What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 381 added, 730 removed, 1074 unchanged (51% of the section changed)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit )

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

Consolidated Statements of Cash Flows

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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”).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income (loss), of redeemable convertible preferred stock and stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

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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.

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 Annual Report on Internal Control over Financial Reporting appearing under Item 9A.

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.

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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;

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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.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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.

As described in Note 2 to the consolidated financial statements, the Company’s total consolidated revenue was $660.7 million for the year ended December 31, 2023.

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

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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.

Revenue earned from leads generated to third-party providers 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.

Accordingly, a significant number of the Company’s 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 management expects to be entitled in exchange for the services provided.

The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are (i) a high degree of auditor effort in performing procedures related to the Company’s revenue recognition and (ii) as disclosed by management, material weaknesses existed during the year 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.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the recording of revenue at the transaction price based on contractual amounts.

These procedures also included, among others (i) testing the revenue recognized for a sample of revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, customer contracts, proof of shipment, and subsequent payment receipts and (ii) testing a sample of outstanding customer invoice balances as of December 31, 2023 by obtaining and inspecting source documents, such as purchase orders, invoices, customer contracts, proof of shipment, and subsequent payment receipts.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

March 1, 2023

February 29, 2024

We have served as the Company’s auditor since 2006.

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$ 225,719 $ 189,082

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

Accounts receivable, net of allowances of $ 4,906 and $ 4,730

11,738 13,177

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( 933,061 ) ( 891,862 )

Accumulated other comprehensive income (loss)

1,497 ( 1,795 )

Accumulated other comprehensive income

Total stockholders’ equity

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2023 2022 2021

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

Revenue $ 660,727 $ 619,979 $ 575,080

Cost of revenue 239,263 211,095 189,364

211,095 189,364 154,563

408,884 385,716 316,073

Gross profit 421,464 408,884 385,716

Operating expenses:

Sales and marketing 210,872 263,884 279,281

263,884 279,281 171,390

Technology and development 83,181 70,434 84,003

70,434 84,003 41,863

General and administrative 106,352 116,057 106,584

116,057 106,584 51,017

Impairment of long-lived and other assets

248 924 1,105

Loss on sale of business

Impairment of long-lived assets — 248 924

Total operating expenses 400,405 450,623 470,792

450,623 470,792 267,139

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

Interest income (expense), net

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

Other (expense) income, net

Income (loss) from operations 21,059 ( 41,739 ) ( 85,076 )

Interest expense ( 493 ) ( 260 ) ( 28,045 )

Interest income 9,307 1,803 61

Other income (expense), net

1,621 ( 4,477 ) 1,193

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Loss on debt extinguishment — — ( 7,748 )

Impairment of available-for-sale debt securities of $ 4,912 , net of $ 94 loss recognized in other comprehensive loss

— — ( 4,818 )

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

Income (loss) before income taxes 31,494 ( 47,673 ) ( 119,615 )

Provision for (benefit from) income taxes 17,541 1,060 ( 10,951 )

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

Net (loss) income attributable to common stockholders—basic

Net income (loss) $ 13,953 $ ( 48,733 ) $ ( 108,664 )

Net income (loss) attributable to common stockholders—basic

$ 13,953 $ ( 48,733 ) $ ( 108,664 )

Net (loss) income attributable to common stockholders—diluted

Net income (loss) attributable to common stockholders—diluted

$ 13,953 $ ( 48,733 ) $ ( 108,664 )

Net (loss) income per share attributable to common stockholders:

Net income (loss) per share attributable to common stockholders:

$ 0.07 $ ( 0.25 ) $ ( 0.67 )

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

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

190,466 195,829 161,424

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LegalZoom.com, Inc.

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

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2023 2022 2021

Net (loss) income

Net income (loss)

$ 13,953 $ ( 48,733 ) $ ( 108,664 )

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Change in available-for-sale debt securities:

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

Reclassifications of losses to net income — — ( 94 )

Unrealized gains (losses), net

105 ( 144 ) 38

Total change in available-for-sale debt securities

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Unrealized gain (loss) on interest rate cap and swaps

— 1,448 ( 9,578 )

Reclassification of prior hedge effectiveness and losses from interest rate cap to net (loss) income

— 2,315 2,760

Reclassification to net (loss) income upon discontinuance of interest rate swaps and prior hedge effectiveness — 7,295 —

Reclassification of prior hedge effectiveness and losses from interest rate cap to net income (loss)

Reclassification to net income (loss) upon discontinuance of interest rate swaps and prior hedge effectiveness

Total net changes in cash flow hedges

— 11,058 ( 6,818 )

Total other comprehensive income (loss)

Total other comprehensive (loss) income

( 1,265 ) 3,292 12,032

Total comprehensive (loss) income

Total comprehensive income (loss)

$ 12,688 $ ( 45,441 ) $ ( 96,632 )

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LegalZoom.com, Inc.

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity

(In thousands)

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

Issuance of common stock upon vesting of restricted stock awards — — 245 — — — — —

Shares surrendered for settlement of minimum statutory tax withholdings — — ( 371 ) — ( 3,825 ) — — ( 3,825 )

Stock-based compensation — — — — 12,940 — — 12,940

Net issuance and repayments of full recourse notes receivable — — — — ( 8 ) — — ( 8 )

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

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

Other comprehensive loss — — — — — — ( 8,100 ) ( 8,100 )

Net income — — — — — 9,896 — 9,896

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

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

Issuance of common stock upon vesting of restricted stock awards and ESPP — — 938 1 1,244 — — 1,245

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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

Series A Redeemable

Convertible Preferred

Stock Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

(loss) Income Total

Stockholders’

Equity (Deficit)

Shares Amount Shares Amount

Issuance of common stock upon vesting of restricted stock units — — 1,458 1 — — — 1

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

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

Issuance of common stock upon exercise of stock options and ESPP — — 976 1 8,444 — — 8,445

Issuance of common stock upon vesting of restricted stock units — — 3,438 3 ( 3 ) — — 1

Shares surrendered for settlement of minimum statutory tax withholdings — — ( 829 ) — ( 9,587 ) — — ( 9,587 )

Stock-based compensation — — — 70,071 — — 70,071

Repurchase and retirement of common stock — — ( 5,868 ) ( 6 ) — ( 54,867 ) — ( 54,873 )

Stock repurchase costs — — — — — ( 100 ) — ( 100 )

Stock repurchase excise tax — — — — — ( 185 ) — ( 185 )

Other comprehensive loss — — — — — — ( 1,265 ) ( 1,265 )

Net income — — — — — 13,953 — 13,953

Balance at December 31, 2023 — $ — 188,538 $ 189 $ 1,101,474 $ ( 933,061 ) $ 232 $ 168,834

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

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Cash flows from operating activities

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

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

Net income (loss) $ 13,953 $ ( 48,733 ) $ ( 108,664 )

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

Depreciation and amortization 25,383 21,745 16,686

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Impairment of other equity security — 3,000 —

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

Loss on debt extinguishment — — 7,955

Discontinuance of interest rate swaps and write-off of prior hedge effectiveness — — 8,688

Loss on sale of business — — 1,764

Deferred income taxes 4,712 ( 793 ) ( 11,595 )

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Change in fair value of other equity security — — ( 1,812 )

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

Unrealized foreign exchange (gain) loss ( 1,387 ) 3,558 943

Other ( 39 ) 168 4

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

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

LegalZoom.com, Inc.

