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What changed in LEGALZOOM.COM, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LEGALZOOM.COM, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+465 added−514 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in LEGALZOOM.COM, INC.'s 2023 10-K

465 paragraphs added · 514 removed · 349 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeTransaction products Our transaction products are listed in the following table: Transaction Products for Small Businesses Transaction Products for Consumers Business Formation Limited Liability Company (LLC) Incorporation of C and S Corporations Nonprofit Formation Doing-Business-As (DBA) Corporate Changes and Filings Business Licenses Legal Forms Intellectual Property Trademark Application Copyright Registration Provisional Patent Application Tax Services Business and Personal Tax Preparation Tax Advice Consumer Estate Planning Last Will and Testament Living Will Living Trust Power of Attorney Other Legal Matters Name Change Real Estate Deed Transfer Real Estate Leases Legal Forms Subscription services Our primary subscription services are listed in the following table: Small Business Subscriptions Consumer Subscriptions Registered Agent Compliance Attorney Advice through our Legal Plans Tax Advice and Preparation Accounting and Payroll Legal Forms Virtual Mail and Check Deposit Services Attorney Advice through our Legal Plans Estate Planning Bundle Legal Forms Virtual Mail and Check Deposit Services Registered agent subscriptions .
Biggest changeTransaction products Our primary transaction products are listed in the following table: Transaction Products for Small Businesses Transaction Products for Consumers Business Formation Limited Liability Company, or LLC Incorporation of C and S Corporations Nonprofit Formation Doing-Business-As, or DBA Corporate Changes and Filings Business Licenses Legal Forms Beneficial Ownership Information Report Intellectual Property Trademark Application Copyright Registration Patent Application Tax Services Business and Personal Tax Preparation Consumer, Estate Planning and Other Last Will and Testament Living Will Living Trust Power of Attorney Name Change Subscription services At December 31, 2023, we h ad over 1.5 million subscription units outstanding.
Our content 5 marketing includes educational initiatives such as our Article Center on our website, where we create content to better inform our customers on how they can plan for and protect themselves, their families, and their businesses. We use a strategic mix of online and offline marketing in combination with inbound sales.
Our content marketing includes educational initiatives such as our Article Center on our website, where we create content to better inform our customers on how they can plan for and protect themselves, their families, and their businesses. We use a strategic mix of online and offline marketing in combination with inbound sales.
We use straight through processing for several products, which has enabled us to deliver the documents to the customer in near real-time. 4 Compliance platform We have built a system to notify our customers of upcoming compliance milestones and associated requirements.
We use straight through processing for several products, which has enabled us to deliver the documents to the customer in near real-time. Compliance platform We have built a system to notify our customers of upcoming compliance milestones and associated requirements.
We protect this proprietary technology by relying on a variety of intellectual property mechanisms including copyright and trademark laws, restrictions on disclosure and other methods. We frequently file applications for trademarks and service marks in order to protect our intellectual property.
We protect this proprietary technology by relying on a variety of intellectual property mechanisms including copyright, patent and trademark laws, restrictions on disclosure and other methods. We frequently file applications for trademarks and service marks in order to protect our intellectual property.
Even when formed properly, small businesses often fail to comply with ongoing compliance requirements, thereby reintroducing personal liability or facing significant financial and operational risk.
Further, even when formed properly, small businesses often fail to comply with ongoing compliance requirements, thereby reintroducing personal liability or facing significant financial and operational risk.
Customer care team members have metrics-driven incentives that further align their goals and compensation with our focus on the customer while maintaining regulatory compliance. Sales and Marketing We invest significantly to create a highly recognizable legal brand, online and offline and we attract a meaningful percentage of unpaid website traffic, underscoring our brand strength and unique content offering.
Customer care team members have metrics-driven incentives that further align their goals and compensation with our focus on the customer while maintaining regulatory compliance. Sales and Marketing We invest significantly to create a highly recognizable brand, online and offline and we attract a meaningful percentage of unpaid website traffic, underscoring our brand strength and content offering.
We have six employee resource groups today, including Pride Zoomer Alliance Network, Lift Every Voice Black Network, RiseUp Women’s Network, Women in Tech Network, and Nos Unimos LatinX Network, each with dedicated internal funding, executive sponsorship and a focus on supporting diversity, equity, and inclusion within and outside of LegalZoom.
We have seven employee resource groups today, including Pride Zoomer Alliance Network, Lift Every Voice Black Network, RiseUp Women’s Network, Women in Tech Network, Nos Unimos LatinX Network, and LZ Veterans, each with dedicated internal funding, executive sponsorship, and a focus on supporting diversity, equity, and inclusion within and outside of LegalZoom.
We have remained agile to accommodate the ever-changing needs of our employees since the pandemic. In 2021, we announced the adoption of our remote first model, which required coordinated efforts across the organization to operationalize.
We have remained agile to accommodate the ever-changing needs of our employees since the pandemic. In 2021, we adopted our remote first model, which required coordinated efforts across the organization to operationalize.
We have various trademark registrations in the U.S. and in foreign jurisdictions, as well as pending trademark applications in the U.S. We have no issued patents. We also license intellectual property from third-parties, such as software used to support our technology and operations.
We have various trademark registrations in the U.S. and in foreign jurisdictions, as well as pending trademark applications in the U.S. We have no issued patents, but we have a patent-pending application in the U.S. We also license intellectual property from third-parties, such as software used to support our technology and operations.
We also cannot predict the amount of future expenditures that we may need to make to comply with, or to satisfy claims and lawsuits relating to, these various laws and regulations. See Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for additional information.
We also cannot predict the amount of future expenditures that we may need to make to comply with, or to satisfy claims and lawsuits relating to, these various laws and regulations. See Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K for additional information. Corporate and Other Information We are headquartered in Glendale, California.
These networks have built internal mentorship and development programs, and contributed to their broader communities outside of LegalZoom through their initiatives. 6 Government Regulation We operate in a particularly complex legal and regulatory environment.
These networks have built internal mentorship and development programs, host meaningful and educational events, and have contributed to their broader communities outside of LegalZoom through their initiatives. Government Regulation We operate in a particularly complex legal and regulatory environment.
We are subject to a variety of U.S. and foreign laws, rules and regulations, including those related to internet activities, UPL, the corporate practice of law, or CPL, privacy, data protection, cybersecurity, data retention, consumer protection, content regulation, the processing of legal documents, legal plans, the provision of online payment services and other matters, which are continuously evolving and developing.
We are subject to a wide variety of state and federal laws, rules and regulations in the U.S., including those related to internet activities, UPL, the corporate practice of law, or CPL, privacy, data protection, cybersecurity, data retention, consumer protection, content regulation, the processing of legal documents, commercial registered agents, the provision of online payment services and other matters, which are continuously evolving and developing.
We’ve designed our compensation approach so that every U.S. based employee has a component of their compensation that is performance or incentive driven. We offer competitive compensation that we believe is aligned with the market and fair relative to our peers. At LegalZoom, one of our core values is People First.
We’ve designed our compensation approach so that every U.S. based employee has a component of their compensation that is performance or incentive driven. We offer competitive compensation that we believe is aligned with the market and fair relative to our peers.
Furthermore, these difficulties are becoming more acute as the number of U.S. business formations increase, driven by various macroeconomic factors such as the rise of the gig economy and remote work, accentuating the need for a trusted, cost-effective, digital-first and simple legal and compliance solution.
These difficulties are becoming more acute as the number of U.S. business formations increases, driven by various macroeconomic factors such as the rise of the gig economy and remote work, accentuating the need for a trusted, cost-effective, digital-first and simple formation and compliance solution. Our customer funnel.
Over the last year, our strategy has been focused on engaging employees virtually to support working from home by launching virtual productivity and collaboration tools, and driving engagement through virtual events.
Since then, our strategy has been focused on engaging employees virtually to support working from home by launching virtual productivity and collaboration tools, and driving engagement through virtual events.
Dynamic online questionnaire Legal documents are populated by our platform through the use of our dynamic online questionnaires. Our customers complete a comprehensive yet intuitive questionnaire that is powered by a rules-based engine to pose questions based on the customer’s legal jurisdiction, location and prior responses to solicit the information needed to comply with local and state laws and regulations.
Our customers complete a comprehensive yet intuitive questionnaire that is powered by a rules-based engine to pose questions based on the customer’s legal jurisdiction, location and prior responses to solicit the information needed to comply with local and state laws and regulations.
Exceptional customer experience is central to our culture and we take pride in our customer care team. Our customers have access to live help from customer care representatives by phone, online chat, text, email, or via our mobile applications.
Customer Care Our customer care representatives provide assistance, support and account management to small businesses and individuals. Exceptional customer experience is central to our culture and we take pride in our customer care team. 5 Our customers have access to live help from customer care representatives by phone, online chat, text, email, or via our mobile applications.
Our primary compensation strategy is to promote a pay-for-performance culture. Our guiding principles are anchored on the goals of being able to attract, incentivize, and retain talented employees who can develop, implement, and drive long-term value creation strategies.
We have not experienced any work stoppages, and we believe that our employee relations are strong. Our primary compensation strategy is to promote a pay-for-performance culture. Our guiding principles are anchored on the goals of being able to attract, incentivize, and retain talented employees who can develop, implement, and drive long-term value creation strategies.
Finally, we continue to engage our employees in in-person and remote social impact events, like our second annual Impact Week, where we come together to volunteer and raise funds for various causes. In 2022, we remained committed to our principles of taking care of our employees holistically while continuously looking for ways to improve our overall benefits offering.
Finally, we continue to engage our employees in in-person and remote social impact and Employee Resource Group events, like our annual Impact Week, where we come together to volunteer, learn about causes, and fundraise. In 2023, we remained committed to our principles of taking care of our employees holistically while continuously looking for ways to improve our overall benefits offering.
Law firms and solo attorneys, who provide in-person consultations and are able to provide direct legal advice that we generally cannot offer due to laws and regulations regarding the unauthorized practice of law, or UPL, compete with us offline and have and may develop competing online legal services.
Law firms and solo attorneys, who provide in-person consultations, are able to provide direct legal advice that we generally cannot offer due to laws and regulations regarding the unauthorized practice of law, or UPL.
We applied for and received a license to operate as an Arizona ABS on September 30, 2021, through our U.S. subsidiary, LZ Legal Services, LLC. This Arizona ABS employs and contracts with licensed attorneys to provide limited scope legal services to U.S.-based consumers who purchase such services on our websites.
We received a license to operate one of our U.S. subsidiaries as an ABS in Arizona in September 2021. This Arizona ABS employs and contracts with licensed attorneys to provide limited scope legal services to U.S.-based consumers who purchase such services on our websites.
The subscription plans also monitor the status of our customers’ businesses with certain state agencies and provide alerts to notify them if they fall out of good standing as well as to stay abreast of important deadlines. Attorney advice subscriptions .
These compliance subscription plans also monitor the status of our customers’ businesses with certain state agencies to help customers stay abreast of important deadlines and to provide alerts to notify them if their business falls out of good standing. Attorney advice subscriptions .
We also continue to fuel our organization’s passion for social good, and launched a new employee giving program and tool that provides dollar-for-dollar matching and paid time off or volunteering for causes our employees care about most.
We also continue to fuel our organization’s passion for social good, with our employee giving program and tool that provides dollar-for-dollar matching and paid time off for volunteering.
We offer competitive benefits including: 100% employer-paid medical, travel reimbursement for out-of-state procedures, dental and vision plans, fertility coverage, mental health coverage, physical wellness, and paid-time off, including a continuous week off, called Wellness Break for all employees.
We offer competitive benefits including: 100% employer-paid medical, travel reimbursement for out-of-state procedures, dental and vision plans, fertility coverage, mental health coverage and workshops, physical wellness, lifestyle benefits, paid-time off, 6 and 401k match.
The businesses that recognize that risk upfront often struggle to address it. Once they understand the need to be protected, they often do not know what to do, where to turn or how much it will cost to get help.
Many small businesses operate without forming a legal entity, unintentionally introducing financial risk to the owners’ personal assets. The businesses that recognize that risk upfront often struggle to address it. Once they understand the need to be protected, they often do not know what to do, where to turn or how much it will cost to get help.
We expect to face increasing competition from offline and online legal services providers in our market, and our failure to effectively compete with these providers could result in revenue reductions, reduced margins, and loss of market share, any of which could materially and adversely affect our business, results of operations, financial condition and future prospects.
Our failure to effectively compete with our competitors could result in lower revenue, reduced margins, and loss of market share, any of which could materially and adversely affect our business, results of operations, financial condition and future prospects.
Tax subscriptions . We introduced our LegalZoom-fulfilled tax subscription, or LZ Tax, in October 2020. This subscription includes tax advice on essential tax matters at both state and federal levels with the option to add tax preparation, as well as advice from a tax expert, either a CPA or an enrolled agent.
