the U.S. was less than 1 % of our consolidated property and equipment as of December 31, 2021 and 2020. Foreign Currency The British Pound Sterling is the functional currency for our foreign subsidiaries. The financial statements of these foreign subsidiaries are translated to U.S. Dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for the period for revenue and expenses. Translation gains and losses are recorded in accumulated other comprehensive loss as a component of our consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit). We recognized foreign currency transaction losses of $ 0.9 million and gains of $ 1.8 million and $ 2.6 million in 2021, 2020, and 2019, respectively. Fair Value Measurements Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows: Level 1 — Quoted prices in active markets for identical assets and liabilities. Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. At December 31, 2021, our financial assets and liabilities recorded at fair value on a recurring basis consist of a cash equivalent and available-for-sale debt securities. The cash equivalent consists of a money market fund valued 104 using quoted prices in active markets, which represents Level 1 inputs in the fair value hierarchy. The available-for-sale debt securities are valued using a Monte Carlo simulation, which include inputs that represent Level 3 inputs in the fair value hierarchy. At December 31, 2020, our financial assets and liabilities also included a restricted cash equivalent consisting of a money market fund valued using quoted prices in active markets, which represented Level 1 inputs in the fair value hierarchy, interest rate swaps, an interest rate cap and a financial guarantee derivative. Our interest rate swaps and interest rate cap were valued using observable market inputs including the London Interbank Offered Rate, or LIBOR, swap rates and third-party dealer quotes, which represented Level 2 inputs in the fair value hierarchy. The financial guarantee derivative was valued using a Monte Carlo simulation, which included inputs that represented Level 3 inputs in the fair value hierarchy. The carrying amounts of accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair values because of the short-term nature of these items. The fair value of our long-term debt as of December 31, 2020 was estimated by using quoted or sales prices of similar debt instruments, which represented Level 2 inputs in the fair value hierarchy. Concentrations of Credit Risk We maintain accounts in U.S. and U.K. banks with funds insured by the Federal Deposit Insurance Corporation, or FDIC, and the Financial Services Compensation Scheme, or FSCS, respectively. Our bank accounts may, at times, exceed the FDIC and FSCS insured limits. Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. Management believes that we are not exposed to any significant credit risk related to our cash or cash equivalents and have not experienced any losses in such accounts. Due to a large and diverse customer base, no individual customer represented more than 1% of total revenue in December 31, 2021, 2020 and 2019, respectively. At December 31, 2021, there were no customers with an outstanding balance of 10% or more of our accounts receivable balance. At December 31, 2020, there was one customer with an outstanding balance of 20 % of our accounts receivable balances. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments with original maturities of ninety days or less from the date of purchase. At December 31, 2021 and 2020, our cash consisted of bank account deposits and our cash equivalent consisted of $ 30.2 million and $ 5.2 million invested in a money market fund, respectively. Restricted Cash Equivalent Our restricted cash equivalent balance of $ 25.0 million as of December 31, 2020 represented cash required to be held as collateral by a financial institution to guarantee up to half of a $ 50.0 million personal loan provided by the financial institution to a former executive officer. At December 31, 2020, our restricted cash equivalent of $ 25.0 million was invested in a money market fund with the same financial institution. In June 2021, our financial guarantee of the personal loan of a former executive officer was terminated. The associated restricted cash equivalent of $ 25.0 million became unrestricted and was reclassified to cash and cash equivalents. Accounts Receivable and Related Allowances Our accounts receivable balances, which are not collateralized and does not bear interest, primarily consists of amounts receivable from our credit and debit card merchant processors, customer receivables, and fees due from third-parties for services purchased by our customers from such third-parties. We reduce our accounts receivable for sales allowances and a reserve for potentially uncollectible receivables. We determine the amount of the allowances based on various factors including historical collection experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. Account balances are charged off against the allowance when we determine that it is not probable we will collect the receivable. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Repairs and maintenance are expensed as incurred whereas significant renewals and enhancements are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts 105 and any resulting gain or loss is reflected in our results of operations. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as follows: Useful Life (Years) Purchased and internal-use software 3 Building and building improvements 5 – 30 Land improvements 7 Furniture and office equipment 5 Computer hardware 3 Land Indefinite Leasehold improvements Shorter of lease term or useful life Internal-use Software and Cloud Computing Arrangements Software development costs include costs to develop software to be used to meet internal needs and applications used to deliver our services. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. We amortize internal-use software costs on a straight-line basis over their estimated useful life of three years commencing when the internal-use software is substantially complete and ready for its intended purpose. Costs related to development of internal-use software are included in the accompanying consolidated balance sheets in property and equipment, net. Costs related to development of cloud computing arrangements are included in the accompanying consolidated balance sheets in prepaid and other current assets and non-current assets and are amortized over the contractual term of the underlying service arrangement. Intangible Assets and Other Long-Lived Assets Intangible assets are stated at cost, net of accumulated amortization. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, which approximates the pattern in which the economic benefits are consumed. We amortize our intangible assets over an estimated useful life of two to six years . We assess the impairment of long-lived assets, which consist primarily of property and equipment, acquired intangible assets, and capitalized internal-use software costs, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, or an asset group. If an asset group is considered impaired, an impairment loss equal to the excess of the asset group’s carrying value over their fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices, or appraised values, depending on the nature of the assets. Goodwill Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, however, it is subject to impairment testing at the reporting unit level annually during the fourth quarter of our fiscal year or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In assessing impairment, we have the option to first assess qualitative factors to determine whether or not a reporting unit is impaired. Alternatively, we may perform a quantitative impairment assessment, or if the qualitative assessment indicates that it is more-likely-than-not that the reporting unit’s fair value is less than its carrying amount, a quantitative analysis is required. The quantitative analysis compares the estimated fair value of the reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount including goodwill, goodwill is considered not to be impaired. If the fair value is less than the carrying amount including goodwill, then a goodwill impairment charge is recorded by the amount that the carrying value exceeds the fair value, up to the carrying amount of goodwill. Derivative Financial Instruments Derivative financial instruments, which include interest rate swaps, an interest rate cap, and a financial guarantee relating to a former executive officer, are recorded at fair value. For derivatives that qualify for hedge accounting, specifically as cash flow hedges, the change in fair value of the derivatives is recorded as an unrealized 106 gain (loss), net of taxes, in the accompanying consolidated statements of comprehensive (loss) income. For derivatives that do not qualify for hedge accounting, the change in the fair value of our derivatives related to our long-term debt are recorded in interest expense, net, and the change in the fair value of our financial guarantee is recorded in other income, net, in the accompanying consolidated statements of operations. In 2021, our derivative positions were extinguished in connection with our IPO and full repayment of our long-term debt. Available-for-sale Debt Securities At December 31, 2021 and 2020, we held long-term investments in two companies through the purchase of convertible promissory notes. These investments are classified as available-for-sale debt securities and the changes in fair values of these securities are recognized in other comprehensive (loss) income, net of tax, in the accompanying consolidated statements of comprehensive (loss) income. We periodically review our available-for-sale debt securities to determine if there has been an other-than-temporary decline in fair value. If the impairment is deemed other-than-temporary, the portion of the impairment related to credit losses is recognized in the accompanying consolidated statements of operations, and the portion related to non-credit related losses is recognized in other comprehensive (loss) income. In 2020, we recorded an other-than-temporary impairment of an available-for-sale debt security of $ 4.9 million, of which $ 4.8 million was recognized as other expense in our statement of operations and $ 0.1 million was recognized in other comprehensive (loss) income. Investments in Other Equity Securities We hold investments in equity securities of certain privately held companies, which do not have readily determinable fair values. We have elected to measure these non-marketable investments at cost, with remeasurements to fair value only upon the occurrence of observable price changes in orderly transactions for identical or similar securities of the same issuer, or in the event of any impairment. This election is reassessed each reporting period to determine whether a non-marketable equity security has a readily determinable fair value, in which case they would no longer be eligible for this election. In 2021, we identified an observable price change in an orderly transaction and remeasured to fair value the value of the securities in such privately held company. We evaluate our non-marketable equity securities for impairment at each reporting period based on a qualitative assessment that considers various potential impairment indicators. If an impairment exists, a loss is recognized in the consolidated statements of operations for the amount by which the carrying value exceeds the fair value of the investment. We include investments in equity securities within other assets in the accompanying consolidated balance sheets. Operating and Capital Leases For operating leases, we record rent expense on a straight-line basis over the lease term. Some of our lease arrangements provide for concessions by the landlords, including payments for leasehold improvements and rent-free periods. We account for the difference between the straight-line rent expense and rent paid as a deferred rent liability. We also lease certain equipment under capital lease arrangements. The assets and liabilities under capital lease are recorded at the lesser of the present value of aggregate future minimum lease payments, including estimated bargain purchase options, or the fair value of the asset under lease. Assets under capital leases are amortized using the straight-line method over the estimated useful lives of the assets. Capital lease obligations, which are not material as of December 31, 2021 and 2020, are included in other liabilities in the accompanying consolidated balance sheets. Debt Issuance Costs Debt issuance costs associated with our term loans are deducted from the carrying value of current and long-term debt in the accompanying consolidated balance sheets and are amortized over the term of the loan using the effective interest method. Debt issuance costs associated with revolving facilities are classified as other assets in the accompanying consolidated balance sheets and are amortized over the term of the respective facility on a straight-line basis. Debt issuance costs are amortized to interest expense, net in the accompanying consolidated statements of operations. In 2021, upon the full repayment of our long-term debt in connection with our IPO, we recorded a loss on debt extinguishment of $ 7.7 million, which mainly consisted of unamortized debt issuance costs. Deferred Offering Costs We record certain legal, accounting, and other third-party fees in other assets that are directly associated with in-process equity financings until such financings are consummated. After consummation, these costs are recorded in stockholders’ equity (deficit) as a reduction from the proceeds of the offering. Should the equity financing no longer be considered probable of being consummated, the deferred offering costs are expensed in the consolidated statements of operations within income from operations. In 2021, we incurred $ 5.6 million related to our IPO, which is included in additional-paid in capital in the accompanying consolidated statements of stockholders equity (deficit). In 2019, we 107 expensed $ 3.7 million related to a stock offering, which was not consummated. There were no deferred stock issuance costs recognized in other assets as of December 31, 2021 or 2020. Revenue Recognition We derive our revenue from the following sources: Transaction