What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-29 · 150 added, 180 removed, 482 unchanged (41% of the section changed)

4 unchanged sentences

See “Forward-Looking Statements” preceding Part I of this Annual Report on Form 10-K.

LegalZoom is a leading online platform for business formation in the U.S.

Our unique position at business inception allows us to become a trusted business advisor, supporting the evolving needs of a new business throughout 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.

Driven by a mission to unleash entrepreneurship, we deliver comprehensive legal, tax, accounting and compliance products and expertise for small business owners through easy-to-use technology.

We operate across all 50 states and in over 3,000 counties in the U.S., with over two decades of experience in simplifying the legal and compliance process for our customers and empowering entrepreneurs to make their dream a reality.

LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system.

By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or LegalZoom Legal Services (LZLS) law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to estate planning and ongoing legal support.

We operate across all 50 states and in over 3,000 counties in the U.S.

With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses navigate legal needs with confidence.

Recent Developments and Updates

• In November 2023, LucasZoom, LLC, or the selling stockholder, sold 15,099,993 shares of our common stock in an underwritten public offering at a price paid to the selling stockholder of $10.84 per share.

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

Upon the closing of the offering, the selling stockholder ceased to own any shares of our common stock.

• In November 2023, we announced the launch of a new business license offering.

This new offering is built on a proprietary nationwide database that matches a small business profile with the required licenses and permits at all levels of government.

• In December 2023, we launched a new Beneficial Ownership Information Report to help customers satisfy the federally mandated beneficial ownership information reporting rule under the Corporate Transparency Act, which went into effect on January 1, 2024.

• In 2023, we exited certain channel partnership relationships as part of our focus on profitable, customer-led growth.

In the first half of 2024, we expect these exits to negatively impact business formations and, in turn, our subscription unit growth, as business formations act as an entrance point for many customers into the LegalZoom ecosystem.

• We are continuing to scale up LZ Tax and we are learning more about our tax customers in the process.

As we optimize our LZ Tax offerings to better meet the needs of our target customers, we are seeing and expect to continue to see a decrease in the number of customers purchasing and retaining an LZ Tax subscription unit.

While this decrease will produce a revenue headwind throughout 2024, we expect increased retention of our LZ Tax subscription units over the long term.

• On February 10, 2025, we acquired all of the outstanding equity interests of Formation Nation, Inc., or Formation Nation, for total cash consideration of $64.8 million and 2,205,445 restricted shares of our common stock.

The shares are subject to a lock-up and voting agreement, and a portion of the cash consideration is subject to a one year holdback and customary adjustments.

The cash consideration was funded with cash on hand.

Upon closing of the transaction, Formation Nation, Inc.

and its subsidiaries – including Inc Authority and Nevada Corporate Headquarters – became wholly owned subsidiaries of LegalZoom.

• In December 2024, we announced a three-year strategic partnership with Accounting Fulfillment Services, LLC, or 1-800Accountant, pursuant to which 1-800Accountant agreed to certain minimum revenue commitments to us across the term of the agreement in exchange for us agreeing to certain obligations to market 1-800Accountant services to its customers, including agreeing to refer a minimum number of our business formation customers to 1-800Accountant in order to offer full service do-it-for-me tax and bookkeeping solutions to our customers.

We expect this shift in the way we commercialize our tax offering to be a revenue headwind in 2025.

• As of the date of this filing, the nationwide preliminary injunction against enforcement of the Corporate Transparency Act’s beneficial ownership information report rule is paused and the deadline for most companies to file a beneficial ownership information report is now extended until March 21, 2025.

However, given that this reporting requirement continues to face legal challenges, the future of this filing requirement remains unpredictable and we expect it to be a revenue headwind in 2025.

Key Factors Affecting Our Performance

1 unchanged sentence

• Macroeconomic factors .

Adverse changes in general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the formation of new small businesses.

While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, future negative or decelerating impacts from factors such as inflation, higher interest rates, regulatory obstacles or changes in laws (including changes in tax laws and regulations) remain uncertain.

Adverse changes in, or uncertainty with respect to, general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the formation of new small businesses.

While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, future negative or decelerating impacts from factors such as inflation, tariffs, higher interest rates, regulatory obstacles or changes in laws and regulations remain uncertain.

• Our share of business formations .

3 unchanged sentences

and even more so, on our ability to increase our share of these formations.

In an effort to increase our share of new business formations in the U.S., we have introduced and may continue to introduce lower-priced products and services to target more price conscious customers.

• Ability to enhance customer lifetime value .

Our goal is for customers to grow their use of our platform post-formation to include additional transaction products and subscription services as their businesses evolve and that, in turn, customers increase their cumulative spend with us over time.

As a result, our future performance depends on our ability to integrate new products and services into our LegalZoom ecosystem and to increase recurring revenue through subscription offerings.

As we continue to test new and existing products and services in order to optimize our product line-up, we expect increased volatility across our key business metrics.

Our future performance depends on our ability to integrate new products and services into our LegalZoom ecosystem and to increase recurring revenue through subscription offerings.

As we continue to test new and existing products and services in order to optimize our product line-up, including testing various commercialization strategies for those offerings, we have experienced and expect to continue to experience increased volatility across

our key business metrics.

In addition, in an effort to enhance customer lifetime value, we intend to continue to invest in improving our customer experience, which includes investments in our educational content and improving our website and mobile experience.

2 unchanged sentences

We aim to increase the consumption of our higher-cost expert offerings through targeted cross-selling and promotion of our products, as well as by improving the platforms through which our customers and experts interact.

