What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-02-23 compared with 2025-02-26 · 162 added, 164 removed, 468 unchanged (41% of the section changed)

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

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

By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or our own law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to intellectual property protection and ongoing business management and legal support.

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

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

Recent Developments and Updates

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

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

The cash consideration was funded with cash on hand.

Upon closing of the transaction, Formation Nation, Inc.

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

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

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

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

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

Key Factors Affecting Our Performance

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

• Our share of business formations .

• Our share of small and medium-sized businesses (SMBs) .

In 2025, business formations represented the largest share of our total transaction orders.

Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction.

In addition, we are expanding our go-to-market strategy to focus on emerging and established business, which we believe will decrease our dependence on business formations over time.

As a result, our operating results depend on the continuation of new business formations in the U.S.

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

and even more so, on our ability to increase our share of new business formations and to attract existing businesses to our platform.

• Ability to enhance customer lifetime value .

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

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

our key business metrics.

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

• Ability to integrate experts .

We believe that our expert offerings significantly expand our addressable market.

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

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

As we continue to optimize our subscription business, including by testing various commercialization strategies for our offerings and introducing new, higher value DIFM subscription offerings, we have experienced and we expect to continue to experience increased volatility across our key business metrics.

• Ability to integrate augmented legal expertise .

We believe that the future of legal and small business services involves a combination of AI and human expertise.

We aim to utilize AI to drive efficiency and scale, while relying on our team of concierge managers and our independent network of attorneys to provide the judgment and trust that customers need.

The extent to which we are able to combine AI with our human expertise in order to drive cost efficiencies and increase the consumption of our DIFM offerings will impact our future results of operations.

Key Components of our Results of Operations

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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 also earn fees from third-party providers in connection with lead generation activities, where referred customers purchased services that are transactional in nature.

services, and software-as-a-service, or SaaS, subscriptions.

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

Subscription terms generally range from thirty days to one year.

Subscription revenue also includes amounts earned from third-party providers in connection with lead generation activities, where referred customers purchased services that are subscription in nature.

Subscription revenue includes the transaction price allocated to bundled free trials for our subscription services and is net of promotional discounts, cancellations, sales allowances and credit reserves and payments to third-party service providers such as legal plan law firms.

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

Cost of revenue primarily includes government filing fees, costs of fulfillment, customer care, including the cost of credentialed professionals for tax, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation, telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes.

Cost of revenue primarily includes government filing fees, costs of fulfillment, customer care, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation, telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes.

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

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

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

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

Our gross margin could fluctuate from period to period due to fulfillment rates and seasonality.

Operating expenses

Our operating expenses consist primarily of sales and marketing, technology and development, general and administrative expenses, and to a lesser extent, impairments of goodwill, long-lived assets and other assets.

Sales and marketing

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Media production costs are expensed the first time the advertisement is aired.

We intend to continue to invest in sales and marketing to drive additional revenue, further penetrate our expanding addressable market, and build on our digital brand leadership and awareness.

Customer acquisition media spend has historically been highest in the first quarter of the year to align with business formation seasonality and we expect this trend to continue to invest in sales and marketing to drive additional revenue, further penetrate our expanding addressable market, and build on our digital brand leadership and awareness.

We anticipate that sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future.

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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.

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.

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

Gain on sale of assets held for sale

Gain on sale of assets held for sale relates to the sale of our operational headquarters on March 31, 2025.

Interest expense

Interest expense consists primarily of amortization of debt issuance costs related to our Amended and Restated Credit and Guaranty Agreement, or 2021 Revolving Facility.

Interest expense consists primarily of amortization of debt issuance costs related to our amended and restated credit and guaranty agreement, or, as amended, the Amended Revolving Facility as well as interest incurred on the deferred cash consideration associated with the acquisition of Formation Nation.

We expect interest expense to remain insignificant in the near term as we have no outstanding indebtedness.

However, we would incur interest expense in the longer term should we draw down on our 2021 Revolving Facility or incur other indebtedness.

However, we would incur interest expense in the longer term should we draw down on our Amended Revolving Facility or incur other indebtedness.

Interest income

Interest income consists primarily of interest income generated from our investment in money market funds.

Other income, net

Other income, net consists of realized and unrealized foreign currency gains and losses, change in fair value of other equity security, gain on sale of available-for-sale security as well as the loss on debt extinguishment related to the Amended Revolving Facility.