revenue —Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services. Transaction revenue includes filing fees and is net of cancellations, promotional discounts and sales allowances. Until April 2020, when we ceased providing such services, we also generated transaction revenue from our residential and commercial conveyancing business in the U.K. and revenue for these services was recognized when delivered to the customer. In addition, until July 2019, when we ceased providing such services, we generated revenue from litigation services in the U.K., and we recognized this revenue based on the time incurred by the attorneys at their market billing rates. Subscription revenue —Subscription revenue is generated primarily from subscriptions to our registered agent services, compliance packages, attorney advice, and legal forms services, in addition to software-as-a-service, or SaaS, subscriptions in the U.K. In the fourth quarter of 2020, we commenced providing tax, bookkeeping and payroll subscription services. We generally recognize revenue from our subscriptions ratably over the subscription term. Subscription terms generally range from thirty days to one year. Subscription revenue includes the value allocated to bundled free-trials for our subscription services and is net of promotional discounts, cancellations, sales allowances and credit reserves and payments to third-party service providers such as legal plan law firms and tax service providers. Partner revenue —Partner revenue consists primarily of one-time or recurring fees earned from third-party providers from leads generated to such providers through our online legal platform. Revenue is recognized when the related performance-based criteria have been met. We assess whether performance criteria have been met on a cost-per-click or cost-per-action basis. Revenue from our transaction, subscription and partner revenue is as follows (in thousands): Year Ended December 31, 2021 2020 2019 Transaction $ 258,122 $ 212,114 $ 168,305 Subscription 288,941 229,840 206,447 Partner 28,017 28,682 33,628 Total revenue $ 575,080 $ 470,636 $ 408,380 We adopted Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, No. 606, Revenue from Contracts with Customers , or ASC 606, on a modified retrospective basis on January 1, 2019. The adoption of ASC 606 resulted in a cumulative adjustment to decrease the opening accumulated deficit by $ 1.0 million. We determine revenue recognition through the following five steps: identification of a contract with a customer; identification of the performance obligations in the contract; determination of the transaction price; allocation of the transaction price to the performance obligations in the contract; and recognition of revenue when or as the performance obligations are satisfied. Our customers generally pay for transactions in advance by credit or debit card except for certain services provided under installment plans where we allow customers to pay for their order in either two, three or twelve equal payments. The first installment due under the installment plans is charged to the customer’s debit or credit card on the date the order is placed, and the remaining installments are generally charged on a monthly basis thereafter. We recognize revenue for the amount we expect to be entitled to for providing the services to our customers. The total fees collected by us for our services include, as applicable, expedited services fees, government filing fees, and shipping fees. Subscription services are generally paid monthly or annually in advance of the subscription period except for SaaS services in the U.K., which are invoiced monthly in arrears. Amounts collected in advance of revenue recognition are recorded in deferred revenue. Customers may pay for services, however may not provide the necessary information to complete a transaction. We attempt to contact the customer to complete the abandoned order. We recognize revenue on abandoned services, or breakage, when it is likely to occur and the amount can be recognized without significant risk of reversal. We recognize breakage in proportion to the pattern of rights exercised by the customer. Judgment is required to determine the amount of breakage and when breakage is likely to occur, which we estimate based on historical data of breakage for similar services. Services we offer can generally either be purchased on a stand-alone basis or bundled together as part of a package of services. Accordingly, a significant number of our arrangements include multiple performance obligations, 108 such as the preparation of legal documents combined with related document revision, document storage, registered agent services, and free trial periods of our legal plans. At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise to transfer to the customer a service or bundle of services that is distinct. The identification of distinct performance obligations within our packages may require significant judgment. The transaction price allocated to each separate performance obligation represents the amount of consideration to which we expect to be entitled in exchange for the services we provide. The transaction price is based on the contractual amounts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We only include variable consideration in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We estimate sales allowances using the expected value method. We recognize a liability or a reduction of accounts receivable, and a reduction to revenue based on the estimated amount of sales allowances. We record sales allowances as a reduction of accounts receivable where we expect not to collect the full amount of the outstanding accounts receivable and we record sales allowances as a liability for estimated refunds or credits where we have collected the amounts due from the customer. We have established a sufficient history of estimating sales allowances given the large number of homogeneous transactions. The majority of our allowances and reserves are known within a relatively short period of time following our balance sheet date. The estimated provision for sales allowances has varied from actual results within ranges consistent with management’s expectations. The transaction price excludes sales taxes. Contracts with our customers may include options to purchase additional future services, and in the case of subscription services, options to auto-renew the subscription service. Additional consideration attributable to either the option to purchase additional future services or the option to renew are excluded from the transaction price until such time that the option is exercised, unless these options provide a material right to the customer. For arrangements that contain multiple performance obligations, such as our bundled arrangements, we allocate the transaction price to each performance obligation based on estimates of the standalone selling price of each performance obligation within the bundle. For the services we sell on a standalone basis, we use the sales price of these services in the allocation of the transaction price in bundled arrangements. Where we do not sell the service on a standalone basis, we estimate the standalone selling price based on the adjusted market assessment approach or the expected cost plus a margin approach when market information is not observable. In these cases, the determination of the standalone selling price may require significant judgment. We recognize revenue when we satisfy the performance obligation by transferring the promised good or service to the customer. For our transaction-based services, we generally recognize revenue at a point-in-time when the services are delivered to the customer. For our subscription-based services we generally recognize revenue on a straight-line basis over the subscription term. For our partner-based services, we recognize revenue at a point-in-time when the related performance-based criteria have been met. We do not have significant financing components in arrangements with our customers. Principal Agent Considerations In certain of our arrangements, another party may be involved in providing services to our customer. We evaluate whether we can recognize revenue gross as a principal or net as an agent. We record revenue on a gross basis when we are the principal in the arrangement. To determine whether we are a principal or an agent, we identify the specified good or service to be provided to the customer and assess whether we control the specified good or service before that good or service is transferred to the customer. We evaluate a number of indicators of whether we control the good or service before it is transferred to the customer, including whether we have primary fulfillment responsibility and obligation to perform the services being sold to the customer; we have latitude in establishing the sales price; and we have inventory risk. In arrangements in which we are the principal, we record as revenue the amounts we have billed to our customer, net of sales allowance, and we record the fee payable to the third-party as cost of revenue. We are the principal in most of our legal document preparation and registered agent services, including legal entity formations and similar arrangements and formation and formerly, conveyancing services in the U.K. For these services, revenue includes filing and similar fees. In arrangements in which we are not the principal, we record revenue on a net basis, which is equal to the amount billed to our customer, net of sales allowances and the fee payable to the third-party or partner that is primarily responsible for performing the services for the customer. We are not a law firm in the U.S. and cannot provide legal advice through our U.S. entities, therefore the participating independent law firms in our legal plans control the service to the customer and have the primary service obligation to provide attorney consultations to our customers, for which we pay the law firms a monthly fee. For these arrangements, we recognize revenue on a net basis as an agent. Since 2016, our Alternative Business Structure, or ABS, subsidiary in the U.K. began offering legal advisory services that were marketed through our website. Our ABS provides independent legal advice to our 109 customers and is directly responsible for, and controls the fulfillment of, the legal services. Accordingly, for services provided by our ABS, we recognize revenue as the principal. For other services provided by third parties, including deed transfer, accounting, tax, credit monitoring, business data protection and logo design services, revenue is recognized net of fees payable to third parties. For partner revenue, we receive a fee for the referral of our customer to the partner or we retain a portion of the fee paid by the customer and share the remainder with the partner. Our partner controls the service to the customer and the partner is responsible for fulfilling the referred service to the customer; accordingly, we recognize revenue for these arrangements on a net basis. Revenue includes shipping and handling fees charged to customers. Cost of Revenue Cost of revenue includes all costs of providing and fulfilling our services. Cost of revenue primarily includes government filing fees; costs of fulfillment, customer care, including the cost of credentialed professionals for tax, bookkeeping and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation; telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software; printing, shipping and handling charges; credit and debit card fees; allocated overhead; legal document kit expenses; and sales and use taxes. We defer direct and incremental costs primarily related to government filing fees incurred prior to the associated service meeting the criteria for revenue recognition. These contract assets are recognized as cost of revenue in the same period the related revenue is recognized. At December 31, 2021 and 2020, there was $ 1.8 million and $ 2.0 million, respectively, in deferred cost of revenue included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. Filing fees of $ 79.8 million, $ 64.5 million and $ 50.7 million were recorded in cost of revenue in the accompanying consolidated statements of operations for years ended December 31, 2021, 2020, and 2019, respectively. Sales and Marketing Expenses Sales and marketing expenses consist of customer acquisition media costs; compensation and related benefits, including stock-based compensation for marketing and sales personnel; media production; public relations and other promotional activities; general business development activities; an allocation of depreciation and amortization and allocated overhead. Customer acquisition media costs consist primarily of search engine marketing, television and radio costs. Marketing and advertising costs to promote our services are expensed in the period incurred. Media production costs are expensed the first time the advertisement is aired. Advertising expenses, consisting of customer acquisition media costs, were $ 195.4 million, $ 119.2 million and $ 67.