Our ability to further integrate experts into our LegalZoom ecosystem and to increase the consumption of our expert offerings by new and existing customers is key to our future success.

The extent to which we are able to integrate experts into our LegalZoom ecosystem and increase the consumption of our expert offerings by new and existing customers will impact our future results of operations.

Key Components of our Results of Operations

We generate revenue from the sources identified below.

Beginning in the fourth quarter of 2023, we no longer present partner revenue on a standalone basis and partner revenue is now included within transaction and subscription revenue.

This change had no impact on total revenue.

Prior period disclosures and amounts have been conformed to the current period presentation.

Transaction revenue —Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services.

9 unchanged sentences

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.

See the section titled “—Critical Accounting Estimates—Revenue Recognition” for a description of the accounting policies related to revenue recognition, including arrangements that contain multiple deliverables.

See the section titled “—Critical Accounting Estimates—Revenue Recognition” below for a description of the accounting policies related to revenue recognition, including arrangements that contain multiple deliverables.

Cost of revenue

3 unchanged sentences

These contract assets are recognized as cost of revenue in the same period the related revenue is recognized.

We expect our cost of revenue to increase in absolute dollars as we continue to invest in enhancing our customer experience and in new product development.

Gross profit and gross margin

1 unchanged sentence

Our long-term gross margin expansion is also expected to be driven by automation improvements and digitization efforts.

Further, our acquisitions of other companies have negatively impacted our gross margin in the short term, and any such future acquisitions could have a similar effect.

In the short term, we expect our gross profit to increase in absolute dollars but our gross margin to be impacted by higher filing fees as a percentage of revenue due to our offering of free LLC formations, as well as our continued investment in scaling our tax and attorney-assisted legal offerings, which have lower gross margins than other products in our portfolio.

However, we expect our gross margin to increase modestly over the longer term as we continue to focus on growing higher-margin subscription revenue and invest in fulfillment automation technologies.

Further, our acquisitions of other companies have negatively impacted our gross margin in the past, and any such future acquisitions could have a similar effect.

We expect our gross margin to increase modestly over the longer term as we continue to focus on growing higher-margin subscription revenue and invest in fulfillment automation technologies.

In addition, our gross margin could fluctuate from period to period due to fulfillment rates and seasonality.

9 unchanged sentences

Technology and development

Technology and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation, expenses for outside consultants, an allocation of depreciation and amortization and allocated overhead.

Technology and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation for technology and development personnel, expenses for outside consultants, an allocation of depreciation and amortization and allocated overhead.

These expenses include costs incurred in the development and implementation of our products, websites, mobile applications, online legal platform, research and development and related infrastructure.

Technology and development expenses are expensed as incurred, except to the extent that such costs are associated with internal-use software costs that qualify for capitalization.

Excluding stock-based compensation, we expect our technology and development expenses to continue to increase in absolute dollars for the foreseeable future as we invest in new products and services and in production automation technologies to enhance our customer experience.

We expect our technology and development expenses to remain relatively consistent or increase as a percentage of our revenue over the long-term, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

Excluding stock-based compensation, we expect our technology and development expenses to remain relatively consistent as a percentage of our revenue for the foreseeable future, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

General and administrative

Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs.

We will continue to incur stock-based compensation expense related to certain modifications to equity awards that occurred in connection with our IPO through 2024;

however, we expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term.

Our general and administrative expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

We expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term.

However, our general and administrative expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

Interest expense

7 unchanged sentences

At December 31, 2024, we had state NOL carryforwards of $28.8 million, which will begin to expire in 2025 and we had foreign NOL carryforwards of $35.1 million, which can be carried forward indefinitely and are not subject to expiration.

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited.

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined

as a greater than 50% change, by value, in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited.

We had an ownership change in prior years, and as a result certain federal and state NOLs were limited pursuant to Section 382 of the Code.

3 unchanged sentences

Number of business formations

We define the number of business formations in a given period as the number of limited liability company, or LLC, incorporation, not-for-profit and doing business as, or DBA, orders placed on our platform in such period, excluding such orders from our operations in the United Kingdom, or U.K.

We consider the number of business formations to be an important metric considering that it is typically the first product small business customers purchase on our platform, creating the foundation for additional purchases of transaction and subscription offerings throughout the lifecycle of their business, deepening our relationship with our customers.

We consider the number of business formations to be an important metric considering that it is typically the first product or service small business customers purchase on our platform, creating the foundation for additional products and subsequent subscription revenue as customers adopt additional products and services throughout the lifecycle of their business.

We believe that including customers filing DBAs on our platform provides a more accurate representation of the number of newly formed businesses we serve.

1 unchanged sentence

Furthermore, we believe our definition of the number of business formations is most closely aligned with U.S.

Census reporting of new applications for EINs, which we believe to be the most relevant source of publicly available U.S.

Census reporting of new applications for Employer Identification Numbers, or EINs, which we believe to be the most relevant source of publicly available U.S.

The below table sets forth the number of business formations for the years ended December 31, 2024 and 2023:

2 unchanged sentences

Number of business formations

We experienced a 23% increase in business formation transactions during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Our business formation transactions increased during the year ended December 31, 2023 primarily due to an increase in LLC formations driven by our nationwide

roll-out of free LLC formations beginning in the first quarter of 2023.

This increase in business formation transactions was partially offset by the exit of certain channel partner relationships in the third quarter of 2023.

Our business formation transactions outpaced the 8% increase in overall U.S.

business formations during the year ended December 31, 2023 compared to the year ended December 31, 2022, based on a review of U.S.