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2023 2022 2021

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

Net cash used in investing activities ( 31,555 ) ( 30,622 ) ( 77,673 )

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

Proceeds from 2018 Revolving Facility — — 40,000

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

Repayment of hybrid debt — — ( 1,332 )

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Repurchase and retirement of common stock ( 54,873 ) ( 95,126 ) —

Tender offer costs — — ( 145 )

Payment of stock repurchase costs ( 100 ) — —

Payment of special dividends — — ( 112 )

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

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

Shares surrendered for settlement of minimum statutory tax withholdings ( 9,587 ) ( 41 ) ( 2,342 )

Proceeds from issuance of stock under employee stock plans 8,445 2,438 1,819

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Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent 34 ( 87 ) ( 11 )

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

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

Net increase (decrease) in cash, cash equivalents and restricted cash equivalent 36,637 ( 50,215 ) 99,827

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

Cash and cash equivalents, at end of the period $ 225,719 $ 189,082 $ 239,297

Supplemental cash flow data

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6,598 741 1,459

Reconciliation of cash, cash equivalents, and restricted cash equivalent reported in the consolidated balance sheets

Cash and cash equivalents

$ 189,082 $ 239,297 $ 114,470

Restricted cash equivalent

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

$ 189,082 $ 239,297 $ 139,470

Non-cash investing and financing activities

Non-cash operating, investing, and financing activities:

Right of use assets obtained in exchange for new operating lease liabilities $ 63 $ 7,528 $ —

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

Transfer of interest rate swaps derivative liability to hybrid debt — — 12,345

Contingent consideration for business acquired — — 1,250

Accrued stock repurchase excise tax 185 — —

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

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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, are referred to herein as “we,” “us,” or “our,”.

LegalZoom.com, Inc., and its wholly owned subsidiaries, are referred to herein as the “Company”, “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 business formation, our offerings include ongoing compliance and tax advice and filings, virtual mailbox solutions, trademark filings, and estate plans.

Our position at business inception allows us to become a trusted business advisor, supporting the evolving needs of a new business across its lifecycle, and we have expanded our platform to include professional expertise and other products, both legal and non-legal, to better meet the needs of small businesses.

Along with business formation, our offerings include ongoing compliance and tax advice and filings, business licenses, accounting, virtual mailbox and e-signature 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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We incurred stock issuance costs of $ 5.6 million.

Proceeds raised from our IPO were used to repay the full outstanding balance of $ 521.6 million on our 2018 Term Loan.

Proceeds raised from our IPO were used to repay the full outstanding balance of $ 521.6 million on our prior term loan.

Upon the completion of our IPO, 23,081,080 outstanding shares of redeemable convertible preferred stock with a carrying value of $ 70.9 million converted into 46,162,160 shares of common stock.

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Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that we absorb, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE.

Beginning in the fourth quarter of 2023, we include partner revenue in transaction and subscription revenue to conform with how we evaluate our performance.

This change had no impact on total revenue.

Prior period disaggregated revenue disclosures have been conformed to the current period presentation.

Certain other reclassifications have been made to prior periods amounts to conform to the current period presentation.

Use of Estimates

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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, 2023, 2022 and 2021.

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

was less than 1 % of our consolidated property and equipment as of December 31, 2022 and 2021.

Our property and equipment and right-of-use, or ROU, assets located outside of the U.S.

were immaterial as of December 31, 2023 and 2022.

Foreign Currency

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.

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

The financial statements of these foreign subsidiaries are translated to U.S.

Dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for the period for revenue and expenses.

Translation gains and losses are recorded in accumulated other comprehensive 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.

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

We recognized foreign currency transaction gain in the accompanying consolidated statement of operations of $ 1.4 million for 2023 and losses of $ 3.6 million and $ 0.9 million for 2022 and 2021, respectively.

Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value.

The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs

used to measure fair value.

A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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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, 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.

At December 31, 2023 and 2022, our financial assets recorded at fair value on a recurring basis consist of cash equivalents and available-for-sale debt securities.

At December 31, 2022, our financial liabilities recorded at fair value on a recurring basis consisted of contingent consideration from the acquisition of United Agency Services Corp, or UA Services.

The cash equivalent consists of money market funds 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.

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.

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.

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Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of ninety days or less from the date of purchase.

At December 31, 2022 and 2021, our cash consisted of bank account deposits and our cash equivalent consisted of $ 130.2 million and $ 30.2 million invested in a money market fund, respectively.

Restricted Cash Equivalent

Our restricted cash equivalent balance of $ 25.0 million as of December 31, 2020 represented cash required to be held as collateral by a financial institution to guarantee up to half of a $$ 50.0 million personal loan provided by the financial institution to a former executive officer.

At December 31, 2020, our restricted cash equivalent of $ 25.0 million was invested in a money market fund with the same financial institution.

In June 2021, our financial guarantee of the personal loan of a former executive officer was terminated.

The associated restricted cash equivalent of $ 25.0 million became unrestricted and was reclassified to cash and cash equivalents.

Cash and cash equivalents consist of highly liquid investments with original maturities of ninety days or less at the date of purchase.

At December 31, 2023 and 2022, our cash consisted of bank account deposits and our cash equivalents consisted of $ 209.0 million and $ 130.2 million, respectively, invested in money market funds.

Accounts Receivable and Allowance for Credit Losses

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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.

At December 31, 2023 and 2022, 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:

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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 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.

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 expenses and other current 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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Derivative Financial Instruments

Derivative financial instruments, which include interest rate swaps, an interest rate cap, and a financial guarantee relating to a former executive officer, are recorded at fair value.

For derivatives that qualify for hedge accounting, specifically as cash flow hedges, the change in fair value of the derivatives is recorded as an unrealized 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.

Prior to our IPO in 2021, derivative financial instruments, which included interest rate swaps, an interest rate cap, and a financial guarantee relating to a former executive officer, were recorded at fair value.

For derivatives that qualified for hedge accounting, specifically as cash flow hedges, the change in fair value of the derivatives was recorded as an unrealized gain (loss), net of taxes, in the accompanying consolidated statements of comprehensive (loss) income.

For derivatives that did not qualify for hedge accounting, the change in the fair value of our derivatives related to our long-term debt were recorded in interest expense, net, and the change in the fair value of our financial guarantee was recorded in other income, net, in the accompanying consolidated statements of operations.

In 2021, our derivative positions were extinguished in connection with our IPO and full repayment of our long-term debt.

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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.

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

Investments in Other Equity Securities

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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.

On January 1, 2022, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, No.

842, Leases, and related amendments, using the modified retrospective method.

Financial information related to periods prior to adoption is as originally reported under the FASB, 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.

On January 1, 2022, we recorded operating lease 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.

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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

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We record certain legal, accounting, and other third-party fees in other assets that are directly associated with in-process equity financings until such financings are consummated.

After consummation, these costs are recorded in stockholders’ equity (deficit) as a reduction from the proceeds of the offering.

After consummation, these costs are recorded in stockholders’ equity as a reduction from the proceeds of the offering.

Should the equity financing no longer be considered probable of being consummated, the deferred offering costs are expensed in the consolidated statements of operations within income from operations.

In 2021, we incurred $ 5.6 million related to our IPO, which is included in additional-paid in capital in the accompanying consolidated statements of redeemable convertible preferred stock and stockholders equity (deficit).

There were no deferred stock issuance costs recognized in other assets as of December 31, 2023 or 2022.

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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 also earn fees from third-party providers from leads generated to such providers through our online legal platform.

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

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 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.

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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.

Revenue is recognized when the related performance-based criteria have been met.

We assess whether performance criteria have been met on a cost-per-click or cost-per-action basis.

Revenue from our transaction, subscription and partner revenue is as follows (in thousands):

Our transaction and subscription revenue is as follows (in thousands):

Year Ended December 31,

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412,947 359,198 293,436

22,157 28,017 28,682

Total revenue

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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 three equal payments.

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.