Our LegalZoom-fulfilled tax subscription, or LZ Tax, includes tax preparation and advice from a tax expert, either a CPA or an enrolled agent, on essential tax matters at both state and federal levels.
In recent years, we have seen certain online competitors target more price conscious customers by offering business formation transactions at little or no charge while cross-selling subscription compliance services.
For example, in recent years, we, along with some of our online competitors, began to target more price conscious customers by offering business formation transactions at little or no charge while cross-selling compliance and other business services.
Available Information Our Investor Relations website is https://investors.legalzoom.com/ and we encourage investors to use it as a way of easily finding information about us.
We were incorporated as a California corporation in July 1999 and converted to a Delaware corporation in February 2007. Our website is located at https://www.legalzoom.com/. Our Investor Relations website is https://investors.legalzoom.com/ and we encourage investors to use it as a way of easily finding information about us.
For small businesses and consumers seeking legal advice, we offer subscription legal plans that provide access to independent attorneys in all 50 states. These subscriptions also include other benefits, such as access to legal forms, discounts on additional legal services offered by the network attorney, and, in some cases, an annual checkup with the network attorney for estate planning purposes.
We also offer attorney advice subscription packages that include other benefits, such as the ability to edit and electronically sign forms from our attorney-drafted legal forms library, discounts on additional legal services offered by the network attorney, and, in some cases, an annual checkup with the network attorney for estate planning purposes. Tax subscriptions .
We leverage this valuable knowledge and our position as a small business’ first advisor to introduce our customers to the most relevant business solutions within our partner ecosystem to help them run other aspects of their business.
Our position at business formation gives us unparalleled knowledge of our customers’ needs, often times prior to the business being operational or discoverable by other service providers. We leverage this valuable knowledge and our position as a small business’ first advisor to introduce our customers to the most relevant business solutions to help them manage other aspects of their business.
Our compliance subscriptions provide assistance with state-mandated regulatory filings, such as tax returns and corporate annual reports that are required to keep a business entity in good standing.
Our compliance subscriptions provide assistance with state-mandated regulatory filings, such as corporate annual reports that are required to keep a business entity in good standing, as well as certain federally-mandated filings, such as the beneficial ownership information report required as of January 2024 by the U.S. Federal Crimes Enforcement Network.
New product development Our product development strategy is focused on reducing friction and increasing conversion across our existing core products and services, expanding our portfolio of new products and services, gaining market share, and strategically deepening customer relationships, including in ways that will make legal and compliance expertise available to our customers and increase our recurring revenue through subscription offerings.
Our strategy is focused on broadening our portfolio of new products and services and strategically deepening customer relationships, including in ways that will increase our recurring revenue through subscription offerings.
Our platform combines the power of technology and people to demystify and simplify complicated processes, creating user-friendly experiences for our customers. Our proprietary technology enables us to automate many complex legal and compliance processes, allowing us to offer solutions at transparent, flat-fee prices that are at a significant discount to traditional offline alternatives.
Our proprietary technology enables us to automate many complex legal and compliance processes, allowing us to offer solutions at transparent, flat-fee prices that are at a significant discount to traditional offline alternatives. While the majority of our customers complete these transactions without human assistance, many prefer to have some guidance through the process.
The initial consultation serves as a platform for business development, where the participating attorney can offer to provide billable legal services to our customers at discounted rates. In addition, participating law firms can leverage our brand awareness as well as the customer feedback and testimonials to market their own practice.
Our attorneys benefit from participating in our network as we handle the customer lead generation, as well as the scheduling and billing of the initial customer consultation. From there, the initial customer consultation serves as a platform for business development, where the participating attorney can offer to provide billable legal services to our customers at discounted rates.
Human Capital Management At December 31, 2022, we, together with all our subsidiaries, had 1,383 employees worldwide. At December 31, 2022, we also engaged approximately 400 contractors and consultants in the U.S. None of our employees are represented by a labor union. We have not experienced any work stoppages, and we believe that our employee relations are strong.
Human Capital Management At December 31, 2023, we, together with all our subsidiaries, had 1,190 employees worldwide. At December 31, 2023, we also engaged approximately 70 seasonal workers as well as 600 contractors and consultants globally. None of our employees are represented by a labor union.
Our Technology We have developed a highly scalable and flexible technology platform that enables us to efficiently process thousands of customer orders daily and facilitate seamless interactions with our customers and the independent attorneys participating in our legal network. We devote substantial resources to consistently enhance our technology platform. Key components of our technology are described below.
We have historically seen demand for our services decline around the beginning of the third quarter as a result of summer vacations and in the last two months of the fourth quarter as a result of the winter holidays. 4 Our Technology We have developed a highly scalable and flexible technology platform that enables us to efficiently process thousands of customer orders daily and facilitate seamless interactions with our customers and the independent attorneys participating in our legal network.
This approach has allowed us to build foundational infrastructure and establish a stronger culture both virtually and in-person. We have also invested in employee engagement to help improve connectedness in our remote-first work environment. In 2022, we launched an employee recognition tool that rewards and provides visibility to our employees’ accomplishments.
We have also invested in employee engagement to help improve connectedness in our remote-first work environment. In 2023, we refreshed our employee recognition program that rewards and provides visibility to our employees’ accomplishments.
We believe competitive factors for our services include ease of use, breadth of offerings, brand name recognition, reputation, price, quality and customer service and that we compare favorably on all these bases. Our Strategy We are in the early stages of penetrating and growing the online market for small business legal and compliance services.
We believe the primary competitive factors on which we compete include ease of use, breadth of offerings, brand name recognition, reputation, price, quality and customer service. We believe we compare favorably on all these bases and our ability to remain competitive will largely depend on our ongoing performance in these areas.
We believe we earn small businesses’ trust and drive significant organic traffic through our free proprietary educational content, which is often our first interaction with a potential customer. From there, our small business customers’ initial purchase is typically a formation product that streamlines the process of starting a business.
We believe we earn small businesses’ trust and drive significant organic traffic through our brand name recognition and reputation, as well as our free proprietary educational content, which is often our first interaction with a potential customer. This content includes our Article Center and free access to over 160 attorney-drafted forms.
In addition, we made a number of meaningful enhancements in 2022’s November Open Enrollment for 2023, including increasing our offerings on mental health and parental leave for non-birthing parents, additional gender equality benefits, additional sick-time off and paid company holidays, and new lifestyle benefits for our employees to use in a way that represents them and expanding coverage on our dental and vision plans.
In addition, we made a few meaningful enhancements in 2023’s November Open Enrollment for 2024, including extending mental/physical wellness benefits to dependents, increasing flexibility to bonding leave for new parents, additional sick-time off and paid company holidays, as well as enhancing coverage on our dental plans. We believe we are thriving when every voice is nurtured and heard.
We expect to continue to grow our customer base and retain and expand our customer relationships following formation with the following strategies: Grow our customer base. We continue to grow the top of our funnel and improve our customer experience in order to grow our customer base.
Our Strategy We are in the early stages of penetrating and growing the online market for legal, compliance and business management solutions. We aim to continue to grow our customer base and retain and expand our customer relationships with the following strategies: Scale the business.
We operate across all 50 states and over 3,000 counties in the U.S., and have more than 20 years of experience navigating complex regulation and simplifying the legal and compliance process for our customers. Many small businesses operate without forming a legal entity, unintentionally introducing financial risk to the owners’ personal assets.
We operate across all 50 states and in over 3,000 counties in the U.S., with over two decades of experience in simplifying the legal and compliance process for our customers and empowering entrepreneurs with services that help to make their dream a reality. The LegalZoom Ecosystem Millions of people in the U.S. start small businesses every year.
Our unique position at business inception allows us to become a trusted business advisor, supporting the evolving needs of a new business across its lifecycle. Along with formation, LegalZoom offerings include ongoing compliance and tax advice and filings, virtual mailbox solutions, trademark filings, and estate plans.
Our unique position at business inception allows us to become a trusted business advisor, supporting the evolving needs of a new business throughout its lifecycle, and we have expanded our platform to include professional expertise and other products, both legal and non-legal, to better meet the needs of small businesses.
LegalZoom empowers small business owners to apply their energy and passion to their businesses instead of the legal and regulatory complexity required to operate them. Our Business LegalZoom is a leading online platform for legal and compliance solutions in the United States, or U.S.
Item 1. Business Overview LegalZoom is a leading online platform for business formation in the United States, or U.S.
To accelerate growth, we intend to continue to invest in our brand to increase awareness of the protection that legal and compliance services offer small businesses, and the ease and affordability of our platform. We also intend to broaden our customer top of funnel through the introduction of lower-priced products and services targeting more price-sensitive customer segments.
We continue to grow the top of our customer funnel in order to expand our customer base. To broaden the top of our customer funnel, we have introduced and may continue to introduce lower-priced products and services targeting more price conscious customers.
Partner ecosystem We have unique insights into our customers and leverage our product as a channel to introduce small businesses to our partner ecosystem, solving even more of their needs.
We have insights into our customers and leverage our product as a channel to introduce small businesses to a variety of third party partners in our partner ecosystem. Our third party partners are leading providers of complementary small business services that extend beyond our core offerings such as banking, credit cards, website design, and payment processing, among others.
We plan to provide more value to our customers from existing product lines by adding a tier of attorney assisted solutions and continuing to expand our professional-assisted offerings to complement our technology-enabled solutions. Our Products and Services We help customers form their businesses, protect their ideas, stay compliant and scale their operations.
We intend to continue to expand our professional-assisted offerings to complement our technology-enabled solutions and provide more value-added services to both our consumer and small business customers.
Alongside and after this initial transaction, our customers generally purchase annual subscription services to solve additional legal, compliance and tax needs, deepening our relationship with our customers. With recurring revenue through subscription services and repurchases from existing customers, we continue to benefit from an increasing customer lifetime value.
As a result, our customers often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction in order to solve additional legal, compliance and business management needs, deepening our relationship with our customers.
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Item 1. Business Our Mission Our mission is to democratize law. We believe every business deserves the full protection of the legal system and a simple way to stay compliant with it. Our platform helps new businesses form. Once a small business is formed, we offer subscription services to protect the business, its ideas, and the families that create them.
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Driven by a mission to unleash entrepreneurship, we deliver comprehensive legal, tax, accounting and compliance products and expertise to millions of small business owners and their families through easy-to-use technology.
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While the majority of our customers complete these transactions without human assistance, many prefer to have some guidance through the process. The combination of technology and people is at the heart of our unique customer experience. For our customers looking for general help, our customer care and sales organization is available for real-time guidance on how to use our services.
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From there, our small business customers’ initial purchase is typically a business formation product that streamlines the process of starting a business. As of December 31, 2023, we had formed over 4.1 million businesses since our inception.
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For customers preferring credentialed assistance, we embed the option for them to retain attorneys and certified public accountants, or CPAs, from the beginning of the customer journey. In addition, our unique and trusted position at business formation gives us unparalleled knowledge of our customers’ needs prior to the business being operational or discoverable by other service providers.
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For example, after forming their business entity, our customers can opt to register their company name and/or logo as a trademark or sign up for a business advisory subscription to receive additional legal support for their small business needs.
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Industry Trends Millions of people start small businesses every year, a trend driven by digital enablement and the gig economy. Small business owners often do not know that they may face personal liability and tax consequences depending on their business formation decision and many try to figure out legal requirements on their own, often facing regulatory problems for noncompliance.
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Additionally, as forming a company is an important life event, some of our small business customers opt to purchase an estate plan offering when they form their company. The recurring revenue gained through subscription services and additional purchases from existing customers during the lifecycle of their business allows us to increase customer lifetime value.
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It can be frustrating, time consuming and expensive to navigate multiple layers of legal and compliance requirements. There are structural impediments that make traditional offline attorneys unable to adapt to consumer behaviors and technology advancements. While service industries like accounting, tax, marketing and payments have rapidly transitioned online, legal offerings largely remain offline.
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See below under “Our Products and Services” for additional information regarding our transaction products and subscription offerings. Our technology platform. Our technology platform combines the power of technology and people to demystify and simplify complicated processes, creating user-friendly experiences for our customers.
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Online adoption of legal services lags behind other comparable industries. The gap between a small business owner’s legal and compliance needs and available offline solutions is widening.
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The combination of technology and people is at the heart of our customer experience. See below under “Our Technology” for additional information. Our experts. We offer customers ongoing access to experts to help handle complex matters, including through a network of independent law firms and an in-house team of certified public accountants, or CPAs, and enrolled agents.
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The challenges associated with traditional offline “do it yourself” or “find an expert” options are becoming relatively worse as service level expectations increase as a result of small business 1 enablement in other industries. Technological advances are transforming consumer expectations for professional services. Our Competition We operate in a very competitive industry.
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As of December 31, 2023, we had over 1,000 attorneys in our independent attorney network. Our independent attorney network provides customers access to attorneys licensed in their jurisdiction and experienced in the types of legal matters that impact small businesses at a significant discount to traditional offline alternatives.