We experienced a 17% decrease in business formation transactions during the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to a challenging macroeconomic environment and the exit of certain partner channel relationships in the third quarter of 2023.

business formations declined 5% during the year ended December 31, 2024, compared to the year ended December 31, 2023, based on a review of U.S.

Census data revealing new applications for EINs.

5 unchanged sentences

Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee.

We consider the number of transactions to be an important metric considering that our customers generally begin their LegalZoom journey with a transaction, creating the foundation for generating subsequent subscription and partner revenue.

The below table sets forth the number of transactions for the years ended December 31, 2024 and 2023 :

2 unchanged sentences

Number of transactions

We experienced a 12% increase in the number of transactions during the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in the number of transactions during the year ended December 31, 2023 resulted primarily from the increase in business formations discussed above, as well as an increase in the number of compliance-related transactions.

These increases were partially offset by a 12% reduction in estate planning transactions during the year ended December 31, 2023.

We experienced an 8% increase in the number of transactions during the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily from the introduction of our beneficial ownership information report in December 2023 and to a lesser extent an increase in other small business related transactions, including annual reports and corporate dissolutions.

These increases were partially offset by the decrease in business formations discussed above.

Average order value

We define average order value for a given period as total transaction revenue divided by total number of transactions in such period.

We consider average order value to be an important metric given it indicates how much customers are spending on our platform per transaction.

We consider average order value to be an important metric given that it indicates how much customers are spending on average on our platform per transaction.

The below table sets forth the average order value for the years ended December 31, 2024 and 2023:

2 unchanged sentences

Average order value decreased by 8% during the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease in average order value during the year ended December 31, 2023 was primarily driven by a 25% decrease in average order value related to our business formations due to the nationwide rollout of free LLC formations during the first quarter of 2023.

We expect variability in average order value throughout 2024 as we lap our exit of certain channel partner relationships and due to changes in the mix of our non-formation transaction products.

The decrease in average order value was primarily driven by a higher mix of lower priced small business-related transactions, including beneficial ownership information reports, and a reduction in the fees earned from third-party providers from leads generated for such providers through our online platforms.

Number of subscription units

We define the number of subscription units in a given period as the paid subscriptions at the end of such period, including those that are not yet 60 days past their subscription order dates.

We define the number of subscription units in a given period as the number of paid subscriptions at the end of such period, including those that are not yet 60 days past their subscription order dates.

Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee.

We consider the number of subscription units to be an important metric since subscriptions enable us to increase the lifetime value of a customer through deeper, longer-term relationships.

In addition, as we innovate our product line-up and make a free business formation a foundational element of our business model, we believe the number of subscription units, when viewed together with the number of business formations during a particular period, provides insight into the effectiveness of our “freemium” strategy and its ability to drive growth in our subscription business.

Subscriptions typically range from 30 days to one year in duration and the vast majority of our new subscriptions originate from business formation orders.

In addition, as we continue to innovate our product line-up, including by testing varying price points for our products and evaluating our commercialization strategy, we believe the number of subscription units, when viewed together with the number of business formations during a particular period, provides insight into the effectiveness of our efforts to drive growth in our subscription business.

Subscriptions typically range from 30 days to one year in duration and the vast majority of our new subscriptions originate from business formation orders and have an annual term.

Our customers can have multiple subscriptions at the end of a period.

For example, a popular combination for a new small business owner is attorney advice and registered agent subscriptions.

The below table sets forth the number of subscription units as of December 31, 2024 and 2023:

2 unchanged sentences

Number of subscription units

We achieved 7% growth in our number of subscription units from December 31, 2022 to December 31, 2023, primarily driven by a 4% increase in our registered agent and compliance subscription units, which was dampened by the exit of certain channel partner relationships in the back half of 2023.

The increase in subscription units was also driven to a lesser extent by an increase in virtual mail, forms and e-signature subscriptions.

On a sequential basis, the number of subscription units as of December 31, 2023 decreased 1% from 1,568 thousand subscription units as of September 30, 2023.

We achieved 14% growth in the number of subscription units from December 31, 2023 to December 31, 2024, primarily driven by an increase in forms and e-signature and accounting solution subscriptions resulting from the bundling of these products into certain business formation offerings and an increase in compliance subscriptions.

Growth in subscription units as of December 31, 2024 was partially offset by the discontinuation of new customer acquisition for our tax offering.

On a sequential basis, the number of subscription units as of December 31, 2024 increased 3% from 1,717 thousand subscription units as of September 30, 2024.

Average revenue per subscription unit

1 unchanged sentence

We consider ARPU to be an important metric because it helps to illustrate our ability to provide and monetize higher value subscriptions.

In addition, when viewed together with subscription units, ARPU provides insight into the impact that higher-value subscriptions have on our ability to grow our subscription units.

In addition, when viewed

together with subscription units, ARPU provides insight into the impact that higher-value subscriptions have on our ability to grow our subscription units.

The below table sets forth ARPU as of December 31, 2024 and 2023:

Year Ended December 31,

As of December 31,

Average revenue per subscription unit

ARPU increased 7% as of December 31, 2023 as compared to December 31, 2022 driven primarily by a shift in mix of our higher priced subscription offerings.

ARPU as of December 31, 2023 was up 4% sequentially compared to September 30, 2023.

ARPU declined 5% as of December 31, 2024 as compared to December 31, 2023 driven primarily by pricing changes to our compliance related subscriptions and virtual mail subscriptions.

ARPU as of December 31, 2024 was flat sequentially compared to September 30, 2024.

