What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-24 · 700 added, 485 removed, 1104 unchanged (52% of the section changed)

12 unchanged sentences

To the Board of Directors and Stockholders of LegalZoom.com, Inc.

Opinion on the Financial Statements

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of LegalZoom.com, Inc.

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, 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, 2022, 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.

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to the Company (i) not maintaining an effective control environment, specifically insufficient accounting resources commensurate with the Company’s structure and reporting requirements;

(ii) not designing and maintaining effective controls to address the initial application of complex accounting standards and accounting of non-routine, unusual or complex events and transactions;

and (iii) not designing and maintaining effective controls over the financial statement close process, specifically ineffective controls over the income tax provision and certain account analyses and account reconciliations.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

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.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2022.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting 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.

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.

We conducted our audits 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, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements 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.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance

with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Note 2 to the consolidated financial statements, the Company’s consolidated revenue was $620 million for the year ended December 31, 2022.

The Company recognizes revenue when the performance obligation is satisfied by transferring the promised good or service to the customer.

For transaction-based services, revenue is generally recognized at a point-in-time when the services are delivered to the customer.

For subscription-based services, revenue is generally recognized on a straight-line basis over the subscription term.

For partner-based services, revenue is recognized at a point-in-time when the related performance-based criteria have been met.

Services 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 arrangements include multiple performance obligations.

The transaction price is based on the contractual amounts and is allocated to each separate performance obligation based on the amount of consideration which the Company expects to be entitled in exchange for the services.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter is the high degree of auditor effort in performing procedures related to revenue recognized.

As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, material weaknesses were identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process.

These procedures also included, among others, evaluating the revenue recognized on a sample basis by obtaining and inspecting source documents, including invoices, customer contracts, proof of delivery, and cash receipts from customers, where applicable.

Deferred Tax Assets and Related Valuation Allowance

As described in Notes 2 and 20 to the consolidated financial statements, the Company’s consolidated deferred tax asset balance was $63 million and related valuation allowance was $15 million as of December 31, 2022.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events and are measured using enacted tax rates anticipated to be in effect when the tax assets and liabilities are expected to be realized or settled.

Management makes 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.

Management considers 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.

The principal considerations for our determination that performing procedures relating to deferred tax assets and the related valuation allowance is a critical audit matter are (i) the significant judgment by management when evaluating if it is more likely than not that some or all of the deferred tax assets will not be realized;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating available evidence, both positive and negative, including historical levels of income and estimates of future taxable income in assessing the need for a valuation allowance;

and (iii) as described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, material weaknesses were identified related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others (i) testing

management’s process for assessing the realizability of deferred tax assets on a jurisdictional basis;

(ii) testing the completeness and accuracy of the underlying data used in management’s assessment;

(iii) testing the appropriateness of the enacted tax rates anticipated to be in effect when the deferred tax assets and liabilities are expected to be realized or settled;

and (iv) evaluating available evidence, both positive and negative, including historical levels of income and estimates of future taxable income in assessing the need for a valuation allowance.

/s/ PricewaterhouseCoopers LLP

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$ 189,082 $ 239,297

Accounts receivable, net of allowance of $ 4,060 and $ 5,256

Accounts receivable, net of allowance for credit losses of $ 4,730 and $ 4,060

13,177 10,635

Prepaid expenses and other current assets

16,699 16,589

Current assets held for sale 22,722 —

Total current assets

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Intangible assets, net

18,900 16,031

Operating lease right-of-use assets 11,148 —

Deferred income taxes

29,380 27,653

Restricted cash equivalent

Available-for-sale debt securities

Available-for-sale debt securities (amortized cost of $ 812 and $ 792 )

$ 405,395 $ 431,015

Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

Liabilities and stockholders’ equity

Current liabilities:

5 unchanged sentences

164,200 146,364

Current portion of long-term debt

Operating lease liabilities 2,317 —

Total current liabilities

249,202 228,969

Long-term debt, net of current portion

Operating lease liabilities, non-current 8,958 —

Deferred revenue

3 unchanged sentences

Commitments and contingencies (Note 14)

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

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

Stockholders’ equity:

Preferred stock, $ 0.001 par value 100,000 shares authorized at December 31, 2022 and 2021, none issued or outstanding at December 31, 2022 and 2021

Common stock, $ 0.001 par value;

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( 891,862 ) ( 748,012 )

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

1,497 ( 1,795 )

Total stockholders’ equity (deficit)

Total stockholders’ equity

142,375 197,551

Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

Total liabilities and stockholders’ equity

$ 405,395 $ 431,015

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116,057 106,584 51,017

Impairment of goodwill, long-lived and other assets

Impairment of long-lived and other assets

248 924 1,105

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(Loss) income from operations ( 41,739 ) ( 85,076 ) 48,934

Interest expense, net

Interest income (expense), net

1,543 ( 27,984 ) ( 35,504 )

Other income, net

Other (expense) income, net

( 4,477 ) 1,193 3,713

Impairment of other equity security ( 3,000 ) — —

Loss on debt extinguishment — ( 7,748 ) —

1 unchanged sentence

— — ( 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

(Loss) income before income taxes ( 47,673 ) ( 119,615 ) 12,325

Provision for (benefit from) income taxes 1,060 ( 10,951 ) 2,429

Net (loss) income $ ( 48,733 ) $ ( 108,664 ) $ 9,896

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Change in available-for-sale debt securities:

Unrealized gains

Unrealized (losses) gains, net ( 144 ) 38 108

Reclassifications of losses to net income — — ( 94 )

Reclassification upon conversion into other equity security — — ( 334 )

Total change in available-for-sale debt securities

( 144 ) 38 14

Change in unrealized gain (loss) on cash flow hedges:

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Balance at December 31, 2019 23,081 $ 70,906 124,382 $ 125 $ 92,916 $ ( 644,305 ) $ ( 5,727 ) $ ( 556,991 )

Cumulative-effect adjustment upon adoption of ASC 606 — — — — — 996 — $ 996

Issuance of common stock upon exercise of stock options — — 1,270 1 599 — — 600

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Repurchase and retirement of common stock — — ( 489 ) — — ( 4,939 ) — ( 4,939 )

Repurchase of vested stock options and restricted stock units — — — — — ( 1,953 ) — $ ( 1,953 )

Special dividends — — — — ( 205 ) — — ( 205 )

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Balance at December 31, 2020 23,081 $ 70,906 125,037 $ 126 $ 102,417 $ ( 639,348 ) $ ( 13,827 ) $ ( 550,632 )

23,081 $ 70,906 124,382 $ 125 $ 92,916 $ ( 644,305 ) $ ( 5,727 ) $ ( 556,991 )

Issuance of common stock upon exercise of stock options — — 831 — 534 — — 534

— — 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 )

— — — — — 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

— — 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

— — — — 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

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Net issuance and repayments of full recourse notes receivable — — — — 43 — — 43

— — — — 43 — — 43

Special dividends — — — — ( 88 ) — — ( 88 )

— — — — ( 88 ) — — ( 88 )

Other comprehensive income — — — — — — 12,032 12,032

— — — — — — 12,032 12,032

— — — — — ( 108,664 ) — ( 108,664 )

Net loss — — — — — ( 108,664 ) — ( 108,664 )

Balance at December 31, 2021 — $ — 198,084 $ 198 $ 947,160 $ ( 748,012 ) $ ( 1,795 ) $ 197,551

— $ — 198,084 $ 198 $ 947,160 $ ( 748,012 ) $ ( 1,795 ) $ 197,551

Issuance of common stock upon exercise of stock options and ESPP — — 540 — 2,436 — — 2,436

Issuance of common stock upon vesting of restricted stock unit awards — — 1,458 1 — — — 1

Shares surrendered for settlement of minimum statutory tax withholdings — — ( 4 ) — ( 41 ) — — ( 41 )

Stock-based compensation — — — — 82,995 — — 82,995

Repurchase and retirement of common stock — — ( 9,256 ) ( 9 ) — ( 95,117 ) — ( 95,126 )

Other comprehensive income — — — — — — 3,292 3,292

Net loss — — — — — ( 48,733 ) — ( 48,733 )

Balance at December 31, 2022 — $ — 190,822 $ 190 $ 1,032,550 $ ( 891,862 ) $ 1,497 $ 142,375

The accompanying notes are an integral part of these consolidated financial statements

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Net (loss) income $ ( 48,733 ) $ ( 108,664 ) $ 9,896