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We face intense competition from offline law firms and attorneys, online legal document services, legal plans, secretaries of state, tax preparation companies and other service providers.
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In addition, participating law firms can leverage our brand awareness, as well as the customer feedback and testimonials, to market their own practice. 1 We also have an in-house team of CPAs and enrolled agents that are critical to our tax offerings.
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However, we previously applied for and received a license to operate as an alternative business structure, or ABS, in Arizona, which allows corporate entities to become licensed providers of reserved legal activities in that jurisdiction. As a result, our Arizona ABS is able to compete directly with more traditional offline law firms and solo attorneys.
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We offer our customers access to this in-house team of CPAs and enrolled agents to provide tax preparation and filing support for federal and state returns. In addition, since September 2021, one of our U.S. subsidiaries operates as an alternative business structure, or ABS, in Arizona, which allows us to provide cost-effective legal services to our customers.
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We also compete in the registered agent services business with several companies that target small businesses. In addition, certain U.S. states, including Nevada, California and Louisiana, offer online portals where consumers may file their articles of organization for free, other than filing fees.
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Currently, our ABS primarily supports our intellectual property business, and its experienced attorneys help guide customers through the trademark registration process. During the year ended December 31, 2023, our ABS attorneys filed over 14,000 trademark applications with the U.S. Patent and Trademark Office. Our legal and tax services are provided across all 50 states in the U.S. Our partners.
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Our direct and indirect competitors, whether they are online legal document providers, legal plan providers, law firms, accounting firms, solo attorneys or large internet providers, may also be developing innovative and cost-effective services that target our existing and potential customers.
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Our Competition We operate in a very competitive industry, and the competitive landscape in which we operate is constantly evolving as we move into new markets and expand our ecosystem.
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Finally, we continue to partner with leading brands that can help our small business customers and improve our partner ecosystem. As we attract more visitors to our website, we believe that we have a large opportunity to increase conversion of prospects into customers. Retain and expand our customer relationships following formation.
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As a result, we compete with a variety of companies and government entities, including the following: • online business formation providers and registered agent service providers; • traditional offline law firms and solo attorneys, online legal document services and secretaries of state; • accounting and tax firms and other tax preparation and filing service providers; and • large platform companies that could develop competing technology solutions to address the needs of our small business or consumer customers.
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As we innovate for small businesses, we aim to become their trusted partner for life. In order to do this, we intend to: • Launch adjacent services. Our strategy is to meaningfully expand our product line to offer a solution for the majority of small business legal and compliance needs. • Partner to offer our customers broader ecosystem solutions.
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However, our ABS in Arizona is allowed to provide independent legal advice to our customers and, as a result, can compete directly with traditional offline law firms and solo attorneys. In addition, there are structural impediments that make it difficult for traditional offline attorneys to adapt to technology advancements and consumer behaviors.
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We plan to offer additional access to third-party solutions to further support small business needs in areas such as banking, payments, payroll, accounting, and website hosting. • Increase customer lifetime value.
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While service industries like accounting, tax, marketing and payments have rapidly transitioned online, legal offerings largely remain offline and online adoption of legal services lags behind other comparable industries. However, some traditional offline attorneys have developed and may continue to develop competing online legal services. We expect to face increasing competition from offline and online service providers in our markets.
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We plan to continue to improve the lifetime value of our customers, particularly by increasing retention of our small business subscribers through maintaining engagement post-purchase, adding new solutions to serve additional needs, and improving lifecycle marketing to increase retention rates. • Increase our market opportunity by introducing a new tier of higher-value assisted offerings.
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We intend to maintain our brand leadership by delivering a quality product and user experience, leveraging our strong brand awareness and lower-priced offerings to drive traffic to our website and through targeted marketing investments. As we attract more visitors to our website, we believe that we have a large opportunity to increase conversion of prospects into customers.
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We aim to reduce peoples’ uncertainty and doubt about forming a business on their own by offering “assisted” solutions alongside our “do it yourself” offerings for their legal and compliance needs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

165 edited+37 added−55 removed156 unchanged
Biggest changeOur insurance limits against any certain losses or expenses that may result from a disruption to our business due to earthquakes or wildfires may not be sufficient to cover all such losses or expenses, and the occurrence of either of these events could adversely affect our business, results of operations, financial condition and future prospects.
Biggest changeOur insurance limits against any certain losses or expenses that may result from a disruption to our business due to earthquakes or wildfires may not be sufficient to cover all such losses or expenses, and the occurrence of either of these events could adversely affect our business, results of operations, financial condition and future prospects. 16 We may from time to time become involved in litigation, arbitration or government investigation matters that are expensive and time consuming and, if resolved adversely, could harm our brand and reputation, business, results of operations, financial condition or future prospects We are susceptible to various legal claims, lawsuits, arbitration, regulatory action or other proceedings, including those related to the unauthorized practice of law, patent, trademark, trade secret and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy, data use, data protection, data security, network security, wiretapping, consumer protection and product liability, unfair business practices, breach of contract and other matters.
Subscriptions have primarily originated from transactional customers who opted to become subscribers. For us to maintain or improve our operating results, it is important that we convert transactional customers into subscribers, we retain our existing customers and that our subscribers renew their subscriptions with us when the existing subscription term expires.
Subscriptions have primarily originated from transactional customers who opted to become subscribers. For us to maintain or improve our operating results, it is important that we convert transactional customers into subscribers, retain our existing subscribers and that our subscribers renew their subscriptions with us when the existing subscription term expires.
To the extent we are unable to process submissions or filings in a timely manner, our brand and reputation may be adversely affected, or customers may seek other avenues for their business formation, tax or intellectual property needs.
To the extent we are unable to process submissions or filings in a timely manner, our brand and reputation may be adversely affected, or our customers may seek other avenues for their business formation, tax or intellectual property needs.
Any such liability, inclusive of the costs and expenses that may be incurred in defending any such claims, that exceeds the insurance coverage could have a material adverse effect on our business, results of operations, financial condition, or future prospects.
Any liability, inclusive of the costs and expenses that may be incurred in defending any such claims, that exceeds our insurance coverage could have a material adverse effect on our business, results of operations, financial condition, or future prospects.
The risks we face in connection with such acquisitions or investments, whether or not they are consummated, include, but are not limited to: • an acquisition may negatively affect our results of operations because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences, may expose us to claims and disputes by stockholders and third-parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; 13 • we may not be able to realize anticipated synergies on a timely basis, if at all; • an acquisition or investment may disrupt our ongoing business, divert resources, increase our expenses and distract our management; • an acquisition or investment may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter challenges integrating the employees of the acquired company into our company culture; • our use of cash to pay for acquisitions or other investments would limit other potential uses for our cash; • if we incur debt to fund any acquisitions, such debt may subject us to material restrictions on our ability to conduct our business due to new financial maintenance and other covenants; and • if we issue a significant amount of equity securities in connection with any future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
The risks we face in connection with such acquisitions or investments, whether or not they are consummated, include, but are not limited to: • an acquisition may negatively affect our results of operations because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences, may expose us to claims and disputes by stockholders and third-parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire, particularly if key personnel of the acquired company decide not to work for us; • we may not be able to realize anticipated synergies on a timely basis, if at all; • an acquisition or investment may disrupt our ongoing business, divert resources, increase our expenses and distract our management; 14 • an acquisition or investment may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company; • we may encounter challenges integrating the employees of the acquired company into our company culture; • our use of cash to pay for acquisitions or other investments would limit other potential uses for our cash; • if we incur debt to fund any acquisitions, such debt may subject us to material restrictions on our ability to conduct our business due to new financial maintenance and other covenants; and • if we issue a significant amount of equity securities in connection with any future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
The negative covenants include, among others, limitations on our and certain of our subsidiaries’ abilities to carry out the following, in each case subject to certain exceptions: 18 • 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 negative covenants include, among others, limitations on our and certain of our subsidiaries’ abilities to carry out the following, in each case subject to certain exceptions: • 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.
Item 1A. Risk Factors Our business involves significant risks, and the material factors that make an investment in us risky or speculative, are described below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.
Item 1A. Risk Factors Our business involves significant risks, and the material factors that make an investment in us risky or speculative are described below. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes thereto.
As a result, interpretation of applicable privacy and data security laws, rules and regulations is ongoing, may not be fully determined at this time and may conflict across jurisdictions. In our efforts to meet the various data privacy regulations that apply to us, we have made and continue to make certain operational changes to our products and business practices.
As a result, interpretation of applicable privacy and data security laws, rules and regulations is ongoing, may not be fully determined at this time and may conflict across jurisdictions. In our efforts to meet the various data privacy obligations that apply to us, we have made and continue to make certain operational changes to our products and business practices.
In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
In such an instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
For example, analysts or investors may change their models for valuing our common stock, we could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish, and other unanticipated issues may arise. Our quarterly operating results may vary in the future and that period-to-period comparisons of our operating results may not be meaningful.
For example, analysts or investors may change their models for valuing our common stock, we could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish, and other unanticipated issues may arise. Our quarterly operating results may vary in the future and period-to-period comparisons of our operating results may not be meaningful.
We dedicate significant management time and expense to dealing with these issues and expect that these issues will continue to be a significant focus as we expand into other services and jurisdictions. In addition, any failure or perceived failure by us to comply with applicable laws and regulations may subject us to regulatory inquiries, claims, suits and prosecutions.
We dedicate significant management time and expense to dealing with these issues and we expect that these issues will continue to be a significant focus as we expand into other services and jurisdictions. 21 In addition, any failure or perceived failure by us to comply with applicable laws and regulations may subject us to regulatory inquiries, claims, suits and prosecutions.
If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation, the value of our brand and other intangible assets may be diminished and competitors may be 25 able to more effectively mimic our services, business practices or operations, which may have an adverse effect on our business, results of operations, financial condition and future prospects.
If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our services, business practices or operations, which may have an adverse effect on our business, results of operations, financial condition and future prospects.
Even if the 2021 Revolving Facility is terminated, any additional debt that we incur in the future could subject us to similar or additional covenants. In addition, the 2021 Revolving Facility also permits borrowings denominated in Euros, British pound sterling and other alternative currencies that may be approved by the administrative agent and revolving lenders.
Even if the 2021 Revolving Facility is terminated, any additional debt that we incur in the future could subject us to similar or additional covenants. 19 In addition, the 2021 Revolving Facility also permits borrowings denominated in Euros, British pound sterling and other alternative currencies that may be approved by the administrative agent and revolving lenders.
Each “authorized person”, as defined in ACJA 702-9, including the members of our Board could be required to file an ABS Authorized Person application with the Arizona Supreme Court when determined to be seeking a restricted interest. The Arizona Supreme Court may attach conditions to any authorization granted in respect to holding of a restricted interest.
Each “authorized person”, as defined in ACJA 702-9, including the members of our board of directors, could be required to file an ABS Authorized Person application with the Arizona Supreme Court when determined to be seeking a restricted interest. The Arizona Supreme Court may attach conditions to any authorization granted in respect to holding of a restricted interest.
The inability to import personal data to the U.S. could significantly and negatively impact our business operations, limit our ability to collaborate with parties that are subject to cross-border data transfer or localization laws, or require us to increase our data processing capabilities and infrastructure in foreign jurisdictions at significant expense.
The inability to import personal data to the U.S. could significantly and negatively impact our business operations, limit our ability to collaborate with parties that are subject to cross-border 23 data transfer or localization laws, or require us to increase our data processing capabilities and infrastructure in foreign jurisdictions at significant expense.
These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common 27 stock, including transactions that may be in your best interests.
These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests.
If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business The revolving facility that we entered into in July 2021, or the 2021 Revolving Facility, contains affirmative and negative covenants, indemnification provisions and events of default.
If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business The revolving facility that we entered into in July 2, 2021, or the 2021 Revolving Facility, contains affirmative and negative covenants, indemnification provisions and events of default.
Any of these difficulties could adversely impact our brand and reputation, business, results of operations, financial condition or future prospects. Our growth also makes it difficult to evaluate future prospects. Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth.
Any of these difficulties could 8 adversely impact our brand and reputation, business, results of operations, financial condition or future prospects. Our growth also makes it difficult to evaluate future prospects. Our ability to forecast our future operating results is subject to a number of uncertainties, including our ability to plan for and model future growth.
We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that these individuals are our employees could have a material adverse effect on our business, results of operations, financial condition and future prospects.
We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that these individuals are our employees could have a 22 material adverse effect on our business, results of operations, financial condition and future prospects.
It is also possible that we could face claims of joint employment from the independent professionals who participate in our partner networks or from individuals working 22 as a consultant, temporary employee, or contractor, if they were to pursue employment claims against LegalZoom.
It is also possible that we could face claims of joint employment from the independent professionals who participate in our partner networks or from individuals working as a consultant, temporary employee, or contractor, if they were to pursue employment claims against LegalZoom.
The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect 24 on our business.