Annual small business retention rate

We define annual small business retention rate as the percentage of small business subscription units active as of the last day of the quarter one year ago that were still active subscriptions 12 months later.

Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, LZ Tax, our small business legal advisory plan and subscriptions acquired through our purchase of Earth Class Mail and Revvsales, and exclude subscriptions from our enterprise customers, our operations in the U.K.

Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, our tax solutions, our small business legal advisory plan and subscriptions acquired through our purchase of Earth Class Mail Inc.

and Revvsales Inc., and exclude subscriptions from our enterprise customers, our operations in the U.K.

and our consumer legal advisory plan.

1 unchanged sentence

Our annual small business retention rate as of December 31, 2024 was approximately 63%.

We expect annual retention rate to fluctuate as we continue to test new products, subscription term lengths and price points and seek to optimize our product offerings across our lineup in connection with our “freemium” strategy.

We expect annual retention rate to fluctuate as we continue to test new products, subscription term lengths and price points and seek to optimize our product offerings across our lineup.

While there may be a general correlation between annual small business retention rate and our ability to increase customer lifetime value and the growth of our customer base, we do not view it as a predictor of future revenue given the varying needs of a small business during its lifecycle and the varying use cases of the products underlying our subscription units.

15 unchanged sentences

108,939 106,352

Impairment of long-lived assets — 248

Total operating expenses 406,207 400,405

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

Income from operations 35,581 21,059

Interest expense (446) (493)

1 unchanged sentence

Other income (expense), net 98 1,621

Impairment of other equity security — (3,000)

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

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

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

Income before income taxes 43,083 31,494

Provision for income taxes 13,120 17,541

Net income $ 29,963 $ 13,953

(1) Includes stock-based compensation expense as follows:

2 unchanged sentences

Cost of revenue $ 5,833 $ 4,318

$ 4,318 $ 2,931

Sales and marketing 8,077 6,096

Technology and development 19,573 18,899

18,899 16,574

General and administrative 38,027 36,702

36,702 50,820

Total stock-based compensation expense $ 71,510 $ 66,015

$ 66,015 $ 80,469

Stock-based compensation expense decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the modification of certain equity awards in connection with our IPO.

Refer to Note 15 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Stock-based compensation expense increased for the year ended December 31, 2024 compared to the year ended December 31, 2023 due to time-based restricted stock units, or RSUs, RSUs with performance and market conditions, and RSUs with market conditions granted to eligible employees and members of our senior leadership team in 2024.

Refer to Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

(2) Includes depreciation and amortization expense for our property and equipment, including capitalized internal-use software and intangible assets as follows:

17 unchanged sentences

$ 681,881 $ 660,727 $ 21,154 3 %

(1) Beginning in the fourth quarter of 2023, we no longer present partner revenue on a standalone basis and partner revenue is now included within transaction and subscription revenue.

This change had no impact on total revenue.

Prior period disclosures and amounts have been conformed to the current period presentation.

The 3% increase in total revenue for the year ended December 31, 2024 compared to the year ended December 31, 2023 was driven by an increase in subscription revenue.

Subscription revenue was 64% and 62% of total revenue for the year ended December 31, 2024 and 2023, respectively, and transaction revenue was 36% and 38% of total revenue for the year ended December 31, 2024 and 2023, respectively.

Transaction revenue for the year ended December 31, 2023 decreased due to a 15% decrease in average order value compared to the year ended December 31, 2022, partially offset by a 12% increase in the number of transaction units over the same period.

The decrease in average order value for the year ended December 31, 2023 was driven primarily by a 25% decrease in average order value related to our business formations due to the nationwide rollout of free LLC formations during the first quarter of 2023.

The overall increase in transaction units during the year ended December 31, 2023 was due to a 23% increase in business formations due primarily to the nationwide rollout of free LLC formations.

This increase was partially offset by a 12% reduction in estate planning transactions.

Subscription revenue for the year ended December 31, 2023 increased primarily due to a 7% increase in the number of subscription units as of December 31, 2023 compared to December 31, 2022 and a 7% increase in ARPU compared to December 31, 2022.

The increase in subscription units was driven primarily by a 4% increase in our registered agent and compliance subscription units, which was dampened by the exit of certain channel partner relationships in the back half of 2023.

The increase in subscription units was also driven to a lesser extent by an increase in virtual mail, forms and e-signature subscriptions .

ARPU increased 7% compared to December 31, 2022 driven primarily by a shift in the mix of our higher priced subscription offerings.

Transaction revenue decreased 1% year-over-year for the year ended December 31, 2024 primarily due to a 17% decrease in business formations and a reduction in fees earned from third-party providers from leads generated from such providers through our online platform, partially offset by the introduction of our beneficial ownership information report and an increase in other small business related transactions, including annual reports and dissolutions.

Subscription revenue increased 6% year-over-year for the year ended December 31, 2024 primarily due to our compliance-related subscriptions and legal advisory subscriptions, partially offset by the discontinuation

of new customer acquisition for our tax offerings and the exit of certain channel partner relationships in the third quarter of 2023 .

Cost of revenue

4 unchanged sentences

$ 240,093 $ 239,263 $ 830 — %

Cost of revenue for the year ended December 31, 2023 increased by $28.2 million mainly due to a $14.0 million increase in filing fees, a $4.2 million increase i n depreciation and amortization expense, a $2.8 million increase in third-party staffing fees, a $2.1 million increase in payroll and related benefits expense, and $1.4 million increase in stock-based compensation.

The increase in filing fees was primarily driven by the increase in business formations during the year ended December 31, 2023 compared to the year ended December 31, 2022 .