The first installment due under the installment plans is charged to the customer’s debit or credit card on the date the order is placed, and the remaining installments are generally charged on a monthly basis thereafter.

We recognize revenue for the amount we expect to be entitled to for providing the services to our customers.

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For our subscription-based services we generally recognize revenue on a straight-line basis over the subscription term.

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

We do not have significant financing components in arrangements with our customers.

Revenue earned from leads generated to third-party providers is recognized at a point-in-time when the related performance-based criteria have been met.

We assess whether performance criteria have been met on a cost-per-click or cost-per-action basis.

We have elected the practical expedient not to adjust the promised amount of consideration for the effects of a significant financing component if the period between revenue recognition and when the customer pays for the product or service will be one year or less.

Principal Agent Considerations

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In arrangements in which we are the principal, we record as revenue the amounts we have billed to our customer, net of sales allowance, and we record the fee payable to the third-party as cost of revenue.

We are the principal in most of our legal document preparation and registered agent services, including legal entity formations and similar arrangements and formation, and formerly, conveyancing services, in the U.K.

We are the principal in most of our legal document preparation and registered agent services, including legal entity formations and similar arrangements and formation in the U.K.

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

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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.

Our ABS provides independent legal advice to our customers and is directly responsible for, and control the fulfillment of, the legal services.

Accordingly, for services provided by our ABS, 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.

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For these arrangements, we recognize revenue on a net basis as an agent.

For other services provided by third-parties, including deed transfer, accounting, tax, credit monitoring, business data protection and logo design services, revenue is recognized net of fees payable to third-parties.

For partner revenue, we receive a fee for the referral of our customer to the partner or we retain a portion of the fee paid by the customer and share the remainder with the partner.

Our partner controls the service to the customer and the partner is responsible for fulfilling the referred service to the customer;

For other services provided by third-parties, including deed transfer, accounting, tax, business data protection, revenue is recognized net of fees payable to third-parties.

For revenue earned from leads generated to third-party providers, we receive a fee for the referral of our customer to a third-party provider or we retain a portion of the fee paid by the customer and share the remainder with a third-party.

The third-party providers control the service to the customer and are responsible for fulfilling the referred service to the customer;

accordingly, we recognize revenue for these arrangements on a net basis.

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Cost of revenue includes all costs of providing and fulfilling our services.

Cost of revenue primarily includes government filing fees;

costs of fulfillment, customer care, including the cost of credentialed professionals for tax, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation;

telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software;

printing, shipping and handling charges;

credit and debit card fees;

allocated overhead;

legal document kit expenses;

and sales and use taxes.

Cost of revenue primarily includes government filing fees, 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, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes.

We defer direct and incremental costs primarily related to government filing fees incurred prior to the associated service meeting the criteria for revenue recognition.

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Sales and Marketing Expenses

Sales and marketing expenses consist of customer acquisition media costs;

compensation and related benefits, including stock-based compensation for marketing and sales personnel;

media production;

public relations and other promotional activities;

general business development activities;

an allocation of depreciation and amortization and allocated overhead.

Customer acquisition media costs consist primarily of search engine marketing, television and radio costs.

Sales and marketing expenses consist of customer acquisition media costs, compensation and related benefits, including stock-based compensation for marketing and sales personnel, media production, public relations and other promotional activities, general business development activities, an allocation of depreciation and amortization and allocated overhead.

Customer acquisition media costs consist primarily of search engine marketing, television and social media costs.

Marketing and advertising costs to promote our services are expensed in the period incurred.

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Because there was no public market for our common stock, the board of directors determined the fair value of the common stock at the time of the grant of options and RSUs by considering a number of objective and subjective factors including valuation of comparable companies, sales of common stock to unrelated third-parties, operating and financial performance and general and industry-specific economic outlook, amongst other factors.

The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled Valuation of Privately Held Company Equity Securities Issued as Compensation .

The fair value was determined in accordance

with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants titled Valuation of Privately Held Company Equity Securities Issued as Compensation .

The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding.

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The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment.

If we had made different assumptions, our stock-based compensation expense, and our net (loss) income for the years ended December 31, 2022, 2021, and 2020 may have been materially different.

If we had made different assumptions, our stock-based compensation expense, and our net income (loss) for the years ended December 31, 2023, 2022, and 2021 may have been materially different.

Loss Contingencies

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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.

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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 (loss) income.

We recognize tax benefits from an uncertain position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits.

If this threshold is met, we measure the tax benefit as the largest amount of the benefit that is greater than fifty percent likely to be realized upon ultimate settlement.

We recognize penalties and interest accrued with respect to uncertain tax positions as a component of the income tax provision.

We recognize penalties and interest accrued with respect to uncertain

tax positions as a component of the income tax provision.

At December 31, 2023 and 2022, accrued penalties and interest related to uncertain tax positions were not material.

Net (Loss) Income Per Share Attributable to Common Stockholders

Net Income (Loss) Per Share Attributable to Common Stockholders

We apply the two-class method for calculating net income per share.

Under the two-class method, in periods where we generate net income, net income is allocated between common stock and other participating securities based on their participation rights.

Prior to our IPO, our participating securities consist of redeemable convertible preferred stock, which participate in dividends, if declared.

Prior to our IPO, our participating securities consisted of redeemable convertible preferred stock, which participated in dividends, if declared.

For periods in which we report a net loss, the participating securities are not contractually obligated to share in our losses, and accordingly, no loss is allocated to the participating securities.

Basic net (loss) income per share is calculated by dividing net (loss) income attributable to common stockholders by the weighted-average number of shares of common stock outstanding, net of unvested restricted stock, if any, during the period.

We compute diluted net (loss) income per share under the two-class method where income is reallocated between common stock, potential common stock and participating securities.

Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding, net of unvested restricted stock, if any, during the period.

We compute diluted net income (loss) per share under the two-class method where income is reallocated between common stock, potential common stock and participating securities.

Potential common stock includes stock options, restricted stock units, restricted stock awards and employee stock purchase plans, or ESPPs and RSUs computed using the treasury stock method.

Recent Accounting Pronouncements

Prior to December 31, 2022, we qualified as an emerging growth company, or EGC, and were allowed by the Jumpstart Our Business Startups Act to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies.

We became a large accelerated filer and no longer qualified as an EGC at the conclusion of the year ended December 31, 2022.

The adoption dates discussed below for recently adopted accounting pronouncements reflect the transition periods required as a result of becoming a large accelerated filer as of December 31, 2022.

We are required to adopt all future new or revised accounting pronouncements in accordance with public company timelines.

Recently Adopted Accounting Pronouncements

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 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.

2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting , or Topic 848, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the LIBOR, which has been discontinued as of the end of 2021.

In June 2016, the FASB issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments—Credit losses:

Measurement of Credit Losses on Financial Instruments (Topic 326) , which revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which results in more timely recognition of losses on financial instruments, including, but not limited to, available-for-sale debt securities and accounts receivable.

We adopted ASU 2016-13 effective January 1, 2022.

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

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting , or Topic 848, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the LIBOR.

Also, in January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848) — Scope, to clarify that cash flow hedges are eligible for certain optional expedients and exceptions for the application of subsequent assessment methods to assume perfect effectiveness as previously presented in ASU 2020-04.

Topic 848 is effective immediately and may be applied through December 31, 2022.

We 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.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

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

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity .

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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.

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.

We adopted ASU 2020-06 on January 1, 2022 and the adoption of this accounting standard did not have a material impact on our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820) , or ASU 2022-03, which clarifies 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 early adopted ASU 2022-03 during the three months ended June 30, 2023.

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

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations , which requires that a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs.

ASU 2022-04 effective January 1, 2023.

