LEGALZOOM.COM, INC. 10-K

Item 8. Financial Statements and Supplementary Data LEGALZOOM.COM, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 55 Audited Consolidated Financial Statements: Consolidated Balance Sheets 57 Consolidated Statements of Operations 58 Consolidated Statements of Comprehensive Income (Loss) 59 Consolidated Statements of Stockholders’ Equity 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 63 54 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of LegalZoom.com, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of LegalZoom.com, Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. 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 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. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 55 Critical Audit Matters 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 total consolidated revenue was $681.9 million for the year ended December 31, 2024. The Company recognizes revenue when the performance obligation is satisfied by transferring the promised good or service to the customer. For transaction-based services, revenue is generally recognized at a point-in-time when the services are delivered to the customer. For subscription-based services, revenue is generally recognized on a straight-line basis over the subscription term. 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 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 consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company’s revenue recognition. 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, 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 invoices, customer contracts, proof of fulfillment, and subsequent payment receipts and (ii) testing a sample of outstanding customer invoice balances as of December 31, 2024 by obtaining and inspecting source documents, such as invoices, customer contracts, and subsequent payment receipts. /s/ PricewaterhouseCoopers LLP Los Angeles, California February 26, 2025 We have served as the Company’s auditor since 2006. 56 LegalZoom.com, Inc. Consolidated Balance Sheets (In thousands, except par values) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 142,064 $ 225,719 Accounts receivable, net of allowances of $ 2,121 and $ 4,906 , respectively 8,511 11,738 Prepaid expenses and other current assets 17,926 15,159 Current assets held for sale 22,722 22,722 Total current assets 191,223 275,338 Property and equipment, net 59,788 48,232 Goodwill 63,318 63,318 Intangible assets, net 8,653 13,735 Operating lease right-of-use assets 7,189 8,518 Deferred income taxes 34,696 29,015 Available-for-sale debt security (amortized cost of $ 848 and $ 836 ) 1,377 1,159 Other assets 7,639 8,503 Total assets $ 373,883 $ 447,818 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 31,150 $ 32,282 Accrued expenses and other current liabilities 57,928 61,678 Deferred revenue 174,643 167,951 Operating lease liabilities 1,861 2,052 Total current liabilities 265,582 263,963 Operating lease liabilities, non-current 6,018 6,966 Deferred revenue 381 490 Other liabilities 8,645 7,565 Total liabilities 280,626 278,984 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.001 par value 100,000 shares authorized at December 31, 2024 and 2023, none issued or outstanding at December 31, 2024 and 2023 — — Common stock, $ 0.001 par value; 1,000,000 and 1,000,000 shares authorized; 173,619 and 188,538 shares issued and outstanding at December 31, 2024 and 2023, respectively 175 189 Additional paid-in capital 1,161,538 1,101,474 Accumulated deficit ( 1,069,317 ) ( 933,061 ) Accumulated other comprehensive income 861 232 Total stockholders’ equity 93,257 168,834 Total liabilities and stockholders’ equity $ 373,883 $ 447,818 The accompanying notes are an integral part of these consolidated financial statements 57 LegalZoom.com, Inc. Consolidated Statements of Operations (In thousands, except per share amounts) Year Ended December 31, 2024 2023 2022 Revenue $ 681,881 $ 660,727 $ 619,979 Cost of revenue 240,093 239,263 211,095 Gross profit 441,788 421,464 408,884 Operating expenses: Sales and marketing 207,684 210,872 263,884 Technology and development 89,584 83,181 70,434 General and administrative 108,939 106,352 116,057 Impairment of long-lived assets — — 248 Total operating expenses 406,207 400,405 450,623 Income (loss) from operations 35,581 21,059 ( 41,739 ) Interest expense ( 446 ) ( 493 ) ( 260 ) Interest income 7,850 9,307 1,803 Other income (expense), net 98 1,621 ( 4,477 ) Impairment of other equity security — — ( 3,000 ) Income (loss) before income taxes 43,083 31,494 ( 47,673 ) Provision for income taxes 13,120 17,541 1,060 Net income (loss) $ 29,963 $ 13,953 $ ( 48,733 ) Net income (loss) — basic: $ 29,963 $ 13,953 $ ( 48,733 ) Net income (loss) — diluted: $ 29,963 $ 13,953 $ ( 48,733 ) Net income (loss) per share: Net income (loss) per share — basic: $ 0.17 $ 0.07 $ ( 0.25 ) Net income (loss) per share — diluted: $ 0.16 $ 0.07 $ ( 0.25 ) Weighted-average shares used to compute net income (loss) per share: Weighted-average shares used to compute net income (loss) per share — basic: 180,210 190,466 195,829 Weighted-average shares used to compute net income (loss) per share — diluted: 182,865 194,415 195,829 The accompanying notes are an integral part of these consolidated financial statements 58 LegalZoom.com, Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands) Year Ended December 31, 2024 2023 2022 Net income (loss) $ 29,963 $ 13,953 $ ( 48,733 ) Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustments 475 ( 1,370 ) 3,436 Change in available-for-sale debt securities: Unrealized gains (losses), net 154 105 ( 144 ) Total change in available-for-sale debt securities 154 105 ( 144 ) Total other comprehensive income (loss) 629 ( 1,265 ) 3,292 Total comprehensive income (loss) $ 30,592 $ 12,688 $ ( 45,441 ) The accompanying notes are an integral part of these consolidated financial statements 59 LegalZoom.com, Inc. Consolidated Statements of Stockholders’ Equity (In thousands) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (loss) Income Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 198,084 $ 198 $ 947,160 $ ( 748,012 ) $ ( 1,795 ) $ 197,551 Issuance of common stock upon exercise of stock options and ESPP 540 — 2,436 — — 2,436 Issuance of common stock upon vesting of restricted stock unit awards 1,458 1 — — — 1 Shares surrendered for settlement of minimum statutory tax withholdings ( 4 ) — ( 41 ) — — ( 41 ) Stock-based compensation — — 82,995 — — 82,995 Repurchase and retirement of common stock ( 9,256 ) ( 9 ) — ( 95,117 ) — ( 95,126 ) Other comprehensive income — — — — 3,292 3,292 Net loss — — — ( 48,733 ) — ( 48,733 ) Balance at December 31, 2022 190,822 $ 190 $ 1,032,550 $ ( 891,862 ) $ 1,497 $ 142,375 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 unit awards 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 Issuance of common stock upon exercise of stock options and ESPP 651 1 2,413 — — 2,414 Issuance of common stock upon vesting of restricted stock unit awards 5,875 6 ( 6 ) — — — Shares surrendered for settlement of minimum statutory tax withholdings ( 2,217 ) $ ( 2 ) $ ( 19,820 ) $ — $ — $ ( 19,822 ) Stock-based compensation — — 77,477 — — 77,477 Repurchase and retirement of common stock ( 19,228 ) ( 19 ) — ( 164,972 ) — ( 164,991 ) Stock repurchase excise tax — — — ( 1,247 ) — ( 1,247 ) Other comprehensive income — — — — 629 629 Net income — — — 29,963 — 29,963 Balance at December 31, 2024 173,619 175 $ 1,161,538 $ ( 1,069,317 ) $ 861 $ 93,257 The accompanying notes are an integral part of these consolidated financial statements 60 LegalZoom.com, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2024 2023 2022 Cash flows from operating activities Net income (loss) $ 29,963 $ 13,953 $ ( 48,733 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 34,927 25,383 21,745 Amortization of debt issuance costs 227 227 227 Amortization of right-of-use assets 2,132 2,692 2,049 Stock-based compensation 71,510 66,015 80,469 Impairment of long-lived assets — — 248 Impairment of other equity security — — 3,000 Deferred income taxes ( 4,552 ) 4,712 ( 793 ) Change in fair value of contingent consideration — ( 836 ) ( 150 ) Unrealized foreign exchange loss (gain) 648 ( 1,387 ) 3,558 Other — ( 39 ) 168 Changes in operating assets and liabilities, net of effects of business combinations, asset acquisition and disposal of business: Accounts receivable 3,227 1,441 ( 2,505 ) Prepaid expenses and other current assets ( 2,775 ) 1,557 ( 523 ) Other assets 707 435 179 Accounts payable ( 817 ) 5,025 ( 6,609 ) Accrued expenses and other liabilities ( 4,156 ) 4,119 6,535 Operating lease liabilities ( 1,942 ) ( 2,319 ) ( 2,135 ) Income tax payable ( 44 ) ( 4 ) 28 Deferred revenue 6,584 3,334 17,079 Net cash provided by operating activities 135,639 124,308 73,837 Cash flows from investing activities Acquisitions, net of cash acquired — — ( 2,532 ) Asset acquisition, net of cash acquired — — ( 6,299 ) Proceeds from acquisition working capital adjustment — — 307 Purchase of property and equipment ( 35,696 ) ( 31,593 ) ( 22,098 ) Other — 38 — Net cash used in investing activities ( 35,696 ) ( 31,555 ) ( 30,622 ) Cash flows from financing activities Repayment of finance lease obligations ( 25 ) ( 35 ) ( 14 ) Payment of contingent consideration — — ( 600 ) Repurchase and retirement of shares ( 165,014 ) ( 54,873 ) ( 95,126 ) Payment of stock repurchase costs ( 169 ) ( 100 ) — Shares surrendered for settlement of minimum statutory tax withholding ( 20,491 ) ( 9,587 ) ( 41 ) Proceeds from issuance of stock under employee stock plans 2,414 8,445 2,438 61 LegalZoom.com, Inc. Consolidated Statements of Cash Flows (continued) (In thousands) Year Ended December 31, 2024 2023 2022 Net cash used in financing activities ( 183,285 ) ( 56,150 ) ( 93,343 ) Effect of exchange rate changes on cash and cash equivalents ( 313 ) 34 ( 87 ) Net (decrease) increase in cash and cash equivalents ( 83,655 ) 36,637 ( 50,215 ) Cash and cash equivalents, at beginning of the period 225,719 189,082 239,297 Cash and cash equivalents, at end of the period $ 142,064 $ 225,719 $ 189,082 Supplemental cash flow data Cash paid during the year for: Income taxes 26,191 6,598 741 Non-cash operating, investing, and financing activities: Right of use assets obtained in exchange for new operating lease liabilities $ 803 $ 63 $ 7,528 Capitalized stock-based compensation 5,967 4,056 2,526 Purchase of property and equipment included in accounts payable and accrued expenses and other current liabilities 2,342 2,577 646 Accrued stock repurchase excise tax 1,247 185 — The accompanying notes are an integral part of these consolidated financial statements 62 LegalZoom.com, Inc. Notes to Consolidated Financial Statements Note 1. Description of the Business LegalZoom.com, Inc., was initially formed as a California corporation in 1999 and reincorporated as a Delaware corporation in 2007. LegalZoom.com, Inc., and its wholly owned subsidiaries, 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, 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, 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. Note 2. Summary of Significant Accounting Policies A summary of the significant accounting policies we follow in the preparation of the accompanying consolidated financial statements is set forth below. Basis of Presentation and Consolidation The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America, or GAAP. All intercompany balances and transactions have been eliminated in consolidation. On occasion, we enter into relationships or investments with other entities that may be a variable interest entity, or VIE. We analyze our interests, including agreements, loans, guarantees, and equity investments on a periodic basis to determine if such interests are variable interests. If variable interests are identified, then the related entity is assessed to determine if it is a VIE. If we determine that the entity is a VIE, we then assess if we must consolidate the VIE as the primary beneficiary. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess the purpose and design of the VIE, the nature of the VIE’s risks and the risks that we absorb, the power to direct activities that most significantly impact the economic performance of the VIE, and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. Use of Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, however not limited to, revenue recognition, sales allowances and expected credit loss allowances, available-for-sale debt securities, other equity securities, recoverability of long-lived assets and goodwill, income taxes, commitments and contingencies, valuation of assets and liabilities acquired in business combinations, valuation of assets in asset acquisitions, and fair value of stock-based compensation. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate the estimates compared to historical experience and other factors including the current economic and regulatory environment, which form the basis for our judgments about the carrying value of assets and liabilities. Business Combinations The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess purchase consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. We perform valuations of assets acquired and liabilities assumed for an acquisition and allocate the purchase price to their respective net tangible and intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management to use judgment and estimates, including the selection of valuation methodologies, estimates of cash flows, discount rates and selection of comparable companies. We generally engage the assistance of a third-party valuation firm in determining fair values of assets acquired and liabilities assumed and contingent consideration, if any, in a business combination. 63 Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations. Asset Acquisitions We evaluate acquisitions to determine whether the acquisition should be classified as either a business combination or an asset acquisition. Acquisitions for which substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets are accounted for as an asset acquisition. If the gross assets are not concentrated in a single asset or group of similar assets, we then determine if the set of assets acquired represents a business. A business is an integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return. Depending on the nature of the acquisition, judgment may be required to determine if the set of assets acquired is a business combination or not. We allocate the purchase price on a relative fair value basis and capitalize direct acquisition related costs as part of the purchase price. In making estimates of fair values for purposes of allocating the purchase price, we utilize an independent third-party to value the net tangible and identified intangible assets in connection with the acquisition. Segment and Geographic Information Our Chief Executive Officer, as the Chief Operating Decision Maker, organizes our company, manages resource allocations, and measures performance on the basis of one operating segment. Refer to Note 21 to our consolidated financial statements. Foreign Currency 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 stockholders’ equity. We recognized foreign currency transaction loss in the accompanying consolidated statement of operations of $ 0.6 million for 2024, a gain of $ 1.4 million for 2023, and a loss of $ 3.6 million for 2022. Fair Value Measurements Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows: Level 1 — Quoted prices in active markets for identical assets and liabilities. Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. At December 31, 2024 and 2023, our financial assets recorded at fair value on a recurring basis consist of cash equivalents and available-for-sale debt securities. 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. 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. Concentrations of Credit Risk We maintain accounts in the U.S. banks with funds insured by the Federal Deposit Insurance Corporation, or FDIC. Our bank accounts may, at times, exceed the FDIC insured limits. Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. Management believes that we are not exposed to any significant credit risk related to our cash or cash equivalents and have not experienced any losses in such accounts. 64 Due to a large and diverse customer base, no individual customer represented more than 10% of total revenue in December 31, 2024, 2023 or 2022. At December 31, 2024 and 2023, there were no customers with an outstanding balance of 10% or more of our accounts receivable balance. 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, 2024 and 2023, our cash consisted of bank account deposits and our cash equivalents consisted of $ 114.7 million and $ 209.0 million, respectively, invested in money market funds. Accounts Receivable and Allowance for Credit Losses Our accounts receivable balances, which are not collateralized and do not bear interest, primarily consist of amounts receivable from our credit and debit card merchant processors, customer receivables, and fees due from third parties for services purchased by our customers from such third parties. We reduce our accounts receivable for sales allowances and a reserve for potentially uncollectible receivables. We determine the amount of the allowances based on various factors, including historical collection experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. Account balances are charged off against the allowance when we determine that it is not probable we will collect the receivable. At December 31, 2024 and 2023, the allowance for credit losses was not material. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Repairs and maintenance are expensed as incurred whereas significant renewals and enhancements are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in our results of operations. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as follows: Useful Life (Years) Purchased and internally developed internal-use software 3 Building and building improvements 5 – 30 Land improvements 7 Furniture and office equipment 5 Computer hardware 3 Land Indefinite Leasehold improvements Shorter of lease term or useful life Internal-use Software and Cloud Computing Arrangements Software development costs include costs to develop software to be used to meet internal needs and applications used to deliver our services. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. We amortize internal-use software costs on a straight-line basis over their estimated useful life of three years commencing when the internal-use software is substantially complete and ready for its intended purpose. Costs related to development of internal-use software are included in the accompanying consolidated balance sheets in property and equipment, net. Costs related to 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 Intangible assets are stated at cost, net of accumulated amortization. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives, which approximates the pattern in which the economic benefits are consumed. We amortize our intangible assets over an estimated useful life of two to six years . 65 We assess the impairment of long-lived assets, which consist primarily of property and equipment, right of use assets, acquired intangible assets, and capitalized internal-use software costs, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. Impairment testing is performed at an asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, or an asset group. If an asset group is considered impaired, an impairment loss equal to the excess of the asset group’s carrying value over their fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices, or appraised values, depending on the nature of the assets. Goodwill Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, however, it is subject to impairment testing at the reporting unit level annually during the fourth quarter of our fiscal year or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In assessing impairment, we have the option to first assess qualitative factors to determine whether or not a reporting unit is impaired. Alternatively, we may perform a quantitative impairment assessment, or if the qualitative assessment indicates that it is more-likely-than-not that the reporting unit’s fair value is less than its carrying amount, a quantitative analysis is required. The quantitative analysis compares the estimated fair value of the reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount including goodwill, goodwill is considered not to be impaired. If the fair value is less than the carrying amount including goodwill, then a goodwill impairment charge is recorded by the amount that the carrying value exceeds the fair value, up to the carrying amount of goodwill. Available-for-sale Debt Security At December 31, 2024 and 2023, we held a long-term investment in a privately held company through the purchase of a convertible promissory note. This investment is classified as an available-for-sale debt security. For available-for-sale debt securities that have the estimated fair values below their amortized cost basis, we evaluate our intent to sell the security or whether we will more likely than not be required to sell the security before recovery of its amortized cost basis. If either of these criteria are met, the security’s amortized cost basis is written down to its fair value through earnings. If these criteria are not met, we evaluate whether the decline in fair value has resulted from credit loss or other factors. If the assessment indicates a credit loss exists, the credit-related portion of the loss is recorded as allowance for credit loss with a corresponding credit loss expense, included in the consolidated statement of operations. If the assessment indicates a credit loss does not exist, impairment is recognized in other comprehensive income (loss), net of applicable taxes. Investments in Other Equity Securities We hold investments in equity securities of certain privately held companies, which do not have readily determinable fair values. We have elected to measure these non-marketable investments at cost, with remeasurements to fair value only upon the occurrence of observable price changes in orderly transactions for identical or similar securities of the same issuer, or in the event of any impairment. This election is reassessed each reporting period to determine whether a non-marketable equity security has a readily determinable fair value, in which case they would no longer be eligible for this election. We evaluate our non-marketable equity securities for impairment at each reporting period based on a qualitative assessment that considers various potential impairment indicators. If an impairment exists, a loss is recognized in the consolidated statements of operations for the amount by which the carrying value exceeds the fair value of the investment. We include investments in equity securities within other assets in the accompanying consolidated balance sheets. Held for Sale We classify long-lived assets or asset groups we plan to sell as held for sale on our consolidated balance sheets only after certain criteria have been met including: management has the authority and commits to a plan to sell the asset, the asset is available for immediate sale in its present condition, an active program to locate a buyer and the plan to sell the asset have been initiated, the sale of the asset is probable within twelve months (subject to events and circumstances outside our control which may extend the period required to complete the sale beyond one year), the asset is being actively marketed