The successful assertion of one or more large claims against us that exceeds our available insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our business.
If we fail to provide high-quality services, customer care and customer experience and add new services that meet our customers’ expectations, we may not be able to attract and retain customers In order to increase revenue and maintain profitability, we must attract new customers and retain existing customers.
If we fail to provide high-quality products and services, customer care and customer experience and add new products and services that meet our customers’ expectations, we may not be able to attract and retain customers In order to increase revenue and maintain profitability, we must attract new customers and retain existing customers.
If we are unable to continue to convert our transactional customers to subscribers, retain our existing subscribers or our existing subscribers do not expand the use of our 8 platform, our business, results of operations, financial condition and future prospects would be adversely affected.
If we are unable to continue to convert our transactional customers to subscribers, retain our existing subscribers or our existing subscribers do not expand the use of our platform, our business, results of operations, financial condition and future prospects would be adversely affected.
We have hired and may need to continue to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to maintain effective internal control over financial reporting.
We have hired and may need to 18 continue to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to maintain effective internal control over financial reporting.
In addition, under Section 7-209 of the Arizona Code of Judicial Administration, or ACJA, there are restrictions on the holding of an interest of 10% or more in the issued share capital of a licensed ABS or the parent company of such licensed ABS.
In addition, under Section 7-209 of the Arizona Code of Judicial Administration, or ACJA, there are restrictions on holding an interest of 10% or more in the issued share capital of a licensed ABS or the parent company of a licensed ABS.
Unused U.S. federal net operating losses, or NOLs, for taxable years beginning before January 1, 2018, may be carried forward to offset future taxable income, if any, until such unused NOLs expire.
Unused U.S. federal net operating losses, or NOLs, for taxable years beginning before January 1, 2018, may be carried forward for 20 years to offset future taxable income, if any, until such unused NOLs expire.
Other companies that focus on the online legal document services market or business formations and law firms that may elect to pursue the online legal document services market, can and do directly compete with us.
Other companies that focus on the online legal document services market or business formations, including law firms that may elect to pursue the online legal document services market, can and do directly compete with us.
Tax or other regulatory authorities may in the future challenge our characterization of the independent attorneys who participate in our and our partners' networks of these relationships, or the other contractors and consultants used by us.
Tax or other regulatory authorities may in the future challenge our characterization of the independent attorneys and accountants who participate in our and our partners' networks of these relationships, or the other contractors and consultants used by us.
The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many 20 transactions where the ultimate tax determination is uncertain.
The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain.
Certain of our financial and operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business We track certain financial and operating metrics, including key business metrics such as number of transactions, number of subscription units and average revenue per customer, with internal company data, systems and tools that are not independently verified by any third-party.
Certain of our financial and operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business We track certain financial and operating metrics, including key business metrics such as number of transactions, number of subscription units and average revenue per subscription unit, with internal company data, systems and tools that are not independently verified by any third-party.
If we are not able to effectively attract or retain quality employees and manage our workforce, including, for example, i f employee relations deteriorate or a portion of our employees were to become unionized, disruptions to the business will occur, our costs will increase, our ability to achieve our strategic objectives will be adversely impacted, our brand or reputation could suffer, and our business may be adversely affected.
If we are not able to effectively attract or retain quality employees and manage our workforce, including, for example, if employee relations deteriorate or a portion of our employees were to become unionized, disruptions to the business will occur, our costs will increase, our ability to achieve our strategic objectives will be adversely impacted, our brand or reputation could suffer, and our business may be adversely affected.
We compete in the registered agent services business with several companies that target small businesses, and these competitors have extensive experience in this market.
We also compete in the registered agent services business with several companies that target small businesses, and these competitors have extensive experience in this market.
As a result, growth in the number of customers could continue to result in our 16 recognition of higher costs and lower revenue in the earlier periods of our subscription agreements.
As a result, growth in the number of customers could continue to result in our recognition of higher costs and lower revenue in the earlier periods of our subscription agreements.
In addition, such licensed data, technology, intellectual property and services may not continue to be available on commercially reasonable terms, or at all.
In addition, licensed data, technology, intellectual property and services may not continue to be available on commercially reasonable terms, or at all.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations, including under the recently expanded private right of action in the CPRA.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations, including under the recently expanded private right of action in the CCPA.
Breaches and other types of security incidents of our networks or systems, or those of our third-party service providers, could negatively impact our ability to conduct our business, our brand and reputation, our ability to retain existing customers and attract new customers, and may cause us to incur significant liabilities and adversely affect our business, results of operations, financial condition and future prospects We collect, use, store, transmit and process data and information about our customers, employees and others, some of which may be sensitive, personal or confidential.
Breaches and other types of security incidents of our networks or systems, or those of our service providers, could negatively impact our ability to conduct our business, our brand and reputation, our ability to retain existing customers and attract new customers, and may cause us to incur significant liabilities and adversely affect our business, results of operations, financial condition and future prospects We collect, use, store, transmit and otherwise process data and information about our customers, employees and others, some of which may be sensitive, personal and/or confidential.
Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to frequently modify and enhance our services to adapt to changes and innovation in these technologies. Any failure of our platform to operate effectively with future infrastructure platforms and technologies could reduce the demand for our platform.
Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to frequently modify and enhance our services to adapt to changes and innovation in these technologies. Any failure of our platform to operate effectively with current or future infrastructure platforms and technologies could reduce the demand for our platform.
Under the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, U.S. federal NOLs incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely and are limited to 80% of taxable income.
Under the 2017 Tax Cuts and Jobs Act, or the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, U.S. federal NOLs incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely and are limited to 80% of taxable income.
Any actual or perceived failure by us or third-parties working on our behalf to comply with applicable privacy and data security laws, rules and regulations, including the GDPR and the CCPA/CPRA or related contractual or other obligations, or any perceived privacy rights violation, could lead to investigations, claims, and proceedings by governmental entities and private parties, damages for contract breach, additional reporting obligations and other significant costs, penalties, and other liabilities, as well as harm to our reputation and market position.
Any actual or perceived failure by us or third-parties working on our behalf to comply with applicable privacy and data security laws, rules and regulations, including the GDPR and the CCPA or related contractual or other obligations, or any perceived privacy rights violation, could lead to investigations, claims, and proceedings by governmental entities and private parties, damages for contract breaches, additional reporting obligations and other significant costs, penalties, and other liabilities, as well as harm to our reputation and market position.
We have in the past received negative reviews wherein our customers expressed dissatisfaction with our services, including dissatisfaction with our customer support, our billing policies and the way our subscriptions operate, and we may receive similar reviews in the future. If we do not handle customer complaints effectively, our brand and reputation may suffer.
We have in the past received negative reviews wherein our customers expressed dissatisfaction with our services, including dissatisfaction with our customer support, our billing policies and the way our subscriptions operate, and we expect to receive similar reviews in the future. If we do not handle customer complaints effectively, our brand and reputation may suffer.
Any errors or defects in any third-party data or other technology could result in errors in our solutions that could harm our business, damage our reputation and result in losses in revenue, and we could be required to undertake substantial additional research and expend significant development resources to fix any problems that arise.
Any errors, defects, bugs or other vulnerabilities in any third party data or other technology could result in errors in our solutions that could harm our business, damage our reputation and result in losses in revenue, and we could be required to undertake substantial additional research and expend significant development resources to fix any problems that arise.
Our effective tax rate could increase due to several factors, including: • changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates; • changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act and the CARES Act; • changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business; • the outcome of current and future tax audits, examinations, or administrative appeals; and • the effects of acquisitions.
Our effective tax rate could increase due to several factors, including: • changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates; • changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Inflation Reduction Act of 2022, or the IRA, the Tax Act and the CARES Act; • changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business; • the outcome of current and future tax audits, examinations, or administrative appeals; and • the effects of acquisitions.
Any suspension or revocation of our Arizona subsidiary’s licensed ABS status would have a serious detrimental impact on our business, and, in such circumstances, we would seek to collaborate with the Arizona Supreme Court to minimize any resultant business disruption.
Any suspension or revocation of our U.S. subsidiary’s licensed ABS status would have a serious detrimental impact on our business, and, in such circumstances, we would seek to collaborate with the Arizona Supreme Court to minimize any resultant business disruption.
Increasing and changing government regulation of our business may harm our operating results We are subject to federal, state, local and international laws and regulations that affect our and our customers' activities, including, without limitation, labor, advertising and marketing, tax, financial services, electronic funds transfer, consumer protection, real estate, e-commerce, promotions, intellectual property ownership and infringement, import and export requirements, anti-bribery and anti- corruption, insurance, foreign exchange controls and cash repatriation restrictions, anti-competition, environmental, health and safety, and other regulated activities.
Increasing and changing government regulation of our business may harm our operating results We are subject to federal, state, local and international laws and regulations that affect our and our customers' activities, including, without limitation, labor, advertising, sales and marketing, deceptive trade practices, tax, financial services, electronic funds transfer, consumer protection, real estate, e-commerce, promotions, intellectual property ownership and infringement, import and export requirements, anti-bribery and anti- corruption, insurance, foreign exchange controls and cash repatriation restrictions, anti-competition, environmental, health and safety, and other regulated activities.
Our business and success depend in part on our strategic relationships with third-parties, including our partner ecosystem, and our business would be harmed if we fail to maintain or expand these relationships We depend on, and anticipate we will continue to depend on, various third-party relationships to sustain and grow our business.
Our business and success depend in part on our strategic relationships with third parties, including our partner ecosystem, and our business may be harmed if we fail to maintain or expand these relationships We depend on, and anticipate we will continue to depend on, various third-party relationships to sustain and grow our business.
In September 2021, we applied for and received our license to operate our Arizona ABS, which employs and contracts with licensed attorneys to provide limited scope legal services to U.S.-based consumers who purchase such services on our websites.
In September 2021, we received our license to operate our Arizona ABS, which employs and contracts with licensed attorneys to provide limited scope legal services to U.S.-based consumers who purchase such services on our websites.
Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities. Like many companies, we rely on third-party service providers to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, employee email, and other functions.
Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities. Like many companies, we rely on service providers to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, providers of cloud-based infrastructure, employee email, customer service and other functions.
In addition, if we cannot attract additional, qualified independent attorneys to participate in our legal plan network to service the needs of our legal plan subscribers, attorneys to support our attorney assisted legal offerings, and qualified certified public accountants, enrolled agents, and tax professionals to service the needs of our subscribers, or if these attorneys, accountants and tax professionals encounter regulatory issues that prevent them from being able to service the needs of our customers, we may not be able grow and maintain our legal plan subscription business, other assisted legal solutions or tax offerings effectively and our business, revenue, results of operations and future prospects may be adversely affected.
In addition, if we cannot attract additional, qualified independent attorneys to participate in our legal plan network to service the needs of our legal plan subscribers, attorneys to support our attorney assisted legal offerings, and qualified certified public accountants, enrolled agents, and tax professionals to service the needs of our subscribers, or if these attorneys, accountants and tax professionals encounter regulatory issues that prevent them from being able to service the needs of our customers, we may not be able grow and maintain our legal plan subscription business, other assisted legal solutions or tax offerings and, as a result, our business, revenue, results of operations and future prospects may be adversely affected.
The quality and value of our services, customer care and customer experience, as well as the quality and accuracy of the services provided by our accountants and the independent attorneys who participate in our and our partner’s networks, are critical to our ability to attract and retain customers.
The quality and value of our services, customer care and customer experience, as well as the quality and accuracy of the services provided by our accountants and the independent attorneys who participate in our and our partner’s networks, are critical to the success of our business and our ability to attract and retain customers.
Risks Relating to Ownership of Our Common Stock The market price of our common stock may be volatile or may decline regardless of our operating performance, resulting in substantial losses for our investors The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our revenue and results of operations; • the operating and financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • variance in our financial performance from expectations of securities analysts; • increase or loss of customers; • fluctuations in product sales mix; • changes in our pricing strategy or those of our competitors; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; • our involvement in any litigation; • actual or anticipated changes in our growth rate relative to those of our competitors; • announcements of technological innovations or new services offered by us or our competitors; • announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments; • additions or departures of key personnel; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or investor expectations; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • technical factors in the public trading market for our common stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our common stock, access to margin debt, and trading in options and other derivatives on our common stock; • additional shares of our common stock or other securities being sold into the market by us or our existing stockholders or the anticipation of such sales; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • other events or factors, including those resulting from war or incidents of terrorism, or responses to these events; and • general macroeconomic, political, regulatory and market conditions, such as those related to recessionary fears, the current inflationary and rising interest rate environment and the COVID-19 pandemic.