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

In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842):

Common Control Arrangements, which amends certain provisions of ASC 842 related to the accounting for leasehold improvements in common-control arrangements.

ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

We early adopted ASU 2023-01 effective January 1, 2023.

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

In March 2023, the FASB issued ASU 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

ASU 2023-02 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

We early adopted ASU 2023-02 effective January 1, 2023.

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

In July 2023, the FASB issued ASU 2023-03 to amend various paragraphs in the ASC to align with the previously issued SEC guidance.

ASU 2023-03 did not provide any new guidance, and there is no transition or effective date associated with it resulting in the ASU 2023-03 being effective upon issuance.

Consequently, the adoption of this accounting standard did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Entities must adopt the changes to the segment reporting guidance on a retrospective basis, and early adoption is permitted.

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

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires entities to disclose more detailed information in the reconciliation of their statutory tax rate to their effective tax rate.

This accounting standard is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025.

ASU 2023-09 will be applied prospectively with an option for retroactive application to each period in the financial statements, and early adoption is permitted.

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

Other Financial Statement Information

Accounts Receivable

Changes in the allowance consisted of the following (in thousands):

Changes in the allowances consisted of the following (in thousands):

Year Ended December 31,

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amounts recognized as a reduction of revenue 8,220 8,193 6,610

bad debt expense recognized in general and administrative expense 446 ( 279 ) 2,170

allowance for credit losses recognized in general and administrative expense

1,144 446 ( 279 )

write-offs, net of recoveries ( 9,188 ) ( 7,969 ) ( 7,527 )

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The allowance recognized as a reduction of revenue primarily relates to our installment plan receivables for which we expect we will not be entitled to a portion of the transaction price based on our historical experience with similar transactions.

The allowance recognized against general and administrative expense represents an allowance relating to receivables from partners that are no longer considered collectible.

The allowance recognized against general and administrative expense represents an allowance relating to receivables from third-party providers that are no longer considered collectible.

Prepaid Expenses and Other Current Assets

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Deferred revenue as of December 31, 2023 and 2022 was $ 168.4 million and $ 165.1 million, respectively.

Revenue recognized in 2022, 2021 and 2020 that was included in deferred revenue at the beginning of the year was $ 146.6 million, $ 127.6 million and $ 103.5 million, respectively.

Revenue recognized in 2023, 2022 and 2021 that was included in deferred revenue at the beginning of the year

was $ 163.4 million, $ 146.6 million and $ 127.6 million, respectively.

We expect to recognize substantially all of the deferred revenue as of December 31, 2023 as revenue in 2024.

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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:

We ceased recording depreciation on these assets upon meeting the held for sale criteria.

At December 31, 2023, the total carrying value of the assets held for sale remains at $ 22.7 million as follows:

December 31, 2023

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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.

Revv’s proprietary technology enhanced our forms library and legal template offerings and has been leveraged to develop modern product experiences and services for small businesses.

A purchase price of $ 6.6 million, which was 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.

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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 accumulated cost of the acquisition included 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.

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

Separate from the asset acquisition, up to $ 2.6 million was payable to certain of the sellers on the first and second anniversaries of the asset acquisition date as compensation for maintaining an assembled workforce.

During the year ended December 31, 2023 a payment of $ 1.3 million was made to these sellers pursuant to the foregoing compensation arrangement.

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.

In August 2022, we acquired certain assets and liabilities of 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 was payable in cash within twelve months from the acquisition date based upon the achievement of certain earnout metrics.

During the year ended December 31, 2023, we recorded a $ 0.8 million reduction in fair value of contingent consideration as a component of cost of revenue because the earnout metrics were not achieved.

Furthermore, an additional payment of up to $ 0.4 million to the seller of UA Services was contingent on certain service conditions being met.

This amount was excluded from the purchase consideration and was recorded as compensation expense in 2022.

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.

The 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.

The acquired goodwill was deductible for tax purposes.

There were no intangible assets acquired in connection with this acquisition.

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 during the year ended December 31, 2022.

The revenue and earnings of the acquired business were included in our results of operations since the acquisition date and were not material to the consolidated financial results for the year ended December 31, 2022.

Pro forma revenues and results of operations for this acquisition are not presented as the impact on our consolidated financial statements for the year ended December 31, 2022 was immaterial.

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, for $ 61.2 million.

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)

The purchase price was reduced during the year ended December 31, 2022 due to a working capital adjustment of $ 0.3 million and immaterial measurement period adjustments.

Estimated useful life

(in thousands)

Goodwill $ 48,617 —

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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 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, 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 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.

The goodwill of $ 1.6 million arising from the acquisition consists largely of the assembled workforce and synergies expected from combining Pure into our operations.

The acquired goodwill is not expected to be deductible for tax purposes.

The purchase price allocation is final.

Disposition of Business

Beaumont ABS Limited

In April 2020, we sold our conveyancing business in the U.K., Beaumont ABS Limited, or Beaumont, to a third-party buyer and paid $ 1.2 million in working capital to the buyers.

Our loss on sale of this business was $ 1.8 million for the year ended December 31, 2020.

The acquired goodwill was deductible for tax purposes.

Pro forma revenues and results of operations for this acquisition are not presented as the impact on our consolidated financial statements for the year ended December 31, 2021 was immaterial.

Available-for-sale Debt Securities

In 2019, we invested in Legal Vision Pty Ltd., or Legal Vision, an Australian proprietary limited company that provides online legal services to small and medium size businesses, through the purchase of a convertible promissory

note for a total of Australian Dollar, or AUD $ 1.0 million ($ 0.7 million).

The convertible promissory note has a maturity term of ten years , which is convertible into Legal Vision’s common stock.

The underlying conversion feature is automatically exercisable upon an exit event including an IPO, merger or sale, upon a new financing round, or at our election.

At December 31, 2022, we do not hold any equity interests or in-substance common stock in Legal Vision, and accordingly, we have classified the convertible promissory note as an investment in an available-for-sale debt security in the accompanying consolidated balance sheet.

At December 31, 2023, we do not hold any equity interests or in-substance common stock in Legal Vision, and accordingly, we have classified the convertible promissory note as an investment in an available-for-sale debt security in the accompanying consolidated balance sheets.

The fair value of the convertible promissory note is based on unobservable inputs that are categorized as Level 3 in the fair value hierarchy.

We determined that the conversion option on the Legal Vision convertible promissory note will not have material value until Legal Vision executes on its business plans to drive growth, which consequently will drive the fair value of the associated conversion option in excess of the carrying value of the convertible promissory note.

Accordingly, the fair value of the convertible debt approximated its carrying value as of December 31, 2022 and 2021.

Accordingly, the fair value of the convertible debt approximated its

carrying value as of December 31, 2023 and 2022.

At December 31, 2023 and 2022, the fair value of our available-for-sale debt security in Legal Vision was AUD $ 1.7 million ($ 1.2 million) and AUD $ 1.5 million ($ 1.0 million), respectively, with the change due to fair value adjustments during the period.

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expected term of 5.3 years, risk-free rate of 3.7 % and volatility of 60 %.

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 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.

Therefore, we recognized an other-than-temporary impairment of EUR € 4.3 million ($ 4.8 million) in our consolidated statements of operations during the year ended December 31, 2020.

The increase in fair value was recognized in other comprehensive (loss) income for the year ended December 31, 2023.

Investments in Other Equity Securities

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

The change in fair value, due to an orderly transaction, in our other equity securities was $ 1.8 million for the year ended December 31, 2021, which was recognized in other income, net in our consolidated statements of operations.

At December 31, 2022 and 2021 our total equity interest in LawPath was approximately 14 %.