$ ( 108,664 ) $ 9,896 $ 7,443

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 21,745 16,686 20,097

16,686 20,097 16,390

Amortization of debt issuance costs 227 1,392 2,591

1,392 2,591 2,565

Amortization of prior hedge effectiveness — 3,095 3,481

3,095 3,481 —

Amortization of right-of-use assets 2,049 — —

Stock-based compensation 80,469 112,596 12,894

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

Impairment of long-lived assets 248 924 1,105

Impairment of other equity security 3,000 — —

Impairment of available for sale debt security — — 4,818

Loss on debt extinguishment — 7,955 —

2 unchanged sentences

Deferred income taxes ( 793 ) ( 11,595 ) 1,325

( 11,595 ) 1,325 472

Change in fair value of contingent consideration ( 150 ) — —

Change in fair value of financial guarantee — ( 150 ) ( 1,750 )

( 150 ) ( 1,750 ) 1,900

Change in fair value of derivative instruments — 392 205

1 unchanged sentence

Unrealized foreign exchange loss (gain) 3,558 943 ( 1,755 )

943 ( 1,755 ) ( 2,572 )

Changes in operating assets and liabilities, net of effects of business combinations and disposal of business:

Other 168 4 22

Changes in operating assets and liabilities, net of effects of business combinations, asset acquisition and disposal of business:

Accounts receivable ( 2,505 ) ( 1,511 ) 954

( 1,511 ) 954 ( 413 )

Prepaid expenses and other current assets ( 523 ) ( 4,965 ) ( 799 )

( 4,965 ) ( 799 ) ( 128 )

( 3,648 ) 1,153 470

Other assets 179 ( 3,648 ) 1,153

Accounts payable ( 6,609 ) 2,360 12,416

2,360 12,416 3,914

Accrued expenses and other liabilities 6,535 13,781 1,418

13,781 1,418 ( 1,568 )

Operating lease liabilities ( 2,135 ) — —

Income tax payable 28 ( 185 ) 10

( 185 ) 10 ( 985 )

Deferred revenue 17,079 17,866 23,204

17,866 23,204 5,565

Net cash provided by operating activities 73,837 54,152 93,049

54,152 93,049 52,695

Cash flows from investing activities

Acquisitions, net of cash acquired ( 2,532 ) ( 61,523 ) ( 934 )

( 61,523 ) ( 934 ) —

Asset acquisition, net of cash acquired ( 6,299 ) — —

Proceeds from acquisition working capital adjustment 307 — —

Purchase of property and equipment ( 22,098 ) ( 11,740 ) ( 10,587 )

( 11,740 ) ( 10,587 ) ( 18,349 )

Payment upon extinguishment of interest rate swaps — ( 3,283 ) —

Purchase of other equity security — ( 1,127 ) —

( 1,127 ) — ( 668 )

Purchase of available-for-sale debt securities

— — ( 2,013 )

Proceeds from sale of equity method investment

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

4 unchanged sentences

2022 2021 2020

Sale of business, net of cash sold — — ( 1,206 )

Net cash used in investing activities ( 30,622 ) ( 77,673 ) ( 12,727 )

Cash flows from financing activities

Repayment of finance and capital lease obligations ( 14 ) ( 31 ) ( 31 )

Payment of debt issuance costs — ( 767 ) —

Repayment of 2018 Term Loan — ( 524,300 ) ( 5,350 )

Proceeds from 2018 Revolving Facility — — 40,000

Repayment of 2018 Revolving Facility — — ( 40,000 )

— ( 40,000 ) —

Repayment of hybrid debt — ( 1,332 ) ( 1,249 )

( 1,332 ) ( 1,249 ) —

Payment upon extinguishment of hybrid debt — ( 9,774 ) —

Payment of contingent consideration ( 600 ) ( 1,049 ) —

Repurchase of common stock

— ( 4,805 ) ( 1,535 )

Repurchase and retirement of common stock ( 95,126 ) — ( 4,805 )

Tender offer costs — — ( 145 )

Repurchase of common stock and restricted stock units

Payment of special dividends — ( 112 ) ( 284 )

( 112 ) ( 284 ) ( 877 )

Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions — 581,833 —

1 unchanged sentence

Payment of stock issuance costs — ( 5,636 ) —

Payment of deferred purchase consideration

Repurchases of common stock for tax withholding obligations

( 2,342 ) ( 3,606 ) ( 3,784 )

Repurchase and retirement of common stock for tax withholding obligations ( 41 ) ( 2,342 ) ( 3,606 )

Proceeds from issuance of stock under employee stock plans 2,438 1,819 381

Net cash provided by (used in) financing activities

123,359 ( 15,089 ) ( 12,852 )

Net cash (used in) provided by financing activities ( 93,343 ) 123,359 ( 15,089 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent ( 87 ) ( 11 ) 57

( 11 ) 57 ( 495 )

Net increase in cash, cash equivalents and restricted cash equivalent

99,827 65,290 18,631

Net (decrease) increase in cash, cash equivalents and restricted cash equivalent ( 50,215 ) 99,827 65,290

Cash, cash equivalents and restricted cash equivalent, at beginning of the period 239,297 139,470 74,180

139,470 74,180 55,549

Cash, cash equivalents and restricted cash equivalent, at end of the period $ 189,082 $ 239,297 $ 139,470

$ 239,297 $ 139,470 $ 74,180

Supplemental cash flow data

6 unchanged sentences

Restricted cash equivalent

— 25,000 25,000

Total cash, cash equivalents, and restricted cash equivalent shown in the consolidated statements of cash flows

1 unchanged sentence

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 $ — $ —

Right of use assets obtained in exchange for new operating lease liabilities $ 7,528 $ — $ —

Capitalized stock-based compensation 2,526 674 46

Purchase of property and equipment included in accounts payable and accrued expenses and other current liabilities 646 676 717

Conversion of available-for-sale debt security into other equity security — — 791

Conversion of Series A redeemable convertible preferred stock into common stock in connection with initial public offering — 70,906 —

Change in fair value of hedged interest rate swaps and interest rate cap — ( 5,817 ) 412

1 unchanged sentence

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

3 unchanged sentences

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.

LegalZoom.com, Inc., and its wholly owned subsidiaries, are referred to herein as “we,” “us,” or “our,”.

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.

Along with business formation, our offerings include ongoing compliance and tax advice and filings, virtual mailbox solutions, 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.

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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.

Summary of Significant Accounting Policies

10 unchanged sentences

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.

Estimates are used for, however not limited to, revenue recognition, sales allowances and expected credit loss allowances, available-for-sale debt securities, other equity securities, recoverability of long-lived assets and goodwill, income taxes, commitments and contingencies, valuation of assets and liabilities acquired in business combinations, valuation of assets in asset acquisitions, 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

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.

On an ongoing basis, we evaluate the estimates compared to historical experience and other factors including the current economic and regulatory environment, which form the basis for our judgments about the carrying value of assets and liabilities.

Business Combinations

6 unchanged sentences

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.

Asset Acquisitions

We evaluate acquisitions to determine whether the acquisition should be classified as either a business combination or an asset acquisition.

Acquisitions for which substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets are accounted for as an asset acquisition.

If the gross assets are not concentrated in a single asset or group of similar assets, we then determine if the set of assets acquired represents a business.

A business is an integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return.

Depending on the nature of the acquisition, judgment may be required to determine if the set of assets acquired is a business combination or not.

We allocate the purchase price on a relative fair value basis and capitalize direct acquisition related costs as part of the purchase price.

In making estimates of fair values for purposes of allocating the purchase price, we utilize an independent third-party to value the net tangible and identified intangible assets in connection with the acquisition.

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 Chief Executive Officer, as the Chief Operating Decision Maker 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 % of our revenue for the years ended December 31, 2022, 2021 and 2020.

Our property and equipment located outside of the U.S.

1 unchanged sentence

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.

The British Pound Sterling is the functional currency for our foreign subsidiaries in U.K..

The financial statements of these foreign subsidiaries in U.K.

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.

Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of our consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit).

We recognized foreign currency transaction losses in the accompanying consolidated statement of operations of $ 3.6 million and $ 0.9 million for 2022, 2021, and gain of $ 1.8 million for 2020, respectively.

Fair Value Measurements

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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

using quoted prices in active markets, which represents Level 1 inputs in the fair value hierarchy.

At December 31, 2022 and 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 and contingent consideration from acquisitions.

The cash equivalent consists of a money market fund valued 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.

Contingent consideration is valued using

the present value and probability of the estimated future cash outflow, which include inputs that represent 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

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Due to a large and diverse customer base, no individual customer represented more than 1% of total revenue in December 31, 2022, 2021 and 2020, 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.