Risks Relating to Ownership of Our Common Stock The market price of our common stock may be volatile or may decline regardless of our operating performance, resulting in substantial losses for our investors The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our revenue and results of operations; • the operating and financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; 26 • an increase or loss of customers; • fluctuations in product sales mix; • changes in our pricing strategy or those of our competitors; • developments in new legislation and pending lawsuits or regulatory actions, including interim or final rulings by judicial or regulatory bodies; • our involvement in any litigation; • actual or anticipated changes in our growth rate relative to those of our competitors; • announcements of technological innovations or new services offered by us or our competitors; • announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments; • additions or departures of key personnel; • actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or investor expectations; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • technical factors in the public trading market for our common stock that may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), the amount and status of short interest in our common stock, access to margin debt, and trading in options and other derivatives on our common stock; • additional shares of our common stock or other securities being sold into the market by us or our existing stockholders or the anticipation of such sales; • price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; • other events or factors, including those resulting from war, incidents of terrorism, a public health pandemic or epidemic, bank failures, or responses to these events; and • general macroeconomic, political, regulatory and market conditions, such as those related to recessionary fears, inflation and the rising interest rate environment.
If our revenue and gross profit do not grow at a greater rate than our operating expenses, we will not be able to maintain or increase profitability and our business may be harmed. We may incur significant losses in the future for a number of reasons, including due to, among other things, the other risks and uncertainties described herein.
If our revenue and gross profit do not grow at a greater rate than our operating expenses, we will not be able to maintain or increase profitability and our business may be harmed. We may incur significant losses in the future for a number of reasons, including due to the risks and uncertainties described herein.
We cannot guarantee that our security measures to protect customer information and prevent data loss and other security breaches will be sufficient to protect against unauthorized access to, or other compromise of, personal information confidential or proprietary information.
We cannot guarantee that our security measures to protect customer information and prevent data loss and other security breaches will be sufficient to protect against unauthorized access to, or other compromise of, personal information, or confidential, proprietary or otherwise sensitive information.
The contracts applicable to third-parties’ development tools may be unfavorable and add costs or risks to our business or may require us to push additional contract terms to our customers that affect our relationship with our customers.
The contracts applicable to third party development tools may be unfavorable and add costs or risks to our business or may require us to push additional contract terms to our customers that affect our relationship with our customers.
In addition, under Section 382 of the Code and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards to offset its post- change income or taxes may be limited.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards to offset its post-change income or taxes may be limited.
In addition, we have in the past, and may in the future, conduct reduction in workforce actions, which can lead to the elimination of roles causing unexpected adverse impacts on the growth and operation of our business.
In addition, we have in the past, and may in the future, conduct reduction in workforce actions, which can lead to the elimination of roles causing unexpected adverse impacts on our business.
If the internal systems and tools we use to track these metrics undercount or over count performance or contain algorithmic or other technical errors, the data we report may not be accurate.
If the internal systems and tools we use to track these metrics under count or over count performance or contain algorithmic or other technical errors, the data we report may not be accurate.
Any success that we may experience in the future will depend in large part on our ability to, among other things: • maintain and expand our customer base; • increase revenue from existing customers through increased or broader use of our services; provide high-quality services to customers; • improve the performance and capabilities of our services through research and development; • develop new services; • maintain the rate at which customers purchase our subscriptions; • identify and acquire or invest in new businesses, products or technologies that we believe could complement or expand our platform; • continue to successfully expand our business; and • successfully compete with other companies.
Any success that we may experience in the future will depend in large part on our ability to, among other things: • maintain and expand our customer base; • increase revenue from existing customers through increased or broader use of our platform, including through maintaining and/or increasing the rate at which customers purchase our subscriptions; • provide high-quality services to customers; • improve the performance and capabilities of our services through research and development; • develop new services; • identify and acquire or invest in new businesses, products or technologies that we believe could complement or expand our platform; and • successfully compete with other companies.
If new technologies emerge that are able to deliver competitive services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete.
If new technologies emerge that are able to deliver competitive services at lower prices, more efficiently, more conveniently or more securely than LegalZoom, such technologies could adversely impact our ability to compete.
Regulatory proceedings, consumer claims, litigation, customer complaints or negative publicity through word-of-mouth, social media outlets, blogs, the Better Business Bureau and other sources related to our business practices, as well as customer care, data privacy and security issues, or reputation of our endorsers, irrespective of their validity, could diminish confidence in our services and adversely affect our brand and reputation and our ability to attract and retain customers.
Regulatory proceedings, consumer claims, false and misleading advertising claims, litigation, customer complaints or negative publicity through word-of-mouth, social media outlets, blogs, the Better Business Bureau and other sources related to our business practices, as well as customer care, data privacy or security issues, irrespective of their validity, could diminish confidence in our services and adversely affect our brand and reputation and our ability to attract and retain customers.
The number of business formations on our platform is subject to unpredictable declines or fluctuations as a result of a number of factors, many of which are out of our control, including an overall decline in the number of U.S. business formations, an economic slowing or downturn, increased competition, compliance or operating costs (including wage and benefit pressures), regulatory obstacles, changes in law (including changes in tax laws and regulations), changes in the business environment from inflation, interest rates, government assistance or other risks, and dissatisfaction with our services.
The number of business formations on our platform is subject to unpredictable declines or fluctuations as a result of a number of factors, many of which are out of our control, including an overall decline in the number of U.S. business formations, an economic slowing or downturn, a public health pandemic or epidemic, increased competition, compliance or operating costs (including wage and benefit pressures), regulatory obstacles, changes in law (including changes in tax laws and regulations), changes in the business environment from inflation, interest rates, government assistance or other factors, and dissatisfaction with our services.
If our marketing efforts are unsuccessful, our ability to attract new customers or retain existing customers may be adversely affected, which may adversely affect our business, results of operations, financial condition and future prospects Our ability to attract new customers and retain existing customers depends in large part on the success of our marketing channels.
If our marketing efforts are unsuccessful, our business, results of operations, financial condition and future prospects may be adversely affected Our ability to attract new customers and retain existing customers depends in large part on the success of our marketing channels.
On the other hand, some of our LZ Tax offerings as well as our intellectual property offerings are fulfilled by our or subsidiary’s own employee accountants, tax professionals, lawyers and fulfillment staff. We also use contractors, temporary employees and/or consultants as part of our operations.
On the other hand, some of our LZ Tax offerings and our intellectual property offerings are fulfilled by our or our subsidiaries’ own employee accountants, tax professionals, lawyers and fulfillment staff. We also use contractors, temporary employees and/or consultants as part of our operations.
The Arizona Supreme Court also has the ability to suspend or revoke our Arizona subsidiary’s licensed ABS status in the event any such contravention occurs.
The Arizona Supreme Court also has the ability to suspend or revoke our U.S. subsidiary’s licensed ABS status in the event any such contravention occurs.
In addition, new legislation, regulation, public policy considerations, litigation by the government or private entities, changes to or new interpretations of existing laws may restrict the types of products and services that we can offer or the prices we can charge, or otherwise cause us to change the way we operate our businesses or offer our products and services.
In addition, new legislation, regulation, public policy considerations, litigation by the government or private entities, and changes to or new interpretations of existing laws may result in greater oversight of our industry, restrict the types of products and services that we can offer or the prices we can charge, or otherwise cause us to change the way we operate our businesses or offer our products and services.
Any actual or perceived breach of our security measures or those of our third-party service providers could adversely affect our business, operations and future prospects.
Any actual or perceived breach of our security measures or those of our service providers could adversely affect our business, operations and future prospects.
Preparing for and complying with these laws, rules and regulations requires significant time and resources and may necessitate further changes to our information technologies, systems, and practices and to those of our customers, and of any third-parties that process personal data on our behalf. In addition, these obligations may require us to change our business model.
Preparing for and complying with these obligations requires significant time and resources and may necessitate further changes to our information technologies, systems, and practices and to those of our customers, and of any third-parties that process personal information on our behalf. In addition, these obligations may require us to change our business model.
In some instances, the steps we have taken to try to prevent these attacks and disruptions and mitigate their potential impact on our systems and operations may be expensive and may not be successful in preventing system failures.
In some instances, the steps we have taken to try to prevent these attacks and disruptions and mitigate their potential impact on our systems and operations may be expensive and may not be successful.
Risks Relating to Our Business and Industry Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to manage our growth effectively We have experienced growth in operations and headcount, which has placed, and will continue to place, significant demands on our management team and our administrative, operational and financial infrastructure.
Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to manage our growth effectively We have experienced growth in operations and headcount, which has placed, and will continue to place, significant demands on our management team and our administrative, operational and financial infrastructure.
Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. We have adopted a remote-first policy, which permits all employees to work remotely or virtually indefinitely unless the nature of the employee’s job requires their in-office presence.
Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. We have adopted a remote-first policy, which permits personnel to work remotely or virtually indefinitely unless the nature of the personnel’s job requires their in-office presence.
Fluctuations in our quarterly operating results and the price of our common stock may be particularly pronounced in the current global macroeconomic environment, including due to uncertainty caused by recessionary fears, inflation, rising interest rates and lingering effects of the COVID-19 pandemic and their respective impacts on consumer spending patterns, the success of existing small businesses and the formation of new small businesses.
Fluctuations in our quarterly operating results and the price of our common stock may be particularly pronounced in the current global macroeconomic environment, including due to uncertainty caused by recessionary fears, inflation and rising interest rates and their respective impacts on consumer spending patterns, the success of existing small businesses and the formation of new small businesses.
We have completed a Section 382 study and have determined that none of our net operating losses will expire solely due to Section 382 limitations. However, we may experience ownership changes in the future as a result of shifts in our stock ownership, some of which may be outside of our control.
We have completed a Section 382 study and have determined that none of our NOLs will expire solely due to Section 382 limitations. However, we may experience ownership changes in the future as a result of shifts in our stock ownership, some of which may be outside of our control.
If we are unable to continue offering innovative solutions or if new or enhanced solutions fail to engage our customers, we may be unable to attract additional customers or retain our current customers, which may adversely affect our business, results of operations, financial condition or future prospects.
If we are unable to continue offering innovative solutions or if new or enhanced solutions, including LZ Tax or LZ Books, fail to engage our customers, we may be unable to attract additional customers or retain our current customers, which may adversely affect our business, results of operations, financial condition or future prospects.
We exercise limited control over these third-parties, which increases our vulnerability to problems with the services they provide for us and to security incidents or breaches affecting the data and information they hold or process on our behalf.
We exercise limited, if any, control over these third parties, including AWS, which increases our vulnerability to problems with the services they provide for us and to security incidents or breaches affecting the data and information they hold or process on our behalf.
Our failure to comply with these laws, or any future laws or regulations of a similar nature, could result in substantial regulatory penalties, litigation expense, and loss of revenue.
Our failure to comply with these obligations, or any future obligations of a similar nature, could result in substantial regulatory penalties, litigation expense, and loss of revenue.
Our decisions and actions in pursuit of long-term success and long-term stockholder value, which may include changes to our platform to enhance the experience of our customers, partners and the communities in which we operate, including by improving the trust and safety of our platform, enabling equitable access to legal and compliance services, investing in our relationships with our customers, partners, and employees, investing in and introducing new services, or changing 14 our approach to working with local or national jurisdictions on laws and regulations governing our business, may not result in the long-term benefits that we expect, in which case our business, results of operations, and financial condition, as well as the trading price of our common stock, could be materially adversely affected.
Our decisions and actions in pursuit of long-term success and long-term stockholder value, which may include changes to our platform to enhance the experience of our customers, partners and the communities in which we operate, enabling equitable access to legal and compliance services, investing in our relationships with our customers, partners, and employees, investing in and introducing new services, or changing our approach to working with local or national jurisdictions on laws 15 and regulations governing our business, may not result in the long-term benefits that we expect, in which case our business, results of operations, financial condition and the trading price of our common stock could be materially adversely affected.
The imposition of the excise tax on repurchases of our shares will increase the cost to us of making repurchases and could cause management to reduce the number of shares repurchased pursuant to our stock repurchase program.
The imposition of the excise tax could increase the cost to us of making repurchases of our stock and cause us to reduce the number of our shares repurchased pursuant to our stock repurchase program.
For example, we partner with a variety of third-parties to provide business license services, website development, credit card and banking services, productivity tools and business insurance, among others. Our sales and our customers’ user experience are dependent on our ability to connect and integrate easily to such third-party solutions.
For example, we currently partner with a variety of third-parties to provide website development, credit card and banking services, productivity tools and business insurance, among others. Our sales and our customers’ user experience depend on our ability to connect and integrate easily to such third party solutions.
Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict Our revenue and results of operations have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including, but not limited to the risks and uncertainties discussed herein and the following: • the number of business formations and the rate of failure of small businesses; • the level of demand for our services; • the rate of renewal of subscriptions by, and extent of sales of additional subscriptions to, existing customers; • the size, timing and terms of our subscription agreements with existing and new customers; • changes to our product offerings, including pricing changes such as the offering of free or even lower cost products; • the mix of subscriptions and services sold during a period; • changes in stock-based compensation expense; • the introduction of new products and product enhancements by existing competitors or new entrants into our markets, and changes in pricing for solutions offered by us or our competitors; • customers delaying purchasing decisions in anticipation of new developments or enhancements by us or our competitors or otherwise; • seasonal variations, including those related to orders placed, sales and marketing and other activities or other seasonal fluctuations in our results of operations that are out of our control; • our ability to attract new customers or retain existing customers; • our ability to increase, retain and incentivize the strategic partners that market and sell our platform; • our ability to control costs, including our operating expenses; • changes in governmental or other regulations affecting our business; • changes to government agency practices, staffing and their websites, which may cause delay or disruptions in our business, including the processing of business formations or Employer Identification Numbers, or EIN, numbers; • adverse global macroeconomic and market conditions, as well as economic conditions specifically affecting industries in which our customers operate; and • general geopolitical events and conditions, both domestically and internationally (such as the conflict in Ukraine).
Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict Our revenue and results of operations have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control, including, but not limited to the risks and uncertainties discussed herein and the following: • the number of business formations and the rate of failure of small businesses; • the level of demand for our services; • our ability to attract new customers and retain existing customers, including the rate of renewal of subscriptions by, and extent of sales of additional subscriptions to, existing customers; • the size, timing and terms of our subscription agreements with existing and new customers; • changes to our product offerings, including pricing changes and the offering of free or even lower cost products, and our testing of new product line-ups; • the mix of subscriptions and services sold during a period; • the introduction of new products and product enhancements by existing competitors or new entrants into our markets, and changes in pricing for solutions offered by us or our competitors; • seasonal variations, including those related to orders placed, sales and marketing and other activities or other seasonal fluctuations in our results of operations that are out of our control; • changes in stock-based compensation; • the application of new or changing financial accounting standards or practices; • our ability to increase, retain and incentivize the strategic partners that market and sell our platform; • our ability to control costs, including our operating expenses; • changes in governmental or other regulations affecting our business; • changes to government agency staffing and other practices and the functionality of their websites, which may cause delay or disruptions in our business, including the processing of business formations or Employer Identification Numbers, or EINs; • adverse global macroeconomic and market conditions, including economic conditions specifically affecting industries in which our customers operate; and • general geopolitical events and conditions, both domestically and internationally, such as the war in Ukraine and the Israel-Hamas conflict.
This 23 discontinuance in use and failure to renew could harm our business, results of operations, financial condition and future prospects. Our internal computer systems, cloud-based computing services, and those of our current and any future third-party service providers are vulnerable to a variety of evolving threats.
This discontinuance in use and failure to renew could harm our business, results of operations, financial condition and future prospects. Our internal information systems, cloud-based computing services, and those of our current and any future service providers are vulnerable to a variety of evolving threats.
We expect to face increasing competition from offline and online legal services providers in our market, and our failure to effectively compete with these providers could result in revenue reductions, reduced margins, or loss of market share, any of which could materially and adversely affect our business, results of operations, financial condition and future prospects.
We expect to face increasing competition from offline and online legal services providers in our market, including through their use of generative AI, and our failure to effectively compete with these providers could result in revenue reductions, reduced margins, or loss of market share, any of which could materially and adversely affect our business, results of operations, financial condition and future prospects.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor more information on our material pending legal proceedings and governmental inquiries, see Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures None. 29 Part II
Biggest changeFor more information on our material pending legal proceedings and governmental inquiries, see Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures None. 31 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividend Policy We have not paid any dividends on our common stock and do not intend to pay dividends in the foreseeable future. Purchases of Equity Securities On March 1, 2022, our board of directors authorized the repurchase of up to an aggregate of $150.0 million of our common stock, with no fixed expiration.
Biggest changeDividend Policy We have not paid any dividends on our common stock in the last three years and do not intend to pay dividends in the foreseeable future.
The graph assumes an initial investment of $100.00 at the close of trading on June 29, 2021 and the reinvestment of all dividends.
The graph assumes an initial investment of $100.00 at the close of trading on June 30, 2021 and the reinvestment of all dividends.
Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of our shares of common stock under this authorization.
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 Exchange Act. We have entered into and may from time to time in the future enter into Rule 10b5-1 plans to facilitate repurchases of our shares of common stock under this authorization.
The following graph depicts the total cumulative stockholder return on our common stock from June 29, 2021, the first day of trading of our common stock on the Nasdaq Global Select Market, through December 31, 2022, relative to the cumulative total returns of the Nasdaq Composite Index and Nasdaq Internet Index.
The following graph depicts the total cumulative stockholder return on our common stock from June 30, 2021, the first day of trading of our common stock on the Nasdaq Global Select Market, through December 31, 2023, relative to the cumulative total returns of the Nasdaq Composite Index and Nasdaq CTA Internet Index.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the Nasdaq Global Select Market under the symbol “LZ.” Holders of Record As of February 23, 2023, there were 154 holders of record of our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the Nasdaq Global Select Market under the symbol “LZ.” Holders of Record As of February 15, 2024, there were 131 holders of record of our common stock.
This program does not obligate us to acquire any particular amount of common stock and may be modified, suspended or terminated at any time at the discretion of our board of directors.
The 2023 stock repurchase program does not obligate us to acquire any particular amount of common stock and can be modified, suspended or terminated at any time at the discretion of our board of directors.
The performance shown in the graph below is not intended to forecast or be indicative of future stock price performance. 30 June 30, 2021 December 31, 2021 December 31, 2022 LegalZoom.com, Inc. $ 100.00 $ 42.46 $ 20.45 Nasdaq Composite $ 100.00 $ 108.20 $ 73.00 Nasdaq CTA Internet $ 100.00 $ 84.20 $ 44.15 Item 6. [Reserved] 31
The performance shown in the graph below is not intended to forecast or be indicative of future stock price performance. 32 June 30, 2021 December 31, 2021 December 31, 2022 December 31, 2023 LegalZoom.com, Inc. $ 100.00 $ 42.46 $ 20.45 $ 29.85 Nasdaq Composite $ 100.00 $ 108.20 $ 73.00 $ 105.58 Nasdaq CTA Internet $ 100.00 $ 84.20 $ 44.15 $ 71.27 Item 6. [Reserved] 33
Stock repurchase activity during the three months ended December 31, 2022 was as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares that May Yet be purchased Under the Plans October 1, 2022 through October 31, 2022 1,204,387 $ 8.53 1,204,387 $ 75,700,215 November 1, 2022 through November 30, 2022 745,963 8.92 745,963 69,044,491 December 1, 2022 through December 31, 2022 1,641,767 8.63 1,641,767 $ 54,873,781 Total 3,592,117 $ 8.66 3,592,117 Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Stock repurchase activity during the three months ended December 31, 2023 was as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares that May Yet be purchased Under the Plans October 1, 2023 through October 31, 2023 — $ — — $ 100,000,000 November 1, 2023 through November 30, 2023 — — — $ 100,000,000 December 1, 2023 through December 31, 2023 — — — $ 100,000,000 Total — $ — — Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, or otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Stock repurchases under this program may be made through any manner, including open market transactions, accelerated stock repurchase agreements, or privately negotiated transactions with third-parties, and in such amounts as management deems appropriate.
The 2023 stock repurchase program authorizes us to repurchase our common stock through any manner, including open market transactions, accelerated stock repurchase agreements, or privately negotiated transactions with third parties, and in such amounts as management deems appropriate.
Added
Purchases of Equity Securities In March 2022, our board of directors approved a stock repurchase program, or the 2022 stock repurchase program, authorizing us to repurchase up to $150.0 million of our common stock, with no fixed expiration. At September 30, 2023, there were no authorized funds available for future repurchases under the 2022 stock repurchase program.
Added
In October 2023, our board of directors approved a new stock repurchase program, or the 2023 stock repurchase program, authorizing us to repurchase up to $100.0 million of our common stock, with no fixed expiration.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSome of these limitations include that the non-GAAP financial measure: • does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, which reduces cash available to us; • does not reflect provision for income taxes that may result in payments that reduce cash available to us; • excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated may be replaced in the future; • does not reflect foreign currency exchange or other gains or losses, which are included in other (expense) income, net; • 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; • excludes impairments of other equity securities; • excludes losses from impairments of long-lived and other assets; • excludes restructuring expenses, which reduce cash available to us; • excludes IPO-related costs and other transaction-related expenses that are not considered representative of our underlying performance, which reduce cash available to us; and • does not reflect certain other non-recurring expenses that are not considered representative of our underlying performance, which reduce cash available to us. 45 The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for each of the periods indicated: Year Ended December 31, 2022 2021 (in thousands) Reconciliation of Net income (loss) to Adjusted EBITDA Net loss $ (48,733) $ (108,664) Interest (income) expense, net (1,543) 27,984 Provision for (benefit from) income taxes 1,060 (10,951) Depreciation and amortization 21,745 16,686 Other (income) expense, net 4,477 (1,193) Stock-based compensation 80,469 112,596 Impairment of other equity security 3,000 — Impairment of long-lived and other assets 237 924 Acquisition related expenses 758 1,356 Restructuring costs (1) 1,795 — Loss on debt extinguishment — 7,748 IPO-related costs and other transaction related expenses (2) — 852 Certain other non-recurring expenses (3) 440 369 Adjusted EBITDA $ 63,705 $ 47,707 Net income (loss) margin (8 %) (19 %) Adjusted EBITDA margin 10 % 8 % (1) Restructuring expenses related to a phased severance event to reduce the U.S. headcount.
Biggest changeThe following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated: Year Ended December 31, 2023 2022 (in thousands) Reconciliation of Net income (loss) to Adjusted EBITDA Net income (loss) $ 13,953 $ (48,733) Interest expense 493 260 Interest income (9,307) (1,803) Provision for income taxes 17,541 1,060 Depreciation and amortization 25,383 21,745 Other (income) expense, net (1,621) 4,477 Stock-based compensation 66,015 80,469 Impairment of other equity security — 3,000 Impairment of long-lived assets — 237 Transaction-related expenses — 758 Restructuring costs (1) 4,666 1,795 Certain other non-recurring expenses (2) 1,568 440 Adjusted EBITDA $ 118,691 $ 63,705 Net income (loss) margin 2 % (8 %) Adjusted EBITDA margin 18 % 10 % (1) For 2023, restructuring costs related to the reduction of our U.S. and U.K. headcount.
The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio of 4.50 to 1.00, or Financial Covenant.
The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio of 4.50 to 1.00, or the Financial Covenant.
In 2022, net cash used in financing activities was $93.3 million, primarily for the repurchase of common stock under our stock repurchase program.
In 2022, net cash used in financing activities was $93.3 million, primarily for the repurchase of common stock under our 2022 stock repurchase program.
Our Adjusted EBITDA financial measure differs from GAAP in that it excludes certain items of income and expense. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. We define Net (loss) income margin as Net (loss) income as a percentage of revenue based on our consolidated financial statements.
Our Adjusted EBITDA financial measure differs from GAAP in that it excludes certain items of income and expense. 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.
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.
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.
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 (benefit from) provision for income taxes and the related impact on our net (loss) income.
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).
For our partner-based services, we recognize revenue at a point-in-time when the related performance-based criteria have been met. We do not have significant financing components in arrangements with our customers. 48 Principal agent considerations In certain of our arrangements, another party may be involved in providing services to our customer.
For our partner-based services, we recognize revenue at a point-in-time when the related performance-based criteria have been met. We do not have significant financing components in arrangements with our customers. Principal agent considerations In certain of our arrangements, another party may be involved in providing services to our customer.
We believe that these non-GAAP financial measures provide useful information about our financial performance, 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 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.
Where we do not sell the service on a standalone basis, we estimate the standalone selling price based on the adjusted market assessment approach or the expected cost plus a margin approach when market information is not observable. In these cases, the determination of the standalone selling price may require significant judgment.
Where we 50 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.
Subscription revenue includes the transaction price allocated to bundled free trials for our subscription services and is net of promotional discounts, cancellations, sales allowances and credit reserves and payments to third-party service providers such as legal plan law firms and tax service providers.
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.
The transaction price that we record is generally based on the contractual amounts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Partner revenue .
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.
Net cash provided by operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation and impairments of long-lived assets, as well as the effect of changes in operating assets and liabilities.
Net cash provided by operating activities is impacted by our net income (loss) adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation and impairments of long-lived assets, as well as the effect of changes in operating assets and liabilities.
Average revenue per subscription unit We define average revenue per subscription unit, or ARPU as of a given date as subscription revenue for the last twelve-month period ended on such date, or LTM, divided by the average of the number of subscription units at the beginning and end of the LTM period.
Average revenue per subscription unit We define average revenue per subscription unit, or ARPU, as of a given date as subscription revenue for the twelve-month period ended on such date, or LTM, divided by the average of the number of subscription units at the beginning and end of the LTM 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 52 vest based on service and performance conditions.
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 49 carrying amount including goodwill, goodwill is considered not to be impaired.
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.