The change in fair value, due to an orderly transaction, in our other equity securities was $ 1.8 million for the year ended December 31, 2021, which was recognized in other income (expense), net in our consolidated statements of operations.

At both December 31, 2023 and 2022 the carrying amount of our investment in LawPath was $ 4.4 million.

The investment in LawPath does not have a readily determinable fair value.

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.

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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.

There were no other impairments of our investments during the years ended December 31, 2023, 2022, and 2021.

At December 31, 2023 and 2022, the carrying value of these investments is included in other assets in the accompanying consolidated balance sheets.

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As of December 31,

Building and building improvements

Internal-use software

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Computer hardware

14,074 13,762

Leasehold improvements

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Depreciation and amortization expense related to property and equipment was $ 20.2 million, $ 18.2 million and $ 15.7 million for 2023, 2022 and 2021, respectively.

At December 31, 2022, 2021 and 2020, accumulated amortization in connection with internal-use software costs was $ 41.0 million, $ 42.5 million and $ 38.7 million, respectively.

At December 31, 2023 and 2022 accumulated amortization in connection with internal-use software costs was $ 47.6 million and $ 41.0 million, respectively.

In 2023, 2022 and 2021, we recorded amortization expense of $ 17.6 million, $ 14.6 million and $ 11.6 million, respectively, in connection with these costs.

Software development in-progress consists primarily of internal-use software projects, which when placed in service, will provide enhancements and improvements to the operational and functional capabilities to our online platforms and our customer-facing website.

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

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.

In 2023, 2022 and 2021 we capitalized internal-use software development costs of $ 35.0 million, $ 21.4 million and $ 9.9 million respectively.

In 2023 and 2022, no software development costs were impaired.

In 2021, we impaired $ 0.9 million of capitalized software development 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.

At December 31, 2023, we had various non-cancelable operating leases for office space and equipment, which expire between January 2024, and November 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.

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Leases consist of the following (in thousands):

Assets Classification December 31, 2022

As of December 31,

Assets Classification 2023

Operating Operating lease right-of-use assets $ 8,518 $ 11,148

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Total lease liabilities

$ 9,046 $ 11,339

At December 31, 2023, 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

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Long-term lease liabilities $ 6,966 $ 2 $ 6,968

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

Weighted-average remaining lease term as of December 31, 2023 (in years) 5.0 1.1

Weighted-average incremental borrowing rate as of December 31, 2023 4.51 % 5.50 %

Weighted-average remaining lease term as of December 31, 2022 (in years) 5.6 1.9

Operating leases Finance leases Total leases liabilities

Weighted-average incremental borrowing rate as of December 31, 2022 4.39 % 5.50 %

The component of our lease costs included in our consolidated statements of operations were as follows (in thousands):

Year Ended December 31,

Operating lease cost $ 3,127 $ 2,384

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Net lease cost $ 3,441 $ 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 2023 and 2022 were as follows (in thousands):

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Balance as of December 31, 2022 63,229

Acquisition 3,409

Foreign currency translation 89

Balance as of December 31, 2023 $ 63,318

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

As discussed in Note 5, we acquired UA Services in August 2022.

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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Additional debt issuance costs of $ 0.8 million were allocated to the 2021 Revolving Facility.

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 %.

On May 5, 2023, we entered into an amendment to the 2021 Revolving Facility to replace the LIBOR interest rate benchmark with the Secured Overnight Financing Rate, or SOFR, benchmark, with a 0.10 % credit spread adjustment to the SOFR benchmark, or Adjusted Term SOFR, for all available interest periods, provided that if the Adjusted Term SOFR is less than zero, the Adjusted Term SOFR shall be deemed to be zero.

Other than the foregoing, the remaining terms of the 2021 Revolving Facility remained unchanged.

The interest rate applicable to the 2021 Revolving Facility is subject to a 1.0 % floor and is 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) Adjusted Term SOFR plus 1.0 %.

The interest rate margins under the 2021 Revolving Facility are subject to one reduction of 0.25 % and a further reduction of 0.25 % upon achieving total net first lien leverage ratios of 3.50 to 1.00 and 2.50 to 1.00, respectively.

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We are also required to pay customary letter of credit fees and agency fees.

We have the option to voluntarily repay outstanding loans under the 2021 Revolving Facility at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans.

There is no scheduled amortization under the 2021 Revolving Facility.

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There were no interest rate swaps outstanding as of December 31, 2023 and 2022.

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,

Settlement of interest rate swaps $ 1,052

Amortization of prior hedge effectiveness 3,095

Fair value adjustment of interest rate swap 364

Amortization of interest rate cap premium 28

Interest expense on hybrid debt 368

Discontinuance of interest rate swaps and prior hedge effectiveness 9,240

Total, recorded in interest expense, net $ 14,147

Financial Guarantee

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The associated restricted cash equivalent of $ 25.0 million became unrestricted and was reclassified to cash and cash equivalents.

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,

Settlement of interest rate swaps $ 1,052 $ 1,103

Amortization of prior hedge effectiveness 3,095 3,481

Fair value adjustment of interest rate swap 364 —

Amortization of interest rate cap premium 28 194

Interest expense on hybrid debt 368 630

Discontinuance of interest rate swaps and prior hedge effectiveness 9,240 —

Total, recorded in interest expense, net $ 14,147 $ 5,408

Commitments and Contingencies

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, 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.

We have non-cancelable agreements with various vendors, which require us to pay $ 46.5 million over a four year period, of which $ 32.8 million remains to be paid as of December 31, 2023.

Legal Proceedings

We received a demand letter dated April 20, 2020 from service partner Dun & Bradstreet alleging that Dun & Bradstreet had overpaid us for services.

The letter alleges these overpayments occurred between 2015 and 2019, amounted to $ 5.6 million, and were caused by overreporting by us.

The parties have continued to negotiate, and no claim has been filed.

We deny and will continue to deny all of the allegations and claims asserted by Dun & Bradstreet, including, but not limited to, any allegation that Dun & Bradstreet has suffered any harm or damages.

We believe we have meritorious defenses to the claims and will vigorously defend any action.

While there is at least a reasonable

possibility that a loss may be incurred, we have not recorded any loss or accrual in the accompanying consolidated financial statements at December 31, 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 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.

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

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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.

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

In September 2023, we repurchased a total of 4,718,755 shares of our common stock for a total repurchase of $ 45.1 million directly from a selling stockholder, who was a related party due to the selling stockholder’s then-ownership of our common stock, in a private, non-underwritten transaction at a price of $ 9.55 per share, which was equal to the price paid by the underwriters to the selling stockholder in a concurrent secondary public offering.

The repurchase was recorded as a reduction to stockholders' equity.

Upon this repurchase, no further repurchases were available under our 2022 stock repurchase program.

The secondary offering of 16,100,000 shares of our common stock by a selling stockholder was completed at a price to the public of $ 10.00 per share before underwriting discounts and commissions.

All direct and incremental costs incurred in connection with the secondary offering were expensed because we did not receive any proceeds from the sale of shares of common stock in the secondary offering.

In November 2023, a selling stockholder, who was a related party due to the selling stockholder’s then-ownership in our common stock, sold 15,099,993 shares of our common stock in an underwritten public offering.

We did not offer any shares of common stock in this secondary offering and did not receive any proceeds from the sale of shares of common stock by the selling stockholder.

In October 2023, our board of directors approved a new stock repurchase program, or 2023 stock repurchase program, authorizing repurchases of up to $ 100.0 million of our common stock, with no fixed expiration.

Stock repurchases under both 2023 and 2022 programs authorized us to repurchase our common stock 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 may 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 also, from time to time, entered and may enter into Rule 10b5-1 plans to facilitate repurchases of our shares of common stock under this authorization.