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. Technology and Development Expenses Technology and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, expenses for outside consultants, an allocation of depreciation and amortization and allocated overhead. These expenses include costs incurred in the development and implementation of our websites, mobile applications, online legal platform, research and development and related infrastructure. Technology and development expenses are expensed as incurred, except to the extent that such costs are associated with internal-use software costs that qualify for capitalization as previously described under Internal-use Software and Cloud Computing Arrangements . General and Administrative Expenses Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs. Stock-based Compensation We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value, net of estimated forfeitures, over the requisite service period. We use the Black-Scholes option pricing model for estimating the fair value of options granted under our stock option plans that vest based on service and performance conditions. The fair value of restricted stock units, or RSUs, that vest based on service and performance conditions is determined based on the value of the underlying common stock at the date of grant. For awards that contain market conditions, we estimate the fair value using a Monte Carlo simulation model. We record expense for awards that contain performance conditions only to the extent that we determine it is probable that the performance condition will be achieved. Expense for awards containing market conditions is not reversed even if the market condition is not achieved. We have elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation on a straight- 110 line basis, net of estimated forfeitures, over the requisite service period. Awards with performance or market conditions are recognized using graded vesting. The Black-Scholes option pricing model and the Monte Carlo simulation model requires us to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected volatility, the risk-free interest rate and the dividend yield. The fair value of the shares of common stock underlying stock options and RSUs is based upon our publicly listed share price on the date of grant. Prior to our IPO, the fair value of the shares of common stock was determined by the board of directors. Because there was no public market for our common stock, the board of directors determined the fair value of the common stock at the time of the grant of options and RSUs by considering a number of objective and subjective factors including valuation of comparable companies, sales of common stock to unrelated third parties, operating and financial performance and general and industry-specific economic outlook, amongst other factors. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled Valuation of Privately Held Company Equity Securities Issued as Compensation . The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is estimated based upon actual historical exercise and post-vesting cancellations, adjusted for expected future exercise behavior. Because our common stock has limited publicly traded history, we estimate the expected volatility from the historical volatility of selected public companies with comparable characteristics to us, including similarity in size, lines of business, market capitalization and revenue and financial leverage. We determine the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options. We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock option grants. The risk-free interest rate assumption is based upon observed interest rates on the U.S. government securities appropriate for the expected term of our stock options. The dividend yield assumption is based on our history and expectation of dividend payouts. Other than the special dividends declared in periods prior to these financial statements, which resulted in corresponding reductions in the exercise price of the stock options, we have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. Stock-based compensation expense is recognized based on awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on our historical experience and future expectations. The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we had made different assumptions, our stock-based compensation expense, and our net (loss) income for the years ended December 31, 2021, 2020, and 2019 may have been materially different. Loss Contingencies On occasion we are involved in legal proceedings, claims, and regulatory, indirect tax examinations or government inquiries and investigations that may arise in the ordinary course of business. We record loss contingencies in our consolidated financial statements in the period when they are probable and reasonably estimable. If the amount is probable and we are able to reasonably estimate a range of loss, we accrue the amount that is the best estimate within that range, and if no amount is better than any other in the range, we record the amount at the low end in the range. We disclose those contingencies that we believe are at least reasonably possible but not probable regardless of whether they are reasonably estimable. The likelihood of a loss is determined using several factors including the nature of the matter, advice of our internal and external counsel, previous experience and historical and other relevant information available to us. The determination of the likelihood of loss or the range of loss requires significant management judgment. Legal fees and other costs associated with such actions are expensed as incurred. Income Taxes We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements. Deferred income tax assets and liabilities are measured using enacted tax rates 111 anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period that includes the enactment date. We make judgments in evaluating whether deferred tax assets will be recovered from future taxable income. A valuation allowance is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risk associated with estimates of future taxable income in assessing the need for a valuation allowance. If our assumptions and consequently our estimates, change in the future, the valuation allowance may be increased or decreased, resulting in an increase or decrease, which may be material, to our provision for income taxes and the related impact on our net income. We recognize tax benefits from an uncertain position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits. If this threshold is met, we measure the tax benefit as the largest amount of the benefit that is greater than fifty percent likely to be realized upon ultimate settlement. We recognize penalties and interest accrued with respect to uncertain tax positions as a component of the income tax provision. At December 31, 2021 and 2020, accrued penalties and interest related to uncertain tax positions were not material. Net (Loss) Income Per Share Attributable to Common Stockholders We apply the two-class method for calculating net income per share. Under the two-class method, in periods where we generate net income, net income is allocated between common stock and other participating securities based on their participation rights. Prior to our IPO, our participating securities consist of redeemable convertible preferred stock, which participate in dividends, if declared. For periods in which we report a net loss, the participating securities are not contractually obligated to share in our losses, and accordingly, no loss is allocated to the participating securities. Basic net (loss) income per share is calculated by dividing net (loss) income attributable to common stockholders by the weighted-average number of shares of common stock outstanding, net of unvested restricted stock, if any, during the period. We compute diluted net (loss) income per share under the two-class method where income is reallocated between common stock, potential common stock and participating securities. Potential common stock includes stock options, restricted stock units, restricted stock awards and employee stock purchase plans, or ESPPs and RSUs computed using the treasury stock method. Recent Accounting Pronouncements Under the Jumpstart our Business Startups Act, or JOBS Act, we meet the definition of an emerging growth company. We have elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. To the extent that we no longer qualify as an emerging growth company, we will be required to adopt certain accounting pronouncements earlier than the adoption dates disclosed below which are for non-public business entities. Recently Adopted Accounting Pronouncements In December 2019, the FASB, issued ASU, No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , or ASU 2019-12. This ASU removes certain exceptions for performing intra-period tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. We early adopted ASU 2019-12 on January 1, 2021 and the adoption did not have a material impact to our consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers . This standard addresses diversity in practice and inconsistency related to recognition of an acquired contract liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. For public business entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We have adopted the provisions of the new standard and the adoption did not have a material impact to our consolidated financial statements. Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , the first accounting standard update in connection with Topic 842, Leases, or Topic 842 . The guidance requires lessees to recognize most leases as right of use assets and lease liabilities on the balance sheet and also requires additional qualitative and quantitative disclosures to enable users to understand the amount, timing and uncertainty of cash flows arising from leases. The original 112 guidance required application on a modified retrospective basis to the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements , which includes an option to not restate comparative periods in transition, however, to elect to use the effective date of ASU 2016-02, as the date of initial application of transition. In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements , which made further targeted improvements including clarification regarding the determination of fair value of lease assets and liabilities and statement of cash flows and presentation guidance. In June 2020, FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities , which extended the effective date of this guidance for non-public entities to fiscal years beginning after December 15, 2021. Topic 842 is effective for our annual reporting period beginning on January 1, 2022. We will adopt ASU 2016-02 in the first quarter of 2022 utilizing the modified retrospective transition method. We are currently finalizing our evaluation of the impact of adopting ASU 2016-02. We currently expect that most of our operating lease commitments will result in recognizing right-of-use assets and operating lease liabilities upon adoption. We currently anticipate recording right-of-use lease assets and liabilities of approximately $ 5.0 million to $ 7.0 million on our consolidated balance sheets for leases as of January 1, 2022. We do not believe that the adoption of ASC 842 will have a material impact on our consolidated statements of operations and cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit losses: Measurement of Credit Losses on Financial Instruments (Topic 326) , or Topic 326, which revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to, available-for-sale debt securities and accounts receivable. Based upon our currently filing status, Topic 326 is effective for our annual reporting period beginning on January 1, 2023. We are currently evaluating the impact of the adoption of Topic 326 on our consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting , or Topic 848, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the LIBOR, which has been discontinued as of the end of 2021. Also, in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) — Scope, to clarify that cash flow hedges are eligible for certain optional expedients and exceptions for the application of subsequent assessment methods to assume perfect effectiveness as previously presented in ASU 2020-04. Topic 848 is effective immediately and may be applied through December 31, 2022. We are currently evaluating the impact of the adoption of Topic 848 on our consolidated financial statements. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity . This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. Based upon our current filing status, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We are currently evaluating the impact of the adoption on our consolidated financial statements. Note 3. Other Financial Statement Information Accounts Receivable Changes in the allowance consisted of the following (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance $ 5,256 $ 2,461 $ 1,939 Add: amounts recognized as a reduction of revenue 6,610 6,493 2,996 (Less) add: bad debt expense recognized in general and administrative expense ( 279 ) 2,170 — Less: write-offs, net of recoveries ( 7,527 ) ( 5,868 ) ( 2,474 ) Ending balance $ 4,060 $ 5,256 $ 2,461 The allowance recognized as a reduction of revenue primarily relates to our installment plan receivables for which we expect we will not be entitled to a portion of the transaction price based on our historical experience with similar transactions. The allowance recognized against general and administrative expense represents an allowance relating to receivables from partners that are no longer considered collectible. 113 Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): As of December 31, 2021 2020 Prepaid expenses $ 10,957 $ 7,177 Deferred cost of revenue 1,819 1,967 Capitalized cloud computing development costs 867 — Income tax receivable 831 716 Other current assets 2,115 676 Total prepaid expenses and other current assets $ 16,589 $ 10,536 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): As December 31, 2021 2020 Accrued payroll and related expenses $ 21,858 $ 16,135 Accrued vendor payables 18,239 10,854 Derivative liabilities and hybrid debt — 5,131 Sales allowances 4,862 4,856 Accrued sales, use and business taxes 2,678 1,789 Other 3,180 2,263 Total accrued expenses and other current liabilities $ 50,817 $ 41,028 Changes in sales allowances relating to charge-backs, sales credits and refunds consisted of the following (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance $ 4,856 $ 4,651 $ 4,483 Add: increase in sales allowances 7,998 9,976 10,387 Less: utilization of reserves ( 7,992 ) ( 9,771 ) ( 10,219 ) Ending balance $ 4,862 $ 4,856 $ 4,651 Depreciation and Amortization Depreciation and amortization expense of our property and equipment, including capitalized internal-use software, and intangible assets consisted of the following (in thousands): Year Ended December 31, 2021 2020 2019 Cost of revenue $ 6,430 $ 8,324 $ 6,773 Sales and marketing 6,017 6,913 6,469 Technology and development 2,361 2,800 1,055 General and administrative 1,878 2,060 2,093 Total depreciation and amortization expense $ 16,686 $ 20,097 $ 16,390 Deferred revenue Deferred revenue as of December 31, 2021 and 2020 was $ 147.9 million and $ 130.1 million, respectively. Revenue recognized in 2021, 2020 and 2019 that was included in deferred revenue at the beginning of the year was $ 127.6 million, $ 103.5 million and $ 99.8 million, respectively. We expect to recognize substantially all of the deferred revenue as of December 31, 2021 as revenue in 2022. 