Our provision for income taxes consists of current and deferred federal, state and foreign income taxes.

We account for income taxes in accordance with Accounting Standard Codification 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year.

Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to:

variations in the estimated and actual level of pre-tax income or loss by jurisdiction;

changes in enacted tax laws and regulations, and interpretations thereof, including with respect to tax credits and state and local income taxes;

developments in tax audits and other matters;

recognition of excess tax benefits and tax deficiencies from stock-based compensation and certain nondeductible expenses.

Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

At December 31, 2025, we had federal net operating loss, or NOL, carryforwards of $27.5 million, which will begin to expire in 2036.

At December 31, 2025, we had state NOL carryforwards of $41.3 million, which will begin to expire in 2026 and we had foreign NOL carryforwards of $32.8 million, which can be carried forward indefinitely and are not subject to expiration.

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

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

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

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

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In addition to the measures presented in our consolidated financial statements, we regularly monitor the following financial and operating metrics to evaluate the growth of our business, measure the effectiveness of our marketing efforts, identify trends, formulate financial forecasts and make strategic decisions.

For the year ended December 31, 2025, Formation Nation is included in the key business metrics below starting on February 10, 2025, the date we acquired Formation Nation.

Prior periods have not been recast.

Number of business formations

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Number of business formations

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

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

We experienced a 4% increase in business formation transactions during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to formations driven by our Formation Nation acquisition.

business formations grew by 9% during the year ended December 31, 2025 compared to the year ended December 31, 2024, based on a review of U.S.

Census data revealing new applications for EINs.

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Number of transactions

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

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

We experienced a 1% decrease in the number of transactions during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily from the decline in beneficial ownership information

report filings following a FinCEN ruling on March 21, 2025 that eliminated this filing requirement for U.S.

companies, partially offset by the inclusion of transactions from our Formation Nation acquisition and an increase in annual report filings.

Average order value

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Average order value

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

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

Average order value increased by 8% during the year ended December 31, 2025 compared to the year ended December 31, 2024.

The increase in average order value was primarily driven by a decrease in the volume of lower-value beneficial ownership information report filings, as well as our acquisition of Formation Nation, which includes higher-value DIFM business formation services.

Number of subscription units

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Number of subscription units

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

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

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

We achieved 10% growth in the number of subscription units from December 31, 2024 to December 31, 2025, primarily driven by an increase in compliance, legal advisory and accounting subscriptions from the bundling of these products into business formation offerings, as well as an increase in virtual mail subscriptions and the inclusion of subscription units from our Formation Nation acquisition.

On a sequential basis, the number of subscription units as of December 31, 2025 decreased 1% from 1,959 thousand subscription units as of September 30, 2025.

Average revenue per subscription unit

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

In addition, when viewed

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

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

The below table sets forth ARPU as of December 31, 2025 and 2024:

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Average revenue per subscription unit

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

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

ARPU increased by 1% as of December 31, 2025 as compared to December 31, 2024 driven primarily by the acquisition of Formation Nation in February 2025, partially offset by our prior discontinuation of new customer acquisition for our tax offerings as well as a shift in mix towards our lower priced subscription offerings, including forms and eSignature, accounting solutions, and legal advisory subscriptions, due to the bundling of these products into certain business formation offerings.

On a sequential basis, ARPU as of December 31, 2025 increased 4% compared to September 30, 2025.

Annual small business retention rate

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

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

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

Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, our tax solution, our virtual mail, forms and eSignature solutions and our small business legal advisory plan, and exclude subscriptions from our enterprise customers, our prior operations in the U.K.

and our consumer legal advisory plan.

Annual small business retention rate includes both monthly and annual subscription units and reflects all subscription unit attrition, including as a result of actual business failures of certain of our customers.

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

Our annual small business retention rate as of December 31, 2025 was approximately 58% which was impacted by the anniversary of the bundling of annual forms and eSignature subscriptions into certain business formation offerings, which are typically lower retaining.

The annual small business retention rate as of December 31, 2025 does not include the impact of Formation Nation, as we had no active Formation Nation subscriptions on the last day of the quarter one year ago.

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

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Results of Operations

The following table sets forth our consolidated statement of operations data for each of the periods indicated.

The table below sets forth our consolidated statement of operations data for each of the periods indicated.

The period-to-period comparison of financial results should not be considered as a prediction or indicative of our future results.