at a reasonable sales price relative to its current fair value, and it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made. We record assets or asset groups held for sale at the lower of 66 their carrying value or fair value less costs to sell. Once classified as held for sale, depreciation and amortization is not recorded for any long-lived assets. Leases We determine whether an arrangement is a lease, or contains a lease, at inception if we are able to identify an asset and can conclude we have the right to control the identified asset for a period of time. Leases are included in operating lease right-of-use, or ROU, assets and operating lease liabilities in the accompanying consolidated balance sheets. Leases with an initial term of twelve months or less are not recorded in our accompanying consolidated balance sheet. We made accounting policy elections, including a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases, which are leases with expected terms of twelve months or less, and an accounting policy to account for lease and certain non-lease components as a single component for certain classes of assets. Additionally, we use the portfolio approach when applying the discount rate selected based on the dollar amount and term of the obligation. ROU assets represent our right to control an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at commencement date in determining the discount rate used to present value lease payments. The incremental borrowing rate used is estimated based on what we would be required to pay for a collateralized loan over a similar term. Our leases typically do not include any residual value guarantees, bargain purchase options, or asset retirement obligations. Our lease terms are only for periods in which we have enforceable rights. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. Our lease terms are impacted by options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable lease term when determining the lease assets and liabilities. Our agreements may contain variable lease payments. We include variable lease payments that depend on an index or a rate and exclude those which depend on facts or circumstances occurring after the commencement date, other than the passage of time. Revenue Recognition We derive our revenue from the following sources: Transaction revenue —Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services. Transaction revenue includes filing fees and is net of cancellations, promotional discounts, sales allowances and credit reserves. Tax preparation services are recognized at the point in time when the customer’s tax return is filed and accepted by the applicable government authority. 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 U.K. We generally recognize revenue from our subscriptions ratably over the subscription term. Subscription terms generally range from thirty days to one year. Subscription revenue includes the 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. For transaction and subscription revenue, we generally collect payments and fees at the time orders are placed and prior to services being rendered. We record amounts collected for services that have not been performed as deferred revenue on our consolidated balance sheet. The transaction price that we record is generally based on the contractual amounts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. 67 Our transaction and subscription revenue is as follows (in thousands): Year Ended December 31, 2024 2023 2022 Transaction $ 245,692 $ 247,780 $ 260,781 Subscription 436,189 412,947 359,198 Total revenue $ 681,881 $ 660,727 $ 619,979 We determine revenue recognition through the following five steps: identification of a contract with a customer; identification of the performance obligations in the contract; determination of the transaction price; allocation of the transaction price to the performance obligations in the contract; and recognition of revenue when or as the performance obligations are satisfied. Our customers generally pay for transactions in advance by credit or debit card except for certain services provided under installment plans where we allow customers to pay for their order in three equal payments. The first installment due under the installment plans is charged to the customer’s debit or credit card on the date the order is placed, and the remaining installments are generally charged on a monthly basis thereafter. We recognize revenue for the amount we expect to be entitled to for providing the services to our customers. The total fees collected by us for our services include, as applicable, expedited services fees, government filing fees and shipping fees. Subscription services are generally paid monthly or annually in advance of the subscription period except for SaaS services in the U.K. and virtual mail subscriptions, which are invoiced monthly in arrears. Amounts collected in advance of revenue recognition are recorded in deferred revenue. Customers may pay for services, however, may not provide the necessary information to complete a transaction. We attempt to contact the customer to complete the abandoned order. We recognize revenue on abandoned services, or breakage, when it is likely to occur and the amount can be recognized without significant risk of reversal. We recognize breakage in proportion to the pattern of rights exercised by the customer. Judgment is required to determine the amount of breakage and when breakage is likely to occur, which we estimate based on historical data of breakage for similar services. Services we offer can generally either be purchased on a stand-alone basis or bundled together as part of a package of services. Accordingly, a significant number of our arrangements include multiple performance obligations, such as the preparation of legal documents combined with related document revision, registered agent services, and free trial periods of our subscriptions. At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise to transfer to the customer a service or bundle of services that is distinct. The identification of distinct performance obligations within our packages may require significant judgment. The transaction price allocated to each separate performance obligation represents the amount of consideration to which we expect to be entitled in exchange for the services we provide. The transaction price is based on the contractual amounts in our contracts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We only include variable consideration in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We estimate sales allowances using the expected value method. We recognize a liability or a reduction of accounts receivable, and a reduction to revenue based on the estimated amount of sales allowances. We record sales allowances as a reduction of accounts receivable where we expect not to collect the full amount of the outstanding accounts receivable and we record sales allowances as a liability for estimated refunds or credits where we have collected the amounts due from the customer. We have established a sufficient history of estimating sales allowances given the large number of homogeneous transactions. The majority of our allowances and reserves are known within a relatively short period of time following our balance sheet date. The estimated provision for sales allowances has varied from actual results within ranges consistent with management’s expectations. The transaction price excludes sales taxes. Contracts with our customers may include options to purchase additional future services, and in the case of subscription services, options to auto-renew the subscription service. Additional consideration attributable to either the option to purchase additional future services or the option to renew are excluded from the transaction price until such time that the option is exercised, unless these options provide a material right to the customer. For arrangements that contain multiple performance obligations, such as our bundled arrangements, we allocate the transaction price to each performance obligation based on estimates of the standalone selling price of each performance obligation within the bundle. For the services we sell on a standalone basis, we use the sales price of these services in the allocation of the transaction price in bundled arrangements. Where we 68 do not sell the service on a standalone basis, we estimate the standalone selling price based on the adjusted market assessment approach or the expected cost plus a margin approach when market information is not observable. In these cases, the determination of the standalone selling price may require significant judgment. We recognize revenue when we satisfy the performance obligation by transferring the promised good or service to the customer. For our transaction-based services, we generally recognize revenue at a point-in-time when the services are delivered to the customer. For our subscription-based services we generally recognize revenue on a straight-line basis over the subscription term. 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 In certain of our arrangements, another party may be involved in providing services to our customer. We evaluate whether we can recognize revenue gross as a principal or net as an agent. We record revenue on a gross basis when we are the principal in the arrangement. To determine whether we are a principal or an agent, we identify the specified good or service to be provided to the customer and assess whether we control the specified good or service before that good or service is transferred to the customer. We evaluate a number of indicators of whether we control the good or service before it is transferred to the customer, including whether we have primary fulfillment responsibility and obligation to perform the services being sold to the customer; we have latitude in establishing the sales price; and we have inventory risk. In arrangements in which we are the principal, we record as revenue the amounts we have billed to our customer, net of sales allowance, and we record the fee payable to the third-party as cost of revenue. We are the principal in most of our legal document preparation and registered agent services, including legal entity formations and similar arrangements and formation in the U.K. and since December 2021, tax advisory and preparation services through our fulfilled tax subscription, LZ Tax. For these services, revenue includes filing and similar fees. Our alternative business structure, or ABS, offers legal advisory services that are marketed through our websites. 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. Except for our ABS, we are not a law firm in the U.S. and cannot provide legal advice through our U.S. entities. Therefore, the participating independent law firms in our legal plans control the service to the customer and have the primary service obligation to provide attorney consultations to our customers, for which we pay the law firms a monthly fee. For these arrangements, we recognize revenue on a net basis as an agent. 