Cost of revenue for the year ended December 31, 2024 increased by $0.8 million mainly due to a $6.1 million increase i n depreciation and amortization expense primarily resulting from higher capitalization of internal-use software development costs and a $1.5 million increase in stock-based compensation expense , partially offset by a $4.8 million decrease in filing fees and a $3.3 million decrease in third party staffing fees .

The decrease in filing fees was primarily driven by the decrease in business formations during the year ended December 31, 2024 compared to the year ended December 31, 2023 .

Year Ended December 31,

9 unchanged sentences

$ 207,684 $ 210,872 $ (3,188) (2 %)

Sales and marketing expenses for the year ended December 31, 2023 decreased primarily due to a $29.3 million reduction in customer acquisition media spend, an $18.1 million reduction in payroll and related benefits, a $5.8 million reduction in media production spend, a $4.0 million reduction in stock-based compensation expense, and a $1.7 million reduction in depreciation and amortization expense, partially offset by a $9.0 million increase in consulting fees.

The decrease in stock-based compensation expense and payroll and related benefits was largely due to decreased sales and marketing headcount.

Customer acquisition media spend was $145.3 million and $174.6 million for the year ended December 31, 2023 and 2022, respectively, as we reduced our marketing spend in 2023 to align with our freemium strategy.

Sales and marketing expenses for the year ended December 31, 2024 decreased by $3.2 million primarily due to a $15.4 million reduction in payroll and related benefits, partially offset by a $12.2 million increase in customer acquisition media spend.

The decrease in payroll and related benefits was largely due to decreased sales and marketing headcount.

Customer acquisition media spend was $157.6 million and $145.3 million for the year ended December 31, 2024 and 2023 , respectively, as we continued to invest in expanding our customer base and building our digital brand leadership and awareness.

Technology and development

4 unchanged sentences

$ 89,584 $ 83,181 $ 6,403 8 %

Technology and development expenses for the year ended December 31, 2023 increased primarily due to an increase in payroll and related benefits largely due to increased technology and development headcount.

Technology and development expenses for the year ended December 31, 2024 increased primarily due to an increase in payroll and related benefits largely due to increased technology and development headcount during the year ended December 31, 2024 .

General and administrative

4 unchanged sentences

$ 108,939 $ 106,352 $ 2,587 2 %

General and administrative expenses for the year ended December 31, 2023 decreased primarily due to a $14.1 million decrease in stock-based compensation, partially offset by a $2.7 million increase in severance and related termination benefits costs primarily related to a reduction in headcount in our U.S.

Impairment of long-lived assets

Year Ended December 31,

2023 2022 $ change % change

(in thousands, except percentages)

Impairment of long-lived assets

$ — $ 248 $ (248) (100 %)

In 2022, we recorded non-cash charges related to the impairment of certain customer relationship assets.

General and administrative expenses for the year ended December 31, 2024 increased primarily due to a $1.4 million increase in severance and related termination benefits costs primarily related to the reduction of our global workforce during the year ended December 31, 2024 , and a $1.3 million increase in stock-based compensation.

Interest expense

11 unchanged sentences

$ 7,850 $ 9,307 $ (1,457) (16 %)

The change in interest income was primarily due to dividend income generated from our money market investments during the year ended December 31, 2023.

Other (expense) income, net

Year Ended December 31,

2023 2022 $ change % change

(in thousands, except percentages)

Other (expense) income, net

$ 1,621 $ (4,477) $ 6,098 (136 %)

The change in other (expense) income, net, between 2023 and 2022 was primarily due to changes in foreign currency movements related to our intercompany loans which were denominated in British pound sterling.

Impairment of other equity security

Interest income consists of interest income generated from our money market investments.

Other income (expense), net

Year Ended December 31,

1 unchanged sentence

(in thousands, except percentages)

Impairment of other equity security

Other income (expense), net

$ 98 $ 1,621 $ (1,523) (94 %)

Impairment of other equity security for the year ended December 31, 2022 was due to the impairment of our investment in Mylo, LLC.

Provision for (benefit from) income taxes

The change in other income (expense), net, between 2024 and 2023 was primarily due to changes in foreign currency movements related to our intercompany loans which were denominated in British Pound Sterling, or GBP.

Provision for income taxes

Year Ended December 31,

1 unchanged sentence

(in thousands, except percentages)

Provision for (benefit from) income taxes

Provision for income taxes

$ 13,120 $ 17,541 $ (4,421) (25 %)

Effective tax rate

The $16.5 million unfavorable change in tax provision in 2023 as compared to 2022 was primarily due to pre-tax book income and non-deductible stock-based compensation as well as timing differences for IRC section 174 research and development costs which resulted in higher taxable income for the year ended December 31, 2023 compared to a pre-tax loss for the year ended December 31, 2022.

The $4.4 million favorable change in our provision for income taxes in 2024 as compared to 2023 was primarily due to lower non-deductible stock-based compensation, lower shortfalls on stock-based compensation and a decrease in unrecognized tax benefits for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Comparison of the Years Ended December 31, 2023 and 2022

For a discussion related to the results of operations and changes in financial condition for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023.

For a discussion related to the results of operations and changes in financial condition for the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024.

Liquidity and Capital Resources

2 unchanged sentences

At December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $142.1 million, which consisted of cash on deposit with banks and money market funds, of which approximately $3.3 million related to our foreign subsidiaries.

Our cash and cash equivalents increased by $36.6 million from December 31, 2022 to December 31, 2023, primarily as a result of cash provided by operating activities, partially offset by purchases of property and equipment and stock repurchases during the year.