At December 31, 2022 and 2021, there were no customers with an outstanding balance of 10% or more of our accounts receivable balance.

Cash and Cash Equivalents

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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.

Accounts Receivable and Allowance for Credit Losses

Our accounts receivable balances, which are not collateralized and do not bear interest, primarily consist 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.

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Account balances are charged off against the allowance when we determine that it is not probable we will collect the receivable.

As of December 31, 2022 and 2021, the allowance for credit losses was not material.

Property and Equipment

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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

and any resulting gain or loss is reflected in our results of operations.

When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts 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:

Purchased and internal-use software

Purchased and internally developed internal-use software

Building and building improvements

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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.

Costs related to implementation of cloud computing arrangements that do not include a software license 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

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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.

We assess the impairment of long-lived assets, which consist primarily of property and equipment, right of use assets, 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.

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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

gain (loss), net of taxes, in the accompanying consolidated statements of comprehensive (loss) income.

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 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.

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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.

At December 31, 2022 and 2021, we held long-term investments of certain privately held companies through the purchase of convertible promissory notes.

These investments are classified as available-for-sale debt securities.

For available-for-sale debt securities that have the estimated fair values below their amortized cost basis, we evaluate our intent to sell the security or whether we will more likely than not be required to sell the security before recovery of its amortized cost basis.

If either of these criteria are met, the security’s amortized cost basis is written down to its fair value through earnings.

If these criteria are not met, we evaluate whether the decline in fair value has resulted from credit loss or other factors.

If the assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as allowance for credit loss with a corresponding credit loss expense, included in the consolidated statement of operations.

If the assessment indicates a credit loss does not exist, impairment is recognized in other comprehensive income (loss), net of applicable taxes.

Investments in Other Equity Securities

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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.

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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.

Held for Sale

We classify long-lived assets or asset groups we plan to sell as held for sale on our consolidated balance sheets only after certain criteria have been met including:

management has the authority and commits to a plan to sell the asset, the asset is available for immediate sale in its present condition, an active program to locate a buyer and the plan to sell the asset have been initiated, the sale of the asset is probable within twelve months, the asset is being actively marketed at a reasonable sales price relative to its current fair value, and it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.

We record assets or asset groups held for sale at the lower of their carrying value or fair value less costs to sell.

Once classified as held for sale, depreciation and amortization is not recorded for any long-lived assets.

On January 1, 2022, we adopted Accounting Standards Update, or ASU No.

2016-02, Leases (Topic 842), or ASU 2016-02 and related amendments, using the modified retrospective method.

Financial information related to periods prior to adoption will be as originally reported under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, No.

840, Leases .

On January 1, 2022, we recorded operating lease right-of-use, or ROU, assets of $ 5.7 million and operating lease liabilities of $ 5.9 million.

The difference between the leased assets and lease liabilities represents the existing deferred rent liabilities balance at adoption, resulting from historical straight-line recognition of operating leases, which was reclassified upon adoption to reduce the measurement of the leased assets.

The adoption of the standard did not have a material impact on our stockholders’ equity, results of operations, or cash flows.

The new standard provides several optional practical expedients in transition.

We elected the package of practical expedients permitted under the transition guidance, which eliminates the requirement to reassess whether a contract contains a lease and lease classification.

We have also made accounting policy elections, including a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases, which are leases with expected terms of twelve months or less, and an accounting policy to account for lease and certain non-lease components as a single component for certain classes of assets.

Additionally, we used the portfolio approach when applying the discount rate selected based on the dollar amount and term of the obligation.

We determined whether an arrangement is a lease, or contains a lease, at inception if we are able to identify an asset and can conclude we have the right to control the identified asset for a period of time.

Leases are included in operating lease ROU assets and operating lease liabilities in the accompanying consolidated balance sheets.

Leases with an initial term of twelve months or less are not recorded in our accompanying consolidated balance sheet.

ROU assets represent our right to control an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the discount rate used to present value lease payments.

We used the incremental borrowing rate on January 1, 2022 for operating leases that commenced on or prior to that date.

The incremental borrowing rate used is estimated based on what we would be required to pay for a collateralized loan over a similar term.

Our leases typically do not include any residual value guarantees, bargain purchase options, or asset retirement obligations.

Our lease terms are only for periods in which we have enforceable rights.

A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty.

Our lease terms are impacted by options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

We generally use the base, non-cancelable lease term when determining the lease assets and liabilities.

Our agreements may contain variable lease payments.

We include variable lease payments that depend on an index or a rate and exclude those which depend on facts or circumstances occurring after the commencement date, other than the passage of time.

Financial information related to periods prior to adoption will be as originally reported under ASC 840, Leases .

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.

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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).

expensed $ 3.7 million related to a stock offering, which was not consummated.

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 redeemable convertible preferred stock and stockholders equity (deficit).

There were no deferred stock issuance costs recognized in other assets as of December 31, 2022 or 2021.

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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.

Transaction revenue includes filing fees and is net of cancellations, promotional discounts, sales allowances and credit reserves.

Tax preparation services are recognized at the point in time when the customer’s tax return is filed and accepted by the applicable government authority.

Subscription revenue —Subscription revenue is generated primarily from subscriptions to our registered agent services, compliance packages, attorney advice, legal forms services, tax services, and virtual mail services in addition to software-as-a-service, or SaaS, subscriptions in the U.K.

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.

Subscription revenue includes the transaction price 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.

For transaction and subscription revenue, we generally collect payments and fees at the time orders are placed and prior to services being rendered.

We record amounts collected for services that have not been performed as deferred revenue on our consolidated balance sheet.

The transaction price that we record is generally 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.

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.

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$ 619,979 $ 575,080 $ 470,636

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:

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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.

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.

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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,

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.

Accordingly, a significant number of our arrangements include multiple performance obligations, such as the preparation of legal documents combined with related document revision, 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.

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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.

The transaction price is based on the contractual amounts in our contracts 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.

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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.

and since December 2021, tax advisory and preparation services through our fulfilled tax subscription, LZ Tax.

For these services, revenue includes filing and similar fees.

Our alternative business structures, or ABS, offer legal advisory services that are marketed through our websites.

Our ABSs provide independent legal advice to our customers and are directly responsible for, and control the fulfillment of, the legal services.

Accordingly, for services provided by our ABSs, we recognize revenue as the principal.

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.

Except for our Arizona ABS, 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.

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

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.

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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;

costs of fulfillment, customer care, including the cost of credentialed professionals for tax, 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;

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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.

These expenses include costs incurred in the development and implementation of our products, 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 .

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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-

line basis, net of estimated forfeitures, over the requisite service period.

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-line basis, net of estimated forfeitures, over the requisite service period.

Awards with performance or market conditions are recognized using graded vesting.

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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.

Other than the special dividends declared in 2021 and 2020, which resulted in corresponding reductions in the exercise price of the stock options, we have not 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.

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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.

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.

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

anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled.

Deferred income tax assets and liabilities are measured using enacted tax rates 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.

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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.

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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.

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.

Upon the completion of our IPO in 2021, we elected to be an Emerging Growth Company, or EGC, as defined in the Jumpstart Our Business Startups Act, which allowed us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies.

Entities that elect to be EGCs will remain an EGC until the earliest of:

the last day of the first fiscal year in which annual gross revenue exceeds $1.07 billion;

the date that the entity becomes a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year;

the date on which the entity has issued, in any three-year period, more than $1.0 billion in non-convertible debt securities;

or the fiscal year-end following the fifth anniversary of the completion of the entity’s IPO.

Effective December 31, 2022, we lost our EGC status due to becoming a “large accelerated filer” with an aggregate worldwide market value of our common stock held by non-affiliates exceeding $700.0 million measured as of the end of the second quarter of the 2022 fiscal year.

As a result, we must comply with the adoption requirements of new or revised accounting pronouncements applicable to public companies beginning in the fiscal year ended December 31, 2022.

In February 2016, the FASB issued ASU 2016-02 related to leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet.

Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases.

Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

We adopted this guidance effective January 1, 2022.

Refer to Note 9 for further details.

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.

Measurement of Credit Losses on Financial Instruments (Topic 326) , or ASC 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.

Due to the loss of our EGC status as of December 31, 2022, we adopted this Update on January 1, 2022, using the modified-retrospective transition method for assets measured at amortized cost other than available-for-sale debt securities, which was adopted using a prospective transition approach.

The adoption of this Update did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No.

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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.

We adopted the provisions of Topic 848 and the adoption did not have a material impact to our consolidated financial statements.