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 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. Revenue includes shipping and handling fees charged to customers. Cost of Revenue Cost of revenue includes all costs of providing and fulfilling our services. Cost of revenue primarily includes government filing fees, costs of fulfillment, customer care, including the cost of credentialed professionals for tax, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation, telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes. We defer direct and incremental costs primarily related to government filing fees incurred prior to the associated service meeting the criteria for revenue recognition. These contract assets are recognized as cost of revenue in the same period the related revenue is recognized. At December 31, 2024 and 2023, there was $ 1.7 million and $ 1.7 million, respectively, in deferred cost of revenue included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. Filing fees of $ 83.3 million, $ 88.1 million and $ 74.1 million were 69 recorded in cost of revenue in the accompanying consolidated statements of operations for years ended December 31, 2024, 2023, and 2022, respectively. Sales and Marketing Expenses Sales and marketing expenses consist of customer acquisition media costs, compensation and related benefits, including stock-based compensation for marketing and sales personnel, media production, public relations and other promotional activities, general business development activities, an allocation of depreciation and amortization and allocated overhead. Customer acquisition media costs consist primarily of search engine marketing, television and social media costs. Marketing and advertising costs to promote our services are expensed in the period incurred. Media production costs are expensed the first time the advertisement is aired. Advertising expenses, consisting of customer acquisition media costs, were $ 157.6 million, $ 145.3 million and $ 174.6 million for the years ended December 31, 2024, 2023, and 2022, respectively. Technology and Development Expenses 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 as previously described under Internal-use Software and Cloud Computing Arrangements . General and Administrative Expenses Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs. Stock-based Compensation We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value, net of estimated forfeitures, over the requisite service period. We use the Black-Scholes option pricing model for estimating the fair value of options granted under our stock option plans that vest based on service and performance conditions. The fair value of restricted stock units, or RSUs, that vest based on service and performance conditions is determined based on the value of the underlying common stock at the date of grant. For awards that contain market conditions, we estimate the fair value using a Monte Carlo simulation model. We record expense for awards that contain performance conditions only to the extent that we determine it is probable that the performance condition will be achieved. Expense for awards containing market conditions is not reversed even if the market condition is not achieved. We have elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period. Awards with performance or market conditions are recognized using graded vesting. The Black-Scholes option pricing model and the Monte Carlo simulation model requires us to make certain assumptions including the fair value of the underlying common stock, the expected term, the expected stock price volatility, the risk-free interest rates and the dividend yield. The fair value of the shares of common stock underlying stock options and RSUs is based upon our publicly listed share price on the date of grant. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is estimated based upon actual historical exercise and post-vesting cancellations, adjusted for expected future exercise behavior. The expected term of restricted stock units is defined as the remaining term from the grant date to the end of the performance period. Because our common stock has limited publicly traded history, we estimate the expected volatility from the historical volatility of selected public companies with comparable characteristics to us, including similarity in size, lines of business, market capitalization and revenue and financial leverage. We determine the expected volatility assumption using the frequency of daily historical prices of comparable public 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 and restricted stock units with market conditions grants. 70 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 and restricted stock units with market conditions. The dividend yield assumption is based on our history and expectation of dividend payouts. We have not declared or paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. Stock-based compensation expense is recognized based on awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on our historical experience and future expectations. The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we had made different assumptions, our stock-based compensation expense, and our net income (loss) for the years ended December 31, 2024, 2023, and 2022 may have been materially different. Loss Contingencies On occasion we are involved in legal proceedings, claims, and regulatory, indirect tax examinations or government inquiries and investigations that may arise in the ordinary course of business. We record loss contingencies in our consolidated financial statements in the period when they are probable and reasonably estimable. If the amount is probable and we are able to reasonably estimate a range of loss, we accrue the amount that is the best estimate within that range, and if no amount is better than any other in the range, we record the amount at the low end in the range. We disclose those contingencies that we believe are at least reasonably possible but not probable regardless of whether they are reasonably estimable. The likelihood of a loss is determined using several factors including the nature of the matter, advice of our internal and external counsel, previous experience and historical and other relevant information available to us. The determination of the likelihood of loss or the range of loss requires significant management judgment. Legal fees and other costs associated with such actions are expensed as incurred. Income Taxes We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements. Deferred income tax assets and liabilities are measured using enacted tax rates anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period that includes the enactment date. We make judgments in evaluating whether deferred tax assets will be recovered from future taxable income. A valuation allowance is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risk associated with estimates of future taxable income in assessing the need for a valuation allowance. If our assumptions and consequently our estimates, change in the future, the valuation allowance may be increased or decreased, resulting in an increase or decrease, which may be material, to our provision for income taxes and the related impact on our net income (loss). We recognize tax benefits from an uncertain position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits. If this threshold is met, we measure the tax benefit as the largest amount of the benefit that is greater than fifty percent likely to be realized upon ultimate settlement. We recognize penalties and interest accrued with respect to uncertain tax positions as a component of the income tax provision. At December 31, 2024 and 2023, accrued penalties and interest related to uncertain tax positions were not material. Net Income (Loss) Per Share Basic net income (loss) per share is calculated by dividing net income (loss) 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 by dividing net income (loss) by the weighted-average number of shares of common stock outstanding, including dilutive common shares outstanding during the period. Dilutive shares outstanding include stock options, restricted stock units, and employee stock purchase plans, or ESPPs, computed using the treasury stock method. 71 Recently Adopted Accounting Pronouncements In June 2016, the Financial Standards Accounting Board, or 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, and 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 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 . This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings per share computation. 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. We adopted 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. 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. We adopted ASU 2023-07 in 2024. Refer to Note 21 to our consolidated financial statements. In March 2024, the FASB issued ASU 2024-01, which clarifies how an entity determines whether a profits interest or similar award is a share-based payment arrangement that is within the scope of ASC 718, Compensation - Stock Compensation. This accounting standard is effective for fiscal years beginning after December 15, 2024, including interim periods within those years, and early adoption is permitted. ASU 2024-01 can be applied retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies this accounting standard. We early adopted ASU 2024-01 effective January 1, 2024 and will apply the amendments prospectively to profits interest and similar awards granted or modified on or after January 1, 72 2024. The adoption of this accounting standard did not have a material impact on our consolidated financial statements. In March 2024, the FASB issued ASU 2024-02, Codification Improvements to amend a variety of topics in the accounting codification by removing references to various FASB concepts statements. This accounting standard is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. ASU 2024-02 can be applied retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied or prospectively to all new transactions recognized on or after the date that the entity first applies the amendments. We early adopted ASU 2024-02 effective January 1, 2024 and will apply the amendments prospectively to all new transactions recognized on or after January 1, 2024. The adoption of this accounting standard did not have a material impact on our consolidated financial statements. Accounting Pronouncements Not Yet Adopted 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. 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. In November 2024, FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , which requires public business entities to disaggregate certain expense captions into specific categories in disclosures within the notes to the financial statements. As further clarified by ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), issued by FASB in January 2025, this accounting standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The amendments in ASU 2024-03 should be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements, and early adoption is permitted. We are currently evaluating the impact of the adoption on our consolidated financial statements. In November 2024, FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments , which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of a reporting period if the entity has also adopted ASU 2020-06 for that period. Entities may apply the new guidance prospectively to settlements of convertible debt instruments that take place during annual reporting periods (and interim reporting periods within those annual reporting periods) beginning after the effective date of ASU 2024-04. Retrospective application may be elected as of the beginning of the first comparative reporting period in which the entity has also applied ASU 2020-06. We are currently evaluating the impact of the adoption on our consolidated financial statements. Note 3. Other Financial Statement Information Accounts Receivable Changes in the allowances consisted of the following (in thousands): Year Ended December 31, 2024 2023 2022 Beginning balance $ 4,906 $ 4,730 $ 4,060 Add: amounts recognized as a reduction of revenue 6,594 8,220 8,193 (Less) add: allowance for credit losses recognized in general and administrative expense ( 37 ) 1,144 446 Less: write-offs, net of recoveries ( 9,342 ) ( 9,188 ) ( 7,969 ) Ending balance $ 2,121 $ 4,906 $ 4,730 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. 