114 We have omitted disclosure on the transaction price allocated to remaining performance obligations and estimated timing of revenue recognition as our contracts with customers that have a duration of more than one year are immaterial. Note 4. Acquisitions Earth Class Mail, Inc. In November 2021, we acquired all of the outstanding equity interests in Earth Class Mail, Inc., or Earth Class Mail, a company that provides virtual mailbox solutions for small businesses, in line with our strategy to scale our existing business through building in-house adjacencies. The total cash paid was $ 61.5 million, inclusive of $ 0.4 million of buyer costs, which resulted in net purchase price of $ 61.1 million. The cash amount was paid at closing and funded by our available cash on hand. The following table summarizes the preliminary purchase price allocation to the fair value of assets and liabilities acquired at the date of acquisition: Amount (in thousands) Estimated Useful life Goodwill $ 48,515 — Customer relationships 10,603 6 years Developed technology 5,418 5 years Trade names 179 26 months Property and equipment 267 3 - 5 years Deferred tax liability ( 3,087 ) — Other liabilities ( 787 ) — Total purchase consideration $ 61,108 Intangible assets acquired from Earth Class Mail included customer relationships of $ 10.6 million, developed technology of $ 5.4 million and trade names of $ 0.2 million, which are being amortized over their estimated useful life using the straight-line method. To determine the estimated fair value of intangible assets acquired, we engaged a third-party valuation specialist to assist us. All estimates, key assumptions, and forecasts were either provided by, or reviewed by us. While we chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect our conclusions and not those of any third party. Determining the fair value of assets acquired and liabilities assumed required us to make judgments and estimates, including the selection of valuation methodologies, estimates of cash flows, the rate of customer subscription non-renewals, discount rates, the estimated level of effort and related costs of reproducing or replacing the assets acquired, and selection of comparable companies. Goodwill of $ 48.5 million arising from the acquisition consists largely of the assembled workforce and synergies expected from combining Earth Class Mail into our operations. The acquired goodwill is not expected to be deductible for tax purposes. Acquisition-related costs, including legal, regulatory, and consulting costs amounted to $ 1.4 million and are included within general and administrative expenses in our consolidated statement of operations. The revenue and earnings of the acquired business have been included in our results since the acquisition date and are not material to the our consolidated financial results. Pro forma revenues and results of operations for this acquisition have not been presented as the impact on the our consolidated financial statements would be immaterial. Purely Solutions, LLC In October 2020, we entered into a membership interest purchase agreement with Purely Solutions, LLC, or Pure, in which we acquired 100 % of the membership interest as part of our plans to offer tax services. Pure provides tax preparation, bookkeeping and outsourced payroll services. The total fair value of the consideration for the acquisition was $ 2.3 million. Of the total consideration, $ 1.0 million was paid in cash on the acquisition date, with $ 0.5 million and $ 0.8 million to be paid in cash within six and eighteen months, respectively, from the acquisition date based upon certain earnout metrics being achieved including hiring targets and customer experience metrics. In 2021 we paid out $ 0.5 million upon the first earnout metrics being achieved. At December 31, 2021, we have classified the remaining contingent consideration in accrued expenses and other current liabilities in the accompanying consolidated balance sheet. 115 Intangible assets acquired from Pure included customer relationships of $ 0.6 million, which are being amortized over their estimated useful life of three years using the straight-line method. The goodwill of $ 1.6 million arising from the acquisition consists largely of the assembled workforce and synergies expected from combining Pure into our operations. The acquired goodwill is not expected to be deductible for tax purposes. The purchase price allocation is final. Note 5. Disposition of Business Beaumont ABS Limited In April 2020, we sold our conveyancing business in the U.K., Beaumont ABS Limited, or Beaumont, to a third-party buyer and paid $ 1.2 million in working capital to the buyers. Our loss on sale of this business was $ 1.8 million for the year ended December 31, 2020. Note 6. Investments Available-for-sale Debt Securities In 2019, we invested in Legal Vision Pty Ltd., or Legal Vision, an Australian proprietary limited company that provides online legal services to small and medium size businesses, through the purchase of a convertible promissory note for a total of Australian Dollar, or AUD $ 1.0 million ($ 0.7 million). The convertible promissory note has a maturity term of ten years , which is convertible into Legal Vision’s common stock. The underlying conversion feature is automatically exercisable upon an exit event including an IPO, merger or sale, upon a new financing round, or at our election. At December 31, 2021, we do not hold any equity interests or in-substance common stock in Legal Vision, and accordingly, we have classified the convertible promissory note as an investment in an available-for-sale debt security in the accompanying consolidated balance sheet. The fair value of the convertible promissory note is based on unobservable inputs that are categorized as Level 3 in the fair value hierarchy. We determined that the conversion option on the Legal Vision convertible promissory note will not have material value until Legal Vision executes on its business plans to drive growth, which consequently will drive the fair value of the associated conversion option in excess of the carrying value of the convertible promissory note. Accordingly, the fair value of the convertible debt approximated its carrying value as of December 31, 2021 and 2020. At December 31, 2021 and 2020, the fair value of our available-for-sale debt security in Legal Vision was AUD $ 1.5 million ($ 1.1 million) and AUD $ 1.4 million ($ 1.0 million), respectively, with the change due to fair value adjustments during the period. In 2021, key assumptions used in the Monte Carlo simulation model to determine the fair value of the convertible promissory note in Legal Vision were: expected term of 7.3 years, risk-free rate of 1.5 %, and volatility of 55 %. Since the Legal Vision convertible promissory note has a contractual maturity date that exceeds one year and we do not intend to liquidate in the next twelve months, we have classified the convertible promissory note as a noncurrent available-for-sale debt security in the accompanying consolidated balance sheets as of December 31, 2021 and 2020, respectively. Between 2017 and 2019, we made several investments in firma.de Firmenbaukasten AG, or Firma, a German limited liability company that provides web-based business formation services to small business owners. The investments were made through the purchase of convertible promissory notes, or convertible debt, with maturity terms of five years , which are convertible into Firma’s common stock. The underlying conversion feature is only exercisable upon Firma achieving a trailing 12-month revenue target of EUR € 5.0 million any time prior to the maturity of the convertible debt in May 2023. In 2020, we fully impaired our investment in Firma and incurred a loss of $ 4.8 million as the present value of cash flows expected to be collected was less than the amortized cost basis of the investment. Therefore, we recognized an other-than-temporary impairment of EUR € 4.3 million ($ 4.8 million) in our consolidated statements of operations during the year ended December 31, 2020. Investments in Other Equity Securities In 2018, we invested in LawPath, Pty Ltd, or LawPath, an Australian proprietary limited company that provides an online legal platform to individuals and small and medium size businesses, through the purchase of a convertible promissory note for a total of AUD $ 1.1 million ($ 0.8 million). In October 2019, coinciding with a new financing round, we elected to convert our convertible promissory note into LawPath’s common stock and invested AUD $ 1.0 million ($ 0.7 million) in additional LawPath common stock. The outstanding balance of the note totaling AUD $ 1.2 million ($ 0.8 million) was converted into 4,215 shares of LawPath’s common stock. In October 2021, we invested an additional AUD $ 1.5 million ($ 1.1 million). The change in fair value, due to an orderly transaction, in our other equity securities was $ 1.8 million for the year ended December 31, 2021, which was recognized in other income, net in our consolidated statements of operations. At December 31, 2021 and 2020 our total equity interest in LawPath was approximately 14 %. 116 In December 2018, we purchased 3,000,000 shares of Class C nonvoting common units in Mylo, LLC, or Mylo, a digital insurance broker that services small and medium size businesses, for $ 3.0 million, resulting in a 4 % interest in Mylo. The investments in LawPath and Mylo do not have readily determinable fair values. There were no impairments of these investments during the years ended December 31, 2021 and 2020, respectively. At December 31, 2021 and 2020, the carrying value of these investments is included in other assets in the accompanying consolidated balance sheets. Note 7. Property and Equipment Property and equipment, net, consisted of the following (in thousands): As of December 31, 2021 2020 Building and building improvements $ 29,856 $ 29,850 Land 6,456 6,437 Internal-use software 60,946 56,756 Purchased software 2,609 3,370 Furniture and office equipment 3,332 3,868 Computer hardware 13,762 12,195 Leasehold improvements 4,903 4,904 Software development in-progress 1,178 4,305 Total cost of property and equipment 123,042 121,685 Less: accumulated depreciation and amortization ( 76,029 ) ( 70,311 ) Property and equipment, net $ 47,013 $ 51,374 Depreciation and amortization expense related to property and equipment was $ 15.7 million, $ 17.3 million and $ 12.1 million for 2021, 2020 and 2019, respectively. At December 31, 2021, 2020 and 2019, accumulated amortization in connection with internal-use software costs was $ 42.5 million, $ 38.7 million and $ 29.9 million, respectively. In 2021, 2020 and 2019, we recorded amortization expense of $ 11.6 million, $ 12.3 million and $ 7.3 million, respectively, in connection with these costs. Software development in-progress consists primarily of internal-use software projects, which when placed in service, will provide enhancements and improvements to the operational and functional capabilities to our online platforms and our customer-facing website. In 2021 and 2020 we capitalized internal-use software development costs of $ 9.9 million and $ 8.1 million, respectively. In 2021, 2020 and 2019, we impaired $ 0.9 million, $ 1.1 million and $ 3.7 million, respectively, of capitalized software developments costs related primarily to internal-use software projects that no longer met our business requirements or were no longer expected to be placed in service. Note 8. Goodwill The changes in goodwill for 2021 and 2020 were as follows (in thousands): Amount Balance as of December 31, 2019 9,806 Acquisition 1,569 Foreign currency translation 29 Balance as of December 31, 2020 11,404 Acquisition 48,515 Foreign currency translation ( 9 ) Balance as of December 31, 2021 $ 59,910 As discussed in Note 4, we acquired Earth Class Mail in November 2021 and Pure in October 2020. 117 Note 9. Intangible Assets, net Intangible assets, net, consisted of the following (in thousands): As of December 31, 2021 Remaining Weighted average useful life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 5.7 $ 19,163 $ 8,470 $ 10,693 Developed technology 4.8 10,605 5,487 5,118 Trade names 2.3 520 300 220 Total intangible assets $ 30,288 $ 14,257 $ 16,031 As of December 31, 2020 Remaining Weighted average useful life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 2.5 $ 8,626 $ 7,949 $ 677 Developed technology 0.2 5,216 5,085 131 Trade names 0.2 288 281 7 Total intangible assets $ 14,130 $ 13,315 $ 815 As discussed in Note 4, we acquired Earth Class Mail in November 2021 and Pure in October 2020. In 2021, 2020 and 2019, we recorded amortization expense of $ 1.0 million, $ 2.8 million and $ 4.3 million, respectively. At December 31, 2021, estimated future intangible assets amortization expense were as follows (in thousands): For Years Ending December 31, 2022 $ 3,162 2023 3,006 2024 2,869 2025 2,851 2026 2,670 Thereafter $ 1,473 Total future amortization expense $ 16,031 Note 10. Long-term Debt In November 2018, we entered into an amended first lien credit and guaranty agreement, or 2018 Credit Facility, which consisted of a first lien term loan facility, or 2018 Term Loan, with a principal amount of $ 535.0 million and a 2018 Revolving Facility of $ 40.0 million, or 2018 Revolving Facility. In July 2021, upon the completion of our IPO, we repaid the then outstanding principal of $ 521.6 million of our 2018 Term Loan in full. We incurred a loss on debt extinguishment of $ 7.7 million related to unamortized debt issuance costs. On July 2, 2021, we entered into an amended and restated credit and guaranty agreement, or 2021 Revolving Facility, providing for revolving borrowings of up to $ 150.0 million with an availability period of five years. Under the 2021 Revolving Facility, we can use up to 118 $ 20.0 million in letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to $ 10.0 million. Additional debt issuance costs of $ 0.8 million were allocated to the 2021 Revolving Facility. A reconciliation of the scheduled maturities to the consolidated balance sheets is as follows (in thousands): As of December 31, 2020 Current portion of 2018 Term Loan $ 5,350 Current portion of discount and unamortized debt issuance costs ( 2,321 ) Total current portion of long-term debt $ 3,029 Noncurrent portion of 2018 Term Loan $ 518,950 Noncurrent portion of discount and unamortized debt issuance costs ( 6,588 ) Total long-term debt, net of current portion $ 512,362 The interest rate applicable to the 2021 Revolving Facility