In August 2020, the FASB issued ASU No.

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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 adopted this Update on January 1, 2022 and the adoption of this Update did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In June 2022, the FASB issued ASU No.

2022-03, Fair Value Measurement—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820) , or Topic 820, which clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments are effective for fiscal years beginning after December 15, 2023.

We are currently evaluating the impact of the adoption on our consolidated financial statements.

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Accrued vendor payables 15,531 18,239

Derivative liabilities and hybrid debt — 5,131

Accrued advertising 1,071 426

Sales allowances 4,426 4,862

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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.

Assets Held for Sale

In September 2022, following an evaluation of our office space and business requirements, we commenced a plan to sell our operational headquarters in Austin, Texas, consisting of land, a building and building improvements, and determined that these assets met the held for sale criteria.

We ceased recording depreciation on these assets

upon meeting the held for sale criteria.

At December 31, 2022, the total carrying value of the assets held for sale remain at $ 22.7 million as follows:

December 31, 2022

Building and building improvements 16,322

Total assets held for sale $ 22,722

The estimated fair value less costs to sell the assets held for sale exceed their carrying values and hence no impairment was necessary as of December 31, 2022.

Revvsales, Inc.

In October 2022, we completed an asset acquisition of Revvsales Inc, or Revv, consisting substantially of acquired developed technology for their self-service document automation and electronic signature platform.

Revv’s proprietary technology will enhance our forms library and legal template offerings and will be used to develop modern product experiences and services for small businesses.

A purchase price of $ 6.6 million, which is subject to customary adjustments, was paid at closing and funded by our available cash on hand.

The acquisition was accounted for as an asset acquisition because substantially all the value of the assets acquired were concentrated in the acquired technology.

Revv’s operations have been included in our consolidated financial statements commencing on the acquisition date.

We allocated the accumulated cost of the acquisition to the assets acquired based on their relative fair values.

The accumulated cost of the acquisition includes direct acquisition-related costs and applicable taxes.

The estimated fair value of developed technology was $ 6.5 million and an assembled workforce of $ 0.1 million, which were determined by using a replacement cost approach.

The replacement cost approach consists of developing an estimate of the current cost of a similar new asset having the nearest equivalent utility to the asset being valued.

The developed technology rights and assembled workforce will be amortized over a weighted-average period of three years by using the straight-line method.

Separate from the asset acquisition, $ 2.6 million will be paid to certain Sellers on the first and second anniversaries from asset acquisition date as compensation for maintaining an assembled workforce.

United Agency Services, Corp.

In August 2022, we acquired certain assets and liabilities of United Agency Services Corp, or UA Services, a company providing registered agent services and corporate compliance solutions for $ 3.5 million of which $ 2.6 million was paid in cash on the acquisition date and up to $ 1.0 million will be paid in cash within twelve months, based upon the achievement of certain earnout metrics.

This amount has been excluded from the purchase consideration and will be recorded as future compensation expense.

The acquisition was completed in order to build a more durable registered agency platform and has been accounted for as a business combination.

The preliminary purchase price was allocated to the assets acquired and liabilities assumed.

Goodwill of $ 3.3 million arising from the acquisition consisted largely of the assembled workforce and synergies expected from combining our operations.

The acquired goodwill is deductible for tax purposes.

Acquisition costs related to this transaction of approximately $ 0.4 million were expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations.

The revenue and earnings of the acquired business have been included in our results of operations since the acquisition date and are not material to the consolidated financial results.

Pro forma revenues and results of operations for this acquisition have not been presented as the impact on our consolidated financial statements is immaterial.

The purchase accounting for this acquisition remains incomplete with respect to acquired contingent liabilities as management continues to gather and evaluate information about circumstances that existed as of the acquisition date.

Measurement period adjustments will be recognized in the reporting period in which the adjustment amounts are determined within twelve months from the acquisition date.

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:

The purchase price decreased during the

year ended December 31, 2022 for a working capital adjustment of $ 0.3 million and immaterial measurement period adjustments.

Amount (in thousands)

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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 excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill.

The resulting goodwill of $ 48.6 million arising from the acquisition consisted 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.

Acquisition-related costs, including legal, regulatory, and consulting costs amounted to $ 1.4 million and were 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.

There were no material measurement period adjustments recorded to the fair values of assets acquired and liabilities assumed during the period and the purchase price is considered final.

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.

Pure provides tax preparation, tax advisory and 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.

In 2022 and 2021, we paid out $ 0.6 million and $ 0.5 million upon the earnout metrics being partially and fully achieved, respectively.

At December 31, 2021, we had classified the remaining contingent consideration in accrued expenses and other current liabilities in the accompanying consolidated balance sheet.

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.

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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).

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.

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expected term of 6.3 years, risk-free rate of 3.8 % and volatility of 55 %.

The decline in fair value was non-credit related and therefore was recognized in other comprehensive income (loss) for the year ended December 31, 2022.

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, 2022 and 2021, 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.

The initial investments were made through the purchase of convertible promissory notes which are convertible into Firma’s common stock.

The initial investments were consolidated into one convertible promissory note in July 2019, which has a maturity date of seven years.

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 date in June 2026.

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.

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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.

We hold an equity investment 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.

In October 2021, we invested an additional AUD $ 1.5 million ($ 1.1 million).

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In December 2018, we purchased 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.

In December 2022, we fully impaired our investment in Mylo and incurred a loss of $ 3.0 million as the fair value of our investment was determined to be zero based upon an observable sale of their common equity.

Therefore, we recognized an impairment of $ 3.0 million in our consolidated statements of operations during the year ended December 31, 2022.

The investment in LawPath does not have readily determinable fair values.

There were no other impairments of our investments during the years ended December 31, 2022 and 2021, respectively.

At December 31, 2022 and 2021, the carrying value of these investments is included in other assets in the accompanying consolidated balance sheets.

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Building and building improvements

$ 29,856 $ 29,850

Internal-use software

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In 2022 and 2021, we capitalized internal-use software development costs of $ 21.4 million and $ 9.9 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.

In 2022, no software development costs were impaired.

In 2021 and 2020, we impaired $ 0.9 million and $ 1.1 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.

We conduct operations from certain leased facilities in various locations.

At December 31, 2022, we had various non-cancelable operating leases for office space and equipment, which expire between December 31, 2022, and November 30, 2029, and which represent the non-cancelable periods of the leases and include extension options that we determined are reasonably certain to be exercised.

We exclude extension options that are not reasonably certain to be exercised from our lease terms.

Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms.

We often receive customary incentives from our landlords, such as reimbursements for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for these leases.

Operating lease liabilities on our consolidated balance sheets represent the present value of our remaining lease payments over the remaining lease terms.

We do not allocate lease payments to non-lease components.

We use our incremental borrowing rate to calculate the present value of our lease payments, as the implicit rates in our leases are not readily determinable.

Leases consist of the following (in thousands):

Assets Classification December 31, 2022

Operating Operating lease right-of-use assets $ 11,148

Finance Property and equipment, net 62

Total leases $ 11,210

Operating Operating lease liabilities $ 2,317

Finance Accrued expenses and other current liabilities 36

Operating Operating lease liabilities, non-current 8,958

Finance Other liabilities 28

Total lease liabilities

At December 31, 2022, the maturities of our remaining operating lease and finance lease liabilities were as follows (in thousands, except years and percentages):

Year Ended December 31, 2022

Operating leases Finance leases Total leases liabilities

2023 $ 2,764 $ 38 $ 2,802

2024 2,392 27 2,419

2025 1,813 2 1,815

2026 1,728 — 1,728

2027 1,661 — 1,661

Thereafter 2,456 — 2,456

Total minimum lease payments 12,814 67 12,881

Effects of discounting 1,539 3 1,542

Present value of lease liabilities $ 11,275 $ 64 $ 11,339

current portion $ 2,317 $ 36 $ 2,353

Long-term lease liabilities $ 8,958 $ 28 $ 8,986

Weighted-average remaining lease term 5.6 years 1.9 years

Weighted-average incremental borrowing rate 4.39 % 5.50 %

The component of our lease costs included in our consolidated statements of operations for the year ended December 31, 2022, were as follows (in thousands):

December 31, 2022

Operating lease cost $ 2,384

Other variable cost 250

Finance lease cost 17

Net lease cost $ 2,651

Total future aggregate minimum lease payments calculated under ASC 840 as of December 31, 2021 were as follows (in thousands):

Years Ending December 31,

Thereafter 1,033

Total minimum lease payments

The changes in goodwill for 2022 and 2021 were as follows (in thousands):

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Balance as of December 31, 2022 $ 63,229

As discussed in Note 4, we acquired Earth Class Mail in November 2021 and Pure in October 2020.