Neither stock repurchase program obligated us to acquire any particular amount of common stock and each could be modified, suspended or terminated at any time at the discretion of our board of directors.

During the year ended December 31, 2023, we repurchased a total of 5,867,835 shares of our common stock through open market purchases using Rule 10b5-1 plans and in the above private, non-underwritten transaction, at an average per share price of $ 9.35 for a total repurchase of $ 54.9 million including broker commission.

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.

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

We have made additional open market repurchases under the 2023 stock repurchase program subsequent to December 31, 2023 of 897,385 shares of our common stock, amounting to $ 9.2 million, as of the date of filing.

The Inflation Reduction Act of 2022, enacted in August 2022, imposed a 1% non-deductible excise tax on net repurchases of shares by domestic corporations whose stock is traded on an established securities market.

Consequently, this excise tax is applicable to our stock repurchase program beginning in 2023 and represents a cost of the repurchases of our common stock.

We have recognized $ 0.2 million excise tax liability as of December 31, 2023 because the fair market value of stock repurchases exceeded the fair market value of stock issuances during the year ended December 31, 2023.

Stock-based Compensation

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All equity-based awards going forward will be granted under the 2021 Plan.

An aggregate of 18,946,871 shares of our common stock are reserved for issuance under our 2021 Plan, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan.

An aggregate of 18,946,871 shares of our common stock were reserved for issuance under our 2021 Plan, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan.

Under the terms of the 2021 Plan, both incentive and nonqualified stock options could be granted with exercise prices not less than the fair market value of our common stock on the date of grant.

Options granted pursuant to the 2021 Plan will vest at the rate specified in the stock option agreement.

Under the 2021 Plan, if an option holder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death, or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service.

Under the 2021 Plan, if an option holder’s service relationship with us or any of our affiliates ceases for any reason other than

disability, death, or cause, the option holder may generally exercise any vested options for a period of three months following the cessation of service.

If under our 2021 Plan, shares subject to stock awards expire or terminate without being exercised in full or are paid out in cash rather than in shares, such awards will not reduce the number of shares available for issuance under our 2021 Plan.

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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 agreement.

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.

An 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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In June 2021, our board of directors adopted our 2021 Employee Stock Purchase Plan, or 2021 ESPP.

We authorized the issuance of 3,552,538 shares of common stock under the 2021 ESPP.

We authorized the issuance of 3,552,538 shares of common stock under the 2021 ESPP, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Employee Stock Purchase Plan.

Our 2021 ESPP is implemented through a series of offerings under which eligible employees are granted rights to purchase shares of our common stock on specified dates during such offerings at a discounted price per share.

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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 2022 and 2021 was $ 0.7 million and $ 0.4 million, respectively.

The stock-based compensation expense incurred in 2023, 2022 and 2021 was $ 0.7 million, $ 0.7 million and $ 0.4 million, respectively.

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

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Amount capitalized to internal-use software

Total stock-based compensation expense

4,056 2,526 674

Total stock-based compensation

$ 70,071 $ 82,995 $ 113,506

Stock Options

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17,155 $ 11.13 7.1 $ 3,698

Cancelled/forfeited

( 552 ) 13.97

Outstanding at December 31, 2023

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The total intrinsic value of stock options exercised in 2023, 2022 and 2021 was $ 2.2 million, $ 3.9 million and $ 13.5 million, respectively.

At December 31, 2022, total remaining stock-based compensation expense for unvested awards is $ 29.5 million, which is expected to be recognized over a weighted-average period of 2.2 years.

During the years ended December 31, 2023, 2022, and 2021, the Company recorded stock-based compensation expense related to stock option awards of $ 22.0 million, $ 40.1 million, and $ 73.6 million, respectively.

At December 31, 2023, total remaining stock-based compensation expense for unvested stock options was $ 25.5 million, which is expected to be recognized over a weighted-average period of 2.6 years.

The weighted-average grant-date fair value per share of options granted using the Black-Scholes option pricing model for 2023, 2022 and 2021 was $ 4.40 , $ 6.61 and $ 11.78 , respectively.

There was a realized tax benefit of $ 2.6 million, $ 12.3 million and $ 14.2 million for tax deductions from stock options exercised in 2022, 2021 and 2020, respectively.

There was no tax benefit for 2023.

There was a realized tax benefit of $ 2.6 million and $ 12.3 million for tax deductions from stock options exercised in 2022 and 2021, respectively.

All tax effects related to stock-based compensation have been recorded in our provision for income taxes in the accompanying consolidated statements of operations.

Vesting of the options granted to the members of our senior leadership team will be accelerated upon a qualifying termination that occurs during the change-in-control period, as defined in the option grant agreement, or immediately prior to the effective time of a change-in-control if the option award is not assumed, continued or substituted by the surviving or acquiring entity (or its parent) in connection with such change-in-control.

The weighted-average assumptions that were used to calculate the grant-date fair value of our stock option grants using the Black-Scholes option pricing model were as follows:

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Risk-free interest rate

2.6 % 1.0 % 1.1 %

Expected volatility

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As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO registration statement was declared effective.

The related stock-based compensation expense for the year ended December 31, 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.

During the years ended December 31, 2023, 2022, and 2021, the Company recorded stock-based compensation expense for the IPO Options of $ 2.0 million, $ 4.5 million, and $ 3.2 million, respectively.

At December 31, 2023, total remaining stock-based compensation expense for

unvested stock options was $ 1.1 million, which is expected to be recognized over a weighted-average requisite service period of approximately 1.6 years.

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):

A summary of RSUs and performance stock units, or PSUs, activity for the year ended December 31, 2023 is as follows (in thousands, except weighted-average grant-date fair value):

Number of Units Weighted-

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14,007 $ 10.83

(1) Includes weighted average grant date and modification date fair values.

The fair value of vested RSUs in 2023, 2022 and 2021, were $ 36.6 million and $ 18.5 million and $ 18.1 million, respectively.

Our RSUs consist of time-based RSUs.

For the year ended December 31, 2022, 2021 and 2020, total stock-based compensation expense related to RSUs was $ 41.4 million, $ 38.6 million and $ 3.7 million, respectively.

Our RSUs consist of time-based RSUs and RSUs with performance conditions.

For the years ended December 31, 2023, 2022 and 2021, total stock-based compensation expense related to RSUs was $ 47.3 million, $ 41.4 million and $ 38.6 million, respectively.

At December 31, 2023, total remaining stock-based compensation expense for unvested RSU awards is $ 112.1 million, which is expected to be recognized over a weighted-average period of 2.7 years.

Since the consummation of our IPO, our outstanding RSUs no longer contain performance conditions which impact future vesting.

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.

There was no tax benefit for 2023 and 2022.

There was a realized tax benefit of $ 3.5 million for tax deductions from RSU settlements in 2021.

During the year ended December 31, 2023, we also granted 1.3 million PSUs to members of our senior leadership team.

Vesting of the PSUs is contingent upon the recipient’s continuous employment over the requisite service period and is subject to fulfillment by the Company of predefined performance criteria.

Such awards will be earned only if certain performance targets established by and under the direction of the compensation committee of the board of directors are met during the performance period.

The number of PSUs subject to vesting is determined at the end of the performance period and may equal zero percent ( 0 %) to one hundred and fifty percent ( 150 %) of the target award based upon Company’s achievement of certain revenue, profitability, and market share targets.

If the performance criteria are achieved, 75 % of the PSUs will vest on the date the compensation committee of the board of directors certifies achievement of the performance criteria, and the remaining 25 % of the PSUs will vest on the one year anniversary of such certification date.