is, at our option, at a rate equal to the greatest of (i) the administrative agent’s prime rate (ii) the federal funds effective rate plus 1/2 of 1.0% or (iii) one month LIBOR (subject to a 1.00 % floor), plus 1.00 % or LIBOR (subject to a 0.00 % floor) plus 2.00 %. The interest rate margins under the 2021 Revolving Facility are subject to one reduction of 0.25 % and a further reduction of 0.25 % upon achieving total net first lien leverage ratios of 3.50 to 1.00 and 2.50 to 1.00, respectively. We are required to pay a commitment fee in respect of unutilized commitments under the 2021 Revolving Facility. The commitment fee is, initially, 0.35 % per annum. The commitment fee is subject to one reduction of 0.10 % if the total net first lien leverage ratio does not exceed 3.50 to 1.00. We are also required to pay customary letter of credit fees and agency fees. We have the option to voluntarily repay outstanding loans under the 2021 Revolving Facility at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. There is no scheduled amortization under the 2021 Revolving Facility. Any principal amount outstanding is due and payable in full at maturity, five years from the closing date of the 2021 Revolving Facility. Obligations under the 2021 Revolving Facility are guaranteed by our existing and future direct and indirect material wholly-owned domestic subsidiaries, subject to certain exceptions. The 2018 Term Loan had a maturity in November 2024 and the 2018 Revolving Facility had a maturity in November 2023. Debt issuance costs of $ 6.5 million and $ 0.2 million from the 2018 Term Loan and 2018 Revolving Facility, respectively, were to have been amortized to interest expense over their respective terms. Our 2018 Credit Facility was guaranteed by substantially all of our material domestic subsidiaries and was secured by substantially all of our and such subsidiaries’ assets, with the exception of our restricted cash equivalent. Under the terms of the 2018 Credit Facility, for our 2018 Revolving Facility, we were required to maintain a Total Net First Lien Leverage Ratio less than 7.9 to 1.0 unless we received written consent. The 2018 Term Loan contained either a base rate plus an interest drawn spread of 3.5 %, or LIBOR plus an interest drawn spread of 4.5 %. The average interest rate for 2021, 2020 and 2019 was 4.6 %, 5.1 % and 6.7 %, respectively. At December 31, 2020, all of our borrowings were related to the 2018 Term Loan. The effective interest rate of the 2018 Term Loan was 5.1 %. The thirty-day LIBOR-interest rate was approximately 0.2 % as of December 31, 2020. We paid $ 5.35 million in principal repayments on the 2018 Term Loan in 2020 and 2019. In March 2020, in response to the World Health Organization’s declaration of COVID-19, we drew down the full $ 40.0 million available from our 2018 Revolving Facility. The 2018 Revolving Facility was paid in full in May 2020. We determined that the fair value of our 2018 Term Loan approximated its carrying value as of December 31, 2020. We estimated the fair value of the 2018 Term Loan using Level 2 inputs based on observable trades of our 2018 Term Loan. The 2021 Revolving Facility contains a number of covenants that, among other things, subject to certain exceptions, restrict our ability and the ability of our restricted subsidiaries to incur additional indebtedness and guarantee indebtedness; create or incur liens; pay dividends and distributions or repurchase capital stock; merge, liquidate and make asset sales; change lines of business; change our fiscal year; incur restrictions on our subsidiaries’ ability to make distributions and create liens; modify our organizational documents; make investments, loans and advances; and enter into certain transactions with affiliates. The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio of 4.50 to 1.00, or Financial Covenant. The Financial Covenant will be tested at quarter-end only if the total principal amount of all revolving loans, swingline loans and drawn letters of credit that have not been reimbursed exceeds 35 % of the total commitments under the 2021 Revolving Facility on the last day of such fiscal quarter. 119 At December 31, 2021, we had no amounts outstanding under our 2021 Revolving Facility or any outstanding letters of credit. At December 31, 2020, we had no amounts outstanding under our 2018 Revolving Facility or any outstanding letters of credit. We were in compliance with all financial covenants as of December 31, 2021 and 2020 under the respective credit facilities. Note 11. Derivative Financial Instruments Interest Rate Swaps In April 2019, we entered into two interest rate swaps, or initial swaps, to manage cash flow exposure and exposure to interest rate fluctuations under our 2018 Term Loan. The initial swaps would have matured in April 2022. Under the swap agreements, we were required to pay interest at a fixed rate of 2.3 % per annum and receive interest at a variable rate indexed to one-month LIBOR. The initial notional amount of each initial swap was $ 66.0 million. The initial swaps were accounted for as cash flow hedges as the transactions were executed to hedge our future interest payments. Due to the impact of COVID-19 and decreases in LIBOR, in March 2020, we entered into two blend-and-extend transactions to modify our initial swaps where the derivative liability of $ 12.3 million was carried over to the modified swaps, the fixed rate of 2.3 % on the initial swaps was modified to a new average fixed interest rate of 1.7 % and the maturity date was extended by two years to April 2024. The notional amount of each modified swap was $ 96.6 million. At the time of modification, the initial swaps were de-designated as cash flow hedges and amounts in other comprehensive income were frozen and were amortized to interest expense over the life of the original hedge relationship. As the modified swaps were considered off-market, they were accounted for as a debt host, and an embedded at-market derivative was bifurcated from the debt host. The at-market portion of the modified swaps were designated as cash flow hedges. The hybrid debt host was accounted for at amortized cost basis and was amortized as we settled our modified swaps over the extended term with related interest recognized in interest expense, net in the accompanying consolidated statements of operations. At June 30, 2021, the interest rate swap contracts had an aggregate notional amount of $ 394.2 million, which were designated as cash flow hedges. In July 2021, upon the full repayment of our 2018 Term Loan, our interest rate swaps were discontinued as cash flow hedges and were subsequently extinguished. We paid $ 13.6 million to extinguish our interest rate swaps and hybrid debt. Upon discontinuance of the interest rate swaps as cash flow hedges, the unrealized losses of $ 9.2 million for the intervening period were recognized in interest expense, net. There were no interest rate swaps outstanding as of December 31, 2021. Interest Rate Cap In March 2018, we entered into an interest rate cap agreement at a cost of $ 0.8 million with a three -year term, for an aggregate notional amount of $ 340.0 million to hedge variability of cash flows in our variable interest payments attributable to fluctuations in LIBOR beyond 3 %. The critical terms of the interest rate cap were substantially the same as the underlying term loans. The interest rate cap was accounted for as a cash flow hedge as the transaction was executed to hedge our future interest payments. The interest rate cap expired on March 31, 2021. Other Derivative Instruments We also held an interest rate swap, which was used to manage cash flow exposure and exposure to interest rate fluctuations under our previous credit facilities, or 2016 swap. The 2016 swap matured in January 2020. Under the swap agreement, we were required to pay interest at a fixed rate of 1.8 % per annum and we received interest at a variable rate indexed to one-month LIBOR. The initial notional amount of the 2016 swap was $ 18.3 million. The 2016 swap did not qualify for hedge accounting and changes in fair value were recorded in interest expense, net in the accompanying consolidated statements of operations. Financial Guarantee In September 2019, we provided a financial guarantee relating to a former executive officer upon their voluntary termination. The executive officer entered into a personal loan with a financial institution for $ 50.0 million with a three -year term. The personal loan was collateralized by personal assets, an investment portfolio and our common stock owned by the former executive officer. We provided a financial guarantee to the financial institution up to $ 25.0 million had the former executive officer defaulted or not met certain collateral requirements throughout the term of the personal loan. We deposited $ 25.0 million into a money market fund with the financial institution, or restricted cash equivalent, to evidence this financial guarantee. Had the former executive officer not met certain collateral requirements or defaulted on the personal loan, the financial institution would have had the ability to use our restricted cash equivalent for any shortfall up to $ 25.0 million. In that event, we would have had full recourse against the former executive officer to recover the amount retained by the financial institution up to $ 25.0 million. The personal loan was required to be repaid by the former executive officer prior to our making a public filing with the Securities and Exchange Commission for our IPO, or September 2022, whichever came first. In the event of our IPO, 120 the former executive officer had the option to sell up to $ 25.0 million of his common stock back to us to pay off the personal loan with the financial institution. The financial guarantee was accounted for as a derivative at fair value with changes in fair value recorded in other income, net in our consolidated statements of operations. The financial guarantee had a term of three years and matured in September 2022. In June 2021, the financial guarantee was terminated and we recognized a gain of $ 0.1 million from the cancellation of our financial guarantee derivative in other income (expense), net in the accompanying consolidated statements of operations. The associated restricted cash equivalent of $ 25.0 million became unrestricted and was reclassified to cash and cash equivalents. The estimated fair value of the financial guarantee liability of $ 0.1 million as of December 31, 2020 and was estimated using a Monte Carlo simulation model using Level 3 inputs from the fair value hierarchy. The principal assumptions used in the model as of December 31, 2020, were: expected volatility of 63 % and risk-free rate of 0.1 %. The change in fair value of the financial guarantee in 2020 was $ 1.8 million. Derivative financial instruments and hybrid debt consisted of the following (in thousands): As of December 31, 2020 Interest rate swaps derivative liability, current portion $ 2,177 Interest rate swaps $ 3,640 Financial guarantee 150 Total derivative liability, net of current portion $ 3,790 Hybrid debt, current portion $ 2,954 Hybrid debt, net of current portion $ 8,152 Current and noncurrent derivative liabilities and hybrid debt are included in accrued expenses and other current liabilities and other liabilities, respectively, in the accompanying consolidated balance sheets. The impact from losses from our interest rate cap, interest rate swaps, and hybrid debt in our consolidated statements of operations were as follows (in thousands): Year Ended December 31, 2021 2020 2019 Settlement of interest rate swaps $ 1,052 $ 1,103 $ 208 Amortization of prior hedge effectiveness 3,095 3,481 — Fair value adjustment of interest rate swap 364 — 128 Amortization of interest rate cap premium 28 194 312 Interest expense on hybrid debt 368 630 — Discontinuance of interest rate swaps and prior hedge effectiveness $ 9,240 $ — $ — Total, recorded in interest expense, net $ 14,147 $ 5,408 $ 648 121 Note 12. Commitments and Contingencies Operating Leases We conduct operations from certain leased facilities in various locations. At December 31, 2021, we had various non-cancelable operating leases for office space and equipment, which expire between February 2022 and September 2029. Future minimum payments under operating leases are as follows (in thousands): Operating Leases Years Ending December 31, 2022 $ 2,372 2023 1,101 2024 867 2025 550 2026 505 Thereafter 1,033 Total minimum lease payments $ 6,428 In 2021, we signed a lease amendment to extend the term of our corporate offices in Glendale, California for an additional 24 months, which expires in July 2024. We recorded rent expense of $ 3.5 million for 2021, and $ 3.1 million for both 2020 and 2019, respectively. Advertising, Media and Other Commitments We use a variety of media to advertise our services, including search engine marketing, television and radio. At December 31, 2021, we had non-cancelable minimum advertising and media commitments for future advertising spots of $ 27.0 million, substantially all of which will be paid over a three year period. We also have non-cancelable agreements with various vendors, which require us to pay $ 32.4 million over a five year period, of which $ 26.6 million remains to be paid as of December 31, 2021. Legal Proceedings We received a demand letter dated April 20, 2020 from service partner Dun & Bradstreet alleging that Dun & Bradstreet had overpaid us for services. The letter alleges these overpayments occurred between 2015 and 2019, amounted to $ 5.6 million, and were caused by overreporting by us. The parties have continued to negotiate, and no claim has been filed. We deny and will continue to deny all of the allegations and claims asserted by Dun & Bradstreet, including, but not limited to, any allegation that Dun & Bradstreet has suffered any harm or damages. We believe we have meritorious defenses to the claims and will vigorously defend any action. While there is at least a reasonable possibility that a loss may be incurred, we have not recorded any loss or accrual in the accompanying consolidated financial statements at December 31, 2021 for this matter as a loss is not probable. We initiated arbitration in California on October 28, 2020 against one of our vendors. The demand for arbitration alleged breach of contract and breach of covenant of good faith and fair dealing, and sought declaratory relief and at least $ 5.6 million in