73 Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following (in thousands): As of December 31, 2024 2023 Prepaid expenses $ 9,129 $ 10,423 Deferred cost of revenue 1,670 1,678 Capitalized cloud computing development costs 1,599 1,085 Income tax receivable 3,701 35 Other current assets 1,827 1,938 Total prepaid expenses and other current assets $ 17,926 $ 15,159 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): As December 31, 2024 2023 Accrued payroll and related expenses $ 27,518 $ 33,635 Accrued vendor payables 15,895 11,223 Accrued advertising 1,636 — Sales allowances 3,086 3,412 Accrued sales, use and business taxes 6,984 9,795 Other 2,809 3,613 Total accrued expenses and other current liabilities $ 57,928 $ 61,678 Changes in sales allowances relating to charge-backs, sales credits and refunds consisted of the following (in thousands): Year Ended December 31, 2024 2023 2022 Beginning balance $ 3,412 $ 4,426 $ 4,862 Add: increase in sales allowances 4,327 6,635 7,217 Less: utilization of reserves ( 4,653 ) ( 7,649 ) ( 7,653 ) Ending balance $ 3,086 $ 3,412 $ 4,426 Depreciation and Amortization Depreciation and amortization expense of our property and equipment, including capitalized internal-use software, and intangible assets consisted of the following (in thousands): Year Ended December 31, 2024 2023 2022 Cost of revenue $ 18,902 $ 12,772 $ 8,581 Sales and marketing 3,736 5,286 7,014 Technology and development 7,688 4,184 2,834 General and administrative 4,601 3,141 3,316 Total depreciation and amortization expense $ 34,927 $ 25,383 $ 21,745 Deferred Revenue Deferred revenue as of December 31, 2024 and 2023 was $ 175.0 million and $ 168.4 million, respectively. Revenue recognized in 2024, 2023 and 2022 that was included in deferred revenue at the beginning of the year 74 was $ 168.0 million, $ 163.4 million and $ 146.6 million, respectively. We expect to recognize substantially all of the deferred revenue as of December 31, 2024 as revenue in 2025. We have omitted disclosure on the transaction price allocated to remaining performance obligations and estimated timing of revenue recognition as our contracts with customers that have a duration of more than one year are immaterial. Note 4. Assets Held for Sale In September 2022, following an evaluation of our office space and business requirements, we commenced a plan to sell our operational headquarters in Austin, Texas, consisting of land, a building and building improvements, and determined that these assets met the held for sale criteria. We ceased recording depreciation on these assets upon meeting the held for sale criteria. At December 31, 2024, the total carrying value of the assets held for sale remains at $ 22.7 million as follows (in thousands): December 31, 2024 Land $ 6,400 Building and building improvements 16,322 Total assets held for sale $ 22,722 The estimated fair value less costs to sell the assets held for sale exceed their carrying values and hence no impairment was necessary as of December 31, 2024. Note 5. Acquisitions Revvsales, Inc. In October 2022, we completed an asset acquisition of Revvsales Inc, or Revv, consisting substantially of acquired developed technology for their self-service document automation and electronic signature platform. Revv’s proprietary technology 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. Revv’s operations have been included in our consolidated financial statements commencing on the acquisition date. We allocated the accumulated cost of the acquisition to the assets acquired based on their relative fair values. The accumulated cost of the acquisition 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 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 each of the years ended December 31, 2024 and 2023, payments of $ 1.3 million were 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 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 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 75 workforce and synergies expected from combining our operations. 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. Note 6. Investments Available-for-sale Debt Security 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 (USD $ 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, 2024, 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, 2024 and 2023. At December 31, 2024 and 2023, the fair value of our available-for-sale debt security in Legal Vision was AUD $ 2.2 million (USD $ 1.4 million) and AUD $ 1.7 million (USD $ 1.2 million), respectively, with the change due to fair value adjustments during the period. In 2024, key assumptions used in the Monte Carlo simulation model to determine the fair value of the convertible promissory note in Legal Vision were: expected term of 4.3 years, risk-free rate of 3.9 % and volatility of 55 %. The increase in fair value was recognized in other comprehensive income for the year ended December 31, 2024. 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, 2024 and 2023. Investments in Other Equity Securities We hold an equity investment in LawPath, Pty Ltd, or LawPath, an Australian proprietary limited company that provides an online legal platform to individuals and small and medium size businesses. In October 2021, we invested an additional AUD $ 1.5 million (USD $ 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 (expense), net in our consolidated statements of operations. At both December 31, 2024 and 2023 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. In December 2022, we fully impaired our investment in Mylo and incurred a loss of $ 3.0 million as the fair value of our investment was determined to be zero based upon an observable sale of their common equity. Therefore, we recognized an impairment of $ 3.0 million in our consolidated statements of operations during the year ended December 31, 2022. There were no other impairments of our investments during the years ended December 31, 2024, 2023, and 2022. At December 31, 2024 and 2023, the carrying value of these investments is included in other assets in the accompanying consolidated balance sheets. 76 Note 7. Property and Equipment Property and equipment, net, consisted of the following (in thousands): As of December 31, 2024 2023 Internal-use software $ 124,628 $ 91,424 Purchased software 214 1,360 Furniture and office equipment 1,654 1,797 Computer hardware 6,541 7,588 Leasehold improvements 1,258 1,476 Total cost of property and equipment 134,295 103,645 Less: accumulated depreciation and amortization ( 74,507 ) ( 55,413 ) Property and equipment, net $ 59,788 $ 48,232 Depreciation and amortization expense related to property and equipment was $ 29.8 million, $ 20.2 million and $ 18.2 million for 2024, 2023 and 2022, respectively. At December 31, 2024 and 2023 accumulated amortization in connection with internal-use software costs was $ 68.0 million and $ 47.6 million, respectively. In 2024, 2023 and 2022, we recorded amortization expense of $ 27.6 million, $ 17.6 million and $ 14.6 million, respectively, in connection with these costs. In 2024, 2023 and 2022 we capitalized internal-use software development costs of $ 40.4 million, $ 35.0 million and $ 21.4 million respectively. In 2024, 2023 and 2022, no software development costs were impaired. Note 8. Leases We conduct operations from certain leased facilities in various locations. At December 31, 2024, we had various non-cancelable operating leases for office space and equipment, which expire between June 2025, and February 2033, and which represent the non-cancelable periods of the leases and include extension options that we determined are reasonably certain to be exercised. We exclude extension options that are not reasonably certain to be exercised from our lease terms. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. We often receive customary incentives from our landlords, such as reimbursements for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for these leases. Operating lease liabilities on our consolidated balance sheets represent the present value of our remaining lease payments over the remaining lease terms. We do not allocate lease payments to non-lease components. We use our incremental borrowing rate to calculate the present value of our lease payments, as the implicit rates in our leases are not readily determinable. Leases consist of the following (in thousands): As of December 31, Assets Classification 2024 2023 Operating Operating lease right-of-use assets $ 7,189 $ 8,518 Finance Property and equipment, net 2 27 Total leases $ 7,191 $ 8,545 Liabilities Current Operating Operating lease liabilities $ 1,861 $ 2,052 Finance Accrued expenses and other current liabilities 3 26 Non Current Operating Operating lease liabilities, non-current 6,018 6,966 Finance Other liabilities — 2 Total lease liabilities $ 7,882 $ 9,046 77 At December 31, 2024, the maturities of our remaining operating lease were as follows (in thousands, except years and percentages): Operating leases 2025 $ 1,895 2026 1,935 2027 1,916 2028 1,562 2029 1,290 Thereafter 186 Total minimum lease payments 8,784 Less: Effects of discounting 905 Present value of lease liabilities $ 7,879 Less: current portion $ 1,861 Long-term lease liabilities $ 6,018 Weighted-average remaining lease term as of December 31, 2024 (in years) 4.7 Weighted-average incremental borrowing rate as of December 31, 2024 4.82 % Weighted-average remaining lease term as of December 31, 2023 (in years) 5.0 Weighted-average incremental borrowing rate as of December 31, 2023 4.51 % The component of our lease costs included in our consolidated statements of operations were as follows (in thousands): Year Ended December 31, 2024 2023 2022 Lease cost Operating lease cost $ 2,696 $ 3,127 2,384 Other variable cost 318 276 250 Finance lease cost 26 38 17 Net lease cost $ 3,040 $ 3,441 2,651 Note 9. Goodwill The changes in goodwill for 2024 and 2023 were as follows (in thousands): Amount Balance as of December 31, 2022 $ 63,229 Foreign currency translation 89 Balance as of December 31, 2023 63,318 Balance as of December 31, 2024 $ 63,318 During the year ended December 31, 2024, there were no changes to the goodwill balance. 78 Note 10. Intangible Assets, net Intangible assets, net, consisted of the following (in thousands): As of December 31, 2024 Remaining Weighted average useful life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 2.8 $ 12,088 $ 7,081 $ 5,007 Developed technology 1.3 14,281 10,666 3,615 Trade names 0.0 179 179 — Assembled workforce 0.8 $ 125 $ 94 31 Total intangible assets $ 26,673 $ 18,020 $ 8,653 As of December 31, 2023 Remaining Weighted average useful life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Customer relationships 3.8 $ 12,088 $ 5,314 $ 6,774 Developed technology 2.2 14,281 7,412 6,869 Trade names 1.0 358 339 19 Assembled workforce 1.8 125 52 73 Total intangible assets $ 26,852 $ 13,117 $ 13,735 In 2024, 2023 and 2022, we recorded amortization expense of $ 5.1 million, $ 5.2 million and $ 3.5 million, respectively. At December 31, 2024, estimated future intangible assets amortization expense was as follows (in thousands): For Years Ending December 31, 2025 $ 4,510 2026 2,670 2027 1,473 Total future amortization expense $ 8,653 Note 11. Long-term Debt On July 2, 2021, we entered into an amended and restated credit and guaranty agreement, or 2021 Revolving Facility, providing for revolving borrowings of up to $ 150.0 million with an availability period of five years . Under the 2021 Revolving Facility, we can use up to $ 20.0 million in letters of credit and up to $ 10.0 million in borrowings on same-day notice, referred to as swingline loans. Additional debt issuance costs of $ 0.8 million were allocated to the 2021 Revolving Facility. 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 %. 