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143,758 108,939

Gain on sale of assets held for sale (14,337) —

Total operating expenses 473,107 406,207

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Interest income 7,569 7,850

Other income (expense), net 98 1,621

Other income, net 1,187 98

Income before income taxes 32,438 43,083

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Total stock-based compensation expense $ 113,708 $ 71,510

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

Stock-based compensation expense increased for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a full year of expense recognition in 2025 for our awards with performance conditions as well as those with market-based conditions, or, collectively, PSUs, granted in 2024, compared to a partial year of expense in 2024.

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

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The 11% increase in total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 was driven by an increase in subscription revenue.

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

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

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

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

Subscription revenue was 65% and 64% of total revenue for the years ended December 31, 2025 and 2024, respectively, and transaction revenue was 35% and 36% of total revenue for the years ended December 31, 2025 and 2024, respectively.

Transaction revenue increased 7% year-over-year for the year ended December 31, 2025 primarily due to approximately $33.2 million in revenue from transactions derived from our acquisition of Formation Nation in February 2025 and an increase in revenue from annual report filing fees and trademark filings, partially offset by a decline in beneficial ownership information report revenue due to the FinCEN ruling on March 21, 2025 that eliminated this filing requirement for U.S.

Subscription revenue increased 13% year-over-year for the year ended December 31, 2025 primarily due to approximately $18.2 million in revenue from subscriptions derived from our acquisition of Formation Nation in February 2025, as well as an 11% increase in revenue from compliance-related subscriptions, an increase in revenue from our virtual mail offering and revenue earned from the 1-800 Accountant partnership entered into in December 2024.

Subscription revenue growth was partially offset by our prior discontinuation of new customer acquisition for our tax offering.

Cost of revenue

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$ 257,960 $ 240,093 $ 17,867 7 %

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

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

Cost of revenue for the year ended December 31, 2025 increased by $17.9 million mainly due to a $15.0 million increase in filing fees primarily due to our acquisition of Formation Nation and annual report filings, a $3.7 million increase in third-party fees for customer fulfillment services, a $3.1 million increase in other cost of service primarily related to acquisition of Formation Nation, a $1.8 million increase i n depreciation and amortization expense, and a $1.1 million increase in credit card fees .

These increases were partially offset by a $6.8 million decrease in payroll and related benefits due to a decrease in average headcount.

Year Ended December 31,

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$ 498,083 $ 441,788 $ 56,295 13 %

The increase in gross profit was driven by a $21.2 million increase in revenue partially offset by a $0.8 million increase in cost of revenue as discussed above.

The increase in gross profit was driven by a $74.2 million increase in revenue partially offset by a $17.9 million increase in cost of revenue.

Sales and marketing

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$ 261,745 $ 207,684 $ 54,061 26 %

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

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

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

Sales and marketing expenses for the year ended December 31, 2025 increased by $54.1 million largely due to a $20.0 million increase in payroll and related benefits resulting from an increase in average sales and marketing headcount primarily related to our Formation Nation acquisition, an $18.0 million increase in customer acquisition marketing spend, an $8.7 million increase in stock-based compensation expense, and a $5.5 million increase in depreciation and amortization expense primarily due to the amortization of intangible assets.

Customer acquisition marketing spend was $175.6 million and $157.6 million for the year ended December 31, 2025 and 2024 , respectively, primarily due to lower performance marketing spend during the year ended December 31, 2024 .

Technology and development

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$ 81,941 $ 89,584 $ (7,643) (9 %)

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

Technology and development expenses for the year ended December 31, 2025 decreased primarily due to a decrease in payroll and related benefits largely due to a decrease in average technology and development headcount including a $4.5 million decrease in stock-based compensation expense during the year ended December 31, 2025 .

General and administrative

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$ 143,758 $ 108,939 $ 34,819 32 %

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

General and administrative expenses for the year ended December 31, 2025 increased by $34.8 million primarily due to an increase of $38.2 million in stock-based compensation expense due to time-based RSUs as well as PSUs granted to eligible employees and members of our senior leadership team in 2024.

These increases were partially offset by a $5.2 million decrease in restructuring costs compared to the year ended December 31, 2024.

Gain on sale of assets held for sale

Year Ended December 31,

2025 2024 $ change % change

(in thousands, except percentages)

Gain on sale of assets held for sale

$ (14,337) $ — $ (14,337) N/A

Gain on sale of assets held for sale for the year ended December 31, 2025 was $14.3 million due to the sale of our operational headquarters on March 31, 2025.