damages. On December 7, 2020, the vendor filed a counterdemand alleging breach of contract and breach of the covenant of good faith and fair dealing, seeking declaratory relief and at least $ 6.1 million in damages. We replied to the counterdemand on January 19, 2021. The parties reached the terms of a global settlement on August 21, 2021, with ongoing obligations under that agreement relating to the fulfillment of certain services through December 2022. This settlement was not material to our results of operations, cash flows and financial condition. We were served on February 9, 2021 with a class action complaint, filed in Los Angeles Superior Court and removed to federal court on March 11, 2021, from a Florida resident who claimed to have visited the www.legalzoom.com website. The plaintiff alleges that the website’s use of session replay software was an unlawful interception of electronic communications under the Florida Security Communications Act. The plaintiff sought damages on behalf of the purported class as well as injunctive and declaratory relief. On May 7, 2021, the plaintiff filed a notice of dismissal without prejudice. We are unable to predict the ultimate outcome of this matter. We have not recorded any loss or accrual in the accompanying consolidated financial statements at December 31, 2021 for this matter as a loss is remote. In July 2021, Legalinc Corporate Services Inc., LegalZoom’s wholly owned subsidiary, or Legalinc, received a citation from the Wyoming Secretary of State of Wyoming regarding Legalinc’s registered agent services in Wyoming. The citation alleges that Legalinc failed to comply with Wyoming’s Registered Offices and Agents Act when carrying out its registered agent business in the state, and assessed an initial $ 4.1 million penalty and revoked Legalinc’s status as 122 a commercial registered agent in Wyoming. Legalinc has requested a hearing to review the matter and is engaging in negotiations with the State. We are unable to predict the ultimate outcome of this matter. While there is at least a reasonable possibility that a loss may be incurred, we have not recorded any loss or accrual in the accompanying consolidated financial statements at December 31, 2021 for this matter as a loss is not probable. If this matter is not resolved in our favor, the losses arising from the result of a final ruling, hearing or settlements may have a material adverse effect on our results of operations, cash flows and financial condition. We are involved in inactive state administrative inquiries relating to the unauthorized practice of law or insurance. Because these are inquiries and no claims have been alleged or asserted against us, we cannot predict the outcome of these inquiries or whether these matters will result in litigation or any outcome of potential litigation. All of these inquiries have been inactive for years and we consider the matters closed, so will not include them in future legal proceedings disclosures. From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Other than those described above, we are not currently a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that could have a material adverse effect on our results of operations, cash flows, and financial condition, should such litigation be resolved unfavorably. Indemnifications Indemnification provisions in our third-party service provider agreements provide that we will indemnify, hold harmless, and reimburse the indemnified parties on a case-by-case basis for losses suffered or incurred by the indemnified parties in connection with any claim by any third-party as a result of our website, advertising, marketing, payment processing, collection or customer service activities. The maximum potential amount of future payments we could be required to make under these indemnification provisions is undeterminable. No amounts are accrued or have been paid during any period presented as we believe the fair value of these indemnification obligations is immaterial. Note 13. Redeemable Convertible Preferred Stock At December 31, 2021, we are authorized to issue 1,000,000,000 and 100,000,000 shares of common stock and preferred stock, respectively. At December 31, 2020, we were authorized to issue 264,720,000 and 30,512,000 shares of common stock and Series A redeemable convertible preferred stock, or Series A, respectively. Upon the completion of our IPO, 23,081,080 outstanding shares of Series A were converted into 46,162,160 shares of common stock and are no longer issued and outstanding. The Series A contained the following rights and preferences: Dividends The holders of Series A were entitled to receive noncumulative dividends when and if declared by the board of directors. There was no stated dividend rate on the Series A. We could not declare any dividends on any shares of capital stock unless the holders of the Series A then outstanding first receive a dividend on each outstanding share of Series A in an amount at least equal to (i) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per share of Series A as would equal the product of (A) the dividend payable on each share of such class or series determined as if all such shares of such class or series had been converted into common stock and (B) the number of shares of common stock issuable upon conversion of a share of Series A or (ii) in the case of a dividend on any class or series that is not convertible into common stock, at a rate per share of Series A determined by dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock and multiplying such fraction by an amount equal to $ 1.50 per share. Conversion Each share of Series A was convertible any time, at the option of the holder, into two shares of common stock whereby the initial issuance price of $ 1.50 per share is divided by the conversion price of $ 0.75 per share. All shares of Series A would automatically convert upon the earlier of (i) immediately prior to the closing of the sale of shares of common stock to the public at a price of at least $ 13.10 per share, in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 with at least $ 100.0 million of gross proceeds to us and with respect to which the common stock is listed for trading on either the New York Stock Exchange or the National Association of Securities Dealers Automated Quotations Exchange, or NASDAQ National Market, each a “qualifying initial public offering,” or (ii) a date specified by the vote of the holders of at least a majority of the then outstanding shares of Series A. Liquidation 123 In the event of any voluntary or involuntary liquidation, dissolution, or winding up, including a merger or consolidation, as defined as a deemed liquidation event under the Certificate of Incorporation, the assets available for distribution to our stockholders would be distributed among the holders of shares of our Series A and common stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to our common stock immediately prior to such dissolution, liquidation or winding up. We presented our Series A outside of stockholders’ deficit in the mezzanine section of the accompanying consolidated balance sheets, as Series A was contingently redeemable in the case of certain events outside of our control, such as a change in control, or CIC, or sale of substantially all of our assets. Our Series A was not redeemable at the option of the holder. Voting Each holder of outstanding shares of Series A were entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Holders of Series A will vote together with the holders of common stock as a single class. As long as there were 10,170,668 shares of Series A outstanding, we would not amend, alter or repeal any provision of the Restated Certificate of Incorporation or our By-laws in a manner that adversely affects the rights, preferences, privileges and other restrictions of the Series A; increase or decrease the number of authorized shares of Series A; authorize or enter into any transaction or series of related transactions (i) for the sale, exclusive license or other disposition of a substantial portion of our assets, (ii) for the acquisition of any equity interests or all or substantially all of the assets of another entity, including by merger, in each case, where the fair market value of the consideration paid or issued by us in connection with the transaction exceeds $ 100.0 million, (iii) for the merger, consolidation or other reorganization with or into another entity, (iv) for our voluntary dissolution or liquidation, or (v) otherwise constituting a change of control, as defined; authorize, designate, issue or reclassify any equity security senior to or on parity with the Series A, with regard to redemption, liquidation preference, voting rights or dividends; increase the size of the board of directors; pay or declare dividends on, make distributions with respect to, or repurchase any shares of our capital stock; incur any aggregate indebtedness for borrowed money in excess of 2.5 times our trailing 12-month cash EBITDA, as defined; increase the number of shares available for grant under our 2000 Stock Option Plan or 2016 Stock Option Plan or authorize or establish any new plan or arrangement providing for the grant or issuance of shares of common stock, options or convertible securities to directors, employees or our consultants; or issue, or commit to issue, any additional shares of Series A. Reserve for Unissued Shares of Common Stock Our policy is to reserve and keep available out of our authorized, unissued shares of common stock such number of shares sufficient to effect the conversion of all outstanding shares of preferred stock plus shares granted and available for grant under our stock option plans. Note 14. Stock-based Compensation 2021 Equity Incentive Plan In June 2021, our board of directors adopted our 2021 Equity Incentive Plan, or 2021 Plan. All equity-based awards going forward will be granted under the 2021 Plan. An aggregate of 18,946,871 shares of our common stock are reserved for issuance under our 2021 Plan, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan. Under the terms of the 2021 Plan, both incentive and nonqualified stock options could be granted with exercise prices not less than the fair market value of our common stock on the date of grant. Options granted pursuant to the 2021 Plan will vest at the rate specified in the stock option agreement. Under the 2021 Plan, if an option holder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death, or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service. If under our 2021 Plan, shares subject to stock awards expire or terminate without being exercised in full or are paid out in cash rather than in shares, such awards will not reduce the number of shares available for issuance under our 2021 Plan. Shares withheld under a stock award to satisfy the exercise, strike or purchase price of a stock award or to satisfy a tax withholding obligation will not reduce the number of shares available for issuance under our 2021 Plan. Under the 2021 Plan, RSU awards are granted under RSU award agreements adopted by the administrator. RSU awards may be granted for any form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. A RSU award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the administrator, or in any other form of consideration set forth in the RSU award 124 agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a RSU award. Except as otherwise provided in the applicable award agreement, or other written agreement between us and the recipient, RSU awards that have not vested will be forfeited once the participant’s continuous service ends for any reason. 2021 Employee Stock Purchase Plan In June 2021, our board of directors adopted our 2021 Employee Stock Purchase Plan, or 2021 ESPP. We authorized the issuance of 3,552,538 shares of common stock under the 2021 ESPP. Our 2021 ESPP is implemented through a series of offerings under which eligible employees are granted rights to purchase shares of our common stock on specified dates during such offerings at a discounted price per share. Under the 2021 ESPP our employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock at the beginning of the offering period or at the end of each applicable purchase period. The 2021 ESPP generally provides for offering periods of six months in duration with purchase periods ending on either May 15 or November 15. Contributions under the 2021 ESPP are limited to a maximum of 15% of an employee’s eligible compensation. ESPP purchases are settled with common stock from the ESPP’s previously-authorized and available pool of shares. The stock-based compensation expense incurred in 2021 was $ 0.4 million. Our policy is to issue new common stock upon the exercise of stock options. 