As discussed in Note 5, we acquired UA Services in August 2022 and Earth Class Mail in November 2021.

Intangible Assets, net

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1.3 503 383 120

Assembled workforce 2.8 125 10 115

Total intangible assets

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$ 30,288 $ 14,257 $ 16,031

As discussed in Note 4, we acquired Earth Class Mail in November 2021 and Pure in October 2020.

As discussed in Note 5, we acquired Revv in October 2022, UA Services in August 2022 and Earth Class Mail in November 2021.

In 2022, 2021 and 2020, we recorded amortization expense of $ 3.5 million, $ 1.0 million and $ 2.8 million, respectively.

At December 31, 2021, estimated future intangible assets amortization expense were as follows (in thousands):

At December 31, 2022, estimated future intangible assets amortization expense was as follows (in thousands):

For Years Ending December 31,

Thereafter $ 1,473

Total future amortization expense

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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

$ 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.

Under the 2021 Revolving Facility, we can use up to $ 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 %.

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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 is secured by a first-priority security interest in substantially all of our assets, subject to certain exceptions.

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;

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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.

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.

At December 31, 2022 and 2021, we had no amounts outstanding under our 2021 Revolving Facility or any outstanding letters of credit.

We were in compliance with all financial covenants as of December 31, 2022 and 202 1.

Derivative Financial Instruments

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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.

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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.

There were no interest rate swaps outstanding as of December 31, 2022 and 2021.

Financial Guarantee

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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,

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 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, or SEC, for our IPO, or September 2022, whichever came first.

In the event of our IPO, 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.

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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

Interest rate swaps

Financial guarantee

Total derivative liability, net of current portion

Hybrid debt, current portion

Hybrid debt, net of current portion

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

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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):

Years Ending December 31,

Thereafter 1,033

Total minimum lease payments

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.

At December 31, 2022, we had non-cancelable minimum advertising and media commitments for future advertising spots of $ 8.1 million, substantially all of which will be paid over a two year period.

We also have non-cancelable agreements with various vendors, which require us to pay $ 67.9 million over a five year period, of which $ 51.1 million remains to be paid as of December 31, 2022.

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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

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.

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.

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, 2022 for this matter as a loss is not probable.

In July 2021, LegalInc Corporate Services Inc., our wholly owned subsidiary, or LegalInc, received a citation from the Wyoming Secretary of State 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 a commercial registered agent in Wyoming.

LegalInc requested a hearing to review the matter and engaged in negotiations with the State culminating in a settlement executed on December 28, 2022.

This matter is now settled for an immaterial amount.

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.

Other than those described above and in our Annual Report on Form 10-K, 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

1 unchanged sentence

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.

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:

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.

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.

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.

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.

No amounts have been accrued or have been paid during any period presented as we believe the fair value of these indemnification obligations is immaterial.

Stockholders’ Equity

Stock Repurchase Program

On March 1, 2022, our board of directors approved a stock repurchase program authorizing us to repurchase up to $ 150.0 million of our common stock, with no fixed expiration.

Stock repurchases under this program may be made through any manner, including open market transactions, accelerated stock 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.

During the year ended December 31, 2022, using the Rule 10b5-1 plans, we repurchased a total of 9,256,268 shares of our common stock through open market purchases at an average per share price of $ 10.28 for a total repurchase of $ 95.1 million including broker commission.

The repurchases were recorded as a reduction to our accumulated deficit in the accompanying consolidated statements of stockholders’ equity.

Stock-based Compensation

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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

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 agreement.

Additionally, dividend equivalents may be credited in respect of shares covered by a RSU award.

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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.

The stock-based compensation expense incurred in 2022 and 2021 was $ 0.7 million and $ 0.4 million, respectively.

Our policy is to issue new common stock upon the exercise of stock options.

1 unchanged sentence

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.

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Cancelled/forfeited

( 552 ) 13.97

Outstanding at December 31, 2022

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The related stock-based compensation expense for the year ended December 31, 2022 was $ 4.5 million and stock-based compensation of $ 3.1 million will be recognized over a weighted-average requisite service period of approximately 2.6 years.

There were no other options granted in 2021.

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):

Restricted and Performance Stock Units

A summary of restricted stock units, or RSUs, and performance stock units, or PSUs, activity for the year ended December 31, 2022 is as follows (in thousands, except weighted-average grant-date fair value):

Number of Units Weighted-

Unvested at December 31, 2021

3,577 $ 21.52

Cancelled/forfeited

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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.

There was no tax benefit for 2022.

There was a realized tax benefit of $ 3.5 million and $ 0.4 million, for tax deductions from RSU settlements in 2021 and 2020, respectively.

In November 2022, we granted 211,864 PSUs, with a grant date fair value of $ 2.0 million to certain employees where 25 % and 50 % of the PSUs vest upon the first and second anniversaries, respectively, from the Revv asset acquisition date should certain headcount thresholds be maintained, and 25 % will vest upon the third anniversary from the Revv asset acquisition date.

Stock-based compensation expense for these PSUs of $ 0.1 million was recognized on a graded vesting basis during the year ended December 31, 2022 and stock-based compensation of $ 1.9 million will be recognized over a weighted-average requisite service period of approximately 3.9 years.

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.

Stock-based compensation expense for the year ended December 31, 2022 was $ 4.3 million and was $ 3.1 million for the year ended December 31, 2021.

Stock-based compensation of $ 2.9 million will be recognized over a weighted-average requisite service period of approximately 2.6 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.

1 unchanged sentence

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.

9 unchanged sentences

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.

Stock-based compensation expense for the year ended December 31, 2022 was $ 19.9 million.

At December 31, 2022, remaining compensation of $ 7.1 million will be recognized over a remaining weighted-average service period of 1.5 years.

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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.

Stock-based compensation expense for the year ended December 31, 2022 was $ 5.0 million.

At December 31, 2022, remaining compensation expense of $ 0.9 million will be recognized over a remaining weighted-average service period of 0.8 years.

4 unchanged sentences

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.

Stock-based compensation expense for the year ended December 31, 2022 was $ 0.6 million.

At December 31, 2022, remaining compensation expense of $ 0.4 million will be recognized over a remaining weighted-average service period of 1.8 years.

3 unchanged sentences

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.

Stock-based compensation expense for the year

ended December 31, 2022 was $ 13.0 million.

At December 31, 2022, remaining compensation expense of $ 6.2 million will be recognized over a remaining weighted-average service period of 1.8 years.

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Stock options

— 2,444 4,161

Restricted stock units

3 unchanged sentences

$ ( 0.25 ) $ ( 0.67 ) $ 0.06

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):

The following table presents the number of options, RSUs, PSUs 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,

2 unchanged sentences

17,155 15,274 12,529

Restricted stock units

RSUs and PSUs

8,879 3,577 2,235

Employee stock purchase plan

Restricted stock

1 unchanged sentence

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):

The following tables summarize 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, 2022

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Money market fund

Restricted money market fund

$ 30,215 $ — $ 1,122

Interest rate swaps and cap

Financial guarantee

Contingent consideration — — 750

1 unchanged sentence

$ — $ — $ 750

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.

There was no change in the fair value of the contingent consideration from our acquisition of UAS and Pure for the years ended December 31, 2022 and 2021.

Our available-for-sale debt securities measured using Level 3 inputs have the following activity (in thousands):

3 unchanged sentences

$ 1,122 $ 1,050 $ 5,528

Purchases — — 2,013

Change in fair value

( 127 ) 72 434

Other-than-temporary impairment

— — ( 4,912 )

Transfer of other equity security $ — $ — ( 791 )

Ending balance

2 unchanged sentences

As of December 31,

2021 2020 2019

Beginning balance

1 unchanged sentence

Change in fair value

— ( 1,750 ) $ —

Gain on cancellation of financial guarantee ( 150 ) —

Ending balance

$ — $ 150 $ 1,900

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.

In 2022, we incurred $ 1.9 million in severance costs related to a reduction in headcount in our U.S.

Restructuring expenses include salary and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations.

In 2020, we incurred $ 0.6 million in severance costs related to a reduction in headcount in our U.K.

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

and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations.

Restructuring expenses include salary 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.

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The repurchased shares were constructively retired.