Our cash and cash equivalents decreased by $83.7 million from December 31, 2023 to December 31, 2024, primarily as a result of purchases of property and equipment and stock repurchases, partially offset by cash provided by operating activities during the year.

Subsequent to year end, we used $50.1 million of cash in connection with our acquisition of all of the outstanding equity interests of Formation Nation.

We currently anticipate that our available cash, cash equivalents and cash provided by operating activities will be sufficient to meet our operational cash needs for at least the next twelve months and in the foreseeable future.

1 unchanged sentence

In addition, we previously announced our intention to sell our operating headquarters in Austin, Texas, which is discussed in more detail in Note 4 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

During the fourth quarter of 2024, we entered into a purchase and sale agreement for the sale of this property for a purchase price of $37.8 million, which is expected to close on March 31, 2025.

We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and accordingly no taxes have been provided on such earnings.

4 unchanged sentences

state income taxes.

On March 1, 2022, our board of directors approved the 2022 stock repurchase program, which authorized management to repurchase up to $150.0 million of our common stock from time to time.

The 2022 stock repurchase program was exhausted in September 2023.

In October 2023, our board of directors approved the new 2023 stock repurchase program, which authorizes management to repurchase up to $100.0 million of our common stock from time to time.

At December 31, 2023, $100.0 million remained available for repurchases of our common stock under the 2023 stock repurchase program.

For additional information regarding our stock

repurchase programs, refer to Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

In October 2023, our board of directors approved a stock repurchase program, pursuant to which our management is authorized to repurchase up to $100.0 million of shares of our common stock from time to time.

In May 2024, our board of directors approved a $75.0 million increase in the stock repurchase program and in November 2024, our board of directors approved an additional $40.0 million increase in the stock repurchase program.

At December 31, 2024 , approximately $50.0 million remained available for future repurchases of our common stock under the stock repurchase program.

For additional information regarding our stock repurchase programs, refer to Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

2021 Revolving Facility

6 unchanged sentences

The commitment fee is subject to a reduction of 0.10% if the total net first lien leverage ratio does not exceed 3.50 to 1.00.

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

We are also required to pay

customary letter of credit fees and agency fees.

At December 31, 2024, the interest rate applicable to the 2021 Revolving Facility was subject to a 1.0% floor and was at a rate equal to the greatest of:

6 unchanged sentences

There is no scheduled amortization under the 2021 Revolving Facility.

The principal amount outstanding is due and payable in full on July 1, 2026.

The principal amount outstanding is due and payable in full at maturity on July 1, 2026.

Obligations under the 2021 Revolving Facility are guaranteed by our existing and future direct and indirect material wholly-owned domestic subsidiaries, subject to certain exceptions.

10 unchanged sentences

and enter into certain transactions with affiliates.

The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio of 4.50 to 1.00, or the Financial Covenant.

The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio not to exceed 4.50 to 1.00, or the Financial Covenant.

The Financial Covenant will be tested at quarter-end only if the total principal amount of all revolving loans, swingline loans and drawn letters of credit that have not been reimbursed exceeds 35% of the total commitments under the 2021 Revolving Facility on the last day of such fiscal quarter.

5 unchanged sentences

Net cash used in financing activities (183,285) (56,150)

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

Net increase (decrease) in cash and cash equivalents $ 36,637 $ (50,215)

For a discussion of our cash flows for the year ended December 31, 2021, refer to Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 1, 2023.

Effect of exchange rate changes on cash and cash equivalents (313) 34

Net (decrease) increase in cash and cash equivalents (83,655) 36,637

For a discussion of our cash flows for the year ended December 31, 2022, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024.

Net cash provided by operating activities

Our largest source of operating cash is cash collections from our customers for our transaction and subscription services.

Our largest source of operating cash is cash collections from our customers for our transaction products and subscription services.

Our primary uses of cash in operating activities are for our fulfillment, production and customer care costs, employee salaries and benefits, sales and marketing expenses and third party consulting expenses.

Net cash provided by operating activities is impacted by our net income (loss) adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation and impairments of long-lived assets, as well as the effect of changes in operating assets and liabilities.

Net cash provided by operating activities is impacted by our net income adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation and impairments of long-lived assets, as well as the effect of changes in operating assets and liabilities.

In 2024, cash provided by operating activities was $135.6 million resulting from a net income of $30.0 million, adjusted for stock-based compensation and other non-cash expenses of $104.9 million and net cash flows provided by changes in operating assets and liabilities of $0.8 million.

The $0.8 million of net cash flows provided by changes in our operating assets and liabilities included a $6.6 million increase in deferred revenue largely due to the growth of our subscription units, which are predominantly billed in advance of our revenue recognition, and a net $0.5 million decrease in accounts receivable, prepaid expenses and other current assets,

partially offset by a $6.9 million decrease in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments

In 2023, cash provided by operating activities was $124.3 million resulting from a net income of $14.0 million, adjusted for stock-based compensation and other non-cash expenses of $96.8 million and net cash flows provided by changes in operating assets and liabilities of $13.6 million.

The $13.6 million of net cash flows provided from changes in our operating assets and liabilities included a net $6.8 million increase in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments, a $3.3 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition, and a $3.0 million decrease in accounts receivable, prepaid expenses and other current assets.

In 2022, cash provided by operating activities was $73.8 million resulting from a net loss of $48.7 million, adjusted for stock-based compensation and other non-cash expenses of $110.5 million and net cash flows provided by changes in operating assets and liabilities of $12.0 million.