See Note 20 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on our income taxes. 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.
See Note 19 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on our income taxes. 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.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further information on certain accounting standards adopted in 2022 and recent accounting announcements that have not yet been required to be implemented and may be applicable to our future operations.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further information on certain accounting standards adopted in 2023 and recent accounting announcements that have not yet been required to be implemented and may be applicable to our future operations.
We determine the expected volatility assumption using the frequency of daily historical prices of comparable public company’s common stock for a period equal to the expected term of the options. We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock option grants. • Expected dividend yield .
We determine the expected volatility assumption using the frequency of daily historical prices of comparable public companies’ common stock for a period equal to the expected term of the options. We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock option grants. • Expected dividend yield .
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.
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.
Non-GAAP Financial Measures 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.
Non-GAAP Financial Measures To supplement our unaudited condensed 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.
The $12.0 million of net cash flows provided from changes in our operating assets and liabilities included a $17.1 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition, partially offset by a net $2.2 million reduction in accounts payable, accrued expenses, operating lease liability and other liabilities due to the timing of our payments and a $2.8 million net increase in accounts receivable, prepaid expenses and other assets.
The $12.0 million of net cash flows provided from changes in our operating assets and liabilities included a $17.1 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition, partially offset by a net $2.2 million reduction in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments and a $3.0 million increase in accounts receivable, prepaid expenses and other assets.
For our goodwill impairment test performed in the fourth quarter of 2022 and 2021, the fair value of our consolidated reporting unit significantly exceeded our carrying value. Loss contingencies We record loss contingencies in our consolidated financial statements in the period when they are probable and reasonably estimable.
For our goodwill impairment test performed in the fourth quarter of 2023 and 2022, the fair value of our consolidated reporting unit significantly exceeded our carrying value. Loss contingencies We record loss contingencies in our consolidated financial statements in the period when they are probable and reasonably estimable.
Cost of revenue primarily includes government filing fees; costs of fulfillment, customer care and credentialed professionals, and related benefits, including stock-based compensation; costs of independent contractors for document preparation; telecommunications and data center costs; amortization of acquired developed technology; depreciation and amortization of network computers, equipment and internal-use software; printing, shipping and handling charges; credit and debit card fees; allocated overhead; legal document kit expenses; and sales and use taxes.
Cost of revenue primarily includes government filing fees, costs of fulfillment, customer care, including the cost of credentialed professionals for tax, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation, telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes.
These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
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.
Other than the special dividends declared in 2015, 2017 and 2018 which resulted in corresponding reductions in the exercise price of the stock options, we have not declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
Other than the special dividends declared in 2015, 2017, 2018, 2020 and 2021 which resulted in corresponding reductions in the exercise price of the stock options, we have not declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. • Common stock valuation.
We are the principal in most of our legal document preparation and registered agent services, including legal entity formations and similar arrangements and formation, and formerly, conveyancing services, in the U.K and since December 2021, tax advisory and preparation services through our fulfilled tax subscription, LZ Tax. For these services, revenue includes filing and similar fees.
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. For these services, revenue includes filing and similar fees.
Our alternative business structures, or ABS, offer legal advisory services that are marketed through our websites. Our ABSs provide independent legal advice to our customers and are directly responsible for, and control the fulfillment of, the legal services. Accordingly, for services provided by our ABSs, we recognize revenue as the principal.
Our alternative business structures, or ABS, offer 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.
Furthermore, we believe our definition of the number of business formations is most closely aligned with U.S. Census reporting of new applications for Employer Identification Numbers, or EINs, which we believe to be the most relevant source of publicly available U.S. market data.
Furthermore, we believe our definition of the number of business formations is most closely aligned with U.S. Census reporting of new applications for EINs, which we believe to be the most relevant source of publicly available U.S. market data.
Sales and marketing Sales and marketing expenses consist of customer acquisition media costs; compensation and related benefits, including stock-based compensation for marketing and sales personnel; media production; public relations and other promotional activities; general business development activities; an allocation of depreciation and amortization and allocated overhead. Customer acquisition media costs consist primarily of search engine marketing, television and radio costs.
Sales and marketing 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.
Over the next year, we will continue to incur stock-based compensation expense as a result of certain modifications to equity awards that occurred in connection with our IPO; however, we expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term.
We will continue to incur stock-based compensation expense related to certain modifications to equity awards that occurred in connection with our IPO through 2024; however, we expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term.
Comparison of the Years Ended December 31, 2021 and 2020 For a discussion related to the results of operations and changes in financial condition for the year ended December 31, 2021 compared to the year ended December 31, 2020, 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, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 24, 2022.
Comparison of the Years Ended December 31, 2022 and 2021 For a discussion related to the results of operations and changes in financial condition for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023.
Subscription terms generally range from thirty days to one year. Subscription revenue includes the transaction price allocated to bundled free trials for our subscription services and is net of promotional discounts, cancellations, sales allowances and credit reserves and payments to third-party service providers such as legal plan law firms and tax service providers.
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.
Subject to the satisfaction of certain criteria, we will be able to increase the facility by an amount equal to the sum of (i) the greater of $90.0 million and 75% of consolidated last year cash earnings before interest expense, tax, depreciation and amortization, or Cash EBITDA, which is defined in the 2018 Credit Facility, or LTM Cash EBITDA, 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 Cash EBITDA), plus (iii) an unlimited amount so long as the borrower is in pro forma compliance with the Financial Covenant (as defined below), in each case, with the consent of the lenders participating in the increase.
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.
General and administrative Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs. We expense legal costs for defending legal proceedings as incurred.
General and administrative Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs.
These assumptions 50 used in the Black-Scholes option pricing model, other than the fair value of our common stock (see the section titled “Common Stock Valuations” below), are estimated as follows: • Expected term . The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding.
These assumptions used in the Black-Scholes option pricing model, other than the fair value of our common stock, are estimated as follows: • Expected term . The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding.
For additional information regarding our stock repurchase program, refer to Note 15 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Borrowings 2021 Revolving Facility 42 On July 2, 2021, we entered into our 2021 Revolving Facility with JPMorgan Chase Bank, N.A., as the administrative agent.
For additional information regarding our stock 44 repurchase programs, refer to Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Borrowings 2021 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.
RSUs that vest upon the satisfaction of service-based vesting conditions, which is typically over a four-year period. For these RSUs we recognize stock-based compensation expense on a straight-line basis over the vesting period of 4 years. RSUs with performance or market conditions are recognized using graded vesting. Common stock valuations .
RSUs that vest upon the satisfaction of service-based vesting conditions, which is typically over a four-year period. For these RSUs, we recognize stock-based compensation expense on a straight-line basis over the vesting period of 4 years. RSUs with performance or market conditions are recognized using graded vesting. Award issuances and modifications in connection with our IPO.
The below table sets forth the number of business formations for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 (in thousands) Number of business formations 474 483 We experienced a 2% decrease in business formation transactions during the year ended December 31, 2022 compared to the year ended December 31, 2021.
The below table sets forth the number of business formations for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Number of business formations 581 474 We experienced a 23% increase in business formation transactions during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Other (expense) income, net Year Ended December 31, 2022 2021 $ change % change (in thousands, except percentages) Other (expense) income, net $ (4,477) $ 1,193 $ (5,670) (475 %) The change in other (expense) income, net, between 2022 and 2021 was primarily due to changes in foreign currency movements related to our intercompany loans which were denominated in British Pound Sterling, or GBP.
Other (expense) income, net Year Ended December 31, 2023 2022 $ change % change (in thousands, except percentages) Other (expense) income, net $ 1,621 $ (4,477) $ 6,098 (136 %) The change in other (expense) income, net, between 2023 and 2022 was primarily due to changes in foreign currency movements related to our intercompany loans which were denominated in British pound sterling.
See “Forward-Looking Statements” preceding Part I of this Annual Report on Form 10-K. Overview LegalZoom is a leading online platform for legal and compliance solutions in the United States, or U.S.
See “Forward-Looking Statements” preceding Part I of this Annual Report on Form 10-K. Overview LegalZoom is a leading online platform for business formation in the U.S.
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. This limitation has been accounted for in calculating our available NOL carryforwards. Results of Operations The following table sets forth our consolidated statement of operations data for each of the periods indicated.
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. This limitation has been accounted for in calculating our available NOL carryforwards.
We have the option to voluntarily repay outstanding loans at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. There is no scheduled amortization under the 2021 Revolving Facility. The principal amount outstanding is due and payable in full at maturity, five years from the closing date of the 2021 Revolving Facility.
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. The principal amount outstanding is due and payable in full on July 1, 2026.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as Net (loss) income adjusted to exclude interest expense, net, provision for (benefit from) income taxes, depreciation and amortization, other (income) expense, net, stock-based compensation, impairment of other equity security, loss on debt extinguishment, impairment of goodwill, long-lived and other assets, losses from impairment of available-for-sale debt securities, restructuring expenses, IPO-related costs and other transaction-related expenses and certain other non-recurring expenses.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net income (loss) adjusted to exclude interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, other expense (income), net, stock-based compensation, impairment of goodwill, long-lived and other assets, restructuring expenses, legal expenses, transaction-related expenses and certain other non-recurring income and expenses from time to time.
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. In assessing our performance, we exclude certain expenses that we believe are not comparable period over period.
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.
The below table sets forth the number of transactions for the years ended December 31, 2022 and 2021 : Year Ended December 31, 2022 2021 (in thousands) Number of transactions 929 977 We experienced a 5% decrease in the number of transactions during the year ended December 31, 2022 compared to the year ended December 31, 2021.
The below table sets forth the number of transactions for the years ended December 31, 2023 and 2022 : Year Ended December 31, 2023 2022 (in thousands) Number of transactions 1,043 929 We experienced a 12% increase in the number of transactions during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Subscription revenue for the year ended December 31, 2022 increased primarily due to a 15% increase in the average number of subscription units and a 9% improvement in ARPU compared to the year ended December 31, 2021.
Subscription revenue for the year ended December 31, 2023 increased primarily due to a 7% increase in the number of subscription units as of December 31, 2023 compared to December 31, 2022 and a 7% increase in ARPU compared to December 31, 2022.
The weighted-average assumptions that were used to calculate the grant-date fair-value of our stock option grants were as follows: Year Ended December 31, 2022 2021 2020 Expected term (years) 5.6 5.4 5.2 Risk-free interest rate 2.6 % 1.0 % 1.1 % Expected volatility 48 % 46 % 45 % Expected dividend yield — — — Restricted stock units .
The weighted-average assumptions that were used to calculate the grant-date fair-value of our stock option grants 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 — — 53 Restricted stock units .
The below table sets forth the average order value for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Average order value $ 258 $ 264 Average order value decreased by 2% during the year ended December 31, 2022 compared to the year ended December 31, 2021.
The below table sets forth the average order value for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Average order value $ 238 $ 281 Average order value decreased by 15% during the year ended December 31, 2023 compared to the year ended December 31, 2022.
Subscription revenue —Subscription revenue is generated primarily from subscriptions to our registered agent services, compliance packages, attorney advice, legal forms services, tax advisory and preparation services, and virtual mail services in addition to software-as-a-service, or SaaS, subscriptions in the U.K. We generally recognize revenue from our subscriptions ratably over the subscription term.
Subscription revenue —Subscription revenue is generated primarily from subscriptions to our registered agent, compliance packages, attorney advice, legal forms, tax and accounting, virtual mail and e-signature services, and SaaS accounting solution subscriptions and SaaS subscriptions in the U.K. We generally recognize 49 revenue from our subscriptions ratably over the subscription term.
The 2021 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. We have no amounts outstanding and $150.0 million available for use under our 2021 Revolving Facility.
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, 2022, our principal sources of liquidity were cash and cash equivalents of $189.1 million, which consisted of cash on deposit with banks and a money market fund, of which approximately $1.1 million related to our foreign subsidiaries.
At December 31, 2023, our principal sources of liquidity were cash and cash equivalents of $225.7 million, which consisted of cash on deposit with banks and money market funds, of which approximately $2.0 million related to our foreign subsidiaries.
We consider the number of business formations to be an important metric considering that it is typically the first product or service small business customers purchase on our platform, creating the foundation for additional products and subsequent subscription and partner revenue as customers adopt additional products and services throughout the lifecycle of their business.
We consider the number of business formations to be an important metric considering that it is typically the first product small business customers purchase on our platform, creating the foundation for additional purchases of transaction and subscription offerings throughout the lifecycle of their business, deepening our relationship with our customers.
At December 31, 2022, we had state NOL carryforwards of $59.9 million, which will begin to expire in 2027 and we had foreign NOL carryforwards of $33.6 million, which can be carried forward indefinitely and are not subject to expiration.
At December 31, 2023, we had state NOL carryforwards of $38.2 million, which will begin to expire in 2028 and we had foreign NOL carryforwards of $30.3 million, which can be carried forward indefinitely and are not subject to expiration.