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):

5 unchanged sentences

$ ( 47,673 ) $ ( 119,615 ) $ 12,325

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):

The details for the provision for (benefit from) for income taxes by jurisdiction are as follows (in thousands):

Year Ended December 31,

1 unchanged sentence

$ 647 $ ( 194 ) $ 846

1,143 760 243

Total current provision

4 unchanged sentences

( 793 ) ( 11,595 ) 1,325

Total (benefit from) provision for income tax

Total provision for (benefit from) income tax

$ 1,060 $ ( 10,951 ) $ 2,429

The (benefit from) provision for income taxes for December 31, 2021, 2020 and 2019 differed from the amounts computed by applying the U.S.

The provision for (benefit from) income taxes for December 31, 2022, 2021, and 2020, 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):

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Other 4 432 ( 486 )

Total (benefit from) provision for income taxes

Total provision for (benefit from) income taxes

$ 1,060 $ ( 10,951 ) $ 2,429

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Net operating loss carryforwards 15,117 17,206

17,206 12,857

Tax credit carryforwards 12,839 12,112

12,112 10,462

Interest expense carryforward

Lease liabilities 2,934 —

Interest expense carryforwards 6,004 10,851

Capital loss carryforwards 453 452

Derivatives and hedging

Capitalized research expenses 6,674 —

Total deferred tax assets 63,070 55,715

55,715 44,597

Valuation allowance ( 14,644 ) ( 14,170 )

( 14,170 ) ( 12,950 )

Net deferred tax assets 48,426 41,545

41,545 31,647

Deferred tax liabilities

Depreciation and amortization ( 12,780 ) ( 10,865 )

( 10,865 ) ( 6,024 )

( 3,026 ) ( 2,816 )

Right of use asset ( 2,900 ) —

State taxes ( 3,366 ) ( 3,026 )

Net deferred tax liabilities ( 19,046 ) ( 13,891 )

( 13,891 ) ( 8,840 )

Net deferred tax assets and liabilities $ 29,380 $ 27,654

$ 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.

We evaluated the realizability of net deferred tax assets and determined it is more likely than not that separate state net operating losses, state 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:

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Net increase in current year 91 1,312 4,646

Net (decrease) increase in valuation prior period ( 14 ) 528 ( 87 )

Net increase (decrease) in valuation prior period 383 ( 14 ) 528

Net decrease in valuation allowance from acquisitions — ( 78 ) ( 40 )

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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.

we acquired Earth Class Mail and in 2022 we acquired Revvsales Inc.

Both were structured as stock acquisitions.

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Unrealized Tax

Balance at Balance at December 31, 2018 $ 6,498

Additions for tax positions related to the current year

Reductions for tax positions related to prior years

Balance at December 31, 2019 $ 6,256

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Balance at December 31, 2021 $ 7,873

Additions for tax positions related to the current year 999

Additions for tax positions related to prior years 48

Balance at December 31, 2022 $ 8,920

If recognized, $ 8.9 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate.

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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.

The federal income tax returns for the years 2019 through 2021 and state income tax returns for the tax years 2008 through 2021 remain open to examination.

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.

There were no related party transactions identified for December 31, 2022.

In 2021 and 2020, we incurred software and software maintenance fees of $ 0.9 million and $ 1.0 million, respectively, from two software vendors controlled by our largest stockholder.

Amounts due to these vendors were immaterial as of December 31, 2021.

In December 31, 2020, we paid lead generation payments of $ 0.8 million, to a vendor in which a relative of the chairman of our board of directors is their President.

At December 31, 2020, amounts due to this vendor were $ 1.5 million, respectively.

In December 31, 2020, we received lead generation payments of $ 0.6 million, from this same vendor.

There were no such transactions during the years ended December 31, 2022 and 2021.

401(k) Savings Plan

3 unchanged sentences

We contributed $ 3.7 million, $ 2.3 million, and $ 1.8 million to the 401(k) plan in 2022, 2021, and 2020, respectively.

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) consisted of the following:

8 unchanged sentences

Beginning balance $ 331 $ ( 48 ) $ 283

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

Unrealized loss ( 147 ) 3 ( 144 )

Ending balance $ 184 $ ( 45 ) $ 139

Accumulated other comprehensive loss:

Accumulated other comprehensive income:

Beginning balance $ ( 1,747 ) $ ( 48 ) $ ( 1,795 )

11 unchanged sentences

Unrealized gains 50 ( 12 ) 38

Loss from impairment ( 94 ) — ( 94 )

Ending balance $ 331 $ ( 48 ) $ 283

1 unchanged sentence

Beginning balance $ ( 14,708 ) $ 3,650 $ ( 11,058 )

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

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 $ — $ — $ —

1 unchanged sentence

Beginning balance $ ( 17,441 ) $ 3,614 $ ( 13,827 )

Other comprehensive loss ( 10,327 ) 2,227 ( 8,100 )

Other comprehensive income 15,694 ( 3,662 ) 12,032

Ending balance $ ( 1,747 ) $ ( 48 ) $ ( 1,795 )

5 unchanged sentences

Change during period ( 1,296 ) — ( 1,296 )

Reclassification upon sale of business

Ending balance $ ( 3,014 ) $ — $ ( 3,014 )

2 unchanged sentences

Unrealized gains 144 ( 36 ) 108

Reclassification upon conversion into other equity security ( 334 ) — ( 334 )

Loss from impairment ( 94 ) — ( 94 )

Ending balance $ 281 $ ( 36 ) $ 245

2 unchanged sentences

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 )

3 unchanged sentences

Ending balance $ ( 17,441 ) $ 3,614 $ ( 13,827 )

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.

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.

Unaudited Selected Quarterly Financial Information

As previously disclosed on February 17, 2023 and February 27, 2023, in connection with the preparation of our consolidated financial statements for the year ended December 31, 2022, we identified tax errors within our previously issued unaudited condensed consolidated financial statements as of and for the quarterly and year to date periods ended March 31, 2022, (“Q1 2022”), June 30, 2022 (“Q2 2022”), and September 30, 2022 (“Q3 2022”) as included in our previously filed Quarterly Reports on Form 10-Q.

Specifically, within our income tax provision there was an error relating to the identification of named executive officers subject to limitation on the deductibility of executive compensation under Internal Revenue Code Section 162(m), or Section 162(m).

As a result of this error, Q1 2022 deferred tax assets were understated and the provision for income taxes was overstated by $ 3.9 million, reflecting a discrete impact of $ 2.4 million and a $ 1.5 million impact resulting from the error in the annual effective tax rate.

The Section 162(m) error also had the impact of a $ 0.2 million understatement of the benefit for income taxes and a $ 4.1 million overstatement of the provision for income taxes for the three and six months ended June 30, 2022, respectively, and a $ 1.2 million overstatement of the benefit for income taxes and a $ 2.8 million overstatement of the provision for income taxes for the three and nine months ended September 30, 2022, respectively, and the associated impacts on deferred tax assets.

Management has concluded that such errors resulted in the previously issued Q1 2022, Q2 2022, and Q3 2022 unaudited condensed consolidated financial statements, including the respective year-to-date periods, being materially misstated and therefore require restatement.

In connection with the tax errors noted above, we are also correcting other previously identified immaterial errors related to:

i) $ 1.2 million of revenue and $ 0.2 million of associated costs of revenue, that should have been recognized in Q1 2022, and which was initially corrected for as an out of period correction in Q2 2022;

ii) $ 1.2 million of a late customer acquisition marketing, or CAM credit, that should have been recognized as a reduction to sales and marketing expense in Q2 2022, and which was initially corrected for as an out of period adjustment in Q3 2022;

and iii) $ 0.9 million of revenue and $ 0.3 million of associated costs of revenue that should have been recognized in Q3 2022.

The following table presents summarized unaudited consolidated quarterly financial information for each of the quarters in the year ended December 31, 2022 (in thousands, except per share amounts):

Three Months Ended

December 31, 2022 September 30, 2022 As Restated June 30, 2022 As Restated March 31, 2022 As Restated

$ 146,626 $ 155,277 $ 162,649 $ 155,427

Cost of revenue 47,448 50,314 57,151 56,182

99,178 104,963 105,498 99,245

Operating expenses:

Sales and marketing 47,920 67,369 71,721 76,874

Technology and development

18,821 17,457 16,197 17,959

General and administrative

27,497 30,103 28,969 29,488

Impairment of long-lived and other assets 11 237 — —

Total operating expenses

94,249 115,166 116,887 124,321

Income (loss) from operations

4,929 ( 10,203 ) ( 11,389 ) ( 25,076 )

Interest income (expense), net

1,032 535 29 ( 53 )

Other income (expense), net

1,625 ( 2,536 ) ( 2,022 ) ( 1,544 )

Impairment of other equity security ( 3,000 ) — — —

Income (loss) before income taxes

4,586 ( 12,204 ) ( 13,382 ) ( 26,673 )

Provision for (benefit from) income taxes

2,842 ( 223 ) ( 639 ) ( 920 )

Net income (loss) $ 1,744 $ ( 11,981 ) $ ( 12,743 ) $ ( 25,753 )

Net income (loss) per share attributable to common stockholders—basic and diluted:

$ 0.01 $ ( 0.06 ) $ ( 0.06 ) $ ( 0.13 )

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—basic:

192,401 194,906 197,819 198,265

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—diluted:

193,327 194,906 197,819 198,265

Description of Restatement of Financial Information

In the following tables, we have presented a reconciliation of our unaudited condensed consolidated financial information as originally reported, to the as restated amounts as of and for the three months ended March 31, 2022, the three and six months ended June 30, 2022, and the three and nine months ended September 30, 2022.