79 The interest rate margins under the 2021 Revolving Facility are subject to one reduction of 0.25 % and a further reduction of 0.25 % upon achieving total net first lien leverage ratios of 3.50 to 1.00 and 2.50 to 1.00, respectively. We are required to pay a commitment fee in respect of unutilized commitments under the 2021 Revolving Facility. The commitment fee is, initially, 0.35 % per annum. The commitment fee is subject to one reduction of 0.10 % if the total net first lien leverage ratio does not exceed 3.50 to 1.00. We are also required to pay customary letter of credit fees and agency fees. We have the option to voluntarily repay outstanding loans under the 2021 Revolving Facility at any time without premium or penalty, other than customary “breakage” costs with respect to SOFR loans. There is no scheduled amortization under the 2021 Revolving Facility. Any principal amount outstanding is due and payable in full at maturity, five years from the closing date of the 2021 Revolving Facility. Obligations under the 2021 Revolving Facility are guaranteed by our existing and future direct and indirect material wholly-owned domestic subsidiaries, subject to certain exceptions. The 2021 Revolving Facility is secured by a first-priority security interest in substantially all of our assets, subject to certain exceptions. The 2021 Revolving Facility contains a number of covenants that, among other things, subject to certain exceptions, restrict our ability and the ability of our restricted subsidiaries to incur additional indebtedness and guarantee indebtedness; create or incur liens; pay dividends and distributions or repurchase capital stock; merge, liquidate and make asset sales; change lines of business; change our fiscal year; incur restrictions on our subsidiaries’ ability to make distributions and create liens; modify our organizational documents; make investments, loans and advances; and enter into certain transactions with affiliates. The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio 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. At December 31, 2024 and 2023, we had no amounts outstanding under our 2021 Revolving Facility or any outstanding letters of credit. We were in compliance with all financial covenants as of December 31, 2024 and 2023 . Note 12. Commitments and Contingencies Legal Proceedings From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. 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. Indemnification Indemnification provisions in our third-party service provider agreements provide that we will indemnify, hold harmless, and reimburse the indemnified parties on a case-by-case basis for losses suffered or incurred by the indemnified parties in connection with any claim by any third-party as a result of our website, advertising, marketing, payment processing, collection or customer service activities. The maximum potential amount of future payments we could be required to make under these indemnification provisions is indeterminable. No amounts have been accrued or have been paid during any period presented as we believe the fair value of these indemnification obligations is immaterial. Note 13. Stockholders’ Equity Stock Repurchase Program 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 80 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. 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 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. In May 2024, our board of directors approved a $ 75.0 million increase in the 2023 stock repurchase program, bringing the aggregate amount authorized to $ 175.0 million. In November 2024, our board of directors approved an additional $ 40.0 million increase in the stock repurchase program, bringing the aggregate amount authorized to $ 215.0 million. Both the 2023 stock repurchase program and the 2022 stock repurchase program authorized us to repurchase our common stock through any manner, including open market transactions, accelerated stock repurchase agreements, or in 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 the 2023 stock repurchase program nor the 2022 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, 2024, we repurchased a total of 19,228,082 shares of our common stock through open market purchases using Rule 10b5-1 plans at an average per share price of $ 8.58 for a total repurchase of $ 165.0 million including broker commission. During the year ended December 31, 2023, we repurchased a total of 5,867,835 shares of our common stock through open market purchases 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. The repurchases were recorded as a reduction to our accumulated deficit in the accompanying consolidated statements of stockholders’ equity. 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. Due to the fair market value of stock repurchases exceeding the fair market value of stock issuances during the years ended December 31, 2024, and 2023, we recognized excise tax liability of $ 1.2 million, and $ 0.2 million, respectively. 81 Note 14. Stock-based Compensation 2021 Equity Incentive Plan In June 2021, our board of directors adopted our 2021 Equity Incentive Plan, or 2021 Plan. All equity-based awards going forward are granted under the 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. If under our 2021 Plan, shares subject to stock option awards expire or terminate without being exercised in full or are paid out in cash rather than in shares, such stock options will not reduce the number of shares available for issuance under our 2021 Plan. Our policy is to issue new common stock upon the exercise of stock options. Shares withheld under a stock option award to satisfy the exercise, strike or purchase price of such award or to satisfy a tax withholding obligation will not reduce the number of shares available for issuance under our 2021 Plan. Under the 2021 Plan, RSU awards are granted under RSU award agreements approved 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. 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. Except as otherwise provided in the applicable award agreement, or other written agreement between us and the recipient, RSU awards that have not vested will be forfeited once the participant’s continuous service ends for any reason. 2021 Employee Stock Purchase Plan In June 2021, our board of directors adopted our 2021 Employee Stock Purchase Plan, or 2021 ESPP. We authorized the issuance of 3,552,538 shares of common stock under the 2021 ESPP, 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. Under the 2021 ESPP, our employees may purchase common stock through payroll deductions at a price equal to 85 % of the lower of the fair market value of the stock at the beginning of the offering period or at the end of each applicable purchase period. The 2021 ESPP generally provides for offering periods of six months in duration with purchase periods ending on either May 15 or November 15. Contributions under the 2021 ESPP are limited to a maximum of 15 % of an employee’s eligible compensation. Purchases under the 2021 ESPP are settled with common stock from the 2021 ESPP’s previously-authorized and available pool of shares. The stock-based compensation expense incurred in connection with the 2021 ESPP in 2024, 2023 and 2022 was $ 0.4 million, $ 0.7 million and $ 0.7 million, respectively. 2016 Stock Option Plan Prior to the adoption of the 2021 Plan, we granted stock options under our 2016 Stock Incentive Plan, or 2016 Plan. Under the terms of the 2016 Plan, both incentive and nonqualified stock options were granted with exercise prices not less than the fair value of the underlying common stock on the date of grant. Options granted pursuant to the 2016 Plan vest over periods of up to five years and expire ten years from the grant date. If a 2016 Plan option expires and is not exercised, such as if an employee does not exercise vested 2016 Plan options within thirty days of termination, then these options would revert back to the 2016 Plan’s option pool. The exercise price of all options granted was based on the estimated fair market value of our common stock as determined by the board of directors at the date of grant or date of modification. 82 Stock-based Compensation Expense We recorded stock-based compensation expense in the following categories in the accompanying consolidated statements of operations and balance sheets (in thousands): Year Ended December 31, 2024 2023 2022 Cost of revenue $ 5,833 $ 4,318 $ 2,931 Sales and marketing 8,077 6,096 10,144 Technology and development 19,573 18,899 16,574 General and administrative 38,027 36,702 50,820 Total stock-based compensation expense 71,510 66,015 80,469 Amount capitalized to internal-use software 5,967 4,056 2,526 Total stock-based compensation $ 77,477 $ 70,071 $ 82,995 Stock Options Stock option activity for the year ended December 31, 2024 is as follows (in thousands, except weighted-average exercise price and remaining contract life): Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value Outstanding at December 31, 2023 20,486 $ 10.69 6.9 $ 34,571 Granted — — Exercised ( 389 ) 1.11 Cancelled ( 2,231 ) 13.00 Forfeited ( 2,672 ) 11.22 Outstanding at December 31, 2024 15,194 $ 10.51 2.6 $ 442 Vested and expected to vest at December 31, 2024 15,194 $ 10.51 2.6 $ 442 Exercisable at December 31, 2024 13,948 $ 10.46 2.1 $ 442 The aggregate intrinsic values in the table above represents the difference, if any, between the fair value per share of our common stock and the option exercise prices multiplied by the number of options at the respective balance sheet dates. The total intrinsic value of stock options exercised in 2024, 2023 and 2022 was $ 3.5 million, $ 2.2 million and $ 3.9 million, respectively. During the years ended December 31, 2024, 2023, and 2022, the Company recorded stock-based compensation expense related to stock option awards of $ 5.4 million, $ 22.0 million, and $ 40.1 million, respectively. At December 31, 2024, total remaining stock-based compensation expense for unvested stock options was $ 5.7 million, which is expected to be recognized over a weighted-average period of 1.8 years. The weighted-average grant-date fair value per share of options granted using the Black-Scholes option pricing model for 2023 and 2022 was $ 4.40 and $ 6.61 , respectively. We did not grant any stock options in 2024. There was a $ 3.1 million tax benefit for tax deductions from stock options exercised in 2024. There was no tax benefit for 2023, and a realized tax benefit of $ 2.6 million for tax deductions from stock options exercised in 2022. 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. 