Interest expense

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$ 1,294 $ 446 $ 848 190 %

Interest expense consists primarily of amortization of debt issuance costs related to our 2021 Revolving Facility.

Interest expense consists primarily of amortization of debt issuance costs related to our Amended Revolving Facility as well as interest incurred on the deferred cash consideration associated with the acquisition of Formation Nation.

Interest income

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$ 7,569 $ 7,850 $ (281) (4 %)

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

Other income (expense), net

The change in interest income was primarily due to interest income generated from our money market investments for the year ended December 31, 2025 .

Other income, net

Year Ended December 31,

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(in thousands, except percentages)

Other income (expense), net

Other income, net

$ 1,187 $ 98 $ 1,089 1111 %

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

The change in other income, net, between 2025 and 2024 was primarily due to change in fair value of other equity security of $0.3 million and gain on sale of available-for-sale debt security of $0.8 million .

Provision for income taxes

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Effective tax rate

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

There was a $3.9 million increase in the provision for income taxes in 2025 as compared to 2024 primarily due to higher nondeductible tax benefits from stock-based compensation and lower research and development tax credits for the year ended December 31, 2025 compared to the year ended December 31, 2024.

Comparison of the Years Ended December 31, 2024 and 2023

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At December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $203.1 million, which consisted of cash on deposit with banks and money market funds, of which approximately $4.4 million related to our foreign subsidiaries.

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

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

Our cash and cash equivalents increased by $61.0 million from December 31, 2024 to December 31, 2025, primarily due to cash provided by operating activities, proceeds from stock option exercises primarily by former executive officers in the first quarter of 2025, and proceeds from the sale of a property held for sale, partially offset by repurchases of our common stock, cash paid for the acquisition of Formation Nation, cash paid for s hares surrendered for settlement of minimum statutory tax withholding , and purchases of property and equipment.

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

We have the ability to supplement our liquidity needs with borrowings under our 2021 Revolving Facility.

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

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

We have the ability to supplement our liquidity needs with borrowings under our Amended Revolving Facility.

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

We continue to evaluate our plans for reinvestment or repatriation of unremitting foreign earnings and have not changed our previous indefinite reinvestment determination following the enactment of the 2017 Tax Cuts and Jobs Act.

We continue to evaluate our plans for reinvestment or repatriation of unremitting foreign earnings.

We have not repatriated funds to the U.S.

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state income taxes.

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

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

In October 2023, our board of directors approved a stock repurchase program authorizing the repurchase of shares of our common stock from time to time.

In May 2025, our board of directors approved a $100.0 million increase in our stock repurchase program, bringing the aggregate amount authorized to $315.0 million.

At December 31, 2025 , approximately $69.5 million remained available for future repurchases of our common stock under the stock repurchase program.

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

In addition, in February 2026, our board of directors approved an additional $100.0 million increase in our stock repurchase program, bringing the aggregate amount authorized to $415.0 million.

For additional information regarding our stock repurchase program, refer to Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” and Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revolving Facility

On July 2, 2021, we entered into our $150.0 million 2021 Revolving Facility with JPMorgan Chase Bank, N.A., as the administrative agent.

The 2021 Revolving Facility, as amended, provides for the issuance of up to $20.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to $10.0 million .

At December 31, 2024, we had no borrowings outstanding and $150.0 million was available for use under our 2021 Revolving Facility.

Subject to the satisfaction of certain criteria, we will be able to increase the 2021 Revolving Facility by an amount equal to the sum of (i) the greater of $90.0 million and 75% of consolidated last twelve months cash earnings before interest expense, tax, depreciation and amortization, or LTM CEBITDA, plus (ii) unused amounts under the general debt basket (i.e., an amount equal to the greater of $50.0 million and an equivalent percentage of consolidated LTM CEBITDA), plus (iii) an unlimited amount so long as we are in pro forma compliance with the Financial Covenant (as defined below), in each case, with the consent of the lenders participating in the increase.

We are required to pay a commitment fee in respect of unutilized commitments under the 2021 Revolving Facility.

On July 2, 2021, we entered into a $150.0 million amended and restated credit and guaranty agreement with JPMorgan Chase Bank, N.A., as the administrative agent.