The $12.0 million of net cash flows provided from changes in our operating assets and liabilities included a $17.1 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition, partially offset by a net $2.2 million reduction in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments and a $3.0 million increase in accounts receivable, prepaid expenses and other assets.

Net cash used in investing activities

2 unchanged sentences

In 2024, net cash used in investing activities was $35.7 million, resulting primarily from purchase of property and equipment, including capitalized internal-use software.

In 2022, net cash used in investing activities was $30.6 million, resulting primarily from $22.1 million paid for property and equipment, including capitalized internal-use software, a $6.3 million payment for developed technology acquired from Revvsales Inc., and a $2.5 million payment for the acquisition of United Agency Services Corp.

In 2023, net cash used in investing activities was $31.6 million, resulting primarily from purchase of property and equipment, including capitalized internal-use software.

Net cash used in financing activities

Our primary uses of cash in financing activities are for repurchases of common stock.

Our primary uses of cash in financing activities are for repurchases of common stock and settlements of stock options and RSUs.

Net cash provided by financing activities is primarily impacted by exercises of stock options by our employees and issuances of common stock.

4 unchanged sentences

Our material cash requirements include the below contractual and other obligations:

Other Commitments

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.

We have non-cancelable agreements with various vendors, which require us to pay $36.4 million over a three-year period, of which $25.2 million remains to be paid as of December 31, 2024.

Lease Obligations

At December 31, 2023, we had various non-cancelable operating leases for office space and equipment, which expire between January 2024 and November 2029.

At December 31, 2024, we had various non-cancelable operating leases for office space, which expire between June 2025 and February 2033.

At December 31, 2024, we had total minimum operating lease maturities of $8.8 million, $1.9 million of which mature within twelve months.

5 unchanged sentences

We believe that these non-GAAP financial measures provide useful information about our financial performance and liquidity, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important measures used by our management for financial and operational decision-making.

We are presenting these non-GAAP measures to assist investors in seeing our financial performance using a management view and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

We are presenting these non-GAAP

measures to assist investors in seeing our financial performance using a management view and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income (loss) adjusted to exclude interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, other expense (income), net, stock-based compensation, impairment of goodwill, long-lived and other assets, restructuring expenses, legal expenses, transaction-related expenses and certain other non-recurring income and expenses from time to time.

We define Adjusted EBITDA as net income (loss) adjusted to exclude interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, other expense (income), net, stock-based compensation, impairment of goodwill, long-lived and other assets, restructuring expenses, legal expenses, transaction-related expenses and certain non-recurring income and expenses from time to time.

Our Adjusted EBITDA financial measure differs from GAAP in that it excludes certain items of income and expense.

5 unchanged sentences

Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared and presented in accordance with GAAP.

There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the

nearest GAAP equivalent of Adjusted EBITDA.

There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent of Adjusted EBITDA.

Some of these limitations include that the non-GAAP financial measure:

5 unchanged sentences

• does not reflect certain other expenses that we do not consider representative of our underlying operating performance, but that reduce cash available to us.

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:

The following table presents a reconciliation of net income to Adjusted EBITDA for each of the periods indicated:

Year Ended December 31,

(in thousands)

Reconciliation of Net income (loss) to Adjusted EBITDA

Net income (loss)

$ 13,953 $ (48,733)

Reconciliation of net income to Adjusted EBITDA

Net income $ 29,963 $ 13,953

Interest expense 446 493

Interest income (7,850) (9,307)

(9,307) (1,803)

Provision for income taxes 13,120 17,541

2 unchanged sentences

Stock-based compensation 71,510 66,015

Impairment of other equity security — 3,000

Impairment of long-lived assets — 237

Transaction-related expenses

Restructuring costs (1)

Certain other non-recurring expenses (2)

Certain non-recurring expenses (2)

Adjusted EBITDA $ 148,114 $ 118,691

Net income (loss) margin 2 % (8 %)

Year Ended December 31,

(in thousands)

Net income margin 4 % 2 %

Adjusted EBITDA margin 22 % 18 %

(1) For 2024, restructuring costs related to the reduction of our global workforce.

For 2023, restructuring costs related to the reduction of our U.S.

For 2022, restructuring expenses related to a phased severance event to reduce the U.S.

headcount in June and August 2022.

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 appearing elsewhere in this Annual Report on Form 10-K.

(2) For 2023, certain other non-recurring expenses included costs incurred by us in conjunction with secondary offerings of shares of our common stock by a selling stockholder in September 2023 and November 2023.

For 2022, certain other non-recurring expenses included costs related to the departure of a member of management.

The increase in Adjusted EBITDA of $55.0 million for the year ended December 31, 2023 reflects an increase in revenue of $40.7 million, a reduction in operating expenses, excluding non-cash and non-recurring items, of $33.8 million, and a $7.5 million increase in interest income partially offset by increases in cost of revenue of $28.2 million.

(2) Certain non-recurring expenses included costs incurred by us in conjunction with secondary offerings of shares of our common stock by a selling stockholder in September 2023 and November 2023.

The increase in Adjusted EBITDA of $29.4 million for the year ended December 31, 2024 reflects an increase in revenue of $21.2 million, a reduction in cost of revenue, excluding non-cash and non-recurring items, of $6.8 million, and a $3.0 million decrease in operating expenses, excluding non-cash and non-recurring items.

Free cash flow

13 unchanged sentences

Free cash flow

$ 92,715 $ 51,739

The increase in our free cash flow of $41.0 million for the year ended December 31, 2023 was primarily due to a $50.5 million increase in net cash provided by operating activities.