83 The weighted-average assumptions that were used to calculate the grant-date fair value of our stock option grants using the Black-Scholes option pricing model were as follows: Year Ended December 31, 2023 2022 Expected life (years) 5.9 5.6 Risk-free interest rate 3.4 %- 3.8 % 2.6 % Expected volatility 50.4 %- 50.7 % 48 % Expected dividend yield — — Restricted Stock Units and Performance Stock Units A summary of RSUs and performance stock units, or PSUs, activity for the year ended December 31, 2024 is as follows (in thousands, except weighted-average grant-date fair value): Number of Units Weighted- Average Grant- Date Fair Value Unvested at December 31, 2023 14,007 $ 10.83 Granted (1) 28,681 7.70 Cancelled/forfeited ( 7,091 ) 11.35 Vested ( 5,875 ) 11.84 Unvested at December 31, 2024 29,722 $ 7.49 (1) Granted shares include RSU awards with a market vesting condition granted in July 2024 and reflected at 200 % of target, and RSU awards with market vesting condition granted in November 2024 reflected at 400 % of target. The fair value of vested RSUs in 2024, 2023 and 2022, was $ 52.1 million, $ 36.6 million and $ 18.5 million, respectively. Our RSUs consist of time-based RSUs, RSUs with performance and/or market conditions, and RSUs with market conditions. For the years ended December 31, 2024, 2023 and 2022, total stock-based compensation expense related to RSUs was $ 71.4 million, $ 47.3 million and $ 41.4 million, respectively. At December 31, 2024, total remaining stock-based compensation expense for unvested RSU awards was $ 193.1 million, which is expected to be recognized over a weighted-average period of 2.2 years. There was no tax benefit for 2024, 2023 and 2022. During the year ended December 31, 2024, we granted 2.5 million RSUs with performance and market conditions, or PSUs, to members of our senior leadership team. The grant date fair value of the PSUs at 100 % of the target was $ 29.8 million. The weighted-average grant-date fair value per share of the PSUs granted was $ 12.05 . The fair value of these PSUs was estimated using the Monte Carlo simulation model on the dates of the grant based on the assumptions shown in the table below. Vesting of the PSUs is contingent upon the recipients’ continuous employment over the requisite service period and was subject to fulfillment by the Company of a predefined profitability target during the performance period. The number of PSUs subject to vesting was determined at the end of the performance period and could equal zero percent ( 0 %) to two hundred percent ( 200 %) of the target award. If the performance criteria was achieved, one third of the PSUs would vest on the date the compensation committee of the board of directors certifies achievement of the performance criteria, and the remaining awards would vest quarterly thereafter through February 2027. These PSU awards also included a modifier to the total number of shares earned based on the Company’s total shareholder return, or TSR, compared to the TSR of the Nasdaq Composite Index during the performance period. The total number of shares issued pursuant to the PSU award could be increased, decreased, or remain unchanged based on the TSR modifier. The TSR modifier applicable to the PSUs was considered a market condition and therefore is reflected in the respective grant-date fair values of the awards. A Monte Carlo simulation was used to account for this market condition in the grant-date fair value of the awards. Expense related to the PSUs is recognized 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. We recognized $ 9.2 million in stock-based compensation expense during the year ended December 31, 2024 related to these awards. At December 31, 2024, the remaining stock-based compensation expense for 84 unvested PSUs is $ 7.8 million which is expected to be recognized over a weighted-average requisite service period of approximately 1.2 years. The assumptions that were used to calculate the grant-date fair value of our PSU grants using a Monte Carlo simulation model were as follows: Year Ended December 31, 2024 Expected life (years) 0.4 - 0.8 Risk-free interest rate 5.2 %- 5.4 % Expected volatility 47.4 %- 66.1 % Expected dividend yield — In July 2024, we also granted 2.7 million RSUs with a market vesting condition to a member of our senior leadership team. The grant date fair value of these RSUs at 100 % of the target was $ 13.1 million. The weighted-average grant-date fair value per share of the RSUs granted was $ 4.89 . The fair value of the RSUs was estimated on the date of grant using the Monte Carlo simulation model, based on the assumptions shown in the table below. Vesting of this award is contingent upon the recipient’s continuous employment over the requisite service period and is subject to achievement of predetermined stock price targets during a five-year performance period. Achievement of the predetermined stock price targets is measured based on a 45 -trading day volume weighted-average closing price of our common stock, subject to a 44 -day extension in certain circumstances. The number of RSUs subject to vesting during the performance period may equal zero percent ( 0 %) to two hundred percent ( 200 %) of the target award. Upon the achievement of a stock price target during the performance period, one-half of the eligible RSUs will vest on the date the compensation committee of the board of directors certifies achievement of the stock price target and the other half will vest one year from such date, subject to the recipient’s continued employment through the vesting date. We recognized $ 4.9 million in stock-based compensation expense during the year ended December 31, 2024 related to these awards. At December 31, 2024, the remaining stock-based compensation expense for unvested RSUs is $ 21.2 million which is expected to be recognized over a weighted-average requisite service period of approximately 2.4 years. The assumptions that were used to calculate the grant-date fair value of the RSUs with a market vesting condition using a Monte Carlo simulation model were as follows: Year Ended December 31, 2024 Expected life (years) 5 Risk-free interest rate 4.2 % Expected volatility 59.4 % Expected dividend yield — In November 2024, we also granted 2.4 million RSUs with a market vesting condition to members of our senior leadership team. The grant date fair value of these RSUs at 100 % of the target was $ 12.6 million. The weighted-average grant-date fair value per share of the RSUs granted was $ 5.30 . The fair value of the RSUs was estimated using the Monte Carlo simulation model on the date of the grant based on the assumptions shown in the table below. Vesting of this award is contingent upon the recipient’s continuous employment over the requisite service period and is subject to achievement of predetermined stock price targets during a three-year performance period, subject to certification by the compensation committee of the board of directors. Achievement of the predetermined stock price targets is measured based on the trailing 30 -trading day volume weighted average closing stock price of our common stock subject to a 29 -day extension in certain circumstances. The number of RSUs subject to vesting during the performance period may equal zero percent ( 0 %) to four hundred percent ( 400 %) of the target award. If the compensation committee of the board of directors certifies achievement of a stock price target prior to November 15, 2025, the eligible shares will vest in full and become non-forfeitable on November 15, 2025. If the compensation committee of the board of directors certifies achievement of a stock price target on or subsequent to November 15, 2025, 100 % of the eligible shares will vest and become non-forfeitable immediately on the date of certification by the compensation committee of the board of directors. We recognized $ 5.6 million in stock-based compensation expense during the year ended December 31, 2024 related to these awards. At December 31, 2024, the 85 remaining stock-based compensation expense for unvested RSUs is $ 44.8 million which is expected to be recognized over a weighted-average requisite service period of approximately 1.1 years. The assumptions that were used to calculate the grant-date fair value of the RSUs with a market vesting condition using a Monte Carlo simulation model were as follows: Year Ended December 31, 2024 Expected life (years) 3 Risk-free interest rate 4.2 % Expected volatility 60.9 % Expected dividend yield — 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 was contingent upon the recipient’s continuous employment over the requisite service period and was subject to fulfillment by the Company of predefined performance criteria which were not achieved. Consequently, no stock-based compensation expense related to these PSU awards was recognized during the year ended December 31, 2024. 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. For the years ended December 31, 2024, 2023 and 2022, stock-based compensation expense for these PSUs was $ 0.7 million, $ 0.8 million and $ 0.1 million, respectively, and was recognized on a graded vesting basis. At December 31, 2024, the remaining stock-based compensation expense for unvested PSUs was $ 0.2 million, which is expected to be recognized over a weighted-average requisite service period of approximately 0.9 years. 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. 86 Note 15. Net Income (Loss) Per Share The following table shows the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts): Year Ended December 31, 2024 2023 2022 Numerator: Net income (loss) $ 29,963 $ 13,953 $ ( 48,733 ) Net income (loss) — basic and diluted $ 29,963 $ 13,953 $ ( 48,733 ) Denominator: Weighted-average shares used in computing net income (loss) per share — basic 180,210 190,466 195,829 Effect of potentially dilutive securities: Stock options 754 1,380 — Restricted stock units 1,893 2,558 — Employee stock purchase plan 8 11 — Weighted-average shares used in computing net income (loss) per share — diluted 182,865 194,415 195,829 Net income (loss) per share — basic $ 0.17 $ 0.07 $ ( 0.25 ) Net income (loss) per share — diluted $ 0.16 $ 0.07 $ ( 0.25 ) The following table presents the number of stock options, RSUs, and PSUs excluded from the calculation of diluted net income (loss) per share because they are anti-dilutive (in thousands): As of December 31, 2024 2023 2022 Stock options 11,512 10,714 17,155 Restricted stock units 13,932 7,426 8,879 Employee stock purchase plan 64 43 140 Total 25,508 18,183 26,174 Note 16. Fair Value Measurements The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy (in thousands): As of December 31, 2024 Level 1 Level 2 Level 3 Available-for-sale debt securities $ — $ — $ 1,377 Money market funds 114,690 — — Total assets $ 114,690 $ — $ 1,377 As of December 31, 2023 Level 1 Level 2 Level 3 Available-for-sale debt securities $ — $ — $ 1,159 Money market fund 208,970 — — Total assets $ 208,970 $ — $ 1,159 Note 17. 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 August 2024, we 87 committed to a restructuring plan resulting in a reduction of our global workforce. This restructuring plan was substantially completed by September 30, 2024. During the year ended December 31, 2024 , we recognized $ 4.8 million in severance and other termination benefits in conjunction with the foregoing restructuring plan. 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. workforce. In 2023, we also incurred $ 1.0 million in severance and related termination benefits costs related to the reduction of our U.K. headcount. The 2023 reduction in the U.S. and U.K. 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. Note 18. Income Taxes The following are the domestic and foreign components of our income (loss) before income taxes (in thousands): Year Ended December 31, 2024 2023 2022 Domestic $ 28,678 $ 34,518 $ ( 49,383 ) Foreign 14,405 ( 3,024 ) 1,710 Total income (loss) before income taxes $ 43,083 $ 31,494 $ ( 47,673 ) The details for the provision for income taxes by jurisdiction are as follows (in thousands): Year Ended December 31, 2024 2023 2022 Current Federal $ 13,258 $ 8,984 $ 647 State 4,019 3,621 1,143 Foreign 395 224 63 Total current provision 17,672 12,829 1,853 Deferred Federal ( 3,741 ) 5,481 1,142 State ( 736 ) ( 769 ) ( 1,935 ) Foreign ( 75 ) — — Total deferred (benefit from) provision for income taxes ( 4,552 ) 4,712 ( 793 ) Total provision for income tax $ 13,120 $ 17,541 $ 1,060 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, 2024 and 2023. 