PSUs are measured based on the fair market value of the underlying stock on the date of grant and recognized as expense over the employee’s requisite service period using graded vesting attribution method to the extent it is probable that the performance conditions will be achieved.

At December 31, 2023, the awards were not probable of vesting, and, consequently, no stock-based compensation expense related to these PSU awards was recognized during the year ended December 31, 2023.

In the event of a change-in-control (as defined in the employment agreement between the Company and each recipient of the performance award), the vesting conditions of the PSUs will be modified resulting in a vesting of a greater of (i) one hundred percent ( 100 %) of the target award, or (ii) the number of shares commensurate with the Company’s market share for the trailing 12-month period ending on the date that is the end of the nearest month prior to the date of the change of control, provided that 75 % of such PSUs will vest on June 30, 2024 and the remaining 25 % of such PSUs will vest on June 30, 2025, subject to the recipients continuing to be service providers through each such date and accelerated if the acquirer does not assume the awards in an economically equivalent manner.

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, 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.

For the years ended December 31, 2023 and 2022, stock-based compensation expense for these PSUs was $ 0.8 million and $ 0.1 million, respectively, and was recognized on a graded vesting basis.

At December 31, 2023, the remaining stock-based compensation expense for unvested PSUs is $ 0.9 million, which is expected to be recognized over a weighted-average requisite service period of approximately 1.4 years.

In June 2021, we granted 388,389 RSUs with a grant date fair 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 for the IPO RSUs was recognized until our IPO registration statement was declared effective.

Stock-based compensation expense for the years

ended December 31, 2023, 2022 and 2021 was $ 1.9 million, $ 4.3 million, and $ 3.1 million, respectively.

At December 31, 2023, the remaining stock-based compensation expense for unvested PSUs was $ 1.1 million, which is expected to be recognized over a weighted-average requisite service period of approximately 1.6 years.

Upon the effectiveness of our IPO and through December 31, 2021, there were 550,091 RSUs that vested.

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Modification of Stock-Based Compensation Awards

In May 2023, the compensation committee of the board of directors approved amendments to the terms of the stock option and RSU awards granted to members of our senior leadership team during the year ended December 31, 2022, whereby the vesting of such stock options and RSUs will be accelerated upon (i) a qualifying termination that occurs during the CIC period or (ii) the individual’s termination as a result of his or her death or disability (as each such term is defined in the employment agreement between the Company and applicable individual).

Further, the amendments provide that such stock options, to the extent vested and outstanding on the date of the individual’s qualifying termination or the termination of the individual’s employment in the event of his or her death or disability, as applicable and after giving effect to the vesting acceleration, shall remain outstanding and exercisable until the earlier of:

(x) the original expiration date of the stock options, (y) the one-year anniversary of the date of the individual’s termination of employment with the Company, and (z) immediately prior to the effective time of a change in control if such stock option is not assumed, continued or substituted by the surviving or acquiring entity (or its parent) in connection with such change in control.

The modification to add the foregoing provisions did not result in an incremental fair value of the impacted awards because the original vesting conditions were expected to be satisfied as of the modification date and the termination of the individual’s employment in the event of change-in-control or as a result of his or her death or disability was not probable as of the date of this filing.

In June 2021, we modified the vesting conditions of certain stock options and RSUs as described below.

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This new fair value of $ 76.6 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO registration statement for the modified performance options for which the service vesting condition was satisfied on or prior to the effective date of the IPO registration statement, and all remaining compensation expense will be recognized thereafter over the remaining service period.

We recognized stock-based compensation expense of $ 23.3 million from the effective date of our IPO registration statement through June 30, 2021 and we recognized stock-based compensation of $ 24.1 million during the six months ended December 31, 2021.

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

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 years ended December 31, 2023 and 2022 was $ 5.9 million and $ 19.9 million, respectively.

At December 31, 2023, remaining compensation of $ 0.9 million will be recognized over a remaining weighted-average service period of 0.7 years.

We modified the vesting conditions of 3,627,936 outstanding 2019 performance options of an executive officer so that in the event of an IPO, the modified 2019 performance options will vest monthly over a four-year period from the original vesting commencement date in 2019, subject to continued employment of the executive officer, rather than vesting upon the fourth anniversary of the original date of grant based on achieving certain stock price thresholds.

We modified the vesting conditions of 3,627,936 outstanding 2019 performance options of an executive officer so that in the event of an IPO, the modified 2019 performance options will vest monthly over a four years period from the original vesting commencement date in 2019, subject to continued employment of the executive officer, rather than vesting upon the fourth anniversary of the original date of grant based on achieving certain stock price thresholds.

Incremental stock-based compensation expense as a result of this modification was $ 11.4 million.

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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.

Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $ 0.9 million and $ 5.0 million, respectively.

There is no remaining compensation expense to be recognized as of December 31, 2023.

We modified the vesting conditions of 111,902 outstanding performance RSUs of certain employees so that the modified performance RSUs do not vest immediately upon an IPO.

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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.

Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $ 0.3 million and $ 0.6 million, respectively.

At December 31, 2023, remaining compensation expense of $ 0.1 million will be recognized over a remaining weighted-average service period of 0.8 years.

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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.

Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $ 5.0 million and $ 13.0 million, respectively.

At December 31, 2023, remaining compensation expense of $ 1.2 million will be recognized over a remaining weighted-average service period of 0.9 years.

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We recognized $ 1.4 million in incremental stock-based compensation related to this modification during the year ended December 31, 2021.

The fair value of the modified 2020 performance options, 2019 performance option, performance RSUs and LERSUs were remeasured using the fair value of our common stock, as approved by the Pricing Committee of our board of directors, which was $ 25.50 per share, the midpoint of the price range set forth on the cover page of the preliminary prospectus filed with the SEC on June 21, 2021 as part of our registration statement on Form S-1/A.

Net (Loss) Income Per Share Attributable to Common Stockholders

Net Income (Loss) Per Share Attributable to Common Stockholders

The following table shows the computation of basic and diluted net (loss) income per share attributable to common stockholders (in thousands, except per share amounts):

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2023 2022 2021

Net (loss) income

$ ( 48,733 ) $ ( 108,664 ) $ 9,896

amounts attributable to redeemable convertible preferred stock

— — ( 2,673 )

Net (loss) income attributable to common stockholders—basic

Net income (loss)

$ 13,953 $ ( 48,733 ) $ ( 108,664 )

undistributed earnings reallocated to common stockholders

Net (loss) income attributable to common stockholders—diluted

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

$ 13,953 $ ( 48,733 ) $ ( 108,664 )

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Effect of potentially dilutive securities:

Stock options

Restricted stock units

Options to purchase common stock

Employee stock purchase plan

Weighted-average common stock used in computing net (loss) income per share attributable to common stockholders—diluted

194,415 195,829 161,424

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

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

$ 0.07 $ ( 0.25 ) $ ( 0.67 )

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):

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

$ 0.07 $ ( 0.25 ) $ ( 0.67 )

The following table presents the number of stock options, RSUs, and PSUs excluded from the calculation of diluted net income (loss) per share attributable to common stockholders because they are anti-dilutive (in thousands):

As of December 31,

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10,714 17,155 15,274

RSUs and PSUs

7,426 8,879 3,627

Restricted stock

Employee stock purchase plan

18,183 26,174 18,997

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Available-for-sale debt securities $ — $ — $ 1,159

Money market fund 130,215 — —

Money market funds

Total assets $ 208,970 $ — $ 1,159

Contingent consideration — — 836

Total liabilities $ — $ — $ 836

As of December 31, 2022

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$ — $ — $ 836

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):

As of December 31,

2022 2021 2020

Beginning balance

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

Change in fair value

( 127 ) 72 434

Other-than-temporary impairment

— — ( 4,912 )

Ending balance

$ 995 $ 1,122 $ 1,050

Our financial guarantee measured using Level 3 inputs has the following activity (in thousands):

As of December 31,

Beginning balance

$ 150 $ 1,900

Change in fair value

Gain on cancellation of financial guarantee ( 150 ) —

Ending balance

Restructuring

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.