The $23.7 million of net cash flows provided from changes in our operating assets and liabilities included a $17.9 million increase in deferred revenue resulting from growth of our subscription units, which are predominantly billed in advance of our revenue recognition, a $16.0 million increase in accounts payable, accrued expenses and other liabilities due to the timing of our payments, partially offset by a $10.1 million increase in accounts receivable, prepaid expenses and other assets.
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.
We have the ability to supplement our liquidity needs over the longer term 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.
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.
Census data revealing new applications for EINs. We expect the decline in overall U.S. business formations to continue in 2023. Number of transactions We define the number of transactions in a given period as gross transaction order volume, prior to refunds, on our platform during such period. Transactions may include one or more services purchased at the same time.
Number of transactions We define the number of transactions in a given period as gross transaction order volume, prior to refunds, on our platform during such period. Transactions may include one or more services purchased at the same time.
Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee. We consider the number of subscription units to be an important metric since subscriptions enable us to increase the lifetime value of a customer through deeper, longer-term relationships.
We consider the number of subscription units to be an important metric since subscriptions enable us to increase the lifetime value of a customer through deeper, longer-term relationships.
Subscription revenue was 58% and 50% of total revenue for the year ended December 31, 2022 and 2021, respectively, and transaction revenue was 39% and 45% of total revenue for the year ended December 31, 2022 and 2021, respectively.
Subscription revenue was 62% and 58% of total revenue for the year ended December 31, 2023 and 2022, respectively, and transaction revenue was 38% and 42% of total revenue for the year ended December 31, 2023 and 2022, respectively.
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.
We utilize our common stock values as traded in the public market as an input into our valuation models. 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.
Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. 51 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.
Gross profit and gross margin Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, primarily the mix between transaction, subscription and partner revenue.
We expect our cost of revenue to increase in absolute dollars as we continue to invest in enhancing our customer experience and in new product development. 35 Gross profit and gross margin Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, primarily the mix between transaction and subscription revenue.
As our business grows, we expect our capital expenditures to continue to increase. In 2022, net cash used in investing activities was $30.6 million, resulting primarily from $22.1 million paid for property and equipment, including capitalized internal-use software and payments for the acquisition of UA Services of $2.5 million and $6.3 million primarily for developed technology acquired from Revvsales Inc.
In 2022, net cash used in investing activities was $30.6 million, resulting primarily from $22.1 million paid for property and equipment, including capitalized internal-use software, a $6.3 million payment for developed technology acquired from Revvsales Inc., and a $2.5 million payment for the acquisition of United Agency Services Corp. 46 Net cash used in financing activities Our primary uses of cash in financing activities are for repurchases of common stock.
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.
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.
Subscriptions typically range from 30 days to one year in duration and the vast majority of our new subscriptions originate from business formation orders and have an annual term. Our customers can have multiple subscriptions at the end of a period. For example, a popular combination for a new small business owner is attorney advice and registered agent subscriptions.
Our customers can have multiple subscriptions at the end of a period. For example, a popular combination for a new small business owner is attorney advice and registered agent subscriptions.
As of December 31, 2022, we had total minimum operating lease maturities of $12.8 million, $2.8 million of which mature within twelve months. See Note 9 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our future operating lease payments.
See Note 8 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our future operating lease payments.
For other services provided by third-parties, including deed transfer, accounting, tax, credit monitoring, business data protection and logo design services, revenue is recognized net of fees payable to third-parties.
For other services provided by third-parties, including deed transfer, accounting, tax, credit monitoring, business data protection, revenue is recognized net of fees payable to third-parties. For 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.
If any of the assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. 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.
Forfeitures are estimated based on our historical experience and future expectations. If any of the assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.
In 2021, cash provided by operating activities was $54.2 million resulting from a net loss of $108.7 million, adjusted for stock-based compensation and other non-cash expenses of $139.1 million and net cash flows provided by changes in operating assets and liabilities of $23.7 million.
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.
Cash flows The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31, 2022 2021 (in thousands) Net cash provided by operating activities $ 73,837 $ 54,152 Net cash used in investing activities (30,622) (77,673) Net cash (used in) provided by financing activities (93,343) 123,359 Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent (87) (11) Net (decrease) increase in cash, cash equivalents and restricted cash equivalent $ (50,215) $ 99,827 For a discussion related to our cash flows for the year ended December 31, 2020, refer to Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 43 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 24, 2022.
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. 45 Cash flows The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31, 2023 2022 (in thousands) Net cash provided by operating activities $ 124,308 $ 73,837 Net cash used in investing activities (31,555) (30,622) Net cash used in financing activities (56,150) (93,343) Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent 34 (87) Net increase (decrease) in cash and cash equivalents $ 36,637 $ (50,215) For a discussion of our cash flows for the year ended December 31, 2021, refer to Part II, Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 1, 2023.
Subscription revenue is generated primarily from subscriptions to our registered agent services, compliance packages, attorney advice, legal forms services, tax advisory and preparation services, and virtual mail services in addition to software-as-a-service, or SaaS, subscriptions in the U.K. In the fourth quarter of 2020, we commenced providing tax and payroll subscription services.
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.
Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared and presented in accordance with GAAP.
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.
Gross profit Year Ended December 31, 2022 2021 $ change % change (in thousands, except percentages) Gross profit $ 408,884 $ 385,716 $ 23,168 6 % The increase in gross profit was driven by a $44.9 million increase in revenue partially offset by a $21.7 million increase in cost of revenue.
Gross profit Year Ended December 31, 2023 2022 $ change % change (in thousands, except percentages) Gross profit $ 421,464 $ 408,884 $ 12,580 3 % The increase in gross profit was driven by a $40.7 million increase in revenue partially offset by a $28.2 million increase in cost of revenue as discussed above.
Year Ended December 31, 2022 2021 (in thousands) Revenue $ 619,979 $ 575,080 Cost of revenue (1)(2) 211,095 189,364 Gross profit 408,884 385,716 Operating expenses: Sales and marketing (1)(2) 263,884 279,281 Technology and development (1)(2) 70,434 84,003 General and administrative (1)(2) 116,057 106,584 Impairment of long-lived and other assets 248 924 Total operating expenses 450,623 470,792 Loss from operations (41,739) (85,076) Interest income (expense), net 1,543 (27,984) Other (expense) income, net (4,477) 1,193 Impairment of other equity security (3,000) — Loss on debt extinguishment — (7,748) Loss before income taxes (47,673) (119,615) Provision for (benefit from) income taxes 1,060 (10,951) Net loss $ (48,733) $ (108,664) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2022 2021 (in thousands) Cost of revenue $ 2,931 $ 1,733 Sales and marketing 10,144 15,746 Technology and development 16,574 38,796 General and administrative 50,820 56,557 Total stock-based compensation expense $ 80,469 $ 112,832 Stock-based compensation expense decreased significantly for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to the modification of certain equity awards in connection with our IPO.
Year Ended December 31, 2023 2022 (in thousands) Revenue $ 660,727 $ 619,979 Cost of revenue (1)(2) 239,263 211,095 Gross profit 421,464 408,884 Operating expenses: Sales and marketing (1)(2) 210,872 263,884 Technology and development (1)(2) 83,181 70,434 General and administrative (1)(2) 106,352 116,057 Impairment of long-lived assets — 248 Total operating expenses 400,405 450,623 Income (loss) from operations 21,059 (41,739) Interest expense (493) (260) Interest income 9,307 1,803 Other income (expense), net 1,621 (4,477) Impairment of other equity security — (3,000) Income (loss) before income taxes 31,494 (47,673) Provision for (benefit from) income taxes 17,541 1,060 Net income (loss) $ 13,953 $ (48,733) (1) Includes stock-based compensation expense as follows: Year Ended December 31, 2023 2022 (in thousands) Cost of revenue $ 4,318 $ 2,931 Sales and marketing 6,096 10,144 Technology and development 18,899 16,574 General and administrative 36,702 50,820 Total stock-based compensation expense $ 66,015 $ 80,469 Stock-based compensation expense decreased for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the modification of certain equity awards in connection with our IPO.
We operate across all 50 states and over 3,000 counties in the U.S. and have more than 20 years of experience navigating complex regulation and simplifying the legal and compliance process for our customers.
We operate across all 50 states and in over 3,000 counties in the U.S., with over two decades of experience in simplifying the legal and compliance process for our customers and empowering entrepreneurs to make their dream a reality.
The increase in net cash provided by operating activities resulted from a $31.3 million increase in net income after adjusting for stock-based compensation and other non-cash items, offset by an $11.6 million unfavorable change in our operating assets and liabilities primarily due to the timing of our accounts payable payments and accrued expenses partially offset by a favorable change in prepaid expenses and other assets.
The increase in net cash provided by operating activities resulted from a $48.9 million increase in net income after adjusting for stock-based compensation and other non-cash items and a $1.5 million favorable change in our operating assets and liabilities.
Number of business formations We define the number of business formations in a given period as the number of limited liability company, or LLC, incorporation, not-for-profit and doing business as, or DBA orders placed on our platform in such period, excluding such orders from our operations in the U.K.
Key Business Metrics 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: Number of business formations We define the number of business formations in a given period as the number of limited liability company, or LLC, incorporation, not-for-profit and doing business as, or DBA, orders placed on our platform in such period, excluding such orders from our operations in the United Kingdom, or U.K.
Net cash provided by (used in) financing activities Our primary uses of cash in financing activities are for repurchases of common stock. Net cash provided by financing activities is primarily impacted by exercises of stock options by our employees and issuance of common stock.
Net cash provided by financing activities is primarily impacted by exercises of stock options by our employees and issuances of common stock. In 2023, net cash used in financing activities was $56.2 million, primarily for the repurchase of common stock under our 2022 stock repurchase program.
At December 31, 2022, we had federal net operating loss, or NOL, carryforwards of $16.8 million, which will begin to expire in 2032.
Income taxes Our provision for income taxes consists of current and deferred federal, state and foreign income taxes. At December 31, 2023, we had federal net operating loss, or NOL, carryforwards of $17.2 million, which will begin to expire in 2032.
Transaction revenue for the year ended December 31, 2022 decreased due to a 5% decrease in the number of transactions and a 2% reduction in average order value compared to the year ended December 31, 2021.
Transaction revenue for the year ended December 31, 2023 decreased due to a 15% decrease in average order value compared to the year ended December 31, 2022, partially offset by a 12% increase in the number of transaction units over the same period.
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.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe had no outstanding debt subject to interest rate risk as of December 31, 2022 and 2021. Given the repayment of our 2018 Term Loan and settlement of our interest rate swaps in July 2021, we do not currently expect to be exposed to further fluctuations in interest rates for the foreseeable future.
Biggest changeWe had no outstanding debt subject to interest rate risk as of December 31, 2023 and 2022, and, consequently, we do not currently expect to be exposed to further fluctuations in interest rates for the foreseeable future.
Further, if current inflationary pressures are sustained for a prolonged period of time, the success of existing small businesses and the formation of new small businesses could continue to be adversely impacted, which could harm our business, results of operations, financial condition or future prospects. 52
Further, if current inflationary pressures are sustained for a prolonged period of time, the success of existing small businesses and the formation of new small businesses could continue to be adversely impacted, which could harm our business, results of operations, financial condition or future prospects. 54
We would be subject to fluctuation in interest rates if we draw down under our 2021 Revolving Facility, including issuance of any letters of credit. Foreign currency exchange risk We have foreign currency risks related to our revenue and expenses denominated in currencies other than our functional currency, the U.S. Dollar, principally GBP.
We would be subject to fluctuation in interest rates if we draw down under our 2021 Revolving Facility, including issuance of any letters of credit. Foreign currency exchange risk We have foreign currency risks related to our revenue and expenses denominated in currencies other than our functional currency, the U.S. Dollar, principally the British pound sterling.
Interest rate fluctuation risk At December 31, 2022 and 2021, we had cash and cash equivalents of $189.1 million and $239.3 million, respectively, which consisted of cash on deposit with banks and a short-term highly-liquid money market fund. Interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant.
Interest rate fluctuation risk At December 31, 2023 and 2022, we had cash and cash equivalents of $225.7 million and $189.1 million, respectively, which consisted of cash on deposit with banks and in short-term highly-liquid money market funds. Interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant.
We recognized foreign currency losses of $3.6 million in the year ended December 31, 2022. A 10% adverse change in foreign exchange rates on foreign-denominated accounts for the year ended December 31, 2022, including intercompany balances, would have resulted in a $0.9 million increase in our reported foreign currency loss for the year ended December 31, 2022.
We recognized foreign currency gain of $1.4 million in the year ended December 31, 2023. A 10% adverse change in foreign exchange rates on foreign-denominated accounts for the year ended December 31, 2023, including intercompany balances, would have resulted in a $0.7 million decrease in our reported foreign currency gain for the year ended December 31, 2023.

Other LZ 10-K year-over-year comparisons