2016 Stock Option Plan Prior to the 2021 Plan, we granted stock options under our 2016 Stock Option Plan, or 2016 Plan. At December 31, 2021, there were no shares of common stock available for grant under the 2016 Plan. Under the terms of the 2016 Plan, both incentive and nonqualified stock options were granted with exercise prices not less than the fair value of the underlying common stock on the date of grant. Options granted pursuant to the 2016 Plan vest over periods of up to five years and expire ten years from the grant date. If a 2016 Plan option expires and is not exercised, such as if an employee does not exercise vested 2016 Plan options within thirty days of termination, then these options would revert back to the 2016 Plan’s option pool. The exercise price of all options granted was based on the estimated fair market value of our common stock as determined by the board of directors at the date of grant or date of modification. Stock-based Compensation Expense We recorded stock-based compensation expense in the following categories in the accompanying consolidated statements of operations and balance sheets (in thousands): Year Ended December 31, 2021 2020 2019 Cost of revenue $ 1,733 $ 177 $ 205 Sales and marketing 15,746 1,122 1,020 Technology and development 38,796 2,703 1,314 General and administrative 56,557 9,719 4,170 Total stock-based compensation expense 112,832 13,721 6,709 Amount capitalized to internal-use software 674 46 98 Total stock-based compensation expense $ 113,506 $ 13,767 $ 6,807 125 Stock Options Stock option activity for the year ended December 31, 2021 is as follows (in thousands, except weighted-average exercise price and remaining contract life): Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value Outstanding at December 31, 2020 15,235 $ 8.78 8.7 $ 15,873 Granted 971 28.00 Exercised ( 831 ) 0.65 Cancelled/forfeited ( 101 ) 4.24 Outstanding at December 31, 2021 15,274 $ 10.47 8.0 $ 97,094 Vested and expected to vest at December 31, 2021 15,253 $ 10.48 8.0 $ 96,889 Exercisable at December 31, 2021 7,074 $ 8.79 7.6 $ 51,533 The aggregate intrinsic values in the table above represents the difference, if any, between the fair value per share of our common stock and the option exercise prices multiplied by the number of options at the respective balance sheet dates. The total intrinsic value of stock options exercised in 2021, 2020 and 2019 was $ 13.5 million, $ 12.3 million and $ 10.1 million, respectively. At December 31, 2021, total remaining stock-based compensation expense for unvested awards is $ 56.1 million, which is expected to be recognized over a weighted-average period of 2.4 years. The weighted-average grant-date fair value per share of options granted using the Black-Scholes option pricing model for 2021, 2020 and 2019 was $ 11.78 , $ 4.32 and $ 4.64 , respectively. There was a realized tax benefit of $ 12.3 million, $ 14.2 million and $ 8.7 million for tax deductions from stock options exercised in 2021, 2020 and 2019, respectively. All tax effects related to stock-based compensation have been recorded in our provision for income taxes in the accompanying consolidated statements of operations. The weighted-average assumptions that were used to calculate the grant-date fair value of our stock option grants using the Black-Scholes option pricing model were as follows: Year Ended December 31, 2021 2020 2019 Expected life (years) 5.4 5.2 5.1 Risk-free interest rate 1.0 % 1.1 % 1.5 % Expected volatility 46 % 45 % 44 % Expected dividend yield — — — In June 2021, we granted 970,970 options to our executive officers that were contingent on the effectiveness of the registration statement of our IPO, which occurred on June 29, 2021, or IPO Options. Because the number of options and exercise price of the IPO Options were based on the IPO price to the public, the grant date for accounting purposes was not established until the effective date of our IPO. As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO registration statement was declared effective. The related stock-based compensation expense for the year ended December 31, 2021 was $ 3.2 million and stock-based compensation of $ 8.2 million will be recognized over a weighted-average requisite service period of approximately 3.6 years. There were no other options granted in 2021. 126 Restricted Stock Units A summary of RSU activity for the year ended December 31, 2021 is as follows (in thousands, except weighted-average grant-date fair value): Number of Units Weighted- Average Grant- Date Fair Value (1) Unvested at December 31, 2020 2,499 $ 9.53 Granted 2,276 19.80 Cancelled/forfeited ( 315 ) 12.25 Vested ( 883 ) 18.60 Unvested at December 31, 2021 3,577 $ 21.52 (1) Includes weighted average grant date and modification date fair values. The fair value of vested RSUs in 2021, 2020 and 2019, were $ 18.1 million and $ 3.4 million and $ 4.4 million, respectively. Our RSUs consist of time-based RSUs. For the year ended December 31, 2021, 2020 and 2019, total stock-based compensation expense related to RSUs was $ 38.6 million, $ 3.7 million and $ 4.2 million, respectively. At December 31, 2021, total remaining stock-based compensation expense for unvested RSU awards is $ 55.1 million, which is expected to be recognized over a weighted-average period of 3.1 years. Since the consummation of our IPO, our outstanding RSUs no longer contain performance conditions which impact future vesting. There was a realized tax benefit of $ 3.5 million, $ 0.4 million and $ 0.7 million, for tax deductions from RSU settlements in 2021, 2020 and 2019, respectively. In June 2021, we granted 388,389 RSUs with a value of $ 10.9 million to our executive officers that were contingent on the effectiveness of the registration statement of our IPO, or IPO RSUs. As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO registration statement was declared effective. Stock-based compensation expense for the year ended December 31, 2021 was $ 3.1 million and stock-based compensation of $ 7.8 million will be recognized over a weighted-average requisite service period of approximately 3.6 years. Upon the effectiveness of our IPO and through December 31, 2021, there were 550,091 RSUs that vested. Such shares of common stock were settled until after the lock-up period relating to our IPO that ended in the fourth quarter of 2021. In 2021, we granted 1,338,028 liquidity event RSUs, or LERSUs, to various employees, which only vest upon the achievement of up to four-years of service and upon the consummation of a CIC event, which included an IPO. If the recipient employee terminates for any reason other than for cause, the employee shall retain any service-vested LERSUs until 6.5 years from the date of grant or the earlier settlement of the service-vested LERSUs upon the consummation of a CIC event. For the LERSUs, recognition of expense does not occur until the consummation of a CIC event and expense is recognized thereafter for any remaining service period, as such events are not considered probable of occurring prior to the CIC event for stock-based compensation purposes. Upon the effective date of our IPO registration statement on June 29, 2021, we commenced recognition of stock-based compensation for all LERSUs as the CIC performance event and service conditions for vested RSUs were satisfied. Stock-based compensation expense for these LERSUs of $ 30.9 million was recognized on a graded vesting basis during the year ended December 31, 2021, for the portion of service completed by the employee from the grant date through December 31, 2021. In March 2021, we granted 30,434 RSUs to various employees where the RSUs will vest depending upon the appreciation of the fair value of our common stock compared to the grant-date fair value of our common stock and upon the consummation of a CIC event, which included an IPO, merger, acquisition, or sale of more than 50 % of our assets, or performance RSUs. The performance RSUs vest on a linear basis, starting at 0 % with a fair value of our common stock equal to $ 19.64 per share and ending at 100 % upon reaching a fair value of our common stock of $ 29.46 per share. The performance options were subsequently modified in June 2021, prior to the effective date of our IPO registration statement, as discussed below. Stock-option and RSU activity described above, including total stock-based compensation expense recognized and total remaining stock-based compensation expense, is inclusive of awards modified during the period as discussed below. 127 Modification of Stock-Based Compensation Awards In June 2021, we modified the vesting conditions of certain stock options and RSUs as described below. We modified the vesting conditions of 4,477,218 outstanding performance options of certain executive officers and employees so that the performance options do not fully vest immediately upon an IPO. Instead, subject to and contingent upon the effective date of an IPO, the modified performance options for executive officers will vest monthly over a four-year period from their original vesting commencement dates and the modified performance options of certain employees will vest 25 % on the first anniversary from the vesting commencement date, and then vest monthly over the remaining service period, subject to continued employment through the applicable vesting dates. As the modified awards contain a performance condition that is satisfied upon an IPO, we remeasured the fair value of the performance options on the date of modification. This new fair value of $ 76.6 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the modified performance options for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation expense will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $ 23.3 million from the effective date of our IPO registration statement through June 30, 2021, and we recognized stock-based compensation of $ 24.1 million during the six months ended December 31, 2021. At December 31, 2021, remaining compensation of $ 29.2 million will be recognized over a remaining weighted-average service period of 2.5 years. We modified the vesting conditions of 3,627,936 outstanding 2019 performance options of an executive officer so that in the event of an IPO, the modified 2019 performance options will vest monthly over a four-year period from the original vesting commencement date in 2019, subject to continued employment of the executive officer, rather than vesting upon the fourth anniversary of the original date of grant based on achieving certain stock price thresholds. Incremental stock-based compensation expense as a result of this modification was $ 11.4 million. Upon our IPO, we recognized stock-based compensation expense for the modified 2019 performance options for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation will be recognized thereafter over the remaining service period using the graded vesting method. We recognized stock-based compensation expense of $ 6.6 million from the effective date of our IPO registration statement through June 30, 2021 and we recognized stock-based compensation of $ 6.7 million during the six months ended December 31, 2021. At December 31, 2021, remaining compensation expense of $ 5.9 million will be recognized over a remaining weighted-average service period of 1.8 years. We modified the vesting conditions of 111,902 outstanding performance RSUs of certain employees so that the modified performance RSUs do not vest immediately upon an IPO. Instead, subject to and contingent upon the effective date of an IPO registration statement, the modified performance RSUs vest 25 % on the first anniversary from their respective vesting commencement dates, then monthly over the remaining service period, subject to the continued employment through the applicable vesting dates. As the modified RSUs contain a performance condition that is satisfied upon an IPO, we remeasured the fair value of the performance RSUs on the date of modification. This new fair value of approximately $ 2.9 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the performance RSUs for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $ 0.2 million from the effective date of our IPO registration statement through June 30, 2021 and we recognized stock-based compensation of $ 1.2 million during the six-months ended December 31, 2021. At December 31, 2021, remaining compensation expense of $ 1.5 million will be recognized over a remaining weighted-average service period of 2.8 years. We modified the vesting conditions of 1,725,942 outstanding LERSUs and 1,706,888 outstanding time-based options of certain executive officers to amend the severance vesting acceleration benefit applicable for the LERSUs and to remove the CIC event vesting acceleration benefit for the time-based options. There was no incremental stock-based compensation associated with the modification of the time-based options. We remeasured the fair value of the LERSUs on the date of modification and this new fair value of approximately $ 43.3 million will be recognized using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the modified LERSUs that have satisfied the service-vesting condition on or prior to the effective date of our IPO registration statement, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $ 7.4 million from the effective date of our IPO registration statement through June 30, 2021 and we recognized stock-based compensation of $ 15.8 million during the six-months ended December 31, 2021. At December 31, 2021, remaining compensation expense of $ 20.1 million will be recognized over a remaining weighted-average service period of 2.7 years. During 2021, we modified 63,235 vested options to extend the exercise period for terminated employees who were not able to exercise their options during the IPO lock-up period. We recognized $ 1.4 million in incremental stock-based compensation related to this modification during the year ended December 31, 2021. 128 The fair value of the modified 2020 performance options, 2019 performance option, performance RSUs and LERSUs were remeasured using the fair value of our common stock, as approved by the Pricing Committee of our board of directors, which was $ 25.50 per share, the midpoint of the price range set forth on the cover page of the preliminary prospectus filed with the SEC on June 21, 2021 as part of our registration statement on Form S-1/A. Note 15. Net (Loss) Income Per Share Attributable to Common Stockholders The following table shows the computation of basic and diluted net (loss) income per share attributable to common stockholders (in thousands, except per share amounts): Year Ended December 31, 2021 2020 2019 Numerator: Net (loss) income $ ( 108,664 ) $ 9,896 $ 7,443 Less: amounts attributable to redeemable convertible preferred stock — ( 2,673 ) ( 2,021 ) Net (loss) income attributable to common stockholders—basic ( 108,664 ) 7,223 5,422 Add: undistributed earnings reallocated to common stockholders — 39 54 Net (loss) income attributable to common stockholders—diluted $ ( 108,664 ) $ 7,262 $ 5,476 Denominator: Weighted-average common stock used in computing net (loss) income per share attributable to common stockholders—basic 161,424 124,709 123,826 Effect of potentially dilutive securities: Stock options — 2,444 4,161 Restricted stock units — 106 559 Weighted-average common stock used in computing net (loss) income per share attributable to common stockholders—diluted 161,424 127,259 128,546 Net (loss) income per share attributable to common stockholders—basic and diluted $ ( 0.67 ) $ 0.06 $ 0.04 Net (loss) income per share attributable to common stockholders—diluted $ ( 0.67 ) $ 0.06 $ 0.04 The following table presents the number of options, RSUs and restricted stock excluded from the calculation of diluted net (loss) income per share attributable to common stockholders because they are anti-dilutive (in thousands): As of December 31, 2021 2020 2019 Options to purchase common stock 15,274 12,529 7,256 Restricted stock units 3,577 2,235 884 Employee stock purchase plan 96 — — Restricted stock 50 100 200 Total 18,997 14,864 8,340 129 Note 16. Fair Value Measurements The following