On July 14, 2025, we entered into an amendment to the amended and restated credit and guaranty agreement that, among other things, decreased the revolving loan commitments to $100.0 million and extended the maturity date of the revolving loan commitments to July 14, 2030.

We refer to the amended and restated credit and guaranty agreement, as amended from time to time, as the Amended Revolving Facility.

The Amended Revolving Facility provides for the issuance of up to $20.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to $10.0 million .

At December 31, 2025, we had no borrowings outstanding and $100.0 million was available for use under our Amended Revolving Facility.

Subject to the satisfaction of certain criteria, we will be able to increase the Amended Revolving Facility by an amount equal to the sum of (i) the greater of $90.0 million and 75% of consolidated last twelve months cash earnings before interest expense, tax, depreciation and amortization, or LTM CEBITDA, plus (ii) unused amounts under the general debt basket (i.e., an amount equal to the greater of $50.0 million and an equivalent percentage of consolidated LTM CEBITDA), plus (iii) an unlimited amount so long as we are in pro forma compliance with the Financial Covenant (as defined below), in each case, with the consent of the lenders participating in the increase.

We are required to pay a commitment fee in respect of unutilized commitments under the Amended Revolving Facility.

The commitment fee is, initially, 0.35% per annum.

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

We are also required to pay

customary letter of credit fees and agency fees.

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

(i) the administrative agent’s prime rate;

(ii) the federal funds effective rate plus 1/2 of 1.0%;

and (iii) the secured overnight financing rate, or SOFR, plus a 0.10% credit spread adjustment to the SOFR benchmark, or Adjusted Term SOFR, plus 1.00%;

provided that if the Adjusted Term SOFR is less than zero, the Adjusted Term SOFR shall be deemed to be zero.

The interest rate margins under the 2021 Revolving Facility are subject to a reduction of 0.25% and a further reduction of 0.25% if the total net first lien leverage ratio does not exceed 3.50 to 1.00 and 2.50 to 1.00, respectively.

The commitment fee is subject to a

reduction of 0.10% if the total net first lien leverage ratio does not exceed 3.50 to 1.00 and an additional reduction of 0.05% if the total net first lien leverage ratio does not exceed 1.00 to 1.00.

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

dollar borrowings under the Amended Revolving Facility bear interest at a rate per annum equal to, at the borrower’s option, either (a) the Secured Overnight Financing Rate, or Term SOFR, plus a margin ranging from 2.00% to 1.25% or (b) a margin ranging from 1.00% to 0.25% plus the highest of (i) the administrative agent’s prime rate, (ii) the Federal Funds rate plus 0.50% or (iii) one-month Term SOFR plus 1%.

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

We have the option to voluntarily repay outstanding loans 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.

There is no scheduled amortization under the Amended Revolving Facility.

The principal amount outstanding is due and payable in full at maturity on July 14, 2030.

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 the assets of the borrower and the guarantors, subject to certain exceptions.

The 2021 Revolving Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability and the ability of our restricted subsidiaries to incur additional indebtedness and guarantee indebtedness;

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

The Amended Revolving Facility is secured by a first-priority security interest in substantially all of the assets of the borrower and the guarantors, subject to certain exceptions.

The Amended Revolving Facility contains a number of covenants that, among other things and 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;

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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.

The Amended 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 Amended Revolving Facility on the last day of such fiscal quarter.

The following table sets forth a summary of our cash flows for the periods indicated:

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Effect of exchange rate changes on cash and cash equivalents 172 (313)

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

Net increase (decrease) in cash and cash equivalents 61,036 (83,655)

For a discussion of our cash flows for the year ended December 31, 2023, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 26, 2025.

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

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

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

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

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

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

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

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

In 2025, cash provided by operating activities was $178.2 million resulting from net income of $15.4 million, adjusted for stock-based compensation and other non-cash expenses of $153.5 million and net cash flows provided by changes in operating assets and liabilities of $9.3 million.

The $9.3 million of net cash flows provided by changes in our operating assets and liabilities included a $19.3 million increase in deferred revenue largely due to the growth of our subscription units, which are predominantly billed in advance of our revenue

recognition, partially offset by a $12.1 million increase in accounts receivable, prepaid expenses and other current assets.

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

The $0.8 million of net cash flows provided by changes in our operating assets and liabilities included a $6.6 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition, and a net $0.5 million decrease in accounts receivable, prepaid expenses and other current assets, partially offset by a $6.9 million decrease in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments.