The restatements will be effected in future filings of our 2023 unaudited condensed consolidated financial statements within our Quarterly Reports on Form 10-Q.

The table below sets forth the unaudited condensed consolidated balance sheet information, including the balances as reported, adjustments and the balances as restated (in thousands, except per share amounts):

September 30, 2022 June 30, 2022 March 31, 2022

As Reported Adjustments As Restated As Reported Adjustments As Restated As Reported Adjustments As Restated

Current assets:

Cash and cash equivalents

$ 211,812 $ — $ 211,812 $ 215,537 $ — $ 215,537 $ 247,504 $ — $ 247,504

Accounts receivable, net of allowance $ 4,419 , $ 4,508 .

and $ 3,633 , respectively

13,578 122 13,700 12,993 — 12,993 12,784 605 13,389

Prepaid expenses and other current assets

16,624 ( 264 ) 16,360 13,860 — 13,860 23,172 ( 242 ) 22,930

Current assets held for sale 22,722 — 22,722 — — — — — —

Total current assets

264,736 ( 142 ) 264,594 242,390 — 242,390 283,460 363 283,823

Property and equipment, net

29,012 — 29,012 49,342 — 49,342 47,769 — 47,769

63,184 — 63,184 59,933 — 59,933 59,994 — 59,994

Intangible assets, net

13,552 — 13,552 14,570 — 14,570 15,361 — 15,361

Operating lease right-of-use assets

11,796 — 11,796 6,961 — 6,961 5,292 — 5,292

Deferred income taxes

27,473 2,803 30,276 25,685 4,064 29,749 24,849 3,877 28,726

Available-for-sale debt securities

1,183 — 1,183 1,182 — 1,182 1,182 — 1,182

12,877 ( 1 ) 12,876 13,319 ( 7 ) 13,312 13,157 — 13,157

$ 423,813 $ 2,660 $ 426,473 $ 413,382 $ 4,057 $ 417,439 $ 451,064 $ 4,240 $ 455,304

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

25,805 — 25,805 18,404 — 18,404 31,747 — 31,747

Accrued expenses and other current liabilities 59,916 ( 21 ) 59,895 55,820 ( 1,235 ) 54,585 56,509 97 56,606

Deferred revenue

168,705 ( 738 ) 167,967 163,140 — 163,140 163,729 ( 713 ) 163,016

Operating lease liabilities

2,054 — 2,054 1,542 — 1,542 1,607 — 1,607

Total current liabilities

256,480 ( 759 ) 255,721 238,906 ( 1,235 ) 237,671 253,592 ( 616 ) 252,976

Operating lease liabilities, non-current

9,568 — 9,568 4,842 — 4,842 3,505 — 3,505

Deferred revenue

1,013 — 1,013 1,137 — 1,137 1,283 — 1,283

Other liabilities

2,926 — 2,926 2,841 — 2,841 2,833 — 2,833

Total liabilities

269,987 ( 759 ) 269,228 247,726 ( 1,235 ) 246,491 261,213 ( 616 ) 260,597

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $ 0.001 par value;

100,000 shares authorized;

0 issued or outstanding at September 30, 2022, June 30, 2022, and March 31, 2022, respectively

— — — — — — — — —

Common stock, $ 0.001 par value;

1,000,000 shares authorized;

193,848 , 196,076 , and 198,599 shares issued and outstanding at September 30, 2022, June 30, 2022, and March 31, 2022, respectively

193 — 193 196 — 196 198 — 198

Additional paid-in capital

1,015,068 — 1,015,068 994,558 — 994,558 969,731 — 969,731

Accumulated deficit

( 865,933 ) 3,419 ( 862,514 ) ( 830,952 ) 5,292 ( 825,660 ) ( 779,723 ) 4,856 ( 774,867 )

Accumulated other comprehensive income (loss)

4,498 — 4,498 1,854 — 1,854 ( 355 ) — ( 355 )

Total stockholders’ equity

153,826 3,419 157,245 165,656 5,292 170,948 189,851 4,856 194,707

Total liabilities and stockholders’ equity

$ 423,813 $ 2,660 $ 426,473 $ 413,382 $ 4,057 $ 417,439 $ 451,064 $ 4,240 $ 455,304

The table below sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances (in thousands, except per share amounts):

Three Months Ended

September 30, 2022 June 30, 2022 March 31, 2022

As Reported Adjustments As Restated As Reported Adjustments As Restated As Reported Adjustments As Restated

$ 154,416 $ 861 $ 155,277 $ 163,867 $ ( 1,218 ) $ 162,649 $ 154,209 $ 1,218 $ 155,427

Cost of revenue 50,050 264 50,314 57,393 ( 242 ) 57,151 55,940 242 56,182

104,366 597 104,963 106,474 ( 976 ) 105,498 98,269 976 99,245

Operating expenses:

Sales and marketing 66,145 1,224 67,369 72,945 ( 1,224 ) 71,721 76,874 — 76,874

Technology and development

17,457 — 17,457 16,197 — 16,197 17,959 — 17,959

General and administrative

30,103 — 30,103 28,969 — 28,969 29,488 — 29,488

Impairment of long-lived and other assets 237 — 237 — — — — — —

Total operating expenses

113,942 1,224 115,166 118,111 ( 1,224 ) 116,887 124,321 — 124,321

Loss from operations

( 9,576 ) ( 627 ) ( 10,203 ) ( 11,637 ) 248 ( 11,389 ) ( 26,052 ) 976 ( 25,076 )

Interest income (expense), net

535 — 535 29 — 29 ( 53 ) — ( 53 )

Other expense, net

( 2,536 ) — ( 2,536 ) ( 2,022 ) — ( 2,022 ) ( 1,544 ) — ( 1,544 )

Loss before income taxes

( 11,577 ) ( 627 ) ( 12,204 ) ( 13,630 ) 248 ( 13,382 ) ( 27,649 ) 976 ( 26,673 )

(Benefit from) provision for income taxes

( 1,469 ) 1,246 ( 223 ) ( 451 ) ( 188 ) ( 639 ) 2,960 ( 3,880 ) ( 920 )

Net loss $ ( 10,108 ) $ ( 1,873 ) $ ( 11,981 ) $ ( 13,179 ) $ 436 $ ( 12,743 ) $ ( 30,609 ) $ 4,856 $ ( 25,753 )

Net loss per share attributable to common stockholders—basic and diluted:

$ ( 0.05 ) $ — $ ( 0.06 ) $ ( 0.07 ) $ — $ ( 0.06 ) $ ( 0.15 ) $ — $ ( 0.13 )

Weighted-average shares used to compute net loss per share attributable to common stockholders—basic and diluted:

194,906 — 194,906 197,819 — 197,819 198,265 — 198,265

The table below sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the balances as restated (in thousands, except per share amounts):

Nine Months Ended Six Months Ended

September 30, 2022 June 30, 2022

As Reported Adjustments As Restated As Reported Adjustments As Restated

$ 472,492 $ 861 $ 473,353 $ 318,076 $ — $ 318,076

Cost of revenue

163,383 264 163,647 113,333 — 113,333

309,109 597 309,706 204,743 — 204,743

Operating expenses:

Sales and marketing 215,964 — 215,964 149,819 ( 1,224 ) 148,595

Technology and development

51,613 — 51,613 34,156 — 34,156

General and administrative

88,560 — 88,560 58,457 — 58,457

Impairment of long-lived and other assets 237 — 237 — — —

Total operating expenses

356,374 — 356,374 242,432 ( 1,224 ) 241,208

Loss from operations

( 47,265 ) 597 ( 46,668 ) ( 37,689 ) 1,224 ( 36,465 )