88 The provision for (benefit from) income taxes for December 31, 2024, 2023, and 2022, differed from the amounts computed by applying the U.S. Federal income tax rate of 21% to income (loss) before income taxes as a result of the following (in thousands): Year Ended December 31, 2024 2023 2022 Provision for (benefit from) income taxes at statutory rate $ 9,047 $ 6,614 $ ( 10,012 ) State income taxes, net of federal benefit 2,186 1,796 ( 1,424 ) Rate differential on foreign earnings ( 2,670 ) ( 130 ) ( 104 ) Research and development credits ( 5,152 ) ( 4,894 ) ( 1,346 ) Change in valuation allowance ( 413 ) 814 304 Stock-based compensation 2,698 4,538 2,021 Nondeductible stock-based compensation 5,757 6,053 10,012 Unrecognized tax benefits 1,699 2,498 975 Non-deductible expenses 298 350 630 Other ( 330 ) ( 98 ) 4 Total provision for income taxes $ 13,120 $ 17,541 $ 1,060 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, 2024 and 2023, (in thousands): As of December 31, 2024 2023 Deferred tax assets Deferred revenue $ 153 $ 220 Accrued expenses 7,088 8,557 Stock-based compensation 4,070 6,554 Impairment on investment — 1,445 Net operating loss carryforwards 14,918 14,492 Tax credit carryforwards 10,264 9,462 Lease liabilities 1,957 2,359 Interest expense carryforwards 2,782 1,560 Capital loss carryforwards 453 455 Capitalized research expenses 34,957 21,355 Total deferred tax assets 76,642 66,459 Valuation allowance ( 16,876 ) ( 16,320 ) Net deferred tax assets 59,766 50,139 Deferred tax liabilities Depreciation and amortization ( 19,340 ) ( 15,231 ) Right of use asset ( 1,780 ) ( 2,228 ) State taxes ( 3,950 ) ( 3,665 ) Net deferred tax liabilities ( 25,070 ) ( 21,124 ) Net deferred tax assets and liabilities $ 34,696 $ 29,015 We evaluated the realizability of net deferred tax assets and determined it is more likely than not that separate state net operating losses, state net operating losses from the acquisition of LegalInc, the deferred tax assets for Pulse IP, LLC and Pulse Business, LLC, and foreign deferred tax assets, excluding Poland, will not 89 be realized based on the available objective evidence and have recorded a valuation allowance on such deferred tax assets. The following table summarizes the valuation allowance: Year Ended December 31, 2024 2023 2022 Beginning balance $ 16,320 $ 14,644 $ 14,170 Net (decrease) increase in current year ( 654 ) 799 91 Net increase in valuation prior period 1,210 877 383 Ending balance $ 16,876 $ 16,320 $ 14,644 Net changes in the valuation allowance in the years ended December 31, 2024, 2023, and 2022 include changes recorded through earnings relating to losses primarily from foreign operations and the current year release of the valuation allowance on the capital loss carryover from the acquisition of Earth Class Mail, Inc. and the release of the valuation allowance on one of the foreign entities. At December 31, 2024 and 2023, we had federal net operating loss, or NOL, carryforwards of $ 16.6 million and $ 17.2 million, respectively, which will begin to expire in 2036. At December 31, 2024, and 2023, we had state NOL carryforwards of $ 28.8 million and $ 38.2 million, respectively, which will begin to expire in 2025. At December 31, 2024 and 2023, we had foreign NOL carryforwards of $ 35.1 million and $ 30.3 million, respectively, which can be carried forward indefinitely and are not subject to expiration. At December 31, 2024,and 2023, our federal tax credit carryforwards were immaterial. At December 31, 2024 and 2023, we had state tax credit carryforwards of $ 13.9 million and $ 12.6 million, respectively, which carry forward indefinitely. Our domestic entities may be subject to an annual limitation on the utilization of NOL and credit carryforwards based on changes in ownership as defined by Section 382 of the Internal Revenue Code of 1986 . In 2022 we acquired Revvsales Inc. as a stock acquisition, since there was a change in ownership, the acquired NOL carryforwards are subject to an annual Section 382 limitation on the utilization of the NOL carryforwards. We have had foreign operations since 2013. We have not provided for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the U.S. At December 31, 2024, 2023, and 2022, the amount of temporary differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes are not material to our consolidated financial statements. The following table summarizes the changes in unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022 (in thousands): Gross Unrealized Tax Benefits Balance at December 31, 2021 $ 7,873 Additions for tax positions related to the current year 999 Additions for tax positions related to prior years 48 Balance at December 31, 2022 $ 8,920 Additions for tax positions related to the current year 2,181 Additions for tax positions related to prior years 418 Balance at December 31, 2023 $ 11,519 Additions for tax positions related to the current year 2,854 Reductions for tax positions related to prior years ( 966 ) Balance at December 31, 2024 $ 13,407 If recognized, $ 13.4 million of unrecognized tax benefits, excluding interest and penalties, would reduce our annual effective tax rate. Due to the uncertain and complex application of tax laws and regulations, it is possible that the ultimate resolution of uncertain positions may result in liabilities that could be materially different from these estimates. In such an event, we will record additional tax expense or benefit in the period in which resolution occurs. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. At December 31, 2024 and 2023, accrued interest and penalties related to income tax 90 positions were not material to our consolidated financial statements. We do not anticipate that unrecognized tax benefits will materially change within the next twelve months. We are subject to taxation and file income tax returns in the U.S. federal, state, and foreign jurisdictions. The federal income tax returns for the years 2021 and forward and state income tax returns for the tax years 2008 and forward remain open to examination. We are under examination in two states which are not expected to have an impact on our results of operations, cash flows and financial condition. Note 19. 401(k) Savings Plan We have a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Under the 401(k) plan, matching contributions are based upon the amount of the employees’ contributions subject to certain limitations. We contributed $ 4.0 million, $ 4.0 million, and $ 3.7 million to the 401(k) plan in 2024, 2023, and 2022, respectively. Note 20. Accumulated Other Comprehensive Income (Loss) Changes in accumulated other comprehensive income (loss) consisted of the following: Year Ended December 31, 2024 (in thousands) Before Tax Amount Tax Effect Net of Tax Amount Foreign currency translation adjustments: Beginning balance $ ( 12 ) $ — $ ( 12 ) Change during period 475 — 475 Ending balance $ 463 $ — $ 463 Available-for-sale debt securities: Beginning balance $ 324 $ ( 80 ) $ 244 Unrealized gains 206 ( 52 ) 154 Ending balance $ 530 $ ( 132 ) $ 398 Accumulated other comprehensive income: Beginning balance $ 312 $ ( 80 ) $ 232 Other comprehensive income 681 ( 52 ) 629 Ending balance $ 993 $ ( 132 ) $ 861 Year Ended December 31, 2023 (in thousands) Before Tax Amount Tax Effect Net of Tax Amount Foreign currency translation adjustments: Beginning balance $ 1,358 $ — $ 1,358 Change during period ( 1,370 ) — ( 1,370 ) Ending balance $ ( 12 ) $ — $ ( 12 ) Available-for-sale debt securities: Beginning balance $ 184 $ ( 45 ) $ 139 Unrealized gains 140 ( 35 ) 105 Ending balance $ 324 $ ( 80 ) $ 244 Accumulated other comprehensive loss: Beginning balance $ 1,542 $ ( 45 ) $ 1,497 Other comprehensive loss ( 1,230 ) ( 35 ) ( 1,265 ) Ending balance $ 312 $ ( 80 ) $ 232 91 Year Ended December 31, 2022 (in thousands) Before Tax Amount Tax Effect Net of Tax Amount Foreign currency translation adjustments: Beginning balance $ ( 2,078 ) $ — $ ( 2,078 ) Change during period 3,436 — 3,436 Ending balance $ 1,358 $ — $ 1,358 Available-for-sale debt securities: Beginning balance $ 331 $ ( 48 ) $ 283 Unrealized loss ( 147 ) 3 ( 144 ) Ending balance $ 184 $ ( 45 ) $ 139 Accumulated other comprehensive loss: Beginning balance $ ( 1,747 ) $ ( 48 ) $ ( 1,795 ) Other comprehensive income 3,289 3 3,292 Ending balance $ 1,542 $ ( 45 ) $ 1,497 Note 21. Segment Information Our Chief Executive Officer, as the Chief Operating Decision Maker, or CODM, organizes our company, manages resource allocations, and measures performance on the basis of one operating segment on a consolidated basis. The accounting policies of our operating segment are the same as those described in Note 2, Summary of Significant Accounting Policies . The CODM assesses performance for the segment and decides how to allocate resources based on net income (loss) that also is reported on the accompanying consolidated statements of operations as consolidated net income (loss). The measure of segment assets is reported on the accompanying consolidated balance sheets as total assets. The CODM uses net income (loss) to evaluate income generated from segment assets in making key operating and segment resource allocation decisions, such as investments in new product development. Net income (loss) is also used to monitor budget versus actual results and to establish management’s compensation. The Company has one reportable segment which provides online platform for business formation in the United States, or U.S., and, as described in Note 2, Summary of Significant Accounting Policies, generates revenue from customized legal document services and subscriptions offered to our customers. 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, 2024, 2023 and 2022. Our property and equipment and right-of-use, or ROU, assets located outside of the U.S. were immaterial as of December 31, 2024 and 2023. The following table summarizes financial information by reportable segment regularly provided to the CODM (in thousands): Year Ended December 31, 2024 2023 2022 Transaction Revenue $ 245,692 $ 247,780 $ 260,781 Subscription Revenue $ 436,189 $ 412,947 $ 359,198 Total revenue $ 681,881 $ 660,727 $ 619,979 Less: Filings fees $ 83,269 $ 88,103 $ 74,059 Other cost of revenue, excluding depreciation, amortization and stock-based compensation $ 132,089 $ 134,070 $ 125,524 Customer acquisition marketing $ 157,578 $ 145,338 $ 174,636 Other sales and marketing, excluding depreciation, amortization and stock-based compensation $ 38,293 $ 54,152 $ 72,090 92 Year Ended December 31, 2024 2023 2022 Technology and development, excluding depreciation, amortization and stock-based compensation $ 62,323 $ 60,098 $ 51,026 General and administrative, excluding depreciation, amortization, stock-based compensation, and restructuring $ 60,215 $ 61,843 $ 60,126 Stock-based compensation $ 71,510 $ 66,015 $ 80,469 Depreciation and amortization $ 34,927 $ 25,383 $ 21,745 Interest income $ ( 7,850 ) $ ( 9,307 ) $ ( 1,803 ) Interest expense $ 446 $ 493 $ 260 Restructuring (1) $ 6,096 $ 4,666 $ 1,795 Other segment items (2) $ ( 98 ) $ ( 1,621 ) $ 4,477 Provision for income taxes $ 13,120 $ 17,541 $ 1,060 Impairment of long-lived assets $ — $ — $ 248 Impairment of other equity security $ — $ — $ 3,000 Segment net income (loss) $ 29,963 $ 13,953 $ ( 48,733 ) Reconciliation of profit or loss Adjustments and reconciling items $ — $ — $ — Consolidated net income (loss) $ 29,963 $ 13,953 $ ( 48,733 ) (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. and U.K. headcount. 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 consolidated statements of operations. (2) Other segment items included in segment net income (loss) primarily consist of foreign currency gains or losses related to our intercompany loans which were denominated in British Pound Sterling, or GBP, and included in other income (expense), net on the consolidated statements of operations. Note 22. Subsequent Events On February 10, 2025, we acquired all of the outstanding equity interests of Formation Nation, Inc., or Formation Nation, a small business service company that provides business formation and compliance services, 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. This acquisition is intended to accelerate our strategy of attracting higher value customers by leveraging Formation Nation’s established customer service teams. We are currently in the process of finalizing the accounting for this transaction and expect to complete our preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed by the end of the first quarter of 2025. 93 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None