tables summarizes our assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands): As of December 31, 2021 Level 1 Level 2 Level 3 Available-for-sale debt securities $ — $ — $ 1,122 Money market fund 30,215 — — Total assets $ 30,215 $ — $ 1,122 Contingent consideration — — 750 Total liabilities $ — $ — $ 750 As of December 31, 2020 Level 1 Level 2 Level 3 Available-for-sale debt securities $ — $ — $ 1,050 Money market fund 5,208 — — Restricted money market fund 25,000 — — Total assets $ 30,208 $ — $ 1,050 Interest rate swaps and cap — 5,817 $ — Financial guarantee — — 150 Contingent consideration — — 1,250 Total liabilities $ — $ 5,817 $ 1,400 There was no change in the fair value of the contingent consideration from our acquisition of Pure for the years ended December 31, 2021 and 2020. Our available-for-sale debt securities measured using Level 3 inputs have the following activity (in thousands): As of December 31, 2021 2020 2019 Beginning balance $ 1,050 $ 5,528 $ 3,866 Purchases — — 2,013 Change in fair value 72 434 440 Other-than-temporary impairment — ( 4,912 ) — Transfer of other equity security $ — $ — ( 791 ) Ending balance $ 1,122 $ 1,050 5,528 Our financial guarantee measured using Level 3 inputs has the following activity (in thousands): As of December 31, 2021 2020 2019 Beginning balance $ 150 $ 1,900 $ 1,900 Change in fair value — ( 1,750 ) $ — Gain on cancellation of financial guarantee ( 150 ) — $ — Ending balance $ — $ 150 $ 1,900 Note 17. Restructuring In 2020 and 2019, we incurred $ 0.6 million and $ 1.6 million, respectively, in severance costs related to a reduction in headcount in our U.K. workforce. In 2020, we incurred $ 1.9 million in severance costs related to a reduction in headcount in our U.S. workforce in October, or U.S. restructuring. Restructuring expenses include salary 130 and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations. As part of the severance arrangement for our U.S. restructuring, certain separated employees were eligible to participate in a tender offer transaction and we repurchased 319,257 shares of common stock from employees who were existing stockholders and vested option holders for total consideration of approximately $ 3.1 million. The repurchased shares were constructively retired. Note 18. Income Taxes On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act , or CARES Act, was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the benefit from for income taxes for the year ended December 31, 2021. The following are the domestic and foreign components of our (loss) income before income taxes (in thousands): Year Ended December 31, 2021 2020 2019 Domestic $ ( 119,195 ) $ 25,272 $ 19,778 Foreign ( 420 ) ( 12,947 ) ( 9,174 ) Total (loss) income before income taxes $ ( 119,615 ) $ 12,325 $ 10,604 The total income before income taxes above includes (loss) income from our equity method investment of $ 0.3 million for 2019. There was no (loss) income from equity method investments for 2021 and 2020, respectively. The details for the (benefit from) provision for income taxes by jurisdiction are as follows (in thousands): Year Ended December 31, 2021 2020 2019 Current Federal $ ( 194 ) $ 846 $ 277 State 760 243 700 Foreign 78 15 255 Total current provision 644 1,104 1,232 Deferred Federal ( 9,605 ) 2,322 2,944 State ( 1,990 ) ( 997 ) ( 1,015 ) Foreign — — — Total deferred provision ( 11,595 ) 1,325 1,929 Total (benefit from) provision for income tax $ ( 10,951 ) $ 2,429 $ 3,161 131 The (benefit from) provision for income taxes for December 31, 2021, 2020 and 2019 differed from the amounts computed by applying the U.S. Federal income tax rate of 21% to (loss) income before income taxes as a result of the following (in thousands): Year Ended December 31, 2021 2020 2019 (Benefit from) provision for income taxes at statutory rate $ ( 25,120 ) $ 2,588 $ 2,227 State income taxes, net of federal benefit ( 2,309 ) ( 891 ) 284 Rate differential on foreign earnings ( 68 ) ( 1,217 ) 1,818 Research and development credits ( 887 ) ( 1,340 ) ( 600 ) Change in valuation allowance 809 5,011 117 Stock-based compensation ( 3,065 ) ( 2,162 ) ( 2,014 ) Nondeductible stock-based compensation 18,267 — — Unrecognized tax benefits 703 978 563 Non-deductible expenses 287 ( 52 ) 820 Other $ 432 $ ( 486 ) $ ( 54 ) Total (benefit from) provision for income taxes $ ( 10,951 ) $ 2,429 $ 3,161 The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and liabilities consisted of the following as of December 31, 2021 and 2020, (in thousands): As of December 31, 2021 2020 Deferred tax assets Deferred revenue $ 697 $ 694 Accrued expenses 5,321 3,746 Stock-based compensation 7,631 3,314 Impairment on investment 1,445 1,445 Net operating loss carryforwards 17,206 12,857 Tax credit carryforwards 12,112 10,462 Interest expense carryforward 10,851 7,679 Capital loss carryforwards 452 — Derivatives and hedging — 4,400 Total deferred tax assets 55,715 44,597 Valuation allowance ( 14,170 ) ( 12,950 ) Net deferred tax assets 41,545 31,647 Deferred tax liabilities Depreciation and amortization ( 10,865 ) ( 6,024 ) State taxes ( 3,026 ) ( 2,816 ) Net deferred tax liabilities ( 13,891 ) ( 8,840 ) Net deferred tax assets and liabilities $ 27,654 $ 22,807 We evaluated the realizability of net deferred tax assets and determined it is more likely than not that separate state net operating losses, net operating losses from the acquisition of Legalinc, capital loss carryovers from the acquisition of Earth Class Mail, the deferred tax assets for Pulse IP, LLC and Pulse Business, LLC, and foreign deferred tax assets will not be realized based on the available objective evidence and have recorded a valuation allowance on such deferred tax assets. The following table summarizes the valuation allowance: 132 Year Ended December 31, 2021 2020 2019 Beginning balance $ 12,950 $ 7,816 $ 7,707 Net increase in current year 1,312 4,646 769 Net (decrease) increase in valuation prior period ( 14 ) 528 ( 87 ) Net decrease in valuation allowance from acquisitions ( 78 ) ( 40 ) ( 573 ) Ending balance $ 14,170 $ 12,950 $ 7,816 Net changes in the valuation allowance in the years ended December 31, 2021, 2020, and 2019 include changes recorded through earnings relating to losses primarily from foreign operations and to a lesser extent valuation allowances established relating to acquired businesses. At December 31, 2021 and 2020, we had federal net operating loss, or NOL, carryforwards of $ 29.8 million and $ 11.7 million, respectively, which will begin to expire in 2032. At December 31, 2021, and 2020, we had state NOL carryforwards of $ 58.8 million and $ 49.8 million, respectively, which will begin to expire in 2032. At December 31, 2021 and 2020, we had foreign NOL carryforwards of $ 31.8 million and $ 32.4 million, respectively, which can be carried forward indefinitely and are not subject to expiration. At December 31, 2021 and 2020, we had federal tax credit carryforwards of $ 7.6 million and $ 6.2 million, respectively, which will begin to expire in 2034. At December 31, 2021 and 2020, we had state tax credit carryforwards of $ 9.6 million and $ 8.8 million, respectively, which carry forward indefinitely. Our domestic entities may be subject to an annual limitation on the utilization of NOL and credit carryforwards based on changes in ownership as defined by Section 382 of the Internal Revenue Code of 1986 . In 2018, we acquired Legalinc and in 2021 we acquired Earth Class Mail. Both were structured as stock acquisitions. Since there was a change in ownership, the acquired NOL carryforwards are subject to an annual Section 382 limitation on the utilization of the NOL carryforwards. We have had foreign operations since 2013. We have not provided for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the U.S. At December 31, 2021, 2020 and 2019, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes are not material to our consolidated financial statements. The following table summarizes the changes in unrecognized tax benefits for the years ended December 31, 2021 and 2020 (in thousands): Gross Unrealized Tax Benefits Balance at Balance at December 31, 2018 $ 6,498 Additions for tax positions related to the current year 671 Reductions for tax positions related to prior years ( 913 ) Balance at December 31, 2019 $ 6,256 Additions for tax positions related to the current year 916 Additions for tax positions related to prior years 59 Balance at December 31, 2020 $ 7,231 Additions for tax positions related to the current year 887 Reductions for tax positions related to prior years ( 245 ) Balance at December 31, 2021 $ 7,873 If recognized, $ 7.9 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the ultimate resolution of uncertain positions may result in liabilities that could be materially different from these estimates. In such an event, we will record additional tax expense or benefit in the period in which resolution occurs. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2021 and 2020, accrued interest and penalties related to income tax positions were not material to our consolidated financial statements. We do not anticipate that unrecognized tax benefits will materially change within the next twelve months. 133 We are subject to taxation and file income tax returns in the U.S. federal, state, and foreign jurisdictions. The federal income tax return for the years 2018 through 2020 and state income tax returns for the tax years 2008 through 2020 remain open to examination. We are under examination in one state which is not expected to have an impact on our results of operations, cash flows and financial condition. Note 19. Related Party Transactions In 2021, 2020 and 2019, we incurred software and software maintenance fees of $ 0.9 million, $ 1.0 million and $ 0.9 million, respectively, from two software vendors controlled by our largest stockholder. Amounts due to these vendors were immaterial as of December 31, 2021 and 2020. In 2020 and 2019, we paid lead generation payments of $ 0.8 million and $ 2.3 million, respectively, to a vendor in which a relative of the chairman of our board of directors is their President. At December 31, 2020 and 2019, amounts due to this vendor were $ 1.5 million and $ 0.8 million, respectively. In 2020 and 2019, we received lead generation payments of $ 0.6 million and $ 3.6 million, respectively, from this same vendor. There were no such transactions during the year ended December 31, 2021. Note 20. 401(k) Savings Plan We have a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Under the 401(k) plan, matching contributions are based upon the amount of the employees’ contributions subject to certain limitations. We contributed $ 2.3 million, $ 1.8 million and $ 1.7 million to the 401(k) plan in 2021, 2020 and 2019, respectively. 134 Note 21. Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive income (loss) consisted of the following: Year Ended December 31, 2021 (in thousands) Before Tax Amount Tax Effect Net of Tax Amount Foreign currency translation adjustments: Beginning balance $ ( 3,014 ) $ — $ ( 3,014 ) Change during period 936 — 936 Ending balance $ ( 2,078 ) $ — $ ( 2,078 ) Available-for-sale debt securities: Beginning balance $ 281 $ ( 36 ) $ 245 Unrealized gains 50 ( 12 ) 38 Ending balance $ 331 $ ( 48 ) $ 283 Cash flow hedges: Beginning balance $ ( 14,708 ) $ 3,650 $ ( 11,058 ) Unrealized gain on interest rate swaps and cap 2,897 ( 1,449 ) 1,448 Reclassification of losses from interest rate cap to net loss 28 ( 8 ) 20 Reclassification of prior hedge effectiveness to net loss 3,076 ( 781 ) 2,295 Reclassification to net loss upon extinguishment of interest rate swaps $ 8,707 $ ( 1,412 ) $ 7,295 Ending balance $ — $ — $ — Accumulated other comprehensive loss: Beginning balance $ ( 17,441 ) $ 3,614 $ ( 13,827 ) Other comprehensive income 15,694 ( 3,662 ) 12,032 Ending balance $ ( 1,747 ) $ ( 48 ) $ ( 1,795 ) Year Ended December 31, 2020 (in thousands) Before Tax Amount Tax Effect Net of Tax Amount Foreign currency translation adjustments: Beginning balance $ ( 1,718 ) $ — $ ( 1,718 ) Change during period ( 1,296 ) — ( 1,296 ) Ending balance $ ( 3,014 ) $ — $ ( 3,014 ) Available-for-sale debt securities: Beginning balance $ 231 $ — $ 231 Unrealized gains 144 ( 36 ) 108 Loss from impairment ( 94 ) — ( 94 ) Ending balance $ 281 $ ( 36 ) $ 245 Cash flow hedges: Beginning balance $ ( 5,627 ) $ 1,387 $ ( 4,240 ) Unrealized losses on interest rate swaps and cap ( 12,756 ) 3,178 ( 9,578 ) Reclassification of losses from interest rate cap to net income 194 ( 48 ) 146 Reclassification of prior hedge effectiveness to net income 3,481 ( 867 ) 2,614 Ending balance $ ( 14,708 ) $ 3,650 $ ( 11,058 ) Accumulated other comprehensive loss: Beginning balance $ ( 7,114 ) $ 1,387 $ ( 5,727 ) Other comprehensive loss ( 10,327 ) 2,227 ( 8,100 ) Ending balance $ ( 17,441 ) $ 3,614 $ ( 13,827 ) 135 Year Ended December 31, 2019 (in thousands) Before Tax Amount Tax Effect Net of Tax Amount Foreign currency translation adjustments: Beginning balance $ 789 $ — $ 789 Change during period ( 2,507 ) — ( 2,507 ) Reclassification upon sale of business Ending balance $ ( 1,718 ) $ — $ ( 1,718 ) Available-for-sale debt securities: Beginning balance $ — $ — $ — Unrealized gains 565 — 565 Reclassification upon conversion into other equity security ( 334 ) — ( 334 ) Ending balance $ 231 $ — $ 231 Cash flow hedges: Beginning balance $ ( 393 ) $ — $ ( 393 ) Unrealized losses on interest rate swaps and cap ( 5,234 ) 1,387 ( 3,847 ) Ending balance $ ( 5,627 ) $ 1,387 $ ( 4,240 ) Accumulated other comprehensive loss: Beginning balance $ 396 $ — $ 396 Other comprehensive loss ( 7,510 ) 1,387 ( 6,123 ) Ending balance $ ( 7,114 ) $ 1,387 $ ( 5,727 ) Note 22. Subsequent Events On March 1, 2022, our board of directors approved a share repurchase program authorizing us to repurchase up to $ 150.0 million of our common stock. Stock repurchases under this program may be made through any manner, including open market transactions, accelerated share repurchase agreements, or privately negotiated transactions with third parties, and in such amounts as management deems appropriate. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our shares of common stock under this authorization. This program does not obligate us to acquire any particular amount of common stock and may be modified, suspended or terminated at any time at the discretion of our board of directors. 136 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None