Interest income (expense), net

511 — 511 ( 24 ) — ( 24 )

Other expense, net

( 6,102 ) — ( 6,102 ) ( 3,566 ) — ( 3,566 )

Loss before income taxes

( 52,856 ) 597 ( 52,259 ) ( 41,279 ) 1,224 ( 40,055 )

Provision for (benefit from) income taxes

1,040 ( 2,822 ) ( 1,782 ) 2,509 ( 4,068 ) ( 1,559 )

Net loss $ ( 53,896 ) $ 3,419 $ ( 50,477 ) $ ( 43,788 ) $ 5,292 $ ( 38,496 )

Net loss per share attributable to common stockholders—basic and diluted:

$ ( 0.27 ) $ — $ ( 0.26 ) $ ( 0.22 ) $ — $ ( 0.19 )

Weighted-average shares used to compute net loss per share attributable to common stockholders—basic and diluted:

196,984 — 196,984 198,040 — 198,040

The tables below sets forth the unaudited condensed consolidated statements of comprehensive (loss) income, including balances as reported, adjustments and balances as restated amounts (in thousands):

Three Months Ended

September 30, 2022 June 30, 2022 March 31, 2022

As Reported Adjustments As Restated As Reported Adjustments As Restated As Reported Adjustments As Restated

$ ( 10,108 ) $ ( 1,873 ) $ ( 11,981 ) $ ( 13,179 ) $ 436 $ ( 12,743 ) $ ( 30,609 ) $ 4,856 $ ( 25,753 )

Total other comprehensive income 2,644 — 2,644 2,209 — 2,209 1,440 — 1,440

Total comprehensive loss

$ ( 7,464 ) $ ( 1,873 ) $ ( 9,337 ) $ ( 10,970 ) $ 436 $ ( 10,534 ) $ ( 29,169 ) $ 4,856 $ ( 24,313 )

Nine Months Ended September 30, 2022 Six Months Ended June 30, 2022

As Reported Adjustments As Restated As Reported Adjustments As Restated

$ ( 53,896 ) $ 3,419 $ ( 50,477 ) $ ( 43,788 ) $ 5,292 $ ( 38,496 )

Total other comprehensive income 6,293 — 6,293 3,649 — 3,649

Total comprehensive loss

$ ( 47,603 ) $ 3,419 $ ( 44,184 ) $ ( 40,139 ) $ 5,292 $ ( 34,847 )

The table below sets forth the unaudited condensed consolidated statements of stockholders’ equity, including balances as reported, adjustments and balances as restated amounts (in thousands):

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

(Loss) income Total

Stockholders’

Shares Amount

Balance at March 31, 2022 as reported 198,599 $ 198 $ 969,731 $ ( 779,723 ) $ ( 355 ) $ 189,851

Cumulative adjustments to net loss

— — — 4,856 — 4,856

Balance at March 31, 2022 as restated 198,599 $ 198 $ 969,731 $ ( 774,867 ) $ ( 355 ) $ 194,707

Balance at June 30, 2022 as reported 196,079 $ 196 $ 994,558 $ ( 830,952 ) $ 1,854 $ 165,656

Cumulative adjustments to net loss — — — 5,292 — 5,292

Balance at June 30, 2022 as restated 196,079 $ 196 $ 994,558 $ ( 825,660 ) $ 1,854 $ 170,948

Balance at September 30, 2022 as reported 193,848 $ 193 $ 1,015,068 $ ( 865,933 ) $ 4,498 $ 153,826

Cumulative adjustments to net loss — — — 3,419 — 3,419

Balance at September 30, 2022 as restated 193,848 $ 193 $ 1,015,068 $ ( 862,514 ) $ 4,498 $ 157,245

The table below sets forth the unaudited condensed consolidated statements of cash flows, including balances as reported, adjustments and balances as restated amounts (in thousands):

Nine Months Ended September 30, 2022 Six Months Ended June 30, 2022 Three Months Ended March 31, 2022

As Reported Adjustments As Restated As Reported Adjustments As Restated As Reported Adjustments As Restated

Cash flows from operating activities

$ ( 53,896 ) $ 3,419 $ ( 50,477 ) $ ( 43,788 ) $ 5,292 $ ( 38,496 ) $ ( 30,609 ) $ 4,856 $ ( 25,753 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

16,187 — 16,187 10,933 — 10,933 5,394 — 5,394

Amortization of right-of-use assets 1,290 — 1,290 852 — 852 378 — 378

Amortization of debt issuance costs

170 — 170 112 — 112 56 — 56

Impairment of other equity securities 170 — 170 170 — 170 170 — 170

Impairment of long-lived assets 237 — 237 — — — — — —

Stock-based compensation

64,490 — 64,490 44,712 — 44,712 21,865 — 21,865

Deferred income taxes

166 ( 2,803 ) ( 2,637 ) 1,955 ( 4,064 ) ( 2,109 ) 2,791 ( 3,877 ) ( 1,086 )

Change in fair value of contingent consideration ( 150 ) — ( 150 ) ( 150 ) — ( 150 ) — — —

Unrealized foreign exchange loss

5,958 — 5,958 3,405 — 3,405 1,379 — 1,379

( 1 ) — ( 1 ) ( 1 ) — ( 1 ) — — —

Changes in operating assets and liabilities, net of effects of business combination:

Accounts receivable

( 2,902 ) ( 122 ) ( 3,024 ) ( 2,357 ) — ( 2,357 ) ( 2,150 ) ( 605 ) ( 2,755 )

Prepaid expenses and other current assets

( 560 ) 264 ( 296 ) ( 417 ) — ( 417 ) ( 6,706 ) 242 ( 6,464 )

( 864 ) 1 ( 863 ) ( 345 ) 7 ( 338 ) ( 811 ) — ( 811 )

Accounts payable

( 6,417 ) — ( 6,417 ) ( 13,553 ) — ( 13,553 ) ( 117 ) — ( 117 )

Accrued expenses and other liabilities

7,606 ( 21 ) 7,585 8,156 ( 1,235 ) 6,921 5,675 97 5,772

Operating lease liabilities ( 1,599 ) — ( 1,599 ) ( 1,642 ) — ( 1,642 ) ( 770 ) — ( 770 )

Income tax payable

22 — 22 15 — 15 7 — 7

Deferred revenue

22,108 ( 738 ) 21,370 16,700 — 16,700 17,185 ( 713 ) 16,472

Net cash provided by operating activities

52,015 — 52,015 24,757 — 24,757 13,737 — 13,737

Cash flows from investing activities

Acquisition, net of cash acquired ( 2,532 ) — ( 2,532 ) — — — — — —

Proceeds from acquisition working capital adjustment

307 — 307 307 — 307 304 — 304

Purchase of property and equipment

( 16,441 ) — ( 16,441 ) ( 10,379 ) — ( 10,379 ) ( 4,911 ) — ( 4,911 )

Net cash used in investing activities

( 18,666 ) — ( 18,666 ) ( 10,072 ) — ( 10,072 ) ( 4,607 ) — ( 4,607 )

Cash flows from financing activities

Repayment of capital lease obligations

— — — — — — ( 4 ) — ( 4 )

Payment of contingent consideration ( 600 ) — ( 600 ) ( 600 ) — ( 600 ) — — —

Repurchase of common stock ( 61,736 ) — ( 61,736 ) ( 39,155 ) — ( 39,155 ) ( 1,094 ) — ( 1,094 )

Shares surrendered for settlement of minimum statutory tax withholding

( 41 ) — ( 41 ) ( 30 ) — ( 30 ) ( 11 ) — ( 11 )

Proceeds from issuance of stock under employee stock plans 1,682 — 1,682 1,487 — 1,487 237 — 237

Net cash (used in) financing activities

( 60,695 ) — ( 60,695 ) ( 38,298 ) — ( 38,298 ) ( 872 ) — ( 872 )

Effect of exchange rate changes on cash and cash equivalents

( 139 ) — ( 139 ) ( 147 ) — ( 147 ) ( 51 ) — ( 51 )

Net (decrease) increase in cash and cash equivalents, and restricted cash equivalents

( 27,485 ) — ( 27,485 ) ( 23,760 ) — ( 23,760 ) 8,207 — 8,207

Cash and cash equivalents, and restricted cash equivalents, at beginning of the period

239,297 — 239,297 239,297 — 239,297 239,297 — 239,297

Cash and cash equivalents at end of the period

$ 211,812 $ — $ 211,812 $ 215,537 $ — $ 215,537 $ 247,504 $ — $ 247,504

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data