Net cash used in investing activities

Our primary investing activities have consisted of capital expenditures to purchase property and equipment necessary to support our customer contact center, network and operations, the capitalization of internal-use software necessary to develop and maintain our platform and deliver new products and features, which provide value to our customers, business acquisitions and investments in other companies.

Our primary investing activities have historically consisted primarily of capital expenditures to purchase property and equipment necessary to support our customer contact center, network and operations, the capitalization of internal-use software necessary to develop and maintain our platform and deliver new products and features, which provide value to our customers, business acquisitions and investments in other companies.

As our business grows, we expect our capital expenditures to continue to increase.

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

In 2025, we engaged in additional investing activities in regards to our acquisition of Formation Nation and the sale of our operational headquarters.

In 2025, net cash used in investing activities was $40.1 million, resulting primarily from $48.5 million used for the acquisition of Formation Nation, net of cash acquired and $30.3 million in purchases of property and equipment, including capitalized internal-use software, partially offset by $37.1 million in proceeds from the sale of our operational headquarters.

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

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

In 2024, net cash used in financing activities was $183.3 million, primarily for the repurchase of common stock under our stock repurchase program.

In 2025, net cash used in financing activities was $77.3 million, primarily resulting from $80.5 million in repurchases of common stock under our stock repurchase program and a $40.4 million settlement of minimum statutory tax withholding upon vesting of RSUs, partially offset by $45.8 million in proceeds from the issuance of stock under employee stock plans.

In 2024, net cash used in financing activities was $183.3 million, primarily for the repurchase of common stock under our stock repurchase program.

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

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

We have non-cancelable agreements with various vendors, which require us to pay $55.1 million over a four-year period, of which $41.2 million remains to be paid as of December 31, 2025.

Lease Obligations

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

At December 31, 2025, we had various non-cancelable operating leases for office space, which expire between June 2026 and June 2033.

At December 31, 2025, we had total minimum operating lease maturities of $16.3 million, $4.5 million of which mature within twelve months.

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Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements, which are prepared and presented in accordance with U.S.

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S.

generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance.

These non-GAAP financial measures, which may be different from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and liquidity and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

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

We are presenting these non-GAAP

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

We believe that these non-GAAP financial measures provide investors with useful information about our financial performance and liquidity,

enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important measures used by our management for financial and operational decision-making.

We also believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

These non-GAAP measures should not be considered in isolation of, or as a substitute or an alternative to, measures prepared and presented in accordance with GAAP.

Adjusted EBITDA and Adjusted EBITDA Margin

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

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

We define Adjusted EBITDA as net income adjusted to exclude interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, other expense (income), net, stock-based compensation and certain non-recurring income and expenses from time to time.

We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue.

We define net income (loss) margin as net income (loss) as a percentage of revenue based on our consolidated financial statements.

Adjusted EBITDA is one of the primary performance measures used by our management and our board of directors to understand and evaluate our financial performance and operating trends, including period-to-period comparisons, prepare and approve our annual budget, develop short and long-term operational plans and determine appropriate compensation plans for our employees.

Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team and board of directors.

We define net income margin as net income as a percentage of revenue based on our consolidated financial statements.

Adjusted EBITDA is one of the primary performance measures used by our management and our board of directors to understand and evaluate our financial performance and operating trends, including period-to-period comparisons, preparing and approving our annual budget and operational performance.

In assessing our performance, we exclude certain expenses that we believe are not comparable period over period or that we believe are not indicative of our underlying operating performance.

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

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

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

There are a number of limitations related to the use of Adjusted EBITDA rather than net income, which include that Adjusted EBITDA:

• may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure;

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• excludes stock-based compensation expense, which has been, and will continue to be, a significant recurring expense for our business and an important part of our compensation strategy;

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

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

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

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Depreciation and amortization 44,123 34,927

Other (income) expense, net (98) (1,621)

Other income, net (1,187) (98)

Stock-based compensation 113,708 71,510

Acquisition and related expenses (1)

Gain on sale of assets held for sale (14,337) —

Restructuring costs (2)

Certain non-recurring expenses (2)

Adjusted EBITDA $ 172,193 $ 148,114

Year Ended December 31,

(in thousands)

Net income margin 2 % 4 %

Adjusted EBITDA margin 23 % 22 %

(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.