The increase in net cash provided by operating activities resulted from a $48.9 million increase in net income after adjusting for stock-based compensation and other non-cash items and a $1.5 million favorable change in our operating assets and liabilities.

The increase in our free cash flow of $7.2 million for the year ended December 31, 2024 was primarily due to an $11.3 million increase in net cash provided by operating activities.

The increase in net cash provided by operating activities resulted from a $24.1 million increase in net income after adjusting for stock-based compensation and other non-cash items, partially offset by a $12.8 million unfavorable change in our operating assets and liabilities.

Free cash flow was also impacted by higher capital expenditures for the purchase of property and equipment, including capitalization of internal-use software.

13 unchanged sentences

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 SaaS accounting solution subscriptions and SaaS subscriptions in the U.K.

We generally recognize

revenue from our subscriptions ratably over the subscription term.

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 U.K.

We generally recognize revenue from our subscriptions ratably over the subscription term.

Subscription terms generally range from thirty days to one year.

13 unchanged sentences

The total fees collected by us for our services include, as applicable, expedited services fees, government filing fees and shipping fees.

Subscription services are generally paid monthly or annually in advance of the subscription period except for SaaS services in the U.K., which are invoiced monthly in arrears.

Subscription services are generally paid monthly or annually in advance of the subscription period except for SaaS services in the U.K.

and virtual mail subscriptions, which are invoiced monthly in arrears.

Amounts collected in advance of revenue recognition are recorded in deferred revenue.

5 unchanged sentences

Services we offer can generally either be purchased on a stand-alone basis or bundled together as part of a package of services.

Accordingly, a significant number of our arrangements include multiple performance obligations, such as the preparation of legal documents combined with related document revision, document storage, registered agent services, and free trial periods of our legal plans.

At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise to transfer to the customer a service or bundle of services that is distinct.

At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise

to transfer to the customer a service or bundle of services that is distinct.

The identification of distinct performance obligations within our packages may require significant judgment.

13 unchanged sentences

For the services we sell on a standalone basis, we use the sales price of these services in the allocation of the transaction price in bundled arrangements.

do not sell the service on a standalone basis, we estimate the standalone selling price based on the adjusted market assessment approach or the expected cost plus a margin approach when market information is not observable.

Where we do not sell the service on a standalone basis, we estimate the standalone selling price based on the adjusted market assessment approach or the expected cost plus a margin approach when market information is not observable.

In these cases, the determination of the standalone selling price may require significant judgment.

23 unchanged sentences

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, revenue is recognized net of fees payable to third-parties.

For other services provided by third parties, including deed transfer, accounting, business data protection, 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.

28 unchanged sentences

See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information.

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements.

recognized in our consolidated financial statements.

Deferred income tax assets and liabilities are measured using enacted tax rates anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled.

11 unchanged sentences

We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value, net of estimated forfeitures, over the requisite service period.

We use the Black-Scholes option pricing model for estimating the fair value of options granted under our stock option plans that

vest based on service and performance conditions.

We use the Black-Scholes option pricing model for estimating the fair value of options granted under our stock option plans that vest based on service and performance conditions.

The fair value of restricted stock units, or RSUs, that vest based on service and performance conditions is determined based on the value of the underlying common stock at the date of grant.

5 unchanged sentences

The Black-Scholes option pricing model and the Monte Carlo simulation model requires us to make certain assumptions including the fair value of our underlying common stock, the expected term, the expected stock price volatility, the risk-free interest rates and the expected dividend yield of our common stock.

These assumptions used in the Black-Scholes option pricing model, other than the fair value of our common stock, are estimated as follows:

These assumptions, other than the fair value of our common stock, are estimated as follows:

• Expected term .

1 unchanged sentence

The expected term of options granted is estimated based upon actual historical exercise and post-vesting cancellations, adjusted for expected future exercise behavior.

The expected term of restricted stock units is defined as the remaining term from the grant date to the end of the performance period.

• Risk-free interest rate .

The risk-free interest rate assumption is based upon observed interest rates on the U.S.

government securities appropriate for the expected term of our stock options.

government securities appropriate for the expected term of our stock options and restricted stock units with market condition.

• Expected volatility .

1 unchanged sentence

We determine the expected volatility assumption using the frequency of daily historical prices of comparable public companies’ common stock for a period equal to the expected term of the options.

We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock option grants.

We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock option and restricted stock units with market conditions grants.

• Expected dividend yield .

6 unchanged sentences

Forfeitures are estimated based on our historical experience and future expectations.

If any of the assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

If any of the assumptions used in the Black-Scholes option pricing model and the Monte Carlo simulation model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

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.

10 unchanged sentences

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

Award issuances and modifications in connection with our IPO.

For retention purposes, in connection with our IPO, we amended certain vesting conditions of existing options and RSUs, and granted additional options and RSUs to our executive officers.

See Note 15 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further discussion.

The assumptions that were used to calculate the grant-date fair value of our RSUs with a performance and market conditions granted during the year ended December 31, 2024, using a Monte Carlo simulation model were as follows:

Year Ended December 31,

Expected life (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

The assumptions that were used to calculate the grant-date fair value of the RSUs with a market vesting condition granted in July 2024 using a Monte Carlo simulation model were as follows:

Year Ended December 31,

Expected life (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

The assumptions that were used to calculate the grant-date fair value of the RSUs with a market vesting condition granted in November 2024 using a Monte Carlo simulation model were as follows:

Year Ended December 31,

Expected life (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

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 7. Management’s Discussion and Analysis