During the year ended December 31, 2023, we recorded a $ 0.8 million reduction in fair value of contingent consideration from our acquisition of UAS as a component of cost of revenue because the earnout metrics were not achieved.

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

Restructuring

From time to time, we initiate cost reduction activities to integrate acquired businesses, to align our workforce with strategic business activities, or to improve efficiencies in our operations.

In 2023 and 2022, we incurred $ 3.7 million and $ 1.9 million, respectively, in severance and related termination benefits costs related to a reduction in headcount in our U.S.

In 2023, we also incurred $ 1.0 million in severance and related termination benefits costs related to the reduction of our U.K.

The 2023 reduction in the U.S.

headcount was substantially complete by December 31, 2023.

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.

restructuring, certain separated employees were eligible to participate in a tender offer transaction and we repurchased 319,257 shares of common stock from employees who were existing stockholders and vested option holders for total consideration of approximately $ 3.1 million.

The repurchased shares were constructively retired.

The following are the domestic and foreign components of our (loss) income before income taxes (in thousands):

The following are the domestic and foreign components of our income (loss) before income taxes (in thousands):

Year Ended December 31,

2023 2022 2021

$ ( 49,383 ) $ ( 119,195 ) $ 25,272

1,710 ( 420 ) ( 12,947 )

Total (loss) income before income taxes

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

Domestic $ 34,518 $ ( 49,383 ) $ ( 119,195 )

Foreign ( 3,024 ) 1,710 ( 420 )

Total income (loss) before income taxes $ 31,494 $ ( 47,673 ) $ ( 119,615 )

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

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2023 2022 2021

$ 647 $ ( 194 ) $ 846

1,143 760 243

Federal $ 8,984 $ 647 $ ( 194 )

State 3,621 1,143 760

Foreign 224 63 78

Total current provision 12,829 1,853 644

1,853 644 1,104

1,142 ( 9,605 ) 2,322

( 1,935 ) ( 1,990 ) ( 997 )

Federal 5,481 1,142 ( 9,605 )

State ( 769 ) ( 1,935 ) ( 1,990 )

Total deferred provision 4,712 ( 793 ) ( 11,595 )

( 793 ) ( 11,595 ) 1,325

Total provision for (benefit from) income tax $ 17,541 $ 1,060 $ ( 10,951 )

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

The provision for income taxes for the year ended December 31, 2023 and 2022 reflected the impact of a change in U.S.

tax law effective January 1, 2022, which requires the capitalization and amortization of research and development expenditures incurred after December 31, 2021.

In August 2022, the Inflation Reduction Act of 2022, or IRA, was enacted.

The IRA introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations, effective for tax years beginning after December 31, 2022.

The Company considered the applicable tax law changes concluding there is no impact to the Company’s tax provision for the twelve months ended December 31, 2023.

The provision for (benefit from) income taxes for December 31, 2023, 2022, and 2021, 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):

Federal income tax rate of 21% to income (loss) before income taxes as a result of the following (in thousands):

Year Ended December 31,

2023 2022 2021

(Benefit from) provision for income taxes at statutory rate

$ ( 10,012 ) $ ( 25,120 ) $ 2,588

Provision for (benefit from) income taxes at statutory rate $ 6,614 $ ( 10,012 ) $ ( 25,120 )

State income taxes, net of federal benefit 1,796 ( 1,424 ) ( 2,309 )

( 1,424 ) ( 2,309 ) ( 891 )

Rate differential on foreign earnings ( 130 ) ( 104 ) ( 68 )

( 104 ) ( 68 ) ( 1,217 )

Research and development credits ( 4,894 ) ( 1,346 ) ( 887 )

( 1,346 ) ( 887 ) ( 1,340 )

Change in valuation allowance 814 304 809

304 809 5,011

Stock-based compensation 4,538 2,021 ( 3,065 )

2,021 ( 3,065 ) ( 2,162 )

Nondeductible stock-based compensation 6,053 10,012 18,267

1 unchanged sentence

Non-deductible expenses 350 630 287

630 287 ( 52 )

Other ( 98 ) 4 432

Total provision for (benefit from) income taxes $ 17,541 $ 1,060 $ ( 10,951 )

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

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and liabilities consisted of the following as of December 31, 2023 and 2022, (in thousands):

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Impairment on investment 1,445 1,445

As of December 31,

Net operating loss carryforwards 14,492 15,117

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At December 31, 2023 and 2022, we had foreign NOL carryforwards of $ 30.3 million and $ 33.6 million, respectively, which can be carried forward indefinitely and are not subject to expiration.

At December 31, 2022 and 2021, we had federal tax credit carryforwards of $ 7.1 million and $ 7.6 million, respectively, which will begin to expire in 2035.

At December 31, 2023, our federal tax credit carryforwards were immaterial.

At December 31, 2022, we had federal tax credit carryforwards of $ 7.1 million, which will begin to expire in 2039.

At December 31, 2023 and 2022, we had state tax credit carryforwards of $ 12.6 million and $ 10.8 million, respectively, which carry forward indefinitely.

Our domestic entities may be subject to an annual limitation on the utilization of NOL and credit carryforwards based on changes in ownership as defined by Section 382 of the Internal Revenue Code of 1986 .

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

In 2021 we acquired Earth Class Mail and in 2022 we acquired Revvsales Inc.

Both were structured as stock acquisitions.

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We have not provided for U.S.

income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the U.S.

income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered

indefinitely reinvested outside the U.S.

At December 31, 2023, 2022, and 2021, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S.

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Additions for tax positions related to the current year 887

Additions for tax positions related to prior years 59

Reductions for tax positions related to prior years ( 245 )

Balance at December 31, 2021 $ 7,873

Additions for tax positions related to the current year 999

Reductions for tax positions related to prior years ( 245 )

Additions for tax positions related to prior years 48

Balance at December 31, 2022 $ 8,920

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The federal income tax returns for the years 2020 through 2022 and state income tax returns for the tax years 2008 through 2022 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.

Related Party Transactions

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.

In addition to related party transactions disclosed in Note 14, in 2021, we incurred software and software maintenance fees of $ 0.9 million, from two software vendors controlled by our then-largest stockholder.

401(k) Savings Plan

3 unchanged sentences

We contributed $ 4.0 million, $ 3.7 million, and $ 2.3 million to the 401(k) plan in 2023, 2022, and 2021, respectively.

Accumulated Other Comprehensive Income (Loss)

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

Accumulated Other Comprehensive (Loss) Income

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

Year Ended December 31, 2023

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Available-for-sale debt securities:

Year Ended December 31, 2023

(in thousands) Before Tax

Amount Tax Effect Net of Tax

Beginning balance $ 184 $ ( 45 ) $ 139

Unrealized loss ( 147 ) 3 ( 144 )

Unrealized gains 140 ( 35 ) 105

Ending balance $ 324 $ ( 80 ) $ 244

1 unchanged sentence

Beginning balance $ 1,542 $ ( 45 ) $ 1,497

Other comprehensive income 3,289 3 3,292

Other comprehensive loss ( 1,230 ) ( 35 ) ( 1,265 )

Ending balance $ 312 $ ( 80 ) $ 232

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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

13 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 $ — $ — $ —

Accumulated other comprehensive loss:

Year Ended December 31, 2021

(in thousands) Before Tax

Amount Tax Effect Net of Tax

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 )

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