(1) For 2025, acquisition and related expenses are primarily related to our acquisition of Formation Nation.

Additional costs incurred are related to the evaluation and pursuit of strategic transactions.

(2) For 2025 and 2024, restructuring costs related to the reduction of our U.S.

Restructuring expenses include salary and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations appearing elsewhere in this Annual Report on Form 10-K.

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

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

The increase in Adjusted EBITDA of $24.1 million for the year ended December 31, 2025 reflects an increase in revenue of $74.2 million, which was partially offset by an increase in cost of revenue, excluding non-cash and non-recurring items, of $16.4 million, and a $33.7 million increase in operating expenses, excluding non-cash and non-recurring items.

Free cash flow

Free cash flow is a liquidity measure used by management in evaluating the cash generated by our operations after purchases of property and equipment including capitalized internal-use software.

We consider free cash flow to be an important measure because it provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet.

Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth.

We believe free cash flow provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet once our business needs and obligations are met.

The usefulness of free cash flow as an analytical tool has limitations because it excludes certain items that are settled in cash, does not represent residual cash flow available for discretionary expenses, does not reflect our future contractual commitments, and may be calculated differently by other companies in our industry.

Accordingly, it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash used in or provided by operating activities.

The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to free cash flow:

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Free cash flow

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

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

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

The increase in our free cash flow of $48.0 million for the year ended December 31, 2025 was primarily due to a $42.6 million increase in net cash provided by operating activities.

The increase in net cash provided by operating activities resulted from a $34.1 million increase in net income after adjusting for stock-based compensation and other non-cash items, and an $8.5 million favorable change in our operating assets and liabilities.

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

Recent Accounting Pronouncements

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The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.

Estimates are used for, however not limited to, revenue recognition, sales allowances and credit reserves, available-for-sale debt securities, recoverability of long-lived assets and goodwill, income taxes, commitments and contingencies, valuation of assets and liabilities acquired in business combinations, valuation of assets in asset acquisitions, fair value of derivative instruments and stock-based compensation.

Actual results could differ materially from those estimates.

Our most critical accounting policies are summarized below.

Our most critical accounting policies and estimates are summarized below.

See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our other significant accounting policies.

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

Transaction revenue includes filing fees and is net of cancellations, promotional discounts, 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.

Transaction revenue includes filing fees and is net of cancellations,

promotional discounts, sales allowances and credit reserves.

We also earn fees from third-party providers in connection with lead generation activities, where referred customers purchase services that are transactional in nature.

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

Subscription terms generally range from thirty days to one year.

Subscription revenue also includes amounts earned from third-party providers in connection with lead generation activities, where referred customers purchase services that are subscription in nature.

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and recognition of revenue when or as the performance obligations are satisfied.

Our customers generally pay for transactions in advance by credit or debit card except for certain services provided under installment plans where we allow customers to pay for their order in either two, three or twelve equal payments.

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

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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.

Subscription services are generally paid monthly or annually in advance of the subscription period except for virtual mail subscriptions, which are invoiced monthly in arrears.

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

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

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.

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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.

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.

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

We are the principal in most of our legal document preparation and registered agent services, including legal entity formations and similar arrangements and formation, and since December 2021, tax advisory and preparation services through our fulfilled tax subscription, LZ Tax.

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

For these services, revenue includes filing and similar fees.

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

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

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

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

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

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been

recognized in our consolidated financial statements.

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.

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We also consider 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 (benefit from) income taxes and the related impact on our net income (loss).

If our assumptions and consequently our estimates, change in the future, the valuation allowance may be increased or decreased, resulting in an increase or decrease, which may be material, to our provision for income taxes and the related impact on our net income.

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

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

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

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

vest based on service and performance conditions.

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

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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.

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

• Risk-free interest rate .

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

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

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

• Expected volatility .

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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.

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

• Expected dividend yield .

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

If we had made different assumptions, our stock-based compensation expense, and our net income (loss) for 2024, 2023 and 2022 may have been materially different.

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

If we had made different assumptions, our stock-based compensation expense, and our net income for 2025, 2024 and 2023 may have been materially different.

We did not grant any stock options during the year ended December 31, 2025 or 2024.

The weighted-average assumptions that were used to calculate the grant-date fair-value of our stock options granted during the year ended December 31, 2023 were as follows:

Year Ended December 31,

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

What changed 10-K

Item 7. Management’s Discussion and Analysis